NEW YORK/LONDON (Reuters) – Ireland’s Elan Corp (ELN.I: Quote, Profile, Research, Stock Buzz) is seeking second-round bids for its drug delivery unit in an auction likely to be won by a private equity buyer rather than a rival drug firm, people familiar with the situation said.
Fresh bids for Elan Drug Technologies (EDT) are due in mid-September, one of the sources said on Friday, and could fetch as much as $1.3 billion to $1.4 billion.
A few private equity bidders remain in the auction, including Bain, Candover, Texas Pacific Group and Warburg Pincus, the sources said, after first-round bids were shaken out.
It is unclear whether any drug companies are in the running, they added.
The spin-off of EDT, which develops new formulations of medicines on a contract basis for other drugmakers, will leave Elan focused on its own biotech drugs and provides it with an opportunity to restructure its debt.
Elan, its bankers and the private equity companies involved declined to comment on the progress of the auction. Warburg Pincus was not immediately reachable for comment. The sale is being handled by Goldman Sachs and Lehman Brothers.
Elan Chief Executive Kelly Martin told Reuters on July 30 that Ireland’s biggest drug company was pushing ahead with a strategic review of EDT and had received a lot of interest from potential private equity buyers.
At the time, Martin said a stock market flotation was also being pursued as an option — but the group is now focusing primarily on a sale.
The split has been discussed for some time but has gained importance recently following renewed safety concerns over multiple sclerosis drug Tysabri and disappointment with tests of an experimental Alzheimer’s therapy.
The success of Elan, which recovered from a brush with bankruptcy in 2002, has been linked closely to Tysabri and its Alzheimer’s drug.
The recent loss of confidence in both products has been a body blow for the company, and a successful sale of EDT could help underpin the share price.
The sale of EDT could also help Elan manage potential balance sheet issues, Morgan Stanley said in a recent research note.
The divestment would increase Elan’s ability to service its $1.8 billion of debt — of which $1 billion is due in 2011.
Without fresh funds, Elan could be at risk of default in the worst-case scenario of Tysabri being pulled from the market.
“Assuming all Tysabri-related expenditure were terminated, we anticipate that the company’s current cash position of around $720 million, together with cash generation from EDT, will likely provide sufficient cover for its interest payments through 2013,” the Morgan Stanley note said.
By Megan Davies and Douwe Miedema
(Additional reporting by Ben Hirschler in London and Jonathan Saul in Dublin; Editing by Jon Loades-Carter)