Bristol & Elan would make sense from both sides

Elan is our number one candidate for a biotech takeout

Damien Conover, CFA 2 June, 2009 | 12:36PM
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Several media sources have reported that Bristol-Myers Squibb may take a minority stake in Elan, which could lead to a full acquisition of the Irish company. We believe a partnership would make sense from both sides. Ever since Bristol lost the acquisition battle for ImClone to Lilly in late 2008, we believe it has been looking to aggressively expand its pipeline and marketed products through midsize acquisitions. Elan fits Bristol's needs with marketed drugs, primarily multiple sclerosis drug Tysabri, and a robust pipeline including Alzheimer's drug bapineuzumab. Also, we don't think Bristol would have any concerns that Elan's important drugs are already partnered with other companies, as Bristol uses a similar strategy with several of its late-stage drugs, including Onglyza, dapaglifozin, and apixaban.

Elan announced earlier in the year that it was looking for strategic alternatives to continue to fund itself adequately, including an outright sale of the company. We believe Elan is open to offers from Bristol and other pharmaceutical companies at the right price.

If the Elan rumours materialise, they would reinforce our merger and acquisition analysis from earlier in the year. In February, we published a list of our top biotech takeout targets, and Elan was the number-one candidate. We believe Elan's strong pipeline and currently marketed drugs along with a weak financial position make the company a prime target for Big Pharma.

Damien Conover, CFA is a senior stock analyst with Morningstar.com.

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Damien Conover, CFA  is an equity analyst and associate director at Morningstar.

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