$2.5 Billion Deal for Multiple Sclerosis Drug

Jared Kaltwasser

Perrigo has sold its royalty rights to an important MS drug.

Irish drugmaker Perrigo Co. PLC is selling its royalty rights to the blockbuster multiple sclerosis drug natalizumab (Tysabri) in a $2.85 billion deal announced last week.

The buyer is New York-based Royalty Pharma. The move came nearly four months after Perrigo said it would look for strategic alternatives for Tysabri due to pressure from investors angry about the company’s falling stock price.

In a press release announcing the Royalty Pharma deal, Perrigo CEO John T. Hendrickson said Tysabri was a “non-core asset,” and the sale of its royalties would free up more cash to pursue the company’s broader strategic plans.

“This transaction also furthers our stated strategy to enhance our portfolio and focus on our consumer-facing and Rx businesses,” said Hendrickson, in a company press release. “This is a meaningful step in our portfolio review process and I am confident that the Board and management will continue to focus on creating value for shareholders."

Under the terms of the agreement, Royalty Pharma paid $2.2 billion up front, and agreed to milestone payments in 2018 and 2020 of up to $200 million and $450 million, respectively.

As its name suggests, Royalty Pharma is focused on buying up royalty rights to big-name drugs. Rather than developing its own drugs, the company invests in other firms’ products. Royalty Pharma’s portfolio includes royalty rights to multiple blockbusters, including AbbVie’s Humira, Merck’s Januvia, and Pfizer’s Lyrica.

“We are pleased to complete this important transaction with Perrigo and help Perrigo meet its strategic objective,” said Royalty Pharma CEO Pablo Legorreta, in the press release. “Our diversified portfolio results in a low cost of capital, enabling us to provide the highest value to holders of royalties.”

Tysabri is manufactured by Biogen Inc. Perrigo acquired royalty rights to the drug when it purchased Elan Corp. PLC in 2013. Elan had shared ownership of the drug with Biogen, but Elan sold its stake back to Biogen earlier that year in exchange for a percentage of future royalties. That stake went to Perrigo when Perrigo bought Elan. Perrigo earned $93 million in royalty revenue from Tysabri in the third quarter of last year.

That wasn’t enough to keep the company’s stock price from tumbling. At the time Perrigo announced its intention to sell Tysabri’s royalties last year, the stock price had dropped by more than 40% to $86.75. That fall prompted activist investor Starboard Value LP to pressure the company to make changes to boost its stock price, according to a Reuters report. Starboard Value owns about 6.7% of Perrigo.

Last month, Starboard Value reached a deal with Perrigo under which the drug company replaced three existing board members with Starboard Value CEO Jeffrey Smith and two other new directors.

The company said Starboard Value would also have a say in appointing two independent directors.

The first big move under the new board was the Tysabri deal. However, the deal hasn’t yet helped Perrigo’s stock price. The company’s stock fell more than 10% between the deal’s announcement February 27 and the close of business on Friday, March 3.

Tysabri was first approved by the US Food and Drug Administration in 2004 to treat MS. It was given a second approval, to treat Crohn’s Disease, in 2008.

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