By Lisa Seachrist
WASHINGTON — News that Elan Corp. would acquire Neurex Corp. for more than $700 million sent Neurex's stock soaring 45 percent from its $19.75 close on Tuesday.
Neurex's shares (NASDAQ:NXCO) were up $8.813, closing at $28.563 Wednesday in heavy trading, following Elan's announcement that the Dublin, Ireland-based pharmaceutical company would purchase Neurex in a tax-free stock swap valuing Neurex shares at approximately $31.81 per share.
"This is the most important moment in the company's history," said John Varian, chief financial officer of Neurex. "We weren't looking to be acquired. When Elan approached us, we felt that the two companies were a perfect fit."
Neurex, of Menlo Park, Calif., will be folded into a new division called Elan Pharmaceuticals, which will include South San Francisco-based Athena Neurosciences Inc., acquired by Elan in 1996, and Carnrick Laboratories Inc., of Cedar Knolls, N.J., a private pharmaceutical company Elan will acquire for $150 million in a combination of cash and a promissory note at the end of this quarter.
Paul Goddard, chairman and CEO of Neurex, will become president and CEO of the new division, which will be based in northern California.
"Paul Goddard has a superb reputation and a good track record," said Tom Lynch, executive vice president and CFO of Elan. "We are excited by the merging of Athena and Neurex. There will be significant opportunities for individuals under Paul's direction."
Elan originally specialized in novel drug delivery methods. Three years ago, the company decided to expand into drug development, manufacturing and marketing. The acquisition of Athena expanded the company's scope to include neurology products, including Diastat for seizures and Zanaflex for muscle spasticity associated with multiple sclerosis and spinal cord injuries. The addition of Carnrick adds Skelaxin, a muscle relaxer for relief of acute painful musculoskeletal conditions.
Neurex Drugs Offer Access To Acute Care Market
With Neurex, Elan expands its product line from neurology indications to include acute care with Corlopam, a treatment for severe high blood pressure, and pain management with Ziconotide, a non-narcotic analgesic ready for submission to FDA.
"We now see ourselves as a specialty pharmaceutical company," Lynch said. "While we will continue our drug delivery business, our pharmaceutical products will include neurology, acute care and pain management. [The pharmaceutical division] is beginning to assemble critical mass."
Elan intends to file a new drug application with the FDA for Ziconotide (SNX-111) before the end of this year. Collaborations with Medtronic Inc., of Minneapolis, for the drug's delivery and with Morris Plains, N.J.-based Warner Lambert Inc., to develop the drug for stroke and head injury victims will remain intact.
The addition of Neurex's 35 salespeople brings Elan's U.S. sales force to 320 people. By the end of next year that number could jump to 425.
"Depending on the pace of approvals, we will add sales force as we need then," Lynch said. "Individually, each company would have had to add a much greater number. There is a genuine synergy between the products and sales forces."
Under the terms of the agreement, each common share of Neurex will be exchanged for 0.51 American Depositary Shares of Elan. Using Elan's closing price of $62.38 on April 28, the deal values Neurex's 23.3 million outstanding shares at $31.81 per share, with the purchase totaling $741.2 million. The deal is expected to be completed in the third quarter of 1998.
Upon consummation of the transaction, Elan will take a one-time charge for the purchase. The company expects that purchase will reduce earnings in fiscal 1998 and 1999 by approximately 5 percent per share in share dilution. However, Elan estimates the acquisition will begin to supplement earnings in the year 2000.
"We are very excited about the opportunity to expand out product line," Lynch said. "The strength of our near-term products provides growth through 1999 and the year 2000."
Elan's stock (NYSE: ELN) closed Wednesday at $58.875, down $3.50. *