Irish drug-maker Elan Corporation PLC (ELN) Tuesday said it is seeking new funding to boost and commercialize its drug pipeline, launching a strategic review that could lead to a sale or merger of the company.

Elan, which has faced investor criticism of its strategy following concerns about the safety of multiple sclerosis drug Tysabri and poor results from an experimental Alzheimer's drug, said Citigroup Global Markets Inc. will start a review that could lead to a minority investment, a strategic alliance, a merger or a sale.

The loss-making and indebted company needs fresh funds to develop new drugs. Last month it said it was cutting a number of jobs, "refining" commercial activities for Tysabri and closing its offices in New York and Tokyo to free up more investment for its product pipeline.

Elan shares, which have lost around 64% of their value in the last 12 months, closed at EUR6.08 in Dublin Tuesday, giving the company a market capitalization of around EUR3.1 billion. The drop in its share over the past 12 months came on bad news about Tysabri and Alzheimer's treatment bapineuzumab, though its share price has risen over 40% so far in 2009 on speculation Elan might become a takeover target.

"First and foremost, this has been a discussion we've had from a board perspective over the last couple of years," said Elan Chief Executive Kelly Martin, at the JPMorgan Healthcare Conference in San Francisco Tuesday.

"Our goal is to remain a relatively small company, to be a deep science company," he said.

Martin said he hopes the process will lead to a "number of different options to consider in coming months" with the objectives of gaining "financial headroom" and access to the global infrastructure of a larger company.

"The world is awash with companies with cash and infrastructure; we don't want to build infrastructure," he said.

There have been several recent deals in which large pharmaceutical companies have acquired biotechnology companies to boost their own pipeline of drugs. Most recently, Dutch biotech Crucell NV (CRXL) said it is talking about a takeover by U.S. drugs group Wyeth (WYE), while Switzerland's Roche Holding AG (RHHBY) is trying to acquire the shares of Genentech Inc. (DNA) it doesn't already own.

Pfizer Inc. (PFE) has been touted in markets as a potential suitor for Elan, while U.S. companies Biogen Idec Inc. (BIIB) and Wyeth are its partners on Tysabri and bapineuzumab, respectively.

Because its valuable assets - Tysabri and bapineuzumab - are partnered with Biogen and Wyeth, analysts say a takeover of Elan may prove tricky for other companies.

Also, Elan previously has disclosed that it is a party to agreements that may discourage a takeover attempt. For example, Biogen has the option to buy the rights to Tysabri in the event Elan undergoes a change of control. Also, Biogen is subject to certain limitations in acquiring Elan through June 2010. If Elan or Wyeth undergo a change of control, their agreement permits the acquirer to assume the role of the acquired party in most circumstances. And Wyeth is restricted from seeking to acquire Elan in certain circumstances.

A Wyeth spokesman said the company doesn't comment on market rumors or speculation, and declined to cite the circumstances under which Wyeth would be restricted from acquiring Elan.

When asked about Biogen's possible interest in Elan at the JPMorgan conference, Biogen Chief Executive Jim Mullen responded: "You have heard me many times over the years be very, very bullish on Tysabri, so we think it is a huge product.

"Having said that, I think we need to take a step back and see what unfolds at Elan," he said.

Analysts at Canaccord, who have upgraded the stock to buy from sell, said they don't see an outright takeover of the Dublin-based drug maker as a realistic prospect in the near term.

Elan and Biogen have joint rights to Tysabri, which is regarded as one of the most effective treatments for multiple sclerosis, or MS, a chronic, often disabling disease that attacks the central nervous system.

However, four patients taking the drug have developed a rare and often deadly brain infection since Tysabri returned to the market in 2006, following its withdrawal in February 2005. The drug was withdrawn only three months after its launch after it was reported that three out of the 3,000 patients who had taken the drug in combination with another MS treatment had developed the infection. In total, seven patients have developed the condition, called progressive multifocal leukoencephalopathy.

Elan's chairman, Kyran McLaughlin, said the company had decided it was an appropriate time to explore alternative paths forward, "given our many scientific, clinical and commercial opportunities and the capabilities of the industry participants that surround us."

Elan said it doesn't plan to update the status of the review until a definitive agreement is entered into or when the process is "otherwise completed."

Ross McEvoy, an analyst at Bloxham Stockbrokers, said Elan doesn't necessarily need to find a solution immediately and wouldn't be hurt by making a decision at the end of the year. McEvoy has a $13 price target and a buy recommendation on the stock.

In a separate statement, Elan denied a report by Bloomberg news that the duration of Phase 3 trials for its Alzheimer drug bapineuzumab has changed. Elan said the program is still expected to last 18 months.

 
   Company Web site: www.elan.com

-By Ragnhild Kjetland and Elena Berton, Dow Jones Newswires; +44-207-842-9268; ragnhild.kjetland@dowjones.com (Peter Loftus and Thomas Gryta contributed to the story.)

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