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Ebb & Flow II

The $1.7 billion in cash that GlaxoSmithKline (LSE:GSK; GSK) paid for specialty pharma company Reliant is not providing a hefty return for some of the latter's long-term investors.

Alkermes (ALKS), which owns 12.9% of Reliant, will get $166 million at deal close, with up to an additional $8 million subject to the conditions of an escrow arrangement. The company paid $100 million for this stake in 2001, putting the return at less than 2X.

ALKS tried to acquire Reliant outright in 2002, proposing to pay $847 million in stock for the remaining Reliant shares. But the deal fell through after a delay in FDA approval of schizophrenia drug Risperdal Consta caused ALKS shares to fall below the range required to close the transaction. That deal put Reliant's total value at about $947 million, or 3.4 times its 2001 sales of $277 million.

For the nine months ended Sept. 30, Reliant had $341 million in sales. If FY07 sales come in at about $455 million, the current offer is only slightly sweeter, at 3.7 times estimated 2007 sales.

Reliant filed for an IPO to raise up to $400 million earlier this year, its second attempt at going public. It withdrew its 2005 offering to raise up to $300 million because of market conditions(see BioCentury, August 13).

When Reliant filed this year, other principal stockholders included PharmBay Investors (26.9%) and Bay City Capital (19.8%).

Reliant's biggest-selling product is Lovaza, which posted nine-month sales of $206 million for use as an adjunct to diet to

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