Royalty Pharma, Elan, and the oil & gas industry analogy

http://mobile.bloomberg.com/photo/2013-04-15/royalty-pharma-raises-offer-for-elan-to-as-much-as-12-per-adr

I can see why Royalty Pharma is interested in Elan's rump (back story here about Elan spinning off their R&D as Prothena), because to my mind this is just a terminal-value play like a reverse bond (see http://en.m.wikipedia.org/wiki/Intangible_asset_finance). I view it (the Elan rump property) as like a single oil field that is of known volume and largely played out, and now they are pumping water in to get the last squirts for a few years (my favourite analogy, more and more, of the oil and gas industry for pharma).

Prothena on the other hand is their small exploration unit that only ever found the one elephant (http://en.m.wikipedia.org/wiki/Natalizumab - ok, maybe there were others). However, $100M as a price for the company, when they have $100M net cash and that's enough to run the exploration unit for a couple/few years, seems a reasonable wager.

The philosophical question Elan raises is why wouldn't any given pharma company split off their exploration unit, and run the existing products into the ground as a terminal-value runoff deal that throws off cash until nobody buys the products any more? I suppose one reason is that this sort of idea is the pinnacle (nadir) of pessimism about the company, surely. Ironically, I think our self-hatred/pessimism complex as an industry is bad enough for this type of thinking: exhibit 'A' for the prosecution is that Elan have already done what they've done.

The reason ExxonMobil and RD Shell aren't doing this themselves is presumably because they still believe in their own exploration ability. And, they know that oil exploration and production is so expensive and so risky that you almost need to have a giant production unit that throws off insane amounts of cash, to fund the expensive exploration and dry holes. The smooth and giant cash flows fund the extremely lumpy dry- and wet-hole business. This is of course precisely the business model of pharma over the last 100+ years. I think one of our main challenges is simply having the balls and the existential confidence to stay the course.