* Bid raised to $12.50/share from $11.25
* Royalty will withdraw bid if shareholders back Elan deals
* Reserves right to cut acceptance threshold to 50 pct
By Padraic Halpin and Jessica Toonkel
DUBLIN/NEW YORK, May 20 (Reuters) - Royalty Pharma raised its hostile bid for Elan to $12.50 pershare and threatened to withdraw the bid if Elan shareholdersapprove a series of defensive transactions announced by theIrish drug firm.
Royalty Pharma, which buys royalty streams of patenteddrugs, said Elan's efforts to reinvent itself through a seriesof acquisitions and debt deals were hasty and ill-conceived.
Royalty's new bid for Elan values the company at around $6.4billion and comes in the face of Elan's insistence that it isworth more. Royalty previously offered $11.25 a share
Elan rejected the initial bid, described as a "nuisance,"and stressed that it is determined to keep its independence.
The Dublin-based company said in a statement that its boardwould assess the new Royalty Pharma offer but "strongly advised"shareholders to take no action on the bid at this time.
Earlier Monday Elan announced its second major drug deal inless than a week.
Royalty said its new, all-cash offer was conditional on Elanshareholders voting against the acquisitions at a specialshareholder meeting set for June 17.
Royalty said Elan "dramatically overpaid" last week when itagreed to pay $1 billion for buy 21 percent of the royaltiesthat U.S. company Theravance receives fromGlaxoSmithKline.
Royalty said its takeover offer "represents 100 percentliquidity for Elan stockholders today, which Royalty Pharmabelieves is a far superior alternative to Elan's high-riskstrategy of hastily arranged and value-destructiveacquisitions."
It added, "If the Theravance transaction and the othertransactions announced today serve as a template, Royalty Pharmabelieves Elan stockholders should be very concerned about futurevalue destruction and undue risk-taking by Elan."
Royalty also contends that Elan's board has "compromised itsability to freely advise Elan shareholders" because according tothe Theravance deal, the board is not allowed to recommendRoyalty Pharma's offer at any price without breaching thatagreement.
"Royalty Pharma believes it is highly irresponsible and'off-market' to agree to such provisions," the firm said in astatement announcing its sweetened offer.
Elan sold its 50 percent interest in Tysabri, a multiplesclerosis drug, to U.S. partner Biogen Idec in Februaryfor $3.25 billion plus royalties of up to 25 percent, and usedthe proceeds to reward investors through a share buyback and toplot its spending spree.
Royalty also said on Monday that it reserved the right toreduce the acceptance threshold for its increased offer to 50percent plus one Elan share from 90 percent previously.
Elan shares in New York, up more than 10 percentsince Royalty's first approach in February, were up 3 percent to$12.04 in afternoon trading.
In a string of deals over the past few days, Elan hasbasically transformed itself into a specialty pharma roll-up ofcompanies from around the world, said Michael Yee, an analystwith RBC Capital Markets.
Now it is up to shareholders to decide if they want to takethe risk of letting management try to execute this strategy, hesaid.
"The company has limited experience in acquiring,consolidating and executing on products in the last five years,"Yee said. "That is why it could be risky."
Glaxosmithkline (GSK)