The board of Elan has unanimously rejected a formal bid from Royalty Pharma, saying the US investment firm's offer of $11.25 a share grossly undervalues the company.

Royalty last week lowered its bid for Elan to $11.25 a share from an earlier $12 per share offer, pricing in the result of a $1 billion share buyback by Elan.

The $12 per share offer had valued Elan at up to $7.3 billion, and had been sweetened from an initial proposal.

Elan, which claimed last month that most of its shareholders did not view Royalty's original proposal as worth consideration, said shareholders were strongly advised to take no action in relation to the bid.

Elan shares closed 3.9% higher in Dublin this evening at almost €9.25.

"The offer from Royalty Pharma grossly undervalues Elan's current business platform and our future prospects. As a result the board unanimously and without reservation rejected the offer," Elan chairman Robert Ingram said in a statement.

Royalty's offer is conditional upon it receiving the backing of no less than 90% of Elan shareholders.

Those odds were complicated last week when US healthcare firm Johnson & Johnson cut its stake in Elan to 4.9% from 18% after it accounted for over 90% of all shares purchased in the buyback.

Analysts were divided as to whether the buyback result signaled confidence in Elan's plans to reinvent itself through a series of acquisitions, or speculation that Royalty would eventually return with a higher bid.

Elan sold its 50% interest in lucrative multiple sclerosis drug Tysabri for $3.25 billion plus future royalties to US. partner Biogen Idec in February. It said it intends to spend the bulk of the money on acquisitions.

Royalty argues that Elan's management does not have a track record of deals, and has urged shareholders to put pressure on the board to accept its offer. It wants to add the royalty rights to Tysabri - worth hundreds of millions of dollars annually - to its large stable of royalty streams.

Elan, left with just one experimental drug in its pipeline after the Tysabri deal, improved the terms of its own plan last month by offering shareholders up to 20% of future royalties from the blockbuster MS drug.