Biogen Idec
(BIIB) and Elan Corp. (ELN), co-developers of multiple sclerosis drug Tysabri, are now locked in a settlement suit. Elan recently sued Biogen claiming that the latter was trying to jeopardize its recent $1.5 billion deal with Johnson & Johnson (JNJ).

Biogen and Elan have a 50-50 partnership deal for Tysabri under which each has rights to acquire full control of the drug, if there is any ownership change at either company. Even though neither of the two companies is authorized to sell this right to a third party without the other’s consent, Biogen claims Elan has done this in its deal with J&J.

It is quite obvious that Biogen finds the spirit of the collaboration agreement under threat. It has already made this clear in a letter to Elan. According to the letter, Elan should comply with terms of the agreement or go to court within 60 days and failing which Biogen would terminate the deal and take full control of the drug.

Earlier in July, J&J invested $1 billion in Elan for an 18.4% stake in the company and $500 million for a majority stake in its Alzheimer’s disease pipeline candidates. Apart from this, Elan has also reportedly given J&J the option to acquire its partner’s 50% stake in Tysabri, if there is a change in ownership at Biogen.

Armed with the agreement on Tysabri, Elan can actually play a key role in any takeover deal involving Biogen. This is because any party interested in Biogen has to discuss the Tysabri rights with Elan. Biogen had earlier attempted to acquire this right from Elan, but without success.

The Tysabri issue is complicated. Though Biogen is looking for a suitable deal, the agreement (change of control) with Elan has made it more difficult. In our opinion, Biogen has the best pipeline in all of biotech and could be an attractive takeover candidate for pharma companies interested in biologics.

Now, should Biogen put itself up for sale, J&J would be at an advantage to acquire it as no company would be interested in Biogen without Tysabri, which is expected to record more than $1 billion revenue in 2009. Biogen probably apprehends that the Tysabri rights would give J&J the leverage to easily acquire it.

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