Elan deal violates Biogen agreement, court finds

SHARES IN Irish biotech group Elan dipped sharply as markets opened yesterday after a US court found the company’s recent deal with Johnson Johnson (JJ) violates the terms of its joint venture agreement with Biogen in relation to multiple sclerosis drug Tysabri.

Manhattan federal court judge Deborah Batt ruled an option allowing JJ to fund any takeover of Biogen’s 50 per cent share of the lucrative Tysabri programme in the event of a change of ownership at the US company was outside the terms of an agreement between Elan and Biogen.

She gave the Irish group until September 26th to change the terms of its deal with JJ.

Shares in the company opened sharply lower as markets digested the ruling from the judge late on Thursday. However, they rallied from there last night to close fractionally ahead in Dublin, and were trading at $7.27, down just over 1 per cent in New York. Tysabri is a critically important drug for both companies – accounting for close to $1 billion (€697 million) in revenue annually.

During the hearings, Elan lawyer Charles Gilman argued that his client made a business decision to line up a Tysabri partner if Biogen were bought.

Mr Gilman told the judge that the “drop dead” date for the JJ deal to close is September 15th. “We’ve got a $1.5 billion deal that’s hanging,” he said. If both the JJ deal and the Biogen collaboration end at the same time, “we would be toast”, he told the court.

The case relates to the announcement in July that JJ was investing $1 billion for an 18.4 per cent stake in the Irish biotech firm and making a further $500 million available to fund the development of treatments for Alzheimer’s disease in a joint venture with Wyeth. The deal made JJ the largest shareholder in Elan. As part of that deal, Elan put in place a financing agreement with JJ relating to the venture with Biogen.

Speaking last month, Elan management confirmed the agreement with JJ could see it finance the purchase of Biogen’s 50 per cent stake in Tysabri, in the event of a change of control at Biogen.

“If they financed us, we would end up in a 50-50 collaboration with Johnson Johnson [on Tysabri],” Elan chief financial officer Shane Cook said.

Under their partnership, Biogen and Elan each has the right to acquire the other’s share of Tysabri should there be a change of control at either company. Neither is allowed to assign that right to a third party without permission.

Biogen claimed Elan had breached the partnership by entering a “strategic financing agreement” with JJ.

Elan sued Biogen last month, seeking declaratory and injunctive relief and asking the judge to enter judgment against Biogen permanently preventing it from terminating the collaboration agreement struck between the two companies in 2000.

In a statement released after the ruling, Elan said it respected the court’s decision. “We are committed to working with JJ to close the transaction as quickly as possible, consistent with the Biogen-Elan Tysabri collaboration agreement.” Biogen spokeswoman Naomi Aoki said that, assuming Elan resolves the breach, “we look forward to continuing to work with them to bring Tysabri to MS patients”. – (Additional reporting Reuters, Bloomberg)