J&J stake in Elan could rise to 20pc after US court ruling
Saturday September 05 2009
Drug giant Johnson & Johnson (J&J) could boost its planned stake in Irish pharmaceutical firm Elan to around 20pc as the pair are forced to thrash out new terms to a $1.5bn (€1.04bn) deal after a US court ruling against the Athlone company.
A New York judge ruled late on Thursday that Elan had breached a longstanding agreement with its US drug partner Biogen Idec when the Irish company gave J&J an option last July to help finance an acquisition of Biogen's 50pc share of multiple sclerosis treatment Tysabri, in the event Biogen was bought out.
Under a nearly decade-old agreement, both Biogen and Elan have a pre-emptive right to acquire the other side's stake in the blockbuster drug if either party is acquired.
Elan now has until September 26 to remedy the breach, although the deal with J&J is due to be signed off by September 15.
Shares in Elan tumbled as much as 7.5pc in Dublin trading before recovering to close unchanged at €5.15. The company said yesterday that it respected the court's decision and was committed to working with J&J to close the transaction as quickly as possible, consistent with its existing agreement with Biogen regarding Tysabri.
Agreement
In July, Elan and Johnson & Johnson announced an agreement where J&J will pay $1bn (€700m) in exchange for an 18.4pc stake in the Irish company. Elan could address the breach by allowing J&J to take an increased stake in the company in exchange for losing the rights to finance a Tysabri acquisition. It could also result in J&J paying less money for the 18.4pc stake.
"The unknown here is what value Johnson & Johnson placed on the Tysabri option," Goodbody Stockbrokers analyst Ian Hunter told the Irish Independent.
Tysabri is jointly marketed by Biogen and Elan, with the former selling it within the US. Sales of the drug are on track to top $1bn this year, making it an attractive product in an industry where few such blockbuster treatments have been launched recently.
J&J also agreed to acquire the majority of the assets and rights of Elan's promising Alzheimer's immunotherapy programme (AIP) that it is involved in with drug giant Wyeth, which is itself being acquired by Pfizer.
That was J&J's main goal in inking the Elan agreement, while exposure to Tysabri was secondary.
Aside from the $1bn stumped up for a stake in Elan, J&J also agreed to inject $500m (€350m) into the AIP.
Elan will be entitled to a 49.9pc share of the profits and certain royalty payments upon the commercialisation of products under the collaboration with Wyeth.
- John Mulligan
