We had recently discussed the entry of Johnson and Johnson into the collaborative effort between Elan and Biogen Idec for the development of Bapineuzumab for Alzheimer’s disease. Elan being a weaker partner in the deal (due to its lack of financing power), brought Johnson and Johnson into the fray by exchanging 18.4% of the company in return for support on a broad range of initiatives alongside its Alzheimer’s pipeline. Unfortunately, it seems like Elan’s deal with Johnson and Johnson might adversely affects its relationship with long time partner Biogen Idec. The dispute lies around Tysabri, the blockbuster Multiple Sclerosis drug that was developed between Biogen Idec and Elan and is now set to earn over 1 billion in sales this year .
Biogen Idec claims that Elan has violated its’ agreement for sharing Tysabri profits by essentially giving Johnson and Johnson the rights to purchase Tysabri. In response to this, Elan has filed suit against Biogen Idec claiming that it has stayed within the terms of the agreement even with the possibility of having Johnson and Johnson acquire Tysabri’s rights.
Johnson & Johnson deal; a smart strategic move by Elan
Bringing Johnson and Johnson into the collaboration seems to have been a big strategic move by Elan. Both Elan and Biogen Idec were good candidates for an acquisition by a large pharma. The only problem was that if one of these companies were acquired (and only if the acquisition was a change of control) the deal would cause the acquired company to lose its right to purchase Tysabri. In such a scenario it was a smart move for Elan to bring in Johnson and Johnson as a “non-acquiring partner” (note the 18.4% stake) and strengthen itself, while discouraging other companies from acquiring Biogen Idec. Based on this, if the Johnson and Johnson deal succeeds, noone would want to buy Biogen Idec because of the possible loss of Tysabri, and this will leave Johnson and Johnson (and Elan) as the only candidate for buying out Biogen Idec.
Litigation will decide the fate of Tysabri ownership
The consequences of this strategy depend on the structure of the Johnson and Johnson deal. Elan claims that its’ plan was to gain financing support from Johnson and Johnson to buy all of Biogen Idec first. After the Biogen Idec acquisition was complete, Elan would grant 50% of Tysabri’s rights to Johnson and Johnson in return for its financing support. If this strategy was successfully executed in the deal agreements, we would see Elan win this dispute in court. On the other hand, if the deal does not elucidate this two step process, Elan could be in violation of its old agreement with Biogen Idec and would possibly lose all rights to buy Tysabri.
The nature of the agreements between Elan and Johnson and Johnson have not been fully disclosed and it is upto the courts to decide the outcomes. However, the outcomes will definitely determine how these three companies move forward in their drug development partnerships, especially with respect to the Alzheimer’s pipeline. On the one hand, both Elan and Biogen Idec have been partners in developing these new treatments. On the other hand, Elan cannot move forward in drug development without the financial backing of Johnson and Johnson.
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