Elan shares rise 4% after Tysabri breach resolved

SHARES in Irish pharmaceutical firm Elan rose 20c, or nearly 4%, yesterday after it successfully fixed its Tysabri collaboration breach with Biogen Idec, by renegotiating its equity sale deal with Johnson & Johnson (J&J).

This is despite the new deal meaning that J&J will actually end up paying significantly less for its 18.4% than initially agreed.

In July, it was announced J&J would invest $1.5 billion (€1.02bn) in Elan — giving it 18.4% of the company and a 50.1% share of Elan’s alzheimer’s immunotherapy programme (AIP). Of that, $1bn was for the 18.4% stake in the company and the remaining $500m for the Alzheimer’s stake.

The deal also gave J&J the option to give Elan money to acquire Biogen’s 50% stake in Tysabri, should Biogen itself be bought out.

Last month, Biogen took legal action against Elan over this detail, saying it breached the two companies’ initial collaboration agreement regarding the MS drug.

A court ruling last week, in favour of Biogen’s argument, meant Elan had until the end of this month to restructure its strategic development deal with J&J; itself the result of the Irish company’s six-month company restructuring plan.

Elan said yesterday it has cured the Tysabri collaboration agreement breach, largely by removing the payment option for J&J.

The restructuring will also see J&J paying $885m for its basic stake in Elan (the additional $500m figure will remain unchanged); diluting the original transaction value for shareholders.

That said, Elan’s share price benefited strongly from the news that the deal will still go ahead and the Biogen breach had been rectified. Elan closed at €5.43 per share in Dublin.

“J&J will still commit up to $500m to the development of the AIP programme — of which Elan still holds 49.9%. Investors will receive comfort from the fact that there will be no further dilution in Elan’s stake of the AIP programme and no loss of Tysabri rights,” said Goodbody Stockbrokers analyst, Ian Hunter.

“We reiterate our ‘outperform’ rating as we believe this deal has the potential to transform Elan’s earnings and balance sheet profile,” added Davy Stockbrokers.