Did Elan sell J&J its option on Tysabri?

Apparently, there's more to Johnson & Johnson's recent billion-plus deal with Elan. Reuters and the Wall Street Journal are reporting that in addition to the Alzheimer's drug rights and minority position that changed hands, the two companies also have an agreement on the multiple sclerosis drug Tysabri. "There are arrangements in place that would, could see us working together if there was a change in control to occur" at Biogen Idec, Elan's partner on the drug, CFO Shane Cooke told the WSJ. "We might end up working together to acquire the other half of Tysabri if the circumstances were right."

Sources tell Reuters that the "arrangement" is actually an option for J&J to buy Biogen's Tysabri share. Here's how it would work: Elan and Biogen's partnership deal gives each company the right to buy out the other's stake in case of a buyout. If Biogen was acquired, Elan could buy Biogen's share, and vice-versa. That right is worth a lot of money, $1 billion by some estimates. And Reuters reports that Elan traded it to J&J when the two companies made their much-publicized $1.5 billion pair of deals. So now, if Biogen were acquired, J&J could buy Elan's share of Tysabri.

What are the prospects for a Biogen buyout? The company put itself up for sale back in 2007 but got no takers, at least not at the terms it was willing to discuss. But Carl Icahn recently nabbed a couple of seats on Biogen's board, and he's been agitating for a sale or breakup of the company. Biogen comes up in M&A gossip occasionally--sometimes linked to J&J, interestingly enough. Could J&J's deal with Elan be a way for the bigger company to ward off other Biogen buyers so it can make a deal itself?

There's no word on whether the J&J-Elan arrangement includes another payment to Elan, should J&J get the chance to exercise that option. Indeed, the Tysabri element wasn't even disclosed when the initial deals were announced. As an Irish company, Elan doesn't have to fully disclose deal terms, and J&J told Reuters that it reported to investors as required by law. "There are certain things in the J&J transaction which have still to be made public and when we close and make them public, we make them public," Elan chief Kelly Martin told Reuters.

- read the Reuters piece
- get more from DealJournal

ALSO: Elan beat analyst expectations with a 14 percent increase in second-quarter revenues to $281 million--driven by a 30 percent boost in Tysabri sales--and a loss of 14 cents per share. Report

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