A Billion-Dollar Lovers' Quarrel

Looks like the love triangle between partners Elan (NYSE: ELN  ) and Biogen Idec (Nasdaq: BIIB  ) and third-wheel Johnson & Johnson (NYSE: JNJ  ) is going to get settled in court.

In case you missed it, here's a rundown of their quarrel (which is only slightly less convoluted than your average episode of Desperate Housewives):

  • Biogen and Elan's partnership to sell multiple sclerosis drug Tysabri has a provision that, in the event of a change in control, the other company can buy out the rights to Tysabri.
  • Elan doesn't really have the money to buy Tysabri if Biogen is purchased, so Biogen says that Elan asked Johnson & Johnson to fund the purchase, potentially making Johnson & Johnson and Elan partners on Tysabri should Biogen be purchased.
  • Biogen is less than thrilled. Such a deal would lower the value of Biogen because a potential acquirer -- Pfizer (NYSE: PFE  ) , Roche, or Novartis (NYSE: NVS  ) , for instance -- would have to factor the likely loss of Tysabri into any purchase price.

Last week Biogen sent a letter to Elan claiming that Elan was in breach of their contract because the two partners cannot assign their right to acquire Tysabri to another company. Biogen apparently plans to take full control of Tysabri if Elan doesn't repair the breach, presumably by canceling its contract with Johnson & Johnson. Elan announced yesterday that it's suing Biogen to stop it from breaking up the partnership, claiming that it didn't assign the rights to Tysabri -- it just gave Johnson & Johnson the right to fund its purchase.

Ironically, this isn't the only fight over change of control provisions that Johnson & Johnson is a part of. The company recently took Merck (NYSE: MRK  ) and Schering-Plough (NYSE: SGP  ) to arbitration claiming that it can take back rights to Remicade and its follow-on, Simponi, which Schering markets outside the U.S.

The $1 billion question is how the Tysabri deal affects Johnson & Johnson's $1 billion investment in Elan and the acquisition of part of its Alzheimer's pipeline. The Tysabri deal wasn't announced at the same time, but, according to reports, was apparently part of the deal. I can't imagine Elan would give up Tysabri to keep the Johnson & Johnson deal if a judge says Elan is in violation of its partnership with Biogen.

Hopefully for Elan's, Biogen's, and Johnson & Johnson's investors, a judge puts an end to this lovers' quarrel quickly.

For Elan and Biogen, the stakes are huge. For J&J, not so much. How do you think the judge will rule and who will win and who will lose? Let us know in the comments box, below.

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Elan is a Rule Breakers selection. Pfizer is an Inside Value recommendation. Johnson & Johnson is an Income Investor recommendation. Novartis is a Global Gains pick. Whether you like your companies big or small, dividend-laden or with multibagger written all over them, we've got a newsletter for you.

Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. The Fool has a disclosure policy.


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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 08, 2009, at 12:50 PM, YoThomashawkSir wrote:

    BIIB has been sand bagging Tysabri for years trying to milk Avonex, after all, it gets 100% of Avonex while only netting 50% of Tysabri. It certainly is ironic how this has come back to bite them in the hiney.Maybe if they had marketed Tysabri to its full potential, they wouldn't be wrestling in court over a "second line therapy".

    -YTHS

  • Report this Comment On August 12, 2009, at 11:57 AM, szempruw wrote:

    Elan needs to find a way to break the deal with Biogen. Tremendous conflict of interest there. Biogen has been purposely and willfully not supporting Tysabri so that they can squeeze out ELN. Any investor idiot can see that. ELN getting a promise of support doesn't break the deal. It only weakens Biogen position and that's what they are fighting. Tysabri belongs to ELN and with Bigen breaking the intent of their agreement to actively sell and promote the drug, they don't deserve to participate in the profits. Perhaps new management at ELN can find a better way. I'm pulling for ELN to win this fight! I think they will and should sue for breach of their original contract!

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