Elan Corporation plc (ELN) recently closed its Tysabri (natalizumab) collaboration transaction with Biogen Idec (BIIB). As a result, Biogen gained full strategic, commercial and operational control over the multiple sclerosis drug.
The transaction was initially announced in Feb 2013. As per the terms of the transaction Biogen made an upfront payment of $3.25 billion to Elan. Elan stated that it will invest a portion of the amount in different business assets. The company intends to refinance its outstanding debt through a share repurchase program by utilizing $1 billion of the upfront proceeds.
Elan is also eligible to receive a royalty payment of 12% on worldwide net sales of Tysabri (for all indications) for the first year. After the first year, Elan will receive a royalty of 18% on up to $2 billion of global net sales of Tysabri and 25% thereafter. Tysabri sales came in at $1.6 billion in 2012.
We note that last month encouraging data was announced on Tysabri. Data showed that Tysabri treatment resulted in lower rate of first relapse compared to other multiple sclerosis drugs.
We believe that the loss of Tysabri is huge setback at to Elan, since the product was its primary source of revenue. We expect Elan to actively pursue in-licensing deals or acquisitions to boost its product portfolio.
Elan, a biotechnology company, currently carries a Zacks Rank #5 (Strong Sell). Currently, well-placed biotech stocks include Cytokinetics Inc. (CYTK) and QLT Inc. (QLTI). Both the stocks carry a Zacks Rank #1 (Strong Buy). Biogen also carries a Zacks Rank #1 (Strong Buy).
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