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New Data on Biogen/Elan's Tysabri

Zacks Equity Research

Biogen Idec (BIIB) and Elan Corporation plc (ELN) recently announced results from several studies of multiple sclerosis drug, Tysabri (natalizumab).

Results from the studies showed that Tysabri showed a lower rate of first relapse compared to Biogen’s Avonex (interferon beta) and Teva Pharmaceutical Industries Limited’s (TEVA) Copaxone (glatiramer acetate). Results also showed that anti-JCV antibody status was consistent in 90% of the patients in the study.

The studies also showed that if progressive multifocal leukoencephalopathy (PML) is detected early, it will result in better outcomes.

We note that, Biogen will gain full strategic, commercial and operational control over Tysabri for an upfront payment of $3.25 billion to Elan.

As per the terms of the transaction, which is expected to go through shortly, Biogen will make a royalty payment of 12% on worldwide net sales of Tysabri (for all indications). 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 on over $2 billion of global net sales of Tysabri. Tysabri sales were $1.6 billion in 2012.

Following the news, Elan announced that it will invest a part of its net proceeds of $3.25 billion from the transaction in different business assets. The company further stated that it intends to refinance its outstanding debt by a share repurchase program by utilizing $1 billion of the upfront proceeds post the restructuring transaction of Tysabri.

In Feb, 2013, Royalty Pharma, a private entity, showed interest in acquiring Elan at $11 for every share of Elan and its American Depository Shares (ADS). Given that Elan’s Board has recently approved the proposed dividend policy and provided an update on its proposed share repurchase program, we believe that the company is not taking Royalty Pharma’s offer into consideration.

However, Royalty Pharma is not losing hope. The company is currently discussing the matter with Elan shareholders and is ready to make a new offer. Royalty Pharma believes that it will be able to complete due diligence in a few days.

Elan, a biotechnology company, currently carries a Zacks Rank #5 (Strong Sell). Currently, well-placed biotech stocks include Cytokinetics Inc. (CYTK), which carries a Zacks Rank #1 (Strong Buy). Meanwhile, Biogen carries a Zacks Rank #2 (Buy).

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