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Feb 6, 2013

$3.25B Tysabri Deal a Win-Win for Biogen Idec, Elan

  • Biogen Idec’s $3.25 billion-plus-royalties purchase of all rights to Tysabri (natalizumab), the multiple sclerosis drug it co-developed with Elan, boosts Biogen Idec’s presence in MS drugs while leaving the Irish-owned biotech in the enviable position of having control of its future, and some spending cash to boot, after months of speculation.

    “The restructuring of this business collaboration provides Elan with significant strategic flexibility. Future actions will be guided by our consistent and multi-year approach of dynamic risk/reward assessment of business opportunities,” Elan’s CEO Kelly Martin said in a statement. “We are enthusiastic about the market opportunities around the globe and remain flexible and creative about the manner in which we would participate in those opportunities.”

    He said Elan’s motivation in selling its half-share of the MS drug was “to diversify and de-risk the company to move forward; and for the patients to continue to benefit from the profound efficacy of Tysabri.”

    The restructuring ends a turbulent period for Elan touched off by last summer’s failure of the mild-to-moderate Alzheimer’s disease drug candidate bapineuzumab in a Phase II clinical trial. While Johnson & Johnson and Pfizer pursued development of the intravenous anti-beta-amyloid monoclonal antibody, “bapi” was based on research by Elan—which took a $117.3 million charge against third-quarter earnings after J&J and Pfizer ended efforts to bring bapineuzumab to market. The failure prompted Elan to shut down its South San Francisco, CA, facility, and spin off its early-stage drug R&D unit into the newly-minted Prothena. It also led analysts to speculate for months if Elan’s long-term turnaround plan was to be acquired by Biogen Idec.

    Instead, Biogen Idec and Elan agreed to restructure what had been a 50–50 collaboration for Tysabri by giving Biogen Idec full ownership and control of the drug. In return, Biogen Idec agreed to pay Elan all $3.25 billion up-front, and shell out more money to Elan in royalties.

    For the first 12 months, Biogen Idec will pay Elan a royalty of 12% of Tysabri global net sales for all indications. After that, the percentage for Elan increases to 18% on up to $2 billion of global net sales for all indications, and 25% on over $2 billion of global net sales, again for all indications.

    The deal raises Biogen Idec’s presence in MS drugs at a time when it is also seeking FDA approval for another drug against MS, Tecfidera (dimethyl fumarate), formerly BG-12. Biogen Idec expects a decision as early as late March based on favorable Phase III data from the DEFINE and CONFIRM studies, which showed reductions in MS disease activity.

    One likely reason Biogen Idec made the Tysabri deal is the drug’s encouraging numbers. According to Elan, the number of patients on Tysabri increased 12% to about 72,700 patients at the end of December 2012, from about 64,700 patients a year earlier. Sale for Tysabri jumped 14% during Q4, to $432.8 million from $379.6 million in the final three months of 2011, with Biogen taking home $295 million in revenue. For all of 2012, Elan racked up $1.6 billion from Tysabri sales, up nearly 8% from $1.5 billion with Biogen Idec receiving $1.1 billion.

    “We expect Tysabri in-market sales to show further strong growth in 2013, and to increase by approximately 15% over the $1.6 billion achieved in 2012,” Nigel Clerkin, Elan’s CFO, said in the statement.

    Last month, Elan joined Biogen Idec in submitting applications to FDA and European Medicines Agency to add a first-line treatment indication to Tysabri, now approved via injection in patients for whom other treatments have failed. The new indication would widen Tysabri use to the approximately half of MS patients who test negative for antibodies to the virus that causes progressive multifocal leukoencephalopathy—antibodies detectable through a diagnostic developed by Biogen Idec. The company’s MS portfolio also includes the oral drug BG-12, now in development.

    Including Tysabri, Elan’s adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) rose year-to-year by more than 30% in 2012 to $220 million—ahead of the company’s goal of $200 million.

    Tysabri also helped boosted Elan’s fourth-quarter revenues 18% over Q4 2011, to $319.8 million, and full-year 2012 revenues by 13% to $1.2 billion.

    Tysabri was a bright spot in a quarterly report that showed Elan bouncing back into the black with net income of $152.8 million, compared with a $134.7 million net loss in Q4 2011. But the results were buoyed by $61.5 million in net income from discontinued operations related to Tysabri, as well as Prothena and the sale of its R&D unit or “Elan Drug Technology.” During Q4, Elan also sold off its remaining shareholding in Alkermes, generating $381.1 million in net proceeds.

    Elan made $91.3 million in Q4 net income from continuing operations, an improvement over the $189.9 million loss for Q4 2011. But this year’s quarterly number includes in part a $304.2 million tax credit “primarily related to a deferred tax asset” expected to be used in 2013 for an expected gain on sale of Tysabri.

    For all of 2012, Elan trimmed its net loss from continuing operations to $372.7 million from $453.5 million, but it wasn’t enough to keep the company from ending the full year in the red, with a net loss of $137.4 million compared with $560.5 million in net income in 2011.


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