Biogen Idec Inc's agreement to buy Elan Corp Plc's interest in the multiple sclerosis drug Tysabri gives Biogen full control of a product that is poised for further growth and ends a long partnership that has often been contentious.
Analysts have speculated for several years that Biogen could acquire Elan to take control of Tysabri. The current agreement, under which Biogen will pay Elan $3.25 billion in cash plus royalties, gives Biogen the asset it is most interested in while leaving Elan with money to spend on acquisitions and to develop its pipeline of experimental drugs.
"With this deal Biogen does not have to deal with Elan's pipeline baggage," said David Ferreiro, an analyst at Oppenheimer & Co.Still, analysts expressed some surprise that Biogen has chosen this moment to double down on Tysabri. The company is poised to launch a new MS drug, BG-12, at the end of March. The drug, if approved, will be sold under the brand name Tecfidera. It is expected by many investors to become the leading treatment for the disease but is set to lose patent protection in the mid to late 2020s.
"By that point, BG-12 could be the dominant MS therapy. And then it will suddenly go to zero," said Mark Schoenebaum, an analyst at ISI Group.
Oral drugs such as BG-12, also known as small molecule drugs, are easier to replicate than complex, large molecule biologic drugs such as Tysabri that are given by infusion. Schoenebaum said he and many other analysts have believed that for this reason Biogen has wanted to acquire Elan's portion of Tysabri.
"Tysabri is a long duration asset that will never face true small molecule-like erosion," Schoenebaum said, adding that since Tysabri is far more effective than BG-12, "Biogen has taken a step toward filling in the post-BG-12 P&L.
"Biogen's chief executive, George Scangos, said in an interview that the timing of the deal was a matter of happy coincidence.
"We've been talking to Elan for a while about how to restructure the relationship in a way that would be beneficial to both companies," Scangos said. "We are doing it now because the interests of both companies are aligned.
"The deal also ends a partnership that Scangos described as "cumbersome" but that others say was often hostile.In 2009, a U.S. judge ruled that Elan had breached the collaboration agreement with Biogen over Tysabri after Elan agreed to sell an 18.4 percent stake in itself to Johnson and Johnson and gave J&J an option to acquire a half share in Tysabri.
Elan's chief executive, Kelly Martin, sounded ebullient about the Tysabri sale.
"You can do a lot of things with $3 billion," he said in an interview. "We are not necessarily restricting ourselves to one therapeutic area or one type of clinical asset. We will not be restricted to our past, which was by and large neurological.
"As part of the deal, Biogen will make future payments to Elan amounting to 12 percent of global sales of Tysabri for the first 12 months. After that Biogen will make payments of 18 percent on global sales of Tysabri up to $2 billion and 25 percent on annual sales that exceed $2 billion.Geoff Porges, an analyst at Bernstein Research, said the transaction would generate around $400 million in annual cash flow for Elan, "and will probably sustain that company's operations for many years.
"Tysabri is widely considered the most effective drug for multiple sclerosis, but it has been linked to a potentially deadly brain infection known as progressive multifocal leukoencephalopathy, or PML. It is currently approved to treat patients who do not respond to, or cannot tolerate, alternative therapies.
Biogen has since developed a test, however, that can predict with high accuracy which patients are likely to develop PML and which are not, removing much of the anxiety among physicians and patients that has curbed growth of the drug since its introduction in 2004. It was temporarily withdrawn after several patients developed PML but was reintroduced in 2006 with stricter safety warnings.
Last month the Weston, Massachusetts-based company applied to U.S. and European regulators for the right to market the drug for newly diagnosed patients who have tested negative for antibodies to the JC virus, thought to be the cause of PML. About 40 percent of MS patients are JCV negative, the company said.
Biogen already makes the injectable drug Avonex for newly diagnosed patients and competes in this segment of the market with drugs from Pfizer Inc and Teva Pharmaceutical Industries. BG-12 will compete with an oral drug from Novartis AG that is currently on the market. Other drugs for the disease are waiting in the wings.
Total sales of Tysabri in 2012 rose 8 percent to $1.6 billion. Analysts on average expect sales of the drug in 2013 to rise to $1.86 billion and to $2.34 billion in 2015.
Biogen's MS drugs account for about 30 percent of the roughly $12 billion global MS market. Scangos said he expects that share to rise to "well north of 30 percent.
"In addition to increased revenue generated by full ownership of Tysabri, Biogen hopes to expand the patient population for which the drug can be used.
It is currently approved to treat patients with relapsing remitting multiple sclerosis, which accounts for about 75 percent of the patient population. Biogen is also testing the drug in patients with secondary progressive MS, which typically follows the relapsing-remitting form, the company said.
Oppenheimer's Ferreiro is not optimistic, however, about the prospects for Tysabri in secondary progressive MS.Biogen said the transaction will add 20 to 30 cents to its net earnings per share in 2013 and 50 to 60 cents to its adjusted earnings per share.
The company's shares rose 2.3 percent to close at $160.98 on Nasdaq. Earlier in the day they rose as high as $167.35.
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