J&J, Elan Cut Deal Price, Resolve Biogen Dispute

BOSTON (Reuters) - Johnson & Johnson has cut the amount it will pay for its 18.4 percent stake in Irish drugmaker Elan Corp Plc by $115 million to $885 million, setting Elan up for recriminations from shareholders and possibly even lawsuits.

The new agreement resolves a dispute between Elan and its U.S. partner Biogen Idec Inc , with which it sells the multiple sclerosis drug Tysabri in a 50-50 partnership, but it shows that the original transaction was not as favorable to Elan's shareholders as the company had originally represented.

J&J agreed in July to acquire an 18.4 percent stake in Elan for $1 billion, or $9.32 a share, and it agreed to pay $500 million for a majority stake in Elan's portfolio of experimental Alzheimer's drugs.

The premium, at roughly 33 percent, was not spectacular compared with other premiums paid in the biotech sector, which can reach 40 to 50 percent, but Elan, which is weighed down by more than $1 billion in debt, was desperate for cash. J&J, one of the biggest healthcare companies in the world, seemed like a savior.What neither company revealed, was that Elan had given J&J an option to acquire a 50 percent share of Tysabri should Biogen be acquired.

Under their agreement, Biogen and Elan have the exclusive right to acquire full ownership of Tysabri if the other is acquired. The right cannot be transferred or assigned to a third party. Yet that is what Elan effectively did.

When news of the agreement leaked out, Biogen filed suit, claiming breach of contract. A U.S. judge agreed, saying Elan had transferred control of the right to J&J, despite its tortuous attempt to hide and deny it.

Elan tried to play down the importance of what it had done. But cutting the value of the broader transaction has shown that J&J, at least, considered the asset valuable.

If it turns out that Elan's failure to tell shareholders about the agreement was material, Elan could find itself on yet another hot seat.