Elan woes may open opportunities for Biogen, Wyeth

BOSTON (Reuters) - Elan Corp Plc's (ELN.I)(ELN.N) move to explore strategic options, including a sale or merger of the company, puts Biogen Idec Inc(BIIB.O) and WyethWYE.N in prime position to do a deal with the Irish drugmaker.

That is, assuming Elan can get any deal done in the face of likely investor resistance to a sale of Elan or any of its key assets at such a depressed stock price.

Biotechnology company Biogen and Elan jointly market the multiple sclerosis drug Tysabri. Drugmaker Wyeth and Elan are jointly developing the experimental Alzheimer's drug bapineuzumab. These are currently Elan's two most important products.

Elan has a market value of $3.7 billion, a manageable acquisition target for many drugmakers, including Biogen and Wyeth, who some analysts think would be the most likely potential buyers in the event of a sale.

"Biogen and Wyeth are probably the top two candidates for taking out Elan," said Damien Conover, an analyst at Morningstar. "I think Wyeth is probably the more likely of the two because they have deeper pockets and can probably take on the risk better than Biogen."

Elan has previously indicated its need to raise cash. The company is not generating a profit and has $1.7 billion in debt coming due within the next five years. It has roughly $450 million in cash and is burning through it at a rate of $300 million a year.

Kelly Martin, the company's chief executive officer, told Reuters last November that the company aimed to raise up to $500 million through cost-cutting and by licensing some of its early stage products.

At that time, however, an outright sale was not in the cards -- at least not publicly, and Martin said Elan was determined to keep its pipeline of drugs for neurological disorders, including its experimental products to treat Alzheimer's disease and Parkinson's disease.

That promise now looks to be in jeopardy, and some investors are concerned Martin is about to sell off Elan's crown Alzheimer's disease products in a fire sale.

"This should not be viewed as a positive announcement," said Matt Strobeck, partner at Westfield Capital Management Company, which has $9 billion under management and holds roughly 19.7 million Elan shares. "I'm worried that they are giving away all the potential upside on some of these earlier and mid-stage compounds."

Elan's shares fell 3 percent to $7.79 after the company's announcement, but pared some of that loss to close at $7.86 on the New York Stock Exchange.

Elan would be better off selling Tysabri, Strobeck said, because if it sells its early stage pipeline and Tysabri fails to grow as hoped, Elan will have nothing to fall back on, especially now that the future of bapineuzumab no longer looks as promising as it once did.

And he said investors would resist a deal at the current stock price. Elan's shares have fallen 80 percent since July amid concern over the safety of Tysabri and disappointing results of a trial of bapineuzumab.

Tysabri is widely considered the most effective drug for multiple sclerosis. But it has been linked with a potentially deadly brain infection known as PML which makes its long-term future uncertain.

Jim Mullen, Biogen's chief executive officer, is candid about the challenges facing the drug. He told investors at the JP Morgan Healthcare conference in San Francisco on Tuesday that as a company, "our biggest uncertainty is the growth trajectory of Tysabri."

That could reduce Biogen's willingness to take on additional risk at a time of economic uncertainty.

"We are in an unusual equity environment," Mullen said. "Cash is King. This is not a time to be disgorging cash if you have it."

Corey Davis, an analyst at Natixis Bleichroeder, said Elan has other options for raising money. It could divest assets such as its 20 percent royalty on Fampridine-SR, an experimental drug made by Acorda Therapeutics Inc (ACOR.O) that is designed to improve the walking ability of people with multiple sclerosis.

In addition, Davis said, Elan could partner the rights to Tysabri in indications other than multiple sclerosis, such as oncology, and sell the royalty rights to drugs which include Elan technology.

Whether such moves, in the absence of an equity stake, would solve Elan's problems is doubtful.

"I don't think they are in a position of strength to negotiate," Strobeck said. "It begs the question, why do you announce this stuff? Why announce you're going to put yourself up for sale? Ninety percent of the time it doesn't work."

(Additional reporting by Deena Beasley in San Francisco; Editing by Bernard Orr)