* Elan files suit against Biogen
* Biogen seeks to invalidate Elan/J&J deal
* Biogen’s shares fall 2 pct. (Updates with comment from Biogen)
BOSTON, Aug 6 (Reuters) - Irish drugmaker Elan Corp PLC ELN.IELN.N said on Thursday it has filed suit against Biogen Idec Inc BIIB.O in a bid to block Biogen from gaining control of the multiple sclerosis drug Tysabri.
Elan said it had received a letter from Biogen dated July 28, alleging that Elan is in material breach of a collaboration agreement between the two companies.
Under their 50-50 partnership, Biogen and Elan each has the right to acquire the other’s share of Tysabri should there be a change of control at either company. Neither is allowed to assign that right to a third party without permission.
Yet this is what Biogen claims Elan has done.
Drug maker Johnson & Johnson JNJ.N recently agreed to pay $1 billion for an 18.4 percent stake in Elan and $500 million for a majority stake in its portfolio of experimental Alzheimer's drugs.
What was not made known at the time is that J&J had also received, for nothing, an option to give debt-ridden Elan the money to acquire Biogen’s share of Tysabri if Biogen were acquired. J&J would thus become Elan’s partner.
Elan argues that it has not assigned its right to acquire Tysabri. It has simply given J&J an option to finance Elan should Elan decide to exercise its right. The right is still held by Elan. Elan could opt not to exercise it.
But Biogen will argue that while the contract may not have been breached in substance, it has been breached in form. That is, Elan could not acquire Tysabri without J&J, and therefore it has, in all practical sense, given up its right to J&J.
“If you are taking two or three steps to do what you can’t do in one, that still represents a material breach,” said Naomi Aoki, a spokeswoman for Biogen.
Aoki, who confirmed that Biogen sent a letter to Elan, said it is evaluating its legal options. But the company is going up against a formidable opponent in J&J.
“It strikes me there are viable arguments here on both sides,” said Richard Stein, a mergers and acquisitions lawyer at Nixon Peabody LLP who is not involved in the negotiations. “From a contractual perspective J&J and Elan did a nice job. This will be an interesting case for some judge in New York.”
The reason all this is important is that it has an impact on anyone seeking to acquire Biogen. With J&J effectively controlling what happens to Tysabri, it could bid for Biogen in the knowledge that others would be unlikely to compete. Tysabri is Biogen’s most important growth driver, on track to generate $1 billion in sales this year.
“If the court says the deal does not breach Biogen’s contract with Elan, J&J would clearly have Biogen in a vulnerable position,” said Karen Andersen, an analyst at Morningstar. “It could allow J&J to make an offer for Biogen at a lower premium than they would want.”
Which is where billionaire investor Carl Icahn comes in. He recently succeeded in placing two representatives on Biogen’s board and has made no secret of the fact that his aim is ultimately, though not necessarily immediately, to engineer a sale of the company.
Elan said that Biogen was not in possession of the relevant agreement between Elan and J&J, and that it had offered to share details of the transaction with Biogen.
Biogen’s Aoki said Biogen had asked for greater transparency about the deal and the two companies were in communication about it when Elan filed its suit.
In sending its letter, Biogen has started a 60-day clock, during which time Elan could either “cure” any breach in the agreement, or go to court. If a judge found in Biogen’s favor, Biogen could terminate the agreement and walk away with Tysabri.
Elan has filed its suit in federal court in New York seeking declaratory and injunctive relief and asking the court to enter judgment against Biogen permanently preventing it from terminating the two companies’ collaboration agreement.
Biogen’s shares fell 2 percent to $46.66 in afternoon trading on Nasdaq. Elan shares were down 3.8 percent to $7.71 on the New York Stock Exchange, and J&J shares fell 1.1 percent to $59.80, also on the NYSE. (Additional reporting by Ransdell Pierson, editing by Gerald E. McCormick)
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