ANALYSIS:Neither party to the $1.5 billion deal between two pharma giants would be happy to see it collapse

THE DECISION of Manhattan district court judge Deborah Batt is a setback for Elan but not one that is likely to derail its $1.5 billion deal with pharmaceuticals giant Johnson Johnson (JJ).

Having unveiled JJ as a major investor just two months ago following an extensive review of its funding options, Elan would find itself vulnerable if the deal were to collapse at this late stage.

JJ would be equally discomfited to see the access the deal gives it to some of the most advanced development programme for Alzheimer’s disease therapies snatched away.

The two companies had intended to complete their arrangement by September 15th, so the 23-day window given by the Judge Batt to unravel the current difficulties should not be insurmountable.

The expectation must be that Elan has put in place contingency arrangements since the matter first blew up in mid-July.

Analysts were confident even before the outcome of the case that any breach could be resolved easily by simply removing the Tysabri financing clause from the agreement with Johnson Johnson.

That is now clearly what must happen.

What is more interesting is the price the US group might demand to sign away the option it was granted that could have given it a 50 per cent share of the blockbuster Tysabri drug for multiple sclerosis in the event of a change of ownership at Elan’s partner in that venture, Biogen.

Intriguingly, the option was not highlighted by either company when the deal was first announced and, when it did emerge, both companies insisted that it had not been a material issue requiring disclosure.

At that time, it was made clear that the Alzheimer’s programme being run in conjunction with Wyeth was the core attraction for JJ in taking its 18.4 per cent stake in the Irish firm.

However, there is no denying that it would have been the icing on the cake for JJ in what has the potential to be a very rewarding investment.

JJ could look for a greater share of the Alzheimer’s programme – under the deal, it currently holds 50.1 per cent of Elan’s stake in the programme with Wyeth.

Alternatively, it could seek rights on one or more of Elan’s other Alzheimers drugs.

Whatever happens, Elan will not be ceding its rights to Tysabri as a result of this court battle. After its early hiccups, Tysabri is now a success, on course for sales this year of about $1 billion and reckoned by Goodbody analyst Ian Hunter to account for about 60 per cent of the current value of the company.