A Win-Win Multiple Sclerosis Deal? – Biogen Idec Inc. (BIIB), Elan Corporation, plc (ELN)

Biogen Idec Inc. (NASDAQ:BIIB) is buying the full rights to multiple sclerosis drug Tysabri from Elan Corporation, plc (ADR) (NYSE:ELN) for $3.25 billion. Investors are cheering Biogen and booing Elan based on the changes in their valuations today.

Seems about right to me.

Gaining full rights to the drug is a great move for Biogen. In addition to the upfront payment, Biogen owes a royalty of 12% for the first year, 18% on the first $2 billion in sales in subsequent years, and 25% on sales above $2 billion. But even with those payments, Biogen expects the deal to add $0.20 to $0.30 per share to the bottom line this year.

Biogen Idec Inc (NASDAQ:BIIB)More importantly, having full control over the sales and marketing of the drug should help Biogen’s overall business plan. The company also sells the multiple sclerosis drug Avonex and should have an oral drug for the condition — BG-12, to be sold under the brand name Tecfidera — approved by the Food and Drug Administration shortly.

The ability to coordinate promotion of the three drugs should minimize the cannibalization of sales, except when it makes sense for the company, and maximize the fight with Novartis AG (ADR) (NYSE:NVS)‘ Gilenya and Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA)s‘ Copaxone, its major competition in the oral and injected space respectively. Both Novartis and Teva should be very worried about how much stronger this deal has made Biogen.

The deal also gives Biogen full control over its own destiny. The biotech put itself up for sale in 2007, but couldn’t find a buyer, likely because a change in control gave Elan the ability to buy the rights to Tysabri away from a potential suitor. With that part of the partnership abolished, Biogen is more attractive as a takeout target.

On the surface, the deal isn’t that bad for Elan. Freeing up the change-in-control provision also makes it a more attractive takeout candidate, and Elan now has a sizable chunk of cash to stock its pipeline with.

The latter is likely what’s worrying investors. Management hasn’t exactly been the best steward of the company’s cash. Use of private jets, for instance, have been a sore subject with investors, especially as the drugmaker laid off workers.

This could be a win-win deal if Tysabri sales continue to grow and Elan makes good use of its new-found wealth. The former seems likely, but I think investors are right to be questioning the latter.

The article A Win-Win Multiple Sclerosis Deal? originally appeared on Fool.com and is written by Brian Orelli.

Fool contributor Brian Orelli has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The Best B-Boy Movies

Most Awesome Hip Hop Documentaries

Foods That Stain Your Teeth

Richest Doctors in the World

The Best Movie Sountracks Ever

The Highest Grossing Musicals on Broadway

The Most Successful Reality TV Stars

Cheapest Cities to Visit in the US

Most Expensive Summer Camps

Most Expensive Animals in the World

Most Expensive Specialty Crops in the World

Movies That Took Ages to Make

The Longest Hollywood Films Ever Made

Most Expensive Concert Stages

The Richest Bands of all Time

10 Most Corrupt Countries 2013 List

10 Countries with the Highest Quality of Life Index

Most Expensive Mattresses in the World

5 Smallest Countries by Land Area

The Ultimate Heartbreak Songs

Richest Teenagers in the World

10 Most Haunted Places in America

10 Best Places to Retire in Florida East Coast

Top 10 Places to See Before You Die

Top 8 Countries in the World Where Justice Prevails

10 Richest States in America

15 Wealthiest Countries in the World

Richest Singers in the World

Most Expensive Tasting Menu in New York City

Most Expensive Baby Items in the World

Most Expensive Hotel Suites in Vegas

Most Expensive Brunch in New York City

Most Expensive Beef Cuts in the World

25 Best Colleges to Get a Job

Top 10 US Supermarkets

The 25 Most Dangerous Cities in the World to Visit

Most Expensive Xbox Games

Top 11 Cities Where Billionaires Live

Top 10 Most Charitable Companies in America

Most Expensive Seafood in the World

The 10 Wildest Conspiracy Theories

The 10 Best Job Markets in the US

Top 10 Accounting Scandals of All Time

The 25 Biggest Cities in the World

Top 10 Best Paying Virtual Jobs

Most Expensive Leather Shoes in the World

Top 6 Things to Buy in March

The 10 Most Stressful Jobs in America – 2014 List

Top 10 Jobs for Introverted People

Top 10 Honeymoon Destinations in the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!