Elan has suffered a setback following a ruling by a US court which said that the Irish drugmaker’s proposed alliance with Johnson & Johnson is a material breach of its existing collaboration with Biogen Idec for the multiple sclerosis blockbuster Tysabri.

In July, Elan announced plans to sell an 18.4% stake in the firm and the rights to its portfolio of Alzheimer’s disease investigational drugs to J&J in return for $1 billion. However that agreement also gave the latter an option to acquire the 50% stake held in Tysabri (natalizumab) by Biogen if control of that company changes hands.

Biogen claimed Elan had breached their Tysabri pact by entering into a "strategic financing agreement" with J&J and the Dublin-headquartered sued its old partner, asking for a judgment against Biogen, thus permanently preventing it from terminating the collaboration agreement.

However, Manhattan federal court judge Deborah Batts has backed Biogen’s stance. She said “it appears to the court that Elan has designated an obligation it has to J&J” by taking direction from the latter “on the purchase price negotiations”. Therefore, Biogen "is within its rights" to give Elan "the opportunity to cure that breach" and has given Elan until September 26 to do so or forfeit its rights to Tysabri.

Elan issued a short statement saying that “we respect the court’s decision and the expedited attention in this matter”. The firm added that it is “committed to working with J&J to close the transaction as quickly as possible, consistent with the Biogen-Elan Tysabri collaboration agreement”.

What now for Elan?
This suggests that Elan will not appeal the ruling but the questions remain as to how the breach can be cured. It will clearly not forfeit its rights to Tysabri and is still committed to completing the deal with J&J.

Ian Hunter at Irish broker Goodbody says that the first move, from Elan's point of view, “would simply be to remove the Tysabri financing clause from the J&J agreement”. However, he asks what would J&J require in return and suggests that Elan gives up a larger portion of the Alzheimer's Immunotherapy Programme that is partnered with Wyeth than originally envisaged. Under the current proposal, J&J will hold 50.1% of Elan's portion of the AIP programme.