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The clock is ticking for Elan and Johnson & Johnson after a federal judge in New York yesterday ruled that the companies have until Sept. 26 to revamp a deal involving the multiple sclerosis treatment Tysabri or Elan runs the risk of losing all rights to the medicine.

The dispute centers on J&J’s July agreement to buy 18.4% of Elan. That deal also gave J&J an option to finance the Irish biotech’s purchase of marketing rights to Tysabri held by Biogen Idec if Biogen were to be acquired at some point. Elan and Biogen co-market Tysabri, which generates nearly $1 billion in annual sales.

Biogen cried foul, perhaps because, as we have noted, the prospect of J&J financing to buy Biogen’s rights to Tysabri might make the company less attractive to any potential suitors. In a July 28 letter, saying the J&J deal was a breach of the Tysabri marketing pact, and arguing that it triggered a 60-day clock under the pact allowing Biogen to take full ownership of the drug if the breach isn’t cured.

The judge said the clock was indeed ticking. “It appears to the court that Elan has delegated an obligation it has to Biogen, by taking direction from Johnson & Johnson,” said Judge Deborah Batts, according to the WSJ. She added that Elan would be “within its rights” to cure the breach within the 23 days left under terms of the marketing agreement.

Elan and J&J said they would work to close their July deal as quickly as possible but didn’t elaborate. Also unclear is where this leaves provisions in the July Elan-J&J pack that were to give J&J access to Elan’s experimental drugs for Alzheimer’s disease.

Cowan & Co. analyst Ian Sanderson said it was unlikely that the Tysabri dispute would scuddle J&J’s interest in developing Elan’s treatments for Alzheimer’s. “But if the Tysabri financing option agreement is eliminated, Elan may need to contribute other assets or product development rights to the JNJ deal,” he said.

Photo: Bloomberg News

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J&J and Elan Hear Ticking Sound After Tysabri Court Ruling