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In Elan-J&J Deal, Many Unanswered Questions (Wyeth Being One)

Johnson & Johnson's investment of $1 billion for an 18.34 percent stake in Elan raises more questions than answers. It promises to bring Elan's Alzheimer's candidate, bapineuzumab, to market but details of exactly how that will happen have yet to be revealed.

On its face, the deal seems to provide some adult supervision -- in the form of J&J -- at Elan. J&J gets a seat on the board at Elan, joining ex-Abbott Labs CEO Jack Schuler as yet another outsider that wll be unlikely to tolerate the private-jet-loving antics of Elan CEO Kelly Martin. Martin et al were facing a potentially hostile shareholder meeting in July if they came with no plan for the company. Now they have one.

However, J&J's input has its limits. A standstill provision prevents J&J from taking any more Elan shares for five more years, according to Seeking Alpha.

That ensures Martin will stay in the driving seat at Elan even though he apparently has no idea how he will sell bapineuzumab if it gets approved. The problem is that Elan has an agreement with Wyeth that gives Wyeth the right to take outright control of bapi in the event of a change of control. (While J&J's stake is less than a change of control, it will have a controlling stake in the new company that Elan and J&J are stting up to market bapi.)

Martin admitted the situation is "complicated."

As In Vivo points out, Elan executed its deal with J&J before it was due to execute a deal with Wyeth agreeing on how to split revenues from bapi:

... as of yet, there is absolutely no commercial agreement in place for what happens when and if the drugs that emerge from this collaboration get approved.

... Elan and Wyeth's original April 2000 deal did not include specific provisions for a commercial strategy, details that the companies were scheduled to iron out in the second half of this year.

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