Elan today issued a statement regarding a ruling made by the United States District Court for the Southern District of New York that Elan has breached its Collaboration Agreement with it US partner Biogen Idec for the development and marketing of Tysabri.

"We respect the Court’s decision and the expedited attention in this matter. We are committed to working with Johnson & Johnson to close the transaction as quickly as possible, consistent with the Biogen-Elan Tysabri Collaboration Agreement," Elan said.

Goodbody analyst Ian Hunter commened: "Last night, a US District Court found that the option to potentially finance a Tysabri buyout that Elan and J&J included in their deal was a material breach of Elan's Collaboration Agreement with Biogen Idec over the development and commercialisation of Tysabri. It would appear from Elan's subsequent statement, where it said it "respect(s) the Court's decision", that it will not be appealing the decision.

Elan now has until 26 September (22 days) to cure the breach with Biogen Idec or it forfeits all rights to Tysabri. Two things that we believe remain unchanged are that: (i) Elan will not forfeit its rights to Tysabri; and (ii) Elan and J&J are committed to completing their deal. What now faces Elan is: (i) how can the deal with J&J be restructured to cure the breach? (ii) what value did J&J place on that part of the deal? which leads to (iii) what changes to the J&J deal would be required to satisfy J&J for the loss of the Tysabri financing option?

The first move, from Elan's point of view, would simply be to remove the Tysabri financing clause from the J&J agreement. What, however, would J&J require in return? There has been some suggestions that the rights to ELND005, the drug it is co-developing with Transition Therapeutics for the treatment of Alzheimer's (now in Phase II), might be an attractive alternative.

Another potential could be that Elan gives up a larger portion of the AIP programme than originally envisaged (under the current deal J&J will hold 50.1% of Elan's portion of the AIP programme). Tysabri currently contributes c.60% to our valuation for Elan, Bapineuzumab 17%. Should, for example, J&J look to increase its stake in the AIP programme to 55%, we estimate this would only impact our Elan value by 2%. Undoubtedly, sentiment will take a bigger toll today."