Replies to post #80561 on Biotech Values

[tinkershaw]

ELN <<<Regarding the equity component of the deal, you said:

I see it as rather the reverse. It was a "without tysabri" premium.

I do not understand what you mean by this. In the equity component of the deal, JNJ’s shares are no different from any other ELN shareholder’s shares—i.e. they include both upside and downside stemming from Tysabri>>>

What I meant was that JNJ has as much liability regarding tysabri as you or I have. If they had bought the entire company then they would inherit personal liability for tysabri (ie, as an example Mercx and Vioxx). I think the warning label on tysabri is very clear, but the warning label itself is not a shield (as at least one case a few years ago argued, and I do not recall how the Supreme Court came out on that one).

By buying the asset directly JNJ avoids any potential nightmare liability that tysabri may have brought with it (which is the negative premium that tysabri would bring if you were to acquire the entire company). Also, JNJ gets to spend substantially less money.

Therefore, I do not think you can value ELN at $9 and some change based upon JNJ's equity investment, as the equity investment was clearly made with a premium to today's share price based upon the value JNJ placed on the alzheimer program and had nothing to do with their assessment of what they would pay for the entire company, including tysabri.

I hope that makes it clearer. As Biogen stated about a year or two ago, that the thing standing in the way of them being acquired was tysabri. Clearly tysabri is a lit fuse for risk adverse companies. By buying the asset directly JNJ may have been willing to pay a premium to the current shar price that they would not have been willing to pay had they bought the entire company, including tysabri.

Tinker
P.S. and again, I am a fan of tysabri as a "miracle" medicine, but I can also see the business realities that the risk may not be worth the reward for an acquiring company to get hooked up with tysabri. By buying a minority equity interest, that is really payment for the asset they really wanted, they avoid any such risk other than share price volatility.