Why Elan Shares Plunged

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of drug developer Elan sank 10% today after agreeing to sell its interest in multiple sclerosis drug Tysabri to partner Biogen Idec for $3.25 billion in cash plus future royalties.

So what: The deal ends Elan's 50-50 split arrangement with Biogen for the blockbuster Tysabri, which generated $1.6 billion in sales in 2012, but gives management plenty of fresh cash for future acquisitions. Unfortunately for Elan bulls, the news also squashes recent rumors that Biogen would purchase Elan outright, forcing short-term speculators who were betting on a takeover to race for the exits.


Now what: Elan will still receive a significant royalty for Tysabri, amounting to 12% of annual sales in the first 12 months after the deal closes, then 18% of sales up to $2 billion and 25% of sales over $2 billion.

"The restructuring of this business collaboration provides Elan with significant strategic flexibility," said Elan CEO Kelly Martin. "We are enthusiastic about the market opportunities around the globe and remain flexible and creative about the manner in which we would participate in those opportunities."

With the Elan shares now down about 40% from its 52-week high, today's pullback might even be providing a good opportunity bet on that bullishness.

Interested in more info on Elan?Add it to your watchlist.

How about Biogen Idec?Add it to your watchlist.

The article Why Elan Shares Plunged originally appeared on Fool.com.

Fool contributor Brian Pacampara has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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