Biogen has agreed to buy Dublin-based Elan's share in MS drug Tysabri for a one-time cash payment of $3.25 billion. Previously, the two companies split the drug's profits equally. Now, Biogen will gain full strategic, commercial and decision-making rights to the drug. The deal should close by the end of the second quarter.

Though Elan is losing control of Tysabri, it will retain a piece of future sales. Biogen will pay Elan 12% of Tysabri's global net sales over the first year after the deal closes. Thereafter, Elan will get 18% of Tysabri's annual global net sales of up to $2 billion and 25% of sales that exceed $2 billion.

The unusual strategic move caught analysts and observers off guard on Wednesday. Jefferies & Co. analyst Corey Davis, for example, acknowledged it was "a move few expected" in a note to investors. Stockholders, at least initially, expressed their disappointment, sending shares down roughly 6.5% on Wednesday morning, to $9.79 per share.

Tysabri brought in $1.51 billion in worldwide revenue in 2011 and climbed to about $1.6 billion in 2012.

The deal will be about $0.20 to $0.30 accretive to Biogen's 2013 GAAP earnings per share and $0.50 to $0.60 per share accretive to the company's non-GAAP earnings per share. The deal is expected

to be accretive to Biogen thereafter, depending on Tysabri's sales trajectory.

Debate has raged for months as to whether Elan was a takeover target for Weston, Mass.-based Biogen given that Biogen could use a deal to bring the economics of Tysabri under one roof. Indeed, drug collaborations often lead to M&A, as most recently seen when the U.K.'s GlaxoSmithKline plc in April bought out longtime business partner Human Genome Sciences Inc. to get full rights to three separate programs it had been splitting with the Rockville, Md.-based biotech. In addition, Elan's share price has been at a relative trough, meaning Biogen could have swooped in at an opportunistic time. Elan's stock traded at roughly $15 per share in early 2012, but has since trended downward, largely due to the failure of closely-watched Alzheimer's drug bapineuzumab. It closed at $10.46 per share on Tuesday.

On the other hand, Johnson & Johnson Inc. owns an 18.4% stake in Elan, which clouded a potential buyout. Instead of going down that road, however, Biogen kept its eyes on Tysabri only, eschewing a full Elan purchase for full rights to the drug.

"This is a natural next step for Biogen...and Tysabri, and it underscores our deep, long-term commitment to improving the lives of MS patients around the world," said George Scangos, Biogen's CEO, in a statement.

Biogen is indeed an MS powerhouse, and the addition of full Tysabri rights gives it a potentially complementary portfolio when expected MS blockbuster BG-12 hits the market. BG-12 is an oral treatment, whereas Tysabri is administered through an IV infusion. But though BG-12 appears to be a long-term threat to Tysabri, analysts have noted that Tysabri is typically given to patients with a much more active form of the disease. As such, BG-12 will more likely be a threat to early-stage multiple sclerosis agents such as Teva Pharmaceutical Industries Ltd.'s Copaxone. Biogen, instead, could use Tysabri as a complement to BG-12 (to be sold as Tecfidera) and another injectable MS treatment, Avonex.

Elan, meanwhile, now finds itself in an unusual position, having shed all of its revenue-producing businesses over the past six months, aside from the minority percentage of sales it will retain on Tysabri sales. First, Elan announced it would spin off its drug discovery business to shareholders in August. Now, the company has rid itself of control of Tysabri. In return, however, Elan now has a roughly $4 billion pile of cash to play with and a platform with which to forge a new identity. Elan focuses on autoimmune diseases and neurodegenerative disorders.

"This move makes Elan much less dependent on Biogen's Tysabri success and allows it to diversify through acquisitions of multiple new assets," Davis wrote. "Although we still have high aspirations for the success of the drug, trading profits for cash allows the company to be much more in control of its own future and new strategic direction."

Davis now expects Elan to act more like a traditional specialty pharmaceutical company and be an active acquirer, like Jazz Pharmacdeuticals Inc. and Valeant Pharmaceuticals International Inc. Elan hasn't engineered a buyout since paying $1.8 billion for Dura Pharmaceuticals Inc. in 2000.

Elan CEO Kelly Martin noted in a statement that the cash and freedom from the Biogen tie-up gives it strategic flexibility and resources to create a company with diversified assets. "Our motivation was to diversify and de-risk the company to move forward," Martin said. "The risk of one asset and a single collaborator was not ideal."

Davis anticipates future Elan deals to be a mix of late-stage pipeline assets and drugs already on the market.

"It may take some time to build a more real commercial operational infrastructure, but we think investors will applaud the strategic move to bolster [Elan's] balance sheet," Davis wrote.

Ropes & Gray LLP is Biogen's legal counsel, while Centerview Partners LLC is its financial adviser.

Elan turned to Cadwalader, Wickersham & Taft LLP and A&L Goodbody for legal counsel. Citi and Ondra Partners are its financial advisers.