On termination, Elite Pharmaceuticals acquired all rights to the products -- which it intends to continue developing, perhaps with a new partner -- and Elan retained a royalty on certain revenues from eventual sales of Oxycodone. As well, Elan maintained its equity stake in Elite Pharmaceuticals, which it acquired as part of the JV, and converted the preferred stock into common shares at a premium. No money changed hands, and both sides walked away happy.

Elan's termination of its JV with Acusphere Inc. was also a cash-free transaction. This deal, which was established in June 2000 to develop pulmonary delivery methods for certain drugs, clearly falls outside Elan's current focus, so its demise comes as no surprise. Here, again, the JV partner acquired full control of all rights to product candidates developed by the JV -- one of which entered the clinic this past spring. Here, again, Elan retained royalty rights on certain future product revenues. And, reportedly, the pharma also kept its equity stake in Acusphere and forgave an $8 million loan, though president and CEO Sherri Oberg would neither confirm nor deny that information.

She did, however, praise the relationship. "Elan provided a relatively large amount of capital under attractive terms to pursue a new application of our technology [drug delivery]. Without Elan, we would not have had the capital to pursue this opportunity," Oberg said. And, since Acusphere now has clinical data on its sustained-release asthma drug candidate, it's in a stronger position to find a new partner.



Indeed, receiving the funding and support to develop a nascent technology -- or a new application of an existing technology -- are the very reasons that so many biotech firms have found these joint ventures attractive.

The deal structure for each is virtually the same (though there are some variations in the amounts of money involved). Briefly, Elan and the biotech firm form a new company, the joint venture, that is owned 19.9 percent by Elan and 80.1 percent by the biotech. Each partner contributes technology to the JV and funds it according to its respective ownership stake.

Elan buys $12 million of the biotech's convertible exchangeable preferred stock. The biotech then uses the $12 million to fund its initial investment in the JV and Elan contributes $3 million. The JV subcontracts its R&D to Elan and the biotech firm. However, since the JV uses the $15 million to buy a technology license from Elan, the pharma is essentially recycling its own money. (The structure of Elan's JVs -- and the way that it accounts for them -- is a matter of great concern to investors and analysts, not to mention the SEC. But that's a different story.)

In early November, the partners restructured this agreement: The collaboration will continue through the end of 2002, with each firm contributing funding according to its ownership in the JV. Elan has an option to continue the JV in 2003 or to end its participation.

Isis had already taken an active role in funding its part of the R&D, however: In July, the biotech firm prepaid $19.7 million of its 12 percent convertible debt held by Elan -- which totaled $30.4 million from both JVs. "We retired all the debt we could," Crooke said. Apparently, this debt "resided in various Elan structures," and all of it was not available for retirement.

Isis currently carries $7 million of Elan convertible debt. And, rather than accruing more, the biotech decided in July to use its own money for the first time to fund its portion of the two JVs' programs.

And what will happen to Orasense come January? "If Elan chooses not to fund it, we will continue the work," Crooke said. The Phase I results on ISIS 104838 have already demonstrated that the technology works, so Elan's decision will not be based on technical feasibility. "The issue will be Elan's ability to fund additional work."

Like most of Elan's JV partners, Isis has been pleased with the relationship. "We entered the JVs for several reasons, including as a way to fund the R&D, " Crooke said. "We also did it for the technical benefits" provided by Elan's drug delivery technologies and expertise -- especially in the Orasense joint venture. And, though Hepasense was a less active collaborative effort (Isis did most of the work), progress in both programs "could not have been made without the funding from the JV." Crooke added: "From our perspective, the relationship with Elan did everything we needed."



Meanwhile, there are nine companies whose JVs may, indeed, continue into the future. One of those is systems biology company Beyond Genomics Inc., which formed a joint venture with Elan in April 2001 to identify biomarkers and drug targets that can be used for diagnosing and treating Alzheimer's disease.

In this project, the partners are analyzing sera from patients as well as unaffected individuals. The goal is to determine differences in protein expression and metabolite patterns. Moreover, the JV has access to Elan's transgenic mouse model of Alzheimer's disease. Importantly, the company has already discovered some serum markers that change over time as the disease progresses.