LAST WEEK'S decision by a New York court to postpone the hearing of Elan's legal bid to prevent its long-time partner, Biogen Idec, from taking control of multiple sclerosis drug Tysabri, represents a dramatic raising of the stakes for the Irish drug maker.

Biogen is attempting to seize ownership of the drug by arguing that Elan's recently announced $1.5bn investment deal with Johnson & Johnson (J&J) breaches its long-standing joint venture agreement for Tysabri.

Under the agreement, Elan must resolve Biogen's grievance by 26 September or else it will lose control of the drug, which is on the verge of becoming a pharmaceutical blockbuster with annual sales in excess of $1bn.

This deadline is uncomfortably close to the new court hearing date of 10 September, particularly if Elan loses its case against Biogen. This outcome could conceivably leave its chief executive, Kelly Martin, with less than a fortnight to renegotiate his company's deal with J&J.

Even before last week's postponement, the stakes involved in the standoff were already high. Tysabri represents over 50% of Elan's revenues and the company has already warned it would be left "irreparably injured" if Biogen prevails.

Defeat is also not an option for Biogen as it would probably stymie its shareholders' long-held ambitions to sell out to a larger concern, particularly those of billionaire act­ivist investor Carl Icahn.

Although the dispute is ostensibly about clauses in the J&J deal promising financing to Elan if Biogen's stake in Tysabri came on the market, sources believe it is really about Icahn's sale ambitions.

The problem with Icahn's strategy is that nobody seems interested in buying Biogen: in 2007, the company put itself up for sale but attracted little interest. What interest there is in Biogen is likely to be diluted by the impact that Elan's financing deal with J&J would have on the US firm's Tysabri rights. Under the Tysabri joint venture, if Biogen is taken over, Elan has the right to buy its partner's rights to the drug.

Before the J&J deal came along, it seemed highly unlikely that Elan would have the financial firepower to invoke that clause. But Elan now has the means to activate it, meaning that any future buyer of Biogen is unlikely to be able to cling to its share of Tysabri.

This would have a dramatic impact on the value of Icahn's stake in Biogen, a fact which some believe has prompted the current dispute.

This view appears to be shared by Elan, which has submitted an affidavit to the court containing numerous newspaper articles about Icahn's ambition to sell Biogen and his mounting influence over the company's affairs.

Although the row may have been prompted by Icahn's desire to protect his investment, there are signs that more Machiavellian motives may be at play and that Biogen may now be trying to use the dispute to gain full control of the company. This theory would explain the company's often slothful approach to the dispute, which at times has seemed more focused on running down the clock than reaching a conclusion.

At the outset, Biogen re­fused an offer from Elan to provide it with full details of the Irish firm's confidential investment deal with J&J, instead embarking on a court discovery process, which was one of the factor's behind last week's postponement.

Court documents also reveal that the case came close to another delay earlier this month because of Biogen's apparent misunderstanding of instructions from Judge Deborah Batts, who is due to the hear the case.

Judge Batts' handwritten instructions ordered the two companies to provide her with copies of all relevant documents for the case by 21 August, in advance of the original hearing date of 31 August.

Elan's lawyers took this order at face value, but Biogen's lawyers took it to mean they merely had to turn up and discuss the progress of the case on 31 August, without filing documents. Unsurprisingly, Judge Batt rejected Biogen's interpretation as soon as Elan complained about it and the incident prompted much mirth among US commentators.

But as Elan's lawyers pointed out to the judge, the 26 September deadline meant "time is of the essence" and Biogen's intended course would have ensured that "nothing would been expedited".

Despite the ongoing courtroom drama, most observers expect Elan to retain its rights to Tysabri, which it invented and developed.

"Even if they fail to get the court verdict they need, Elan could easily resolve the issue by 'curing the breach' and removing the relevant clauses from the J&J deal," said Ian Hunter, a Goodbody Stockbrokers analyst.

But it is unclear how Biogen would respond to that, particularly if it turns out, as Elan suspects, that Icahn is driving the company's strategy. If Icahn has set his sights on wresting control of Tysabri from Elan, the Irish drug maker could soon discover that this dispute is merely the prelude to an all-out war.

The tense relationship between Elan and Biogen

ELAN and Biogen Idec may have been jointly developing Tysabri for the past nine years but their union remains one of the most turbulent in Irish business.

The conflict centres on the fact that Biogen, which markets the drug on behalf of Elan, continues to produce and sell its biggest rival, Avonex. Biogen receives 100% of the proceeds of Avonex sales, whereas it has to split its Tysabri revenues with Elan.

Over the years, a steady stream of Elan shareholders have questioned the wisdom of this arrangement, most notably former Abbott Laboratories president Jack Schuler, who recently became a director of the company. Schuler argued that Tysabri's full commercial potential may have been going untapped because Biogen was concentrating its efforts on Avonex instead.

Sources believe Schuler's concerns have been shared, from time to time, by Elan, leading to occasional bouts of tension between it and Biogen. The most recent of these came late last year when Tysabri's sales growth stalled after a handful of patients developed a rare side-effect, the brain infection PML, while using the drug.

The current court case, however, represents a dramatic deterioration in relations between the two companies and raises serious questions about the future of their partnership.