J&J takes on Alzheimer's disease with $1B stake in Elan

Johnson & Johnson, making a big jump into the risky but potentially lucrative field of Alzheimer's disease, is taking a major stake in Irish biopharmaceutical company Elan, investing up to $1.5 billion initially.

The two will cooperate to complete research on two injected drugs to stop progression of the mind-robbing disease and on a vaccine to prevent the buildup of plaque in the brain that causes increasing memory loss, confusion, wandering and aggression.

The agreement could reinvigorate ailing Elan eln and save the jobs of top executives who face shareholders at their July 17 annual meeting. It would make J&J jnj a major player in one of the biggest areas of unmet medical need and — if further testing is successful — bring the treatments to market faster.

"It's good news for Alzheimer's patients and their families," said Erik Gordon, an analyst and professor at University of Michigan's Ross School of Business. "For J&J, it looks like a high-risk but reasonable bet."

J&J, the world's biggest health care company with nearly $64 billion in 2008 sales, can pour far more money than Elan into the research, he said. J&J sells one Alzheimer's drug, Razadyne, with sales of just $541 million last year, but company executives last month said Alzheimer's disease is now a priority.

Several drugs help limit memory loss and other symptoms, but there are no treatments to stop or reverse brain damage caused by the disease. The market is huge — roughly 5.3 million current U.S. Alzheimer's patients, and more than 100 million worldwide are expected eventually as the population ages.

Under the deal, Johnson & Johnson will take an 18.4% stake in Elan by spending $1 billion to buy 107.3 million newly issued American Depositary Receipts at $9.32 each, a 33% premium to Wednesday's $7 closing price.

J&J plans to commit up to $500 million initially for development of bapineuzumab, the compound furthest along in testing, with both companies providing more money if needed.

J&J will get Elan's 50% stake in its Alzheimer's immunotherapy research partnership with Wyeth, and set up a joint company that will be 49.9% owned by Elan. Johnson & Johnson will gain all rights to any drugs approved; Elan will get 49.9% of the profits, plus royalty payments on sales.

Wyeth spokesman Michael Lampley would not say whether it would exercise the change-in-control provision in its contract with Elan, which allows either party to terminate the contract.

"We're looking forward to discussing this proposed transaction in detail with J&J," he said.

Portions of that provision are confidential, so its impact was unclear.

"The irony that can't be missed is the fact that J&J has a change-and-control battle going with Schering-Plough" over shared sales of arthritis drugs because Schering is being acquired by Merck for $41.1 billion, said analyst Steve Brozak of WBB Securities.

Meanwhile, Wyeth is being bought by Pfizer for about $68 billion.

A mid-stage bapineuzumab study focused on safety showed a little improvement in participants with a common genetic variation, and more improvement in those without it, said Dale Schenk, Elan's chief scientific officer. The variation, which about half of Alzheimer's patients have, is linked to earlier disease.

A late-stage study of bapineuzumab, which would be given in an infusion every three months, began last year. Results are not expected for a couple years.

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