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

A different formulation of bapineuzumab, injected just under the skin once a week, is in mid-stage testing, as is the vaccine.

All three compounds use the immune system to bind to and destroy plaque in the brain that's made by accumulation of a protein fragment called beta amyloid. The two bapineuzumab compounds are antibodies against beta amyloid and the genetically engineered vaccine stimulates the immune system to make such antibodies, Schenk said.

Elan will keep its rights to four pill-based therapies against Alzheimer's, separate from the compounds in the J&J deal. Those include pills to block two different enzymes involved in producing beta amyloid, one to prevent beta amyloid from clumping into plaques and one that works partly by blocking nerve cell damage caused by beta amyloid, Schenk said.

Elan has been struggling to stay in the black, recently cut 14% of its work force, and has been trying to soothe shareholders angry over the stock's plunge from $36 last July to as low as $5.

Elan, which sells Tysabri for multiple sclerosis and Prialt for severe pain, said the deal should make it profitable by the end of 2010, and cut debt about 70% to about $400 million. The company said it held discussions with 30 companies before reaching the deal with Johnson & Johnson.

Gordon said the choice of J&J was a surprise, as analysts watching as Elan was shopped to major drugmakers expected it to go with Novartis.

Brozak said the deal was a telling departure from J&J's norm of buying entire companies with established products, rather than experimental compounds that might not pan out.

"J&J needed to do this," he said, given the pressures on the industry from generic competition, not enough drugs being developed in-house, health care reform and the recession.

The deal is expected to close by year's end, pending approval from antitrust regulators. Boards of both companies have approved it. The acquisition will reduce J&J's profit by 2 cents to 3 cents per share this year.

Moody's Investors Service put Elan's ratings under review for possible upgrade.

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