J&J Acquires Key Assets From Elan

This morning, Johnson & Johnson (JNJ) announced a definitive agreement whereby J&J will acquire substantially all of the assets and rights to Elan’s (ELN) Alzheimer’s Immunotherapy Program (AIP).J&J will invest approximately $1 billion in cash in Elan in the form of newly issued shares (American Depositary Receipts – ADR’s), which represents an 18.4% stake.

Elan has been collaborating with Wyeth Pharmaceuticals (WYE) — itself in a deal to be acquired by Pfizer (PFE) — for the Alzheimer’s program. J&J will assume and continue these activities with Wyeth (and, in time, Pfizer) in a 50/50 venture.

J&J has committed $500 million to continue the development and launch activities for lead AIP candidate, bapineuzumab, a potential first-in-class treatment for Alzheimer’s disease. Bapineuzumab, which is designed to clear the formation of amyloid plaques in the brain and improve cognitive function, is currently in four phase III trials. Two of these trials include patients who are non-carriers of a particular gene, Apolipoprotein E4 (ApoE4), which phase II data suggests could be a predictor of success.

Non-ApoE4 Alzheimer’s patients represent approximately half of the market, meaning that if bapineuzumab can show an improvement in cognitive function, it’s a potential multi-billion dollar drug. Elan and Wyeth were also working on a back-up candidate, ACC-001, currently in phase II trials.

The deal is positive for J&J. Although it will be mildly dilutive in 2009 by 2-3 cents, investors should view this dilution as a potential call option on the bapineuzumab program. With an estimated 5+ million patients in the U.S. with Alzheimer’s disease, bapineuzumab could be the first drug for the disease that actually works to reverse the symptoms, as opposed to current treatment options that only look to slow disease progression.

J&J’s future development and commercialization partner, Pfizer, is the global leader in Alzheimer’s disease therapy. Together, J&J and Pfizer have the R&D capabilities and marketing muscle to see bapineuzumab succeed.

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