Big Win for J&J with Elan Deal

Johnson & Johnson (JNJ) has made a significant improvement to its business. Under a deal announced Thursday, J&J will take a major stake in biotech company Elan (ELN), thereby gaining access to Elan's Alzheimer's disease treatments, in particular leading drug bapineuzumab.

In the transaction, J&J will take a 50.1% ownership in Elan's Alzheimer's program, plus an 18.4% ownership in the remaining part of Elan. In return, Elan gets a $1 billion equity investment and a $500 million commitment to fund further development and marketing of promising Alzheimer's treatments. The major focus will be on further development of and launch activities for bapineuzumab, which is in Phase 3 clinical trials.

The motivation for Elan was money to keep itself afloat. The Irish company, which employs about 1,600 people, lost $102.6 million in the first quarter and began a strategic review of its operations in January. Under the deal announced Thursday, Elan will obtain a 49.9 percent stake in a new company that J&J is creating to participate in the Alzheimer’s program. Elan said the deal would help it return to profitability by the end of next year. The company said it would use the funds from the deal to supplement its liquidity and reduce leverage, reducing its debt by about 70 percent to around $400 million.

J&J expands its presence in neuroscience and gets into the game for effective Alzheimer’s therapies. There are estimated to be tens of millions of Alzheimer’s patients globally, the vast majority of those in emerging markets. Bapineuzumab is one of the most promising treatments to slow progression of Alzheimer's disease. J&J also gets access to several earlier-stage Alzheimer's drugs (Elan has four drug candidates in clinical or preclinical testing), plus a toehold in the market for multiple sclerosis treatments through Elan's drug Tysabri.

J&J also becomes the largest stakeholder in Elan, and the deal effectively closes out other potential Elan suitors. Elan has been widely considered to be one of the most likely biotech takeover candidates. Reportedly it has had talks or inquiries from more than 30 companies.

Disclosure: Long JNJ

Comments

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Useful article thanks. JNJ has been a favored stock of mine for years, though its never really fulfilled its potential in that time. I remain a keen observer and thank you for the update.

Jul 04 12:46 PM