Updated with stock quote and background information on bapineuzumab

Elan ( ELN) shares rose Thursday after health care giant Johnson & Johnson ( JNJ) said it was spending $1 billion to acquire a minority stake in the Irish drug maker and take over development of Elan's Alzheimer's disease drugs.

J&J will create a new company, initially seeded with $500 million, which will acquire Elan's rights to Alzheimer's drugs being developed in partnership with Wyeth ( WYE). In exchange, Elan receives 49.9% of the newly formed company.

J&J will own 18.4% of Elan once the deal closes later this year.

Elan shares were up 16.3% to $8.14 in recent trading.

The deal gives J&J rights to bapineuzumab, the most advanced Alzheimer's drug in Elan's pipeline. Elan and Wyeth are in the midst of running four phase III trials, with data expected next year.

Bapineuzumab, however, ran into trouble last year when results from a closely watched phase II study fell far below expectations.

In January, Elan hired investment bankers to help the company find a merger partner or a strategic investor. The $1 billion investment by J&J will help Elan pay down corporate debt, but at a price, since Elan's rights to bapineuzumab and its other Alzheimer's drugs has been whittled down to 25% from 50%.
Adam Feuerstein writes regularly for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.

If you liked this article you might like

Experimental Tau Protein Drug Tangled Up in Late-Stage Alzheimer's Study Failure

Experimental Tau Protein Drug Tangled Up in Late-Stage Alzheimer's Study Failure

With Martin Shkreli Long Gone, Retrophin is an 'Interesting Opportunity'

With Martin Shkreli Long Gone, Retrophin is an 'Interesting Opportunity'

Despite Shkreli Drama, Retrophin Looks Interesting Now

Despite Shkreli Drama, Retrophin Looks Interesting Now

Celtic Tiger Tries to Roar Again

Celtic Tiger Tries to Roar Again

Cramer's 6 Stocks in 60 Seconds: PRGO CREE HOG GME ORCL MHK (Update 1)

Cramer's 6 Stocks in 60 Seconds: PRGO CREE HOG GME ORCL MHK (Update 1)