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Johnson & Johnson (JNJ)
Johnson & Johnson Invests $1.5 Billion in Promising Alzheimer Treatment
Pharmaceuticals has always been one of those fields which seems to do really well overall, despite any overarching economic issues. Success does not come without hard work and competition, however, as the field is made up of strong corporations including Johnson & Johnson, Wyeth (WYE: Charts, News, Offers), and Pfizer (PFE: Charts, News, Offers). Each company would surely like to be the dominant player in the market, and these companies aren't afraid to make some big moves in attempts to gain control. Johnson & Johnson announced one such move this morning, and it will be interesting to see what it does to the health of the involved companies.
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Johnson & Johnson announced this morning that they are about to become involved in an Alzheimer treatment project. Elan Corporation (ELN: Charts, News, Offers), a pharmaceutical company based in Ireland, has been working on the development of Bapineuzumab, a treatment for Alzheimer patients, which works by removing protein that builds up in the brain of the patients. So far, the treatment has shown to be successful, and the medicine is currently going through what should be its third and final round of testing. Furthermore, this treatment is unique compared to other current Alzheimer drugs; it appears to be the first treatment that may actually slow the progress of the disease, instead of just treating the symptoms.
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Johnson & Johnson will be paying Elan $1 billion, for which they will be receiving most of the assets relating to this project, as well as the rights for the treatment. Additionally, Elan will be giving Johnson & Johnson an 18.4% stake in their company. Johnson & Johnson has also agreed to invest an additional $500 million in the project, which will be used to continue testing and to further develop the drug. Because the treatment has already been so thoroughly tested, Johnson & Johnson is investing in a drug that they think has a high chance of success, decreasing the perceived risk of the arrangement.
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Elan is making out well in this deal as well. As part of the agreement, Johnson & Johnson is developing a new company to deal with this project, from which Elan will get 49.9 percent equity interest . That means almost 50% of the profits and royalties will still go directly to Elan. Furthermore, this project was originally a joint collaboration between Elan and Wyeth, and with the new agreement, this will not have to change, making the deal more agreeable to all involved parties. Elan has also been in desperate need of cash recently, and the money it's receiving from Johnson & Johnson will go a long way towards helping them pay off their debt. This news has thrilled Elan's investors, sending their shares up around 30% since the announcement.
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The deal has already been approved by the boards of both companies, and it looks like there is nothing stopping this from moving forward. Both parties benefit strongly from the arrangement, and with the support of another major company, perhaps the development of a successful treatment is even more believable. And although this deal looks to be a win-win for both companies, the most hopeful outcome would be if the arrangement was able to develop the most promising Alzheimer drug so far; and in that case, the biggest winner of the whole situation just might be the patients.
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