The Winner of the Bapi Failure

Bapineuzumab, the potential megablockbuster Alzheimer's treatment, is dead. Not surprisingly, the drug failed another clinical trial, and Pfizer (NYS: PFE) and Johnson & Johnson (NYS: JNJ) have decided to discontinue the phase 3 program.

The winner here? Elan (NYS: ELN) . Sure the biotech still had a stake in bapineuzumab and shares were down more than 12% on the news today before paring those losses a bit. But it could have been worse.

Elan used to own half of bapineuzumab, but sold half of its stake in the drug to Johnson & Johnson. As part of the deal, Johnson & Johnson funded the first $500 million of its share of the development costs and picked up half of the costs beyond that. Johnson & Johnson also invested $885 million in Elan for $8.25 per share, which provided an infusion of cash that helped get its finances in order.

If Elan is a winner, then obviously Johnson & Johnson is the big loser in all this. Part of the attraction to Elan was a side deal that could have put it in the driver's seat to buy Biogen Idec (NAS: BIIB) , but that got thrown out in court. Considering how weak the phase 2 data was, Johnson & Johnson took a big risk that didn't pay off. On the plus side, its stake in Elan is up about 30%, which should help fund some of the development costs.

We can give Pfizer a pass on this one. It inherited bapineuzumab through the acquisition of Wyeth, but the drug was more gravy than a motivating factor for the purchase. Besides finding a sucker to buy some or all of the rights to its half of the drug, there wasn't much Pfizer could do.

Eli Lilly (NYS: LLY) is an innocent bystander in all this, but its stock is down a few points today because it has an Alzheimer's drug, solanezumab, that works in much the same way as bapineuzumab. Any remaining hope in solanezumab seems to be rapidly fading.

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Fool contributor Brian Orelli holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Johnson & Johnson. Motley Fool newsletter services have recommended buying shares of Pfizer and Johnson & Johnson. Motley Fool newsletter services have recommended creating a diagonal call position in Johnson & Johnson. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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