Elan Corporation ( ELN - Snapshot Report ) recently initiated a phase II placebo-controlled, safety and efficacy study with oral ELND005. ELND005 is being developed as an adjunctive maintenance treatment in patients suffering from bipolar I disorder (BPD 1) to lengthen the time period between mood episodes.

ELND005 is also being developed for the treatment of Alzheimer’s disease. In 2006, Elan had entered into an exclusive, worldwide collaboration agreement with Transition Therapeutics, Inc. (TTHI) to jointly develop and commercialize ELND005.

In August 2010, Elan and Transition Therapeutics reported data from a mid-stage trial on ELND005 for Alzheimer’s disease. The companies presented positive safety and tolerability data on ELND005 taken twice-daily for about 18 months. However, the trial’s cognitive and functional co-primary endpoints failed to achieve statistical significance.

Elan and Transition Therapeutics modified their agreement in 2010, following which Transition Therapeutics stopped funding the candidate’s development and commercialization and has given up its 30% ownership of the candidate to Elan. Elan paid Transition Therapeutics $9.0 million in January 2011. However, Elan will no longer be required to pay the previously stipulated $25 million as a milestone payment on the commencement of the phase III study of ELND005.

The company will be making a one-time clinical milestone payment of $11 million to Transition Therapeutics for the first patient dosing in the BPD 1 study.

We remind investors that Elan recently decided to split into two separate publicly traded companies. While one company will focus on drug discovery, the other, which will retain the company name, will have Tysabri (co-marketed with Biogen Idec Inc. ( BIIB - Analyst Report ) ), ELND005 (phase II) and Elan’s interest in Johnson & Johnson‘s ( JNJ - Analyst Report ) Janssen Alzheimer Immunotherapy. The company which will focus on drug discovery will be named Neotope Biosciences. The split is expected to occur by year end.

Our Recommendation

We currently have a Neutral recommendation on Elan. The stock carries a Zacks #3 Rank (Hold Sell rating) in the short run.