Elan Spins Off Drug Discovery Unit

After three years of makeovers and on the heels of the failure of its Alzheimer’s drug bapineuzumab, Elan is spinning off its drug discovery operations into a stand-alone company. Neotope Biosciences will work on inventing drugs to treat chronic degenerative diseases, such as Alzheimer’s and Parkinson’s diseases.

If approved by shareholders, Elan expects Neotope to start trading as a separate listing on the U.S. stock exchange by the end of the year.

Elan will give Neotope $120 million to $130 million in start-up funds and keep a 14 to 18% stake. The new firm will have about 80 employees and will be led by Dale Schenk, previously the chief scientific officer of Elan. Neotope will work on drugs targeting synuclein, the hallmark protein found clumped in the brains of people with Parkinson’s disease; tau, a protein implicated in Alzheimer’s disease; and amyloid, a protein involved in Alzheimer’s and other neurodegenerative diseases. Elan expects Neotope to spend between $50 million and $60 million per year, with the goal of putting three drugs in human tests by 2015.

Meanwhile, Elan, which will maintain 90 to 110 employees, will focus on cultivating three assets: the multiple sclerosis treatment Tysabri, approved in 2004 and marketed with Biogen Idec; ELND005, a small molecule drug in development for various neurological conditions; and the Alzheimer’s treatments bapineuzumab, ACC-001, and AAB-003, all being developed in conjunction with Pfizer and Johnson & Johnson.

The spin-off of its discovery unit is the latest in a string of restructurings beginning in 2009 for cash-strapped Elan. Saddled with debt, the company that year slashed jobs and created a holding company with two distinct entities—one for its neurology R&D efforts and the other for its drug formulations technology. Later in 2009, Elan sold to J&J for $885 million an 18.4% stake in the firm plus its share of an Alzheimer’s collaboration with Pfizer.

After putting its drug formulations business up for sale in 2010, only to take it off the market again, the unit was sold to Alkermes in May 2011 for roughly $960 million. The divestiture allowed Elan to pay down roughly one-third of its debt.

This next step—formally separating out its R&D business—will give investors “important clarity, transparency, and choice as it relates to their investment decisions,” Elan CEO Kelly Martin says.

Elan says this recent move was in the works long before the disclosure last week that Pfizer and J&J were ending development of intravenous bapineuzumab after it failed in two Phase III trials for treating Alzheimer’s.