Elan Takes Another Swing

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Elan (NYSE: ELN  ) is now back in the ring to take another swing. The Dublin-based biotech recently announced phase 2 clinical trials of its ELND005 drug for maintenance treatments of patients with Bipolar I Disorder (BPD 1). The first patient has been dosed in this study.

First swing
The first swing for ELND005 wasn't a knockout, but it wasn't a total miss, either. Back in August 2010, Elan and partner Transition Therapeutics announced results from a phase 2 study of the drug for treating Alzheimer's disease.  

This study did not find significant cognitive or functional improvement for patients taking ELND005. However, the dosages used in the study appeared to meet acceptable levels for safety and tolerability. The two companies also found enough encouragement from the drug's effects on amyloid-beta protein in the cerebrospinal fluid (CSF) to advance ELND005 into phase 3 studies.

A few months later, though, Transition exercised its opt-out right on ELND005. As a result, the company no longer contributes to funding any commercialization or development of the drug. It also relinquished its 30% ownership of ELND005 to Elan. Elan has since been relatively quiet on progress with the drug's usage for Alzheimer's disease.

The company has made some noise on other fronts relating to Alzheimer's disease, though. Unfortunately, the noise hasn't been pleasing to investors' ears.

Elan announced last month that Johnson & Johnson (NYSE: JNJ  ) planned to discontinue bapineuzumab IV in mild to moderate Alzheimer's because of disappointing results. J&J's Janssen subsidiary partnered with Pfizer (NYSE: PFE  ) in the Alzheimer Immunotherapy Program. Elan owns a 25% stake in the AIP.

Back in the ring
The phase 2 trial for BPD 1 patients puts Elan back in the ring with ELND005. However, a serious question is whether BPD is a great ring to be in for Elan.

Commonly known as manic depressive illness, BPD 1 affects approximately 3.5 million people in the U.S. and Europe. Major players in the BPD drug market include J&J with Risperdol, and Eli Lilly (NYSE: LLY  ) with Zyprexa.

The challenge facing these companies and others is that the BPD market is expected to decline in the coming years. Lilly lost patent protection for Zyprexa in October 2011. Teva (NYSE: TEVA  ) jumped in almost immediately with a generic version. The availability of generics translates to tougher times for the other companies in the BPD market.

That leaves Elan in a questionable position with ELND005 and BPD. The drug only recently started its phase 2 trial. Even if the trial goes really well, ELND005 would encounter the hurdles of competing against Teva's generic drugs and established drugs from the other well-capitalized rivals.

Other fights
With disappointing results from bapineuzumab IV and uncertainty surrounding the prospects for ELND005, what other fights are being waged by Elan? One is with its main product, Tysabri, used in the treatment of multiple sclerosis.

Elan announced in July that over 69,000 patients use Tysabri, up 13% from the prior year. This increase helped grow total revenue by 6% in second quarter 2012 compared to the same period in 2011.

The company is also betting on a proposed spin-off approach to enthuse investors. A few weeks ago, Elan unveiled plans to create two independent entities: Elan and Neotope Biosciences.

Elan would own Tysabri and drugs in the pipeline, including ELND005. Neotope would focus on the drug discovery business platform. Management expects to make Neotope available for public trading as a separate entity by end of 2012.

Holding your punches
Investors probably should hold their punches with respect to Elan for now. The stock is down more than 15% so far this year. The forward price-to-earnings ratio of 65 seems too steep considering the company's challenges in expanding beyond Tysabri.

Perhaps the spin-off of Neotope will be a positive for Elan. While we wait to see, investors can find better stocks to fight for them.

One other biopharmaceutical company growth investors might consider is Arena Pharmaceuticals. Before you jump in, though, read the premium report about Arena created one of The Motley Fool's top biotech analysts. This new report examines Arena's key opportunities and risks. It also comes with a full year of analyst updates, so click here to get your copy now!

Fool contributor Keith Speights owns no shares in the stocks mentioned above. The Motley Fool owns shares of Johnson & Johnson. Motley Fool newsletter services have recommended buying shares of and 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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