Elan's (NYSE: ELN) message to partner Transition Therapeutics: It's time to decide whether you want to fish or cut bait.

Transition jumped over the side of the boat with a pile full of cash.

The duo's 2006 deal allowed Transition to continue to pay 30% of the development cost for its Alzheimer's drug ELND005, increase its share to 40%, or relinquish its share in exchange for lower milestone payments and a royalty on future sales.

In August, Elan gave Transition until Dec. 1 to make the decision and then gave it an indefinite extension at the end of November. It looks like the time is up, as Transition announced yesterday that it would take door number three: a royalty agreement.

It should be noted that the press release says the companies "mutually agreed to modify their collaboration agreement," but we know who's in charge here. Elan is a $3.5 billion company with $426 million in cash and short-term investments in the bank. Transition's market cap is so low it doesn't register on many stock screens and only has around $24 million in cash to play with.

Elan learned from the best. You'll recall that Johnson & Johnson (NYSE: JNJ) twisted Elan's arm when it needed to renegotiate its partnership, after Biogen Idec (Nasdaq: BIIB) convinced a court that one aspect of the J&J-Elan deal allowed Biogen to gain full control of Tysabri, which it markets with Elan.

While Elan looks to be making out well here by gaining full control with lower milestone payments, it's also likely taking on more risk because it'll have to cover the full cost of the phase 3 trials. ELND005 didn't produce a statistically significant change in cognitive and functional measurements in its phase 2 trial. But the drug reduced amyloid-beta protein in the cerebrospinal fluid, which the duo figured was a good sign to bring the drug into phase 3.

That of course assumes that the amyloid-beta protein causes Alzheimer's disease, which is somewhat debatable after Eli Lilly's (NYSE: LLY) semagacestat died in phase 3 development. Semagacestat is an inhibitor of a protein that releases amyloid. No amyloid, no amyloid plaques, no Alzheimer's progression -- or so the theory went.

Elan's no-guts-no-glory mantra worked with Tysabri. Biogen and Elan got the multiple sclerosis drug back on the market when things looked bleak, and investors were rewarded handsomely. It remains to be seen whether it'll work for ELND005 or its other Alzheimer drug, bapineuzumab, which Elan and Wyeth -- now Pfizer (NYSE: PFE) -- sent into phase 3 trials despite not having phase 2 data in hand.

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Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. Elan is a Motley Fool Rule Breakers recommendation. Pfizer is a Motley Fool Inside Value pick. Motley Fool Options has recommended a diagonal call position on Johnson & Johnson, which is a Motley Fool Income Investor selection. The Fool and Motley Fool Alpha both own shares of Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.