After pawning off Elan Drug Technologies on Alkermes
The deal seems less than ideal; I'd rather see the terms spelled out in advance with Elan having a guaranteed option to license the drugs after phase 2, for instance. But I guess the 24% stake serves as a backup plan. If Proteostasis can top Elan's offer for drugs down the road, Elan's equity stake stands to gain from the more lucrative licensing deal.
And there's no doubt that Proteostasis is a good fit. The start-up is studying protein homeostasis, a pathway of processes involved in making sure that proteins in a cell are folded correctly.
The most obvious connection with Elan is in Alzheimer's disease, where amyloid plaques -- which may be the cause of the disease -- form because of misfolded amyloid protein. Elan has a phase 3 compound bapineuzumab, which is partnered with Johnson & Johnson
The systems biology approach could go after other neurodegenerative disorders such as Parkinson’s, Huntington’s, multiple sclerosis, and amyotrophic lateral sclerosis, as well.
So what's the deal with the 7.7% increase yesterday? One has to guess that it's more a function of the wild swings we see with Elan's shares -- five other positive daily jumps of more than 5% since the beginning of the year -- than an endorsement of the Proteostasis deal. Investors intrigued by the deal would be wise to look for a pullback before investing. The partnership could turn Elan's initial investment into billions, but it'll be years before anything fruitful comes from yesterday's announcement.
Interested in small companies? Grab this free report from Motley Fool analysts: "Too Small to Fail: Two Small Caps the Government Won't Let Go Broke"
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 Elan, Pfizer, and Johnson & Johnson. Motley Fool newsletter services have recommended creating a diagonal call position in 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 Motley Fool has a disclosure policy.