Johnson & Johnson buys £610 million Elan stake

The transaction, announced on Thursday, will, among other things, give J&J a 25 percent interest in a closely watched Alzheimer's drug called bapineuzumab, which Elan is developing in a 50-50 partnership with Wyeth. Wyeth is being acquired by Pfizer .

The agreement caps a lengthy battle between Elan and some of its largest shareholders, who had called on Elan to shake up its board, streamline operations and tighten what they considered lax corporate governance.

Last month, the company agreed to nominate two dissidents to its board, including Jack Schuler, a shareholder who publicly called for the resignation of Elan's chief executive, Kelly Martin.

As a potential board member, Schuler declined to discuss the J&J transaction, but another of Elan's previous critics welcomed it.

"We are encouraged by this deal," said Matt Strobeck, partner at Westfield Capital Management Co, which holds 18.8 million Elan shares. "Now not only is the balance sheet strengthened but we believe the board has been dramatically improved."

Elan said it plans to use the new funds to cut its debt by 70 percent to about $400 million. Moody's Investors Service said it has placed Elan's ratings under review for a possible upgrade.

"The transaction is expected to have a very favourable impact on Elan's capital structure and liquidity profile," said Moody's Senior Vice President Michael Levesque.

On the New York Stock Exchange on Thursday, Elan closed up 8.6 percent at $7.60 and J&J fell 1.9 percent to $55.98.

For New Brunswick, New Jersey-based J&J, the deal represents a leap into a therapeutic area in which it has only a limited presence.