Pharmaceutical company Elan will collaborate with a Canadian drugmaker to develop a new treatment for Alzheimer's disease.

Under the terms of the collaboration, Elan has agreed to make upfront payments of $15 million (€11.8 million) to Toronto-listed Transition Therapeutics. The payment will be split equally between 2006 and 2007.

Transition Therapeutics may also be eligible to receive further "milestone payments" of up to $185 million from Elan in the future, but this is dependant on the commercialisation of the treatment, known as AZD-103.

If the drug, currently in Phase I, is developed successfully, the two companies will share both the costs and operating profit, but the ratio in which costs and ownership are to be apportioned may vary during the development phase. "By joining forces, we increase our probability of success," said Kelly Martin, chief executive and president of Elan. "The AZD-103 programme represents a significant addition to our scientific portfolio."

Dr Tony Cruz, chief executive and chairman of Transition Therapeutics, is confident that this collaboration will enable them to achieve the full potential of the AZD-103 compound.

It is believed that the drug has the potential not only to improve symptoms of Alzheimer's disease but also to reduce the progression of the disease.

Currently, approved treatments do not reverse or slow down the development of the disease, which affects approximately 20 million people worldwide.