Are Elan, Pfizer, Lilly and J&J Buys After a Failed Drug Test?

NEW YORK (TheStreet) -- If you're an Elan(ELN) , Pfizer(PFE) or Johnson& Johnson(JNJ) investor, Monday's disappointing drug test result is always in the back of your mind but hopes are raised at the Phase 3 stage. ELN data by YCharts

The three companies announced that bapineuzumab, Elan's drug for Alzheimer's disease, wasn't effective at slowing or halting the disease progression with people who have a mutation of the gene ApoE4. Eli Lilly(LLY) has a similar drug in trials and its shares are trading lower Tuesday as well.

While the main larger group failed to demonstrate effectiveness, researchers intend to examine sub-groups for a positive response. (See Big Dividend Captures With Microsoft, Walgreens, Lilly, Target and Duke.)

Husseini Manji, the head of neuroscience research at Johnson & Johnson, reportedly stated, "We're optimistic that noncarriers are going to respond better" and people with the genetic mutation were "going to be a tougher nut to crack."

All three companies traded lower in aftermarket trading Monday. Elan, with the most on the line, was hit the hardest. Elan traded down over 13% before the completion of after-hours trading. TheStreet's Dan Fitzpatrick wrote a great article that includes Pfizer, Fitz Bits: Pfizer Looks Mighty. (You need a Real Money Pro account to read, but Fitzpatrick's analysis makes it worthwhile.)

Based on my experience with gap-downs following study results similar to Elan's (and Lilly's), the odds favor greater downside with Wednesday or Thursday, marking the short-term low. It's not quite time to wish for a quick gap fill, but ELN does have strong support near $10.50, LLY at $41.90, PFE at $23, and JNJ's support is at $67.90.