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 Reports and Commentary from the Investment World

Reports and commentaries are posted here on a regular basis.




Elan (ELN:NYSE) 2005-11-07

Elan is a neuroscience-based biotechnology company that is focused on discovering, developing, manufacturing, selling and marketing advanced therapies in neurodegenerative diseases, autoimmune diseases and severe pain. Elan’s shares trade on the New York, London and Dublin Stock Exchanges.

We have recommended Elan to our  private investor clients before. On that occasion they earned over 350% gains in 18 months! We bought then at $6.50 per share.

In 2002, the shares of this small Irish pharmaceutical company fell from over $40 down to $2.
The value of its investments decreased by over 90%, the patents on its core drug were about to expire, and there were ongoing investigations from the SEC. At that time Elan was at risk of bankruptcy. But, Elan CEO Garo Armen had a plan. He would sell off non-core assets to repay debts and he also had two new drugs about to complete clinical trials. This would mean billions in added revenue for Elan. 18 months later, Elan was trading for $24 per share. Had Elan not dropped so low, such gains may not have been possible.
The fact that its shares had descended so low meant most investors never even saw the potential.

After an 80% drop, if a stock recovers one third of the ground it lost, it’ll double your money.
In February 2005 Elan shares were beaten down again. The shares lost 70% of their value when Elan’s promising Multiple Sclerosis drug, Tysabri, was suspended following the death of 2 patients that were taking Tysabri.
Elan withdrew the drug of its own accord (not by FDA order) when 3 patients out of 3,000 developed the very rare brain infection, PML. PML is caused by the JC virus, which lies dormant in most humans. By design, Tysabri inhibits your immune system from attacking your nerves. Unfortunately, in some patients, it also seems to inhibit the immune system from keeping the JC virus in check. Unfortunately, PML can be fatal. Two people died after taking Tysabri because of PML.
In April 2005 Kyran McLaughlin, the chairman of Elan Corporation snapped up 90,000 shares in the beleaguered Irish drug company. These shares were bought at an average price of Euro 5.175, taking his total holding to100,000 shares. McLaughlin took advantage of the share price weakness, caused by the Tysabri scare, to add to his own holdings.

Kyran McLaughlin was appointed chairman of Elan in January 2005. He has been head of equities and corporate finance at Davey, the Irish stockbroker since 1985 and is also a director of the hugely successful, no–frills airline, Ryanair. So this guy knows what he’s doing.

We are ready to re-recommend the stock today, because we now believe Elan’s blockbuster treatment for MS, called Tysabri, will be allowed back on the market.
Recently Dr. Joseph R. Berger of the University of Kentucky, and Dr. Igor J. Koralnik, of Harvard Medical School, the world’s two leading experts on PML, say that by monitoring Tysabri patients for active JC virus, doctors should be able to discontinue Tysabri soon enough to prevent any serious PML infection. Also an FDA-approved drug for schizophrenia, Abilify (Bristol-Myers) may offer the best therapy for preventing the JC virus from infecting the brain and causing PML.

In Science magazine last November, researchers published their discovery that a serotonin receptor, called 5HT2a, allowed the JC virus to cross the blood brain barrier. Abilify blocks this receptor. The Abilify angle is hypothetical. The work of doctors like Koralnik and Berger isn’t. It is apparent that Tysabri offers the best hope for critically ill MS patients. It is clearly the best medicine available for the disease. We believe given the critical needs of MS patients and the work of Koralnik and Berger that Elan will be able to return Tysabri to the market before the end of 2006.

Obviously any further progress on this front should lead to a rebound in the stock price. With over $1 billion in liquidity, Elan has the financial strength to survive even a long wait for the FDA to allow the drug to come back. Tysabri is not the only product Elan has to offer.  Elan’s NanoCrystal Technology is a novel drug delivery technology that offers superior results when coupled with poorly water-soluble compounds.
An increasing number of the drug candidates synthesized each year by pharmaceutical companies are poorly water-soluble. Many of these potentially innovative drug candidates are often abandoned because of poor pharmacokinetic properties including absorption, distribution, metabolism, and excretion.
NanoCrystal Technology has the potential to rescue a significant percentage of these chemical compounds.
Elan’s NanoCrystal Technology is part of a suite of technologies which Elan’s Drug Technologies business offers to third party clients. Elan’s Drug Technologies offers its’ technology based solutions to the global pharmaceutical industry. With over 30 products launched in 40 countries, it has a proven track record of delivering success to third party clients.

Elan could be a good bet as a rebound stock, once again.

Buy shares of Elan (ELN:NYSE) up to $12.. We believe we will probably see $25 - $30 for these shares again, in the not too distant future!


Disclaimer: All the information above is provided as a service for individuals and institutions. It should in no way be construed as a recommendation as an investment. Investment decisions should be based on the risk tolerance and planning horizon of the investor. Market participants must understand that past performance is also not a guarantee or predictor of future results.