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The comeback of a prodigious biotech company with unique scientific capability and a revered history of breakthrough achievements is always welcome. Elan’s (ELN) stock price has doubled since November 2010, at the time many investors had given up on the firm and sold stock they had long valued for its great science and scientists.

As a matter of fact, Elan’s science has always been appreciated, even during the firm’s crises in 2008, when its stock crashed. At the time, mismanagement and other circumstances had broken the back of the firm’s finances, paralyzing its scientists. It was heartbreaking watching the firm’s beautiful minds held hostage by a paucity of funds and huge, uncalled-for debt. Both fans and foes deemed the damage to be insurmountable.

Contrary to many investors’ expectations, instead of going down the drain, in November last year the stock began to steadily climb up. When the stock doubled in the past six months, more investors and analysts began to pay attention. The stock’s unexpected outperformance created a fertile land for gossip. Analysts, writers and chatters suggested various explanations for the stock rally; the long-lasting speculation, though, was the firm’s acquisition by a deep-pocketed pharmaceutical company.

The harm done to Elan’s finances led to the crashing of its stock in 2008. The damage was extensive and debilitating and clearing the mess was a painful process that required a lot of hard decisions. The good news was that the most valuable assets for biotechnology firms -- creative scientists, excellent science, technologies, discoveries, inventions and patents -- remained intact.

Yet it was obvious that the great scientific infrastructure would not realize its full potential through the firm’s old practices. The scientific productivity of Elan exceeded by far its financial capability to turn the abundant discoveries into revenue-generating products. A change was imperative and the new commanders instituted a new strategy that would guarantee taking full advantage of the scientific achievement without crashing the firm’s finances. The stratagy began to materialize in the fourth quarter of 2009.

In a bold move aimed at stopping the cash bleed in the firm’s neuro-immunology drug development unit, Elan BioNeurology, Elan sold Alzheimer’s immunotherapy program to Janssen Alzheimer Immunotherapy, a Johnson & Johnson (JNJ) subsidiary. For a while, investors and analysts viewed this transaction as a desperate act, marking the beginning of Elan’s demise. It took a few months for the investment community to realize that this decision would apparently save the firm millions of dollars in unaffordable spending. The transaction gave Elan a 49.9% equity interest in Janssen, entitling it to a 49.9% share of the profits, in addition to certain royalty payments upon commercialization of any of its products.

The second big move in early May 2011 was the merging of Elan’s Drug Technologies unit with the drug delivery firm Alkermes (ALKS) into a new holding company under the name Alkermes plc. According to both firms, the newly created firm is expected to become immediately and sustainably profitable, backed with combined expertise in developing a diversified pipeline products based on the science and technologies emanating from both firms.

This move was followed by another by Elan in the same month. Elan established a business deal with a private, little-known firm called Proteostasis Therapeutics. Elan invested $20 million into equity capital of the small firm and expressed willingness to put up to $30 million more in collaboration funding over five years. Like Elan, Proteostasis Therapeutic develops disease-modifying drugs for neurodegenerative disorders, including Parkinson's disease, Huntington's disease, multiple sclerosis and amyotrophic lateral sclerosis (ALS), plus dementia-related diseases, including Alzheimer's.

The difference, though, is that this firm’s platform aims at modulating key proteaostasis network pathways, whose deregulation results in the misfolding of the proteins, which is the direct root-cause of these and many other diseases. Creating therapeutic molecules that deal with misfolding of proteins has been the dream of drug developers since the advancement of the genomic and proteomic disciplines. With its long-standing strength in proprietary animal models, biology, medicinal chemistry and clinical development, Elan is expected to put Proteostasis pipeline products on the fastest track towards approvals.

The firm’s Alzheimer program is going forward at the hands of Janssen at no cost to Elan. Bapineuzumab, the most advanced of the AD therapeutics, is cruising the Phase III trial towards the approval shore. A statement attributed to Johnson & Johnson that the drug could be one of the most valuable drugs in the pipeline was very assuring. The BioNeurology wing of the firm in general has encouraging news: Tysabri (natalizumab) is still the best MS treatment in town and its sales are increasing for this disease and are expected to grow much more for MS, as well as for Crohn’s disease.

This optimistic expectation emanates from the fact that the antibody test and other diagnostic measures are proven helpful in stratifying patients at risk for developing progressive multifocal leukoencephalopathy, which limited the sales of Tysabri. As a matter of fact, the European Commission has approved the inclusion of the anti-JC virus antibody status as an additional factor to aid in pinpointing patients at risk for developing PML.

The EC has also concluded that the quality, safety and efficacy of Tysabri continue to be adequately demonstrated and renewed, which led the agency to renew the EU five-year marketing authorization.

For Elan’s EDT wing, the merger with Alkermes is expected to be extremely beneficial to both firms. According to the firms’ press release, in addition to Elan securing $500 million payment plus some other payments, the newly merged firm will have immediate profitability on a cash earnings basis and diversified, growing revenues from 25 commercial products; five high-growth commercial products (Risperdal, Consta, Invega, Sustenna, Ampyra Vivitrol and the newly approved diabetes drug Bydureon) have long patent lives and significant growth potential in large therapeutic areas.

The firm will have a strong, neurology pipeline of proprietary and partnered product candidates in clinical development, including several late-stage proprietary product candidates. The new firm will be backed by Elan’s EDT’s NanoCrystal® technology, and its oral controlled release drug technology, in addition to Alkermes’ long-acting injectable drug technologies. Moreover, the combined GMP manufacturing facilities is estimated as having world-class capabilities for producing complex drug products

What about the takeover? We don’t know whether a takeover would be better for investors than leaving this firm alone to execute its extremely ambitious programs. If the possibility of acquisition exists, no matter what, it would probably come from Pfizer (PFE) buying the shares of Elan in Janssen Alzheimer’s Immunotherapy. If this possibility materializes, the acquisition would boost ELN stock in the immediate term.

Disclosure: Long Elan.

Source: Pharma: Don't Count Elan Out