Elan Corp.: Bounce on Goldman Positivity?

| About: Elan Corporation, (ELN)

Goldman Sachs is one of the few positive firms out on Elan (NYSE:ELN) this morning after the company presented Phase II Bapineuzumab data last night:

- Data clearly shows a statistically and clinically meaningful effect in APOE4 -ve patients, but with no clear dose-response due to low patient numbers. Data in APOE 4 +ve patients not as negative as previously assumed, but investors are likely to stay cautious on this until proven otherwise.

As a result of the positive data, Elan will announce its manufacturing plans (a new plant) within the next two months; in the firm's view, the capital commitment for a new plant, together with ongoing maintenance costs, as well as phase III costs, indicate the confidence in the likely outcome of the phase III program. The magnitude of the cognitive benefits in small numbers of patients is hard to argue with, in the firm's view; the effects on function less so.

Further, the data in patients who completed the full dose schedule in the study, in both APOE4 +ve and -ve patients, were clinically meaningful, as well as statistically significant. One of the aspects of the data that they believe investors have overlooked is that these results are in addition to existing Alzhemier's Disease therapies. In Goldman's view, that makes the data, albeit with its limitations, more compelling.


The stock may weaken acutely on concerns over dose response (genuine, in firm's view) and on the deaths in the Bapineuzumab arm (irrelevant, in their view), however, as the investment thesis has not changed, their recommendation remains Conviction Buy.

Other firms:

- Piper Jaffray reiterates Sell and lowers their target to $15 from $25.

- Canaccord reiterates Sell and lowers target to $21 from $24.

- Cowen & Co. notes that with lower conviction in Phase III success for bapineuzumab and at least two years to wait for confirmation, they have trimmed their estimated bapineuzumab value by $4-5B, or $10 per ELN share, reflecting a higher discount rate. The firm remains Neutral on ELN shares.

Notablecalls: Developing Alzheimer's compounds has always been the graveyard shift. So, in that sense I'm somewhat surprised by the harsh 30% haircut in ELN's stock price following weaker than expected data. Actually, there may be a silver lining - the APOE 4 +ve patients. That's I think more than one would have normally expected from an Alzheimer's compound.

Add this to ELN's continued commitment for a new plant and you may have a nice bounce candidate here down 10 points. I would not be surprised to see the stock retrace at least part of the 10 point haircut today.