Time to Buy Elan?

The stock that taught me the most about investing is for sure Elan (ELN), and last week, I reminded myself of the reason I do not have it in my portfolio anymore.

Elan was a remarkable company that was a leader in drug-delivery. It reformulated ordinary drugs like calcium channel blockers and naproxen, and extended the patent lives of compounds like Diltiazem, Nifedipine; and was the first company to take the nicotine patch to the OTC market. It made Don and Danny Panoz very rich, and they got into car racing, wine-making and car manufacturing.

Then in [approximately] the year 2000, the company bought Athena Neurosciences - which gave Elan the Alzheimer's program that it shares with Wyeth (WYE), and Nataluzimab [Tysabri]. After a brush with bankruptcy in 2002, and by divesting a lot of its assets, Elan bet its future on Nataluzimab and its Alzheimer's program.

The path to the marketplace for Tysabri was not easy. On March 1, 2005, the FDA issued a warning letter for Tysabri - that it causes a rare, fatal, irreversible neurological disease called progressive multifocal leukoencephalopathy [PML]. PML is caused by a virus called the polyomavirus - that attacks and inflames the brain and spinal cord. It is ugly and often fatal. So Elan and Biogen-Idec [Tysabri's marketing partner] withdrew the drug almost immediately. What happened to Elan's stock in the immediate aftermath is left as an exercise to the reader, but it looked a lot worse than what happened last week.

When ELN and Biogen Idec (BIIB) re-introduced Tysabri to the market, all multiple sclerosis patients taking the drug were clearly informed about the possibility of contracting PML, plus the drug was "black-boxed" and each patient had to/has to sign a waiver acknowledging the same. In fact, ELN and BIIB declared in a sober fashion that there would be more cases of PML as long as Tysabri remains in the market.

Last week, a couple of cases of PML were reported, and there will be more in the future. But like all drugs, the benefits have to always be weighed as opposed to the side-effects. In conclusion:

1. Tysabri is the most effective drug for treating Multiple Sclerosis on the market today.
2. Its benefits outweigh its side effects [PML].
3. Elan and Biogen-Idec have already performed their due diligence before reintroducing Tysabri to the market today.
4. While Elan has been beaten down to under $10, I think that it can go down further.
5. Elan will rise from the ashes again - like it has - in 2002 and 2005/2006.
6. I will be a buyer in the mid-single digits [if/when it gets there].

Comments

[pro:]

I think you are absolutely that the stock will go down further as more bad news are to come

2008 Aug 04 04:54 AM

[richwolol:]

It is refreshing to read an accurate historical doocument about Elan and their trials and tribulations. Also refreshing to hear the author tell what I an many others know: Tysabri is the most effective drug to combat the ravages of MS. What could have been emphasized and was not is that when taken as per the label requirements the chances of contracting PML are close to Nil. In these latest two instances, I beleive it would be extremely helpful if Elan hired a few well seasoned investigators to examine the medical history. Since both of these PML sufferers are from Europe where socialized medicine is practiced, it should be quite simple to determine what drugs these persons imbibed. There must be rocords of whatever drugs have been dispensed. I have already heard that patient number one had a history of taking Azathioprine, one of the drugs forbidden to have taken or perhaps still taking while having Tysabri infused. With patient number 2, I wonder what has taken so long to get a history of what drugs he was imbibing. Making light of their findings will make prescribing neuros more careful on who they put onto Tysabri. Elan needs the services of a old retired NYPD detective to work with the boatload of scientists they already have. r

2008 Aug 04 09:04 AM

[leh:]

Very curious to see if this stock will fall further after the successive gut punches it took last week, especially since the PML news is in many ways not news at all and the FDA has reaffirmed its approval of Tysabri.

Technically, over 100 million shares changed hands on Friday; is there really anyone left to sell? IMO there's just as likely a chance the value investors and momentum boys may be all over this stock shortly. Seems to me the smart money is going long here soon. Stay tuned...

2008 Aug 04 09:29 AM

[Ben Around:]

I think the market over reacted to bad news and it is time to buy below 11.

2008 Aug 04 09:50 AM

[philipmax:]

I really don't follow the rumor mills as much as I should. I don't understand how the system of news dissemination is conducted.

The ELAN affair has has peeked my interest though, as I watched the stock price getting battered in a matter of just a few hours.

First came the long awaited new conference about the Altzeimer's drug that shows extremely promising Phase II results. From the impression that I got (as well as the Market), the presentation was a disaster. All the negatives were highlighted and few of the positives were emphasized. Maybe the management wanted to downplay the hype I certainly couldn't tell. But the meeting was very disappointing and the stock dropped $10 in a single day.

The next day bad news came from two cases of PML. The stock dropped another $10.00 in minutes.

What's going on here? I can understand the first batch of bad news, it sometimes happens that investors look for much more than the company can deliver OK. The violent reaction the the PML news was totally unwarranted. It's not uncommon that people have bad if not fatal reactions to drugs even over the counter drugs, so why did the stock drop 50% in a single shot?

The circumstances are very suspicious to my mind. Firstly, why was the news released the next day after the conference when the PML story was already known to the companies. And why did the stock lose 2/3 of its value virtually over-night?

I the SEC asleep at the switch again? There is definitely a sinister play here that must be investigated.

Are the management of partnership companies conspiring against ELAN? Are there a group of short sellers that are using this information to exploit the stock? I wonder! Because this sordid event smacks of conspiracy !!

2008 Aug 04 09:52 AM

[bizzardo:]

It hit bottom last week. We had the blood in the streets. Shorts don't want to hear bad news. They NEED to cover to make a profit.

2008 Aug 04 12:29 PM

[bizzardo:]

Elan hit bottom last week. There was blood in the streets. Short sellers don't want to get good news. They have to buy to make a profit.

2008 Aug 04 12:32 PM

[Chuck Ponzi:]

Picking the bottom is difficult.

As I read it, (as a scientist), the ALZ trials were very positive... much more positive than any drug currently available, so I think expectations were too high going into ICAD. Was it worth losing $13 on the stock? I'll let the market be the judge, as I suppose that was probably some overreaction there.

Secondly, the PML scare only ignored by koolaid drinking longs who declared that it couldn't happen in monotherapy. In my opinion, management had brilliantly warned of that side effect. Many of the aforementioned elanians had numerous venomous diatribes against management trying to hold the drug back. However damaging it was... was it worth another $11 on the stock?

I guess when all is said and done, the question is not whether there was an overreaction (there was), but how much? And, what are your entry and exit points? I suspect it's unlikely to get much lower than $9, as this was pretty much the perfect storm for ELAN shareholders. I'm willing to risk saying it's unlikely to revisit $9 anytime soon without some exogenous event.

Chuck Ponzi

2008 Aug 04 12:46 PM

[Bapcha's St...:]

Historically, ELN has been absolutely terrible at PR. Not much has changed through the years.

Bapcha

2008 Aug 04 01:10 PM

[Randall Arnold:]

$8 or lower per share has been a great point for me... but I did add a few at $11. ELN has been too good to me in the past not to try.

2008 Aug 04 05:22 PM

[RMG:]

Good article, well written. It told me every thing I wanted to know about the two companies in a concise form.

2008 Aug 11 09:16 AM