Is Elan in Double Trouble?

A few weeks ago I blogged about a couple of analysts cautioning investors that shares of Irish drugmaker Elan (ELN) would be volatile surrounding the Alzheimer's conference the end of this month.

That has certainly proven to be the case, especially on Friday as the second firm this week initiated coverage of the stock, but this time with a "Sell" rating. And coincidentally, another analyst downgraded the stock Friday morning to a "Sell."

In a business where "Sell" ratings are more common than they used to be, but still relatively rare it's pretty remarkable when you get two of them on no real news at the same time.

Jonathan Aschoff and Ling Wang at Brean Murray Carret & Co. are telling clients to dump the stock which they think could hit $18 within the next year or so. It's all about the Alzheimer's drug Bap, for short, which Elan shares with Wyeth (WYE).

The companies are announcing detailed results of their mid-stage test at the Chicago confab in late July. But Aschoff and Wang write that the recent 36 percent run-up in ELN is "unwarranted." "We believe that many issues...will evidence themselves upon the full data release...generating downward pressure on the stock." They call the phase two data released so far "underwhelming" and say they make them "highly doubtful of success." BMC & Co. would like to do investment banking for Elan.

Meantime, Caroline Stewart at Piper Jaffray is downgrading ELN from "Neutral" to "Sell," but keeping her $25 price target. She, too, expresses skepticism about the robustness of the pending detailed data. The bottom line, she writes, in her research note to clients is that she thinks "the recent stock appreciation (is) unwarranted based on the available data and the high risks associated with any drug in development for Alzheimer's." PJ makes a market in ELN.

A few Elanians have been showing me some love following my blog post on Bap earlier this week, but I'm sure the love-hate relationship they seem to have with me and other reporters is going to swing back after they read this entry.

Tom Rogers, who says he has invested "six-figure money in Elan," wrote, "Thank you for the report and the neutral stance you give."

And Linda Langsjoen says, "I guess there will be no umbrage taken by us Elanians. No ganging up, either--unless it's to blow a few kisses your way!"

But then Michael Pohndorff--not an Elanian--brings me back to earth. Presumably, he's an investor in and/or an employee of Schering-Plough (SGP) and/or Merck (MRK). He complained that I had not reported on or blogged about a new study of Pfizer's Lipitor that he believes may vindicate MRK and SGP's Zetia and Vytorin. Mr. Pohndorff wrote in two separate emails:

"Your silence is deafening. This underscores that you are an overly dramatic reporter who used your position to destroy a company and its investors. You are scum for not reporting on (the Lipitor study). Scum."

Comments

[leh]

Mike,

Please keep it coming re any info you can uncover on ELN and Bap. I was optimistic way back in March when Barrons ran that very positive piece on Bap/ELN/WYE, but almost everything I've read since makes me very leery of this story, along with ELN and WYE's chances of getting this to market soon. ELN in particular has acted like Nazis towards reporters looking to dig a little deeper here. I smell a rat, and think these two analysts are correct in advising extreme caution here, especially with the FDA's ever-tightening standards.

[Tom B]

Well, obviously, analysts frequently put in sell ratings so they can manipulate the price and buy more themselves. Happens often in Tech-- AAPL, etc. But, personally, I had some Elan I bought at $5.22 and I took the run up as an opportunity to "take the money and run". Plenty CAN go wrong with any drug trial, and in particular any trial involving such a poorly understood disease as Alzheinmer's

[David E.Kaplan]

leh, that is a pretty strong comment. Nazis? No wonder you do not identify yourself. I have missed the stories where Elan has been shown to have murdered, tortured, imprisoned, and forced reporters to work as slave laborers. The worst I have heard is that Elan did not permit some reporters (I only know of one) and some analysts to have to listen to the webcast of the May 7 presentations in Boston instead of being able to sit in the audience, and that Elan wanted to be able to listen (not attend) to a live analyst conference call.

As for being "very leery" of the Bap/ELN/WYE story, and the companies' chances of getting Bap to market soon, that is your preogative. It is prudent to be a questioning investor. Perhaps you can identify some other companies that are further ahead of Elan and Wyeth in finding a disease modifying treatment for AD? I for one, have spent ten years getting to understand Elan and its science, and while the company has had some very tough times, I have averaged down after additional due diligence, and have a great deal of confidence that the value of Tysabri, Elan's AD pipeline (much more than just Bap, the leading candidate), Elan's Parkinson's pipeline and EDT are not yet nearly reflected in the current share price.

This is a classic battle between the longs and the shorts. We shall see who prevails in the end.

Good luck with your investments.

[fabricator]

Hey Mike, off topic: are you from a small town in South Texas known as Beeville? I knew a Mike Huckman from there.

[singh]

greattttttttttttttttt