Sharescope: Elan back on one of its roller-coaster rides again

Thursday February 22nd 2007

ELAN was off one on of its roller-coaster rides again this past few days, with investors piling in to the stock ahead of results which were issued to an expectant market on Tuesday. As things transpired, all of the buying was seemingly well informed, as Elan's fourth-quarter results were better than expected.

Revenues came in at a hefty $161m, which was a very healthy 10pc ahead of forecast. Even better, when all the books are done and the earnings before interest, tax, depreciation and amortisation worked out, the adjusted loss came in at €9.2m - well below forecasts for a loss of around $37.4m. The upshot is that the adjusted loss per share was close to 16c, compared to earlier estimates of as much as 25c.

The big thing as far as Elan is concerned remains its wonderdrug, Tysabri. During the fourth quarter, global revenues totalled $30.2m with the bulk of this, $23m, derived from the US and the balance from the EU. As we speak, a total of 6,600 patients are on the drug, but because of enrollment trends with the drug, Davys said it is reducing its Tysabri forecasts to about $430m.

The company has other strings to its bow, and if you exclude Tysabri from the picture, then fourth-quarter EBITDA revenues came in at $14.4m. Of the other products, Maxipime and Azactam were better performers during this quarter - they had been hit by supply problems in the previous quarter.

Elan provided its first guidance for 2007 this week, and this indicates that revenues, excluding Tysabri, should exceed $500m. With group operating costs of $600-650m, analysts believe the adjusted EBITDA loss should be lower than $50m, with the good news that it could even reach into positive territory by the end of the year.

Looking ahead, analyst Jack Gorman at Davys said it may be hard to sustain recent momentum without obvious near-term newsflow. So with no obvious news in the pipeline, the recent 10pc hike in the share price might just unwind in the short term - it certainly started to do just that in the immediate wake of the results posted on Tuesday.

The good news is that Davys remain very positive on the prospects for Elan's Alzheimer's franchise.

The next R&D catalyst for the stock should come along mid-year and analysts believe the stock can be driven forward by this, possibly as high as the Davys valuation of $16.10.

PAT BOYLE

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