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The Company's Biopharmaceuticals unit is engaged in research, development and commercial activities and its EDT unit focuses on product development, scale-up and manufacturing to address drug optimization challenges of the pharmaceutical industry.
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bhessel (93.45) Submitted: 12/11/07 10:16 AM : Start Price: $13.84 ELN Score: -3.98
[written 6 Apr 07]Élan (ELN) is a biotech company based in Ireland, and constitutes a poster child for the vagaries of speculation. At the beginning of the decade, the company had a marketcap around $20B and shares traded as high as $61 in June 2001…but then a grievous accounting scandal broke, and within 16 months, the stock was down below $2 amid strong doubts the company could recover. However, they hired a CEO from the USA, G. Kelly Martin, and he focused on moving Tysabri—a humanized monoclonal antibody that proved efficacious in the treatment of multiple sclerosis (MS) and Crohn’s disease (CD)—to market.Élan had entered into partnership with Biogen Idec (BIIB) in 2000—BIIB is responsible for manufacturing and distribution in Europe; ELN is responsible for distribution in the USA; revs are split 50-50 up to $700MM and 65-35 in favor of BIIB thereafter unless ELN elect to make a milestone payment of $75MM, which buys them a 50-50 split up to $1.1B, after which it is 65-35 in favor of BIIB unless ELN elect to make a second milestone payment of $50MM, which buys them a 50-50 split on all revenue thereafter. After the FDA approved Tysabri for MS in late 2004, the stock reached $27. But then in February 2007, two cases of a rare and often lethal brain disease known as progressive multifocal leukoencephalopathy (PML) were found in patients given Tysabri in combination with Avonex (BIIB’s interferon beta-1a MS drug). The companies withdrew Tysabri from the market and began a safety evaluation. This review uncovered a third case of PML, in a Crohn’s disease patient taking Tysabri in conjunction with immunosuppressant agents who had died in December 2003 from what was thought at that time to be a brain tumor, but the diagnosis was subsequently re-evaluated as having been PML. This time, the stock only fell to $3, but the collapse took a lot less time (two months).Fast forward to June 2006: satisfied with the safety review, the FDA and EMEA (European Medicines Agency) both approved the return of Tysabri to the market. The stock bounces around in the $17-to-$19 range. But enthusiasm for ELN on The Street is low. Analysts worry that there will be more PML cases. They worry that MS patients and doctors will worry about PML and won’t use/prescribe Tysabri. They worry that Biogen Idec salesmen won’t push Tysabri in Europe now that it can no longer be used in conjunction with BIIB’s old MS drug, Avonex (for whom the salesmen might be better compensated as Biogen does not have to share Avonex revenues with Élan). They might worry that folks would remember when they recommended ELN at $60 in 2001 or at $27 in 2005, except no one ever seems to track what analysts on The Street said in the past so that most likely is not a concern. Whatever, no one seems to like ELN and the stock is languishing here back down around $13.50 (marketcap of $6B).But we like ELN here.First of all, we are reasonably reassured that the folks at Élan have a handle on the PML issue and that the safety guidelines they have come up are likely to avert any more cases. Of course, some risk from that quarter remains—and there is always the chance that some new complication will arise, perhaps a problem that only becomes evident after some years have passed—but based on what is known now, we believe that MS patients will embrace a drug that reduces relapses 67% of the time and slows progression of the disease 42% of the time (both numbers twice as good as anything else out there).Now from a valuation point of view, biotech companies with their first $1B blockbuster potential drug and the earning growth to match—e.g., CELG today and AMGN, BGEN, DNA in the past—typically command multiples of 15x to 20x revenues depending on how The Street regards their pipeline. (Mature healthy pharmas have marketcaps more typically in the 4x to 6x revs range.) The potential MS market for Tysabri is 500,000+ patients in the USA and Europe. To reach revenues of $1B, Tysaberi needs about 7% of the potential market—35,000 patients—currently they have just a few thousand and expect to exceed 15,000 this year. Here is how we see Tysabri sales unfolding over the next few years (barring any more catastrophes, of course; typical annual cost of treatement is $28,500):Year End—# of Patients 2007—17,544 2008—35,088 2009—63,158 2010—101,053So, we forsee Tysabri becoming a $1B product on an annualized basis by the end of 2008. Because ELN only get about half this revenue, it takes them until sometime in 2010 to get to $1B themselves. By the end of 2010, they will be taking in $1.4B on an annualized basis (presuming they elect to pay the milestone payments to BIIB in 2008 and 2009, as we expect). At a P/S ratio of 17.5x sales, ELN shares ought to be fetching around $58/share by then. Discount that price 25% per annum to reflect the various risk factors and we figure a fair price for ELN here is around $20 ($24.50 by the end of the year if they hit our target of 17,500 Tysabri users by then).Therefore, presuming Tysabri meets expectations—and presuming the pipeline looks good—the stock appears to be somewhat undervalued here. So…what else they got?What they got is the world’s leading candidate Alzheimer’s disease (AD) treatment.Élan already back in 2002 were testing the first (and up to now, still the only) AD drug—AN 1792, a synthetic form of the beta amyloid peptide—that succeeded in reducing beta amyloid plaque in patients’ brains! Unfortunately, the stimulation of the patients’ immune system AN 1792 induced in order to mobilize the body’s defenses against the plaque also apparently engendered encephalitis, so the Phase II test was halted. Well, actually, they continued the study but switched everyone over to placebos; the results indicating the efficacy of AN 1792 were reported in 2004 based in part on autopsy reports.But that was then, and now Élan have a new AD treatment in Phase II testing: AAB-001. Unlike AN 1792, AAB-001 is not designed to stimulate the body’s immune system to fight the beta amyloid peptide, but rather provides antibodies itself. According to Élan’s website, “Animal studies have shown that this approach is equally effective in clearing beta amyloid from the brain as traditional active immunization methods” such as AN-1792…but absent what we know know to be the risky tactic of stimulating the patient’s immune response to beta amyloid.Now it is only Phase II, and their last AD Phase II ended badly, and even if the these results show both efficacy and safety, it’s a long way from there through Phase III to approval…and while AN 1792 is still the only treatment proven to reduce brain plaque in humans, other companies are not standing still and that distinction won’t last indefinitely: competition is coming. But…having said all that…AAB-001 is right now the best hope there is for AD and if it lives up to its promise, the potential annual market could be anywhere from $2MM to $10MM+…anywhere from blockbuster to humongous and beyond.So ELN is not a one-trick pony. Aside from Tysabri and AAB-001, they have some other stuff under development…and they actually have some real products and real revenues (unlike Dendreon, our other biotech investment): $560MM worth or revenue in 2006 with no help whatsoever from Tysabri. Not enough to generate black ink, but it ain’t hay. For more details, check out their website.Bottom line: a $6B company that should be worth $9B here, likely will be worth $20B in 21 months or so, and has a reasonable shot at a $40B+ valuation in the next five years or so.
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hook53 (< 20) Submitted: 12/20/07 11:32 AM
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Nice job, this is one of the most comprehensive snap shot re ELAN, I've both and sold a few times over the last several years and made $$$, Question? Is Elan still envolved w/ specialized delivery systems of oral medications. I think they may have developed something called microencapsulation/diffusion of sort! Let me know!ThanksHook53
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bhessel (93.45) Submitted: 12/24/07 4:42 PM
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I expect you are referring to their "NanoCrystal" technology. The concept is to decrease the particle size of an active agent, thereby increasing the surface area and thus, the rate at which the drug will interact with the patient's body. This has a number of potential advantages which are detailed here on Elan's website:http://elan.com/EDT/nanocrystal%5Ftechnology/The process relies on absorption by stabilizers to maintain the small particle state, once it is achieved, which stabilizers are "generally regarded as safe", or "GRAS stabilizers"...I kid you not, one of my all time favorite biotech acronyms! We are having a drought here in North Carolina and are not allowed to water our lawns...for months I have been heroically resisting an powerful impulse to apply GRAS stabilizers to my front yard to see if they might serve....ELN had $285MM of revs in 2006 associated with their drug technologies division, out of total revs of $560MM...so this is a significant contributor. Not sure how much of that figure reflects NanoCrystal-related income, but I should guesstimate the lion's share. The business is not growing very fast (9% from 2005 to 2006) but it appears to have the potential to ramp up and bears watching. Would be nice if growth here could keep pace with tysabri sales growth, but that appears to be unlikely.
I expect you are referring to their "NanoCrystal" technology. The concept is to decrease the particle size of an active agent, thereby increasing the surface area and thus, the rate at which the drug will interact with the patient's body. This has a number of potential advantages which are detailed here on Elan's website:
http://elan.com/EDT/nanocrystal%5Ftechnology/
The process relies on absorption by stabilizers to maintain the small particle state, once it is achieved, which stabilizers are "generally regarded as safe", or "GRAS stabilizers"...I kid you not, one of my all time favorite biotech acronyms! We are having a drought here in North Carolina and are not allowed to water our lawns...for months I have been heroically resisting an powerful impulse to apply GRAS stabilizers to my front yard to see if they might serve....
ELN had $285MM of revs in 2006 associated with their drug technologies division, out of total revs of $560MM...so this is a significant contributor. Not sure how much of that figure reflects NanoCrystal-related income, but I should guesstimate the lion's share. The business is not growing very fast (9% from 2005 to 2006) but it appears to have the potential to ramp up and bears watching. Would be nice if growth here could keep pace with tysabri sales growth, but that appears to be unlikely.
bhessel (93.45) Submitted: 1/24/08 5:41 PM
written Mon, 21 May 07Our neuropharma company, Élan (ELN), announced today ( http://www.elan.com/News/full.asp?ID=1004531 ) in conjunction with their development partner Wyeth (WYE) that they have determined to initiate a Phase 3 trial of their Alzheimer’s disease humanized monoclonal antibody, bapineuzumab (AAB-001) before the end of 2007, subject to regulatory approval. This decision is based on preliminary data from the two ongoing Phase 2 trials, which are not due to be completed until 2008. It is unusual for a Phase 3 trial to be initiated before Phase 2 is complete; the clear implication is that the preliminary data from the Phase 2 tests—no data from Phase 2 are expected to be made public before completion of the trials in 2008—must be very strong…evidently strong enough, in management’s judgment, to persuade regulators to approve this move.ELN closed at $18.69, up 13% on the day.
written Mon, 21 May 07
Our neuropharma company, Élan (ELN), announced today ( http://www.elan.com/News/full.asp?ID=1004531 ) in conjunction with their development partner Wyeth (WYE) that they have determined to initiate a Phase 3 trial of their Alzheimer’s disease humanized monoclonal antibody, bapineuzumab (AAB-001) before the end of 2007, subject to regulatory approval. This decision is based on preliminary data from the two ongoing Phase 2 trials, which are not due to be completed until 2008. It is unusual for a Phase 3 trial to be initiated before Phase 2 is complete; the clear implication is that the preliminary data from the Phase 2 tests—no data from Phase 2 are expected to be made public before completion of the trials in 2008—must be very strong…evidently strong enough, in management’s judgment, to persuade regulators to approve this move.
ELN closed at $18.69, up 13% on the day.
bhessel (93.45) Submitted: 1/24/08 5:47 PM
[written Thu, 19 Jul 07]The European Medicines Agency (EMEA) today rejected an application from Élan (ELN) and their partner Biogen Idec (BIIB) to allow the use of Tysabri as a treatment for Crohn’s disease (CD). Regulators stated that there was “insufficient evidence” of Tysabri’s effectiveness in treating the chronic gastrointestinal inflammatory disease. They cited the risk of dangerous side effects, particularly PML (progressive multifocal leukoencephalopathy), and concluded that the benefits of Tysabri for CD didn’t outweigh the risks.ELN and BIIB stated that they would appeal the decision; a verdict on said appeal would be expected in the first quarter of 2008.Meanwhile, the FDA are still considering ELN’s proposal to offer Tysabri for CD in the USA; an advisory committee meeting is scheduled for 31 July and a final decision is expected by 15 October.
[written Thu, 19 Jul 07]
The European Medicines Agency (EMEA) today rejected an application from Élan (ELN) and their partner Biogen Idec (BIIB) to allow the use of Tysabri as a treatment for Crohn’s disease (CD). Regulators stated that there was “insufficient evidence” of Tysabri’s effectiveness in treating the chronic gastrointestinal inflammatory disease. They cited the risk of dangerous side effects, particularly PML (progressive multifocal leukoencephalopathy), and concluded that the benefits of Tysabri for CD didn’t outweigh the risks.
ELN and BIIB stated that they would appeal the decision; a verdict on said appeal would be expected in the first quarter of 2008.
Meanwhile, the FDA are still considering ELN’s proposal to offer Tysabri for CD in the USA; an advisory committee meeting is scheduled for 31 July and a final decision is expected by 15 October.
bhessel (93.45) Submitted: 1/24/08 5:52 PM
[written Tue, 31 Jul 07]An FDA advisory committee voted 12-3 today to recommend approval of the use of Tysabri for Crohn’s disease patients in the USA. The FDA is not required to follow the advice of their advisory committees, but generally does. A decision by the agency is expected by 15 October.
[written Tue, 31 Jul 07]
An FDA advisory committee voted 12-3 today to recommend approval of the use of Tysabri for Crohn’s disease patients in the USA. The FDA is not required to follow the advice of their advisory committees, but generally does. A decision by the agency is expected by 15 October.
bhessel (93.45) Submitted: 1/24/08 5:55 PM
[written Mon, 15 Oct 07]lan (ELN) and Biogen Idec (BIIB) jointly announced today that the FDA have informed them that regulators have decided to take up to another three months to review the companies’ application to market Tysabri to Crohn’s disease (CD) patients in the USA. According to the press release, “The companies have been informed by the FDA that the Agency requires additional time to review information regarding the proposed TYSABRI risk management plan for Crohn’s disease. Under this revised timeline, the companies anticipate action from FDA on or before January 13, 2008.”Despite the 12-3 endorsement of the companies’s application by the FDA’s advisory committee in July, The Street had apparently been anticipating an FDA rejection in the wake of the rejection of a similar application by EU regulators, also in July. However, this delay is an indication that the application is being taken seriously and apparently the market calculus has shifted in favor of eventual approval, as ELN closed up 8% today on heavy volume.
[written Mon, 15 Oct 07]
lan (ELN) and Biogen Idec (BIIB) jointly announced today that the FDA have informed them that regulators have decided to take up to another three months to review the companies’ application to market Tysabri to Crohn’s disease (CD) patients in the USA. According to the press release, “The companies have been informed by the FDA that the Agency requires additional time to review information regarding the proposed TYSABRI risk management plan for Crohn’s disease. Under this revised timeline, the companies anticipate action from FDA on or before January 13, 2008.”
Despite the 12-3 endorsement of the companies’s application by the FDA’s advisory committee in July, The Street had apparently been anticipating an FDA rejection in the wake of the rejection of a similar application by EU regulators, also in July. However, this delay is an indication that the application is being taken seriously and apparently the market calculus has shifted in favor of eventual approval, as ELN closed up 8% today on heavy volume.
bhessel (93.45) Submitted: 1/24/08 6:01 PM
[written Thu, 25 Oct 07]lan (ELN) announced their 3Q07 results today ( http://www.elan.com/News/full.asp?ID=1067428 ) and as usual, they lost money…although they lost two-thirds less money than a year ago and revenues were up 43% as Tysabri income begins to kick in ($100MM in revenues worldwide in the quarter split between ELN and partner BIIB)…but the most interesting point was this statement by CFO Shane Cooke: “We were particularly pleased that during the quarter we exceeded the 15,000 patient target which we need for Tysabri to breakeven in the commercial setting for the MS indication. At the end of the quarter, there were about 17,000 patients on therapy, including about 1,000 in clinical trials.”We (Intelledgement) are projecting 17,500 paying customers by year end (not counting those in clinical trials), so things are nicely on track here. But wait, there’s more…Cooke also said, “We are optimistic that we will better our previous target of reporting Adjusted EBITDA losses of about $50 million for the full year. In the longer term, the continued growth in revenue from Tysabri will drive our return to profitability and, with Biogen Idec, we are targeting to have 100,000 patients on therapy by the end of 2010.”LOL that is a very fine number…we have been projecting 101,000 patients and $58/shr by the end of 2010…this is not including any AAB-001 revenue, although the scenario presumes the pipeline remains healthy…if ELN succeed in launching AAB-001 Phase 3 testing by early 2008, results could be available by the end of 2009 which means—if the results are good—the product could be approved before the end of 2010, in which case we should have to revise our revenue and valuation projections upwards.True, tough work, but someone has to do it. :-)
[written Thu, 25 Oct 07]
lan (ELN) announced their 3Q07 results today ( http://www.elan.com/News/full.asp?ID=1067428 ) and as usual, they lost money…although they lost two-thirds less money than a year ago and revenues were up 43% as Tysabri income begins to kick in ($100MM in revenues worldwide in the quarter split between ELN and partner BIIB)…but the most interesting point was this statement by CFO Shane Cooke: “We were particularly pleased that during the quarter we exceeded the 15,000 patient target which we need for Tysabri to breakeven in the commercial setting for the MS indication. At the end of the quarter, there were about 17,000 patients on therapy, including about 1,000 in clinical trials.”
We (Intelledgement) are projecting 17,500 paying customers by year end (not counting those in clinical trials), so things are nicely on track here. But wait, there’s more…Cooke also said, “We are optimistic that we will better our previous target of reporting Adjusted EBITDA losses of about $50 million for the full year. In the longer term, the continued growth in revenue from Tysabri will drive our return to profitability and, with Biogen Idec, we are targeting to have 100,000 patients on therapy by the end of 2010.”
LOL that is a very fine number…we have been projecting 101,000 patients and $58/shr by the end of 2010…this is not including any AAB-001 revenue, although the scenario presumes the pipeline remains healthy…if ELN succeed in launching AAB-001 Phase 3 testing by early 2008, results could be available by the end of 2009 which means—if the results are good—the product could be approved before the end of 2010, in which case we should have to revise our revenue and valuation projections upwards.
True, tough work, but someone has to do it. :-)
bhessel (93.45) Submitted: 1/24/08 6:05 PM
[written Thu, 13 Dec 07]After the close yesterday, our multiple sclerosis (and hopefully soon, Crohn’s disease) drug maker’s marketing partner for tysabri, Biogen Idec (BIIB), announced that no one wanted to buy them, afterall—they had been soliciting takeover offers in recent weeks—and today ELN closed down 7% in heavy trading.Why? Because there is a clause in lan’s agreement with BIIB that allows them to take back the tysabri marketing rights at a bargain price if there is a change in control of Biogen Idec. Folks were imagining at the least that ELN management might be able to negotiate an improved deal with any successful bidder. Now that apparently won’t happen.This is only marginally news but having your investment clipped by 7% in one day due to something that has almost nothing to do with your company’s real business is so emblematic of what we speculators have to put up with that it is worth attending.Look at the bright side…it could have been worse…BIIB stock was down 24% today! LOL
[written Thu, 13 Dec 07]
After the close yesterday, our multiple sclerosis (and hopefully soon, Crohn’s disease) drug maker’s marketing partner for tysabri, Biogen Idec (BIIB), announced that no one wanted to buy them, afterall—they had been soliciting takeover offers in recent weeks—and today ELN closed down 7% in heavy trading.
Why? Because there is a clause in lan’s agreement with BIIB that allows them to take back the tysabri marketing rights at a bargain price if there is a change in control of Biogen Idec. Folks were imagining at the least that ELN management might be able to negotiate an improved deal with any successful bidder. Now that apparently won’t happen.
This is only marginally news but having your investment clipped by 7% in one day due to something that has almost nothing to do with your company’s real business is so emblematic of what we speculators have to put up with that it is worth attending.
Look at the bright side…it could have been worse…BIIB stock was down 24% today! LOL
bhessel (93.45) Submitted: 1/24/08 6:39 PM
[written Mon, 14 Jan 08]lan announced today that the FDA has approved tysabri for use by patients in the USA with moderate-to-severe Crohn’s disease. The press release stated, “TYSABRI is now approved for inducing and maintaining clinical response and remission in adult patients with moderately to severely active Crohn’s disease (CD) with evidence of inflammation who have had an inadequate response to, or are unable to tolerate, conventional CD therapies and inhibitors of TNF-alpha.… TYSABRI will be available to Crohn’s patients by the end of February 2008.”There are an estimated 500,000 people in the USA who suffer from CD. As tysabri is envisaged only as a treatment of last resort, the effect on sales is expected to be modest.Late last year, EMEA decided against making tysabri available for CD patients in Europe. ELN and their partner Biogen Idec (BIIB) are currently appealing that decision; tysabri is approved both in Europe and the USA for use by multiple sclerosis patients.
[written Mon, 14 Jan 08]
lan announced today that the FDA has approved tysabri for use by patients in the USA with moderate-to-severe Crohn’s disease. The press release stated, “TYSABRI is now approved for inducing and maintaining clinical response and remission in adult patients with moderately to severely active Crohn’s disease (CD) with evidence of inflammation who have had an inadequate response to, or are unable to tolerate, conventional CD therapies and inhibitors of TNF-alpha.… TYSABRI will be available to Crohn’s patients by the end of February 2008.”
There are an estimated 500,000 people in the USA who suffer from CD. As tysabri is envisaged only as a treatment of last resort, the effect on sales is expected to be modest.
Late last year, EMEA decided against making tysabri available for CD patients in Europe. ELN and their partner Biogen Idec (BIIB) are currently appealing that decision; tysabri is approved both in Europe and the USA for use by multiple sclerosis patients.
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