Bull/Bear Report -- Elan Pharmaceuticals - A miracle for patients and investors alike?
Psychology of the market is everything and right now that psychology is decidedly negative. As such, stock values are depressed as participants toss the baby with the bathwater.
Even the positive stories are seeing dampened enthusiasm. Take our stock of the week, Elan Corp. plc (ELN). The company announced success with an early trial of its Alzheimer drug, bapineuzumab, earlier in the month.
Shares moved higher on the news, but not nearly what they would have done had there been positive sentiment in the market.
Think about it. A biotechnology company shows positive success for a drug that aids treatment of a very horrible disease affecting millions and potentially millions more down the road.
Can you say blockbuster?
Shoot, in a bull market this stock would be skyrocketing right now. Not ELN.
Learn more about Elan's latest drug, and find out how our bloggers come down in this week's Bull/Bear Report.
Oh sure the stock rallied, but the move was a dud in my humble opinion.
Indeed, there are risks associated with ELN, most importantly later stage trial results. Should those fail, the stock has downside risk. That may be true, but because the stock only rallied modestly the downside risk is considerably less.
I don’t think those trials will fail. ELN is a proven winner and they have done this before. Remember its success with MS drug, Tysabri?
I’d be willing to speculate on ELN at current levels. Here are your opinions on the long and short side of ELN:
The Bull Case - Jim Van Meerten
Buy Elan before you forget! I've been following Elan Pharmaceuticals for some time but not for their drugs. I used to live in Gwinnett County Georgia and back then Donald Panoz President and Chairman of Elan was buying up land in Gwinnett to build a winery. I visited it from the beginning and really liked the wine.
Recently, Elan began coming up on my screeners with a 96% buy on BarCharts. The stock began trading above it's 20, 50 & 100 day moving averages which are part of my required litmus test. When Ken Kam started mentioning the stock I knew I had to look deeper into it. Every place I look there are positive stories, when that happens I start to worry.
As boomers approach their 70's they start to worry about quality of life. They see drugs are controlling a lot of the causes for premature death: Weight, Diabetes, High Blood Pressure and Cholesterol. Many of their older relatives and parents are living longer but sliding into a dark hole of forgetfulness and death called Alzheimer's. They are really afraid of this disease more than any other.
Elan's trial of Bapineuzumab - nicknamed Bappy - may offer protection and cure. Good trial results are all over the news. You may find boomers taking it just because.
Here's my caution: I'd buy the stock on its technicals alone but it really has a story being covered by the news and a product that may have one of the largest markets in history. Why the caution?
I've seen press releases before about new wonder drugs. Sometimes later phase trials don't pan out or someone else comes along with an cheaper, more effective drug just when you're about to come to market. I worry that Elan may not be able to dominate market share when this drug goes into production.
Buy the stock and ride it on up but PLEASE, PLEASE protect yourself with a trailing stop loss in case the drug gets blind sided by later trial results or competition.
The Bear Case - Don Barrett
Elan Corporation is a neuroscience based biotechnology company located in Ireland and the U.S. ELN operates in two segments: Biopharmaceuticals and Elan Drug Technologies. The biopharmaceuticals segment is engaged in the research of drugs for the treatment of Alzheimer’s, Parkinson’s, multiple sclerosis, Crohn's disease, and chronic pain. The Elan segment is involved in drug optimization and clinical trial management.
Before we delve into ELN’s latest entry bapineuzumab to fight Alzheimer's disease, I would like to show what is involved in bringing a drug from the discovery to when the new drug may be marketed.
After a new drug is discovered the first step is preclinical studies to establish a scientific basis to show the drug is reasonably safe and that it may be effective in treating a particular disease. Then the drug enters Phase I which is the first time the drug is administered to humans and this phase is just to test for risks and possible side effects. Phase I will usually have less than 100 volunteers. Phase II usually enrolls several hundred volunteers with the actual condition to set dosage requirements and to look for signs of effectiveness on the condition. Phase III trials enroll several hundred to several thousand volunteers at different sites to test the effectiveness and safety of the drug, and this data is what the FDA will use in deciding to approve a drug. Phase IV is used after a drug is approved for marketing to monitor the health of the individuals using the new drug and to monitor how effective the drug has been on the treatment of the condition.
ELNs new drug bapineuzumab has just entered Phase III and may not be marketed until 2010. Although ELN has several drugs on the market, bapineuzumab has the potential to be a blockbuster for ELN. Currently in the U.S. there are 5.2 million Alzheimer’s sufferers and over 26 million worldwide, and this number is projected to grow to over 106 million by 2050. The Alzheimer's Association reports there are currently 150 clinical studies on Alzheimer's being conducted.
Even though ELN’s new drug has had mixed results, the stock hit a 52 week high of $35.96 Friday. It is my opinion based on Elan’s current drug portfolio and the fact that bapineuzumab may not be on the market until 2010, I would not be an investor in ELN at this time. My view is that ELN is at a 52 week high and between now and the marketing of bapineuzumab in 2010 or so ELN will be going for less than the current $36 price. I would also say that bapineuzumab may very well be a blockbuster for ELN as we near 2010 but I would put my capital to work in other places for now and keep a close eye on ELN and bapineuzumab for results on the Phase III trials.
Indeed there is risk associated with owning ELN at elevated prices. Investors can use stop losses to mitigate risk as Van Meerten suggested. In my opinion the reward is well worth the risk.
If ELN delivers in later stage results we could see this stock double from here. Add in some positive sentiment and who knows where this goes.
Jamie Dlugosch
Executive Editor, InvestorPlaceBlogs