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11/16/99 Dow Jones Int'l News Serv. 01:30:00
Dow Jones International News
Copyright (c) 1999, Dow Jones & Company, Inc.
Tuesday, November 16, 1999
Europe Stock Focus: New Drugs To Help Elan Share Price
By Quentin Fottrell
DUBLIN -(Dow Jones)- Shares in Irish pharmaceutical company Elan Corp. (ELN)
hit a new 52-week low recently but a recovery should begin in the next few
months - as long as new drugs are launched without further hiccups.
Elan's shares began a rapid descent last month when the U.S. Food and Drug
Administration delayed the launch of Frovatriptan, a much-hyped anti-migraine
drug owned by Vanguard Medica PLC (U.VGM). Elan holds the North American rights
to the drug.
The FDA said it needs further non-clinical information from Vanguard, which
is likely to delay the drug's market debut until late 2000.
Elan shares plummeted 10% to EUR26.47 on the Irish Stock Exchange and 18.4%
to $27.50 on the New York Stock Exchange when the news broke and have continued
to decline.
Shares hit a year low of EUR22.5 earlier in November. They opened Monday at
EUR23.47 down 41.8% from their EUR40.35 annual high in March. At the current
price, the company is capitalized around EUR6.2 billion.
"If there have been delays on previous drugs, how confident can shareholders
be that other drugs will be released on schedule?," said one Dublin-based
analyst. "That's why the smooth marketing of its pipeline drugs is so crucial."
2000 Frovatriptan Revs Seen At $26 Million
But Jack Gorman, an analyst at Davy Stockbrokers in Dublin, forecasts a 10%
to 15% short-term recovery in the stock due to the company's solid underlying
growth and inexpensive valuation. He added that the backlash to the
Frovatriptan news was overdone.
Davy's projected Frovatriptan revenues for 2000 were $26 million, which results in
a 3 cent reduction in EPS. It forecast 2001 revenues of $50 million,
which takes 5 cents off the existing EPS forecast of $1.79.
When reporting earnings last month, Elan said it expects 4 cents to be shaved
off EPS in 2000 due to the Frovatriptan delay, but some analysts believe this
is a worst-case scenario.
Despite this news, Davy is looking for a 1999 profit of $341.2 million and
$409.7 million for 2000. It also forecasts a P/E ratio for Elan of 21.5 for
this year and 18.1 for 2000.
This compares with an less-favorable P/E rating for the U.S. S&P drug sector
of 35.7 for 1999 and 30.7 for next year. Davy's sees a P/E rating for the
European drug sector of 26.3 for this year and 18.1 for next.
Joan Garahy, analyst at Goodbody Stockbrokers in Dublin, is also taking a
cautious approach to the share price: "We've recently moved from having a
strong buy on the stock to calling it a longer-term buy even though third
quarter results were in line with expectations."
"This has more to do with Elan's earlier failure to deliver two other drugs,
Zonegran and Neurobloc," said Garahy. "They were due to be launched this year,
but were pushed into the first quarter of 2000. It's a confidence issue, which
is virtually impossible to quantify."
Garahy forecasts a P/E ratio for shares at $23 at the 18.5 mark for 1999 and
15.2 for 2000. She sees a slightly higher profit than Davy's of $355.1 million
for this year and $459.1 million for next.
Ziconotide Seen As Next Star Product
Elan certainly has an enviable growth record compared with many of its
rivals, analysts said. Revenue has soared 42% a year since 1995, surpassing the
15% revenue growth in the U.S. S&P drug sector for that period.
The dilutionary impact of equity-funded acquisitions also failed to dampen
Elan's 23% annual EPS growth since 1995, which again overshadowed the 15% EPS
growth among its U.S. competitors for that period.
Third quarter net income rose 28% to 32 cents a share on revenues up 48% to
$253 million. Elan attributed the earnings increase to a range of products on
the U.S. market, including Zanaflex, a central nervous system disorders
treatment, and Skelaxin, a skeletal-muscle pain reliever.
Most analysts agree that although the perceived risk to the share price has
increased, it can be offset with good news related to new products. Neurobloc,
Ziconotide and Zonegran are now all earmarked for launch in 2000.
Of these, Ziconotide, a treatment for severe chronic pain in terminally ill
cancer and Aids patients and for chronic neuropathic pain in non-terminal
patients, is the star drug. Studies of the drug are due to be filed with the
FDA this quarter.
Ziconotide provides a viable alternative to morphine, which can cause serious
side effects. As a result, Davy's said this drug has the potential to rapidly
become the largest revenue-producing product in Elan's portfolio, with peak
annual sales exceeding $300 million.
While its new army of drugs awaits approval, Elan has invested in new
technologies developed by smaller firms. Earlier this month, it formed a joint
venture with Knoxville, Tenn.-based Photogen Technologies Inc. (PHG) to develop
a non-surgical procedure to detect and treat lymph node cancers.
Elan's longer term product developments have also earned it kudos, especially
its research into Alzheimers disease, which affects about 20 million people
worldwide and is the fourth largest cause of death each year in the U.S.
"The Alzheimer's research is exciting, but it's too far off to be factored in
at this stage," said Philip Molloy, analyst with ABN-AMRO Stockbrokers in
Dublin. "The share price will continue to be influenced by Elan's more
immediate hurdles."
-By Quentin Fottrell; Dow Jones Newswires, 00-353-1-676-2189; qfottrell
@ap.org
---- INDEX REFERENCES ----
COMPANY (TICKER): Elan Corp. PLC; U.ELN (ELN U.ELN |
