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Biotech / Medical : Elan Corporation, plc (ELN) -- Ignore unavailable to you. Want to Upgrade?

To: jayhawk969 who wrote (3550)	11/13/2002 2:38:40 PM
From: RCMac	Read Replies (1) \| Respond to of 10345

Mike King also says the deal stinks, according to TSC: thestreet.com Banc of America Securities biotech analyst Mike King downgraded Ligand to market perform from buy, raising serious issues with the new Elan deal. "Given the slower-than-expected launch of Avinza and the current lack of a co-promotion partner, we are concerned that Ligand will be unable to reach a sufficient Avinza sales level to justify the transaction," he wrote in his downgrade note. King's firm doesn't have a banking relationship with Ligand. Diving into the details, King says the $135 million convertible debt will add significant dilution to current shareholders -- as much as 24% -- if the offering is fully converted to common stock. "Ligand has spent several prior quarters cleaning up the balance sheet to remove debt; this offering puts the company farther in the hole than it has ever been before," he says. And even though Ligand is buying back 2.2 million shares of stock owned by Elan, the Irish drugmaker still controls 12.2 million Ligand shares, a majority of which can be sold into the open market after a lockup period expires in six months.

To: jayhawk969 who wrote (3550)	11/13/2002 5:23:22 PM
From: fred hayes	Read Replies (1) \| Respond to of 10345

You have to believe that your (lower) estimates of Avinza sales are better than LGND's (higher) estimates of Avinza sales to second guess this deal. I always start from the premise that businesses don't intentionally make deals that aren't in their shareholders' interest. Another rule of thumb -- one that isn't always correct -- is that management is competent. Ya, I know. But my experience is that it's generally true. So when it's the Analysts vs. management, .... Anyway, when Ligand says it's buying 20 to 25 percent of total sales (the royalty to Elan was to go to 35 percent at some level of sales, I think) over the entire life of the drug, it looks fine to me. This entire increment is flowing 100 percent to the bottom line. I'm not sure how to account for the dilution. Since the offering isn't out, we don't know the terms. Also, I believe there is a co-promotion waiting in the wings. I don't think LGND would have done the deal with ELN if they didn't have a good sense of what the co-promotion will look like. I think the terms of that deal will tell us much about whether LGND got hosed. I'm betting that the terms will be surprisingly favorable because I have a hunch Avinza may be more of a sleeper than generally recognized. Between the terms of the co-promote and the specifics of the converts, we'll know much better. In the meantime, LGND is on sale... fred