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

To: Icebrg who wrote (4411)	5/27/2003 6:02:17 AM
From: Icebrg	Read Replies (1) \| Respond to of 10345

Irish broker Goodbody upgrades Elan. Elan (Buy); King Gone: Upgrading to Buy with raised price target. We have issued a 10-page report on Elan this morning. The agreement on Elan's sale of its primary healthcare franchise to King Pharmaceuticals puts Elan back on track to remove any financial risk to the company's short to medium-term survival. In a sense of deja vu, debt repayments fall back to $2.8bn and cash reserves are boosted to $1.3bn. The recovery programme has now met its $1.5bn target but we believe there is still a further deal in the offing which will provide a cash cushion for product development through 2004/05. With financial security restored, thoughts can now turn back to the pipeline. We expect news flow on the Antegren-based treatment of Crohn's disease in the near future. The recent positive data in a follow-up observation of AN-1792 treated patients also gives a boost to other candidate drugs coming through that particular development programme. Our current risk-free value for the company is in the $4.20 to $7.75 range. G iven: (i) the reduction in medium-term financial risk; (ii) the evidence of active management of operational risk; and, (iii) the potential of further cash generation through asset sales, we have reduced our risk weighting to 10% from 25% which equates to a revised price target of c.$7.00. As this is over 15% ahead of the current share price, we are concurrently raising our recommendation to Buy from Add with the caveat that the stock still remains a high risk, news flow sensitive biotech play, dependent on Antegren for long term viability. [One has to wonder a little bit about Goodbody's perceptions of risks and rewards. They are now upgrading the stock in the face of a potential 15 % gain after having seen it run from (say 2 USD to be generous) to close to 6 USD. I would argue that the risk now is actually much higher than what it was at the 2 USD level. The disclosure of the Antegren results from phase III for Crohn's are still pending and will define - directly and indirectly - the development of the stock price for the next couple of years. A cautious advisor should IMHO wait for the Antegren results before giving his advice. Good results will serve as nothing but the starting point for the rebuilding of the company and its share price. Bad results will easily take away 50 % of the market cap. So-so results will most probably lead to a 20-30 % fall. Compared with the risks involved in drug development - especially when there is just one major drug to build all hopes on - the risks the company had to face in connection with its divestiture program appear limited. Apparently the analyst at Goodbody was not able to properly evaluate the value of Elan's ongoing businesses and it appears as if he has now suddenly decided to more or less ignore the drug development risks. (Some pressure there perhaps - in the face of a surging share price) I am not sure I would like to have the Goodbodied as my financial advisors. Erik]