Beleaguered pharmaceutical group Elan may be forced to sell its Alzheimer's drug research programme to meet debt obligations as hopes for an early return to market for its key multiple sclerosis drug Tysabri fade.
The company has said it will address the financial impact of a long-term suspension for the drug on which it had pinned in medium-term prosperity when it reports first-quarter financial figures at the end of the month.
Company sources have acknowledged there is even a possibility that sales of Tysabri may never resume although it insists it is far too early to make any judgment on the issue.
The shares recovered some ground yesterday, particularly in Irish trading, where they closed 12.7 per cent better on €2.70. Towards the end of the US session, they had recovered 3 per cent or 10 US cents to $3.34 (€2.59).
Goodbody analyst Dr Ian Hunter says the withdrawal of Tysabri means "significant cost reductions will be needed to leave the company enough cash to meet 2008 debt obligations".
In a note to clients yesterday, he said the company might also have to sell more of its assets.
The company has only recently completed a traumatic $1.7 million asset disposal programme to restructure itself after an accounting scandal, sparked by losses that were hidden from the balance sheet.
"Further divestments may be required," he said. "One possibility is that Elan's partner [ in the Alzheimer programme], Wyeth, makes a bid for Athena, the R&D element of Elan."
He said a sale of the division for around $250 million - towards the lower end of its $206 million-$364 million valuation could ease liquidity worries and sharply cut R&D costs without facing redundancy costs.
Even a lower-key return by Tysabri would not help as its launch costs would likely outweigh revenues until beyond the first debt deadline in 2008.
US stockbroker Smith Barney held out little prospect for a sustained rise in the share price. "Without Tysabri, it is very difficulty assign value to equity holders without assuming dramatic cost cuts or a complete restructuring of the company," analyst Andrew Swanson wrote to clients. "A break-up valuation suggests the shares are worth $2.69."
Smith Barney has set a $2.50 price target on the company.
NCB, which went against the trend on Thursday and raised its rating to "buy" from "hold", said the stock had a value of between $4 and $6 even without any input from Tysabri.
"At the current valuation, we believe it is likely to be an attractive target for corporate activity," analyst David Marshall told clients.
He said Elan management should know within six months if Tysabri had a commercial future.
