Wednesday, March 02, 2005

Elan takes a hit

Elan (ELN) took a 70% (from $28 to $8) nosedive yesterday after announcing a voluntary withdrawal of Tysabri from the market.

That was a close call! I had bought Elan at an average of $6.5/share, when it started recovering from its accounting problems last year. Then it started taking off on hopes for Antegren (now Tysabri). My original expectation was for partner, Biogen, to make a move and buy Elan before it got too expensive - I had a takeover price of around $18/share in mind. That did not happen, and when the stock reached $21 I sold 70% of my shares. The stock did go all the way upto $28 before crashing back yesterday.

With biotech takeover targets, this practice of converting paper profits to real profits is even more important than it is for other sectors.

At this point, Elan is looking cheap, especially if you believe ( I do ) that Tysabri will make a comeback, maybe with a different recommended dosage or as part of a combination treatment with another drug. It remains a target for Biogen, and I am planning on adding at this price.

If you are looking for a less-speculative bet, Biogen (BIIB) itself is a great pick right now. While the withdrawal will have an impact, the company is much stronger financially than Elan and is in no way threatened by this setback. Along with Elan, Biogen dropped yesterday from around $70 to $40. A nice 2-year/40% profit value play from current levels.

I do not own Biogen stock currently, but will seriously consider adding if it continues to be available at today's price.


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