WHO says lightning doesn't strike twice? Pharmaceutical company Elan went one better this week. With this week's collapse in its share price, Elan has now lost 70 per cent or more of its value three times in seven years.
Last week I warned Elan's shareholders that, with the stock having risen by more than 50 per cent over the last year to €21.20, it was time to take profits. Anyone who took my advice saved themselves a ton of money.
On Wednesday, Elan's share price fell by 30 per cent when test results for its Alzheimer's drug Bapineuzumab revealed that, while it was effective at curbing the disease in some patients, there were significant side-effects in more than 5 per cent of the patients treated, with fluid developing on the brain.
As Bapineuzumab is in the early stages of its development, such a setback comes with the territory. Potentially far more serious was Friday's announcement that long-standing problems with Tysabri, its much touted Multiple Sclerosis drug, had recurred.
While the Bapineuzumab blues could be dismissed as a bad day at the office, Elan's fortunes more or less hinge on the success of Tysabri. In February 2005, Elan's share price plummeted when it temporarily took the drug off the market after the death of one patient in clinical trials.
Over the past three-and-a-half years, the company has clawed its way back from that reversal with the share price recovering all of its February 2005 losses. In recent months it seemed as if Tysabri was about to fulfil the hopes invested in it by Elan's shareholders.
Last May, chairman Kyran McLaughlin told shareholders at the company's AGM that 100,000 patients would be using Tysabri by 2010, and that Elan would then be profitable.
Elan was the one major company who bucked the downward trend of the past year. This allowed Elan to regain its crown as our most valuable company, which it had held before the 98 per cent collapse of its share price between June 2001 and July 2002.
But after this week's twin reverses, the Elan share price has now fallen to just 7.15, wiping out virtually all of the post-2005 gains.
Having stuck my neck out last week and written that the Elan share price was over-valued, I'm going to repeat the exercise this week and say I now believe Elan is oversold.
While it was dumb luck that problems emerged with two of its drugs in one week, investors should not lose sight of the fact that Elan has promising treatments for a wide range of neurological complaints, including MS, Alzheimer's and Parkinson's.
If Elan can sort out the current problems then there will be strong demand for all of these products. And with the share price on the floor, now is the time to put a few bob into the company.
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