Elan shares rise 8% after Moody’s upgrade

ELAN shares rose again yesterday after Moody’s Investors Services upgraded the outlook on its debt to positive from stable and confirmed its current ratings.

Elan shares rose by more than 8% during the day and despite profit taking by investors remained buoyant to close up 6.82% at €18.17, up €1.16 on the day. A year ago on April 17 Elan shares closed at €2.69. More than 11 million in Elan shares changed hands on the Irish Stock Exchange yesterday.

However, despite the positive ratings Moody’s retain worries about Elan’s cash flow burn and its very high degree of operating risk.

The level of cash burn could lead to insufficient cash in March 2005 to repay the EPIL III maturity of $390 million. Moody’s believes it is likely that Elan’s existing cash and investment resources, adjusted for any writedowns, will be sufficient to cover the $450 million EPIL II maturity in June 2004.

Moody’s raised the ratings outlook based on improved prospects for the company based on development of the Elan’s multiple sclerosis drug Antegren and on its expectation that Elan might raise additional money to meet debt.

Even with a timely Antegren approval and launch, Moody’s believes it is possible that Elan’s cash flow could remain negative through 2007, based on continuing R&D expenditure, high interest costs, as well as greater investment in sales and marketing to optimise the Antegren launch.

Elan and its US partner Biogen said in February they plan to submit Antegren for Food and Drug Administration approval by mid-year.

After discussions with the regulator, the companies decided that data from the first year of two 24-month studies is strong enough to file for FDA approval. No multiple sclerosis product has yet been approved with less than two years of data.

Moody’s believes that the partnership of Elan with Biogen lends significant expertise to Antegren’s prospects in the MS therapeutic category, where BiogenIDEC is the market leader.

The positive rating outlook also reflects Elan’s efforts in executing its turnaround, which Moody’s acknowledges has been successful so far.