Elan hugely undervalued, says Bloxham

BLOXHAM Stockbrokers believe Elan is still massively undervalued and has set a $45 price target for the share, up 86% on the €24.23 price range the shares have been trading.

In a note to clients, Bloxham analyst Peter Jackson said: "Our Sum of The Parts model prices Elan at $45. In addition, Elan sits on a price to sales ratio of 12.5x, a massive discount to other lossmaking biotechs that on average enjoy a price to sales ratio of 98x.

"Elan is being priced more like profitable biotechs that average price to sales ratios of 11x. This is out of synch with the proximity to market of Antegren and the depth of Elan's Alzheimers Disease pipeline."

Mr Jackson argued the legacy of a brush with default and restructuring in 2002/03 is preventing equity investors from assigning full worth to Antegren.

"Our view is that based on the dynamics of the MS market, Antegren can generate sales of $4bn by 2008, suggesting Elan's 50% can generate $2bn in sales.

"In addition, equity investors currently assign little value to Elan's leading Alzheimer's Disease (AD) research.... If the investment community begins to ascribe more value to Elan's AD franchise, its share price could see an even more substantial re-rating," he added.

Mr Jackson said that by granting a priority review for Antegren for MS the Food and Drug Administration has removed any uncertainties that the US regulator is not supportive of Elan's novel therapy.

"Our contention is that just as investors underestimated the likelihood that Antegren would receive early approval, they are also low-balling the total market size for a new MS treatment," he added.

Mr Jackson acknowledged uncertainty about the US Securities and Exchange Commission continues to drag on Elan's share price.

"Uncertainty will be removed, even if Elan, under a worst case scenario is hit with a negative ruling from the SEC....The SEC is mandated to protect investors, it will be well aware of Elan's finances and therefore any fine will be of a token nature," he added.

Meanwhile, Elan and Wyeth said the US Patent and Trademark Office recently issued three patents for the companies' joint research on immunotherapeutic approaches to the treatment of Alzheimer's disease.