Elan shares rally to gain over 15%

ELAN shares staged a remarkable recovery yesterday, gaining more than 15% just a day after it was asked to provide documents to the US trade regulator in a price-fixing investigation.

According to the filing with the Securities and Exchange Commission, Elan and SkyePharma’s Brightstone Pharma unit were subpoenaed late last year as part of an investigation into whether they did a deal to stop generic competition to Elan’s painkiller Naprelan.

An Elan spokesperson said it was confident it will not affect the company.

The shares had fallen by 20% overnight in the US on Thursday, but gained 16% in Dublin and 5% in New York, where the shares are mainly traded. The shares were up 44 cents to 3.14 yesterday. The volume of shares traded on both markets was quite low, though this is usual for a Friday.

Elan said it is complying with the subpoena, which was received just after Christmas. Naprelan is a non-steroidal, anti-inflammatory drug used to relieve mild to moderate pain and menstrual cramps.

Davy Stockbrokers analyst Jack Gorman said the issue is not that important compared to the company’s other problems.

“In our view, the news is unlikely to be material in the context of more pressing financial issues and the recovery plan at Elan. Naprelan is not a significant product in Elan’s portfolio today. A similar FTC probe occurred in 2002 relating to an anti-trust probe on a generic version of Adalat. In that case Elan settled with the FTC [Federal Trade Commission] without a monetary fine or penalty,” he said.

Sales of Naprelan now account for $30 million of Elan sales. In its last quartile report Elan had total sales of $223m.

Goodbody Stockbrokers said in a note: “Although this is not unexpected news given the investigation and lawsuit, it brings a further uncertainty to the surface at a time of increased nervousness in the stock.”

What is concerning the markets, analysts say, is the company’s plans to ask shareholders later this months to approve the issue of 120 million new shares (without offering to existing investors first) to help its recovery programme.

Elan has sought to allay fears of a massive dilution of the stock, saying the approval is intended to give management more flexibility as it proceeds with assets sales to raise cash to pay a $1.5 billion bond due at the end of the year. The company has sold off many of its products in the past year to ensure it has enough cash to survive.

Fears of the company running out of cash and competition to its existing drug base are adding to the woes of the company, which has lost 95% of its value in little over a year.