Elan shares lose gains as patent suit is filed

Shares in Elan gained more than 4 per cent in Dublin yesterday after the company said the annual cost of its Tysabri multiple sclerosis treatment would be higher than expected.

But the stock later gave up most of its gains as it emerged that US biopharmaceutical company Classen had filed a patent infringement suit against Elan and King Pharmaceuticals.

Elan, which is developing Tysabri with its US partner, Biogen Idec, said yesterday that the wholesale price for a vial of Tysabri will be $1,808 (€1,361). Pricing in Europe is expected to be broadly similar to the US.

Based on a dose every four weeks, this comes to an annualised treatment cost of $23,500, well ahead of analysts' forecasts which ranged from $18,000 to $20,000.

The price also represents a 34 per cent premium to Serono's Rebif, the next highest costing treatment on the market, which sells at $17,500.

The shares raced ahead in early trade in Dublin but later gave up the gains as the US market opened and news of the Classen litigation emerged. In Dublin, the stock closed just 15 cents higher at €20.80, having earlier touched a high of €21.70.

Elan shares subsequently fell 49 cents to close at $27.47 on Wall Street.

Classen is suing Elan and King, to whom the Irish group sold the muscle relaxant Skelaxin, alleging that Elan Corporation filed patents on the drug that included methods involving the disclosure of drug interaction events covered by two of Classen's patents.

The privately held company alleges that King and Elan have sold more than $500 million in products that infringe Classen patents.

An Elan spokeswoman said that she was not yet aware of the filing, but that the company had a policy of not commenting on ongoing lawsuits.

Tysabri got FDA approval just last week. Elan said delivery of the drug to wholesalers is on schedule with first shipments planned for early this week.

The high price Tysabri is set to command is based on its improved safety and efficacy profile compared with other drugs currently on the market, analysts said.

Assuming that patient numbers are unchanged, Goodbody Stockbroker is forecasting 2005 revenues for the drug of $834 million, up from $639 million previously.

"In our model, this boost to numbers will bring Elan back to profitability in the 2006 fiscal year, and should give renewed momentum to the share price," Goodbody analyst Mr Ian Hunter said.

He currently has a share price target of $33.40 on the stock, but believes the latest news means Elan shares could comfortably trade in the high $30 range without stretching the valuation attaching to the group.

Merrion Stockbrokers said the higher pricing for the drug increased the valuation attached to Tysabri in its model to $22 to $25, and its fair value range for Elan to $32 to $35.