Elan fell another 16.25 per cent in New York last night as short-sellers continued to drive the stock down on doubts about the future of its multiple sclerosis (MS) drug Tysabri.
The company and its partner Biogen Idec are due for meet officials of the Food and Drug Administration (FDA) today to discuss its decision to halt sales to patients and dosing in all trials as a result of the death of one patient in a trial using Tysabri in conjunction with Biogen's existing MS treatment, Avonex, and the serious illness of another.
Analyst opinion is deeply divided on the prospects for what the industry viewed as a blockbuster drug just a week ago.
Tysabri was seen as the drug that would drive the company forward over the coming years, with the company also trialling its efficacy as a treatment for both Crohn's disease and rheumatoid arthritis.
Having dragged itself out of the crisis sparked in 2002 by the suspension of a trial of a treatment for Alzheimer's and doubts over its accounting policies, the company was bullish about its prospects - especially after Tysabri received fast-track approval from the US regulator, the FDA, last November.
The problem is that Tysabri has proved a double-edged sword. While its success could have established the company as a significant niche player in the global drugs market, its failure could, by itself, jeopardise the company's future.
More than one analyst has described the company in recent days as a "one trick pony". Apart from Tysabri, it has recently won approval for painkiller Prialt, though the drug will never support the company on its own.
Its pipeline is skewed towards Tysabri. While the company also harbours great hopes for its Alzheimer's programme, it is still some way from producing an approvable product.
In the background is the company's debt - around $2.3 billion. While it doesn't fall due until 2008 at the earliest, the failure to deliver a significant revenue stream from Tysabri could leave Elan vulnerable.
Piper Jaffray analyst Deborah Knobelman said in a research note this week: "Elan might be unable to pay off its $2.5 billion in debt, given that it will never be cash flow-positive without Tysabri."
The latest setback has already significantly raised the cost of insuring the company against default on that debt.
Elan does have around $1.5 billion in cash on hand, enough to see it through in the medium term. But it needs to get Tysabri back on the shelves as soon as possible.
Judging by the analysts, there is no certainty on this issue. Lehman Brothers says that there is a 65 per cent chance that Tysabri will be permanently withdrawn from the market and SG Cowen and Deutsche Bank in notes to clients, raise a similar spectre.
Even if it does return to the market, doubts surround its potential following the suspension. Doctors and patients desperate for relief were quick to adopt the drug first time around despite its greater cost over existing treatments because of its greater efficacy.
Both are likely to adopt a more cautious approach second-time around.Citigroup unit Smith Barney, which went against the trend this week in upgrading its rating on Elan, concedes that it will have a "diminished sales potential".
The consensus, such as it is, suggests that restrictions on its use would limit sales to around half of the company's original expectations.
Bad as that might be, it is a prospect that Elan and its beleaguered investors will cling too. Without Tysabri, most "sum of the parts" valuations of the company are in the $3-$5 a share range, giving investors little hope of recovering their money.
