Shares in Elan strengthened yesterday as the market welcomed news that the company could finally move on from a major US regulatory investigation.
It emerged on Monday night that the US Securities and Exchange Commission (SEC) had levied a $15 million (€11.8 million) fine on Elan after completing a formal probe into the firm's accounts.
Crucially, the fine did not involve any admission of liability on Elan's behalf. This supported the firm in its battle against a group of shareholders who were pursuing it for compensation in relation to share trades they had completed in 2000-2002.
Elan has agreed to settle with these shareholders for $75 million, again without admitting any wrongdoing. The firm's insurance will cover $35 million of this, thus leaving Elan's overall financial liability on the matter at $55 million. Elan reserved exactly this sum to cover the issue in its most recent accounts.
The resolution of the two issues is seen as a positive for Elan's share price, which yesterday gained almost 4 per cent in Dublin before attracting some afternoon profit taking. Shares closed eight cents stronger at €19.75. In New York, where the stock is mostly traded, shares gained 1.5 per cent to finish at $25.26 .
Analysts predict further momentum behind the share price over coming weeks, as investment funds that were previously precluded from investing in Elan because of its regulatory problems look to take a position in the stock. However, hedge funds that were taking a bet on the outcome of the SEC investigation are likely to lose some interest in Elan, thus limiting its share price volatility.
Mr Richard Parkes, a pharmaceutical analyst with ING Barings in London, acknowledged yesterday that the settlement removed a degree of uncertainty from Elan's prospects. He believes, however, that further progress on the firm's flagship Multiple Sclerosis drug, Antegren, will be required to promote a dramatic shift in its valuation.
Antegren is being considered by the US Food and Drug Administration, which is due to make a decision on approving the drug by November 25th.
"The shares are likely to perform strongly running up to that," said Mr Parkes.
Mr Ian Hunter of Goodbody Stockbroker has a 12-month price target of $31.20 per share on Elan but he said that this would be conservative if news on Antegren was particularly positive.
Elan is likely to offer an update on Antegren when it reports third-quarter results tomorrow. The firm's partner on Antegren, Biogen, will report results tonight.
