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Wednesday, March 02, 2005

Elan: Good News for Nanotech Investors?

On Monday, Elan's (ELN) stock price dropped 70 percent on news that the company was pulling its highly touted and promising new treatment for multiple sclerosis, Tysabri, because two patients using the treatment had developed a rare nervous-system disorder. In the ensuing panic, the company lost billions in market capitalization and was downgraded by a few investment houses.

The drop may represent a real opportunity for investors who have a long-term perspective and understand the company's Nanocrystal technology. (Note: The author does not own any Elan stock at the present time but intends to purchase some on March 2, 2005.) The Nanocrystal technology takes advantage of the unique properties of nanoparticles to help improve the bioavailability of drugs. This is an important characteristic because a large number of drugs produced by Big Pharma either fail or are abandoned due to poor water-solubility. Nanocrystal technology could, therefore, rescue a percentage of these chemical compounds and turn them into profitable drugs. Earlier this year, Roche began testing the Nanocrystal technology; and it is already being used by Johnson & Johnson in a Phase III clinical trial on a injectible treatment for patients with Schizophrenia.

At the present time--and for the near future--these products will make up only a small portion of Elan's overall business, but if the FDA approves J&J's Schizophrenia treatment and/or Elan begins to meet Roche's development milestones, the Nanocrystal technology could become an increasingly profitable component of Elan's overall business.

I am also bullish on the stock because I believe Elan management, the FDA and the broader investment community overreacted to the news about Tysabri. In the wake of Vioxx, everyone has become too cautious. The FDA even stated in its release about the potential link between Tysabri and the nervous-system disorder that it "continues to believe Tysabri offers great hope to MS patients." (The emphasis is mine). My bet is that Tysabri will be re-released toward the end of this year and while it won't command as much of the market for MS treatments as was expected when it was first approved, it will still capture a sizeable share.

As always, do your own due diligence ... but that's my two-cents.