Notable Calls on Elan

The harsh sell off in the stock that could occur today will likely be fueled by overblown expectations for the Phase II data and the difficulty in presenting a cogent analysis of a complex trial in a complex disease in a 12-minute presentation.

MEDACorp consultant who was involved in the Phase II trial noted that data were reviewed over a two and a half hour period during an investigator’s meeting night before last, speaking to the complexity of the data and the relative inability to distill it into an "elevator pitch."

To the firm, no new data emerged that causes us to revisit their thesis that bapineuzumab is effective, safe and worthy of advancing into large scale pivotal testing and could be a much-needed therapy for treating AD.

Lack of a clear dose response should not be overly surprising, especially in ApoE4 non-carriers, given that three of the four doses tested in the Phase II trial are being examined in the ongoing Phase III studies.

Although the safety profile may be understandably complex, the fact that the FDA has permitted a large Phase III trial suggest that the risk/benefit is favorable. Certain neurological anomalies may be acceptable in deference to mitigating quality of life-threatening dementia.

Lost on investors may be the fact that measures of efficacy reported from the Phase II trial that include ADAS-cog, NTB, CDR-sob, volumetric MRI and biomarkers such as phosphorylated tau are conducted by different medical professionals, e.g., psychiatrists, medical doctors, nurses, caregivers and radiologists thus enhancing the corroborative nature of the findings, they believe.

Notablecalls: Well, Leerink sure knows their stuff. I’m calling this one Actionable with ELN trading around $21 in pre mkt.

Please see below for further colour.

– Data clearly shows a statistically and clinically meaningful effect in APOE4 -ve patients, but with no clear dose-response due to low patient numbers. Data in APOE 4 +ve patients not as negative as previously assumed, but investors likely to stay cautious on this until proven otherwise.

As a result of the positive data, Elan will announce its manufacturing plans (a new plant) within the next two months; in our view, the capital commitment for a new plant, together with ongoing maintenance costs, as well as phase III costs, indicate the confidence in the likely outcome of the phase III programme. The magnitude of the cognitive benefits in small numbers of patients is hard to argue with, in firm’s view; the effects on function less so.

Further, the data in patients who completed the full dose schedule in the study, in both APOE4 +ve and -ve patients, were clinically meaningful, as well as statistically significant. One of the aspects of the data that they believe investors have overlooked is that these results are IN ADDITION to existing Alzhemier’s Disease therapies. In Goldman’s view, that makes the data, albeit with its limitations, more compelling.

Implications:

The stock may weaken acutely on concerns over dose response (genuine, in firm’s view) and on the deaths in the Bapineuzumab arm (irrelevant, in their view), however, as the investment thesis has not changed, their recommendation remains Conviction Buy.

Other firms:

– Piper Jaffray reits Sell and lowers their tgt to $15 from $25

– Canaccord reits Sell and lowers tgt to $21 from $24

– Cowen & Co notes that with lower conviction in Phase III success for bapineuzumab and at least two years to wait for confirmation, they have trimmed their estimated bapineuzumab value by $4-5B, or $10 per ELN share, reflecting a higher discount rate. Firm remains Neutral on ELN shares.

Notablecalls : Developing Alzheimer’s compounds has always been the graveyard shift. So, in that sense I’m somewhat surprised by the harsh 30% haircut in ELN’s stock price following weaker than expected data. Actually, there may be a silver lining – the APOE 4 +ve pats. That’s I think more than one would have normally expected from an Alzheimer’s compound.

Add this to ELN’s continued commitment for a new plant and you may have a nice bounce candidate here down 10 pts. I would not be surprised to see the stock retrace at least part of the 10pt haircut today.