Shares in Elan Corporation, Ireland's biggest public company, were hit by a wave of selling yesterday after the group announced it had suspended testing of a new treatment for Alzheimer's Disease after four patients in France suffered inflammation of the central nervous system.
The Alzheimer's treatment - coded AN-1792 - is not expected to reach the market until 2005 at the earliest, but it had been hailed as a potential breakthrough in treating one of the most debilitating diseases, which affects mainly elderly people.
AN-1792 was seen in the market as one of Elan's future "blockbuster" drugs. The reaction reflects concern that the treatment may now never reach the market, although Elan was at pains to emphasise that the study was still going ahead.
On the Dublin market, the shares fell more than 14 per cent in earlier trading and eventually closed down €5.27 (£4.15) to €45, wiping almost €1.8 billion off Elan's market value.
But most Elan shares are held by American investors and the bulk of trading takes place in New York.
When the NYSE opened at 2.30 p.m. Irish time, a wave of selling hit the stock and it fell 15 per cent in the first few minutes to around $37 (€41.86). Within an hour of the opening bell, more than six million shares - three times the average daily turnover - had changed hands. By the NYSE close, the share was down $6.15 on $38.65. Total turnover in the shares was 18.5 million compared to the average 1.9 million.
While dealers said that some of the selling was directly related to investors' fears that the potentially pioneering Alzheimer's treatment may never generate revenues for Elan and its partner in the trials, pharmaceutical giant American Home Products, a substantial portion of the turnover was due to short-selling. Short-sellers sell shares they do not own and then try to buy them in the market to meet their commitments when the price has fallen heavily.
Before the New York opening, one Irish dealer commented: "If the shorts get on top first thing this afternoon, they really will try and pound it to try and make as much as they can." That forecast came to pass.
There were varying degrees of negative comment about the suspension of the Alzheimer's patient tests, but there was general agreement that the suspension of testing on a programme which could form such an important part of Elan's potential revenues post-2005 was a serious setback for the Irish company
Goodbody analyst Mr Ian Hunter said in a note: "AN-1792 was one of the two products seen to have blockbuster potential. Even if the trial resumes, confidence in the drug will be reduced with increased concern on side effects." ABN Amro analyst Mr Andrew Pendrill said: "Financially, we weren't expecting AN-1792 in the market until 2007 so there is no impact to numbers as they were not in the model. "However, we expect sentiment to be hit in the short term as the Elan pipeline is expected to underpin its future growth," he added.
The most negative response came from Deutsche Bank Alex Brown which warned that the suspension of the Phase 2 tests "raises legitimate concerns about the viability of the programme".
But one contrary view came from ING Barings analyst Mr Max Hermann, who said that the market was overreacting to the Alzheimer's announcement. "It's a disappointment but AN-1792 was always going to be very high risk." Mr Hermann reiterated his "buy" recommendation on the stock.
Another analyst said that, while the suspension of testing of such an important treatment, was a disappointment, the early stage nature of the testing programme should limit the financial fall-out for Elan.
AN-1792 was hailed last year as a potential breakthrough in treating and possibly curing Alzheimer's, after studies in mice showed it could clear the brain-clogging plaques that are a hallmark of the disease. It is designed to stimulate the immune system to destroy those waxy plaques.
