Elan's blockbuster multiple sclerosis drug came to market ahead of schedule, writes Dominic Coyle

Investors in Elan Pharmaceuticals will look back on 2004 as the year in which the company finally delivered.

On the corporate front, the radical restructuring overseen by chairman Dr Garo Armen, who is shortly stepping aside, and chief executive Mr Kelly Martin came to an end without eating into the core pipeline products on which the company plans to build its future.

The achievement in unravelling the accounting issues that threatened to drive the company under and paying off crippling debts while securing sufficient funds to drive research and day-to-day spending should not be underestimated.

Selling $2.6 billion (€1.9 billion) in assets without resorting to fire sales restored confidence among both staff and the investment community. So too did the assured performance in settling an SEC investigation for $15 million without admission of liability and a class action suit for $75 million, bringing closure on the financial front.

One sign of the success was the significant oversubscription for the group's recent $850 million loan note issue - interest that has allowed the company ultimately raise $1.15 billion on more favourable terms than existing debt, while meeting shorter-term obligations.

More importantly, the company managed, with partner Biogen Idec, to bring its blockbuster treatment for multiple sclerosis to market ahead of schedule.

Tysabri, formerly Antegren, is the drug on which Elan had gambled its future.

Having submitted a licensing application to the US Food and Drug Administration (FDA) in May, the drug was fast-tracked for approval a month later, with the regulator saying it was prepared to consider its merits on the strength only of one year's data from Phase III clinical trials.

In November the faith Elan and Biogen invested in the drug was rewarded when it was approved with the sole restriction of a change of name.

Trials data released after the announcement showed that Tysabri was twice as effective as rivals in preventing relapses while being administered just once a month rather than once a week for its competitors.

Tysabri has now started going on sale in the US and analysts expect it to secure a 40 per cent share of a $4 billion-plus market by 2008.

Elsewhere, the company is making progress in trials for Tysabri as a treatment for Crohn's Disease and rheumatoid arthritis.

In addition, the company has reported "terrific promise" in its efforts, with Wyeth, to produce a breakthrough treatment for Alzheimer's disease.

And it is edging towards approval for a powerful painkiller, Prialt.

The year's successes have been reflected in the share price. On its own, Elan has accounted for close to half the entire gain in the ISEQ in 2004 - the second year in three that it has almost single-handedly determined the performance of the Irish Stock Exchange.

It is a performance the company is unlikely to repeat in 2005, although the general view is still positive.

Towards the end of the year Elan shares have taken a breather, with investors cautious about the higher than expected price tag put on the treatment and the company's projections that it will be fiscal 2006 before it returns to profitability. Earlier this month Smith Barney Citigroup re-opened coverage of the company with a sell recommendation. That followed a downgrade to "hold" from "buy" at Deutsche Securities and an opening neutral rating from JP Morgan in November.

These calls are founded in a debate over the extent to which the share price has already priced in the success of Tysabri.

After its fourfold increase this year, the key driver for the stock in 2005 is likely to be its ability to deliver concrete sales on Tysabri. That will largely be down to Biogen and it faces a dilemma. While Tysabri can be administered on its own or in association with other drugs, such as its own Avonex, the science suggests that Tysabri is more effective on its own.

The company, and the medical community, will also be looking at the longer-term efficacy of Tysabri. The drug, unusually, was approved by the FDA on the back of just one year's data.

Elan and Biogen are continuing the trials, which should give further information about its potential for limiting the progression of MS.

In the longer term, however, its prospects continue to be dependent on delivery from its pipeline. Elan continues to pursue the prospects of Tysabri as a treatment for Crohn's Disease and for rheumatoid arthritis.

It is, however, its Alzheimer programme that has the potential to bring Elan to a new level. For investors, the hope is that the promise of Tysabri and of its pipeline will continue to deliver returns - without the volatility of recent years.

Lurking in the background is the oft-mentioned prospect of a merger or takeover. Biogen is widely assumed to be the ideal fit, although both companies have denied any move in that direction.

It is also far from clear how such a move could be reconciled with the many other joint research endeavours Elan has with third parties.

Having recovered from the accounting crisis precipitated by the Enron fiasco, Elan's current management will feel bullish about any challenges they do encounter.