Porterian

This is my personal blog. Travel, financial and political observations. Notes to myself and my friends. Content development for my monthly newsletter, Porter Stansberry's Investment Advisory (www.stansberryresearch.com).

Wednesday, March 08, 2006

ELAN SOARS... AGAIN!


The first time I "bought" Elan was in December of 2002.

The company was a mess, trading for around $2.00, and reeling from what amounted to an Enron-like scandal. Under Irish management, the firm had sold-off stakes in its best products to outside investment groups. It was also lending money to start-up biotech firms and then booking the same funds back as revenue for "joint venture" partnerships. Worst of all, it was borrowing the money it was lending out, operating as a kind of biotech hedge fund. The whole thing was a big house of cards. When biotech stocks crashed in 2002, it came toubling down.

It was Garo Armen's job to fix it, as the company's new chairman of the board.

In 2001, before Elan collapsed, I'd gotten to know Garo Armen by studying his cancer technology company closely -- he's the CEO of Antigenics. I greatly admire Garo's brains and ambition. Because I had gotten to know him, I knew he had the highest standards of personal integrity. I knew he was telling the truth when I spoke with him about Elan. And in a situation like Enron, or WorldCom or Elan, knowing the guy in the middle of it all, and knowing that he's totally honest is the most valuable information you can ever have in the stock market.

Garo told me Elan was worth saving because of its excellent science -- in particular the company's new drug for MS. This drug would be worth $10-$20 billion in the market, but Elan was trading for less than $1 billion at the time because most investors thought the company would go bankrupt and nobody trusted its managers. But I did.

I wrote that Elan would be the best stock on the NYSE in 2003 ("Investing in Garo" PSIA December 2002). Unfortunately, we got stopped out in March, at $3.00, up a bit from where we'd bought....but not the big gains I was expecting. A few months later, in September of 2003, after checking in with Garo and seeing additional clinical trial results on its MS drug (Tysrabri), I re-recommened it -- this time at $6.00. We made a killing this time, riding the stock to around $18.00.

Then everything fell apart. The company hit a huge landmine in early 2005, shortly after we sold. Its MS drug was pulled from the market, over safety concerns. I reviewed the data -- only 3 out of several thousand patients developed a rare brain disease. I believed the drug would be reinstated by the FDA after further study. I re-recommended the shares in July 2005, for around $7.00.

Today all 12 members of a FDA advisory board voted to urge the FDA to allow the drug back on the market. (See the Reuters story here: http://biz.yahoo.com/rb/060308/tysabri.html?.v=11 ) The stock rose 24% on the news, to close near $16.00 per share, up more than 100% from my most recent recommendation.

Three recommendations. Profits each time. In total, several hundred percentage points of profit.
All the Elan profits my subscribers made stem from one relationship I cultivated in biotech -- Garo Armen. When young editors join our group, I always tell them the most important thing to do for your career as a newsletter writer is to build good relationships with the smart guys you meet.

Thanks Garo.

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