Share price plummets on MS treatment news

The Elan share price has hit the canvas once again. But like a boxer who has been knocked to the floor twice already, it may find it harder this time to stagger to its feet.

Shares in the Irish biotechnology company more than halved on Thursday after a rare and often fatal disease was diagnosed in a third patient who had received Tysabri, the suspended multiple sclerosis drug.

Just a month ago the shares lost 70 per cent of their then value when Tysabri was withdrawn after two previous patients came down with the same condition.

There must now be a real prospect that Tysabri will not return to the market as it is: some analysts have simply removed its contribution altogether when revising their figures.

It is hard to overstate how severe the effect of this is. Even assuming Elan can continue to service its debt, repaying the $1.1bn (£584m) principal due in 2008 may be another matter.

The options do not look attractive. After the copious financial restructuring Elan has already undertaken, a further equity call looks unlikely. Management could pare R&D spending, but this would help cashflow only at the expense of longer-term value creation.

There could also be further disposals, perhaps even a break-up. Apart from Tysabri, Elan has two hospital anti-infective drugs that generate revenues; a therapy for chronic pain that has already been approved; and some promising research on Alzheimer's disease.

Kelly Martin, chief executive, was brought into Elan after its spectacular fall from grace in 2002, and some recent comment about the group expressed concern that - as a turnround specialist - he might go elsewhere, reckoning his work with Elan was done. It is doubtful he feels that now.

Don't hold your breath

Here's a date for your diary: December 7 2055. Any plans? Perhaps you will be buying the kids - sorry great-grandkids - their Christmas presents. No problem, buy the 50-year gilt-edged stock the government will offer in May this year, and you will get your money back just in time. By 2055 inflation may have eroded the value of the principal, but reinvesting the interest payments along the way will make up for the shortfall - or will it?

Now look back to 1960, the last time the UK government issued a 50-year stock. In that year the yield on Consols was 5.4 per cent. The following year, the yield was more than 6 per cent, it reached a peak of 14.7 per cent in 1975, and did not fall below 6 per cent again until 1998. True, the interest payments on that 1960 stock could be reinvested at much lower prices, but it would have been a brave investor who did that during the great inflation of the mid-1970s.

Surely Gordon Brown would not want to sell us such a poor investment? Certainly, locking into current interest rates for the distant future is an awfully good deal for the government, as it was in 1932 when War Loan - current price £75 - was reissued.

Fortunately, the government's Debt Management Office has consulted extensively and found a great pool of investor demand; demand which snapped up the 50-year bond the French Treasury issued recently. Pension funds need long-dated stock to match their long-dated liabilities. Well, up to a point. They would much prefer 50-year indexed-linked gilts - which may be coming later - and they can create long-dated assets in other ways. After all, it takes a very young pension scheme indeed to have 50-year liabilities: such a scheme could do better buying equities.

Battle-weary

The Financial Services Authority's effort to bring greater transparency to the world of fund managers' payments to brokers looks like a war of attrition.

On Thursday, as it approached the second anniversary of its first consultation, it invited comment on rules planned for the start of July. But in case that seems a bit hasty, the rules, based on a policy statement last November saying that fund managers' use of commission should be confined to the purchase of "execution" and "research" services, will not take effect until next January.

The regulator also highlighted moves by the investment management industry designed to produce greater disclosure. This timescale looks on the leisurely side too: quarterly reports will not have to be issued to all UK funds until the third quarter of 2006.

Does having such a lengthy process matter? Some believe it helps keep implementation costs down, while others say it matters little because pension fund trustees and other end-customers would, and should, be starting to ask questions about these issues before the regime kicks in.

But what if this is not the end of the story? The FSA will monitor how the new system works, and if it found reluctance to comply or that the arrangements themselves in practice did not give enough protection to retail investors, it could re-open the issue. A powerful weapon to ensure co-operation with the new regime if ever there was one.

alison.smith@ft.com

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