Three Strikes for Elan

Updated from 10:49 A.M. EST

As Tysabri goes, so goes Elan(ELN Quote).

Financial analysts say the latest setback involving the now-withdrawn multiple sclerosis drug not only imperils Tysabri's return to the marketplace but also puts the Dublin, Ireland-based drug maker's survival at risk.

"Absent Tysabri, we believe Elan effectively belongs to its debt holders," says Alex Hittle of A.G. Edwards, in a March 31 report, as he cut his rating to sell from hold. Elan, which has undergone a dramatic restructuring in recent years, has $1.6 billion in cash and $2.3 billion in debt, including $1.1 billion in debt due in 2008, Hittle says.

"Heavy restructuring may allow the company to meet interest obligation, but paying down principal will be tough," Hittle adds. He doesn't own shares and his firm doesn't have an investment banking relationship.

Elan's stock dropped $3.63, or 52%, to $3.35 Thursday, after sinking as low as $3 a share. By midafternoon, more than 83 million shares had been traded, or five times the average daily trade over the past three months.

Shares of Elan's partner Biogen Idec(BIIB Quote) also fell. The Cambridge, Mass.-based company's stock lost $3.48, or 9.1%, to $34.87. The stock dropped as low as $33.85. Its midday trading volume of 28.8 million shares was nearly four times the average daily trade for the last three months.

The companies reported Wednesday that a third case of a rare and often fatal central nervous system disease had been detected in a patient taking Tysabri during a clinical trial.

Biogen Idec and Elan pulled Tysabri from the market on Feb. 28, after receiving a report of one death linked to a patient who had taken the drug during clinical trials for treating multiple sclerosis. A second case of the rare disease was confirmed a few days later. Both of these patients took Tysabri for more than 24 months in conjunction with Avonex, an MS drug made by Biogen Idec.