Market Report: Jitters over drug safety dent Elan share price

Fresh fears about the safety of Elan's key multiple sclerosis treatment sent shares in the Irish biotech tumbling 16 per cent yesterday, or ¤1.02, to ¤5.40. The concern was prompted by reports in the US press suggesting a fourth patient may have developed serious side-effects after taking Elan's Tysabri drug.

Fresh fears about the safety of Elan's key multiple sclerosis treatment sent shares in the Irish biotech tumbling 16 per cent yesterday, or ¤1.02, to ¤5.40. The concern was prompted by reports in the US press suggesting a fourth patient may have developed serious side-effects after taking Elan's Tysabri drug.

The biotech withdrew the treatment in February after three patients developed serious disorders. Two died, leading some analysts to suggest the drug ­ once tipped as a blockbuster ­ may never return. However, since Elan's results in April, its management has talked up the prospects of Tysabri being allowed back on the market by US regulators. In fact, last month Kelly Martin, the group's chief executive, said he was confident the drug would return in the near future.

Should the latest reports about Tysabri's safety turn out to be right, the treatment's future will again be cast in doubt. Meanwhile, Elan faces a cash crunch in 2008, when it is scheduled to start repaying a significant slug of debt.

Profit-taking left the FTSE 100 6 points lower at 5,005p. Alliance & Leicester fell 10p to 859.5p in response to a downgrade by Merrill Lynch. Moving its rating to an outright "sell" from "hold", theUS broker warned that costs are likely to start rising again at the mortgage bank while its share buy-back programme peters out. Merrill Lynch is also worried about deteriorating credit quality in the UK. Although it accepts that Alliance & Leicester is among Britain's more conservative lenders, it warns the bank is by no means immune to bad debt.

A&L has long been tipped as a takeover target but Merrill believes such a scenario is unlikely to come to pass. The US broker said: "The main risk to our 'sell' recommendation is a takeover but we think that is unlikely as A&L's attractive parts are cheap to replicate then go out and buy."

Morgan Stanley sent Next 4p lower to 1,455p after the heavyweight broker became more cautious about the retailer's long-term prospects. Columbia Venture was said to have been busy adding to its10 per cent stake in Thus, unchanged at 15.5p.

Scottish Radio Holdings added 1.5p to 1,001.5p as Altium Capital argued that Emap will eventually return with a higher offer for the company.

The broker agrees with SRH's management that Emap's bid of 1,040p-a-share undervalues the company and is convinced that it will not launch a hostile offer. Altium said: "Ultimately we expect Emap to pay up. We regard 1,100p per share as a fair take-out price and our intuition is that this would probably secure support from the SRH board and its shareholders."

SSL International dropped 3.25p to 276.5p as trader's ardour for the bid rumours that have surrounded the healthcare group in recent sessions waned. Investec Securities believes an offer for the company is a possibility but cautioned that such a transaction is not an easy one for an acquirer, especially because SSL International does not own the rights to the Scholl footware range in the US.

It believes that there is a 50 per cent chance of SSL International being taken over.

A lack of news from Prudential, down 5p to 485p, about its 79 per cent stakeEgg sent the internet bank's shares tumbling 6.5p to 108.25p. Egg shares have soared since the start of the week on hopes that Prudential will soon find a buyer for the company. Bear raiders also attacked the stock yesterday.

Many of the punters betting on a takeover of the group had done so using contracts-for-difference (CFDs) making it an easy target for raiders. A sudden drop in a stock price usually prompts them to rush to cover their positions. This tends to exaggerate the original price fall, playing right into the hands of the bears.

Lookers added 8p to 323.5p as brokers suggested the car dealer has been gaining market share in the used car arena. Expro International dropped 2.5p to 400p after raising £26m via a placing of new stock at 390p.

Domestic & General ticked 5p better to 750p as market professionals hinted that the forced selling by CFD holders of the stock is now pretty much over. Robert Bonnier, the controversial stock operator, is said to be among those forced into closing their CFD positions.

Finally, FireOne, the online payment processing group, enjoyed a strong debut on AIM. Numis Securities raised £24m for the company at 241p and the stock closed at 291.5p, an impressive premium of 20 per cent.

FireOne, which is in the same line of business as NETeller, now boasts a market value of more than £150m.