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Elan Becomes a Bad News Buy

Brian Lawler
August 1, 2008

Never try to catch a falling knife, right? Wrong.

Yesterday, Elan (NYSE: ELN  ) and partner Biogen Idec (Nasdaq: BIIB  ) announced that they'd found two new cases of a rare and often deadly brain disorder in patients using their multiple sclerosis drug Tysabri. Elan's shares have subsequently fallen more than 45% today as I write this. But in this Fool's opinion, that precipitous drop has plunged Elan shares firmly into "buy" territory.

Let me put things bluntly: Shares of Elan are now undervalued. I could run you through the different discounted cash flow and other models I used to make that call, but they don't play well in such a short article. Fortunately, there's a simpler way to look at this situation.

Just ask yourself: Would another large-cap pharmaceutical company, like Pfizer (NYSE: PFE  ) , Novartis (NYSE: NVS