Gadda's Garbage Truck

Well, double take and take two on almost everything.

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Location: Salt Lake City, Utah, United States

I am an amateur investor, playing with a little money on the side, and trying real hard to make genuine sense of the macro economic conditions, the Markets etc. Important Note: The writer of this blog is an amateur. I invest and write for personal enjoyment. I do not recommend stocks. I offer free consultation but you must be responsible for your own investment decisions!

Monday, May 02, 2005

The story of Tysabri and Elan Pharmaceuticals

Ok, here is a story which broke some hearts, some Hedge fund (I beleive it was called Oracle funds or something), and most importantly a lot of investors. On Feb 28, 2005, Biogen Idec (BIIB) and Elan Pharmaceuticals (ELN) withdrew their potential blockbuster drug Tysabri as it was found to have caused PML (Progressive Multifocal Leukoencaphalopathy) a fatal disease affecting the central nervous system - among two of its patients in their clinical studies.

The stock prices of both the companies got trashed. Biogen fell about 50% and the stock price of ELN - more susceptible as they needed Tysabri for their survival fell close to 67%.

Investors bid up the stocks in the following days as reports emerged that Tysabri had the deadly effect on patients who would use it in conjunction with Avonex, another MS drug marketed by Biogen.

That was not the end of it.

On March 30, 2005 - A previous death in the Clinical Phase III trial of Tysabri was re-evaluated to be the result of PML - not conclusively, but it was strongly believed. The person in this case did not take Avonex as in the previous case, but he was a part of the trial for the effect of Tysabri against Crohn's disease. This third death was more like a strike 3 for ELN. Biogen had a pipeline, Elan Pharma had none. The stock price of ELN fell another 55 + %.

On Apr 27-28 Biogen and ELN reported their earnings. As expected they were lower as the companies had to set aside some money for the litigation costs, and of course, the setback they suffered from the withdrawal of Tysabri. They stated that they would present more extensive clinical test data to FDA this summer and were cautiously optimistic for the return of Tysabri into the market. Maybe they did it for the money, but they worded it well. They said that they believed that the benefits far outweighed the risks. I thought that was a great decision.

But that didn't cheer up Erica Whittaker of Merrill Lynch, who kept her sell rating on Elan. "Without Tysabri as a blockbuster product, we remain concerned that without more severe restructuring, Elan will have difficulty repaying its $2-billion-plus debt obligations in 2008 and 2011," she said in a report to clients.

In the same report, she predicts Tysabri could return to the market in early 2006 under tight restrictions that would limit to sales in peak years to $200 million to $350 million. She doesn't own shares; her firm has a non-investment-banking relationship and is a market maker in Elan's stock.

Tysabri's initial allure was not only analysts' belief that drug could produce well over $1 billion a year in treating MS but also that it held promise, based on early clinical trials, for treating the severe gastrointestinal ailment Crohn's disease and rheumatoid arthritis.

I talked to my friends mom who suffers from MS, she takes Tysabri, and swears by it. She has had MS for over 20 years, and she thinks it is one of the best drugs she has been prescribed.

I dont know if patients would be willing to be prescribed Tysabri after what has happened in the past 3 months - for the marketing for that is going to be hard.

Investors are betting big on Tysabri making a comeback. ELN shares surged more than 50% in the last 3 trading days just on the companies comments.

If this is a trading opportunity remains to be seen, but it sure is not for the faint of heart.

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