Recall Routs Biogen, Elan

Updated from 3:07 p.m. EST

Shares in Biogen Idec(BIIB) and its partner Elan(ELN) plunged Monday after they suspended sales of their multiple sclerosis drug Tysabri.

One patient died after taking Tysabri for more than two years with Avonex, an MS drug made by Biogen Idec. They also cited a second patient suspected of developing the rare and often fatal central nervous system disease called progressive multifocal leukoencephalopathy, or PML.

"The companies are suspending supply of Tysabri from commercial distribution, and physicians should suspend dosing of Tysabri until further notification," Biogen Idec and Elan said. "In addition, the companies have suspended dosing in all clinical trials." Tysabri was cleared for marketing by the FDA in November.

Despite the stunning revelation about a drug that Standard & Poor's recently pegged as one of the top 10 drugs to watch this year, Kelly Martin, CEO of Elan, said "a realistic timeline" for returning the drug to the marketplace would be late summer or fall, assuming a detailed review shows no potential widespread dangers, and assuming the Food and Drug Administration agrees.

Martin told analysts in a telephone conference that the withdrawal of Tysabri was the result of a "collaborative discussion" between Elan and Biogen Idec with the FDA. The agency didn't order the drug off the market, he said. The FDA wants this drug on the market due to its effectiveness, Martin said.

Still, Tysabri is the first biotech drug to be withdrawn from the market, said Steven Harr, a biotech analyst at Morgan Stanley, in a research note to clients on Monday.

Biogen Idec fell $28.63, or 42.6%, to $38.65 as four investment banking firms cut their ratings. Elan fared even worse, diving $18.90, or 70%, to $8.

Morningstar placed both companies under review. "The withdrawal is likely to hit Elan especially hard because the firm's pipeline, aside from Tysabri, is relatively weak and still in the early stages of development," said a Monday report from Morningstar analysts who don't own shares in the companies and whose firm doesn't have an investment-banking relationship.

"This is a near-term challenge for us," said Martin, adding that Elan will "act decisively" on contingency plans when and if necessary. "We feel like we still have very good assets in the company," he said.

Biogen Idec executives said it was too soon to assess the economic impact of withdrawing the drug.

The market reaction brought back memories of Merck's (MRK) pounding in September, when it voluntarily recalled the arthritis drug Vioxx, a development that led to questions about the approval process at the Food and Drug Administration.

Merck cited the results of a company-sponsored clinical trial that showed patients taking Vioxx for longer than 18 months had a higher cardiovascular disease risk than did patients taking a placebo. But Merck recently hinted that it might return Vioxx to the market, assuming the Food and Drug Administration approves, given recent studies that, Merck says, suggests similar drugs may present cardiovascular risk. Those drugs include Pfizer's(PFE) Celebrex and Bextra.

Assessing a Problem

The specter of Vioxx surfaced during a Biogen Idec telephone conference call Monday when a reporter asked executives if Merck's experience played any role in their decision with Tysabri. Jim Mullen, the CEO, said the only issue was the MS patients' safety.

"We keep the patient at the center of this," he said. Mullen said the decision to stop selling the drug and to stop tests of Tysabri on other diseases enables the companies "to step back" and evaluate whether there is a problem with Tysabri alone or with Tysabri in combination with Avonex.

To date, the companies said there are no reports of PML in multiple sclerosis patients receiving Tysabri alone or in patients with Crohn's disease or rheumatoid arthritis participating in clinical trials.

Biogen Idec has received no reports of PML in patients treated with Avonex alone, a product that has been on the market since 1996. Before Monday, the big question was to what degree the jointly marketed Tysabri would damage sales of Avonex or whether physicians would prescribe the two drugs as a joint treatment.

Elan's Martin said Monday that the two patients identified with PML were receiving "multiple therapies for multiple medical issues." But because the companies couldn't rule out the impact of Avonex plus Tysabri on these patients, "we took this step" of suspending the drug from the marketplace, he said.

Tysabri is approved for relapsing-remitting MS, the most common form of the disease at the time of diagnosis. It is characterized by acute symptoms or a worsening of neurological functions that can occur intermittently. These symptoms can weaken or disappear for months or years between relapses.