Recall Routs Biogen, Elan

"Our ongoing commitment to MS patients has led us to take these steps," said Dr. Burt Adelman, executive vice president for development at Biogen Idec. "Because we believe in the promising therapeutic benefit of Tysabri, we are working to evaluate this situation thoroughly and expeditiously. While we work through this matter, we must place patient safety above all other considerations."

Dr. Lars Ekman, executive vice president for Elan added: "We are working with leading experts and regulatory agencies to responsibly investigate these events and to develop the appropriate path forward. Our primary concern is for the safety of patients."

In a telephone conference call with reporters and analysts, Biogen Idec executives said they moved quickly to inform the FDA about the reports of PML cases.

"We have been in close contact with the FDA in the last few days after we got news of the side effects cases," Adelman said. "It was a very rapid process."

"We acted swiftly," said Mullen. He didn't provide a specific timeline, but he noted that "these events popped up" since the companies issued a press release Feb. 17 on progress of a Tysabri clinical trial. In that announcement, the companies said results from a clinical trial spanning 24 months confirmed the results of a clinical trial of 12 months that was a basis for the drug's approval by the FDA in November. Complete details of the research will be presented at a major medical conference in April, and the test results will be submitted to regulators.

The two-year results as well as the reported side effects were consistent with the one-year results, the companies said of the research that evaluated 942 patients at 99 clinical sites worldwide.

Wall Street Reaction

Not surprisingly, Wall Street reacted with shock to the results and concern about the companies' prospects.

"Tysabri [is] now damaged goods," said the SG Cowen investment banking firm in a a report to clients on Monday.

"Although it is unclear what role Tysabri played in these adverse events or whether Tysabri monotherapy is associated with similar risks," removing the drug from the market "will make reintroduction challenging and will likely reduce any future revenue contribution from the drug," said the report from Cowen, whose analysts don't own shares. Cowen doesn't offer stock ratings; the firm is a market maker in Biogen Idec's stock.

Cowen analysts have removed the drug from their revenue estimates for Biogen Idec. "Should Tysabri be reintroduced, physicians and patients are likely to be very cautious in returning to the therapy," the report said.

That gloomy assessment was supported by several neurologists participating in a conference call held by Leerink Swann & Co. The doctors predicted it might take a few years rather than a few months for the drug to return to the market, according to one source, and that a resurrected drug would be subject to greater restrictions.

Deutsche Bank Securities Jennifer Chao cut her rating on Biogen Idec to sell from buy, telling clients Monday that the drug's fate is affected by "complexity and uncertainty." She removed Tysabri's sales from her financial projections in 2005 and 2006. (She doesn't own shares; her firm says it does and seeks to do business with companies mentioned in research reports.)

"Long-term growth faces serious threats," said Morgan Stanley's Steven Harr, who had an overweight rating on Biogen Idec but who now is "reviewing our model for more information."

Harr, whose comments were issued before the companies teleconference, said that until they provide greater details, "the long-term implications are difficult to assess." He speculated that Tysabri might return to the market to a more restricted patient population.

"Given that this drug was approved under accelerated approval statute, we surmise that the FDA has a lower tolerance for safety issues until it sees the full two-year [clinical trial] data," he said. (Harr doesn't own shares. His firm is a market maker in Biogen Idec's stock and has provided non-investment-banking services for Biogen Idec.)

The companies sought and received rapid FDA approval after what was considered extreme successful early phase III clinical testing. (The companies agreed to continue phase III testing as part of the approval process.)

The setback could run deep. Tysabri is being tested for other uses. For example, Biogen Idec had expected phase II clinical trial results in mid-2005 for Tysabri as a treatment for rheumatoid arthritis. Phase II is the second of three rounds of clinical tests before a drug is submitted to regulators.

Tyasbri is also being tested as a treatment for the chronic, debilitating gastrointestinal ailment called Crohn's disease. In September, the companies filed an application with the European Union for this indication.

Test results from another phase III test are due in mid-2005; previously, the companies had said they would decide about seeking U.S. approval after the results were evaluated. Biogen Idec executives said Monday that applications for new approvals will be delayed while the side-effects reports are analyzed. They said they were in contact with the European Union's counterpart of the FDA.

CEO Mullen said it is too early for Biogen Idec to assess the impact on upcoming sales and earnings. He noted that Biogen Idec had hired about 450 people to launch Tysabri, but he said it is "premature" to comment on what might happen to them. Biogen Idec has about 5,000 employees.

Mullen said he couldn't immediately predict the cost of the recall, adding that he couldn't predict whether Biogen Idec would have to take a reserve to account for potential litigation.

The move boosted shares of some rival drugmakers with competing treatments: Chiron (CHIR) rose 43 cents, or 1.2%, to $35.44, and Teva Pharmaceutical (TEVA) jumped $2.09, or 7.6% to $29.65, and Serono(SRA) rose $2.76, or 17.8%, to $18.30.

Medical Impact

Biogen and Idec also issued a "Dear Health Care Provider" letter explaining their actions. The letter notes that the two reports of PML occurred in one patient treated for 28 months and another patient treated for 28 months with both Tysabri and Avonex. The patients had no other complicating factors, such as a suppressed immune system or HIV.

The companies said about 3,000 patients had been treated with Tysabri in clinical trials for MS, Crohn's disease and rheumatoid arthritis. They said there were no reports of PML in patients receiving just Tysabri or just Avonex nor did they receive any reports of PML with patients suffering from Crohn's disease or rheumatoid arthritis in clinical trials.

Adelman told analysts and reporters Monday the companies would convene a group of experts to determine if the reports of PML are linked to the length of treatment and to the form of treatment.

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