Analysts Survey Tysabri Wreckage
Analyst reaction ran the gamut Tuesday to the stunning withdrawal of multiple sclerosis treatment Tysabri by
Biogen Idec
(BIIB) - Get Report
and
Elan
(ELN)
after two patients developed a rare neurological disease.
Most brokerages were negative on the stocks even after Biogen's 43% fall Monday and Elan's 70% rout. Analysts at Lehman Brothers, Piper Jaffray and Lazard cut the stock to the equivalent of hold and set price targets between $35 and $42 for Biogen. Biogen closed Monday at $38.65 while Elan slid to $8.
Bucking the bear trend was Smith Barney, which raised Biogen to buy and raised Elan to hold. The brokerage was relatively sanguine on the prospects for Tysabri's return to the market as long as no more patients come down with progressive multifocal leukoencephalopathy, the disease that killed one patient and sparked the withdrawal.
Smith Barney set a $49 price target on Biogen, down from $70, and put a $9.25 target on Elan, down from $25. It argued that Tysabri could be reintroduced to a smaller market with safety warnings and said yesterday's selloff was an "overreaction." Regarding Elan, the brokerage noted that the patients who got sick were taking Tysabri in combination with Avonex, a drug marketed solely by Biogen.
Lazard, in cutting its Biogen price target to $40 from $77, says it doesn't see the drug back on the market again before 2007, and even then it will probably carry a "black box" warning.
For its part, Kelly Martin, CEO of Elan, said Monday that "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 because of its effectiveness, Martin said.
Biogen CEO Jim 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.
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.
Tuesday morning, Biogen was up $1.29, or 3.3%, to $39.94, while Elan added 5 cents to $8.05.
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.
"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.
Like analysts at several research houses, those at SG Cowen 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 that 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.)