Updated from 11:25 a.m. EST

Shares of

Biogen Idec

(BIIB) - Get Report

and

Elan

(ELN)

rose Wednesday after the Food and Drug Administration approved Tysabri, their drug for multiple sclerosis.

Although FDA approval had been expected, the announcement was still met with cheers on Wall Street for the drug that had been known as Antegren during its development.

Biogen Idec's shares recently gained $1.31, or 2.3%, to $58.74, while Elan's rose 51 cents, or 1.9%, to $27.81. In regular trading Tuesday, Elan's stock fell 3.1%. In the past six months, Elan's stock had gained almost 50%.

Perhaps the only disappointment to analysts, from an economic modeling perspective, was the fact that the companies didn't immediately set a price for the treatment. They said they would do so in a few days for the drug that is given intravenously monthly in a physician's office.

"Overall, we believe the approval is very good news," said Marc Goodman, of Morgan Stanley, in a Wednesday research note reaffirming his overweight rating on Elan. "We believe its therapeutic profile is so much better than existing therapy." He said test results so far show Tysabri has a better side-effect profile than do existing MS drugs.

Goodman said he believes the drug can produce $2.5 billion a year at its peak. (He doesn't own shares; his firm has an investment banking relationship with Elan).

Corey Davis of J.P. Morgan said late Tuesday that the drug could produce a peak of $2.8 billion a year in 2098, assuming the FDA also approves Tysabri for treating Crohn's disease, a vicious gastrointestinal disease. If the FDA approves the drug for rheumatoid arthritis, his estimate could go higher. The companies are conducting clinical trials for both diseases. He has a neutral rating on the stock. (He doesn't own shares; his firm has had a noninvestment banking relationship with Elan).

The new drug will certainly help elevate Elan, which is trying to emerge from a financial crisis during the early part of the decade. Elan has said it doesn't expect to return to profitability until 2006.

For Biogen Idec, the big question is whether -- or by how much -- Tysabri will cannibalize sales of Avonex. Analysts have said they expect Tysabri to perform well at the expense of other MS drugs, including Rebif from

Serono

(SRA)

; Betaseron, from both

Chiron

(CHIR) - Get Report

and

Berlex

; and Copaxone from

Teva Pharmaceutical Industries

(TEVA) - Get Report

.

"We believe Tysabri will rapidly capture a significant portion of 100,000 patients in the U.S. and Europe that are not currently on existing therapy due to intolerance or lack of efficacy and the 60,000 patients ... that are currently on treatment but are not receiving adequate benefit and/or are intolerant of therapy," said Eric J. Ende, a biotech analyst for Merrill Lynch, in a research report Wednesday.

"We expect Tysabri to allow Biogen Idec to achieve a long-term growth rate of 19%, transforming the company from a decelerating growth story to one of sustainable growth," said Ende, who has a buy rating on the stock. (He doesn't own shares; his firm is a market-maker in the stock and has had a noninvestment banking relationship with the company).

"Although the timing was in line with our expectations, the quality of the

clinical trials data released Tuesday exceeded our expectations," said Mark Schoenebaum, of Bear Stearns, in a report to clients. He has a peer perform rating on Biogen Idec, adding that the drug could push Biogen Idec's stock into the mid-$60s. (He doesn't own shares; his firm is a market-maker in the stock and has had a noninvestment banking relationship with the company).

Impressive Test Results

The FDA's approval of Tysabri was based on positive results seen in patients after one year of treatment. As part of the approval, Elan and Biogen Idec will continue clinical trials for another year.

According to the Multiple Sclerosis Association of America, about 350,000 people have been diagnosed with the disease in the U.S. An estimated 10,000 new cases are diagnosed each year, the FDA says.

The most common form of MS at the time of diagnosis is a relapsing-remitting form, in which acute symptoms or worsening of neurologic function can occur intermittently, the FDA says. The symptoms can diminish or disappear for months or years between relapses.

"The MS community is pleased that the FDA approval of Tysabri provides an additional treatment option for people with relapsing forms of MS. There are many people living with MS who may benefit from this different treatment approach," said Stephen C. Reingold, vice president of research for the National MS Society, in a prepared statement Tuesday.

"This innovative treatment for multiple sclerosis represents a new approach to treating MS -- exciting news for patients with this serious disease," Lester M. Crawford, acting FDA commissioner, said Tuesday. "While we eagerly await long-term results from ongoing clinical trials, we have reason to believe that Tysabri will significantly reduce relapses in MS."

Although the cause of MS is unknown, it is widely considered to be an autoimmune disease in which the person's immune system attacks the brain and/or spinal cord, the FDA says. Tysabri appears to work by binding to these immune system cells, thus preventing them from traveling to the brain where they can cause damage.

In the first clinical trial of the product's safety and efficacy, the drug reduced the frequency of relapses by 66% relative to placebo, the FDA announcement said.

In another clinical trial, patients who had been treated with Biogen's MS drug Avonex but who had experienced one or more relapses while on Avonex were given either Tysabri or placebo. Avonex was continued throughout the study for both groups. In this trial, Tysabri plus Avonex reduced the frequency of relapses by 54% relative to Avonex plus placebo.