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MS Guessing Game Heats Up

If the FDA grants Tysabri's return to the market, a number of existing products stand to be affected.

Tysabri isn't back on the market yet, but the odds have dramatically increased that it soon will be. That has set in motion considerable calculations among investors in companies that make medications for the same disease.

At stake is a market in which most MS drugs have annual sales of at least $1 billion, representing the largest source of revenue for their respective companies.


panel of medical experts on Wednesday said Tysabri, developed by




Biogen Idec

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, should return to the market. Within minutes, stock watchers on both sides of the Atlantic were trying to assess how Tysabri would affect competitors' sales and stock prices.

Other players in the MS market include Switzerland's



, which makes Rebif and Novantrone, Israel's

Teva Pharmaceutical Industries

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, the maker of Copaxone, and Germany's

Schering AG


, the seller of a drug called Betaseron.

Another MS drug is Avonex, from Biogen, and it accounted for $1.54 billion of corporate revenue, on nearly two-thirds of the total, last year. Novantrone is the only MS drug with annual sales below $1 billion.

Assuming the Food and Drug Administration supports its panel's recommendation, Tysabri's ultimate impact will depend on how many restrictions are imposed on the drug and how often doctors prescribe it, given

its dramatic history. The FDA is expected to act by the end of March. If it does, Biogen and Elan say they could move quickly to make the drug available.

And don't forget the European Union. Kelly Martin, Elan's chief executive, told an S.G. Cowen conference in Boston that he expects EU regulators to rule on the drug by midyear, meaning Tysabri could be launched during the second half of 2006.

What's Vulnerable

Shareholders of most competitors shrugged off Wednesday's unanimous vote by the advisory committee supporting Tysabri, partly because the panel suggested the FDA include labeling with the drug that contains a warning about a potentially lethal side effect, a brain disease called PML.

Clinical trials revealed that two patients receiving Tysabri for MS contracted PML. One patient died. Both also were taking Avonex. Another patient receiving Tysabri for Crohn's disease, a serious gastrointestinal ailment, also contracted PML and died. The Crohn's patient had taken immunosuppressant drugs. The reporting of two PML cases led Biogen and Elan to pull the drug from the market in February 2005, just a few months after they launched it.

Serono could be vulnerable to a Tysabri comeback because Rebif accounted for $1.27 billion in sales last year, or half of its total.


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is the U.S. marketing partner for the drug.

However, Erica Whittaker, of Merrill Lynch, believes Tysabri will have "only minimal impact" on worldwide sales of Rebif. Noting that 70% of Rebif's sales and 80% of its profits are outside the U.S., she issued a research note maintaining her buy recommendation on Serono.

Discussions with MS specialists "indicated reluctance to use Tysabri widely," says Whittaker. "In addition we expect the pace of Tysabri sales growth to be limited by the onerous risk-management program" recommended by the FDA panel. Whittaker doesn't own shares, but Merrill says it does and seeks to do business with companies mentioned in its research reports.

Placing Serono's fair value at $20 a share, Morningstar analyst Brian Laegeler says Tysabri will affect Serono, but won't be crippling. "Even if Tysabri receives favorable labeling, lingering safety concerns leave the drug significantly disadvantaged the second time around," says Laegeler, who doesn't own shares and whose firm has no financial relationship with the companies it covers.

Laegeler is more worried about other companies developing MS pills to compete with injectable drugs such as Rebif. "Uncertainty surrounding its most important drug makes Serono a tough pill to swallow," says Laegeler in a March 8 report.


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are among the companies working on MS pills. Elan executives say they expect to begin clinical trials later this year on a Tysabri-type pill.

Serono also is working on an MS pill called Mylinax, which, Laegeler says, might be ready by 2009. If approved, Mylinax "could replace a significant portion of the Rebif sales potentially lost to newer therapies," he says. "The company's long-term growth depends on Mylinax."

Mylinax presents a challenge, he warns, because it's an oral form of a cancer drug, cladribine, "that has yet to demonstrate efficacy for MS in pill form."Serono's partner is


, which Teva recently acquired. Teva itself is working on a pill version of its injectable MS drug Copaxone.

Competitive Impact

Although Teva specializes in generic drugs, brand-name Copaxone is its biggest seller -- $1.18 billion in sales last year, or 22% of its total -- and its biggest profit-maker.

Ken Kulju of Credit Suisse kept an outperform rating on Teva, because he thinks Tysabri's restrictions will help protect Copaxone's standing. Sales of Copaxone should grow 12% this year, 10% next year and 6% in 2008, he says. Sales of the MS drug grew 26% in 2005, thanks in part to a price increase.

Copaxone will have less of an effect on Teva in 2006 because of the acquisition of Ivax, accounting for about 7% of corporate revenue, says Kulju. He doesn't own shares, but his firm has provided investment-banking services to Teva in the last year.

As for Schering's Betaseron, which contributed $1.03 billion, or 16% of its revenue, in 2005, some investment banking firms, such as Goldman Sachs, see little impact from Tysabri. Others, like Natexis Bleichroeder, are more cautious.

"The impact on Betaseron could be very significant by 2007, given

the drug's positioning to treat patients suffering from the most serious forms of the disease," Natexis says in a research report. This is the category that Tysabri "should penetrate within one to three years" after returning to the market.

Natexis predicts Tysabri could knock 3% off Betaseron's sales next year, 7% in 2008, and 13% in 2009. The firm doesn't have an investment-banking relationship, and its analysts don't own shares.