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Elan's Choices

Prohost Biotech - Saturday, April 16, 2011

Biogen Idec (BIIB) announced positive results of a process aimed at Identifying high-risk patients for a life-threatening side effect of prolonged use of the multiple sclerosis drug Tysabri. This test is a necessity because it detects an antibody that points to the presence of the Polyomavirus JC (JC virus), which causes the life-threatening progressive multifocal leukoencephalopathy (PML). This side effect in one per thousand patients has deprived Elan from billions of dollars in expected sales of Tysabri.

In addition to the blood test, physicians would study other risk factors, which include the length of time patients have had Tysabri and the treatments that preceded this drug. The test, which is expected to be launched in the next couple of months in Europe to be followed by its launch in the U.S, may change Elan’s fortune. Physicians may be able to pinpoint those who are, or are not at risk of developing PML.

IMPACT: This test provides excellent news for M.S. patients, neurologists, Elan (ELN) and Biogen Idec (BIIB). It is exciting for science and for the drug industry in general, as it demonstrates scientists’ capability of practicing  predictive medicine that would save vulnerable patients from drugs that could hurt them rather than heal them. This test is expected to reward Elan with a tremendous increase in Tysabri’s sales after several years during which time prescriptions were constrained from fear of PML.

Many analysts expect Tysabri’s revenues to climb from $1.25 billion/year to $3 billion, which would smooth down Elan’s financial mess. The boom in Tysabri’s sales is expected irrespective of the competition from other drugs, old and new, including the recently approved oral drug Gilenya. Neurologist would want to wait and observe the safety and efficacy of the drug on few patients before they prescribe it to many. Tysabri has already demonstrated superior efficacy. Now that its safety would be better dealt with, many science analysts believe that a large number of patients who fail to improve on other treatments would shift to Tysabri if they test negative for the virus. The test will encourage neurologists to prescribe the drug for more patients after being reluctant to do so in spite of the drug’s superior efficacy.

Yesterday and Tomorrow: A lot of bad things had happened to Elan by Elan itself, which still reflect in the firm’s low value. We recognized the mess this firm has gotten itself into and wrote about it several times the last was in January when we said, “Although investors’ fury at Elan’s management is understandable and legitimate, the management’s mistakes should not blind investors from fairly assessing this firm, which has contributed to science and drug development more than most other drug developers, small and large.”

On Tysabri, we wrote,” It was Elan’s scientists who discovered the role of the selective adhesion molecule alpha 4 integrin protein in the etiology of multiple sclerosis and other autoimmune diseases, including Crohn’s disease. Alpha 4 integrin has a role in the movement of immune cells from the bloodstream into the tissues in response to inflammation. Elan’s selective adhesion molecule inhibitor, Tysabri® (natalizumab) marketed for multiple sclerosis and Crohn’s disease would have generated billions of dollars if not for PML.”

“Despite the drought in Elan’s coffers, its scientists continued to investigate new small molecule inhibitors that would block alpha 4 integrin and selectively block immune cell trafficking. The scientists are also studying signaling molecules that may be involved in brain inflammation characteristic of secondary progressive MS. Elan’s scientists aim at disrupting the pathway of chronic inflammation and neurodegeneration that causes permanent disability in advanced MS.”

Elans’ recent decisions, including selling some, or several?! of its programs is not clear in investors’ minds. Investors are asking many questions, the only one who can answer them is Elan, which it didn’t. Now is the best time for Elan to delineate, in clear sentences, its future plans and strategy, Such a decision would be wise, especially that Tysabri’s sales are expected to bring over $600 million/year to Elan’s coffers - new revenues that make investors wonder about how the firm will be using the money. They are ready to boost their expectations about this firm, provided they know what to expect. We believe Elan’s scientists have a lot to accomplish and are able to excel when money is abundant. How much of the extra-revenues will be put under their disposition? These scientists have the talent for great discoveries and the technologies they can use for breakthrough achievements. Big dreams, yes, can be achieved. It all depends, though, on Elan’s choices.

We own some Elan stock. We long this firm.

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