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Inside The World Of Business

Sudden jump in PML cases poses questions for Elan

JUST TWO days ago, we warned that uncertainty was the last thing Elan and its new shareholder Johnson Johnson needed in relation to the nature and scale of side effects from its breakthrough multiple sclerosis (MS) drug Tysabri.

Now it emerges that, in the six weeks since the US Food and Drug Administration reported a total of 13 cases of the rare and potentially fatal brain disease PML, as many as 10 further cases have emerged in patients taking the drug.

The average number of monthly infusions among the original 13 cases was, according to the FDA, 25. If the same is true in the latest cohort, Tysabri is well below the one-in-1,000 risk rate cited on its label, at least for people taking the drug for two years or more.

For its part, Elan is refusing to state how long the patients have been on the drug or any other details relating to the latest cases.

Of possibly more concern is the fact that Elan, in reporting quarterly figures this week, flatly refused to answer a direct question on whether any new cases of PML had emerged since the FDA update.

The information only emerged from the European Medicines Agency decision to commence a review of the risks and benefits of the drug and it appears that Elan and its US partner Biogen were caught unawares.

Biogen stopped its commitment to reporting monthly on the incidence of PML back in June. At that time, there had been 11 reported cases since the drug returned to market in July 2006. That decision was made, the company said, in an effort to focus on the drug’s benefits. Now we learn that after 11 cases in two years, up to 10 cases have emerged in a short period.

Quite what patients are to think about the decision to keep them in the dark is a moot point. Clearly the markets are unimpressed, with Elan stock diving 23 per cent on the news in New York yesterday.

Praise for Arthur Cox

Law firm Arthur Cox’s close, some might say too close, relationship with the Government earned it some unexpected plaudits this week.

Yesterday, the Financial Timespublished a colour magazine – Innovative Lawyers– largely designed to drum up advertising from the legal profession. The theme was how commercial law firms are adapting to the "new economic reality", and helping their clients to do so into the bargain.

Arthur Cox features in a number of places. One is a two-page spread on structural support, detailing with how lawyers have played a central role in drafting legislation and advising politicians on how best to negotiate the collapse of the global financial system. In an accompanying table, the Dublin firm scored 20 out of a potential 30 for advising the Government on the economic crisis.

“Acting on two European firsts, the firm designed the State guarantee for all depositors and developed the National Asset Management Agency to manage toxic bank assets, said the accompanying legend. Department of Finance officials thought this was overegging the cake, to say the least. But the sections of the Nama legislation for which they were happy for the law firm to take credit were those designed to, as far possible, protect Nama from law suits that could interfere with its work, or upset its apple cart entirely.

The provisions are concentrated in parts nine to 11, and are designed to deal with almost any eventuality, including the thorny issue of cross-guarantees. Of course, given that Cox not only numbers the Government, but also banks and developers among its clients, those affected could well include its own customers.

Markets and Nama

The difficulty with many alternative solutions proposed to fix the banking sector and ease the pain of strugling mortgage holders is how investment markets will react.

Labour has tabled an amendment to the National Asset Management Agency (Nama) Bill that would include a two-year moratorium on applications for repossession orders on family homes.

Fine Gael has gone further, proposing a homeowner support scheme where Nama would take an equity share in a home after agreeing a writedown in the outstanding loan with the bank or lender that holds the mortgage. The borrower would still owe the lower amount but would pay a rental to Nama for the equity share the State had taken. Nama could either share in the sale of the property or the borrower could buy out Nama’s share before then.

It’s a clever idea and would appeal to stressed-out borrowers fearful of not being able to hold on to their homes.

Problems arise with the debt ratings assigned to portfolios of mortgages sold on as covered bonds by banks, which are being used again to attract funding.

Fine Gael’s mortgage scheme or Labour’s two-year moratorium have the potential to skew default rates on the mortgages and therefore the ratings assigned to them. This could lead to the downgrading of mortgage portfolios sold on to investors and affect the banks’ ability to raise funding.

Such a scenario was raised as a concern by the banks when the Government mulled a two-year moratorium on repossession applications under the recapitalisation of AIB and Bank of Ireland last February. The compromise was a one-year moratorium.

Analysts believe losses on mortgages will not be as severe as on development loans and that banks can handle them on their own books without turning to Nama. Again, proposed solutions that would help borrowers may have the opposite effect on the banks.

Next week

The committee stage of the National Asset Management Agency (Nama) Bill will continue throughout the week while the Central Bank will release figures on the amount of private sector credit in the economy at the end of the third quarter.

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