Elan shares plunge 50% on latest drug news

SHARES IN Irish biotech group Elan shed half their value yesterday after the company announced that two more multiple sclerosis (MS) patients taking its Tysabri drug had developed a generally fatal brain infection.The latest cases were the first to involve patients in Europe. Both patients had been on the drug for more than one year.

However, the company said it was not considering withdrawing the drug as it did previously in the US when the first cases of progressive multifocal leukoencephalopathy (PML) emerged in early 2005.

"That is not under consideration. Tysabri offers MS patients a new level of efficacy," a spokesman for the company said yesterday.

"As we have said in the past, as the FDA has stated, and as is clearly described in our FDA-approved labelling and risk management plan, we anticipate seeing cases of PML. The benefit-risk profile of Tysabri remains favourable."

The two PML cases are the first since the drug's reintroduction to the market in 2006.

Elan's partner in the Tysabri programme, US company Biogen Idec, said one patient was clinically stable and is at home while the other was hospitalised.

The company said it was notified of one of the cases a few weeks ago, with confirmation of the infection coming on Wednesday of this week after a period of clinical evaluation. The other case was notified to the company on Thursday.

However, the company would not confirm yesterday at a briefing of analysts whether it knew of the PML cases when it gave an upbeat assessment last week of growing MS patient numbers on Tysabri.

On July 22nd, Elan said a total of 31,800 people were now receiving Tysabri, 14,000 of them for more than one year.

Asked yesterday whether the company stood by its target of enrolling 100,000 Tysabri patients by the end of 2010, the spokesman said the company would assess the impact of the latest news over the coming weeks. "It is premature to speculate about future actions. We still expect Tysabri will ultimately be the leading therapy for MS. It remains our goal to achieve 100,000 patients on therapy by the end of 2010."

The shares recovered some ground in Dublin trade after falling 70 per cent shortly after the market opened yesterday. They closed 45.6 per cent off at €7.35. But sentiment soured towards the end of trading last night in New York where most dealing in the stock takes place.

Shortly before the close, the shares had dipped to $9.86 a loss of 51 per cent on the day, having touched $9.60.

News of the two cases of PML came just days after detailed figures from a clinical trial on one of the companys Alzheimer's programmes was poorly received by the market.

Jack Gorman, analyst at the company's broker Davy, said in a note to clients yesterday that "clarity on both [Alzheimer's therapy] Bapineuzumab and Tysabri will take time, but we believe that the share price is factoring in an overly pessimistic scenario for both".

"The challenge with investing in this stock is that it is now a potential time bomb," Geoffrey Porges, an analyst with Sanford Bernstein in New York, in a note to clients.

- (Additional reporting, Reuters)

TYSABRI - WHAT IS IT?

Tysabri, the drug at the centre of the latest crisis for Elan, is the company's largest single income-earning asset. A breakthrough treatment for multiple sclerosis (MS), it is a drug Elan and its US partner, Biogen Idec, have anticipated could attain blockbuster status with annual sales in excess of $1 billion.

However, this is not the first time Tysabri has been the subject of controversy. Just months after its launch in the US in 2004, Tysabri was withdrawn from the market when the first cases of PML emerged.

In a grim parallel with yesterday's news, the shares fell 70 per cent overnight from $26.90 to just $8.

Following a safety audit and with strong backing from patients, Elan and Biogen secured a review of the drug in March 2006 by an FDA advisory panel. Three months later, it became one of just a handful of drugs ever to return to market after a withdrawal on safety grounds.

Only last week Elan announced that 31,800 patients were using the drug as of the end of June, giving credence to company targets of 100,000 patients by 2010.

Tysabri started life as a drug called Antegren, one of a number of prospective therapies for major diseases to emerge from the purchase in 1996 of a small Californian biotech company called Athena Neurosciences by then chief executive Donal Geaney in an audacious all-share deal.

Mr Geaney, a former KPMG partner, left Elan in 2002 after adverse comment about its accounting practices in the wake of the Enron scandal dramatically undermined the share price.

It was left to his successor, former Merrill Lynch banker Kelly Martin, to oversee the final stages of the drug's development and bring it to market - but not before more bad news emerged from a clinical trial - this time on use of Antegren as a treatment for Crohn's disease, the chronic bowel disorder.

While Crohn's - for which Tysabri is now licensed in the US - was always a secondary therapy area for the drug, the news knocked more than 30 per cent off the share price in just two days.

Elan retains hopes of finding new applications for Tysabri and for securing European approval for Crohn's. In light of the latest problems with adverse side-effects, this looks to be highly unlikely.

Dominic Coyle