Shares in Elan jump 4% over Tysabri review

Shares in Elan jumped by more than 4 per cent yesterday as the market digested news that Tysabri, the firm's flagship drug, could be back on the market as soon as next April.

Elan announced after the close of UK markets on Thursday that the US Food and Drug Administration (FDA) had awarded the multiple sclerosis (MS) drug a priority review. This means that the regulator will take a maximum of six months to decide on how Tysabri can be licensed.

The company's shares moved sharply higher in Dublin, touching €9.55 before falling back to close at €9, up 15 cent on the day. In New York, where they are mostly traded, shares rose by 4.08 per cent to $10.72.

The MS treatment was withdrawn from sale last February after two clinical trial patients were diagnosed with a rare and generally fatal brain disease.

At that stage, it had been on the market for just three months.

Analysts yesterday welcomed the news of Tysabri's new status with the FDA, but remained cautious on the prospects for the company's share price.

Some pointed out that the FDA review does not, de facto, mean that Tysabri will return to the market, with Lehman Brothers putting the likelihood at just 75 per cent.

An additional uncertainty relates to how the drug would be labelled if indeed it is sold again. Tysabri's history means that any new label or information insert on the product could be very restrictive.

Erica Whittaker, an analyst with Merrill Lynch, suggested for example that the drug may be approved only for those MS patients who have failed other therapies.

The new label will be based on two-year clinical data, which Elan and its partner in the Tysabri project, Biogen Idec, said proved that the drug was even more effective than the one-year data on which its initial approval was based late last year.

Ms Whittaker has pencilled in annual sales of $500 million (€426 million) for Tysabri by 2010, an estimate some see as conservative.

Most analysts agree that sales of this magnitude are already priced into Elan's valuation. Marc Goodman of Morgan Stanley judges that any new investor at this stage would need to believe that peak sales would exceed $750 million.

Elan shares have been particularly strong of late, probably in anticipation of the FDA's priority review decision. The stock has gained 25 per cent over the past three months.

Dr Ian Hunter of Goodbody Stockbrokers is more optimistic than most on the sales outlook.

He noted yesterday that the FDA news justifies his existing model, which has Tysabri peaking with sales of $1.9 billion in 2009.

Robert Brisbourne of Merrion Stockbrokers pointed out that, in general, "visibility" on Tysabri is quite low.

He said that Elan's current share price implies some "front-line" use of the drug as well as a "high share" of patients who have tried other treatments with no success.

Merrion has a "hold" recommendation on the stock.

Following the suspension of Tysabri sales at the end of February, Elan began a safety evaluation of more than 3,000 patients. This review yielded just one further case of the fatal brain disease, progressive leukoencephalopathy (PML) - in a deceased patient whose death had previously been attributed to other causes.

In two of the three cases, Tysabri had been taken in conjunction with Avonex, an older MS treatment produced by Biogen.

In the third case, Tysabri had been taken for the treatment of Crohn's Disease, and the patient had also been taking steroids.