A Setback for Elan and Biogen

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Elan (NYSE: ELN) and Stock Advisor pick Biogen Idec (Nasdaq: BIIB) experienced a setback with one of their most important drugs. Yesterday the European Union medical authorities recommended against expanding the use of multiple sclerosis compound Tysabri as a treatment for Crohn's disease.

Elan and Biogen's attempts to get Tysabri approved to treat this condition began in September 2004 when they filed a marketing application for the drug in the EU. Several months later it surfaced that two patients taking Tysabri in combination with other drugs had contracted a deadly viral infection while on the drug in clinical trials, and a third patient in a Crohn's disease study contracted the infection as well.

The safety concerns raised by the Crohn's disease patient getting this rare infection surely affected the chances of Tysabri getting approved in the EU, but the European medical authorities still had doubts about its efficacy in this indication even absent this safety issue, calling the Tysabri benefits "modest" and saying that they did not "outweigh its risks."

Despite the EU negative opinion, Tysabri performed relatively well in three phase 3 Crohn's disease studies and was successful on the primary efficacy endpoints in two of the three studies. The results from one of these studies didn't come out until months after the filing of the EU marketing application, so Elan may be able to use this to help its case in its appeal of the decision. Elan stated that a ruling on the appeal should arrive in the first quarter of 2008.

Crohn's disease is a tough condition to treat. There are few approved biologics to treat this inflammatory condition of the digestive tract except for Johnson and Johnson's (NYSE: JNJ) Remicade and Abbott's (NYSE: ABT) Humira, both of which have gone on to over $2 billion in sales (and still rapidly growing).

This setback in expanding the Tysabri label to treat Crohn's disease doesn't spell the end of the drug for this indication. It's still up for regulatory review in the U.S. An FDA advisory committee is set to debate its use for this indication on July 31, which should give a pretty good idea of its chances of approval here.

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Fool contributor Brian Lawler does not own shares of any company mentioned in this article. Johnson and Johnson is an Income Investor recommendation. The Fool has a disclosure policy.