Drug stocks can be volatile. Chart squiggles will rise and fall on unpredictable events like FDA approvals, fresh phase 3 trial data, or sudden outbreaks of deadly drug reactions. But Mr. Market eventually takes his Valium and settles down. That's the case with Motley Fool Rule Breakers recommendation and drug developer Elan (NYSE:ELN) nowadays.

Elan gets more than half its revenue from the field of multiple sclerosis, through the powerful but risky MS medication Tysabri that it markets alongside American partner Biogen Idec (NASDAQ:BIIB). Back in 2005, the newly FDA-approved Tysabri was linked to several cases of the often fatal brain infection progressive multifocal leukoencephalopathy (PML). The drug was pulled, and Elan's stock dropped like a rock.

I've had a longstanding interest in MS because of family friends who have long suffered from the disease. Traditional therapies like Teva Pharmaceutical Industries' (NASDAQ: TEVA) Copaxone and Rebif from Pfizer (NYSE:PFE) and EMD Serono typically slow the disease down, but Tysabri can actually reverse symptoms for some patients. Unless PML turned out to be a common side effect, Tysabri's rewards outweighed the risks, and its return to market seemed almost certain. So that's when I bought my first batch of Elan shares. 

And it's been a rocky ride ever since. Elan's stock has melted down to $3 and change, and then soared to $35. The PML cases have been dropping in regularly since Tysabri returned to market, but investors don't spook as easily anymore:

PML Report Date

Elan Change

Biogen Change

July 31, 2008



Oct. 29, 2008



Dec. 15, 2008



Feb. 6, 2009



April 17, 2009



May 22, 2009



June 12, 2009



June 19, 2009



June 26, 2009



Sept. 16, 2009



Market data from Yahoo! Finance, showing next-day share price change after each PML event report.

There have been 13 Tysabri-related PML cases since the reintroduction -- including three new cases in the Sept. 16 announcement --  but that's a vanishingly small portion of the more than 40,000 patients who take Tysabri worldwide. Investors have started to take these announcements in stride, because they don't appear to pose any long-term threat to the Tysabri business.

I've got a somewhat unique view of Elan: As a longtime Elan investor, I've poked and prodded the business model behind the medicine. Then -- irony of ironies -- I got the dreaded MS diagnosis this year and studied up on all forms of MS medication. My Copaxone isn't helping much, and Tysabri might be the next step.

Tysabri won't be Elan's golden goose forever, of course. There are enough MS patients to justify lots of research, and there are promising new therapies on the way from Teva, sanofi-aventis (NYSE:SNY), and Merck (NYSE:MRK). The competition is coming. But Tysabri may still be the strongest MS drug on the market for a few more years.

And that's why I'm holding on to my shares, despite that string of PML incidents.

Agree? Disagree? Let me know in the comments section below.

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