The bad news just keeps getting worse for Elan (NYSE:ELN) and BiogenIDEC (NASDAQ:BIIB) with respect to Tysabri, their embattled multiple sclerosis drug. And for their investors, the news continues to sting, with shares of Elan down 56% today to $3.07 and shares of Biogen off nearly 11% to $34.15.
Late Wednesday, the companies jointly announced that a third patient who had received Tysabri has contracted progressive multifocal leukoencephalopathy, or PML -- the same rare, fatal neurological disease that led to Tysabri's being taken off the market.
What makes this latest case even worse is that the patient received the drug as part of a trial for Crohn's disease -- an autoimmune disease that attacks the intestines. Unlike the previous two patients who developed PML, this patient never received Avonex, the Biogen IDEC multiple sclerosis drug. Some optimists had held out hope that the PML in the first two MS patients was a byproduct of a rare interaction between Tysabri and Avonex, but this latest case effectively dispels that notion. Although the Crohn's patient had been through numerous immunosuppressive drug regimens, it's now almost impossible to explain away the link to PML as simply a byproduct of Avonex-Tysabri interaction.
In a cruel and ironic twist of fate, the real underlying cause of the problem may be that Tysabri simply does its job too well. Tysabri provides clinical benefit to MS or Crohn's patients by limiting the action of T-cells. But those T-cells that run amok in autoimmune diseases also help to protect us from harmful viruses -- like the one that causes PML.
PML is thought to be caused by a virus that is actually quite common -- in fact, most people reading this are believed to have the virus. But in a healthy person, the virus remains dormant and controlled by the immune system. In the case of people receiving Tysabri, though, it may be that the profound T-cell interference actually allows the virus to become active and dangerous in a small number of patients.
Whatever the case, it appears that Tysabri's days as a potential blockbuster are gone. Although it's conceivable that the Food and Drug Administration might allow the drug to be marketed in rare cases -- namely, for patients with severe symptoms who haven't responded to other drugs -- that sort of label wouldn't be worth much financially to either company, and even that could prove to be a long shot.
Because fellow Fool Charly Travers laid out a good case for Biogen IDEC previously, I won't rehash. Instead, I'll take a look at Elan's future.
Simply put, Elan is in some trouble, but it's not necessarily doomed. The company has about $1.6 billion in cash, and although it also has considerable debt, most of that isn't due for several more years.
Assuming that Tysabri is off the table, Elan will likely curtail corporate expenses, particularly its sales force, and focus on its early-stage pipeline of Alzheimer's candidates. While a pragmatic investor should assign a lower-than-average probability of approval to any of these drugs (simply because Alzheimer's has proved so tricky for so many biotechs and drug companies), there is still hope that Elan could someday rise above these problems.
In the meantime, though, investors shouldn't expect a lot in the way of good news -- Tysabri was supposed to be the answer to Elan's prayers, and it now seems pretty clear that it will never live up to its original $4 billion-plus potential. Bad as that may be for investors, it's even worse for the thousands of patients who could have benefited from the drug.
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
