Investor/An insider's guide to the market: Possibly the Irish Stock Exchange's most volatile stock is Elan Corporation, as seen by its 52-week price range of €2.30 to €22.40.
The company has been back in the news in the past week when the US Food and Drug Administration's (FDA) advisory panel recommended that Tysabri, the multiple sclerosis (MS) drug, should return to the market. The share price lived up to its volatile reputation and rose by more than 20 per cent on the announcement. Over the past year the share price has doubled as the odds improved that Tysabri would indeed rise from the ashes.
Revenues for Elan in 2006 were projected at $570 million (€474 million), which would leave it running at a large operating loss. Expenses related to Tysabri on research and development and marketing costs account for this loss. While Elan has several promising drugs in its pipeline, the investment case for it rests almost exclusively on Tysabri. Optimists estimate that peak annual sales of the drug could reach $2 billion. More circumspect analysts believe peak sales may be no more than $500 million a year.
Tysabri stands out as being one of only two drugs to return to the US market after being withdrawn for safety reasons. Tysabri was voluntarily withdrawn by Biogen and Elan, equal partners of the drug, because there were three cases of Tysabri patients who developed a rare disease referred to as PML. Two of these patients died. Since then, Elan and Biogen conducted extensive research and found no further cases of PML. Therefore the data so far points to a one in 1,000 risk of patients developing PML.
The FDA's decision to allow Tysabri back on to the market reflects the evidence that the drug works much better on the treatment of MS than existing frontline drugs. Testimony from MS patients presented to the FDA advisory committee showed most were prepared to accept the risk of PML because of the improved quality of life offered by Tysabri.
MS is usually diagnosed in otherwise healthy people between 20 and 40 years of age, twice as often in women as men. Patients typically live with the disease for decades. When Tysabri was withdrawn, the MS community mobilised to fight for its return.
A factor in convincing the FDA to bring Tysabri back on to the market was Biogen's risk minimisation plan aimed at ensuring that only patients fully briefed on the risks would be given the drug.
The recommendations of the advisory panel is good news for Elan and Biogen. The FDA is expected to follow the panel's recommendation and is due to come back to Elan by March 29th.
Investor continues to hold the view that Biogen offers investors a much better risk/reward opportunity than Elan. With revenues in excess of $2 billion, Biogen is one of the largest biotechnology companies. Over the past year Biogen's share price has risen by about 25 per cent, partly due to the improvement in prospects for Tysabri. If predictions concerning Tysabri are fulfilled, then Elan will outperform Biogen by a large margin. However, if problems emerge after its return, there would be an enormous effect on Elan's share price.
A clear risk is if the occurrence of PML is greater than one in 1,000, which will only become apparent after a much larger number of patients are administered the drug. Biogen's share price would also suffer, but by a much smaller percentage.
Hopefully, Tysabri will prove to be a highly successful drug, and for those investors with a high-risk appetite Elan is the purest investment exposure. For the more risk-averse investor, Biogen offers a more diversified exposure to the eventual success or failure of Tysabri.
