West Coast Editor
Monday's frenzy over the decision by Biogen Idec Inc. and Elan Corp. plc to suspend marketing their much-ballyhooed, recently approved multiple sclerosis drug Tysabri gave way to sober consideration Tuesday.
Dublin, Ireland-based Elan took the bigger percentage hit on Wall Street Monday, losing more than 70 percent of its value, and Biogen Idec fell more than 42 percent. (See BioWorld Today, March 1, 2005.)
"The market overreacted on fear that it looks like Vioxx," said Bennett Weintraub, analyst with Hibernia Southcoast Capital in New Orleans - one of two firms to upgrade Biogen Idec shares to "buy" following the Tysabri withdrawal. The other was Smith Barney Citigroup.
Vioxx (rofecoxib) was taken off the market six months ago because of cardiovascular concerns, though two FDA advisory committees voted to allow Merck & Co. Inc., of Whitehouse Station, N.J., to again start selling the painkiller. (See BioWorld Today, Feb. 22, 2005.)
"Elise [Wang, the analyst at Smith Barney] is saying the same things we said, but we said it yesterday," Weintraub noted Tuesday, praising Wang's conclusions regarding Tysabri's fate.
Biogen Idec's withdrawal of the drug came as a result of one death of a clinical trial patient treated with Tysabri (natalizumab) and the firm's other MS drug, Avonex (interferon beta-1a), together. Investigators determined the cause to be progressive multifocal leukoencephalopathy (PML). Another patient was diagnosed with the disease.
Reaction by analysts to the Tysabri move proved, for the most part, predictable. Bear Stearns downgraded Biogen Idec to "underperform," Deutsche Bank Securities to "sell" and CIBC World Markets to "sector perform." JPMorgan Securities knocked the stock down to "neutral," as did Credit Suisse First Boston. Other firms to lower their opinion included Lazard Freres, Lehman Brothers and A.G. Edwards & Sons.
"They were citing uncertainty as a reason to lower their rating, and I disagree with that philosophy," Weintraub said. "If you're a biotech analyst or investor, you have to have a little tolerance for uncertainty - and the worst thing that could happen [has already] happened."
Elan suffered less in the aftermath, with Smith Barney and Canaccord Capital upgrading the stock to "hold."
Weintraub said investors fretted over the possibility that Avonex might have problems separate from Tysabri's - which he said is "unlikely" since the product has been sold since 1996 without such reports - and that Biogen Idec might face shareholder lawsuits as a result of the withdrawal.
"There's limited liability risk, and people are coming around to that today," he said. Biogen Idec's stock (NASDAQ:BIIB) closed Tuesday at $41.27, up $2.62. Even without Tysabri in his model, Weintraub said, the stock is worth $43.
Elan's shares (NYSE:ELN) ended the day at $7.97, down 3 cents.
"People are wary, and certainly the outlook for biotech is not helped by this," Weintraub said. "The timing couldn't have been worse. Congress is meeting now to talk about drug safety."
He noted that last week, at the BIO CEO & Investor Conference in New York, "they were talking about no biotech drug being implicated" in Vioxx-like scandals. "We can't say that anymore."
Biogen Idec's stock "should continue to perform well in the short term," Weintraub told BioWorld Today. "The medium term will depend on how those MRI scans come back." All available scans of Tysabri recipients will be re-examined for evidence of PML.
"I think they'll find a couple of more cases," he said. "There's probably only 1,000 people who've had Tysabri for two years, and about 500 on the combo with Avonex."
As Congress becomes involved, Weintraub said, investors should remember that "there are good tools to determine whether a drug should be approved," even if the process isn't fail-safe.
"You should look at the risk-benefit profile, not the feelings of the senator from Minnesota," he said.
In general, the reaction in biotechnology was too broad, Weintraub said, noting that Amylin Pharmaceuticals Inc., of San Diego, has sunk about 8 percent since Monday morning.
"They have the next big couple of approvals in diabetes [awaiting FDA action]," he said. "It's a little bit of guilt by association and not appropriate."
Amylin's stock (NASDAQ:AMLN) closed Tuesday at $20.71, down 71 cents.
On the other hand, Serono SA, of Geneva, saw its stock rise 17 percent Monday. The company markets the beta interferon Rebif for MS, an Avonex competitor. That didn't make any sense either, Weintraub said.
"People think Rebif will do better now that Tysabri's out of there," he said. "But if it's Avonex [causing the PML], then it will be all the interferons that have this risk," including Rebif.
Serono's stock (NYSE:SRA) closed Tuesday at $18.45, down 14 cents.
Weintraub models a 40 percent likelihood that Tysabri will never return to the market.
"That's a middle-of-the-road estimate," he said. "If it comes back, we're modeling $1.3 billion worldwide revenue potential, slightly less than half of what it was before."
His firm previously had a "hold" rating on Biogen.
"I thought they were expensive at $67, not because I anticipated problems with Tysabri, but because I think their pipeline is weak," he said. "They've got two blockbuster drugs, don't forget that," Weintraub added, noting that he owns no Biogen Idec or other biotech stock, and his firm has no investment banking relationship with Biogen Idec.
Eric Schmidt, analyst with SG Cowen & Co. in New York, called the Tysabri problem "the most shocking event I've ever experienced in the industry." Because the PML side effect is "so unpredictable and so severe, the conservative thing to do is to remove any substantial Tysabri numbers from expectations," he said. "It's clearly not going to be a big product."
He acknowledged speculation about whether Tysabri will return, how soon and at what price. "I don't think that matters," Schmidt said, since doctors won't prescribe it until they are certain of its safety.
Cowen hosted a conference call Monday with two experts in PML, who found "plausible" the link between the disease and Tysabri.
"They were generally unconvinced that the absence of further signs of PML from MRI scans would be a significant positive," Schmidt wrote in a research note. "Rather, physicians believe only more substantial long-term experience could settle the issue."
Although Cowen doesn't rate stocks, Schmidt told BioWorld Today he saw no reason to buy and "no reason to sell," either. Without Tysabri in the model, he expects Biogen Idec to gain about $1.70 per year and grow about 11 percent annually.
"It's worth about $35 to $40, using those metrics," he said. "We're a little above that range now, so the stock's fairly valued." Shares were trading in the same general range after Biogen Idec got news that it could file for approval based on one-year data, Cowen said.
Whether the Tysabri imbroglio - which may have embarrassed the FDA following the Vioxx uproar - means regulators will be more cautious about clearing drugs is an open question, Schmidt said. Maybe they already are, since Biogen Idec made its decision to withdraw Tysabri after talks with the agency.
"Even that decision-making process may have reflected the fact that the FDA has been more conservative than usual," Schmidt said.