Subject:  Elan facing hard choices as key drug's future dims |
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DR_stockenstein
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Date Posted: 06:53:14 04/03/05 Sun
Elan facing hard choices as key drug's future dims
Analysts anticipate more restructuring
By Penni Crabtree
UNION-TRIBUNE STAFF WRITER
April 3, 2005
A second fatality reported this week among patients treated with the multiple sclerosis drug Tysabri could severely damage the prospects of one of its developers, Elan Corp.
Faced with a huge debt and a thin pipeline of approved drugs, the Irish drugmaker had counted on Tysabri to help the company regain profitability after struggling for years with a difficult restructuring and a federal probe into its accounting policies.
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Elan's fate is of more than passing interest to San Diego, where the company has established a West Coast clinical hub and employs about 400. Wall Street analysts predict that Elan will have to undergo a substantial restructuring if it is to meet interest obligations, let alone looming payments on its $2.3 billion debt.
Elan and its Cambridge, Mass.-based marketing partner Biogen Idec pulled Tysabri Feb. 28 after it was linked to the death of one MS patient and the hospitalization of another who developed a rare nervous system disorder called progressive multifocal leukoencephalopathy, or PML.
Wednesday, the companies reported a third case – and the second fatality – in a patient who was being treated with Tysabri for an entirely different disease.
While bad news for Biogen Idec, the scuttling of Tysabri is far more devastating for Elan, which doesn't have other blockbuster drugs. Biogen Idec is profitable, earning $45 million last year on $2.2 billion in revenue from its drugs, which include the non-Hodgkin's lymphoma treatment Rituxan and an older MS medicine, Avonex.
In contrast, Elan hasn't been profitable since 2001. Though the company has revenue of about $500 million and cash of $1.5 billion, the cash is largely the result of a debt offering late last year. In total, Elan has $2.3 billion in debt, which starts coming due in 2008.
For Elan, Tysabri was to be a financial life-saver, bringing in as much as $3 billion to $4 billion over the next few years. Elan's 50 percent share of the profits would have reversed earnings and enabled it to deal with its debt.
If Tysabri does not return to the market, some Wall Street analysts speculate that Elan may not remain a viable company.
"Should Tysabri fail to return to the market, we strongly believe that shares of Elan would be worth $0, given the firm's substantial debt load and recent shedding of assets during its restructuring the past two years," Morningstar analyst Geoffrey Bonn said in a research report. "We think it is unlikely that the firm will have the resources to overcome a complete Tysabri failure."
Whatever Tysabri's fate, Elan will have to make some tough, cost-cutting decisions in the near-term, Wall Street analysts say. Elan officials declined this week to speculate about what steps the company might take.
"We believe it is premature to talk about the restructuring of the business," Elan spokesman Brian McGlynn said. "We are focused on completing the Tysabri investigations and finding a path forward for Tysabri in collaboration with Biogen Idec and the regulatory authorities. We believe in the promising therapeutic benefit of Tysabri."
Biogen Idec also has a significant presence in San Diego, employing about 600 at its San Diego research campus and another 500 at an Oceanside manufacturing plant that was slated to produce Tysabri.
Biogen Idec officials also said it is too early to speculate about manufacturing or work force issues related to Tysabri. But plans to have the Oceanside drug manufacturing plant fully operational next year are moving forward since the facility can be used to produce other drugs.
Until Wednesday's disclosure, the companies and some Wall Street analysts remained hopeful that Tysabri might return to the market, even if under restrictions.
Some speculated that the PML cases among the MS patients were triggered by Tysabri in combination with Avonex, and that treating patients using Tysabri alone might resolve the problem.
But the most recent case involved a patient with Crohn's disease who had participated in a clinical trial that tested Tysabri alone as a potential treatment for the inflammatory digestive tract disease. The patient died in 2003, but was misdiagnosed as suffering from brain cancer, the companies said.
Alexander Hittle, an analyst with A.G. Edwards & Sons, said the death of the Crohn's disease patient "squashed" the theory that there might be a quick fix by stopping the dual dosing with the MS drugs.
"An awful lot of questions need to be answered now that will be devilishly tough," said Hittle, who downgraded Elan's stock to "sell." "The safety side of the equation will be very difficult to sort out and difficult for the Food and Drug Administration to say, yes, put this back on the market."
The withdrawal of Tysabri comes at a time when both the drug industry and the FDA are being criticized for the quality of clinical studies and the monitoring of approved drugs for potential safety problems. Merck & Co. last year recalled its blockbuster pain medicine Vioxx after it was linked to an increased risk for heart attack, though an FDA advisory panel recently concluded that it should be allowed back on the market.
Thursday, Elan's stock lost more than half its value, tumbling $3.74 to close at $3.24 on trading of 157.9 million shares on the New York Stock Exchange. Biogen Idec fared better, losing 10 percent, or $3.84, to close at $34.51 on the Nasdaq Stock Market.
Since the first PML patient cases were reported Feb. 28, Elan's shares have lost about 58 percent of their value, falling from $8 to $3.38 at close of trading Friday. Biogen is down 10 percent since the Tysabri problems emerged, and closed Friday at $34.74
FOOTNOTE
http://www.signonsandiego.com/news/business/20050403-9999-elan_copy.html
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