The decision by BIOGEN IDEC (BIIB, $38.65, -28.63) and partner ELAN (ELN, $8.00, -18.90) to suspend and halt all marketing of multiple sclerosis drug Tysabri underscores the changed climate in the post-Vioxx drug world. One fatality caused by a rare central nervous system disease and one more suspected case of the disease prompted the companies to withdraw the promising potential blockbuster drug, even though the consequences for the stocks weren't difficult to imagine. After showing exceptional efficacy for reducing MS relapses and excellent reaction in the marketplace, Tysabri had all the makings of a blockbuster. Suspending it sent Elan down -70% and Biogen plunging -43%.
It is possible that no matter what, the recent fatality would have prompted such a move from Biogen and Elan, but we doubt it. In our view, controversy over the cox2 drugs from PFIZER (PFE, $26.29, -0.57) and MERCK (MRK, $31.70, -0.20), and the lawsuit fallout facing Merck because of its delay in pulling Vioxx, primed the market for today's action from Biogen and Elan.
Here's why we say so. First, there is the upside for this drug. Biogen predicted that in three years, Tysabri sales would rival those of Avonex, the company's older MS drug. Avonex did $1.4 billion in sales last year. As mentioned, Tysabri has shown outstanding efficacy in treating MS. It received early marketing approval from the FDA in November based on phase II testing. The reception from doctors and patients has been strong. In addition, Tysabri shows great promise as a drug for the treatment of Chrohn's disease and arthritis.
Second, altogether over 3,000 patients have been treated with Tysabri in trials of MS, Crohn's, and arthritis. Until now, not one showed any sign of the central nervous system disease called progressive multifocal leukoencephalopathy, or PML.
Third, no one knows what caused the one confirmed and one suspected case of PML. Here's why: The patient who died was taking Tysabri for two years in combination with Avonex. No patients taking either of these drugs for the treatment of any disease has developed PML. In other words, there is a strong chance that the onset of PML had nothing to do with Tysabri, but possibly only with its prolonged use in conjunction with Avonex.
We are not saying that Biogen and Elan did the wrong thing by suspending sales and marketing of Tysabri. Indeed, given the risks to patients and the rarity and severity of PML (which makes discovering the trigger important), we believe the companies made the right decision. What we are saying is that given the potential of the drug and the limited number of problems, in the past companies in a similar situation would have been easily tempted to keep selling the drug. We expect that the changed atmosphere in the drug and biotech industries, which are currently overshadowed by FDA second guessing and patient lawsuits, weighed heavily on the firms' decision.
Furthermore, the potential for this to happen elsewhere in the sector is the reason why fellow biotech leaders like AMGEN (AMGN, $61.61, -1.20) and GENENTECH (DNA, $47.20, -1.04) both lost -2%. That is, Biogen and Elan have set an example for the industry -- an example of both how to react swiftly to negative data and the potential consequences of taking those steps. At the end of the day, shareholders are left wondering: If it can happen to Biogen, what's to say it can't happen to the promising drugs at Genentech or GENZYME (GENZ, $56.09, -1.64)?