The stock that taught me the most about investing is for sure Elan, and last week, I reminded myself the reason why I do not have it in my portfolio anymore. Elan was a remarkable company that was a leader in drug-delivery. They reformulated ordinary drugs like calcium channel blockers and naproxen, and extended the patent lives of compounds like Diltiazem, Nifedipine; and were the first company to take the nicotine patch to the OTC market. It made Don and Danny Panoz very rich, and they got into car racing, wine-making and car manufacturing.
Then in [approximately] the year 2000, they bought Athena Neurosciences - which gave Elan the Alzheimer’s program that they share with Wyeth, and Nataluzimab [Tysabri]. After a brush with bankruptcy in 2002, and by divesting a lot of their assets, Elan bet its future on Nataluzimab and their Alzheimer’s program.
The path to the marketplace for Tysabri was not easy. On March 1, 2005, the FDA issued a warning letter for Tysabri - that it causes a rare, fatal, irreversible neurological disease called progressive multifocal leukoencephalopathy (PML). PML is caused by a virus called the polyomavirus - that attacks and inflames the brain and spinal cord. It is ugly and often fatal. So Elan and Biogen-Idec [Tysabri's marketing partner] withdrew the drug almost immediately. What happened to Elan’s stock in the immediate aftermath is left as an exercise to the reader, but it looked a lot worse than what happened last week.
When ELN and BIIB re-introduced Tysabri to the market, all multiple sclerosis patients taking the drug were clearly informed about the possibility of contracting PML, plus the drug was “black-boxed” and each patient had to/has to sign a waiver acknowledging the same. In fact, ELN and BIIB declared in a sober fashion that there would be more cases of PML as long as Tysabri remains in the market.
Last week, a couple of cases of PML were reported, and there will be more in the future. But like all drugs, the benefits have to always be weighed as opposed to the side-effects. In conclusion:
1. Tysabri is the most effective drug for treating Multiple Sclerosis on the market today.
2. Its benefits outweigh its side effects [PML].
3. Elan and Biogen-Idec have already performed their due diligence before reintroducing Tysabri to the market today.
4. While Elan has been beaten down to under $10, I think that it can go down further.
5. Elan will rise from the ashes again - like it has - in 2002 and 2005/2006.
6. I will be a buyer in the mid-single digits [if/when it gets there].