Ken Kam's Best Ideas Blog

The issue that could drive the next another double in ELN is how profitable can Tysabri be and how fast will sales surge?

Wall Street thinks sales are likely to ramp slowly because they believe doctors and patients will be wary of using the drug until more data is gathered regarding the risk of contracting PML. They think patients and doctors won’t want to be the first to start using Tysabri again. I don’t think so, here’s why.

PML is a risk factor for any drug which affects the immune system, and most, if not all drugs used to treat Multiple Sclerosis do. Just the heightened awareness of the risk of PML with Tysabri will cause the drug companies, your doctor, your insurance provider and probably the FDA to monitor anyone taking Tysabri more diligently for PML - at least in the beginning when it first comes back on the market. Eventually, it will revert to normal monitoring. So, patients that start using Tysabri immediately will probably have better testing for PML and should it occur, can be treated quickly before it becomes fatal. The risk may actually be higher to wait. So why wait? Many will not.

There are 400,000 MS patients in the U.S. All other existing MS drugs have already failed for about 100,000 of them.

In clinical trials, Tysabri reduced the relapse rate for such patients by 67% versus a placebo group. If I were one of these patients, I would want Tysabri as soon as I could get it because the benefit is so great.
Within 3 months after Tysabri first became available there were 5,000 patients using Tysabri and 15,000 patients that were on the wait list and that was just in the U.S. Tysabri had not yet been approved in Europe and with the same number of MS patients, I expect there would have been a similar ramp.

Tysabri costs $25,000 per year per patient. If Tysabri can benefit half of the U.S. patients for whom all other drugs have failed, it would generate annual sales of $1.25 billion. Of this, $625 million (50%) would flow to Elan’s top line with the other half going to Biogen.

To put this in perspective, Elan’s 2005 revenues are going to be in the neighborhood of $500 million so there is more than enough potential sales just from MS patients in the U.S. who have already failed all other drugs to drive a double in the stock price over the next couple of years.

This is just the initial and most likely group of patients for Tysabri. Many, if not most of the 300,000 MS patients in the U.S. that are using existing drugs are not satisfied with their current drug. Many of them would be willing to give up their existing drug to try Tysabri.

How many?

In November 2004, before Tysabri was even approved, the CEO of Elan said 25,000 MS patients had already registered their intention to switch from an existing MS drug to Tysabri. Additionally, Europe, where there are another 400,000 MS patients will probably be as big a market as the U.S. and there may be 200,000 additional patients world-wide that have insurance and can afford MS treatments. Tysabri was also shown to be effective for treating patients with Crohn’s disease, a potentially larger market than MS.

The Bottom Line: When Tysabri is reapproved by the FDA, just the surge in demand from MS patients that have failed all other MS drugs is enough to drive another double in ELN. We’ll continue to research and evaluate how profitable Tysabri can be but we believe the demand generated by other MS patients that are currently using other MS drugs as well as demand for Crohn’s disease patients can drive ELN beyond another double.