Yesterday was the most painful day yet in the ongoing slaughter of this stock. After establishing a grinding pattern of steady small losses for nearly three months, yesterday’s 6% loss was disheartening.
Naturally, I checked for news as the 28 cent day unfolded. Nothing new.
I re-read the news of the approval of Novartis’ new drug, and was struck yet again by the complete lack of arithmetic inquiry or verification by financial reporters. I called a chapter in my manuscript “Innumeracy” showing a few blatant examples.
From the Dow Jones Newswire article titled “Elan Faces Double Threat to Blockbuster Drug Tysabri,” there were a few gems. First was the simple fact that the headline singled out Elan, which holds a 10% market share in a $10 billion market (both numbers from that article).
While mentioning the other, older drugs in the article, the reporter didn’t seem to understand that even though Tysabri is uniformly reported to be more effective than the older treatments by the MS patients themselves, it is still not the dominant drug in that market, though it has grown by as much as 20% to 25% per quarter over the past two years on the market.
From personal experience of my friend on Tysabri, I can report that several of those less effective daily injection treatments have some nasty and immediate side effects, including BIIB’s market share leader Copaxone. My friend has had instantaneous reactions including total paralysis that lasted nearly an hour, and angry red hives covering her entire body. Yet the drugs that did that to her still sell more than $1 billion per year.
Still, the bears on the stock and the reporters continue to believe that a handful of PML cases each month are reason for MS patients to avoid Tysabri. That in spite of the fact that the infection is caught early enough to be treated by the testing regimen imposed by Biogen Idec on all US patients. Maybe so. My friend says the extra brain scans are a small price to pay for having her disease progression dramatically slowed.
As she puts it, “It’s not like I don’t already have to spend plenty of time in doctors offices having tests already. The worst part of a positive PML test would be going off the Tysabri until they cure the PML.”
That said, she is excited about the prospect of new treatments. She hopes, as all patients and doctors treating this disease do, that one of them may actually reverse the damage the disease has caused.
But she is an “early adopter.” She even told her neurologist about Tysabri for the first time, before he had been made aware of it in professional reading or drug company representative visits.
When I ask her why the other drugs are still on the market and selling so well, she simply shrugs, guessing that a lot of doctors get into a pattern of treating their patients with what they know, only looking to change when their patients suffer adverse reactions like she had with a couple of those less effective older drugs.
So what is the point of all this?
Simple. Even if they lose my friend to the “latest and greatest” treatment, Elan is likely to continue to grow its market share among the more conservative doctors and patients who prefer to see a track record of several years out in the patient population before switching.
Now that the stock is trading at a market cap just twice its sales, and less than one tenth its all-time high market capitalization, I’ve got to guess that larger drug companies like Johnson & Johnsom (who already own 18% of Elan) might be thinking it looks attractive as a takeover.
I’ve noted before that Elan makes themselves a little harder than most small companies to swallow up, by virtue of having cooperative deals with several of the giants of the industry, so any potential acquirer will have to figure out how to unwind those deals.
Still the profit margin on a billion dollar drug that is ramping up its sales can be quite attractive.
Also, while the press is easily duped into printing the story that Elan is a “one trick pony,” it only took me three clicks of the mouse to find out that the company has developed and/or acquired a number of unique treatments for everything from pain management to cancer to anti-fungals and drug delivery systems.
I didn’t know, for example, that Elan developed the first nicotine patch approved by the FDA (1992), or that its first successful product was launched back in 1972. How much do you want to bet that the reporter calling it a single-product company wasn’t even born then?
I suppose its much easier to print what you’re told than to check the numbers or do a little poking around yourself, though.
As my friend Dr. Tom Drake says, maybe I’m too hung up on the “funnymentals” here. I just think that the stock price is being forced down past what the remainder of the year will support as each quarter gets reported with higher sales and profits.