Dueling Fools: Elan Bull Rebuttal

Dueling Fools: Elan Bull Rebuttal
By Anders Bylund
March 15, 2007
Brian and I will have to agree to disagree on a couple of very important points regarding Irish drug maker Elan (NYSE: ELN).

He thinks multiple sclerosis drug Tysabri is too risky and not profitable enough to support the current valuation, but I'm convinced otherwise for a couple of reasons. Regarding the risk, it's true that three patients in the Tysabri trials fell victim to the rare brain disease progressive multifocal leukoencephalopathy (PML), which is why the drug was taken off the market for over a year and a half.

But the safety studies showed that all three cases involved patients that were, or had very recently been, on very strong drug cocktails, including immunosuppressors. That's why the drug is back as nothing but a single-drug treatment, not to be combined with other medicines that mess with the function of the brain, nervous system, or immune system. And the current crop of patients are closely monitored under a mandated safety program to weed out multidrug patients and catch any further PML cases before they become life-threatening.

So, yes, there is risk. If another patient or two were to develop this deadly disease, Tysabri could be in trouble again. But all evidence so far indicates that it's a very safe drug when used properly. And that experienced Biogen Idec (Nasdaq: BIIB) staff that Brian likes so very much will help sort out the situation if the worst should happen.

As for the sales trajectory, I'd say that a $30.2 million second-quarter effort is impressive after the $7.9 million of sales in the first quarter. Again, management believes it will hit $300 million in annual sales by the end of 2007 and $1 billion the next year. The measured growth pace is a result of that safety review program, and will pick up speed once doctors and patients become familiar and comfortable with the drug and the procedures around it.

Finally, Brian questions the strength of the balance sheet and how long it will support the business with its history of losses. Two things: Elan should be profitable again sometime this year, removing the need for lots of cash on hand. And second, the company has lots of cash -- about $1.5 billion of it. It's just a highly leveraged business model.

So do your due diligence and place your free bets on that Alzheimer's treatment or nano drug delivery system today, Fool. Tysabri simply isn't the massive risk Brian made it out to be. It's a boon to MS victims and investors alike. And to get rich while supporting a company that makes people's lives worth living again? Now, that's what I call Foolish.

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Biogen Idec is a Stock Advisor recommendation.