Biogen-Idec, Elan: Panic Selling Creates Interesting Opportunity

In July, Biogen-Idec (BIIB) and Elan (ELN), who co-market the multiple sclerosis drug Tysabri, announced two new cases of PML, a potentially deadly side effect. The stocks sold-off almost entirely. Biogen-Idec lost about 30% of its market share while Elan has lost over two thirds of its value.

I had previously recommended shares of Biogen-Idec right after the buyout rumors vanished and the stock was trading around 54. I had based that recommendation on the potential success of Tysabri.

In August, both biotech companies announced no plans to take Tysabri off the market and I don't anticipate that FDA will force them to do so. Tysabri was voluntarily taken off the market in 2006, when the first case of death from PML became public. This resulted in an investigation and a strong warning label in addition to physician training to look for signs of PML.

Today, more than 30,000 patients are being treated with Tysabri with no better options. This, however, may change in the future as other companies, including Genzyme (GENZ) have MS products in the pipeline.

Until then, both Elan and Biogen-Idec will continue to profit from Tysabri and their shares are undervalued at this time.

Disclosure: The author does not have any positions in either Biogen-Idec or Elan.

Comments

[I Buy Elan]

I am a trader and receive monthly infusions of Tysabri. Traders need to spend more time understanding the supply and demand choices made by people living with chronic illness instead of just the technicals. I will be a scale down buyer and a scale up buyer of ELN.

2008 Aug 12 01:20 PM

[User 238059]

Yes, looks like back into the teens is a reality.

2008 Aug 15 11:43 AM