March 1, 2005

Evil Drug Firms

Not all of the bad luck that can befall a drug firm comes at the hand of government. Yesterday, an MS treatment was voluntarily withdrawn from the market, following a death and a serious complication.

I mention it because I want to beat that lifeless equine: low multiples in the pharma sector. The cost for this voluntary yanking was $17 Billion in market capitalization for the two firms involved. The Wall Street Journal sez

Biogen and Elan characterized the withdrawal as a "voluntary suspension" and said the product may find its way back to the marketplace at a later date. The Food and Drug Administration offered some encouragement, saying in a statement that the agency "continues to believe Tysabri offers great hope to MS patients."

Shares of Elan declined $18.90 to $8 as of 4 p.m. in New York Stock Exchange trading. Biogen Idec shares were down $28.63, to $38.65, as of 4 p.m. in Nasdaq stock-market trading.

The decision to halt sales of Tysabri comes amid wider controversy about the safety of other drugs approved by the FDA, particularly whether regulators have been correctly balancing the risks of new drugs with their benefits. The FDA has come under scrutiny in recent months over the safety of widely used painkillers, following the voluntary decision by Merck & Co. to pull its best-selling painkiller Vioxx last September after a trial tied it to higher rates of heart attacks and strokes.

Now the regulators are ready to roll back the gains of the FDA Early Approval Process. But in spite of regulation, the point is the vicissitudes of the industry. The good folks at Biogen and Elan are trying to develop compounds to cure my MS, and they just lost 17 billion dollars. John Edwards may be happy, but these guys are not evil when they make money, they use it to make our lives better.

Pharmaceuticals Posted by John Kranz at March 1, 2005 11:51 AM

Expect the share prices of Biogen and Elan to recover in less than six months when the drugs are re-released, a la Vioxx. And expect Elliot Spitzer to go after them for artificial manipulation of their valuations.

Posted by: johngalt at March 1, 2005 2:55 PM

Even if recovers, it has added to a beta (risk factor) that will continue to depress valuations in the sector. The higher cost of capital means less money to fund research.

Nothing nefarious here, the market is doing its job -- funnel capital toward things perceived as more successful. My point was just leveled in opposition to those who demonize the drug companies -- they have their share of problems, too.

Posted by: jk at March 1, 2005 4:19 PM | What do you think? [2]