Apparently cutting some jobs and closing down two offices wasn’t good enough in the cost-cutting department for Elan Corporation’s shareholders.
The company announced Friday that it would shut down locations in New York and Tokyo and take other measures to reduce expenses by about $20 million. Its workforce reduction efforts include a large chunk of its Tysabri sales force –— those dedicated to the challenging task of peddling a controversial and expensive drug. (Tysabri is a treatment for multiple sclerosis and Chrohn’s disease co-developed with Biogen Idec that has been linked to a rare but deadly side effect.)
Elan is fortunate when compared to other biotechnology firms that have recently had to dismiss the majority of workers, scrap entire research programs, or file for bankruptcy. But the odds are stacking against Elan, and one shareholder, investment firm Crabtree Partners (co-founded by former Abbott Labs exec Jack Schuler), is sounding the mismanagement alarm, hoping to oust CEO Kelly Martin.
Disappointing Tysabri sales and development program results have blasted the company’s stock performance. Investors may also be unhappy with the company’s decision to abandon plans to sell its contract manufacturing division despite “considerable interest” from potential buyers. If Elan’s shareholders continue to push, more drastic changes may be imminent.
Can you explain how Tysabri sales are “disappointing”? Tysabri has generated almost $600 million in the first 9 months of this year, $237 million in Q3, and should generate somewhere around $850 million in revenues for the full year. Tysabri will achieve blockbuster status this quarter, it will be a billion dollar per year revenue generator. When you compare it to the ramp-up of Avonex (the current U.S. sales leader) even including the suspension of the drug for 18 months in 2005/2006, Tysabri is ahead of Avonex in sales rampup. This is the 4th year of Tysabri sales and it will be ~$850 million for this year. Avonex was at $620 million in its 4th year.
The Tysabri sales force being cut is for the Crohn’s indication and it was a small team. Biogen sells Tysabri for Multiple Sclerosis and that sales force is not being affected, and there are >35,500 patients on Tysabri for MS versus only 200 for Crohns.
Finally, the “rare but deadly side effect”, PML, has not been deadly to the 4 patients that have developed PML since Tysabri’s reintroduction. How rare PML is remains to be seen, it seems like patients going on Tysabri after years of other MS therapies have a higher likelihood for developing PML. Whether the side effects of Tysabri are more risky than the side effects of other MS drugs will become clearer in the next year.