Tuesday, April 03, 2012

Drug Development and Pharmaceutical Companies: Why Are Getting New Medicines to Market so Painfully Difficult?

Mike: Hey pal, can you loan me $50?

Barry: You've caught me at a bad time, Mike. I have it. May I ask what it's for?

Mike: I need a money order for this awesome new medicinal drink they're advertising on TV. It's going to heal my chronic back pain.

Barry: Late night infomercials again?

Mike: This stuff really works!

Barry: Like the knives you tried to slice through your shoes with and the piece of ab-rolling metal that, in only five minutes a day, will turn you into Hercules?

Mike: I know it's real this time. The expert said the only reason we haven't heard about this drink is because the evil money-grubbing pharmaceutical companies are conspiring to hide this amazing product from us.

Barry: So clearly this amazing drink has undergone extensive dose-ranging safety testing and randomized double-blind placebo-controlled pivotal trials?

Mike: Of course they have! Wait…what?

Barry: Sigh. Listen to me, my shoe-less beer-bellied friend. Drug companies do get criticized for their business practices, and sometimes deservedly so. But drug development is an incredibly complex and expensive process. Before you indiscriminately write off all pharmaceutical companies as soul-less, profit-driven corporate beasts and spend your…or should I say, my hard-earned money on every snaky ointment that claims miraculous results, it would behoove you to understand a bit more about the nuances of drug development.

Mike: Hang on; I think the Giants game's about to start…

Barry: Sit! First of all, really smart scientists must study the mechanisms of a disease, be it cancer, heart disease, multiple sclerosis, anemia, and so forth. They then theorize ways to help treat the disease. For example, researchers found that the hormone estrogen was an important factor in promoting breast cancer. They also found that an enzyme called aromatase was responsible for a key step in the creation of estrogen. So if they theorized that if they can come up with a drug that would inhibit aromatase, they may reduce estrogen levels and ergo breast cancer. Then the next step is to screen for the most feasible and potentially effective drug compound to use. Researchers often screen many thousands of compounds before deciding on the best one to pursue.

Mike: Wow, that's sounds more time-consuming than my girlfriend trying to decide what shoes to wear before a date.

Barry: At least she wears shoes. So after the target compound is chosen, it goes through further extensive animal and lab testing to determine such things as what the body does to the drug (pharmacokinetics), what the drug does to the body (pharmacodynamics), and toxicity. Only after substantial answers are found in all of these areas is the drug then allowed to be tested in humans.

Mike: I once took a bottle of sleeping pills and a bottle caffeine pills together to see which one would win.

Barry: That would explain a lot. But in the post- Neanderthal era of drug development, the next steps are generally incremental phases of human testing to determine what dose level of the given drug is most ideal in terms of both efficacy and safety. The final phase before possible FDA approval is typically a blinded placebo-controlled trial involving hundreds if not thousands of patients.

Mike: Why do the patients have to be blind?

Barry: They're not blind, you ninny. A blinded trial, or more specifically, a double-blinded trial, means that neither the doctor nor patient knows whether the patient is getting the study drug or the placebo or control drug. To explain: in order for a drug candidate to get FDA approval, it must either prove that it's better than a placebo or that it's better and/or has less side effects than an existing approved treatment.

Mike: But why the blinding hassle?

Barry: I'm getting to that. Remember when your older brother gave you a glass of water and told you it was Canseco-brand steroid and growth hormone combo elixir? Remember how you swore it worked and tried to lift a Toyota?

Mike: Why do you think my back hurts?

Barry: Precisely. The placebo effect is a real phenomenon, so the FDA requires a drug candidate to demonstrate in blinded trials that patients taking the drug show statistically significant improvement versus patients taking placebo. The doctors are "blinded" as well so that, for instance, they don't knowingly or unknowingly score drug patients higher than placebo patients in their evaluations.

Mike: I guess you're right - the whole process sounds much more complicated and cumbersome than I thought.

Barry: And long and expensive. Back in 2001, a closely-watched report from Tufts University estimated that, industry wide, development costs per drug exceeded $800 million from beginning to end, and the development time for the average drug was about 12 years. My point is that very significant time, effort, and cost are put into proving that a given drug works and is safe. Public policy demands this proof. By the same token, public policy then allows drug companies to charge hefty prices for approved drugs, both to let them recoup money spend on drug development as well as provide financial incentive for future investment. Now whether some drug companies at times gouge or overcharge is a separate discussion, but clearly one can see that developing drugs isn't cheap.

Mike: So what you're telling me is if a product hasn't gone through the aforementioned extensive testing and such, it doesn't work?

Barry: I'm not saying that. I'm only saying there isn't adequate evidence that it works. The only "evidence" your back pain elixir commercial provides is a half dozen supposed elixir ingesters who profess fabulous results. Let's say for the sake of argument that these folks are not intrinsically biased because they're paid or related to the producer. How can you be sure the results aren't placebo effect? Or that they recently altered some other aspect of their lifestyle that led to the results?

Mike: Like by using this new product they constantly had to get up and pee all hours of the night, which led to increased exercise capacity and the loosening of their back tension?

Barry: Uh - okay, sure. Furthermore, we must realize the human body and its processes are quite complex. By extension, any treatment that fundamentally alters these processes often has unintended and even multiple effects.

Mike: What do you mean?

Barry: Let me give you a fairly recent example. Multiple sclerosis is a terrible disease in which one's own immune system, specifically the T-cells, attacks one's own brain and central nervous system. MS sufferers can experience anything from muscle weakness and movement impairment to blindness and paralysis. A few years ago, a drug named Tysabri discovered and marketed by Elan Pharmaceuticals (ELN) came along that seems to be a very effective treatment for MS. How does it work? Well, it does its magic by adhering to T-cells and prevents them from reaching and attacking the brain and spinal cord.

Mike: Sounds perfect!

Barry: Well yes, if not for a virus that you might have.

Mike: I was drunk, and it was my first time in Vegas…

Barry: Not that virus. I'm talking about theJCV, or John Cunningham Virus. Most people have not heard of it, but 50% or more of us humans have it. The reason you're likely not aware of JCV is for the most part it's quite harmless, because our immune systems prevent it from doing anything bad. However, should it somehow reach our brains and central nervous system, we could get a pretty nasty disease called progressive multifocal leukoencephalopathy, or PML which can be fatal.

Mike: Yeesh...you know I'm afraid of anything I can barely pronounce.

Barry: Which explains why you're nervous around giraffes and Eskimos. Anyway, because Tysabri works by controlling an MS patient's immune system so it doesn't attack the brain and central nervous system, and because that very same immune system keeps the JC virus from doing potentially bad things, it's not far-fetched to realize that MS patients taking Tysabri are at increased risk of PML. Look at it this way: think of your immune system as your strong and trusty body guard. After taking a hallucinogenic drink (say, something suggested by an infomercial), the bodyguard turns on you and begins beating you up. In response, you tie your bodyguard up good and snug so he can't hit you anymore. But this now allows all the bad guys the bodyguard was previously keeping at bay to jump you.

Mike: So Tysabri's future as a treatment is doomed?

Barry: Of course not. The risk of PML is quite small, and many thousands of Tysabri patients are doing very well on it. Besides, turns out a number of other popular drugs also increase the risk of PML in patients, and there's indication that PML risk can be better managed in the future. The main point is this: the human body and its associated functions, diseases, and so forth, are very complicated. A potent medicine that performs a positive function may also result in other unintended side effects that are not so positive. That's why massive time and effort are taken to study each proposed medicine to try to quantify its relative effectiveness and potential safety issues. In conclusion, I'm not saying your infomercial pain drink definitely doesn't work. I'm only saying that, because the product's professed efficacy isn't based on comprehensive clinical trial testing evidence but rather on the anecdotal stories of a few people who look remarkably like the infomercial producer's fraternity brothers and their relatives, there's room for skepticism.

Mike: I agree. Thanks for the talk buddy. And guess what? You can keep your $50 because my back pain seems to have gone away.

Barry: That's okay. To me, you will always be an effective pain in the butt.

Note: This article was originally published in Yahoo/Voices.

Thursday, November 10, 2011

The "Monkees" and the Art of Investing

So I’m about 10 years old and laying in my living room watching a rerun of “The Monkees” instead of doing homework. What the hell…life is short, and this was one of my favorite shows. Although those shows seem a tad silly today, back then the Monkees to me were more awesome than the Beatles and Elvis Presley. “Hey Jude” was OK but had nothing on “Last Train to Clarksville”, and that amateur John Lennon was quite overshadowed by the genius of Peter Tork. My absolute favorite Monkees song at the time was “Look Out, Here Comes Tomorrow,” which had the great Davy Jones singing lead. Now this was back in the day before the internet, iPOD, etc. When you wanted to get a song you liked, you had to hike down to the nearest MusicLand or Tower Records and find the LP, 8-track tape, or cassette. If the song is obscure (as “Here comes Tomorrow” indeed was), you likely needed to hit multiple stores in hopes of finding then buying the whole danged album containing your song along with other crappy songs. But when you’re a moneyless 10-year old kid whose parents told you the story of their lives every time you asked for a dollar, you do the next best thing: when your beloved song comes on television, you grab a tape recorder, press it tightly against the TV with the volume up, and hope you don’t drop it on your foot the next 3 minute…all with the knowledge that if you mess this opportunity up, another one won’t come along for months if not years.

Anyway, as I’m lying there upside down on a beanbag chair watching the show, I suddenly realize this was the episode in which they sing “Here Comes Tomorrow” towards the end. I excitedly race to my room, grab my trusty tape recorder, ensure a clean cassette tape is enclosed, then park myself in front of the TV waiting for the song.

Four feet to the left of the TV is the front door, which is adjacent to a stairway of about twenty steps. At that moment, my 3-year-old sister happened to be playing at the top of the stairs immediately outside the doorway. Not taking any chances, I tell her, “Okay, I’m about to record my favorite song in the whole world, so when it starts you better not be making ANY sounds or I will destroy you.” She nods OK and continues playing.

So what happens? Just as the song starts, my sister falls down the stairs. She starts bawling at the top of her lungs at the bottom of the stairs. My grandmother runs out from the kitchen to check the commotion, and reacts as if Martians have just landed and are commencing the war of the worlds. When all was said and done, I indeed had a recording of the Monkees’ “Look Out, Here Comes Tomorrow” – with words and music completely obscured by my grandmother yelling “What’s going on here?! How did this happen?! Oh lord are you okay?! Dear Buddha!!”, my sister going, “YAAAAAAAAAAAAHHHHHH!!”, and my voice screaming “SHUT UP!!! SHUT UP!! I’M TRYING TO RECORD!! DAMN IT!! SHUT UUUUUUUP!!” That night, I recorded over my glorious composition when Shaun Cassidy’s “Da Do Run Run” came on the radio. As I was doing this, I marveled at how my sister happened to fall down the stairs at that very moment, when she could have chosen so many other more opportune times to do so. To this day, she has never fallen down another flight of stairs.

What’s the point of this trip down memory lane? The point is, shit happens, and happens against all odds and when you least expect it.

As such, the next time we as investors come across a “can’t miss / sure thing” investment and are tempted to go all in with margin and leverage, it would behoove us to take a pause and think, “Stop! Consider the story of the Monkees’ ‘Here Comes Tomorrow’ and Doodah’s tumbling sister.” Hopefully, we can avoid potentially finding ourselves in the sad situation some overly optimistic Elan and Dendreon investors found themselves over the recent past.

Happy (and prudent) investing to all.

Monday, September 12, 2011

The Dangers of Betting on a "Sure Thing", and A Tale of Two Stocks

In the classic comic strip Bloom County, in the wake of the 1987 stock market crash, a young boy tries to help his stricken father accept the reality of his portfolio wipe out by revealing, “As of October 1, our broker says our net worth is about six dollars. Now…for instance…how might this bit of news affect our plans to buy a new boat this summer?” The shell-shocked father replies, “My God, we’re going to have to settle for the more fuel-efficient 260h.p. 350 MAGS in that baby.” I was sitting in an undergraduate economics class on “Black Monday” (October 19, 1987) when I heard that the Dow Jones average plunged 23% that day. As a financially naïve liberal arts major, I barely knew what the Dow Jones was, so I expressed astonishment that people were financially wiped out as a result. I recall thinking, “Wait a minute, the drop was bad but still only 23%....how could people be wiped out?” I soon learned that there are indeed easy ways for people to lose their life savings (or worse) in the stock market, and sadly over the years I have personally observed this happen to some very good people. Equally as frightening, I myself have been sorely tempted on a number of occasions to pursue the same actions that led to their pain. As such, I’d like to discuss some common pitfalls that carry tremendous risk of causing one to go flat broke. Additionally, I’ll share with you “A Tale of Two Stocks,” which will help demonstrate how ordinarily rational folk like you and me can easily fall into such a predicament.

Nice Basket…Where Are My Eggs?
Invest all your money in one stock? Given that every reputable personal finance professional in the modern world sternly preaches the necessity of portfolio diversification, surely no one is goofy enough to do something so outrageous, right? But then during the boom-boom ‘90’s, the super successful fund manager Peter Lynch comes out with a few best-selling investment guides suggesting that, for us non-professionals, “investing in what you know” is the way to go. The idea is, since us commoners may not have the time, tools, or training to research stocks and analyze mind-numbing financial reports like the pros, we should target buying stock in, say, the new shoe store that we notice has a constant long line of customers snaking out of it. Alas, being the unwashed commoner heathen that we are, some of us take this principle to a level beyond Mr. Lynch’s intent: if investing in a small basket of stocks that we know well is a recipe for success, surely investing in one stock that we know amazingly well is the path to investment nirvana! With seed planted, some are now at least open to the idea of putting all eggs into a single basket. Per my observation, people fall in love with stocks all the time (case in point: myself). Over time, the longer we hold a certain stock, the more we feel we know and understand its nuances. Often as a result, the deeper our affection for said stock and the more we want of it, for it to be closer to us, to press it gently and lovingly into our bosoms and enjoy its warm caresses until we cry out in a sweaty feverish….sorry, where was I? Ironically, it’s when the share price of our beloved stock drops significantly (either with the general falling market or due to company-specific hiccups) that we are at increased risk of concentrating too much of our portfolio (i.e. all of it) into this single stock. For who can resist a big sale on something we know and love to be a virtual sure thing? And if the price continues to fall, this just indicates an increasingly compelling buying opportunity, so we’ll simply continue to buy more shares so long as we have remaining funds. To wit, consider the following scenario: let’s suppose that you’ve been investing in a very stable company for a number of years, and you feel you know the company quite well. Over the most recent several years, the company has focused heavily on world-class innovation and enhancing its industry leadership position. Revenues and profits have been growing by leaps and bounds, and the stock price had risen accordingly. This is no fly-by-night company, as Fortune Magazine has chosen it as “America’s Most innovative Company”, as well as one of the “100 Best Companies to Work For in America.” As a result, the company has been scoring the best and brightest MBA’s and PhDs from the country’s top schools to join its employee ranks, which currently numbers over 20,000. However, for no apparent reason other than market fluctuation, the stock price has actually fallen about 30% from its high only a few months ago. In response, the company’s well-respected management team has come out and publicly declared its belief that the market greatly undervalues the company. Would this stock seem a screaming buy? Actually, the company I just described is Enron, circa the first half of 2001. Yes, this is an extreme example, but my point is that no matter how “sure” a sure thing may appear, anything is possible. To put all your eggs into the “surest” of baskets could be quite risky.

Lose Your Margin-ity
Using margin has been one of the most common causes of investor anguish. “Margin” is purchasing stocks or other securities by borrowing money from your stock broker (so when someone says, “I bought shares of X stock on margin”, it means he bought at least a portion of those shares with borrowed money). Why would someone do this? Well, if one felt confident that a given stock was going higher, he can significantly enhance his gains by borrowing money to buy more shares, a dynamic known as “leverage”.

Let’s suppose you strongly believe that Doodah Inc.’s stock, currently trading at $10 a share, is going higher… but you only have $5,000. Ergo, you can buy 500 shares of this stock (note: let’s leave transaction/trading costs out of the equation for simplicity). However, if you can borrow another $5,000 to buy another 500 shares, that would give you a 1000 share stake. If Doodah Inc. stock goes from $10 to $12 a share, you would have gained $1,000 (or a 20% return) if you only used your own money. But if you margined as described, you would have gained $2,000 (or 40% return, less interest on the margin loan). Sounds groovy, right? Alas, like love or a spicy burrito, leverage is a two-way street, for if your margined Doodah Inc. shares fall $2 (to $8), your loss also magnifies to $2,000.

Now that we get the basic concept, let’s explore how margin can enhance the risk of losing all your money. Sometimes folks get so high on a stock that they not only put all their eggs into one basket, they borrow more eggs to put. Again, if you go “all in” on margin and the stock goes up, the world is exceedingly wonderful. If the stock stays flat, you’re disappointed but only out a small amount of interest paid on the margin loan. If the stock goes down a bit, you’ll want to Ozzy the head off a bat but you’ll survive. But what if the stock tanks? What if it loses, say, over 50% of its value in short order, which is not an unusual occurrence especially in the high-risk, high-reward world of tech or biotech stocks?

To demonstrate, let’s increase the stakes. Suppose you have $100K in your account, in essence your life savings. Doodah Inc., a company you’ve been following for quite some time, specializes in penile implant technology and has recently received FDA approval for its first revolutionary device, TriPod-X. In addition to spending many hours of painstaking due diligence, you note that (a) your investment-savvy friends who drive Ferraris are all recommending it; (b) Jim Cramer just drooled on his red bull squeeze toy over it (and beaming to viewers, “I’m not only bullish on the stock, I’m also a happy customer!”), and (c) it’s currently trading at $10 a share, down from $20 just a few months ago when the general stock market was booming. Surely, this is a once-in-a-lifetime opportunity. In fact, based on your conservative revenue and profit projections, you’re so confident the stock is headed to $50 within the next year or two (maybe even within the next month or two if the non-savvy investment community at large wake up), not only will you go “all in”, you’re planning to margin to the hilt. After all, why settle for a $400K profit when you can have a $900,000 profit (almost) and be a millionaire? So you buy 10,000 shares with your $100K, borrow $100K from your stock broker to buy another 10,000 on margin, then sit and wait with your largess of 20,000 shares. Then one fine morning, you wake up and turn on CNBC to find that the FDA has just pulled TriPod-X from the market. It seems that 20% of patients implanted with TriPod-X had their penises fall off approximately twelve months after implantation (the label only suggested 2%). Because of this, Doodah Inc.’s stock (ticker symbol “DIC”) immediately falls to $3 a share. So here’s the situation you’re in: you are holding stock worth $60,000 (20,000 shares x $3), but you owe your stock broker the $100,000 you borrowed, not counting interest. So not only have you lost all of the money you started out with, you are now $40,000 in the hole.

But wait, you say. You’re still confident that everything will eventually work out, so you’ll continue to hold your 20,000 shares, happily pay the margin interest, and wait for shares to go back up. Unfortunately, it’s not that simple. On margin accounts, brokers generally require that your margin loan cannot be greater than 50% of your stock investment (sometimes the percentage is even lower, depending on how volatile the underlying stock is). So in the example above, the loan is for $100K, so your total stock holdings must be worth at least $200K (that is, the $100K loan is 50% of your $200K portfolio value). If the value of the total stock holdings in your account falls below the required threshold, you will get a “margin call”. A margin call is when the broker contacts you and forces you to either (a) add more money or securities into your account to bring the total account value back to twice the margin loan, or (b) sell some shares already in the account to reach that ratio. In our example, it means you would have to (a) add $140K in cash and/or securities into your account to bring the total account value back to $200K, or (b) sell ALL of your remaining shares and also cough up the $40K you owe. If you don’t respond to the margin call, the stock broker will automatically sell your holdings at whatever the market price is at the time. In other words, unless you can provide the substantial infusion required, you don’t have the option of staying the course and holding on even if you believe the stock will turn around.

But again, you say hold the phone: a stock falling 70% overnight? That’s a dire and unlikely scenario, isn’t it? First, as you will later see in the “Tale of Two Stocks” section, such scenarios are not as unlikely as you’d think. But let’s explore what would happen if the drop was more reasonable: let’s suppose the stock price per our example falls from $10 to $7, or a 30% drop (a fairly common phenomenon if you look at the daily “biggest % losers” section in the Yahoo-Finance website). In our scenario, your total stock holdings would now be worth $140,000 (20,000 x $7), and your loss at the moment – at least on paper – is $60,000. Furthermore, you’ll get a margin call from your broker to add $60,000 to your account, or do some selling to pay off part of the margin loan. Assuming you have no additional outside funds to add to the account, you’ll thus need to sell $60,000 worth of stock, or roughly 8572 shares at $7/share, to pay down the loan and reach the required margin threshold. Doing this would leave you with an outstanding loan of $40,000 and a total account value of $80,000 (approximately 11,428 shares at $7/share), which meets the 50% margin criteria. So assuming no further stock movements, your loss under this “more reasonable” scenario would be 60% of all your money. While you won’t be broke, you’ll be in considerable pain.

You Have the Option to Go Broke
Another way one can use leverage to achieve potentially greater gains on a “sure thing” stock is to buy options rather than buying simple shares of the stock. One can open an account that allows options trading with pretty much all the well-known brokerage (Schwab, E-trade, Scottrade, etc.). There are basically two types of options: “calls”, which are bets that the underlying stock will go up, or “puts”, which are bets that the stock will go down. For this discussion, we’ll stick to the scenario of the bullish investor buying “calls.” When one buys a call option, he is buying the right to purchase a certain stock at a given price within a certain time frame. So if I possess the option to buy a stock at $1 and the stock goes to $10, I may exercise my option by paying $1 for the stock, then immediately selling the stock on the open market for $10, thus profiting $9. There are many complicated nuances to options trading, but a couple of basic nuances to understand are: (a) the longer the time period underlying the option’s purchase right, the more expensive the option will cost; and (b) the more volatile the underlying stock, the more expensive the option will cost. Intuitively, these nuances make sense: an option that gives you the right to buy a stock at a given price over the next 12 months should be more valuable than one that only gives you that right over the next month. Also, given that your chances and potential size of profit are greater if the underlying stock tends to fluctuate greatly (i.e. there’s greater chance the stock will fluctuate greatly to the upside) an option on a stock that’s more volatile (i.e. its stock price tends to move up and down significantly and often) costs more than one for a stock whose price historically is more stable. Smaller companies generally tend to be more volatile than bigger more established companies, so options for smaller (riskier) companies tend to cost more.

So how does an enthusiastic investor “leverage” with options? Again, let’s suppose you have $100,000 to invest in Doodah Inc., whose current stock price is $10 a share. Suppose it costs $1 to buy one option that gives you the right to buy one share of Doodah Inc. at $10 per share between now and 12 months from today. So, with your $100,000, you can either buy 10,000 shares of Doodah Inc. common stock or 100,000 options at $1 per option. Let’s now suppose a year later, Doodah Inc. shares have increased to $20 a share. If you had simply bought common stock, you would have a profit of $100,000, which would be pretty nifty. However, if you had purchased 100,000 shares of options, your profit would be a whopping $1,900,000 (100,000 shares x $20 per share, less the $100,000 you originally paid for the options), or 19 times the profit versus simply buying common shares. If the stock had gone up even more, your relative profit multiplies accordingly.

Beautiful, yes? Alas, just as in the case of buying stock on margin, there’s significant potential downside to buying options. Again, the world is Louis Armstrong wonderful if the stock goes up. But if the stock does not go up (i.e. goes down or stays flat), your options may become worthless and you lose all of your investment (NOTE: in real life, if you buy an option that expires in one year, you don’t have to wait one year before you cash in: you can sell your option any time between your purchase date and the option expiration date at the option’s market price; the market price of the option will go up and down in correspondence to the underlying stock’s price. Additionally, all else equal, the option price will decrease the closer it gets to the expiration date, since there’s less time opportunity remaining for the stock price to move. But for simple demonstration purposes, our example assumes the option buyer keeps the option for the full 12 month term, i.e. until expiration). Let’s suppose instead of going up, Doodah Inc. shares go down over the next year to $8 a share. If you bought regular shares of stock, your holdings would be worth $80,000. Yes, you’re kicking yourself because you’ve lost the equivalent of a new Hyundai Elantra, but you still have $80,000 of your original $100,000 investment. But if you bought options with your whole bankroll? You’ve lost everything. Why? Because the option is only worth something if the underlying stock price is above the option’s strike price, i.e. $10 in our example, i.e. what good is the “right” to buy a stock at $10 a share when I can buy it at $8 in the open market? But actually, the story is scarier: even if the stock remains flat at $10 a share at the end of the 12 months, you still lose your entire investment. In fact, in order to make any profit, you need the stock to at least increase to over $11 a share at the end of the year, because you need to at least cover your original $100,000 outlay. In summary: relative to buying regular shares or buying shares on margin, buying options will give you the biggest payout if the stock goes up materially. However, it also gives you the biggest risk of losing every cent of your investment. To be sure, options can be and are used as a legitimate and prudent financial planning tool by investors, such as to provide a hedge against a very big stock position (i.e. insurance against major losses if the stock were to fall drastically). We are talking here about using options strictly as a leverage tool to soup up one’s stock bet.

Now at this point, many of you may be saying, “Yeah, but I would never do anything as extreme as those risky things being described.” Let me say that I would not be writing this piece if I did not personally observe very good and normally prudent folks get immensely hurt by falling into the above-mentioned traps. I must also admit that I myself have on more than a few occasions been sorely tempted to dive into similar traps, and it was only through a great degree of willpower (and larger degree of wimpy-ness) that I avoided doing so. Until you’ve encountered a stock situation that is so “sure thing” compelling, then, as wise Darth Vader once said, “you don’t know the power of the dark side.” In my investment career, I’ve encountered two such stocks.

A Tale of Two Stocks – Part One: Elan Pharmaceuticals
Elan Pharmaceuticals is an Irish-based company that currently co-markets (with partner Biogen-Idec) Tysabri, one of the leading drugs for multiple sclerosis. Elan also is and has been a recognized pioneer in the field of Alzheimer’s disease research, and together with partners Pfizer and Johnson & Johnson has a promising potential Alzheimer’s treatment in late stage clinical development called bapineuzumab. As an employee of a small biotech named Athena Neurosciences, I became aware of Elan when it purchased Athena in 1996, and I suddenly found myself transformed magically into an Elan employee. Elan is also known for its very vocal and proactive small investors, many of whom were (are) absolutely sure that Elan was a special jewel destined for greatness, primarily on the back of its Alzheimer’s program. At the time of the Elan/Athena merger in 1996, ELN stock was trading at about $15 a share. Over the next several years (I departed in 2000), Elan seemed to execute flawlessly: its drug delivery products were cash cows and selling well; promising drug candidates (including its lead Alzheimer’s product at the time, a vaccine known as AN1792) were moving crisply through the development process; additional exciting small companies were being bought that would bolster pipeline and sales force; and each passing year saw its revenues increased significantly. By June 2001, the stock hit an all-time high of $65 a share (and I was happy as a clam with all the shares I still held). Then in February of 2002, Elan halted its Phase 2 trial on Alzheimer’s vaccine AN1792 due to safety issues (6% of patients developing meningoencephalitis). At about the same time, another storm hit in the form of Enron, Worldcom, Global Crossing, and their ilk that were being pummeled due to accounting shenanigans. Elan had always been known for its aggressive accounting methods. The SEC in fact had previously investigated the company’s accounting, which resulted in a small fine but by and large no changes. However, Enron was publicized to have used an off-balance sheet financing vehicle known as Special Purpose Entities (or SPE’s) as part of its shenanigans. So when a news article came out saying, “Hey guess what Elan Pharmaceuticals also uses? SPE’s!” investors bailed. The SEC then announced another formal investigation into Elan’s books. As a result of all these hoopla, the stock began falling dramatically. But Elan now had an even bigger problem on its hands: Elan had billions of dollars in debt on its books, including $2 billion that was due in less than 2 years. In the debt agreements, Elan had the right to pay the debt in either cash or stock. Now when the stock was at $50-60 a share, the debt was no big issue since Elan could issue 40 million or so shares (a humble amount relative to its total shares outstanding of over 300 million) to cover the debt. But with the falling stock price, and given that Elan did not have enough cash on hand to pay, this would mean Elan would have to issue MORE shares at the lowered price per share to cover the debt. But having to issue more shares means further dilution for shareholders, and the anticipation of this dilution resulted in the stock price fell even more. But stock price falling even more means still further potential dilution….and so on and so on. This became known as the “death spiral.” At the bottom of the spiral on October 1, 2002, Elan closed at $1.05 per share. After Elan’s CEO and COO were pushed out, Elan embarked on an effort to sell some of its many assets to raise money. It turned out that Elan had many attractive assets, and most sold at better than expected prices, including $750 million from King Pharmaceuticals for muscle relaxant Skelaxin and insomnia drug Sonata. In all, Elan was able to raise the necessary money to pay off the pending debt, and the company was out of immediate danger. Soon thereafter, good things started to happen again. Multiple sclerosis drug Tysabri was in the middle of Phase 3 trials, and although the trials were supposed to last two years, there was an interim peek at the data after year one. The peek showed that Tysabri worked so well, the FDA actually encouraged Elan and partner Biogen to file for early approval based on the 1-year data (they would still have to complete the 2-year study). Not being fools, the companies did just that, and the FDA granted priority review status to Tysabri (“priority review” means the FDA commits to completing its review in 6 months rather than the typical 12 months). In November 2004, the FDA approved Tysabri, and multiple sclerosis patients and Elan investors rejoiced. On the strength of Tysabri’s promise, Elan shares closed at $29 on January 12, 2005. Things were moving along smoothly for several months until, on Monday February 28, 2005 (a day Elan investors would come to label as its very own version of “Black Monday”), Elan and Biogen made a surprise announcement that Tysabri was being immediately withdrawn from market. Two patients in one of the clinical trials had contracted a very rare and often fatal infection known as progressive multifocal leukoencephalopathy, or PML. A few weeks later, a third case of PML was discovered in a former Tysabri trial patient. In response, Elan’s share price fell to as low as $3.00 (on March 31, 2005). In the weeks that followed, fear and misinformation ruled the day. On June 2, 2005, the Boston Globe trumpeted the headline, “A fourth death may be tied to Biogen’s MS drug.” It later turned out that not only was the patient in question not dead, she didn’t have PML. Her doctor, upon hearing media reports that the patient was deceased, was quoted as saying that the subject was “alive and out shopping.” The companies began a comprehensive review and analysis of all Tysabri patients and by March of 2006, an FDA advisory panel meeting was held to determine the possibility of Tysabri returning to market. Because so many MS patients applied to speak on behalf of Tysabri’s return, a second day was added to the meeting. In the end, after hearing the testimony and reviewing all relevant safety and efficacy data, the FDA advisory committee unanimously recommended that Tysabri be returned to market. Three months later on June 5, 2006, the companies announced that the FDA followed the recommendation of the advisory committee and approved Tysabri’s return to market. At the end of that trading day, Elan’s stock closed at $16.52 per share.

Over the next couple of years, Elan’s shares steadily climbed on the strength of Tysabri and the progress of the Alzheimer’s program, in particular the Phase 2 study of bapineuzumab, a “passive immunization” treatment that targets beta amyloid peptide in the brain. On June 17, 2008, Elan and partner Wyeth (later bought by Pfizer) issued a press release announcing “encouraging top-line results from Phase 2 Clinical Trial of Bapineuzumab for Alzheimer’s Disease.” In essence, the press release revealed although the primary endpoints (i.e. primary goals) of the trial were not met, enough good and promising signs were observed for the companies to pursue expensive Phase 3 trials. The market seemed to like the message. The stock closed at $30 that day (Tuesday), and by the end of Friday that week the stock closed at $32.95. Then came July 29, 2008, when the companies presented the aforementioned data in detail at the International Conference on Alzheimer’s (or ICAD). Elan investors were very optimistic about this presentation, and were convinced that after hearing the Phase 2 data in detail the market would finally fully recognize the promise of the program. However, although the presentation by and large was simply the same data given in the previous press release, the market apparently decided it didn’t like what it heard. The stock had closed at $33.75 on July 29, and the presentation occurred after the market closed. Immediately after the presentation, the stock began plummeting in after hours. The next day on July 30, the stock opened trading at $21.74 and, by the end of the day, closed at $19.63, or almost a 42% drop from the previous day’s close. Then, before already shell-shocked Elan investors had a chance to take a breath, two days later on Friday, August 1, Elan and Biogen announced that two more cases of PML were confirmed in Tysabri patients in Europe. By the end of Friday, the Elan’s stock fell to $9.93 per share. Elan investors would later name this week “WTF Week”, i.e. “What the F*** Week” (hint: rhymes with “truck”, as in we just got hit by one). In the subsequent three years, although no earthshattering developments have occurred, Elan’s shares have fluctuated from as low as $4.33 (August 30, 2010) to its current price of roughly $10 a share.

Elan investors await the next big catalyst, which will likely be bapineuzumab Phase 3 data results some time in 2012 (despite the reaction to the ICAD Phase 2 data presentation, the partners did feel the bapineuzumab data was compelling enough to move to Phase 3 trials). As for Tysabri, additional PML cases have, as expected, become a fact of life (as of August 2011, a total of 150 PML cases worldwide have been reported). However, on the positive side: Tysabri’s benefits appear to outweigh the risks for many patients; the number of PML cases are still by and large consistent with the drug label’s specified risk of approximately 1 PML case in 1000 patients; contracting PML is no longer seen as a “death sentence” due to early steps of mitigation (of the 150 PML cases, 29 have died); and there is high hopes that a newly released screening procedure will be able to effectively pre-screen patients for risk of PML. Whether or not and to what degree bapineuzumab and Tysabri achieve success will be the most material drivers of Elan’s share price going forward.

A Tale of Two Stocks – Part Two: Dendreon
Dendreon is a Seattle-based biotech whose lead product, Provenge, is approved as a treatment for prostate cancer. Considered an exciting and new form of cancer therapy, Provenge is an “autologous cellular immunotherapy” that works by removing a patient’s own white blood cells, exposing these cells to a protein that stimulates and directs them against prostate cancer, then re-injecting them into the body. Like Elan, Dendreon also had (has) a very vocal and activism-prone group of investors who felt they’d stumbled onto the next great pharma at its budding stages. After many years of development, the company on November 13, 2006 announced that it had completed its BLA submission to the FDA for approval to market Provenge for prostate cancer. At the end of that trading day, the stock closed at $5.25 per share. Subsequently, the FDA announced it had granted Provenge priority review (i.e. 6-month review rather than the typical 12-month), and set the FDA advisory committee meeting for March 29, 2007. Between November 13, 2006 and leading up to the scheduled meeting, the stock hovered around the $4 – 5 mark, closing at $5.22 on March 29, 2007 right before the meeting. Typically in such meetings, a panel of independent experts made up of doctors and scientists is asked to review available data then each panelist gives his/her respective opinion regarding whether the evidence shows a drug candidate is safe and effective. Although the FDA is not required to follow the recommendation of the panels, they do over 95 percent of the time. At the end of Provenge’s panel meeting, the 17 panelists voted unanimously that the drug was safe, and 13 of the 17 panelists concluded that there was substantial evidence of efficacy. In effect, the panel was recommending Provenge’s approval. The next day, Provenge’s shares opened trading at $17.92 a share before closing the day at $12.93. Over the next five weeks, the stock traded as high as over $25 intraday before closing at $17.74 on May 8, 2007. Then on Wednesday, May 9, 2007 (“Black Wednesday” to long-term Dendreon investors), Dendreon announced that, contrary to the FDA advisory committee’s recommendation, the FDA decided not to approve Provenge. Instead, the FDA gave a “complete response letter,” which declared that Provenge was approvable assuming Dendreon provided additional efficacy data, presumably from an additional Phase 3 trial. This of course meant, at the very least, a multi-year delay to possible approval as well as millions of dollars in additional clinical trial expenses. By the end of Black Wednesday, the stock plummeted from the previous day’s $17.74 to a close of $6.33.

In the aftermath, Dendreon reached agreement with the FDA to alter its ongoing Phase 3 “IMPACT” (short for “Immunotherapy for Prostate AdenoCarcinoma Treatment”) trial so that, if the trials results are positive, it would satisfy the FDA’s demand for additional efficacy data. As the trial progressed, Dendreon’s share price languished in the single digits, closing as low as $2.61 (March 6, 2009) as pessimism became the prevailing sentiment. As the time approached for the IMPACT trial data to be released, the stock recovered a bit, closing at $7.30 on April 13, 2009. Finally on April 14, 2009, the company announced that the pivotal IMPACT trial was a success, having met the primary trial endpoint of improving overall survival in patients versus placebo. As a result, the stock rocketed and closed at $16.99 that day.

Then, a couple of weeks later, something very strange occurred. On April 28, 209, Dendreon was scheduled to officially present IMPACT data results at the American Urological Association annual meeting in Chicago. On that day, the stock opened at $22.32 and subsequently climbed to as high as $25 over the next few hours. The IMPACT presentation was scheduled for after close of market. Then, at approximately 12:30 Chicago time, Dendreon’s stock price began to sink - actually more like dive-bomb. The stock fell from $24 to about $7.50 within the course of 75 seconds. Dendreon investors who happened to be watching the stock ticker were understandably panicked: what is happening? What just blew up? Was Provenge just found to cause deadly incurable anal warts? Did the Hootie and the Blowfish break up? For investors, it was scary and confusing, and for some who either sold in the panic or were sold out due to “stop losses” (i.e. standing instructions with their stock brokers to automatically sell their shares if the price fell below a pre-specified threshold) - expensive. Although the stock recovered somewhat, it still closed the day at $11.81, well below the previous day’s close. As it turned out, there was no underlying bad news. Whether the episode was due to some crazy blip in some exchange computer, or the result of a massive “naked short selling attack” as some investors speculate, Dendreon’s presentation went without a hitch and the stock went back to over $22 the next day (note to newbies: a “short sell” refers to a bet that the stock price will fall, in which you borrow shares of stock from your broker, immediately sell them at current market price, then hope to buy back cheaper shares after the price drops so you can return the borrowed shares and pocket the difference; “naked short selling” is a method allegedly used by unscrupulous folks/ hedge funds/etc. [clothed or unclothed], in which they illegaly sell millions of shares that don’t really exist to drive a stock’s price down).

Over the next year, increasing optimism over Provenge’s future drove shares higher. When the company finally announced on April 29, 2010 that the FDA approved Provenge, the stock ended the day at $50.18. Over the next 15 months or so, share price fluctuated in the $30’s and $40’s. But with a potential blockbuster drug approved, manufacturing capacity successfully increasing to meet projected demand, and sales expected to significantly and inevitably ramp up, it appeared that shareholders could finally take a restful breath. Even as a crappy stock market dragged Dendreon shares to a closing price of $35.84 on August 3, 2011, shareholders were not too concerned as they eagerly awaited the Q2 earnings report scheduled to be released that day after market close, a report that would shed some much anticipated light on how fast Provenge was being sold. Alas, to shareholders’ horror, Dendreon revealed that not only did it miss its Provenge revenue forecast for the quarter, and not only will it not meet its forecast for the remainder of the year, but they were unable to provide any new lowered forecast guidance at all. According to the company, the problem was due to reimbursement concerns of prescribing doctors’ offices: because of Provenge’s high $93,000 price tag, doctors were reluctant to prescribe the drug until they were certain of reimbursement. Apparently, the company was not aware of this issue until very recent days, and it was unable (or unwilling) to estimate how long it will take to alleviate those reimbursement concerns. Stock analysts, many of whom had “buys” on the stock, responded by immediately downgrading Dendreon shares and theorizing that the real reason behind Provenge’s slow sales was lack of patient demand. Whatever the reason, the stock once again plummeted, closing at $11.69 the next trading day. As of this writing in September 2011, Dendreon stock is hovering in the $10-11 range.

Aside from marveling at their respective stomach-churning roller-coaster rides that would make Indiana Jones queasy, what’s my point in reviewing these tales of Elan and Dendreon? The point is that, in hindsight, one can see multiple occasions in which shareholders would have felt the stocks were screaming “sure thing” buys, and if they succumbed to that confidence with extreme leverage they would have lost all or most of their money. For instance, Elan investors’ confidence was sky-high leading up to the 2008 ICAD meeting. The same could be said for many Dendreon investors when the stock seemed cheap immediately prior to the 2011 Q2 earnings call. The market’s gnarly reaction to Elan’s ICAD presentation and the subsequent revelation of new PML cases later that week were completely unexpected, as was Dendreon’s big earnings miss and Provenge sales fiasco. Furthermore, recall that under an “all-in” margin scenario, you may very well lose your whole pie if a stock falls over 50%. If you take note above of how many times “sure thing” stocks Elan and Dendreon did just that over the years, it should give you ample perspective and pause. It’s possible that, in the future, Elan and Dendreon may still both turn out to be the shiny jewels that die-hard investors expected over the years. Alas for those who massively leveraged and lost their investment powder, they won’t participate in any potential turnaround reward. For others who still have all or most of their Elan/Dendreon holdings because they were fortunate enough to avoid leverage, they will live with the memories of being curled up in the fetal position on more than one occasion, and with regret over not putting their funds into something that would have proven more rewarding over the years, like a boring bank CD. But at least they have the option of still holding their shares for a potential payoff, for better or worse. So the next time an investment feels like an absolute “sure thing” and you (or your spouse, buddy, etc.) feel the great temptation to go “all in” or heavily leverage with margin or options, remember the tales of Elan and Dendreon and their investors who paid a Herculean price for similar confidence and temptation.

Monday, August 01, 2011

What's a "Debt Ceiling" and What's all the Recent Hoopla Surrounding It?

(Somewhere in a suburban middle class house....)

Son: Dad, you busy?

Dad: I was just watching “Lord of the Rings”, son. Come on in.

Son: Wow, you’re really obsessed with these movies.

Dad: I’m not obsessed. I just happen to enjoy artistic movies with cool special effects. Now what’s on your mind, Legolas?

Son: In school and in the news, they keep talking about this “debt ceiling” thing and how we’re all in deep doo-doo if it isn’t dealt with right. So what’s a debt ceiling and what’s all the hoopla over it?

Dad: Wouldn’t you rather have a talk about sex? Okay - well quite simply, our federal debt ceiling is the maximum limit of how much money our country can borrow and owe at any given time.

Son: Kind of like a credit card limit?

Dad: Yes, kind of. You can’t go over a credit card limit unless you get permission from the credit card company. In the case of the US, the US Treasury has to ask Congress for permission each time it wants to spend above the debt ceiling. Per this analogy, Congress is the Visa-issuing bank, and the US Treasury is your mother. Of course, your mother can always use her American Express or Discover Card when her Visa limit is reached. The US Treasury has just the one “card”, if you will.

Son: So who’s loaning the money?

Dad: Our federal government borrows money from two main sources. One is the public, which includes you, me, and the People’s Republic of China. The other is from government accounts like Social Security, Medicare, and transportation trust funds. These are sometimes called intragovernmental debt. The sum of public and intragovernmental borrowings make up our country’s total debt.

Son: I also keep hearing about the federal deficit. Aren’t deficit and debt the same thing?

Dad: No no, they’re different things, but they’re related. A deficit is the amount of money spent that is higher than the amount taken in. So if our family earns $100,000 this year and spends $120,000, our deficit this year would be $20,000 (and if your mom finds another “sale” at Macy’s, our deficit could be several times that). The total debt is simply what is owed in total; every deficit adds to the total debt, and every surplus (when income exceeds spending) reduces it. Continuing the above example, if the total family debt we owe at the beginning of the year is $200,000 and we had “deficit spending” of $20,000 over the next twelve months, our total debt is $220,000 at the end of the year. So our federal deficit is just the amount the government spends that exceeds the amount of revenue it gets in the form of taxes and fees.

Son: So going back to total debt, why have a debt ceiling? Sounds like it’s more trouble than it’s worth. Can’t we just trust the government to spend prudently?

Dad: Ha ha! Hack….sorry son, allergies. No, it’s probably wise to have a spending cap to ensure fiscal responsibility. We didn’t always have this though. It wasn’t until 1917 when Congress enacted the first statutory limit on federal debt. The US was about to enter World War I and the government needed money, so Congress allowed the US Treasury some freedom to raise money, specifically to issue long term Liberty Bonds. Previously, the US Treasury was by and large only allowed to borrow shorter term loans or ask Congress permission to get loans for specific purposes, like help build the Panama Canal. So basically Congress said, “Okay Treasury. Here’s more freedom for you to raise money so we may take advantage of market conditions and better interest rates. However, you can’t exceed this pre-specified cap unless we give you specific permission.”

Son: My understanding is that the current hoopla has to do with Congress’ reluctance to raise this cap. I guess raising the debt ceiling is a rare occurrence?

Dad: On the contrary, I believe the debt ceiling has been raised over a hundred times since it commenced, and 74 times since 1962.

Son: So what’s all the controversy about now?

Dad: A big reason for the current hoopla is that the US total debt level is at a historic high. When the debt ceiling was first implemented, the cap was $11.5 billion. Today, it’s at $14.3 trillion, or about 1,200 times higher. Perhaps more importantly, the US federal debt level as a percentage of US Gross Domestic Product is also close to historic highs. There have only been two times in history when the federal debt level has exceeded the annual GDP. The first was during World War II; the second is now, in the wake of our 2008 economic crash. With the “Great Recession” of 2008-2009 and subsequent anemic GDP growth, combined with increased spending due to attempts at boosting the economy, paying for a couple of wars, among other reasons, you can easily see why we’re in this situation. Now why is this important? Again, for demonstration purposes here’s a rather simplistic analogy: if our family is earning $100,000 a year, and we have total credit card debt of $20,000, our financial situation wouldn't be ideal but it’s likely we can comfortably handle things over the long run. However, if our income is suddenly reduced to $90,000 a year, and our total credit card debt owed reaches say $95,000, this could be cause for concern, especially if (a) there’s no clear indication our income will rise significantly anytime soon, and (b) our record debt level was hit not because your dad succumbed to his mid-life crisis and purchased a Ferrari, but because we’re simply paying for our everyday “normal” expenses. In order to reduce or eliminate the debt, we either have to dramatically increase our income, or reduce our expenses, and preferably both.

Son: But what do the politicians have to do with this?

Dad: Well, raising the debt ceiling requires Congressional approval, i.e. both the Senate and House of Representatives have to approve. Since the Republican elephants control the House and the Democrat donkeys control the Senate, you have stalemate unless both sides reach compromise. Not surprisingly, both sides will always try to move fiscal policy toward their own respective ideologies, as well as utilize situations like our current one for political gain. That we’re coming up on an election year is only exacerbating the battle.

Son: So who are the bad guys in all this?

Dad: Son, unlike fantasy movies like Lord of the Rings or Star Wars, there is no clear good and bad. Real life is closer to documentaries like The Godfather..."good" and "bad" really depends on your point of view. Depending on who you ask, Nancy Pelosi or John Boehner can both be the most despicable orc or the most gallant elf (although in John’s case he’d inevitably be the orc or elf with the nicest tan). When you come right down to it, both sides in this debate are being true to their respective ideologies and are fawning the constituents responsible for voting them into office and helping re-elect them later. The Republicans always prefer to reduce the “house-hold” spend, which they feel is excessive and out of control, while the Democrats would rather focus on increasing income so programs they feel are important don’t get cut. There are pros and cons to both arguments, and if you turn on any of the cable news channels you'll hear every one of these points until your ears bleed. Where you fall on the spectrum depends on your personal, political, and economic philosophies. In the end, the resolution to this debt ceiling crisis will likely be a compromise that will piss everybody off but will be grudgingly deemed barely acceptable by both sides.

Son: But what if they don’t reach a compromise and the debt ceiling isn’t raised on time?

Dad: Well, in essence that would mean the US cannot pay all of its bills, because it doesn’t have enough available cash on hand and won’t be able to borrow the cash it needs to pay everything in full. Keep in mind that this has never occurred before; the US has always paid all its bills on time, which is why US bonds are considered the safest investment in the world. Some current projections suggest that if the debt ceiling isn’t raised, the US would not be able to pay about 44% of its monthly bill, or about $134 billion. If that happens, US Treasury bonds would lose its AAA credit rating and the interest rate the US would be required to pay on debt would in all likelihood go up. This of course would further add to the financial woes. The dynamic is similar to a person not paying his credit card minimum on time, which would lower his credit rating, which in turn would cause this and all other credit cards to raise his required interest rate. Additionally, it’s possible that an unprecedented US default on debt could cause the US economy to fall back into recession, and the stock market to tank significantly. In conclusion, it would be bad jujus all around. Logic suggests that despite all their partisan rhetoric, the politicians would not allow this to happen.

Son: But I thought you told me that logic and politicians go together like logic and a Kevin James movie?

Father: Well that's true son. But allowing a US default would run counter to the politicians' primary goal of preserving the seats of their pants, as well as their congressional seats.

Son: Thanks for the explanation Dad. Speaking of the US economy, can you explain the nuances of supply-side economics and trickle-down theory?

Dad: Later son. I hear your mother calling us for dinner, and it’s not wise to keep Saruman waiting.


Monday, August 21, 2006

So You Want to Know a Bit About Tysabri


A precocious little 5-year old girl named Natalie approaches dad, who is relaxing with a beer in front of the TV.

Natalie: Dad, I’m curious….
Dad: Well dear, first these birds get together with these bees, and instead of eating them, they….
Natalie: No, I know all about that stuff from HBO. I have some questions about this Tysabri drug I read about in the paper. What is it?
Dad: Oh, I think it’s this monoclonal antibody stuff used to treat multiple sclerosis.
Natalie: What’s multiple sclerosis?
Dad: Um, I’ll tell you later.
Natalie: What’s a monoclonal antibody?
Dad: Hmmm…you should ask your mother. I think she took anatomy in college.
Natalie: Well, can you at least explain this sentence I found in the internet describing Tysabri?
Dad: I’ll try. Let me have it.
Natalie: “Tysabri is a recombinant humanized IgG4κ monoclonal antibody produced in murine myeloma cells. Natalizumab contains human framework regions and the complementarity-determining regions of a murine antibody that binds to α4-integrin.” Can you explain what that sentence means?
Dad: Hey look! “My Little Pony” is on!

The Tysabri saga is one that is of immense interest to the medical and investment communities, as well as to multiple sclerosis patients everywhere. Containing more twists and turns than your average Six Flags theme park ride, Tysabri is known as the “miracle” drug that was, then wasn’t, and now is again.

Because discussions about Tysabri tend to be inundated with numerous medical and scientific terms and industry jargon, the purpose of this document is to attempt to bring the average “layman” up to speed on all things Tysabri. The hope is not only will the reader gain a familiarity of the Tysabri saga, he or she will obtain enough working knowledge to understand the esoteric Tysabri description set forth above by Natalie.

To understand how Tysabri works, one must first understand some basics on multiple sclerosis (MS).


What is MS?

MS is a disease of the central nervous system - particularly the brain, spinal cord, and optic nerves. This trio is connected by nerves and nerve fibers, and these fibers are protected by a protein coating called myelin. When this myelin gets attacked or destroyed, the process is called “demyelination.” Demyelination subsequently leads to disruption of a person’s nerve impulse flow. This in turn results in the disease known as MS. Common MS symptoms include muscle weakness/numbness, coordination and balance difficulties, blurred vision, and cognitive impairment. In severe cases, MS may lead to blindness and complete paralysis.

So what is it that attacks the myelin and causes all the problems? MS is considered an autoimmune disease. In an autoimmune disease, a person’s own immune system mistakenly attacks the body’s cells and tissues. So for instance, Crohn’s disease is an autoimmune disease in which a person’s immune system attacks the gastrointestinal tract, and rheumatoid arthritis is one in which the immune system attacks the joints. In MS, the immune system attacks the brain and/or central nervous system – specifically the myelin protecting its connecting nerves. A person’s immune function is assisted by two types of white blood cells: “B-cells” (“B” because they mature in the bone marrow) and “T-cells” (“T” because they mature in the thymus gland). One of the ways T-cells work is by directly attacking foreign substances such as bacteria and viruses. So in essence, multiple sclerosis occurs because the T-cells attack the central nervous system’s myelin as a foreign substance. So what causes the immune system/T-cells to mistakenly attack in this way? Alas, the cause for MS is not known, but common theories range from genetics to external environmental factors such as a virus.

There are generally four categories of MS: (1) Relapsing-remitting (RRMS), in which MS symptoms randomly flare up (i.e. relapse) and then fade (i.e. remission); (2) Secondary progressive (SPMS), which usually follows relapsing-remitting and is characterized by steady progression of neurological damage;[1] (3) Primary progressive (PPMS), in which the MS is progressive from the start; and (4) Progressive relapsing (PRMS), in which the symptoms appear and disappear (like relapsing-remitting), but nerve damage deteriorates and continues to progress from the start.[2]

MS Treatments (pre-Tysabri)

Other than (and prior to) Tysabri, there are primarily three approved types of medications for treating MS: (1) Interferon beta (Betaseron, Avonex, and Rebif); (2) Glatiramer acetate (Copaxone); and (3) toxins used in chemotherapy (Natrexalone, Novantrone [mitoxantrone]). Interferons are natural proteins produced by human cells in response to some external stimuli such as a virus (these proteins “interfere” with the replicating virus, hence the name). Of the three main types of interferons (alpha, beta, and gamma), interferon beta has shown the ability to reduce (interfere with) the immune response against myelin, and indeed has been shown in clinical studies to reduce the number of exacerbations (i.e. relapses, flares) in patients with RRMS. Glatiramer acetate is synthetic compound consisting of four amino acids found in myelin. It appears to work by stimulating the T-cells and changing them from bad “pro-inflammatory” agents to good “anti-inflammatory” agents. Clinical studies have shown that glatiramer acetate reduces the number and severity of RRMS exacerbations. Chemotherapy agents such as Natrexalone and Novantrone target and reduce the number of T-cells, which theoretically slows or halts the myelin attack of MS.

There are three interferon beta drugs approved by the FDA for the treatment of MS: Betaseron (marketed by Berlex Laboratories), Avonex (marketed by Biogen-Idec), and Rebif (marketed by Serono SA). Betaseron, injected under the skin (subcutaneously) once every two days, was initially approved by the FDA in 1993 for RRMS (relapsing-remitting MS). Later that same year, Betaseron’s approval was extended to patients with SPMS (secondary-progressive) who continue to have relapses. Betaseron side effects include flu-like symptoms such as fever, chills, and muscle aches and, less commonly, changes in blood cell counts and liver functions. Avonex, injected into the muscle of the thigh, hip, or upper arm once a week, was FDA-approved in 1996 for “relapsing forms of MS” (i.e. theoretically any category of MS in which relapses occur). Later in 2003, Avonex’s approval was extended to “patients who have experienced a first clinical episode and have MRI features consistent with multiple sclerosis”[3]. Avonex’s side effects are more or less the same as those for Betaseron (flu-like symptoms, muscle aches, potential changes in blood cell counts and liver functions). Rebif, injected under the skin three times a week, was initially FDA-approved in 2002 for “relapsing forms of MS.” Interestingly, Rebif and Avonex are chemically identical (i.e. they’re both interferon beta-1a), they are just administered differently. Rebif’s “superiority” (based on a head-to-head trial called EVIDENCE, to be discussed later) appears to stem primarily from the higher dosage and frequency of its administration compared to those approved for Avonex. As for side effects, those of Rebif are similar to those of Avonex (and Betaseron), although Rebif patients have a greater number of injection site reactions, increased liver and white blood cell disorders, but less flu-like symptoms.

Glatiramer acetate, better known as Copaxone, is marketed by Teva Pharmaceutical Industries and was granted FDA approval in 1996 for the treatment of RRMS. The drug is injected under the skin daily. Unlike interferon drugs, Copaxone does not cause flu-like symptoms, and the most common side effects cited are pain and swelling at the injection site, as well as post-injection reactions that include shortness of breath, flushing, palpitations, anxiety, and chest pain[4].

Mitoxantrone, known by the name Novantrone as marketed by Immunex Corporation[5], was granted FDA approval in 2000 for “reducing neurologic disability and/or the frequency of clinical relapses in patients with secondary-progressive, progressive-relapsing or worsening relapsing-remitting MS.” As stated previously, Novantrone is a chemotherapy, and was previously approved as a cancer drug. As such, Novantrone’s side effects are generally more severe than other MS treatments, including hair loss, urinary and respiratory tract infections, nausea, and menstrual disorders. In 2005, a “black box warning”[6] was added to Novantrone’s label that warns of an increased risk of cardiotoxicity and congestive heart failure. Novantrone is administered as an intravenous (IV) drip (usually lasting about 5-15 minutes per infusion) once every three months over a two or three year period.


What is Tysabri and how does Tysabri work? How good is it and why would patients use Tysabri over other existing treatments? Doesn’t Tysabri kill people? What’s this I hear about being attacked by “sentinels?” Can someone “affirm” this? Who are “SAM” and “Natali” and what do they have to do with Tysabri? Let’s begin answering these questions.

What is Tysabri?

Tysabri, which is known scientifically as “Natalizumab,” is given as an IV infusion once every four weeks (often misstated as once each month). It is officially described as follows (per its FDA-approved label): “Tysabri is a recombinant humanized IgG4κ monoclonal antibody produced in murine myeloma cells. Natalizumab contains human framework regions and the complementarity-determining regions of a murine antibody that binds to α4-integrin.”

Got that? Easy as pie, yes? No? So for the un-anointed few who went numb reading that passage, let’s try make it less esoteric. Tysabri is a “monoclonal antibody” - known by the acronym “mab” which is often included in the scientific names of such compounds, such as “natalizumab.” A mab is in essence a compound created in a laboratory and intended to treat certain diseases. Years ago, some wonderful scientists discovered a way to take white blood cells called B-cells from an animal (usually taken from the spleen or lymph node) that have been “challenged” by an antigen (i.e. a foreign substance), combine these in the laboratory with myeloma cancer cells (which allows scientists to indefinitely grow the antibodies in a laboratory culture), and create large amounts of potentially disease-fighting antibodies. These antibodies are called “monoclonal” because they are all cloned from one single parent cell. The great thing about mabs is that they can be made to specifically target certain substances in the body (say, a tumor cell or perhaps a certain protein associated with the creation of a tumor cell). When a mab targeting a substance is produced and administered into the body, the mab seeks out that particular substance and sticks to it (think of a mab as a glue). Once the mab finds and sticks to its target “bad guy,” it helps fight the bad guy in one of the following ways: (1) it destroys the bad guy because scientists have already implanted the mab with an appropriate weapon (such as a dose of radioactive power); (2) it calls attention to the bad guy so that the cavalry (i.e. the body’s immune system) comes join the battle; or (3) just by sticking to the bad guy, the mab prevents baddie from doing his badness (Tysabri works this way, as will be described later). Because a mab is a compound that can selectively target a disease-causing organism, it has been referred to by some as a “magic bullet.” Now in order to create the right mab, the ideal way would be to generate human antibodies from humans. Unfortunately, it is not considered the most ethical of practices to inject humans with antigens in order to obtain antibodies. As luck would have it, rodents are plentiful, can generate antibodies, and are generally not represented by strong unions or lobbyists. The problem is that the human immune system sees mouse antibodies as foreign substances and immediately seeks to destroy them before they do their thing. Again, smart scientists saved the day (well, not for the rodents). Utilizing a process known as recombinant DNA technology (“recombinant” simply means something with a combination of genes, and “recombinant DNA” is DNA that has been altered by combining genetic material from two different sources), scientists are able to merge monoclonal mouse and rodent antibodies with DNA-producing human antibodies. The resulting combined part-mouse/part-human antibody is known as a “humanized antibody,” which can now be effectively administered into people.

So now that we know what a monoclonal antibody is and how it generally works, let’s explore how Tysabri specifically works. Recall that in MS, a person’s immune T-cells from the bloodstream move across the “blood-brain barrier” into the brain and spinal cord, and do its damage. As it so happens, on the surface of these immune T-cells, there is a protein called “alpha 4-integrin” that is essential to the T-cells’ ability to adhere to and pass through the blood-brain barrier. Tysabri attaches itself to this alpha 4-integrin, and prevents this movement. Because of the way it selectively attaches itself, Tysabri has been called SAM, or “selective adhesion molecule inhibitor.”

Here is a creative animation of how Tysabri works:


Now let’s take a look at that mind-numbing Tysabri label description again, so you can marvel at your new-found knowledge: “Tysabri is a recombinant (i.e. a result of combining genes) humanized (i.e. a combination of human and rodent genes so that the human body won’t reject it) IgG4κ monoclonal antibody (“magic bullet”) produced in murine (murine simply means “from a rodent”) myeloma cells (remember that combination with myeloma cells allows large or virtually indefinite amounts of antibodies to be produced in the lab). Natalizumab contains human framework regions and the complementarity-determining regions of a murine antibody (it contains a bunch of stuff) that binds to α4-integrin (which prevents the T-cells from going over to the brain and doing its damage).”

You are now on your way to becoming a certified Tysabri expert.

What’s So Great About Tysabri?

To understand the “goodness” that is Tysabri, one must understand a bit about the clinical trials process and study data. We’ve all seen ads like those touting the pill that will make you lose 100 pounds in a week (even if you previously weighed 90 pounds); the ointment that amazingly gives you a full head of hair (especially if you’re male); the injection that overnight increases penile length 300% (particularly if you’re male). If drug approvals were based on persuasive arguments, pharma companies’ drug development staff would consist primarily of people with the oratory skills of Socrates or Johnnie Cochran, and many approved drugs would be about as medically effective as Lifesaver candy. Because a drug’s efficacy and safety have been judged to be somewhat important characteristics, a drug candidate must undergo intensive (and expensive) tests and clinical trials in test tubes, animals, and humans (the latter generally in three increasingly large and expensive "phases") before potentially being allowed into the marketplace. How well the drug performs in these trials determine what the drug (if approved) is allowed to have on its label.

There have been numerous cited cases in which MS patients who have taken Tysabri have reported dramatic, even “miracle-like” improvements. For instance, in front of an FDA Advisory Committee meeting, 36-year-old Heather Smith testified that while she was previously unable to walk on her own, “after only one dose I felt that Tysabri was a miracle for me. I was able to make outings on my own. My mobility drastically improved.” Alas, such testimony- while compelling – must be considered mostly subjective in nature when it comes to the drug approval process. Could some or all of Ms. Smith’s improvement be the result of placebo effect? Could she be one of only a very limited number of people that Tysabri helps to such an extent? Regulators reviewing a drug must primarily discount such “anecdotal” accounts and focus on solid clinical trials data.

So let’s examine what Tysabri’s data reveal. After being tested in animals and early-stage clinical studies, Tysabri compellingly demonstrated that it may have a significantly favorable effect on disability levels and amount of brain lesions in MS patients. Based on these findings, Elan and partner Biogen conducted two big Phase III human trials to confirm Tysabri’s efficacy and safety which, if successful, would lead to marketing approval.

AFFIRM trial (“natalizumab safety and efficacy in relapsing-remitting MS”, also known as the monotherapy study)

Study C-1801, also known as the “AFFIRM” study, tested Tysabri as a monotherapy in 942 patients– 660 females and 282 males[7] – all of whom were diagnosed with RRMS and who had at least one relapse within the prior 1 year. These patients were given an IV infusion every four weeks: 627 of these patients received 300 mg of Tysabri, while 315 received a placebo. The study was designed to run for two years, and allowed the companies to examine data results at the end of year 1 as well as year 2.

The “endpoints” for the trial (endpoints are simply the goals set forth in advance that the study hoped to demonstrate) at the end of year 1 were set as follows:

1-A) Primary Endpoint: a reduction in Annualized Relapse Rate (or ARR) in Tysabri patients relative to placebo patients. ARR for this study is calculated as total number of relapses suffered by everyone in the study group over the course of the study, divided by the total days every patient was “exposed” to the drug (or placebo), multiplied by 365.[8]

1-B) Secondary Endpoint #1: a reduction in number of new or newly-enlarging T2 lesions.

1-C) Secondary Endpoint #2: reduction in number of Gd-enhancing lesions (“Gd” stands for “gadolinium")

1-D) Secondary Endpoint #3: higher proportion of relapse-free subjects.

Endpoints at the end of year 2 were:

2-A) Primary Endpoint: reduced EDSS (Expanded Disability Scale) progression. EDSS is a test used by doctors to rate the severity of a patient’s MS symptoms on a scale of one to ten (the higher the score, the more severe the symptoms).[9]

2-B) Secondary Endpoint #1: a reduction in clinical relapse rate

2-C) Secondary Endpoint #2: reduced volume of T2 lesions;

2-D) Secondary Endpoint #3: reduced number of T1 lesions

2-E) Secondary Endpoint #4: reduced MSFC (multiple sclerosis functional composite) progression. The MSFC is a three-part, standardized, quantitative assessment that contains a test of walking speed, arm dexterity, and cognitive function.

So how did Tysabri do in the AFFIRM trial?

At the end of year one, the trial data showed the following:

- The group of patients receiving Tysabri had an annualized relapse rate of 0.261 (with a range between 0.211 and 0.323), compared to an ARR of 0.805 (range between 0.669 and 0.969) for the group of placebo patients. In other words, the Tysabri patients had an ARR reduction of 0.54, or 68%.

- The Tysabri patients group had a mean number of 1.2 new or newly enlarged T2 lesions, compared to 6.1 new/newly enlarged T2 lesions for the placebo group, a reduction of 80%.

- The Tysabri patients group had a mean number of 0.1 Gd-enhancing lesions, compared to 1.2 such lesions for the placebo group, a reduction of 92%.

- 76% of the Tysabri patients were relapse-free, compared to 53% of the placebo patients.

As impressive as the year one data was, the year two data was even more impressive:

- As measured by the EDSS scale, the patients given Tysabri had a 42% reduction in the risk of disease progression relative to the placebo group. At the two-year point, 17% of the Tysabri group showed sustained increase in disability, compared to 29% for the placebo group[10]. Additionally, Tysabri’s ability to slow disability progression was confirmed by an MSFC evaluation performed on the patients. This evaluation showed statistically significant improvements in both the overall score as well as the scores of each of three components (i.e., ambulation, upper extremity dexterity, and cognitive function).

- The Tysabri group had an annualized relapse rate of 0.22, compared to 0.67 for the placebo patients – a rate reduction of 67% (note that this 67% reduction is consistent with and confirms the 68% reduction observed after year one).

- The Tysabri group showed an 83% reduction in number of new or newly-enlarging T-2 lesions relative to patients given placebo. In addition, in the Tysabri group 57% of the patients developed no lesions and 17% developed a single new or enlarging T2 lesion, while in the placebo group only 15% developed no lesions and 10% developed a single new or enlarging lesion.

- The Tysabri group showed a 76% reduction in the development of T1 (hypointense) lesions relative to the placebo patients.

SENTINEL trial (“Safety and Efficacy of natalizumab in combination with Avonex,” or simply called the combo study)

Study C-1802, also known as the SENTINEL trial, tested Tysabri in combination with Avonex in 1,171 patients - 862 females and 309 males – all of whom (a) were diagnosed with RRMS; (b) had been treated with Avonex for at least the prior year; and (c) suffered one or more relapses within the prior year despite being treated with Avonex (i.e. these patients were inadequate responders to Avonex). Of these patients, one group of 589 were given a 300mg IV infusion of Tysabri every four weeks in conjunction with a weekly 30µg injection of Avonex. The other “control” group of 582 patients was given an IV infusion of placebo every four weeks along with the weekly 30µg Avonex injection (in essence, this group was given Avonex monotherapy). The SENTINEL study was conducted concurrently with the AFFIRM study, and was characterized by the same time-points and endpoints, as well as utilized identical statistical methods.

Like AFFIRM, the SENTINEL trial resulted in impressively favorable data. At the end of year one:

- The group of patients receiving Tysabri and Avonex had an annualized relapse rate of 0.383 (with a range between 0.325 – 0.450), compared to an ARR of 0.816 for the placebo/Avonex group, for an ARR reduction of 0.433, or 53%.

- The Tysabri/Avonex group had a mean number of 0.5 new or newly enlarged T2 lesions, compared to 2.1 such lesions in the placebo/Avonex group, a reduction of 76%.

- The Tysabri/Avonex group had a mean number of 0.1 Gd-enhancing lesions, compared to 0.8 such lesions in the placebo/Avonex group, a reduction of 88%.

- Approximately 67% of the Tysabri/Avonex patients were relapse-free at the end of year one, compared to 46% in the placebo/Avonex group.

As was the case in the monotherapy study, the two year data from the SENTINEL trial confirmed the superiority of the Tysabri/Avonex treatment relative to the control group, and it did so across all endpoints:

- As measured by the EDSS scale, the patients given the combo of Tysabri/Avonex had a 24% reduction in the risk of disease progression relative to the placebo/Avonex group. At the two-year point, 23% of the Tysabri/Avonex group showed sustained increase in disability, compared to 29% for the placebo/Avonex group[11].

- The Tysabri/Avonex group had an annualized relapse rate of 0.33, compared to 0.75 for the placebo/Avonex group – a reduction of approx. 56%.

- The Tysabri/Avonex group showed an 83% reduction in number of new or newly-enlarged T2 lesions relative to the placebo/Avonex group. Approximately 67% of the Tysabri/Avonex group developed no lesions and 13% developed one new or enlarging T2 lesion. Comparatively, in the placebo/Avonex group, 30% developed no lesions while 9% had one new or enlarging T2 lesion.

It must be noted that the SENTINEL study was only designed to evaluate the effect of adding Tysabri to Avonex, and does not evaluate whether Tysabri plus Avonex is more effective or less effective than Tysabri alone for patients (it would have been very useful to have those data, but it is likely that Biogen-Idec was not eager to have Tysabri proven to be more effective than its older MS drug). However, given that both studies utilized the same endpoints as well as the same statistical analysis methods, some people might suggest a side-by-side comparison of certain data-points between the two studies. For example, given that AFFIRM patients receiving Tysabri alone achieved an ARR of 0.22 at year two, and SENTINEL patients receiving Tysabri in combination with Avonex achieved an ARR of 0.33 at the same time point, can’t we deduce that treatment with Tysabri alone is roughly 33% more effective in terms of reducing relapses than treatment with Tysabri/Avonex?

Alas, the answer is no. Such a comparison would be “apples and oranges,” and here’s why: although similar in a number of ways, there are nevertheless some tangibly important differences between the patients enrolled in each respective study. Not the least important of these differences is the fact that each patient enrolled in the SENTINEL study was on Avonex therapy for at least one year[12], while each patient in the AFFIRM study was required to have never been treated by interferons for six or more months within their lifetimes. As such, it’s entirely possible that the respective patient groups consist of a “different level” of RRMS patients, which would prevent an “apples to apples” comparison. A rough analogy would be giving Vitamin drink A to members of the US Olympic track team and giving Vitamin drink B to the local high school track team, then concluding Vitamin drink A leads to superior performance because the US Olympic team posted better results. In addition, the "control" group of patients for AFFIRM were given placebo, while the "control" group in SENTINEL was given placebo + Avonex (i.e. Avonex monotherapy).
How notable were Tysabri’s clinical trials data? So much so that, after the first year data were examined, the FDA actually encouraged Elan and Biogen-Idec to file their BLA[13] based on the first year data rather than waiting for completion of the second year of the trials. Although the companies were committed to completing all two years of the trials, they indeed announced on May 25, 2004 that they were filing the BLA for Tysabri (then called “Antegren”) based on one-year data. In July 2004, the FDA announced that it had accepted the BLA, and had granted it both “Priority Review”[14] and “Accelerated Approval”[15] designations. Indeed, FDA approval of Tysabri for RRMS was announced on November 23, 2004, six months after BLA submission.


The official and true answer is… - we really can’t say. Because no head-to-head comparative studies have been conducted between Tysabri and Rebif, Tysabri and Copaxone, and so forth, a claim of superiority (at least one backed by hard data) cannot be made by any side. Comparing data between, say, the Rebif pivotal studies and the Tysabri studies would result in the same “apples & oranges” problem previously discussed. However, it would be useful to understand the data behind some of these other products, as this may provide at least a qualitative guess as to where Tysabri stands relative to these products. As such, let’s briefly review some of the data behind the major MS products on the market today:

Betaseron (Interferon beta 1b)

Betaseron (or Betaferon in Europe) was approved by the FDA in 1993, making it the first FDA-approved treatment for patients with RRMS. The approval came after the successful completion of a 2-year Phase III trial (later extended to five years) which demonstrated that RRMS patients administered with Betaseron had significant improvement in annual relapse rate as well as reduced lesions compared to patients given placebo. In this 372-patient study, a third of the patients were given 50µg of Betaseron, a third were given 250µg of Betaseron (250µg was the eventual approved dose), and the remaining third given placebo. The results were as follows:

- At the end of two years, the annual relapse rate for patients receiving placebo was 1.27; for the 50µg patients, the ARR was 1.17 (an 8% improvement over placebo); and for the 250µg patients, the ARR was 0.84 (a 34% improvement over placebo).

- At the end of five years, the ARR for the placebo patients was 1.12, compared to a pooled rate of 0.78 for patients treated with Betaseron (a 30% improvement over placebo). Also, 46% of patients treated with placebo had a disability progression of at least one EDSS point compared to 35% for the patients treated with Betaseron.

- In December 2005, Berlex released data from a 16-year long-term follow-up study that tracked the patients who originally participated in the earlier pivotal trial. Of the original 372 patients, 331 were identified for this study. This long-term data showed that, of these identified patients:

o 51% of the patients given 250µg since the beginning of the study reported being able to walk with or without assistance, compared to 45% of the patients originally on placebo (note: the patients originally on placebo were placed on Betaseron treatment immediately after the initial “end” of the pivotal study in 1993, so these original placebo patients have also been on Betaseron since then).
o 95% of the patients given 250µg since the beginning of the study were still alive, compared with 83% of those who were originally in the placebo group.

Subsequently, Betaseron was evaluated in a head-to-head comparative trial versus Avonex (INCOMIN, or “Independent Comparison of Interferon”). In this 2-year 188-patient study, patients with RRMS were either given 30µg of Avonex once a week, or 250µg Betaseron every other day. The study’s outcome was to demonstrate what proportion of patients in each respective treatment group remained free from relapses and free from new MRI T2 lesions. The results of the study, released in 2002, showed the following:

- Of the patients given Betaseron, 51% remained relapse-free at study end, compared to 36% of the patients given Avonex.

- Approximately 55% of the Betaseron patients had no new T2 lesions, compared to 26% of those treated with Avonex.

Betaseron has also been studied in two other smaller comparative trials: a 156-patient study comparing the effect of Copaxone, Avonex, and Betaseron on RRMS relapse rate, as well as a 58-patient open-label trial comparing Copaxone and Betaseron (see “Copaxone” section for more details).

Betaseron was also studied in Europe for secondary progressive MS. In this 3-year, 718-patient trial, patients with SPMS were given either 250µg of Betaseron or placebo. The results of this study were as follows:

- Compared to placebo patients, the patients given Betaseron showed delayed disability progression for 9-12 months (odds ratio for confirmed progression was 0.65).

- Betaseron patients had a reduced relapse rate of 31% relative to placebo patients.

- Betaseron patients had 78 fewer new MRI lesions compared to placebo patients.

Copaxone (Glatiramer Acetate)

Copaxone was originally approved for RRMS in the US and Israel in 1996 on the strength of a 251-patient Phase III trial (no fancy acronym like or COP-A-PLEA or COP-U-LATE was designated, alas). In this two-year trial, 125 patients with RRMS were given a daily subcutaneous injection of 20mg of Copaxone, while another 126 were given placebo. The results were as follows:

- Final 2-year relapse rate was 1.19 (i.e. an ARR of approx. 0.59) for patients receiving Copaxone, compared to 1.68 (or ARR of 0.84) for patients receiving placebo, a reduction of 29%.

- Also noted was that disability levels as measured by EDSS also favored the Copaxone group.

This study was then extended to six years as an open-label study (for the first two years it was a double-blind placebo-controlled trial). Of the original 251 patients, 208 chose to continue in this open-label study, and the subsequent evaluation showed that the mean annual relapse rate of these patients after six years was 0.42. It was noted that this rate continued to drop as the study progressed, and for the 6th year the rate was 0.23. In the patients that took Copaxone for 5 or more years, 69.3% were either neurologically unchanged or improved from baseline by at least one EDSS step.

Copaxone has also been studied in several other trials over the years, including a 12-month Phase II comparative open-label trial that compared the effect of Copaxone, Avonex, and Betaseron on RRMS relapse rate[16], and a 2-year open-label trial comparing Copaxone and Betaseron[17]. In both of these comparison studies, Copaxone came out on top. Copaxone was also evaluated for chronic progressive MS in a 106-patient trial as well as for primary progressive MS in a 948-patient trial, but neither of these trials succeeded in statistical significance for their respective primary endpoints. Currently, based on a successful 90-patient Phase II study that showed patients given a 40mg dose of Copaxone showed greater reduction in lesions as well as reduced relapse rates compared to patients given the currently-approved 20mg Copaxone dose, Teva is conducting a 1,000-patient study designed to confirm the safety and efficacy of this higher dose. This study was initiated in July 2006.

A compelling factor related to Copaxone is that it has demonstrated sustained efficacy for MS over a longer term than other existing MS therapies. Not only has Copaxone been approved for RRMS for over 10 years, Teva also maintained a study which followed a group of patients who have been using Copaxone since its approval for compassionate use in 1978. Data released in 2005 showed that of the 18 patients still injecting Copaxone daily (for an average of 17 years), only 26.7% progressed to EDSS of 6 or more (i.e. to a level at which the patient requires aid to walk).

Avonex (Interferon beta 1a)

Avonex was approved by the FDA in 1996 after a 3-year Phase III trial demonstrated Avonex’s efficacy compared to a placebo. In this study, 301 patients with RRMS were given either a weekly 30µg intramuscular injection of Avonex or a placebo. The results demonstrated the following:

- Avonex resulted in a significant delay in time to sustained EDSS progression, as the proportion of placebo-treated patients who progressed was 35% after 104 weeks, while the proportion of Avonex-treated patients who progressed was 22%, an improvement of 37%.

- Over two years, the placebo patients had an annualized relapse rate of 0.90, compared to an ARR of 0.61 for the patients given Avonex, a reduction of 32%.

- Avonex-treated patients also had a significantly lower number and volume of Gd-enhanced lesions.

Subsequently in 1996, Biogen initiated the study CHAMPS (“Controlled High Risk Avonex Multiple Sclerosis”), which evaluated whether Avonex treatment may benefit patients who had experienced a single demyelinating event (involving optic nerve, brain stem/cerebellum, or spinal cord), and who displayed MRI brain signal abnormalities that have previously been correlated to a high likelihood of future MS[18]. The study evaluated 383 patients (193 Avonex/ 190 placebo) fitting the above criteria, and the primary outcome measure was how many patients in the respective groups developed clinical definite multiple sclerosis, or CDMS. CDMS was defined by the appearance of new neurologic or ophthalmologic events (i.e. events that persist for at least 48 hours and are documented by neurologic exam) or by progressive neurologic deterioration (defined as a 1.5-point or greater increase in EDSS score relative to baseline). At its conclusion, the study results (presented in December 2002) showed that the cumulative probability of developing CDMS was 44% lower for the patients treated with Avonex relative to patients given placebo.

Avonex was also tested in other trials, including comparative trials with other treatments like the EVIDENCE trial, which pitted Rebif versus Avonex, and the INCOMIN trial, which pitted Betaseron versus Avonex (see the “Rebif” and “Betaseron” sections, respectively, for more details on these trials – details which the Avonex marketing folks would probably prefer you didn’t see).

Rebif (Interferon beta 1a)

Rebif was first approved for RRMS in Europe on the strength of the PRISMS (“Prevention of Relapses and Disability by Interferon beta-1a Subcutaneously in Multiple Sclerosis”) study. Initiated in 1994 with 560 patients, the PRISMS study evaluated Rebif’s effectiveness at 22µg and 44µg vs. placebo. Although the PRISMS study was later extended, the results after the initial two years demonstrated the following (note: because Rebif is primarily marketed at the 44µg dose, we’ll focus on this dose relative to placebo):

- The patients given placebo had a mean number of relapses of 2.56, compared to 1.73 for the patients given 44µg of Rebif (an improvement of 32%).

- Median time to first relapse was 4.5 months for the placebo patients, compared to 9.6 months for the 44µg Rebif patients.

- Percentage of relapse-free patients at 2 years was 15% for the placebo patients and 32% for the 44µg Rebif patients.

- Median number of T2 active lesions per patient per scan was 2.25 for the placebo patients, compared to 0.5 for the 44µg Rebif patients.

- At the end of two years, 37% of the placebo patients had sustained disability progression, compared to 26% of the 44µg Rebif patients (an improvement of 30%).

After the initial two years, 506 of the original 560 patients were rolled over into the extension phase (up to four years) of the PRISMS study. The patients who were given placebo in the initial phase were either given 44µg or 22µg of Rebif in the extension phase. One of the main objectives of this extension phase was to assess the benefit of early Rebif treatment vs. later Rebif treatment, i.e. “crossover” patients who took placebo for two years than switched to Rebif were compared to patients treated with Rebif all four years. The results at year four demonstrated that patients given Rebif all four years had a more favorable annual relapse rate (0.72 for 4-year 44µg Rebif patients vs. 1.06 for the “crossover” 44µg patients), more favorable MRI lesion area comparison, and more favorable time to EDSS progression. In other words, the extension not only succeeded in demonstrating that patients continued to benefit from Rebif treatment over the longer term, it also demonstrated that in the course of the disease, it was preferable to commence Rebif treatment earlier rather than later.

Although Rebif was granted European approval based on the two-year PRISMS data in 1998, it could not obtain US FDA approval on this basis because Avonex had “Orphan Drug” protection in the U.S. until 2003 (the U.S. Orphan Drug act gives companies incentives to develop new treatments for rare conditions). Because Rebif was really the same chemical substance as Avonex only administered differently (Rebif is injected under the skin three times a week while Avonex is a once-a-week muscle injection), it could not infringe on Avonex’s protection - unless it could be demonstrated that Rebif was clinically superior (efficacy or safety-wise) to Avonex, and thus would represent a major contribution to patient care. As such, shortly after Rebif was granted European approval, Serono initiated the EVIDENCE (“Evidence for Interferon Dose-Response: European-North American Comparative Study”) trial, a 677-patient trial in which RRMS patients were either given 44µg of Rebif three times a week (339 patients total) or 30µg of Avonex once a week for an average of 64 weeks (338 patients total). The results of the EVIDENCE study were as follows:

- At the 24-week mark, the proportion of relapse-free patients was 75% for those on Rebif and 63% for those on Avonex. At the 48-week mark, that proportion was 62% for Rebif patients and 52% for Avonex patients. At the 64-week mark, the proportion was 56% for Rebif patients and 48% for Avonex patients.

- At the 24-week mark, the median of the mean number of combined unique MRI lesions per patient per scan was 0.17 for the Rebif patients and 0.33 for Avonex patients.

- The time to first 3-month confirmed progression of disease was 337 days for the Rebif patients and 256 for the Avonex patients.

- Side effects for the two groups were more or less similar.

On the strength of this EVIDENCE study’s data, the FDA approved Rebif for U.S. marketing in 2002.

Rebif was also tested in other studies, including a 308-patient trial evaluating the effect of early Rebif treatment on conversion to definite multiple sclerosis[19], and a 618-patient trial evaluating Rebif on patients with SPMS (SPECTRIMS, or “Secondary Progressive Efficacy Clinical Trial of Recombinant Interferon-beta-1a in MS”[20].

How Tysabri Measures Up to Other Available Treatments

As mentioned previously, because no head-to-head studies comparing Tysabri with any of the other treatments have been completed, one cannot make definitive statements such as “Tysabri has been shown to be better than XYZ drug.” However, one can make some generalized conclusions as to Tysabri’s comparative efficacy based on available data.

For instance, let’s compare the respective treatments’ data as it relates to relapse/exacerbation rates. To recap, here are the relevant trial data:

- Betaseron: after 2-year trial, patients given Betaseron showed an annual relapse rate (ARR) of 0.84 vs. 1.27 for patients given placebo, a 34% improvement.
- Avonex: after 2-year trial, the Avonex patients showed an ARR of 0.61 vs. 0.90 for patients given placebo, a 32% improvement.
- Rebif: after 2-year trial, the Rebif patients showed a total relapse rate of 1.73 vs. 2.56 for patients given placebo, a 32% improvement (note that the metric for Rebif is “total relapse rate” and not ARR. Since the study was over two years, Rebif's ARR can be roughly estimated as 0.87, or about 50% of the 1.73 total relapse number).
- Copaxone: after 2-year trial, patients given Copaxone showed an ARR of 0.59 vs. 0.84 for patients given placebo, a 29% improvement.
- Tysabri: after the 2-year AFFIRM trial, patients given Tysabri showed an ARR of 0.22 vs. 0.67 for patients given placebo, a 67% improvement.

In other words, in terms of reducing relapses/exacerbations in RRMS patients, Tysabri appears to be about twice as efficacious as Betaseron, Avonex, Rebif, and Copaxone based on each treatments’ relative performance against placebo (i.e. 67% for Tysabri vs. 34%, 32%, 32%, and 29% for Betaseron, Avonex, Rebif, and Copaxone, respectively).

Again, it is important to note that, because of the “apples & oranges” situation previously described, it isn’t feasible to compare the ARR numbers across the different studies. For instance, one cannot accurately conclude that because the ARR for Betaseron was 1.27 and that for Tysabri was 0.22 in their respective trials, Tysabri must be approximately 83% better than Betaseron for relapses. To demonstrate this point, note that the ARR numbers for the placebo patients in the Betaseron and Tysabri trials were 1.27 and 0.67, respectively. Using the inaccurate “apples/oranges” methodology described above, one would conclude that Elan’s placebo was 47% more effective for RRMS relapses than Berlex’s placebo (there’s no truth to the rumor that Elan is currently seeking to patent its placebo). As mentioned earlier, a primary reason why it is difficult to make direct comparisons between studies is that the medical conditions of the respective patient groups differed.

Perhaps as significant as (if not more so than) the comparative efficacy data on relapse rates, disability progression, etc, Tysabri has also clinically demonstrated that it can improve the quality of life of MS patients (i.e. not only stop or slow down a patient from feeling worse, but actually make them feel better!). In April 2006, Elan and Biogen-Idec presented data at the American Academy of Neurology Annual Meeting that based on assessments performed on patients in both the AFFIRM and SENTINEL trials, Tysabri showed significant effects on pre-specified health-related quality of life (QoL) measures. During the trials, QoL was tracked on trial participants using three different measures: (1) MSQLI, or “Multiple Sclerosis Quality of Life Inventory,” which is a battery of 10 scales that measure disease impact on quality of life including fatigue, pain, sexual function, bowel and bladder function, visual impairment health, and need for social support; (2) the Short Form-36 Health Survey (SF-36), which is a component of MSQLI and consists of 36 questions designed to assess patients’ physical and mental well-being; and (3) a Visual Analogue Scale (VAS), which measures patients’ general well-being.

The results of these measurements in the AFFIRM monotherapy study, as cited by Elan and Biogen-Idec were as follows:

- The Tysabri-treated patients had a significant improvement in physical measures of the SF-36 compared to a decline in the patients on placebo.

- The Tysabri-treated patients also had a significant improvement in the mental component of the SF-36, compared to a decline in the patients on placebo.

- The Tysabri-treated patients experienced significant benefits as measured by VAS.

The companies also noted that QoL improvements were seen in the SENTINEL study as well for the patients given Tysabri with Avonex.

These study results suggest that the numerous anecdotal stories told by MS patients previously treated with Tysabri – reports that they felt better than they have in years, that they were able to walk and play for the first time in a long time, and so forth – may contain some merit after all, and be statistically significant.

PML and the Withdrawal of Tysabri

On Friday, February 18, 2005, Biogen-Idec contacted the FDA with a report that two former Tysabri trial patients had contracted PML, or progressive multifocal leukoencephalopathy, an extremely rare neurologic disease that had not been previously directly linked to multiple sclerosis or existing MS treatments. One of these two patients died as a result of PML. Because the PML cases came as a complete surprise to the companies and the FDA, and because no one could immediately ascertain whether and how many additional PML cases existed or might develop among persons who had participated in the trials or received Tysabri after marketing approval, Biogen-Idec and Elan decided to temporarily withdraw Tysabri from the market and cease all clinical trials dosing. The decision, officially cited as a voluntary suspension by the companies with the concurrence of the FDA, was announced on February 28, 2005, just three months after Tysabri was approved.

A few weeks later, after a review of the patient safety databases, a third case of PML was discovered, this time in a deceased former participant in the Tysabri Crohn’s trial. After an investigation and review of existing data, the patient, who was originally diagnosed in December 2003 as having died of a malignant astrocytoma (a type of brain tumor), was re-diagnosed as having died of PML.

PML is an often fatal infection of the central nervous system by a virus known as the JC virus. Interestingly, 85% of all healthy people carry this virus, and with very little risk of PML. PML occurs in people who have the JC virus AND who have suppressed immune function. For instance, PML is much more common in people infected with AIDS, a disease in which the patient’s immune system is compromised. Approximately 5% of people infected with AIDS eventually develop PML. In addition, patients who have had organ transplants and are given immunosuppressive medication to prevent organ rejection also see an increased likelihood of contracting PML. Multiple sclerosis is not an immune system disease, although many MS treatments work by affecting the patient’s immune system. Notably, no MS treatment before Tysabri (including Avonex) had previously been associated with PML. At this time, there exists no drug to treat PML. The only treatment currently used when PML is diagnosed or suspected is to remove any immuno-suppressing therapies from the patient and hope this his/her immune system reconstitutes itself.

What makes diagnosing PML in MS patients an especially complicated task is that the initial symptoms of PML are quite similar to some symptoms of MS. Such symptoms include visual problems, dysfunction motor skills, headache, etc. It’s likely that one important factor behind the decision to withdraw Tysabri was that, at the time, the companies could not readily and definitively discern to what extent PML existed among the patients in question, especially given that MS and PML symptoms are so similar.

After the first two cases of PML were found, it was noted that both patients were in the SENTINEL study, and received Tysabri in combination with Avonex. Speculation arose that the PML problem may stem from the combination use of Tysabri with Avonex or other interferon. These “combo is the culprit” theories seemed to lose validity when the third PML case – this time involving a Crohn’s trial patient who received Tysabri as monotherapy – came to light. However, it was soon learned that around the time of his Tysabri treatments, this Crohn’s patient was also taking a number of other immunosuppressive treatments. One of these other treatments was azathioprine (known by trade name Imuran), which the patient took for five years. Recall that organ transplant patients who take immunosuppressive medications are at increased risk of PML. As it turns out, azathioprine is a strong drug that’s commonly used for prevention of organ transplant rejection. Not only is it a strong immunosuppressant that carries a warning that it may leave patients susceptible to infection, azathioprine has also been directly linked to at least two previous cases of PML. Given that this third PML patient was on strong immunosuppressants, and one of those immunosuppressants had in itself been directly linked to PML, this third case of PML is not considered to be an indictment of Tysabri monotherapy. To date, there have been no observed instances of PML in patients with healthy immune systems ("immunocompetent") treated with Tysabri strictly as a monotherapy.

But does this mean that there is truly no PML risk in Tysabri as monotherapy? Not necessarily. At this time, there are insufficient data to determine whether Tysabri monotherapy can possibly lead to PML and, if so, the level of risk. Most neurologists and medical professionals at this time believe there is theoretically at least some degree of PML risk for Tysabri monotherapy (although opinions as to the potential level of risk vary greatly). That Tysabri may theoretically entail some risk of PML (as well as other serious and opportunistic infections) is not illogical: Tysabri is effective in treating MS because it prevents a person’s immune T-cells from going to the brain and doing their damage. However, remember that immune T-cells exist to protect the brain from the bad guys such as viruses and other external threats. By inhibiting components of the immune system, drugs like Tysabri may theoretically be opening the door to, for instance, a JC virus attack. Put another way, MS is when your renegade bodyguard starts beating you up for no reason. By putting your bodyguard out of commission, you may have left yourself vulnerable to the bad guys your bodyguard historically kept you safe from.

Another thing to note is that the other existing treatments have been around and used on patients for many more years than Tysabri. As such, the long-term safety and efficacy profiles are much better understood in these treatments.

Currently, based on the three PML cases and the 3000 trial patients who were treated with Tysabri over an extended period of time, the PML risk for using Tysabri is conservatively estimated at approximately 1 in 1000 (or 0.1%). However, given that these three cases were all in patients who took Tysabri with either Avonex or immunosuppressant drugs, there is educated speculation that the PML risk for patients taking Tysabri as a monotherapy may be significantly lower (especially within the TOUCH safety monitoring program the companies implemented for Tysabri’s return – to be described later).

Erroneous PML Reports

On June 2, 2005, a Boston Globe headline trumpeted that “A fourth death may be tied to Biogen’s MS drug.” Under the Freedom of Information Act[21], Globe reporter Jeffrey Krasner apparently obtained a report forwarded to the FDA by Biogen-Idec that suggested a former Tysabri/Avonex combo patient MAY have contracted PML. The headline caused quite a stir among the medical community (and capital markets). As it turned out, there were two major problems with this juicy headline and story. First, the alleged “fourth PML case” patient was not dead. Biogen-Idec confirmed this fact shortly after the story broke – in fact, the company later cited (in an e-mail to neurologists) that the patient’s doctor stated after hearing of the Globe story, “I just spoke to my patient’s daughter…and she is alive and out shopping.” Perhaps noting that deceased people generally have little penchant for shopping, the Boston Globe later changed the story’s headline to “A fourth illness may be tied to Biogen’s MS drug.” Unfortunately, many other media sources picked up on and perpetuated the “fourth death” headline[22]. The second problem is, as it turned out, the patient did not have PML at all, but a more benign inflammation ailment (one that allowed for occasional shopping trips).

Not to be outdone, less than two weeks after the Boston Globe story came out, the Wall Street Journal reported that a fifth case of PML may be linked to Tysabri. The Journal said that the case was reported to the FDA’s AERS (Adverse Event Reporting System) by a health professional. The AERS is a computerized information database designed to provide post-marketing safety surveillance on approved drugs. In addition to drug manufacturers reporting adverse events into this database, doctors and even patients also forward reports into the system on a voluntary basis. The thing of note regarding these voluntary reports is that they are quite often unconfirmed diagnoses (i.e. a doctor may report something such as “Patient X had such-and-such symptoms, which could possibly indicate PML…or perhaps one of these ten other ailments). The FDA and the marketing companies then follow up on the reports as warranted. Like the alleged fourth PML case, this “possible fifth case” was later confirmed to not be PML.

In all, to date there have been three confirmed PML cases linked to Tysabri – two in patients who took Tysabri in combination with Avonex, and one who took significant amounts of immunosuppressants - including Imuran – in addition to Tysabri.

Tysabri Safety Evaluation

When Tysabri was pulled from the market in early 2005, Biogen-Idec and Elan commenced a comprehensive safety evaluation in patients who previously received Tysabri in clinical trials for MS, Crohn’s disease (CD), and rheumatoid arthritis (RA). Of the over 2,000 MS patients and 1,500 CD and RA patients eligible for the safety evaluation, approximately 91% of the MS patients and 88% of the CD/RA patients participated in the evaluation. During the comprehensive evaluation, 99% of the MS patients received a neurological exam, and 98% received an MRI. For the CD/RA patients, 98% had a neurological exam and MRI. On August 9, 2005, the companies announced that there were no additional PML cases found in the MS patients. On October 17, 2005, the companies announced the same results for the CD/RA patients.

The Road Back

After the MS portion of the safety evaluation was successfully completed, Biogen-Idec and Elan submitted a supplemental Biologics License Application (sBLA) for Tysabri to the FDA for treatment of MS. In essence, the companies sought to receive approval to remarket Tysabri again to MS patients. Announced on September 26, 2005, the companies requested Priority Review status for the sBLA, which was eventually granted (once again) by the FDA in November 2005. This updated data package included final two-year data form the Phase III AFFIRM and SENTINEL trials, the data from the recently-completed safety evaluation of Tysabri-treated patients, and a revised label and risk management plan.

On February 15, 2006, the companies announced that the FDA had removed the clinical hold (i.e. hold on clinical trial dosing) of Tysabri for MS. That meant that although Tysabri sales were not (yet) allowed to resume, patients were allowed to receive Tysabri in clinical trials. The companies indicated they would soon commence an open label, multi-center safety extension study of Tysabri, and all patients who previously participated in Phase III MS trials were eligible for this extension study.

On March 7-8, 2006, an FDA advisory committee meeting for Tysabri was held in Gaithersburg, Md. In an advisory committee meeting/review, the FDA gathers a panel of relevant outside experts to review data and make a recommendation on whether a drug should be approved or, in Tysabri’s case, re-approved. During these open-forum meetings, the public is allowed to attend and speak on behalf (or against) the drug in question. Although not required to follow the recommendation(s) rendered by an advisory committee, the FDA generally does. During the Gaithersburg meeting, numerous patients spoke out on behalf of Tysabri’s return. Some patients testified via videotape because their MS disability prevented attendance in person. In over three hours of often emotional testimony from over 40 individuals including patients, family members of patients, and doctors, the general message was Tysabri was the most and perhaps only effective treatment for some patients, and they would welcome having the CHOICE to receive or prescribe Tysabri should the risk/reward situation favor this choice. After listening to all of the testimony and reviewing all available safety and efficacy data, the FDA advisory committee unanimously recommended the reintroduction of Tysabri for MS. In addition, the committee voted 7 to 5 in favor of permitting doctors to prescribe Tysabri as a first-line treatment. The panel also concluded that although strict guidelines and safety measures should be adhered to for patients taking Tysabri (including a mandatory registry program and a “black box” warning label), additional clinical trials should not be required for Tysabri’s return to market.

On March 29, 2006, the companies announced that they had re-initiated clinical trials dosing in MS patients, and the first enrolled patients in their monotherapy safety extension study were dosed with Tysabri.

On April 6, 2006, the companies released new data demonstrating that Tysabri had a significant favorable effect on health-related quality of life measures in patients with MS (see above “How Tysabri Measures Up” section for a more detailed discussion on this QoL data).

On June 5, 2006, the companies announced that the FDA approved the reintroduction of Tysabri as a monotherapy for relapsing forms of MS. In conjunction with Tysabri’s reintroduction is a risk management plan called the TOUCH (“Tysabri Outreach: Unified Commitment to Health”) program. Among the elements of the program are:

- revised label warning of the risk of PML and warnings against using Tysabri with other immunosuppressant and immunomodulatory treatments or in patients who are immunocompromised (i.e. have HIV, organ transplants, hematological malignancies, etc).
- Mandatory enrollment into the program for all prescribers, pharmacies, infusion centers, and patients.
- Controlled and centralized Tysabri distribution in authorized infusion centers.
- Mandatory educational tools for patients and physicians, including medical guide, TOUCH enrollment form, and monthly pre-infusion checklist.
- Ongoing assessment for risk of PML as well as overall safety.
- A 5,000 patient cohort observational study over five years called the TYGRIS (Tysabri Global Observation Program in Safety).

With this approval, Tysabri becomes only the second prescription drug to be returned to the US market after being withdrawn for adverse side effects (the other being Lotronex an irritable bowel syndrome drug that was withdrawn in 2000 but allowed back two years later).

Several weeks later, on June 29, 2006, the companies announced that the European Union had approved Tysabri for relapsing forms of MS.

Finally, on July 24, 2006, Biogen-Idec and Elan announced that Tysabri was commercially available for the treatment of relapsing forms of MS.

The long wait for Tysabri’s return for many MS patients was finally over.

ADDENDUM #1: Transcript of Dr. Richard Rudick’s opening statements at the FDA Tysabri Advisory Committee meeting on March 7, 2006 (note: Dr. Rudick was the lead investigator in the SENTINEL combination therapy trial and also helped design the AFFIRM monotherapy trial)

DR. RUDICK: Good morning. Thank you for listening to my professional opinion about Tysabri and multiple sclerosis. I am going to make three points and I will speak briefly. First, I would like to point out from my perspective the magnitude of the unmet need in the MS field. Secondly, I will explain why Tysabri is an important new therapeutic option in MS. Finally, I will give my views on what constitutes responsible use of Tysabri. I will speak about each of these in turn, again, quite briefly. My point about the unmet need is really very simple. Despite the approved disease-modifying drugs that we have available, MS remains in far too many patients a horrible disease, and there is a very huge unmet need. The available drugs are effective and we are all very grateful to have these drugs, we didn't have them 10 years ago, but they are far from adequate. The Phase III placebo-controlled clinical trials have demonstrated that the current drugs are one-third effective in reducing the relapse rate. The effect of these drugs is so modest that we endlessly debate at our MS meetings the long-term relevance of the benefits of the current drugs, but we have used these drugs long enough to know they don't stop the progression of the disease, and we have no debates about that at our MS meetings. In my experience during 10 years of using the MS drugs, I have noticed that most patients have relapses or eventually progression of their disability despite their adherence to the prescribed drugs. Patients who seem stable clinically often show silent MRI lesions and too often later enter a stage of progressive disability, so the appearance of stability early on with these drugs sometimes is illusory. These experiences are really not surprising. One only has to look at the Phase III clinical trial data. In addition to that, the current drugs cause side effects that diminish quality of life, and many patients simply discontinue their use. My clinic is filled with patients, MS patients who report disease activity despite the current drugs, patients similar to the ones who entered the 1802 clinical trial. In such patients, our options include switching between the drugs or using our drugs in combinations. Switching is of little benefit in my opinion given the modest differences, if any, between our available drugs. Combining interferon or glatiramer acetate with steroids, azathioprine, or methotrexate might help, but there is no data to support this approach, and there are questions about safety. Mitoxantrone is approved for relapsing progressive MS, but has significant cardiac toxicity, and there are cases of acute leukemia that have been reported. The bottom line is that approved therapies don't come close to addressing our unmet need in multiple sclerosis. Many, maybe most, MS patients need better options, and we need new therapeutic products. Now, let me explain why I think Tysabri is an important new therapeutic option for patients with MS. The 1801 study, natalizumab versus placebo, was the first Phase III placebo-controlled, randomized clinical trial in MS in almost a decade. The robust clinical trial results met with widespread excitement and enthusiasm by doctors and patients who viewed Tysabri as a major therapeutic advance, and you have heard that 7,000 patients signed up for Tysabri within just a few months. I believe there were three reasons for this widespread view which I happen to share. First, the beneficial effect on relapses, over a two-third reduction, was double what we have seen in all of the studies of the approved drugs. Three independent randomized, placebo-controlled Phase III studies of interferon and a Phase III glatiramer acetate study, each separately and individually showed about a one-third reduction in relapses. The difference observed in the Tysabri monotherapy study was over a two-third reduction. I am very well aware of the hazards and uncertainties of comparing results across studies, but in comparison with every other large Phase III placebo-controlled trial, the two-third reduction in relapse rate simply cannot be ignored. It is a striking result from my perspective. Second, the 1802 add-on study enrolled patients who had experienced disease activity while using, and presumably gaining some benefit, from standard therapy. Addition of Tysabri to standard therapy in these patients substantially reduced clinical and MRI disease activity compared with the standard therapy alone. This indicates that Tysabri provided substantial incremental benefit over standard therapy alone. Third, many patients simply don't perceive benefits from current MS drugs or don't tolerate them and have stopped therapy entirely. These patients need options that they will accept and that they can tolerate. Now, in this regard, in the Tysabri clinical trials, we observed significant benefits and validated patients self-reported quality of life scales, including our pain and fatigue scales. We have never previously observed such benefits in MS studies in the past, and I found this extremely encouraging. Tysabri really looks like a major therapeutic advance and the question then on everyone's mind is does the benefit and the promise that Tysabri will actually help people justify the risk of PML, which is currently estimated at 1 in 1,000. To answer this question, which is not an easy question, I believe it's important to balance benefits with the risk. I estimated crudely the benefit that might result in 1,000 patients treated for two years compared with standard therapy. Based on the clinical trials, about 400 relapses would be prevented in 1,000 patients if they used Tysabri as opposed to standard therapy. How many of these patients would remain functional, how many would remain independent, how many would remain employed, and what would the long-term benefit be? These estimates would really be quite speculative, but the gains could very well be substantial, and I believe gains, such as this, have to be factored in to the overall assessment. So, I have mentioned the magnitude of the unmet need and explained why I think that Tysabri is an important new option. Let me explain what I think about the responsible use of Tysabri. First, I don't believe that Tysabri use should be tied to a requirement that the risk of PML be eliminated. From the data that I have seen, I don't believe this is a realistic requirement, but I do believe Tysabri should be used in appropriate patients who are fully informed and carefully monitored by an accessible neurologist. I have subscribed during my career to a basic tenet of the therapeutic relationship with my patients. I communicate with them, and we make joint decisions about disease management. We do that together. So, I asked my patients whether they would want to take a new drug that might be twice as effective as their standard therapy, but carries a risk of 1 in 1,000 of a fatal brain infection. My patients had very little difficulty, surprisingly, answering that question. They gave prompt and fairly definitive answers. Some said they would welcome the chance to use a more effective therapy even under those conditions, and others said no, they wouldn't take it. Every patient that I talked with seemed to grasp the situation pretty easily. They weighed the options and they decided whether the benefit to them was worth the risk to them in the context of their disease state, their personal situation, their value system, their family, and whatever other factors were important to them. I believe the neurologist has to decide whether Tysabri is an appropriate option, but I think the patient needs to be a full participant in deciding in that situation whether to use the drug. Now, if the use of Tysabri is appropriate in a given patient, and the patient understands and accepts the risk, and agrees to monitoring, I believe treatment should proceed. Let me sum up by just saying that Tysabri offers the likelihood of significant benefits because it is a therapeutic advance in a disease with a major unmet need. I believe it should be available to for responsible use under the conditions I outlined, because MS in many patients is not adequately controlled on established therapies. There really is no good evidence-based options for many of these patients, and neurologists can and will, I believe, use Tysabri responsibly. I would just close by urging the panel to recommend the release of Tysabri for clinical use, along with some guidelines to promote its safe use, and I appreciate your listening to my opinion. Thank you.
[1] Statistics show that about 50% of people with RRMS will develop SPMS after about 10 years; after 25-30 years, the figure increases to 90%.

[2] Note that the categorizations of MS can be subjective: for instance, an MS patient may be categorized differently by different neurologists. Also, SPMS can be relapsing as well.
[3] In other words, patients who appear to have suffered a first MS attack and have an MRI suggesting such an attack occurred, even though a firm diagnosis of MS has not been made. Signs of a potential first attack include increased lesions/damage seen on the brain.
[4] These post-injection reactions, although not significantly hazardous in and of themselves, could be kind of scary to patients because the reactions are similar to symptoms for a heart attack.
[5] Immunex was later merged with Amgen.
[6] A “black box warning” appears on the labels of drugs that have been shown to potential cause serious side effects. Its name comes from the standard black border around the label text.
[7] MS generally affects twice as many women as men.
[8] As a simplified example, suppose there was a group of ten study patients, each of whom were given cycles of Tysabri infusions for 90 days, and within that timeframe two of the ten patients suffered one relapse each. The ARR would be 0.811 (2 relapses divided by 900 pt days x 365).
[9] A test score of 1 – 1.5 indicates no disability, while a score of 5 – 5.5 indicates increasing limitation in ability to walk. On the higher end of the scale, a score of 8 – 8.5 indicates confinement to a bed/chair, and a score of 10 indicates death due to MS.
[10] Calculation: [29% - 17%] / 29% = relative risk reduction of approx. 42%
[11] Calculation: [29% - 23%] / 29% = relative risk reduction of approx. 24%.
[12] Actually, not only were they on Avonex, they failed to improve on Avonex.
[13] BLA stands for Biologics License Application, which is the FDA marketing application for a therapeutic generally derived from living organisms.
[14] Priority Review is granted to products that are considered to be potentially significant advancements over existing therapies. In a priority review, the FDA commits to render a decision within six months of submission rather than the standard ten months.
[15] Accelerated Approval is a designation designed to speed up the approval of promising products of life-threatening diseases. It allows the FDA to potentially approve a product based on preliminary evidence of efficacy and safety before the formal demonstration of such evidence (before formal completion of clinical trials, for instance).
[16] Results of this 156-patient study: average relapses per year for Copaxone = 0.49; Betaseron = 0.55; Avonex = 0.81; untreated patients = 1.02
[17] Results of this 58-patient study: patients given Copaxone daily had a 2-year relapse rate of 1.1; patients given Copaxone on alternate days had a 2-year relapse rate of 0.9; and patients given Betaseron had a 2-year rate of 1.2. Additionally, all three groups showed an EDSS deterioration over the two years: the Copaxone daily group deteriorated by 0.5 points; the Copaxone alternate days group by 0.4, and the Betaseron group by 0.2 points.
[18] In layman’s terms, the study evaluated whether giving Avonex to patients who first show signs that they MAY be at the beginning stages of MS could help these patients ward off MS.
[19] Result of this study: of a group of patients with a single neurological episode, 34% of the patients given Rebif were subsequently diagnosed with clinically definite MS, while 45% of patients given placebo were later diagnosed as such.
[20] This study resulted in Rebif not demonstrating any improvement over placebo for disease progression but showing improvement over placebo in terms of relapse rate and burden of disease under MRI.
[21] The Freedom of Information Act is a 1996 law that mandates the federal government must release records upon written request unless one of nine pre-specified categories applied (such as national security and individual right to privacy).
[22] A quick search on the internet even today [August 8, 2006] shows a number of 2005 news stories referring to the fourth patient “death,” including one from Marketwatch.com. In fact, although the headline on the Globe story has changed, the Yahoo! search results linking this to this Globe article still cite the original “fourth death” headline.