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If Novartis’ MS Drug Falters, Biogen Will Gain

Were Novartis (NYSE:NVS) investors driven to panic Friday after reports that the company’s multiple-sclerosis pill, Gilenya, may be causing heart problems?

One analyst thinks so. Karl Heinz Koch, an analyst at Helvea SA in Zurich, said in a telephone interview with Bloomberg BusinessWeek that the Novartis drug is unlikely to be related to the deaths of 11 people who were taking the medicine. “With all the experience we have with the drug, my comfort level is relatively high, but you can never be 100% sure,” Koch told Bloomberg BusinessWeek, adding that the uncertainty isn’t helping the company’s share price.

Concerns over Gilenya hit Novartis shares hard. On Friday, the stock dropped more than 5.5%, to close at $55.11. The company’s shares had been on the upswing since last November.

Was this an overreaction to a drug that accounted for sales of $291 million in the first nine months of 2011? After all, Novartis’ annual revenue is about $60 billion. On the other hand, the company is counting on Gilenya to offset upcoming patent losses on some of its best-selling drugs, including the hypertension pill Diovan.

The stakes are high in the fight for MS treatment. Approximately 400,000 Americans have the chronic, often disabling disease, which attacks the central nervous system, according to the National Multiple Sclerosis Society. Worldwide, MS affects about 2.5 million people.

It’s easy to see why Novartis and so many other drugmakers are striving to find better ways to treat the disease. The worldwide market for MS drugs is about $10 billion to $11 billion today and will grow to nearly $15 billion just four years from now, Michael Yee, an analyst at RBC Capital Markets in San Francisco, recently told Bloomberg BusinessWeek.

Gilenya was approved by the FDA in 2010, becoming the first oral treatment for MS. About 30,000 people have taken the drug since then, and the death rate is not out of the ordinary, a company spokesperson told Bloomberg BusinessWeek. She added that during clinical trials, death rates were about the same for people on the drug and those on controls.

If Gilenya does falter, injectable treatments from competitors will be there to pick up the slack. One of the biggest beneficiaries could be Biogen Idec (NASDAQ:BIIB). The Weston (Mass.) biotech has remade itself in recent years, with one of its primary focuses now being MS drugs.

Biogen already has the second-best-selling MS drug in Avonex, whose $2.5 billion in 2010 sales trailed only the $3.3 billion recorded by Teva’s (NASDAQ:TEVA) Copaxone.

The company’s other big MS injectable is Tysabri, which was given new life after appearing to be headed for the trash heap in 2005. Biogen had pulled the drug from the market after a rare brain infection cropped up in two patients, according to Forbes.

Tysabri was reintroduced by Biogen and partner Elan (NYSE:ELN) after the companies figured out how it could be made safe and effective. And what a success it’s become — approaching blockbuster status, with annual sales of nearly $1 billion. What’s more, the drug recently won FDA approval for a label change that could more than double sales by 2015, according to RBC’s Yee.

Biogen also is testing an oral MS drug. The company plans to submit it for approval to the FDA this year. If it performs as well as it has in clinical trials, it could present more problems for Gilenya, as well as  for Copaxone.

As of this writing, the author is long NVS.

Article printed from InvestorPlace Media,

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