ELN Downgraded; BG-12 Raising Concerns for Tysabri Sales

Elan Corp. (NYSE:ELN) is facing headwinds Monday morning after an analyst downgraded the stock based on slowing Tysabri sales growth. Leerink Swann lowered ELN’s price target from $12 to $8 today and downgraded the shares to underperform as Tysabri comes under pressure from falling new patient starts. The medical community and the street are also taking note of the potential for Biogen Idec’s (NASDAQ:BIIB) promising Multiple Sclerosis treatment, BG-12, to impose on Tysabri’s place in the market within the next year; you can read about Tysabri sales and BG-12 in PropThink’s previous coverage. BG-12 is expected to enter the market in late 2012 or early 2013.

Late last week, ELN shares got a lift when Bernstein Research speculated that Biogen Idec may still move to acquire Elan, a story that has been circulating for some time and which PropThink covered in early September. That looks unlikely, however, as BIIB is fully focused on commercializing BG-12, and moving to take over its Tysabri partner may be an expensive and fruitless labor. With a favorable safety profile, strong efficacy, and an oral formulation, BG-12 may simply cannibalize Tysabri sales, with significant upside for BIIB as the company receives full economics from the new compound compared to 50% from Tysabri sales. Expect ELN shares to be weak following the downgrade, with the potential to dip below $10 in the near future.