The Sunday Times      June 04, 2006

http://www.timesonline.co.uk/article/0,,2095-2209608,00.html

Approval for new blockbuster Tysabri will seal revival of Irish pharma
group. By Paul Durman

IN a shabby hotel in a scruffy suburb of Washington DC, Heather Smith brought a packed room full of doctors, healthcare analysts and
pharmaceutical executives to the edge of tears.

The 36-year-old from Indiana, a multiple sclerosis sufferer since 1998, was one of more than 40 patients and other witnesses who had come to
Gaithersburg to testify before a panel of medical experts about Tysabri, a drug pulled from the market early last year after two people died from
a rare brain infection.

Like others there that day in March, Smith requested the chance to make her own judgment about the risks involved in taking the drug. But she
was also motivated "by other requests that I hear every day".

"Requests such as: 'You dance with me, momma?' 'You chase me, momma?' You carry me, please?' These requests from my son Ezra, that I cannot
fulfil, are the key to my risk-benefit equation."

Choking back her tears, Smith said that MS had meant she was unable to walk unaided. But "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.

"The best reward was that I had more energy to spend with my son. I no longer had to choose between playing with Ezra or taking a shower. I
could freely enjoy each moment of his life with a renewed hope.

"I may never be able to carry my son Ezra -- or chase him or dance with him -- but he deserves a Mom that is as healthy as possible. Each day
without Tysabri is a day without hope."

Smith was given the hope she sought. The advisory committee unanimously voted to recommend the reintroduction of Tysabri. The US Food and Drug
Administration (FDA) is expected to ratify its decision any day, possibly as early as this week.

That decision will bring hope, not just to Heather Smith and hundreds of thousands of other MS sufferers, but also to the employees and
shareholders of Elan, the Irish drug company that developed the medicine.

The reintroduction of Tysabri, when it comes, will mark the latest upward lurch in a remarkable five-year rollercoaster ride for Elan.

The company nearly went bust, clawed its way back from the brink with the help of Tysabri, but was then thrown to the floor again last year
when the product was withdrawn. Can this latest recovery last? Kelly Martin certainly hopes so. Martin, a former investment banker with a
liking for woollen sweaters, has nursed Elan through two crises since taking over as chief executive in early 2003. After surviving an
attempted boardroom coup last year, he is confidently planning for Elan's long-term success.

"We have come through a lot of things that most of the world thought we would never get through," he said. "There's nothing like multiple
near-death experiences to sharpen the focus.

"We want to be one of the leading biopharmaceutical companies in the world in the areas of neurodegeneration (Alzheimer's and Parkinson's
disease) and auto-immune disease (MS and Crohn's disease). We want to be the largest European biotech company in the near term."

Remarkably, after all its travails, Elan is already closing in on this first objective. After the recent run-up in its New York-traded shares,
it is valued at $8 billion (£4.2 billion), only a little less than Switzerland's Serono, another company that grew rich on the success of a
multiple-sclerosis drug.

Elan has harboured big ambitions before. It was arguably Ireland's most successful company in the 1990s, reaching a peak valuation of $25
billion as it raced through more than 20 acquisitions in five years. Along the way it took stakes in 55 biotech firms -- effectively
outsourcing its research and development to small, joint-venture partners.

But Ireland's most highly valued company came crashing down -- its stock falling from $65 to $1 -- when it was realised these opaque
joint-venture arrangements flattered profits, and were financed by vast off-balance-sheet borrowings.

Martin, an American banker who was formerly a senior trouble-shooter at Merrill Lynch, set to work to simplify the company and its balance sheet.

Elan's 5,000 employees were spread across 35 locations, stretching from Athlone in central Ireland to San Diego. Over the course of two years,
all 55 joint ventures were sold, and the cash from these and other disposals was used to pay down debt.

All the while, Martin said, Elan remained focused on helping patients with what he believes is truly innovative science. "We continued to
invest in our science throughout the restructuring," he said.

In February 2004 Elan received an unexpected boost. Preliminary results from trials of Tysabri were so "spectacular" that the FDA asked for an
accelerated review. This was an indication that the world's most important health regulator thought the drug could represent an important
advance in the treatment of a debilitating disease.

MS is a disease of the central nervous system that affects more than 1m people worldwide. It can progressively cause numbness, loss of balance,
disability, blindness and paralysis.

By November the FDA had approved Tysabri for the treatment of MS sufferers. Trial data suggested that the drug, taken by monthly
infusion, could reduce the rate of MS relapses (or attacks) by two-thirds. Patients were eager to try the expensive drug, the first new
MS treatment for a decade.

"In the first 10 weeks we had 7,000 patients on the drug," said Martin. "We had 25,000 patients in the queue."

With a course of treatment costing $23,500 a year, after only 10 weeks Elan and its marketing partner, Biogen, a large American biotech
company, were selling a drug that was set to take $700m in its first year. From the pit of financial turmoil, Elan's shares quadrupled during
2004.

Then, last February, disaster struck again. "It was a Friday," Martin said. "I had just got off a plane." The chief executive of Biogen called
with news that two patients, who had been taking Tysabri in combination with Biogen's Avonex, had died of a rare brain infection called PML --
progressive multifocal leukoencephalopathy."

PML was so rare that even many neurologists had no experience of it. "We had spent thousands of hours talking about the risk of opportunistic
infections," said Martin. "In all these discussions, PML had never come
up once."

Elan and Biogen were soon in constant dialogue with the FDA, trying to decide how best to protect patients. "We did not know why PML occurred,"
said Martin. "We did not know whether (the problem was) the combination of drugs. We could not rely on neurologists because very few of them had
the intelligence to be our front line of defence."

After three days of intense discussions, Elan and Biogen pulled the drug. "We needed to protect the patients and we needed to protect the
drug, because the drug was spectacular," said Martin. Elan's shares slumped sickeningly once more.

"The stock dropped from $27 to $3, which is an experience," said Martin, drily. Employees who had seen their savings in Elan shares destroyed by
the earlier accounting crisis were once again confronted by the loss of their dreams.

Despite the doubts of investors, Martin was sure from the outset that Tysabri could be saved. "I was confident that it would be made available
again because of the efficacy of the drug and because patients were declining," he said.

"If you know someone with MS and they're declining, there's nothing they can do. They're going to have a cane, and go into a wheelchair, and
eventually they stop breathing."

Allison Hulme, head of the Tysabri business, and Ted Yednock, head of global research, set to work to understand what had gone wrong.

Independent experts reviewed the data from nearly every one of the 3,000 patients who had taken Tysabri in clinical trials -- MS patients,
rheumatoid arthritis patients and Crohn's disease patients.

Over the course of four months, these patients were given MRI scans, physical examinations and lumbar punctures. To Martin's relief, there
were no other PML cases beyond the first three identified in February and March.

And Tysabri alone has not been shown to cause PML. It appears the infection was caused by an interaction with Avonex.

Based on the trial data, researchers estimate the risk of MS patients on Tysabri contracting PML is one in a 1,000 -- small but real. It is this
risk that Heather Smith and the other patients who spoke up for Tysabri are prepared to run in the hope of securing a better quality of life.

With its case strengthened by two-year trial data, Elan filed for approval for Tysabri once more, this time as a monotherapy. "The
two-year data were better," said Martin. Tysabri was shown to reduce the number of brain lesions caused by MS and, in many cases, to slow the
disease's progress.

"The data make it a better drug," said Martin. "Our decision of last February which was very difficult to make is, at the end of the day,
going to position Tysabri correctly from a patient-choice point of view and correctly from the long-term business point of view."

When Tysabri returns to the market -- a European approval is expected to follow shortly after the American go-ahead -- new patient monitoring and
other safety controls will be introduced to limit the risk of PML. The drug will also be restricted to patients with the relapsing form of MS,
and not given to those with compromised immune systems.

Although this means the likely patient population shrinks, from 1m to perhaps 600,000, by the strange logic of the pharmaceutical industry,
Elan could make just as much money as before.

The price of Serono's Rebif has increased substantially over the past couple of years, and Elan hopes Tysabri will command a significant premium.

Analysts, such as Goodbody Stockbrokers, forecast peak sales of nearly $2 billion a year. This ignores the possible use of the drug in Crohn's
disease.

Ian Hunter, analyst at Goodbody, is cautious about early sales of Tysabri. Many patients will be wary after last year's problems, and will
wait to see whether there are any more cases of PML. Hunter said it was therefore unlikely Tysabri would see the explosive take-off it enjoyed
in late 2004. Hunter said that if Tysabri proved to be safe when prescribed more widely, demand for the drug would quickly accelerate.

Such a blockbuster success would transform the company that developed Tysabri, but Martin said this medicine was only "the start of the Elan
story.

"We think our science platform is truly unique," he said. "We believe we can use that to have an impact on millions of patients around the world.

"If we can execute (our plans), the value of the company will take care of itself."