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Biogen Idec Inc. (BIIB), Incyte Corporation (INCY): Should Novartis AG (ADR) (NVS) Shareholders Be Worried About This?

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As an investor in the health care sector, it can sometimes feel like everything — and everyone — is out to get you. The ongoing threat of competing drugs being brought to market that are superior to existing drugs means that biopharmaceutical companies need to constantly be on their toes and investing for the future, as well as closely protecting existing therapies with patents and specially designated drug statuses (e.g., orphan drug status).

Shareholders in pharmaceutical giant Novartis AG (ADR) (NYSE:NVS) are learning that there are always new and various ways that uncertainty can creep into the picture.

Source: Melanie Tata, Flickr.

In late July, Novartis AG (ADR) (NYSE:NVS) alerted the Food and Drug Administration that one of its approximately 71,000 patients who had been treated with relapsing multiple sclerosis capsule Gilenya had developed a case of progressive multifocal leukoencephalopathy, also known as PML, a rare viral disease of the white matter of the brain. According to Novartis at the time, it did not believe that Gilenya was the cause behind this patient in the U.K. developing PML, but it notified the FDA of the occurrence. However, yesterday we received word that the FDA is officially probing the cause of this patient’s PML.

Should shareholders be worried?

A probe by the FDA is never a good thing, but I feel that the precedent and facts here are likely to put Novartis AG (ADR) (NYSE:NVS) in the clear.

According to Novartis AG (ADR) (NYSE:NVS), the patient in question who was treatment naive of Biogen Idec Inc. (NASDAQ:BIIB)‘s Tysabri was also taking other drugs in addition to Gilenya, had atypical MRI lesions present before starting Gilenya, had multiple instances of taking corticosteroids (thought to be a risk factor for PML), and was only on Gilenya for seven months.

Let’s also recall that Incyte Corporation (NASDAQ:INCY) and Novartis AG (ADR) (NYSE:NVS) went through a similar scare with their FDA-approved myelofobrosis drug Jakafi. In March, Incyte noted in a regulatory filing that a patient on Jakafi had developed PML, which caused its stock to fall by double digits at the time. But, it’s worth noting that more than 10,000 prescriptions of Jakafi had been written (at the time of the securities filing) with just this lone case of PML arising. In addition, Incyte Corporation (NASDAQ:INCY) pointed out that the condition of myelofibrosis puts patients at a higher risk of developing PML to begin with. Shares of Incyte Corporation (NASDAQ:INCY) have more than recovered since that regulatory filing.

What shareholders should really be concerned about

The good news for shareholders is that a new warning about PML incidence is unlikely — in my opinion, at least — to be placed on Gilenya, and its sales should be rebound on that accord very soon. The bad news, though, is that competition in the MS space is only increasing.

Gilenya still looks like a strong option compared to Sanofi SA (ADR) (NYSE:SNY)‘s Aubagio, which was once expected to lead the charge in MS treatments. However, a black box warning that Aubagio can lead to severe liver problems, which can in turn lead to death, have seriously slowed sales of the relapsing MS drug.

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