Elan and its US partner Biogen announced on Monday that another patient on the multiple sclerosis (MS) drug Tysabri has been diagnosed with a brain infection. In related news, a major shareholder has publicly called for the ouster of Elan's CEO Kelly Martin.
Elan and Tysabri partner Biogen Idec told regulators last Thursday that the MS patient, who lives in Germany and had taken Tysabri for 26 months, had a confirmed case of progressive multifocal leukoencephalopathy, or PML, according to a filing with the US Securities and Exchange Commission (SEC).
An estimated 35,500 patients were using Tysabri at the end of September, and about 9,500 have taken the drug, delivered as a monthly injection, for at least 18 months. Elan says the number of infections is “well within” an expected rate of about 1 in 1,000 patients
Tysabri's benefits are seen by doctors as far outweighing the risks.
...investors have completely lost confidence in your CEO and his management team
Crabtree Partners, an independent US healthcare and biotechnology investment company, announced on Friday that it has submitted a letter to Elan's Chairman, Kyran Mclaughlin, calling for the termination of Elan’s CEO, Kelly Martin. The move comes following a drop in the company’s stock price from $37 to $7 over the last four months (most of this prior to general market decline).
“Lack of relevant industry experience, gross incompetence related to the management of Tysabri and its partnership with Biogen, and egregious misuse of company resources have caused investors to lose confidence in Mr. Martin and his management team,” said Crabtree Co-Founder Jack Schuler. “Given the company’s unacceptable performance, the board has a fiduciary obligation to take immediate action.”
This comes on the heels of recent news coverage detailing Kelly’s alleged mismanagement, as well as receiving the Nance Trophy as, “The Worst Biotech CEO” of 2008.
Jack Schuler is a co-founder and partner of Crabtree Partners, and is one of the largest shareholders of Elan with more than 5.5 million shares. He is a former president of Abbott Laboratories and former board member of Chiron, ICOS and Amgen. Schuler was instrumental in forming two highly successful healthcare companies, Stericycle and Ventana Medical Systems, where he was chairman and the largest shareholder. Recently Ventana was sold to Roche. He is currently on the board of directors of Stericycle, Quidel, and Medtronic.
|
ElanCorp. plc |
| Treasury Building |
| Lower Grand Canal Street |
| Dublin, 2 |
| Ireland |
Dear Mr. McLaughlin,
As you know, Elan has one of the most impressive pipelines in the biotech industry. The Alzheimer’s drug, Bapineuzumab, has the potential to be the largest selling drug ever.
With all this potential, you and your other directors must be wondering why investors have fled Elan stock which has dropped from $37 to $7 in the last four months.
As one of Elan's largest shareholders (I own more than 5.5 million shares) and given my experience in the industry, many of the other large investors have contacted me to get my thoughts and to give me theirs.
Mr. McLaughlin, as I see it, investors have completely lost confidence in your CEO and his management team. The combination of management incompetence and misuse of company resources have caused Elan to lose more than $13 billion in value in the last four months. (Most of the drop occurred before the overall market decline.)
I am writing to express my serious concern about the state of the company, and to urge you and the Board to take immediate action. In my opinion, the actions that should be taken are as follows:
- Replace top members of existing management with executives who have relevant and needed pharmaceutical marketing experience
- Eliminate egregious misuse of company funds
- More closely monitor the decisions and actions of the CEO
Let’s look at each issue in a little more detail.
Management incompetence
Unacceptably low sales performance for Tysabri
Tysabri is by all accounts, the best drug for MS, and management has only converted 9% of the MS patients after 28 months on the market. Elan’s attempt to use its own sales force to promote the Crohns disease indication, despite Tysabri’s remarkable effectiveness, has been a complete failure. In my opinion, this issue directly stems from management’s lack of understanding pharmaceutical marketing. The extremely rare incidence of PML is no excuse for not achieving greater success given the consequences of an MS patient not taking Tysabri.
Mismanagement of Biogen partnership
The managing of your partnership with Biogen is even more critical, since they have a competing drug, Avonex, which is currently the market leader. As I see it, Elan has failed to monitor the Biogen sales force to insure that Tysabri is promoted to all MS patients including those on Avonex. The poor communication of Tysabri clinical results, the relationship with the FDA, and lack of control of the Biogen sales force, has resulted in Tysabri greatly underperforming its potential
Management Inexperience
What was the board thinking when they chose a Merrill Lynch employee to be the CEO of Elan? As far as I can see, he has no experience in pharmaceuticals or in managing any type of operation. Why did the board approve the CEO bringing two friends along with him from Merrill Lynch who also had no prior pharmaceutical or operations experience and make them Executive Vice Presidents?
In my view, the miss-steps that have hurt Elan over the past several years are directly related to the lack of basic understanding of the pharmaceutical business and the CEO’s arrogance in his belief that this experience is not needed.
As I look at Elan’s top ten executives, I do not see anyone with any pharmaceutical marketing experience. Who represents Elan when you meet with Biogen to develop promotional strategy? How do you insure that Tysabri is being aggressively promoted to Avonex patients? Do the Elan representatives have equal weight as far as marketing experience as the Biogen people sitting at the table? It is clear that Elan is being taken advantage of because it does not adequately understand pharmaceutical sales promotion.
Over the next year there will be critical negotiations with Wyeth over the launch of Bapineuzumab. These will include pricing, promotional strategy, and which company will field a sales force in which countries. This requires a clear understanding of each country where the product will be launched. Given the complete lack of pharmaceutical marketing experience of your CEO and management team, I am afraid Elan will be taken advantage of in these negotiations.
Egregious misuse of company resources
Inappropriate and outlandish expenses for use of private jets for executives
I was shocked to read recently in a press article that the company provides the CEO access to corporate jets, some of which are the largest and most expensive.For your CEO to fly from his home to the heart of the company in San Francisco would cost between $100,000 and $150,000 depending on the plane he chooses. A commercial ticket could typically be had for less than $1,000. Do you and the other Board members also use these jets? I wonder what would be the results if the money spent on corporate jets were instead spent with the talented Elan scientists to create life savings drugs.
I know of no other biotech company that has corporate jets, yet alone a small, struggling one. Why can’t the Elan CEO fly commercial? Has there been any discussion by the Board about this highly unusual practice? In addition to the expense, what signal does the CEO send to the rest of the employees by his high profile excesses when he is asking them to control expenses?
Locating of company headquarters in CEO’s home city
Investors are also bothered by the CEO’s decision to effectively locate the headquarters in New York City. Even ignoring the expense associated with this decision, it is generally accepted that the CEO and the executive vice presidents should be located at the heart of the company (San Francisco). You now have an executive team that is not only inexperienced in pharmaceutical marketing but also separated geographically from the employee base.
There are many more examples that have lead investors to the same conclusions. The bottom line is that Elan is a small struggling biotech company with a lot of debt coming due in 2011 and has lost the confidence of its shareholders. It also has great potential but desperately needs to control expenses, quickly boost sales of the drug Tysabri, and skillfully manage the approval and marketing of your Alzheimer’s drug Bapineuzumab.
I urge you to carefully consider the recommended actions.
| Sincerely, |
| |
| Jack W. Schuler |
| Crabtree Partners |
