Elan: Most valuable Irish firm becomes cash/ royalty shell
By Michael Hennigan, Finfacts founder and editor
May 14, 2013 - 5:48 AM

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Elan's share price peaked in New York in mid-2001 at $61. It closed at $11.61 on Monday, May 13, 2013.

Elan, the commonly referred to 'Irish drugs firm,' that was the most valuable Irish public company in 2001 has joined surviving banks as a shadow of its former self. It has effectively shrunk itself to a royalty/ cash investment shell but it maintains its corporate headquarters in Ireland to avail of the favourable tax benefits.

Elan had over 1,700 staff worldwide in December 2006 with about 600 based in Ireland. In 2012, it had 245 employees worldwide of whom it said 86 (2011: 226 employees) were engaged in research and development activities  and the remainder were involved in other corporate functions. In 2013, staff levels are down to 90-100 with most of them based at the headquarters in Dublin.

Elan in an effort to head off a $6.6bn takeover bid from Royalty Pharma, a US royalty/cash shell like itself, announced on Monday a $1bn investment in Theravance, a California-based respiratory drug company.

GlaxoSmithKline, owns 27% of Theravance and according to Lex of the FT, respiratory drugs accounted for 40% of GSK’s pharmaceuticals sales in 2012. Elan has purchased of 21% of Theravance’s share – up to a fifth – of future sales and Elan in effect says [pdf] its Irish tax advantages will give it an edge (it also has large accumulated tax losses) but the drugs will have to be blockbusters as it has in effect bought a 2 to 3% share of the royalties.

Alkermes, a US pharmaceutical company, acquired Elan's Irish manufacturing plant in Athlone in 2011. Under the terms of the business combination agreement, Elan received $500m in cash and 31.9m ordinary shares of Alkermes plc, representing approximately 25% of Alkermes plc. The transaction enabled Elan to cut its debt by 51%. Alkermes this year announced 130 jobs cuts.

Elan has been involved in a number of other spinoffs in recent years and this year it sold its stake in Tysabri (nataluzimab), the multiple sclerosis blockbuster, to Biogen Idec of the United States, its partner, for $3.25bn. For the first twelve months after the deal closes, the deal will amount to 12% of annual Tysabri sales. After that it will leap to 18% of sales up to $2bn and 25% of sales over $2bn. (If Tysabri were to generate $2.5bn in sales, Elan would receive $485m.) Last year, Tysabri sales were at $1.6bn, up 8% from 2011.

The Neotope unit was spinoff in 2012 after the failure of its key Alzheimer’s treatment. It had evolved from Athena Neurosciences, the South San Francisco biotech business that Elan acquired in 1996 - - this firm was responsible for the discovery and development of Tysabri.

Elan expects its shell operation to be profitable in 2013 and it has more than $4bn in accumulated losses.

Elan was founded in Ireland in 1969 as a drug-delivery business, by American chemist Don Panoz, to facilitate the development of the technology behind the nicotine patch. It became a public limited company in January 1984.

By mid 2001, with the prospect of blockbuster drugs for Crohn's disease and multiple sclerosis (MS), Elan's share price rose to $61 in New York, making the company Ireland's most valuable firm. In December 2001, Elan's market capitalisation in Dublin accounted for about 20% of the total market value.

In 2002, Elan had a near-death experience in the aftermath of questions about its accounting policies and the adverse results from drug trials.

On February 8, 2002, Elan had acknowledged that the US Securities and Exchange Commission (SEC) was investigating how the then world's 20th-largest drug company accounted for its research-and-development expenditures.

The announcement followed a January 30, 2002, Wall Street Journal report that disclosed the existence of 55 joint ventures that Elan had structured to simultaneously shift R&D costs off its books and bring in revenue before any drugs are developed.

Elan admitted the accounting fraud by acknowledging that its previous year's profits would've been more than 40% lower and its debts $1bn higher than reported, if it had consolidated two of its 55 R&D vehicles onto its financial statements. By July 2002, Elan's shares had plummeted nearly 95% in six months.

Tysabri, the MS drug, was launched in 2004 and many analysts had expected the drug to generate peak annual sales of as much as $4bn, but it was promptly taken off the market in March 2005 after three patients developed a potentially fatal brain infection called progressive multifocal leukoencephalopathy. However, following an extensive safety review on both sides of the Atlantic, Tysabri was relaunched in July 2006 for the treatment of MS, with certain restrictions.

In 2010, Elan recorded operating profits, before other charges and gains, for the first time since 2001.

Today, Elan's shares are mainly held by Americans and it contributes little to the Irish economy. It is effectively Irish in name only. In 2007, the Elan chairman considered moving the headquarters to the US.

The current shareholders are getting bonanzas but it's thin gruel for the investments by Paddy Muggins, the Irish taxpayer.

It is a lesson for Irish policy makers and their delusional knowledge economy strategy. This inconvenient fact of course will remain inconvenient.

Meanwhile, Ireland is as dependent on foreign firms today as it was in 1990. However, FDI has peaked.

Lex video

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