June 30, 2000
Elan Go Bragh …
A Biotech Love Story
Elan Corp. is one of biotech's most ardent suitors. The Dublin, Ireland-based company plunged into biotech with romantic fervor in 1996, when it purchased Athena Neurosciences. Elan's latest acquisition closed in May, when it bought The Liposome Company. In June, Isis Pharmaceuticals reported progress in its joint venture with Elan, one of more than 24 current biotech partnerships. What makes Elan woo biotech with such, well, élan?
When an elephant dances with a mouse, it's the mouse who is at risk, they say, even if the elephant is friendly.
Biotech companies unequivocally play the role of mouse (transgenic or otherwise) in big pharma partnerships. A deal gone bad may be merely a disappointment to big pharma, but it can cripple or destroy the biotech. Big pharma companies have well-established product pipelines, and to merit attention, the biotech must be able to fill gaps in that pipeline…yet what may look like a promising therapeutic for a biotech may be too small for a big pharma. And after all that, even a well-structured relationship can be knocked askew by mergers.
Elan Corp. of Dublin, Ireland, offers a different model. Once totally focused on drug delivery, Elan has aggressively moved into the neurology, cancer, and gene therapy markets. Elan's relationships with biotech companies are central to its strategy. Instead of just using partners to fill in pipeline gaps, Elan's biotech partners are catapulting it into entirely new areas.
Elan is small by big pharma or even big biotech standards; its total market cap of under $12 billion is about 20 percent of Amgen's. But Elan has been consistently profitable. It earned 34 cents per diluted share in the quarter ended March 31 compared to 26 cents per diluted share in the corresponding quarter of 1999.
Too small to be a big pharma, but larger than nearly all biotech companies and cash flow-positive, Elan is neither elephant nor mouse. Call it a cheetah, racing to keep ahead of the pack--and counting on biotech to give it speed.
The company has created partnerships and joint ventures with more than 20 biotech companies, including Targeted Genetics (Seattle, WA); Ligand (San Diego, CA); and Ribozyme Pharmaceuticals (Boulder, CO) (see table). It has also made outright acquisitions of some biotechs whose technologies it considered especially promising, including Neurex of Menlo Park, California; Sano Corp. of Miramar, Florida; Neuralab of Dublin, Ireland; and Axogen of Bermuda.
But Elan's most significant purchase came in 1996, when it acquired Athena Neurosciences of South San Francisco, California. The biotech company's products and research team formed the core of a neuroscience franchise that has since become a significant source of revenue. And Athena's CEO, John Groom, moved to Dublin to become Elan's president and chief operating officer.
The Athena acquisition marked a sudden change in direction for Elan, and it appears that the company is now following up that historic zig with a sudden zag: Elan's most recent acquisition, The Liposome Company of Princeton, New Jersey, is advancing Elan's entry into the oncology market. Purchased in May 2000 for nearly $670 million in stock, Liposome's products include Abelcet, an antifungal drug sold in Europe, and Myocet, a liposomal formulation of an anticancer drug recently recommended for European approval.
"Elan is clearly one of the few pharmaceutical companies committed to doing deals with biotech," says Jim McCamant, publisher of the Medical Technology Stock Letter in Berkeley, California. "They make (the deals) work, and there's a real joint venture kind of relationship. Sometimes, pharmaceutical companies act like they're superior to biotech."
"It's an exciting business model," says Dr. Stanley Crooke, CEO of Isis, which has two deals with Elan. "It's a bunch of decentralized investments in discovery, with low barriers to entry--and the opportunity for those investments to yield dividends, with the people who really know the technology and believe in it doing the work."
Small beginnings
Elan was founded by American entrepreneur Donald Panoz in 1969, when the Republic of Ireland was a poor country that in no way resembled the "Celtic tiger" of today. To spur economic growth, the Irish government encouraged foreign pharmaceutical companies to set up branches in the country.
"I came across some technology I thought would be useful in the industry to improve the absorption of drugs," says Panoz. "Nobody felt that was viable . . . so I looked around and found that in Ireland, we had a country that was educating tons of bright people every year and they were all leaving. I thought it would be worthwhile to go over there and build a company. And that's what I did."
Elan went public in 1982, the first Irish company to have an US IPO. For many years, the company prospered as a kind of service arm to pharmaceutical companies, reformulating existing products so they could be given less frequently and solving problems in drug delivery. But in the mid-1990s, Elan decided that drug delivery alone would not sustain desired growth rates, so Elan decided to enter the therapeutic market. The Athena acquisition was a significant milestone, analysts say, because it has been very productive.
Panoz left Elan around that time. He now spends his time on newer ventures, such as auto racing and the Chateau Elan Winery and Resort, which he and his wife, Nancy, founded in Brazelton, Georgia. "I go to their dinners once a year," Panoz says. "But I found out a long time ago when you go to leave something you founded, you need to cut the string and let the people get on with their lives. Athena was the last business (decision) that I had involvement with, and I recommended that strongly," Panoz says. "There was good science there, so I thought it made a lot of sense."
Athena's neurology focus was a good fit for Elan, says Michael Sember, Elan's executive vice president of business development. The company not only had good science, but a sales and marketing infrastructure and product revenues.
"The thing we liked about neurology at that point was it was still a relatively unserved therapeutic area focus," Sember says. "It was the kind of condition, with a relatively small number of neurologists compared to other medical specialties, where you didn't have to have a tremendous infrastructure to make a huge impact. In cardiovascular, for example, you have to have a tremendous critical mass to be a significant player. So once we made that decision, then it became fairly simple to identify those companies within neurology, and Athena came right to the surface."
Elan folded Athena, Neurex and its other biotech acquisitions into its Elan Pharmaceuticals division, which Sember says is run "as a more or less autonomous unit" from Athena's old headquarters in South San Francisco. The other divisions are Elan Pharmaceutical Technologies, the drug delivery side, and Elan Pharmaceutical Operations, the manufacturing business.
The Liposome Company added oncology products, nearly $100 million annually in revenue, interesting products in the pipeline and a good sales and marketing infrastructure, Sember says. The combination of purchases and growth in these companies has produced a "bona fide pharmaceutical organization."
Sember says these infusions have made Elan's product development strongly biotech-ish: "The basic work we're doing in the research side of Elan Pharmaceuticals is very much biotech in nature. One of our lead products is a monoclonal antibody…the point being that by virtue of these acquisitions, we are in biotech, in terms of our research effort and ultimately our commercialization."
Not all of the acquisitions have worked well. While Athena was successful, the Sano purchase flopped, says David M. Steinberg, an analyst who covers Elan for Deutsche Banc Alex. Brown. Sano specialized in transdermal delivery technology. But Steinberg says Elan's strategy has generally worked well, because it is based on many types of relationships with biotechs, including partnerships and joint ventures, not just outright takeovers.
Today, Steinberg says, Elan is a "niche specialty pharmaceutical marketing company…Elan still employs the drug delivery technologies, both to develop products for itself and for partners. But the lion's share of profits are now derived from directly marketed drugs."
Partner, not a boss
To date, Elan has signed 24 joint ventures and collaborations of various kinds with biotech companies, more than once with some companies. Steinberg says Elan avoids micromanaging its relationships; once satisfied with a deal, the company doesn't tamper with it.
Most of Elan's relationships take the form of joint ventures, Sember says. "The philosophy is to contribute our technology and expertise in some meaningful way, in combination with things the other biotech companies have; and to do it so at the end of the day we have access to that technology…We want these things to be managed more directly by the biotech companies, because we think they're going to focus on these things."
For example, Sember says, Elan and Isis formed a joint venture last year called OraSense to develop orally available antisense compounds. Antisense compounds are made up of oligonucleotides that are rapidly broken down in the stomach, so at present they must be injected. Since Isis was founded to commercialize antisense and makes the world's only approved antisense therapeutic, it has ample motivation to make OraSense work. Elan has a minority stake in OraSense, but has the right to buy up to half the company.
In May, Isis announced animal studies indicating that 10 to 15 percent of an orally administered antisense agent can survive the digestive tract, using specially formulated tablets that release their payload in the intestines.
Elan's relationship with Ligand takes a different twist: Ligand licensed from Elan the North American rights to Morphelon, an orally delivered form of morphine, for HIV and cancer patients. On June 8, Ligand announced it would file a New Drug Application with the U.S. Food and Drug Administration for Morphelon for the two indications. In return for meeting this milestone, Ligand said it would issue 367,183 shares of its common stock to Elan. With the purchase, Elan owns 17.6 percent of Ligand stock on a diluted basis and can buy up to 25 percent of the company, says Paul V. Maier, Ligand's chief financial officer.
As part of its relationship, Elan also provided financing enabling Ligand to make strategic product acquisitions. When the relationship started in 1998, Elan bought $20 million of Ligand stock and provided a 10-year, $30 million convertible note, Maier says. Elan benefited by being able to tap into Ligand's oncology research, development, marketing, and management infrastructure, an infrastructure Elan didn't have in 1998, Maier says. Also, Morphelon can be used for other indications, such as central nervous system diseases, and Elan retains the rights for those indications.
Elan plunged into yet another field, gene therapy, in a July 1999 deal between Elan Technologies, its research and development arm, and Targeted Genetics. The two set up a joint venture, Emerald Gene Systems, to develop methods of delivering therapeutic genes. In keeping with Elan's philosophy of making the biotech partner the leader, Elan owns just 19.9 percent of Emerald, but it can buy up to half of the joint venture. This first phase of the partnership is expected to last three years.
"The result is a nice fit," says Dr. Barrie Carter, executive vice president and director of research and development at Targeted Genetics. "They have a set of systems for delivering drugs, and we've got a set of gene delivery systems. The concept is that by combining these, we can make different types of delivery systems with additional characteristics."
After the venture is completed, Emerald may develop products directly or partner them with either parent company or with third parties, Carter says. The venture is the only one Elan will do in gene delivery, he adds, because Targeted Genetics' repertoire of viral and nonviral gene delivery systems represents a "one-stop shop."
Carter says it would be more difficult to get such a wide-ranging collaboration with a big pharmaceutical company.
"The large pharmas, it seems to me, have built these enormous R&D conglomerations," Carter says. "It's likely the sorts of interactions we would do with that type of company would be much more narrowly focused on a particular product. Elan has enormously enhanced their overall R&D structure by doing these whole series of joint ventures."
Can Elan keep up the pace?
Judging by its soaring stock price since the Athena acquisition, Elan's shareholders approve of its biotech romances. In late June of 1996, Elan stock sold for a split-adjusted price of slightly less than $15 a share. Elan closed at $44.00 on June 27, 2000, under its all-time high of $48.50 reached on April 5. But every new high reached sets the bar higher for future performance.
Elan met this challenge four years ago by diversifying technologically from delivery systems to therapeutics. Now, the company is now diversifying its partnerships geographically.
"Most of our ventures have been in the United States," Sember said. "We are looking right now fairly aggressively at a number of opportunities in Europe. It's my personal belief that the biotech industry in Europe is starting to emerge."
Table: Elan's ongoing biotech relationships
Source: Elan Corp.
Strategic Platform Technologies
Targeted Genetics Corp: Licensing and joint venture to develop oral gene delivery technologies and commercialize therapeutic gene delivery targets. The joint venture has plans to enter human clinical trials in late 2000.
Isis Pharmaceuticals Inc. Licensing and joint venture agreement to develop oral oligonucleotide delivery technologies and commercialize specific antisense targets. The joint venture has plans to enter human clinical trials in mid to late 2000.
Avmax Inc. Licensing and joint venture agreement to develop and commercialize products using inhibitors of gastrointestinal efflux and metabolism system to increase bioavailability. The joint venture will also collaborate on developing novel, proprietary inhibitors of the p-glycoprotein transport system.
Endorex Corporation Licensing and joint venture agreement to develop and commercialize oral and mucosal vaccines. The joint venture has license agreements with two partners and has plans to enter human clinical trials in early 2000.
Quadrant Healthcare plc (QM: Licensing and joint venture agreement to develop and commercialize macromolecule stabilization and delivery products.
Multiple Peptide Systems Inc. Licensing and joint venture agreement to develop and commercialize certain macromolecule delivery targeting technologies.
Iomai Corp. Licensing and joint venture agreement to develop and commercialize transdermal and transcutaneous vaccines. The company successfully completed Phase I trials in mid-1999.
Product-Specific
Ligand Pharmaceuticals Inc. Licensing agreement granting Ligand rights to develop Morphelan, a once-daily formulation of morphine, for cancer and HIV patient. Ligand agreed to pay up-front license fees and milestones. These can be paid in cash or shares of Ligand stock, at Ligand's option.
Celtrix Pharmaceuticals Inc. Licensing and joint venture agreement to develop Celtrix's SomatoKine in severe osteoporosis utilizing Elan's Medipad microinfusion device.
Acorda Therapeutics Inc.: Licensing and joint venture agreement to develop and commercialize Fampridine (4-aminopyridine) for multiple sclerosis utilizing Elan's drug delivery technologies. In a separate transaction, Elan licensed Fampridine to Acorda for its use in spinal cord injuries.
RTP Pharma Inc. Licensing and joint venture to develop and commercialize an oral cyclosporine product with new features. In July 1998, Elan and RTP Pharma formed a second joint venture to develop and commercialize novel dosage forms of taxanes.
Endorex Corp. Licensing and joint venture to develop undisclosed compounds utilizing Elan's Medipad microinfusion device.
DOV Pharmaceuticals Inc. Licensing and joint venture to develop and commercialize once-daily formulations of novel anxiolytic and analgesic compounds.
Photogen Technologies Inc. Licensing and joint venture to develop and commercialize nanoparticulate formulations of x-ray, CT and MRI diagnostic imaging agents. These agents will target lymph nodes in order to help locate, diagnose and treat cancer and other diseases. The joint venture anticipates entering human clinical trials in late 2000.
Athersys Inc. Licensing and joint venture to develop and commercialize HGH or other selected proteins by means of Athersys' Rage Technology and Elan's Medipad Drug Delivery System.
Delta Pharmaceuticals Inc. Licensing and joint to develop and commercialize selected Delta compounds for treatment of pain. Elan's Medipad drug delivery system will be used to administer the compound.
Sheffield Pharmaceuticals Inc. Licensing and joint venture agreement to develop and commercialize products for topical pulmonary delivery of steroids in nanoparticulate formulations to treat respiratory and other lung diseases. The companies also have a second licensing and joint venture agreement to develop and commercialize products in the systemic pulmonary field.
Depomed Inc. Licensing and joint venture to develop and commercialize products using both companies' gastro-retentive drug delivery technologies.
Ribozyme Pharmaceuticals Inc. Licensing and joint venture to develop and commercialize Ribozyme's Herzyme against Human Epidermal Growth Factor Receptor Type 2 (HER-2) for treatment of breast and other cancers using Elan's proprietary Medipad system.
Isis Pharmaceuticals Inc. Licensing and joint venture to develop an antisense drug for patients with Hepatitis-C virus using Elan's Medipad system.
Cognetix Inc. Licensing and joint venture to develop and commercialize selected Cognetix compounds for post-operative pain. Elan's Medipad system will be used to administer the compound.
Idun Pharmaceuticals Inc. Licensing and joint venture to develop and commercialize compounds to inhibition or prevent of apoptosis in cerebral tissue following stroke.
Delsys Pharmaceutical Corp. Licensing and joint venture to develop and commercials controlled release products using Delsys' electrostatic deposition technology and Elan's drug delivery technologies.
Iomed Inc. Licensing agreement to develop iontophoresis technology. Iomed develops, manufactures and commercializes controllable drug delivery systems using iontophoretic technology.
By Bradley J. Fikes |
