This tunes up the breakup analysis in an attempt to feel more comfortable about adding to my bets in the $2 range. I regard a sell off as highly unlikely, and the worst case. I intend the values to be fairly conservative, and again invite comments if you see major issues. Do not rely on these numbers -- they are subject to huge uncertainty. But they're my best shot within the time I'm willing to spend and my capacity to figure this out.
I left off facility values because I couldn't get a good handle and don't want to double count them if considered integral to other separately valued assets My changes are in Skelaxin (reduction), Avinza (increase), drug delivery (increase), and the reduction for restructuring (increase). Much thanks to the Board members who responded to the original analysis. I've also added a substantial offset for current debt in excess of accounts receivable. This factor is overlooked in the analysis used as a starting point and looks like it should be considered. I have no idea how to come up with other costs that may be incurred as part of a breakup, but they may also be substantial. So I'm taking a little different run at this. I'm generating a breakup value before any further unidentified costs, and calculating a "cushion" that would be available based on needing $2 per share to break even.
Two other issues are bothering me. Legal stuff (are you listening, IJF?). First, I have been assigning a very low probability to a bad SEC outcome. This looks like the one thing that could render me too clever by half. Two questions here. Does anyone have a basis to believe we could be in serious trouble with the SEC? If so, let's hear why. And, if SEC does nail Elan, what is the probable liability? What is a reasonable, worst case liability?
The second, far less important issue is with respect to buying back the LYONS. Can Elan do that at a discount in the current situation, or would they be deemed to have inside info that would preclude them dealing in equity? It seems to me it may be hard to not have such information in this situation of selling major assets. Any thoughts?
I'm not worried about the LYONS issue anymore (famous last words). After getting comfortable with all the marketabe assets available and knowing Dr. Armen's background (who else would you want to handle this problem?) I think the only question is cost. Again, sorry for the poor formatting. My alignment of the numbers in the analysis seems to be trashed when I "submit" the post.
Cash 633,000,000(Elan)
Core drugs
Skelaxin 100,000,000 (reflects danger of generic competiton in intermediate term, but still a guess)
Sonata 250,000,000 (Guess)
Frova 200,000,000 (Guess)
Non-core drugs
Abelcet (done) 370,000,000 (Elan)
Actiq (done) 50,000,000 (Elan)
Other sales(done) 40,000,000 (Elan)
Hospital products
Maxipime 350,000,000 (G)
Azactam 50,000,000 (G)
Myobloc/Neurobloc 60,000,000 (G)
Other non-core drugs
Avinza (Ligand) 150,000,000 (reflects hard-charging, once per day Avinza sales and may still be too low)
Roxicodone, Naprelan, Other minor products (40,000,000 (G)
Total non-core drugs 1,110,000,000
Epil asset value 354,000,000 (Elan. This may be conservative. Includes $100 mil, or 14 mil sh, of Ligand. As Ligand goes, so goes the Epil value...)
Drug delivery business 1,000,000,000 (mid-range of several estimates)
Investments and marketable securities 929,100,000 (Elan)
Diagnostics business 300,000,000 (Guess)
Athena Neurosciences / Alzheimer's 500,000,000 (price paid by Elan for Athena)
Pipeline
Antegren 1,000,000,000 (Guess)
Zonegran, Prialt, Eln "154088" 200,000,000 (Wild Guess)
Total assets 6,476,100,000
Restructuring liability 300,000,000 (saw it somewhere but can't find it again)
Excess of current debt over non-cash current assets 877,000,000 (Elan)
Other Debt (Elan)
7.25 % notes 2008 650,000,000
Product payments 495,000,000
EPIL maximum 2004 450,000,000
EPIL maximum 2005 390,000,000
LYONS 12/31/03 1,013,000,000
Pharma rights 385,000,000
Total Debt 3,383,000,000
Total debt and restructure 4,560,000,000
Elan breakup value $1.9 billion
Value required to breakeven at $2 per share $700 million
Cushion without LYONS discount $1.2 billion
Cushion with 25 percent LYONS discount $1.5 billion |
