Elan pulling out of joint ventures
By Penni Crabtree
STAFF WRITER
September 27, 2002
Troubled Irish drugmaker Elan Corp. is shedding joint ventures with several San Diego biotechnology companies to conserve cash, but its moves have left some fledgling companies in the financial lurch.
NewBiotics, a local biotech that has treated 19 colorectal cancer patients with its experimental drug, NB 1011, is seeking an injunction to force Elan to provide $10 million in loans that NewBiotics alleges it is owed under a 2001 joint venture agreement.
Without the cash infusion, NewBiotics can't proceed with a larger, Phase 2 patient study that was to begin this fall, and the company may have to shut down within two months, according to a lawsuit filed in U.S. District Court in San Diego.
Another San Diego biotech, FeRx, said yesterday that its joint venture with Dublin-based Elan to develop a cancer treatment has also been terminated.
Elan, which houses its North American biopharmaceutical headquarters in San Diego, has seen its troubles snowball since January when concerns arose about the way it accounts for research collaborations with other drug companies, including those in San Diego.
Elan has made about 55 joint ventures with various biotechs in recent years, including collaborations with San Diego's Ligand Pharmaceuticals, Isis Pharmaceuticals, Digital Gene Technologies, Neurome, Targeted Molecules Corp. and Mixture Sciences.
In some cases, Elan invested millions of dollars through joint ventures that allegedly allowed Elan to take the costs of research off its balance sheet, while inflating revenue.
The Securities and Exchange Commission started an investigation into Elan's accounting practices in February. Since then, investors have bailed out of the once-high-flying stock.
This summer, Elan announced that it would liquidate assets to raise at least $1 billion to pay off debts and that it would lay off 20 percent of its work force.
Sunny Uberoi, a spokesman for Elan, said yesterday that a "large portion" of its 55 joint ventures will be "dissolved," including those in the area of oncology.
"It is too early to say what is happening," said Uberoi. "We are going through each venture, and each is now being reviewed."
Richard Keatinge, vice president of corporate development for FeRx, declined to discuss details of the termination. The joint venture, signed in October 2000, was supposed to run for two more years, with commitments from Elan to fund development of FeRx's novel technology for delivering chemotherapy drugs through magnetic force.
"It leaves us with a late-stage project that was moved along quite a ways in the two years of the joint venture," said Keatinge, whose company recently raised $17 million in a private financing. "Because we've been able to move the product so much further along the regulatory path, we don't anticipate any difficulty finding partners."
NewBiotics is less philosophical. The company, which has spent $9 million in developing a drug to treat colorectal cancer, is suing Elan for breach of contract.
The company contends in court documents that it has met all the conditions of the agreement, and should be allowed to draw on a $10 million line of credit from Elan.
NewBiotics also alleges that Elan has indicated that it will renege on an agreement to make a $2 million milestone payment to the biotech.
NewBiotics received assurances from Elan as late as June that Elan intended to continue to support the biotech, according to court documents. But on July 26, two weeks after NewBiotics chief executive Thomas Mizelle requested that Elan provide the $10 million loan, Elan refused.
According to court documents, Aidan King, Elan's vice president of business development, informed Mizelle that Elan was going to "unwind" every one of its collaborations, and that if Elan had to choose between "its own demise and that of a partner, it would be too bad for the partner."
A NewBiotics spokeswoman declined to comment on the litigation.
Uberoi said Elan made an offer to NewBiotics yesterday to try to resolve the dispute, but that the offer was rejected. He declined to discuss the terms.
Elan has also been putting potential investors and other "interested parties" in contact with NewBiotics and other joint venture partners, Uberoi said.
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