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Biotech / Medical : Elan Corporation, plc (ELN) -- Ignore unavailable to you. Want to Upgrade?

To: Qualified Opinion who wrote (3436)	10/27/2002 4:44:31 AM
From: Icebrg	Read Replies (1) \| Respond to of 10345

Thanks Rob, that was an interesting read. And some comments to Dr. Armen's views and expectations. Asset disposal program. It seems as if the company might have decided to carry their re-structuring even further than previously planned. Bringing in another billion USD means that another billion worth of assets has to be cut away somewhere. Product sales. The current CNS/Pain portfolio brings in about 430 mUSD on a yearly basis. After having taken out Zanaflex completely. Armen says he is aiming for 500 mUSD from the current pipeline. I suppose that in the current pipeline Frova and Avinza are included. I believe the 500 might be achievable. Zonegran has been growing nicely and Frova + Avinza should bring more. The big threat to this perhaps somewhat optimistic sales projection is the risk of generic competition for Skelaxin. If Skelaxin falls about 150 mUSD of sales will be lost. That would be extremely bad. A further risk a couple of years down the line could be more competition for Sonata (a 100 mUSD market for Elan). Sepracor seem intent of filing their NDA for ESTORRA before the end of the year and the NDA for Neurocrine's Indiplon should follow towards the end of next year. Even if these drugs will not kill off Sonata completely the competitive landscape will become even tougher. Especially if Indiplon ends up with a big and strong pharma marketing partner. (Neurocrine doesn't plan to market the product themselves). The pipeline. I am surprised to see the pipeline described as low-risk. I would rather describe it as high-risk with a lot riding on one single product - Antegren - intended for use in two very difficult indications. The potential of Antegren is very big. Trial results so far have been promising. But still. I am worried at least for the Crohn's indication after Millennium seemed to have come up empty-handed with what to me appears to be a very similar product (MLN02). Perhaps there are important differences between the two products mode of operation. But, the MLN02 results should at least serve as a warning signal. Apart from Antegren there is Prialt. But realistically speaking. Everything seems to indicate that this will be a rather marginal product. The FDA and Elan could evidently not agree on a label for the product and Elan was forced into an additional phase III. Whatever comes out from that effort will IMHO turn out to be very short of the original expectations. ELN 154088 with an expected NDA-date of Q1 2004. Well, I haven't been able to find any information on that product. And the time-line looks optimistic as phase II trials are supposed to start this year (and nothing has even been announced yet). The Alzheimer's franchise. The hints thrown around that AN1792 might after all not be quite dead were of course extremely encouraging. Good news on that front would be worth at least a couple of dollars on the share price. When the bad news of the trial's suspension was released in January the stock lost 6 dollars. I would be very happy to see it recover half as much. That will of course not happen. Realistically, I believe that even if the AN1792 program is resurrected, it will take a couple of years to work out what to do about the inflammation problems seen and to test out any modifications to the program. But still - this is one of the company's focus areas and all good news are indeed much needed. Even if the new insight gained will not lead to a re-emergence of AN1792, but just provide guidance for the next program down the line. The Debt and The LYONs. The uncertainty of if and how Elan will be able to meet the expected puts of LYONs in December of next year is most probably the main reason why a share these days may be had for a dollar and some change. On that count I think that Armen's indication that an additional billion dollars may be found among the company's surplus assets to be very re-assuring. If that really is the case the door is opened for the company to attack the LYON issue with a lot of open possibilities. Which will most probably end up in a situation where all the bonds will not even be put. The short position. As always - one needs money to make money. The indication of an additional billion finding its way to the company tills is in my opinion very positive and will take away a lot of the pressure from the stock (if realized). If I was short Elan and thought that Elan had a reasonable chance of even meeting its original plan to raise 1,5 billion dollars from asset sales, I would close the position as fast as possible. There is frankly not much more to be gained on the down side. And especially not if the company would turn up with an additional 2,5 billion dollars in the bank. Why fight a fight that can never be won. There must be much less risky ways of beating the market. Erik

To: Qualified Opinion who wrote (3436)	10/27/2002 8:37:36 AM
From: Qualified Opinion	Respond to of 10345

Elan's Armen: 'We will survive' By Michael Murray, Markets Editor Dublin, Ireland, 27 October, 2002 Elan's chairman and acting chief executive, Garo Armen, is putting on a brave face. Armen believes that outside of the three core areas on which the company now intends to concentrate -- neurology, pain management and auto immune therapy -- surplus assets have the potential to yield up to $1 billion more than the targeted asset disposal programme of $1.5 billion over the next 15 months. Hence his convention that there is no impending cash crisis at Elan. Armen said that the recent assets disposals, including Abelcet for $370 million, were achieved at sums in excess of book value and negotiations are proceeding for the sale of further assets over coming months. He couldn't say if these would be completed by the end of the current year and refused to identify which assets would be involved. Asked about the rate at which the company was currently burning cash, Armen said that, on an ongoing basis, it will have product revenues of $500 million with a gross margin of 75 per cent before the new drugs pipeline kicks in. Against this, there will be research and development expenditure of $250 million. But over the next 12 months, there would be substantial exceptional costs, including legal costs, and rationalisation and redundancy costs. Against that background, it is impossible to give guidance on earnings or cash burn. He stressed, however, that their asset disposal programme was "robust" because the priority at present was to remove the uncertainty about the company's future which was dragging down the share price. That price did not reflect the prospects of the company arising from the late stage of its drugs pipeline. It reflected fears on the part of investors that the company would not survive to "harvest the delicious fruit from the pipeline". Armen said that there would be no "fire" sales of assets. Elan had one third of its disposal programme completed and he was "very confident" it would reach its target with bigger realisations than anticipated and sooner than anticipated. On the drugs pipeline: "Amidst all the problems we have a very impressive pipeline -- real science." The development risk was low because of the late stage of development of its two key drugs: Antegen, which treats Crohn's disease and multiple sclerosis, and its Alzheimers drug. Elan had the most advanced Alzheimers programme in the world, he said. Armen rejected suggestions that the problems at the company were leading to an outflow of key scientists. "The people in charge of the pipelines for Alzheimers, MS, and Crohn's disease are not leaving, they have devoted their lives and careers to these products and they are not walking away now. It is their life and their passion," he said. He remains optimistic about the outlook for the success of Elan's Alzheimers drug even though it was withdrawn last January because of problems of inflammation suffered by patients. "The great majority of patients who showed inflammation of the brain following vaccination have now recovered," he said. "If plaque building in the brain is responsible for Alzheimers -- as our scientists believe -- and our product removes that plaque as it does, then cognitive improvement in patients should be evidenced within a period of 12 months from initial vaccination. So by the end of the year patients who were dosed in the November-January period 2001/02 should be demonstrating cognitive improvement." Armen said it takes time for the immune system to kick in after vaccination and chew up plaque -- and, after it has been cleared out, for the surrounding cells to migrate to replace those which have been removed. On the redemption of the company's "poison put" bonds, Armen said he wasn't going to show his hand.. He would not comment on speculation that the company would conduct a "Dutch auction" and buy back the bonds at the price demanded by the lowest bidders. But he said that whatever route was chosen it would not cause a liquidity crisis. The company has the option to redeem the bonds in cash or shares, or could buy some of them back in the secondary market. Armen's present strategy appears to be to ensure that the company's survival prospects are assured so that it can capitalise on the potentially highly lucrative late stage development programme. It seems likely that Elan will adopt a variety of tactics in dealing with bondholders. This could include the buyback of some of the bonds in the secondary market at a discount over the next six months as liquidity generation permits. The remaining bondholders could be then offered a restructured package whereby, in return for some dilution of 2003 redemption or conversion rights, they are given incremental upside via equity warrants. These would be valuable if the development pipeline delivers to the extent expected. The current market price of the poison put bonds offers a yield to the "put" date next year of over 70 per cent. This suggests bondholders remain sceptical about the ability to redeem the bonds in full next year. Armen would not be drawn into criticism of the former chief executive Donal Geaney or his finance director Tom Lynch. He said that if they had not come up with some of the creative financing structures that have caused such controversy, they could never have financed the pipeline for Alzheimers and autoimmune drugs. Armen did, however, admit that the more recent risk sharing agreements they had entered into created incremental financial exposure for Elan that was not commensurate with the potential reward arising from that exposure. The company continues with its search for a chief executive but is remaining tight-lipped on both the progress being made and the identity of the headhunter. It is understood that the search is being conducted primarily in the US and that the new CEO will be based there. On Elan's commitment to Ireland, Armen said that while the company would not do anything that didn't make business sense, it was inconceivable that after retrenchment the company would not have substantial operations in Europe and that Ireland would almost certainly be the preferred place. Elan's share price has continued to decline in recent weeks to reach a low of €1.23 on October 9 there has been a modest recovery over the past week. The extent to which investors have been dumping shares has reflected the depth of investor concern about future prospects. The risk they run is that in the event that Elan is able to confirm that it can proceed with the commercialisation of its Alzheimers drug, the volume of short positions on their shares is so great relative to the daily trading volumes in the shares that hedge funds and other bear traders may face a savage squeeze. Elan still has much to prove, but at least, under Armen, transparency is improving and the company has begun to adopt a more coherent approach towards communicating with the market. His steady hand and focused approach certainly enhances Elan's mid-term survival prospects. sbpost.ie