Hi °C | Lo °C AFTER selling its 50 per cent share of blockbuster multiple sclerosis drug Tysabri for €2.4bn cash up front (plus future royalties), what does the future hold for Irish pharma company Elan?
Given its patchy record, it should return the money to its long-suffering shareholders.
Anyone who has owned Elan shares in recent years has endured a roller-coaster ride. After peaking at more than $61 (Elan reports its results in dollars and most of the trading takes place on the New York Stock Exchange) in June 2001, the share price had fallen to a mere $1.75 by October 2002 as doubts about its aggressive accounting policies spooked investors.
By the autumn of 2002 it seemed Elan was doomed. However, Kelly Martin, who was appointed chief executive in February 2003, steadied the ship and by December 2004 the share price had recovered to more than $27.
And then it happened all over again. Following adverse reactions from a small number of patients, Tysabri was temporarily withdrawn from the market in February 2005 and the Elan share price collapsed by almost 90 per cent overnight to just over $3.
Still, you can't keep a good man down. Under Mr Martin's leadership, Elan got to work ironing out the problems with Tysabri which had been identified by the clinical trials, and the share price hit a post-2001 high of more than $35 in June 2008.
They say lightning never strikes in the same place twice. In the case of Elan, that's probably because it struck three times. A further set of disappointing results from the Tysabri clinical trials sent the share price into a tailspin once again, and six months later it had fallen to $6.
In December, Elan spun off a substantial portion of its drug discovery business into a separate listed vehicle, Prothena.
Existing Elan shareholders received one Prothena share for every 41 Elan shares which they already held. With Elan shares currently trading at $9.84 (€7.28) and the Prothena share price standing at $6.62 (€4.90), this means that the total value of the Elan shareholders' investment now stands at $10 (€7.40) per share.
While this is a considerable improvement on the October 2002 share price, it is still less than one-sixth of the June 2001 peak. Anyone who has held Elan shares over the past dozen years is looking at very serious losses.
And now, at last, pay day. Biogen Idec, which owned Tysabri jointly with Elan, is now paying its Irish partner $3.25bn (€2.4bn) in cash to take complete ownership of the drug.
There will almost certainly be even more to come. Biogen has also agreed to pay Elan a royalty of 18 per cent on the first $2bn (€1.48bn) of Tysabri sales and a 25 per cent royalty on all sales over $2bn.
If that sounds like serious bucks, it's because it is. Even the $3.25bn up-front cash payment represents more than 55 per cent of Elan's current market value of $5.84bn (€4.32bn) – the payment being the equivalent of $5.41 (€4) per share.
And what is Elan planning to do with this windfall?
According to Mr Martin, the Tysabri sale "provides us with the financial resources to create an enterprise that will diversify its assets, generate future income, maintain specific science and clinical translational abilities and leverage the financial and business structure from being a 40-year Irish PLC".
Which translated into plain English seems to mean that, bolstered by the Tysabri cash, Elan seems to hope to continue pretty much as before.
Hang on a minute! After all the ups and downs of the past dozen years, why should Elan shareholders trust Mr Martin and his colleagues with the Tysabri sale proceeds? With the exception of Tysabri, the company's record under his stewardship has been one of more misses than hits. Only those investors canny enough to buy in following its all-too-frequent share price collapses have generated any return on their Elan investment over the past dozen years.
While Mr Martin is to be congratulated for bringing Elan back from the dead and extracting a full price for Tysabri from Biogen, it is now time to take stock.
Tysabri wasn't so much the major part of Elan's business. To all intents and purposes it was Elan's business, with sales of the drug accounting for virtually all of the group's revenue and income in 2012. With the exception of Tysabri, virtually all of Elan's other product lines were heavily loss-making last year.
What are the chances that Elan can replicate its Tysabri success and develop another blockbuster drug? While it would be nice to think that an Irish-based company could pull off the same trick again, it might well be wise not to bet on it. There are very few double lottery winners out there.
Mr Martin should rethink his plans to re-invest the Tysabri windfall in the continuing Elan business and distribute the proceeds to his long-suffering shareholders instead.
Irish Independent
