Wednesday 25 April 2018

Richard Curran: Elan's rocky history comes to a financially favourable demise

It took less than half an hour for shareholders to approve the $8.6bn takeover of Elan. Why wouldn’t it? It is a good deal.

Unfortunately it means the end of the stand alone Irish pharmaceutical company that has had one hell of roller coaster ride. Yet for all the controversy, collapses and corporate battles, it has contributed a lot to the Irish economy and the development of the sector here.

Dan Panoz, an Ohio born pharmacist with an Italian father and an Irish mother, set up Elan in a garden shed in Dublin in 1969. He then moved the business to Athlone. He was interested in drug delivery systems. He is credited with inventing the nicotine patch.

Back then the post in Westmeath arrived in the morning and the post in Roscommon arrived in the afternoon.

Panoz wanted the post in the morning so insisted on an Athlone address, even though the plant was located in Co. Roscommon just outside the town.

As the company grew and acquired other businesses it became the biggest company on the Irish Stock Exchange and the first to list in New York. Its shares hit $70 and the business had a market capitalisation of $22bn by 2001. Then Enron happened.

In the wake of the Enron collapse, the SEC regulator looked more closely at companies that had complex joint venture arrangements and how they were treated in the accounts. The SEC tightened up its regulations.

Elan had done a huge number of deals in the 1990s. An SEC investigation found that it had negotiated complex joint-venture agreements with 55 companies.

It kept its stake in each of these vehicles below 20pc. This meant Elan was able to keep their poor results off the corporation’s income statements, while still earning revenue from each of these vehicles through licensing agreements.

The shares collapsed from a high of $70 down to around $5. Incredibly, it clawed its way back. It was developing a breakthrough multiple sclerosis drug called Tysabri.

Now run by former Merrill Lynch executive Kelly Martin, the company had restructured, unravelled many of the joint ventures and bagged around $2bn from disposals. But Tysabri was the ace in the hole.

Elan’s shares were trading back up at $27 by 2004 when three Tysabri patients who were suffering from a rare neurological condition died.

The stock collapsed to $5. But the company kept plugging away. It secured FDA approval for the ground breaking drug which is used in controlled circumstances, namely only with certain other drugs.

It has been a huge success, but only after another 50pc share price collapse in 2008, when there were further setbacks.

The revenue stream from Tysabri became its biggest asset and a major part of what drug company Perrigo has bought this week.

Investors made and lost fortunes on Elan. It has been an extraordinary journey reflecting the challenges and opportunities of building a major international business from Ireland.

Don Panoz shows the potential value of the Irish diaspora connection. It shows what can be achieved given time, expertise and enough money. But equally, it also shows what can go so wrong as the company almost collapsed at least twice. 

Elan chairman Bob Ingram thanked shareholders at the egm this week for investing in science, which isn’t always easy.  

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