Ireland: Elan board in battle over break-up plan
GARO ARMEN, the former chairman of Elan Corporation, is pushing the group�s directors to split the operation into two separate public companies.
The move is seen as an attempt to distance the drug- delivery component of the business from the controversy surrounding Tysabri, the multiple sclerosis drug withdrawn from the market on February 28 following the death of a patient.
The proposal was made at a heated boardroom meeting which was exploring options for the company in the wake of the Tysabri upheaval. Elan currently has a market value of $2.3 billion (�1.8 billion).
Armen, a non-executive director, is seen as the key figure in the move to split the company�s original drug-delivery business from its American-based biotechnology operation.
It is not clear whether Kelly Martin, Elan�s chief executive, supports the plan. It is believed that executive management may want to maintain control of a much larger business.
Sources close to the company say the twin-track approach is part of a plan to buy the group more time while it conducts further analysis of the potential problems with Tysabri, which the company still hopes can be marketed separately.
Elan�s scientists remain confident they can demonstrate that Tysabri was not responsible for the death of one patient and the illness of another.
The company maintains the symptoms only became apparent when the medication was used in combination with Avonex, a successful multiple sclerosis drug produced by Biogen Idec, its joint-venture partner for Tysabri.
Elan is still loss-making and was relying on the expected success of Tysabri to return it to profitability by the end of next year. It had only recently stabilised its finances, having spent three years selling assets to pay off more than $2 billion of debts.
One source familiar with the directors� discussion said that Armen is arguing for further radical action, since the group has few remaining assets to sell.
Elan began life more than 35 years ago as a drug-delivery specialist using formulation technologies to improve or extend the performance of existing medicines. This part of the business is still a substantial employer in Ireland, as well as in America.
The biologics arm is based in San Francisco. One suggestion is that it could assume the name of Athena Neuroscience, after a company Elan bought in 1996.
If the move proceeds, shareholders in Elan would be offered shares in the new company on a pro-rata basis to their existing holdings.
In a separate development, a New York law firm has filed a class action against Elan and its senior executives on behalf of disgruntled investors who allege the company knew about the dangers of Tysabri much sooner than it has admitted.
My view is that Elan should pay close attention to Armen's suggestion. This forum, although clouded somewhat by the host of Martin worshippers, should remember that the detailed original plans to restore Elan to good health, through the recent divstitures, were laid by Armen. Martin inherited the crucial, if somewhat mundane, task of simply implementing Armen's plans. It now looks like we again need strategic vision and I doubt that could come from Martin. About two years ago I suggested that the drug delivery business should be floated to maximize its worth to Elan. The fact that Elan may need the funds more now does not reduce the value of the idea.
Garo always supported setting the core science of Elan up as a true Biotech -- focused science, funded by equity, convertible stock and long-term debt. He was never big on keeping drug deleivery or the revenue streams that do not fit the strategic focus (like the hospital products today). I can see Garo pushing for a sale or spin-out of the drug delivery business and a sales of the hospital products business. It is really just finishing what he started in 2002 -- pare it back to a pure biotech that will be valued on science alone. This would leave Elan with a large cash position; they could either retire debt or even buy back ELN shares. DD is worth some real coin!
I have mentioned here before, that after Elan gets T returned to the market later this summer, to then sell their 50% of T to Biogen for a huge pile of cash and then let Elan focus on all they have in the pipeline which most of us know very little about beyond T fior CD and RA and the 4 ALZ programs -- they have much more early stage programs that need funding and focus. The T partnership is damaged and conflicted with Biogen; end it. Biogen will pay huge dollars for 100%. Oh, and sell Prialt also to a pain compamny with global commercial power; we don't need it and we can't maximize globale sales anyway.
Go Garo! I am with you on your stratgey. Trim it down to a world-clas biotech; that is what ELN really is. And get the finances set once and for all -- there are plenty of assets to get ride of the debt and fund the devlopement programs.
Also, unrelated, but I loved this on Tysabri's tremoval from the Miami article --loved it!
"It's perfectly ludicrous," said Dr. William Sheremata, director of the MS Center at the University of Miami Miller School of Medicine, of the drug's removal."
T will be back later this year IMO. Elan scientists will prove that it was only the combination that triggered a cascade of events and this cascade can only come from combo therapy to reactivate JCV and allow it to progress. T alone can never do that.
Go ELN! We will be $20 by the end of the year. ALZ is the real value of Elan; just watch. Garo knows this and Lars has been telling us for months.
Your timing and the timing of such an issue WHEN YOU DON"T NEED FUNDS
are GIMMICKS that get lost in their value on the STREET.. The selfish interest looking to SPARK a $7 ISSUE with gimmicks is definitely UNPROFESSIONAL at this point in time. Those calling for this now would make it look like a BAILOUT.
Poor timing at best
<<My view is that Elan should pay close attention to Armen's suggestion.>>
I think it's a good idea for Elan to test the water and see how much 'nano' is worth. It can potentially eliminate the financial concern beyond 2008 or even go debt free. IMO it's the BOD's duty to consider all angles and not just build on hopes and wishes. If Tysabri comes back in 3-6 months, they can pull it off the table. On the other hand, if it appears T's coming back may take longer, then selling the unit and beef up the balance sheet now is the prudent thing to do .
I will repeat
If you find that the nano-craze puts a P/E ratio that would be preferred over the Biotech/Pharma P/E than you would consider doing a "partial" spinoff for purposes of making the Drug Delivery Business
a public vehicle without the necessity of filing. This would increase the value of the asset in the Hands of the Corporation as well as the shareholder.
If you wanted to raise cash for the Corporation you would do an IPO for a portion and which would also put the value into Elan
Spin-offs are an interesting "tool" if understood by the BOD. I always liked them as a source of money
for diverse assets that got smothered. Nano is such an assets. KEY in my opinion would be Wall Streets'
"perception" of Nano. and the Timing. Back about a year ago when Nano was off the charts would have been perfect. Now you have to be prepared for when it surfaces again. or if your STORY is
compelling by itself/
As far as the newspaper report on offering shares to the shareholders. That could range from doing a 10% spinoff of the Drug Delivery Co. to distributing warrants to buy shares in the new public vehicle.
Pure guesswork at this juncture.
I am sure the ASSET is in play. You can bet that KM knows the game real well.
Whatever it is or isn't, the WORKOUT of Tysabri is the important thing now. This is a distraction> Garo is not involved in rocking this boat. It is well financed
and not floating looking for any bailouts, certainly not looking at this time to break-up the Corp.
What makes anyone think that a different CEO would have made a difference on the pulling of Tysabri.? This JOINT decision between BIIB, FDA and Elan had no wiggle room.
I not so sure spinning off the drug-delivery business is a good idea. Granted it would probably give us longs more immediate value in our ELN investment, but long-term ELN's non-drug-delivery business is needed to provided funding for their drug research programs and other cost that gives ELN a high cash burn rate and a loss in its bottom line. The drug alone business would not remain out of Chapter 11 very long with the income generated from the drug-deliery business unless Tysabri is back on the market soon without too many label restrictions.
I don't normally say this. I totally agree with you. This is a non event. Who the hell cares. The only thing that matters is getting Tysabri back to market. This plays no part and nothing about Ty can be read into the statement. Except for the fact that the said they believe Ty is a combo issue and they are confident it is coming back.
This should play no part in our future. A break up makes a buyout of Ty more likely after it comes back and the rest can stay independent and an Irish company. Would make everyone happy.
I think they are exploring ways to increase shareholder value....a spin-off might work out very nicely.
Why would any company give a crap about shareholder value?