Unaudited Consolidated U.S. GAAP Income Statement Data
Three Months
Ended Nine Months Ended
September
30 September 30
2004 2005 2004
2005
US$m US$m US$m
US$m
------ -------
--------------- ------- -------
Revenue (See
page 6)
85.7 118.4
Product revenue 302.0 325.4
Contract
15.4 10.2
revenue 55.8 24.5
------
------- ------- -------
101.1 128.6
Total revenue 357.8 349.9
------
------- ------- -------
Operating
Expenses (See
page 10)
Cost of goods
39.8 45.6
sold 122.3 146.9
Research and
55.5 60.3
development 185.9 180.5
Selling,
general and
77.8 81.0
administrative 232.8 276.4
Net gain on
divestment of
(5.6) (23.3)
businesses (42.4) (88.4)
Other
significant
55.5 3.2
charges 63.3 2.3
------
------- ------- -------
Total operating
223.0 166.8
expenses 561.9 517.7
------
------- ------- -------
(121.9) (38.2) Operating loss (204.1) (167.8)
------
------- ------- -------
Net Interest
and Investment
Gains and
Losses (See
page 11)
Net interest
24.6 28.7
expense 73.7 99.4
Net investment
(2.2) (1.0)
gains (59.0) (14.9)
Impairment of
0.3 0.7
investments 44.6 20.8
Loss on EPIL II
-- --
guarantee 47.1 --
Net charge on
debt
-- --
retirement -- 52.2
------
------- ------- -------
Net interest
and investment
gains and
22.7 28.4
losses 106.4 157.5
------
------- ------- -------
Net loss from
continuing
operations
(144.6) (66.6)
before tax (310.5) (325.3)
Provision
for/(benefit
from) income
(6.9) 0.7
taxes (5.1) 0.6
------
------- ------- -------
Net loss from
continuing
(137.7) (67.3)
operations (305.4) (325.9)
Net income from
discontinued
operations
(see Appendix
29.9 0.2
I) 17.8 0.6
------ -------
------- -------
(107.8) (67.1) Net loss (287.6) (325.3)
=======
======= ======= =======
Basic and
diluted net
loss per
$(0.28)
$(0.16) ordinary share $(0.74) $(0.80)
Weighted
average number
of ordinary
shares
outstanding
391.1 425.5
(in millions) 389.1 409.0
Number of
shares
outstanding at
September 30
391.8 426.6
(in millions) 391.8 426.6
Unaudited
Non-GAAP Financial Information - EBITDA
Non-GAAP
Three Months
Ended Financial Nine Months Ended
September
30 Information September 30
2004 2005
Reconciliation 2004 2005
US$m US$m
Schedule US$m US$m
----------------------------------------------------------------------
Net loss from
continuing
(137.7)
(67.3) operations (305.4) (325.9)
Net interest
24.6
28.7 expense 73.7 99.4
Provision
for/(benefit
from) income
(6.9) 0.7
taxes (5.1) 0.6
Depreciation
and
29.8 30.6
amortization 93.3 95.8
(14.5) (17.9)
Amortized fees (39.9) (42.8)
Revenue
received and
-- 3.5
deferred 7.0 4.2
-------
------ -------
-------
(104.7) (21.7)
EBITDA (176.4) (168.7)
=======
====== =======
=======
Non-GAAP
Three Months
Ended Financial Nine Months Ended
September
30 Information September 30
2004 2005
Reconciliation 2004 2005
US$m US$m
Schedule US$m US$m
----------------------------------------------------------------------
(104.7) (21.7) EBITDA (176.4) (168.7)
Net gain on
divestment of
(5.6) (23.3)
businesses (42.4) (88.4)
Other
significant
55.5 3.2
charges 63.3 2.3
Loss on EPIL
-- --
II guarantee 47.1 --
Net investment
gains and
(1.9) (0.3) losses (14.4) 5.9
Net charge on
debt
-- --
retirement -- 52.2
------------ ------ ------ --------
Adjusted
(56.7) (42.1)
EBITDA (122.8) (196.7)
============= ======= ======= =======
To supplement its consolidated financial statements
presented on a U.S. GAAP basis, Elan provides readers with EBITDA (Earnings
Before Interest, Taxes, Depreciation and Amortization) and Adjusted EBITDA,
non-GAAP measures of operating results. EBITDA is defined as net loss from
continuing operations plus or minus depreciation and amortization of costs and
revenues, provisions for income tax and net interest expense. Adjusted EBITDA
is defined as EBITDA plus or minus net gains or losses on divestment of
businesses, other significant charges, loss on EPIL II guarantee, net
investment gains and losses and net charge on debt retirement. Neither EBITDA
nor Adjusted EBITDA are presented as alternative measures of operating results,
cash flow from operations or net loss from continuing operations, as determined
in accordance with U.S. GAAP. Elan's management uses EBITDA and Adjusted EBITDA
to evaluate the operating performance of Elan and its business and these
measures are among the factors considered as a basis for Elan's planning and
forecasting for future periods. Elan believes EBITDA and Adjusted EBITDA are
measures of performance used by some investors, equity analysts and others to
make informed investment decisions. EBITDA and Adjusted EBITDA are used as
analytical indicators of income generated to service debt and to fund capital
expenditures. EBITDA and Adjusted EBITDA do not give effect to cash used for
interest payments related to debt service requirements and do not reflect funds
available for investment in the business of Elan or for other discretionary
purposes. EBITDA and Adjusted EBITDA, as defined by Elan and presented in this
press release, may not be comparable to similarly titled measures reported by
other companies. Reconciliations of EBITDA and Adjusted EBITDA to net loss from
continuing operations are set out in the tables above titled "Non-GAAP
Financial Information Reconciliation Schedule."
Unaudited
Consolidated U.S. GAAP Balance Sheet Data
December 31 June 30 September
30
2004 2005 2005
US$m US$m US$m
----------------------------------------------------------------------
Assets
Current Assets
Cash and cash equivalents 1,347.6
1,158.1 1,130.7
Restricted cash 164.3 -- --
Marketable investment securities 65.5
18.0 14.2
Prepaid and other current assets 152.5
163.8 118.5
--------- --------
---------
Total current
assets 1,729.9 1,339.9
1,263.4
Non-Current Assets
Property, plant and equipment, net 346.2
358.0 355.6
Intangible assets, net 764.0
720.3 698.9
Marketable investment securities 39.0
21.2 18.6
Restricted cash 28.4 24.6 24.7
Other assets 68.4 57.9 54.4
--------- --------
---------
Total Assets 2,975.9 2,521.9
2,415.6
========= ========
=========
Liabilities and Shareholders' Equity
Accounts payable and accrued liabilities 361.5
270.9 244.8
Deferred income 110.4 86.0 71.6
EPIL III notes due March 2005 39.0
-- --
6.5% convertible guaranteed notes due 2008 460.0
254.0 254.0
7.25% senior notes due 2008 650.0
613.2 613.2
7.75% senior notes due 2011 850.0
850.0 850.0
Senior floating rate notes due 2011 300.0 300.0 300.0
Shareholders' equity 205.0
147.8 82.0
--------- --------
---------
Total Liabilities
and Shareholders'
Equity 2,975.9 2,521.9 2,415.6
========= ========
=========
Movement in Shareholders' Equity
Opening balance 91.1 147.8
Net loss for the period (142.6) (67.1)
Change in unrealized gain on investment
securities
(6.0) (2.0)
Issuance of share capital 206.3 3.8
Other (1.0) (0.5)
--------
---------
Closing balance 147.8 82.0
======== =========
Unaudited
Consolidated U.S. GAAP Cash Flow Data
Three Months Nine
Months
Ended
Ended
September 30 September 30
2004 2005 2004 2005
US$m US$m US$m US$m
---------------- ------------------------------------
----------------
(175.7) (30.5) Cash
flows from operating activities (259.7)
(168.6)
(24.6) (28.2) Movement on debt interest and
tax (79.3) (111.6)
123.5 (12.4) Working capital movement(1) 101.4 (104.7)
Net
purchases of tangible and
(13.1) (7.4)
intangible assets
(23.7) (42.3)
Net
proceeds from sale of
42.5 5.0
investments
229.8 59.0
Net
proceeds from business
40.0 43.6
divestments
270.4 93.8
10.6 2.5
Cash flows from financing activities
25.7 (71.6)
0.2 --
Release of restricted cash
20.3 168.1
-- --
Repayment of EPIL III notes
-- (39.0)
-- --
Cash payment under EPIL II guarantee (391.8) --
------- -------- ------- --------
3.4 (27.4) Net cash movement (106.9) (216.9)
667.9 1,158.1
Beginning cash balance 778.2 1,347.6
------- -------- ------- --------
Cash
and cash equivalents at end of
671.3 1,130.7
period
671.3 1,130.7
======= ======== ======= ========
(1) For nine months ended September 30, 2005, working
capital movement
includes $40.0
million cash payment for the settlement of the 2002
class action.
The analysis below is based on the revenues and costs from continuing
operations presented in accordance with U.S. GAAP.
Net Loss and Adjusted EBITDA
The net loss for the third quarter of 2005 amounted to $67.1
million, a decrease of 38% over the $107.8 million reported in the same quarter
of 2004, principally due to strong growth in product revenue from our core
business, a net gain on divestment of businesses, and costs of $55.0 million
related to the settlements of the shareholder class action lawsuit and the
United States Securities and Exchange Commission (SEC) investigation which were
incurred in the third quarter of 2004, offset by increased operating expenses
related to Tysabri(TM).
Negative Adjusted EBITDA was $42.1 million in the third
quarter of 2005, compared to $56.7 million in the third quarter of 2004, and
included negative Adjusted EBITDA of $36.7 million related to Tysabri (2004:
$31.9 million). Adjusted EBITDA for the rest of the business, excluding costs
related to Tysabri, is targeted to get to breakeven by the end of 2005 and was
negative $5.4 million in the third quarter of 2005 (2004: $24.8 million). A
reconciliation of negative Adjusted EBITDA to net loss from continuing
operations, is presented in the table titled "Unaudited Non-GAAP Financial
Information - EBITDA" included on page 3.
Revenue
Total revenue increased 27% to $128.6 million in the third
quarter of 2005 from $101.1 million in the third quarter of 2004, principally
due to an increase in product revenue from the core business, offset by reduced
revenue from divested products and contract revenue. Revenue is analyzed below
between product revenue generated from the core business, revenue arising from
products that have been divested and contract revenue.
Three Months Ended Nine Months Ended
September 30 September 30
2004 2005 2004
2005
US$m US$m US$m
US$m
-------------------------------------------------------
Revenue from Marketed
Products
33.0 33.8
Maxipime(TM) 87.7 93.5
12.5 17.0
Azactam(TM) 35.3 40.2
-- (0.2)
Tysabri -- 11.4
-- 1.5
Prialt(TM) -- 4.3
-------- ------ ------ ------
Total
Revenue from
45.5 52.1
Marketed Products 123.0 149.4
Manufacturing Revenue
and
Royalties (see
29.0 57.8
page 9) 90.6 148.8
Amortized Revenue -
8.5 8.5
Adalat(TM)/Avinza(TM) 25.5 25.5
-------- ------ ------ ------
Total
Product Revenue
83.0 118.4
from Core Business 239.1 323.7
Revenue from Divested
Products
-- --
European business 10.5 --
-- --
Zonegran 41.2 --
2.7 --
Other 11.2 1.7
-------- ------ ------ ------
Total Revenue from
2.7 --
Divested Products 62.9 1.7
-------- ------ ------ ------
-------- ------ ------ ------
85.7 118.4
Total Product Revenue 302.0
325.4
-------- ------ ------ ------
Contract Revenue
5.0 7.0
Amortized fees 11.5 13.5
Research revenue
10.4 3.2
and milestones 44.3 11.0
-------- ------ ------ ------
Total Contract
15.4 10.2
Revenue 55.8 24.5
-------- ------ ------ ------
-------- ------ ------ ------
101.1 128.6
Total Revenue 357.8 349.9
======== ====== ====== ======
Product Revenue
Total product revenue for the third quarter of 2005 of
$118.4 million increased 38% from $85.7 million recorded in the same quarter of
2004 due primarily to an increase in revenue from marketed products and an
increase in manufacturing revenue and royalties.
Revenue from marketed products
Revenue from marketed products was $52.1 million in the
third quarter of 2005, compared to $45.5 million recorded in the same period of
2004 due to increased sales of Maxipime and Azactam, and the sales of Prialt
which was launched in 2005.
As previously reported, we have experienced third party
supply shortages and disruptions with Maxipime during 2005. This has led to a
significant decline in inventories that are held by our wholesale customers and
hospitals and, consequently, on our ability to meet demand. As a result of the
inventory shortages, Maxipime prescription volume demand for July and August of
2005 decreased by 5%, compared to the same period in 2004. Revenue for the
third quarter of 2005 increased by 2% from $33.0 million in the third quarter
of 2004 to $33.8 million. The supply situation improved during the third
quarter and we expect to be able to meet demand and wholesaler inventory
requirements during the fourth quarter of 2005. We will continue to actively
manage the supply of Maxipime which is manufactured by a third party.
Azactam prescription volume demand for July and August of
2005 increased by 4%, compared to the same period of 2004, while revenue for
the quarter increased from $12.5 million to $17.0 million, or 36%. Changing
wholesaler inventory levels primarily explains the difference between Azactam
prescription growth rate and revenue growth in the third quarter of 2005.
Azactam lost patent exclusivity in October 2005 and we anticipate generic
competition will have an impact on sales of Azactam from the end of the year.
Prialt, a new treatment for severe chronic pain, was
approved in the U.S. in December 2004. Revenue from Prialt for the third
quarter of 2005 was $1.5 million, down from $1.8 million reported in the second
quarter of 2005, due to increased demand offset by reduced wholesaler
inventories.
Manufacturing revenue and royalties
Manufacturing revenue and royalties from Elan's Drug
Technology business comprises revenue earned from products manufactured for third
parties and royalties earned principally on sales by third parties of products
that incorporate Elan's technologies.
Manufacturing revenue and royalties was $57.8 million in the
third quarter of 2005, an increase of 99% over the $29.0 million recorded in
the third quarter of 2004. This primarily reflects increased sales by third
parties of products that incorporate Elan's technologies, principally
Tricor(TM), and increased manufacturing activity for third parties.
Manufacturing revenue and royalties can be further analyzed
as follows:
Three Months Ended
Nine Months Ended
September 30 September 30
2004 2005 2004 2005
US$m US$m US$m US$m
-----------------------------------------
-- 11.1
Tricor -- 30.1
6.9 10.6
Verelan(TM) 19.1 26.9
3.5 6.5
Skelaxin(TM) 9.5 14.7
3.2 5.3
Ritalin(TM) 8.3 11.1
2.8 4.2
Avinza(TM) 10.8 9.1
4.0 3.7
Diltiazem(TM)15.2 12.8
-- 3.4
Zanaflex(TM) -- 8.8
8.6 13.0
Other 27.7 35.3
-------- -----
----- ------
29.0 57.8
Total 90.6 148.8
-------- -----
----- ------
No product accounted for more than 10% of total
manufacturing revenue and royalties in the third quarter of 2005 or 2004,
except as noted above. Of the total of $57.8 million in manufacturing revenue
and royalties in the third quarter of 2005, 35% (2004: 15%) consisted of
royalties received on products that are not manufactured by Elan.
Amortized revenue
The results for the third quarter of 2005 and 2004 include
$8.5 million of amortized revenue related to the licensing of rights to Elan's
generic form of Adalat CC and the restructuring of Elan's Avinza license
agreement with Ligand Pharmaceuticals, Inc, which occurred in 2002. The
remaining unamortized revenue on these products of $43.7 million, which is
included in deferred income, will be recognized as revenue through June 2007
(generic Adalat CC), and November 2006 (Avinza), reflecting Elan's ongoing
involvement in the manufacturing of these products.
Contract Revenue
Contract revenue in the third quarter of 2005 was $10.2
million, a decrease of 34% from the $15.4 million recorded in the third quarter
of 2004, principally due to a reduction in research revenue and milestones
arising from research and development activities performed by Elan on behalf of
third parties. The reduction resulted from, among other things, the timing of
milestone receipts, the completion of transitional research and development
activities related to certain divested products and the suspension of activity
related to Sonata(TM).
Gross Profit
The gross profit margin on product revenue was 61% in the
third quarter of 2005, compared to 54% in the same period of 2004. The increase
was due principally to the change in the mix of sales and cost management.
Operating Expenses
Research and development (R&D) expenses were $60.3 million
in the third quarter of 2005, compared to $55.5 million in the same period of
2004 and $64.3 million in the second quarter of 2005. The increase in the third
quarter of 2005 from the same quarter of 2004 is due to costs related to the
Tysabri safety evaluation study and the ongoing enrollment of patients in Phase
II clinical trials with a humanized monoclonal antibody, AAB-001, for
Alzheimer's disease. Included in R&D expenses is $19.4 million related to
Tysabri (2004: $18.1 million).
Selling, general and administrative (SG&A) expenses
increased 4% to $81.0 million in the third quarter of 2005 from $77.8 million
in the same quarter of 2004 and decreased 11% from $91.4 million in the second
quarter of 2005 and can be analyzed as follows:
Three Months Ended
Nine Months Ended
September 30 September 30
2004 2005 2004 2005
US$m US$m US$m US$m
-----------------------------------------
Rest of
48.1 45.9
business 159.2 152.5
13.8 16.7
Tysabri 22.3 64.9
Depreciation
and
amortization
(principally
Maxipime and
15.9 18.4
Azactam) 51.3 59.0
------- -----
------ ------
77.8 81.0
Total 232.8 276.4
Rest of business SG&A expenses, excluding amortization,
decreased by 5% from $48.1 million in the third quarter of 2004 to $45.9
million in the third quarter of 2005. The SG&A expenses related to Tysabri,
excluding amortization, were $16.7 million in the third quarter of 2005,
compared to $13.8 million in the third quarter of 2004 and $17.9 million in the
second quarter of 2005.
Net Gain on Divestment of Businesses
The net gain on divestment of businesses in the third quarter
of 2005 was $23.3 million, compared to a net gain of $5.6 million in the same
period of 2004. Included in the net gain in the third quarter of 2005 is $23.0
million of contingent consideration related to the divestment of Zonegran
(zonisamide) to Eisai Co. Ltd (Eisai). In addition, Elan expects to receive
additional consideration of $25.0 million from Eisai if generic zonisamide is
not introduced into the U.S. market before January 1, 2006.
Other Significant Charges
Other significant charges were $3.2 million (mainly
severance costs) in the third quarter of 2005, compared to $55.5 million
incurred in the same period of 2004. The $55.5 million incurred in the third
quarter of 2004 primarily consisted of costs to settle the shareholder class
action and the SEC investigation.
Net Interest and Investment Gains and Losses
Net interest and investment gains and losses amounted to a
net charge of $28.4 million for the third quarter of 2005, compared to a net
charge of $22.7 million for the same period of 2004. The increase is primarily
a result of the issuance of $1.15 billion in senior fixed and floating notes in
November 2004, partially offset by the repayment of the EPIL III notes, the
retirement of $242.8 million of our 2008 debt in the second quarter of 2005,
and by interest income earned on higher average cash balances.
EBITDA
Negative Adjusted EBITDA for the third quarter of 2005
amounted to $42.1 million, compared to a negative Adjusted EBITDA of $56.7
million in the same period of 2004. The improvement is due to increased product
revenue and operating margins from the core business, partially offset by
increased costs associated with Tysabri.
Negative Adjusted EBITDA, excluding Tysabri, was $5.4
million in the third quarter of 2005 compared to $20.5 million in the second
quarter of 2005. The second quarter of 2005 included $8.0 million of litigation
settlement costs. The improvement in negative Adjusted EBITDA, excluding
Tysabri, is principally a result of continued growth in product revenue from
the core business and the impact of the cost containment initiatives announced
in April 2005. Negative Adjusted EBITDA for Tysabri was $36.7 million in the
third quarter of 2005, compared to $38.2 million in the second quarter of 2005.
A reconciliation of negative EBITDA and Adjusted EBITDA to
net loss from continuing operations, as reported under U.S. GAAP, is presented
in the tables titled, "Non-GAAP Financial Information Reconciliation
Schedule," included on page 3.
Research &
Development
Tysabri
(Natalizumab)
The comprehensive Tysabri safety evaluation for multiple
sclerosis (MS), Crohn's Disease (CD) and rheumatoid arthritis has been completed
and the findings resulted in no new confirmed cases of progressive multifocal
leukoencephalopathy (PML). The companies have previously reported three
confirmed cases of PML, two of which were fatal. On September 26, 2005, Elan
and Biogen Idec announced the submission of a supplemental Biologics License
Application (sBLA) for Tysabri to the U.S. Food and Drug Administration (FDA)
for the treatment of MS. The companies have requested Priority Review
designation from the FDA. The sBLA includes final two-year data from the Phase
III AFFIRM monotherapy trial and SENTINEL add-on trial with AVONEX(R)
(Interferon beta-1a) in MS, the integrated safety assessment of patients
treated with TYSABRI in clinical trials, a revised label and a risk management
plan. The companies have also submitted a similar data package to the European
Medicines Agency. The process to restart clinical trials in MS is ongoing.
Alzheimer's and other Neurodegenerative Diseases
Elan is focused on building upon its breakthrough research and
extensive experience in Alzheimer's disease (AD) and is also studying other
neurodegenerative diseases, such as Parkinson's disease.
Two of our compounds from the Alzheimer's disease
immunotherapy program, in collaboration with Wyeth, are currently progressing
through clinical trials.
ACC-001
Following the acceptance of the Investigational New Drug
Application for ACC-001, our active A-beta immunotherapeutic conjugate, we
entered a phase I clinical trial and initiated dosing of patients in the third
quarter of 2005. This twelve month clinical trial is designed to study safety
and pharmacokinetics in patients with mild to moderate Alzheimer's disease.
AAB-001
The phase II clinical trials with our humanized monoclonal antibody, AAB-001, designed and engineered to remove the neurotoxic beta-amyloid peptide that accumulates in the brain of patients with AD, is advancing as planned. Dosing was initiated in the first half of 2005 and is scheduled to last eighteen months, with several planned interim analyses.