Recovery Plan Implementation Highlights
-- Gross proceeds from asset and product divestitures
expected to
exceed $1.5 billion after giving effect to the proposed
sale
of primary care franchise. The principal elements are
as
follows:
$ million
Primary care franchise (pending) 850.0
Abelcet(TM) 360.0
Avinza(TM)/Ligand Pharmaceuticals Inc. 120.0
Athena Diagnostics. 82.0
Actiq(TM) 50.0
Adalat(TM) CC 45.0
-- Contractual and potential future payments reduced by
$1.9
billion from $4.5 billion at December 31, 2001 to $2.6
billion
at December 31, 2002, on a pro-forma basis after giving
effect
to the proposed sale of the primary care franchise. The
main
elements being:
$ million
Repaid revolving credit facility $325.0
Repaid 3.5% convertible notes $62.6
Purchased royalty rights and restructured risk
sharing arrangements $440.0
Repurchase of 3.25% Liquid Yield Option Notes
("LYONs") at discount $196.5
Reduced fixed contingent and potential product
payment obligations $678.8
Reduced EPIL guarantee $160.0
|
|
|
|
-- |
Appointed Mr. G. Kelly Martin as Elan's chief executive
officer, and appointed Mr. Martin and Mr. William F. Daniel, Elan's company
secretary, to Elan's Board of Directors. |
|
-- |
Pro-forma cash balance after taking account of the
proposed sale of primary care franchise and the purchase of related royalty
rights of $1.4 billion compared to $1.6 billion at December 31, 2001. |
|
-- |
Headcount, after taking account of the proposed sale of
primary care franchise, reduced to less than 2,900 employees from
approximately 4,700 employees in July 2002, a decrease of approximately 1,800
(800 of which are related to asset divestitures) and ahead of target. |
|
-- |
Significant progress in simplifying balance sheet and
streamlining business. |
R&D Update
-- Antegren(TM) (natalizumab) Phase III trials for
Crohn's
disease and multiple sclerosis ("MS") fully
enrolled.
-- Two separate publications in the New England Journal
of
Medicine, dated January 2, 2003, reviewed Phase II data
on
Antegren for both indications.
-- Expect to file two Investigational New Drug
Applications
("INDs") from the Alzheimer's immunotherapy
program during
2003.
-- Expect to file three U.S. New Drug Applications
("NDAs") and
four European Marketing Authorization Applications
("MAAs") by
the end of 2004.
Elan Corporation, plc (NYSE: ELN)("Elan")
today announced its fourth quarter and full-year 2002 results and an update to
its recovery plan. Commenting on the results and recovery plan, Dr. Garo Armen,
Elan's chairman said, "Giving effect to the proposed sale of our primary
care franchise, we have achieved our target of raising asset divestiture
proceeds of $1.5 billion from our asset divestiture program -- a year ahead of
plan. This renewed balance sheet strength enables us to meet our financial
obligations and invest in our pipeline, which is critical to building value for
Elan shareholders and bringing to market important products for treating
debilitating diseases." Dr. Armen added, "All other key aspects of
our recovery plan, which include a significant reduction in costs and
implementation of operational efficiencies, are on or ahead of target."
Kelly Martin, Elan's chief executive officer, said,
"Having accomplished a critical step in our recovery plan, our priorities
will now be to build a world-class company capable of executing on our mandate
of developing highly effective treatments for Crohn's, multiple sclerosis and
Alzheimer's patients." Mr. Martin continued, "We are also focused on
optimizing the opportunities of our present commercial business, which we
believe has potential for substantial growth. We are confident that we will be
able to deliver significant value for our stakeholders through the expeditious
execution of all aspects of our plan."
The following analysis is based on the pro-forma income
statement data, which excludes other charges. Elan has prepared US GAAP income
statement data which is reconciled to the pro-forma income statement data.
Revenue
Total revenue decreased 54% to $223.6 million in the
fourth quarter of 2002 from $487.6 million in the fourth quarter of 2001 and
decreased 21% from $1,862.5 million for the full-year 2001 to $1,470.1 million
for the full-year 2002.
Following the announcement of the divestment of Elan's
primary care franchise on January 30, 2003, and the completion of the sale of a
number of other products and businesses, the company's product revenues are
analysed between those from currently retained products and those arising from
products divested through the implementation of the recovery plan and the 2001
product rationalisation program.
Total revenue can be further analysed as follows:
3 months 3 months 12 months 12 months
ended ended ended ended
December December December December
31, 31, 31, 31,
(a) Product Revenue 2001 2002 2001 2002
US$m US$m US$m US$m
Revenues from retained
products 163.6 126.3 605.3 593.7
Revenues from divested
products (net) 119.8 124.6 669.2 527.7
Revenues from Pharma
Marketing/Autoimmune 67.3 - 157.7 62.8
Product returns -
genericisation - (68.0) - (68.0)
-----------------------------------------------
Total product revenue 350.7 182.9 1,432.2 1,116.2
-----------------------------------------------
(b) Contract Revenue
Amortisation of fees 85.9 20.2 283.2 234.7
Research revenue and
milestones 27.1 20.5 88.4 82.0
Pharma
Marketing/Autoimmune 23.9 - 58.7 37.2
-----------------------------------------------
Total contract revenue 136.9 40.7 430.3 353.9
-----------------------------------------------
Total Revenue 487.6 223.6 1,862.5 1,470.1
-----------------------------------------------
(a) Product Revenue
Total product revenue from all sources for the fourth
quarter of 2002 was $182.9 million compared to $350.7 in the fourth quarter of
2001, a decline of 48%. Total product revenue for the full-year 2002 was
$1,116.2 million compared to $1,432.2 million for the full-year 2001, a
decrease of 22%. The decline in product revenue is due to a number of factors
more fully explained below.
Revenue from retained products
Revenues from retained products includes those revenues
related to products that Elan has not divested or agreed to divest at February
5, 2003. Revenue from retained products (excluding Zanaflex) were $125.2
million in the fourth quarter of 2002 compared to $125.5 million in the fourth
quarter of 2001. While prescriptions and demand sales for Elan's retained
products continued to grow strongly, product revenues were flat principally due
to the factors discussed below.
Aggregate sales of Maxipime(TM) and Azactam(TM) in the
fourth quarter of 2002 were $34.7 million and were $112.2 million for the
full-year 2002 and are below those of the comparable periods in 2001. As
reported in the third quarter of 2002, sales of Maxipime and Azactam were
impacted among other things by short-term supply issues. These supply issues
were resolved in the fourth quarter of 2002 and sales of these products
recovered from $16.3 million in the third quarter of 2002 to $34.7 million in
the fourth quarter of 2002. Demand for Maxipime is strong and continues to
grow, with audited sales volumes for the two months ending November 2002 21%
higher than the same period in 2001, and 38% higher for the full-year 2002
compared with the same period in 2001. Audited sales volumes for Azactam in the
two months ended November 2002 were 3% lower than the same period in 2001 and
2% higher for the full-year 2002 compared with the same period in 2001.
Prescriptions for Zonegran(TM) remained strong for the
fourth quarter of 2002 increasing by 58%; however, revenues were $6.0 million,
35% lower than the fourth quarter of 2001 due to the change in Elan's
discounting strategy in the third and fourth quarter of 2002 and the resulting
continued reduction in wholesaler inventories. Revenues for full-year 2002 from
Zonegran were 14% higher than in the same period in 2001. Frova(TM), which was
launched in the second quarter of 2002 by the combined Elan and UCB Pharma,
Inc. sales forces, generated revenues of $4.0 million in the fourth quarter of
2002 following revenues of $6.2 million in the second quarter of 2002, which
reflected stocking of the wholesale channel ahead of launch, and $0.9 million
in the third quarter of 2002. Prescription demand continues to increase
strongly with a 92% increase in the fourth quarter of 2002 over the third
quarter of 2002. Elan and UCB Pharma, Inc. continue to grow Frova in terms of
prescription volume, market share and revenue. Myobloc(TM)/Neurobloc(TM) global
product sales were $8.6 million in the fourth quarter of 2002 compared to $2.9
million in the fourth quarter of 2001. Revenues for the full-year 2002 were
$19.6 million compared to $11.5 million for the same period in 2001. The
increase in revenue is the result of the successful implementation in the
fourth quarter 2002 of a new product strategy resulting in significant increase
in physician demand for the product.
Supply conditions related to the pain portfolio
improved during the fourth quarter and product sales increased by 18% from
$15.4 million in the fourth quarter of 2001 to $18.1 million in the fourth
quarter of 2002. European product revenues increased 8% over the fourth quarter
of 2001 and by 18% for full-year 2002 over full-year 2001. The increase was
across the entire product range.
Revenues from divested products (net)
During the fourth quarter of 2002, Elan agreed to
divest its dermatology and diagnostic businesses and the North American and any
Japanese rights to Abelcet, which accounted in aggregate for revenues of $35.5 million
in the fourth quarter of 2002 and $182.7 million in the full-year 2002. Elan
does not expect to record any significant revenues from these businesses and
products in 2003.
On January 30, 2003, Elan announced its proposed
divestment of the primary care franchise, which includes the rights to
Skelaxin(TM) and Sonata(TM) and, which is subject to Elan's shareholder
approval, regulatory approvals, third party consents and other customary
conditions. During the fourth quarter of 2002, product revenues from Skelaxin
and Sonata were $40.4 million and for the full-year 2002 were $237.9 million.
It is expected that this transaction will close before the end of April 2003
and Elan will continue to book sales of Skelaxin and Sonata up to the close of
this sale.
Revenues from divested products include $35.4 million
in the fourth quarter of 2002 related to the divestment of certain European
rights to Actiq ($29.8 million) and $5.6 million in respect of amortised
revenues related to the partnering of rights to generic Adalat CC and the
restructuring of Elan's Avinza license agreement with Ligand Pharmaceuticals,
Inc. The remaining unamortised revenues on these products of $149.9 million
will be recognised as revenue over the next five years.
Pharma Marketing Limited/Autoimmune
During the third quarter of 2002, Elan acquired all the
royalty rights held by Autoimmune Research and Development Corp Ltd.
("Autoimmune") and the arrangement was terminated. Consequently, no
co-promotion revenues were received from Autoimmune during the fourth quarter
of 2002 compared to $15.9 million in the fourth quarter of 2001. There were no
revenues from Pharma Marketing Ltd. ("Pharma Marketing") in the
fourth quarter of 2002 compared to $51.4 million in the fourth quarter of 2001
and no further revenues will be received from Pharma Marketing.
Product returns - genericisation
During the year 2002, a number of products that Elan
markets or had marketed suffered generic competition with a consequent
significant reduction in sales. Due to the unusually severe impact of generic
competition on sales of Zanaflex, Elan carried out a comprehensive review of
sales trends and the level and dating of inventory held by Elan's distributors.
Following this review, and in addition to normal recurring product return
provisions, Elan took a charge of $68.0 million against product revenue in the
fourth quarter of 2002 for expected returns that relate primarily to Zanaflex.
(b) Contract Revenues
Contract revenue in the fourth quarter of 2002 was
$40.7 million compared to $136.9 million in the same period of 2001. Contract
revenue in the full-year 2002 was $353.9 million compared to $430.3 million in
full-year 2001. The amortisation of fees amounted to $20.2 million in the fourth
quarter of 2002 compared to $85.9 million in the same period of 2001. Of the
$20.2 million in amortised fees in the fourth quarter of 2002, $15.3 million
related to business ventures. As part of the recovery plan outlined on July 31,
2002, Elan has undertaken a review of its business venture program and has
commenced the termination of non-core business ventures. The reduction in
amortised fees during the fourth quarter of 2002 arose primarily from the
termination of business ventures.
Research revenue and milestones amounted to $20.5
million in the fourth quarter of 2002 compared to $27.1 million in the same
period of 2001. No revenues were received under the arrangements with Pharma
Marketing and Autoimmune during the fourth quarter of 2002. Research revenues
of $13.2 million were received from Pharma Marketing and $10.7 million from
Autoimmune in the fourth quarter of 2001. No further research revenues will be
received from Pharma Marketing or Autoimmune.
Gross profit
The gross profit margin on product revenues (excluding
the rationalisation program and exceptional product returns) was 58% in the
fourth quarter of 2002 compared to 70% in the fourth quarter of 2001 and 56% in
the third quarter of 2002 reflecting changes in the mix of product revenue, in
particular the decrease in revenue from Pharma Marketing and Autoimmune.
Operating expenses
Selling, general and administrative expenses increased
by 15% from $151.8 million in the fourth quarter of 2001 to $174.4 million in
the fourth quarter of 2002. Research and development expenses increased by 23%
from $87.0 million in the fourth quarter of 2001 to $107.4 million in the
fourth quarter of 2002 principally reflecting increased clinical trial
expenditure, particularly on Antegren. Operating expenses are expected to
decline significantly in 2003 following the implementation of the recovery plan
and associated headcount reductions and the proposed sale of the primary care
franchise.
Elan adopted SFAS No. 142 "Goodwill and Other Intangible
Assets" effective January 1, 2002, and on that date Elan ceased
amortisation of all goodwill. Goodwill amortisation in the fourth quarter of
2001 and full-year 2001 was $7.5 million and $29.2 million, respectively.
Net interest and other income/(loss)
Net interest and other income/(loss) amounted to a loss
of $15.9 million in the fourth quarter of 2002 compared to income of $60.8
million in the same period of 2001. Net interest expense amounted to $17.9
million compared to $6.8 million in the fourth quarter of 2001 reflecting lower
investment income. Other main movements from the fourth quarter of 2001 are a
reduction in investment gains from $85.4 million to $2.4 million in the current
quarter. The reduction in investment gains reflects the inclusion of a $31.5
million gain on the sale of approximately 20% stockholding in Athena
Diagnostics, Inc. ("Athena Diagnostics") in the fourth quarter of
2001 and gains made on the disposal of a number of other investments. Business
venture funding amounted to $2.9 million for the fourth quarter ended December
31, 2002, compared to $6.2 million in the fourth quarter of 2001.
Other charges
The results for the fourth quarter of 2002 have been
arrived at after giving effect to $451.0 million in other, mainly non-cash,
charges (net of $230.8 million in gains).
3 months 12 months
ended ended
December 31, December 31,
2002 2002
US$m US$m
(a) Investments 317.9 1,537.4
(b) Recovery Plan related and other charges
(net of $230.8 million in gains) 133.1 687.4
-------------------------
Total other charges 451.0 2,224.8
-------------------------
(a) Investments
Investment related charges can be analysed as follows:
3 months 12 months
ended ended
December 31, December 31,
2002 2002
US$m US$m
Impairment of investments held by Elan 260.2 852.8
Guarantees related to EPIL II/EPIL III 57.7 684.6
-------------------------
Total investment related charges 317.9 1,537.4
-------------------------
The financial markets for biotechnology, drug delivery
and pharmaceutical companies declined significantly during 2002. For example,
during 2002 the Amex biotechnology industry index fell by 42% and the
equivalent Nasdaq index fell by 45%. The market for biotechnology stocks also
saw a reduction in the number and amount of financings that were completed. The
carrying value of Elan's on balance sheet investment portfolio fell by approximately
60% during 2002. This reflects the decline in the market overall and also the
composition of Elan's portfolio and the impact on the value of its investments
of the conditions in the financing market for the smaller biotechnology
companies that make up a significant part of Elan's portfolio.
During the fourth quarter of 2002, Elan recorded an
impairment charge of $260.2 million. This brings the charge for the full-year
2002 to $852.8 million. Included in the fourth quarter impairment charge of
2002 is a charge for $52.4 million related to a decline in the values of quoted
equities held by Elan. The balance of $207.8 million relates mainly to the
difficult financing market and the impact of the business venture restructuring
program initiated in the third quarter of 2002. After providing for this
impairment charge of $260.2 million, Elan's on balance sheet investment
portfolio amounts to $644.0 million (including $84.7 million in managed funds)
at December 31, 2002.
In addition, Elan has guaranteed loan notes issued by
two Qualifying Special Purpose Entities ("QSPE's"), EPIL II and EPIL
III, which are not consolidated, to the extent that the investments held by
them are insufficient to repay the loan notes and accrued interest when they
fall due. The aggregate principal amount outstanding under the loan notes
issued by EPIL II and EPIL III was $840.0 million at December 31, 2002 and is
repayable in June 2004 and March 2005, respectively.
In the fourth quarter of 2002, Elan made further provisions
of $57.7 million to cover the estimated shortfall in the values of the
investment portfolios of EPIL II and EPIL III. Elan had previously made
provisions of $231.4 million and $253.9 million to cover estimated shortfalls
in the value of the investment portfolios of EPIL II and EPIL III,
respectively, in 2002. The total charge for the full-year 2002 was $543.0
million. These charges have been arrived at based on the estimated value of the
investment portfolios at December 31, 2002, on the basis that the investments
will be held for the medium term and, accordingly, do not reflect any liquidity
discount. The estimated value has been arrived at using established financial
methodologies.
After providing for the estimated investment
shortfalls, the estimated investment values and cash positions of EPIL II and
EPIL III at December 31, 2002, was as follows:
EPIL II EPIL III TOTAL
US$m US$m US$m
Investments in public companies 65.4 112.5 177.9
Investments in private companies 39.6 7.5 47.1
Cash 49.9 22.6 72.5
Accrued interest and expenses (0.3) (0.2) (0.5)
----------- ----------- -----------
Total assets 154.6 142.4 297.0
Provisions for guarantees 295.4 247.6 543.0
----------- ----------- -----------
Total indebtedness 450.0 390.0 840.0
----------------------------------------------------------------------
Included, as an appendix, is an analysis of the impact
on the year ended December 31, 2002 results, assets and liabilities of
consolidating the QSPEs. If the QSPEs were consolidated, "net interest and
other loss" would be increased by $72.4 million in the year ended December
31, 2002, and by $30.9 million in the fourth quarter of 2002. Other charges
would be reduced by $272.0 million in the full-year 2002 and $25.0 million in
the fourth quarter of 2002.
(b) Recovery plan related and other charges (net)
Recovery plan related and other charges (net) can be
analysed as follows:
3 months 12 months
ended ended
December 31, December 31,
2002 2002
US$m US$m
Write-down of tangible and intangible assets 300.3 713.2
Impairment of goodwill 22.8 77.5
Severance costs, relocation and exit costs 22.4 82.2
Costs related to litigation, SEC related
legal costs and 401k recission costs 18.4 45.3
Gain on sale of Athena Diagnostics/Abelcet (177.9) (177.9)
Gain on repurchase of LYONS (37.7) (37.7)
Other (15.2) (15.2)
------------ ------------
Recovery plan related and other charges(net) 133.1 687.4
----------------------------------------------------------------------
As part of Elan's recovery plan, the company has
identified a range of businesses and products that it intends to sell in the
near term. In many cases, Elan has received indicative offers for these assets
and has written the assets down to their fair value. In other cases, the
impairment arises because of changes to the forecast profitability of these
assets arising out of current information about estimates of future prospects.
Of the $300.3 million write-down of tangible and intangible assets for the
fourth quarter 2002, $170.6 million relates to assets that Elan intends to
sell. The balance of the charges, amounting to $129.7 million relate to
tangible and intangible assets that the company intends to retain and use.
In accordance with SFAS No.142, Elan performed its
annual impairment review of goodwill on September 30, 2002. As a result of this
review Elan recorded an impairment charge of $54.7 million in the third quarter
of 2002. All of this charge arose on reporting units that are expected to be
sold. As the recovery plan continued to be implemented a further review was
conducted at December 31, 2002 and an impairment charge of $22.8 million was recorded.
This charge relates primarily to smaller businesses and reflects the fact that,
in some cases, offers received to date are lower than originally expected.
During the fourth quarter of 2002, Elan repurchased
$318.6 in principal amount at maturity of LYONs. These LYONs, having an
accreted value of $190.1 million at the date of purchase, were purchased at an
aggregate cost of $149.8 million, resulting in a net gain of $37.7 million
after related costs.
As the recovery plan continues to be implemented, Elan
expects to record a number of gains. Elan may also incur losses on certain
assets and business divestments even though assets have been written down to
their estimated fair value if the ultimate selling price is lower than that
currently forecast. For example, the company expects to record a profit of
approximately $370.0 million arising from the proposed divestment of the
primary care franchise announced on January 30, 2003. On the closing date of
this proposed sale, Elan expects to record a charge of up to $225.0 million
when the royalty rights related to Sonata and Prialt are acquired from Pharma
Operating Ltd ("Pharma Operating"), a wholly owned subsidiary of
Pharma Marketing.
Elan may in the future incur other charges relating to
severance, retention and similar restructuring costs. The cash element of any
such charges is not expected to exceed $100 million in the year ended December
31, 2003. Elan may also incur additional impairment charges related to
investments and intangible assets if their fair value falls below their
carrying value as a result of adverse changes in circumstances or market
conditions.
Liquidity
At December 31, 2002, Elan had $1,005.0 million in cash
and cash equivalents, compared with $632.9 million at September 30, 2002, and
$1,572.5 million at December 31, 2001.
In the fourth quarter of 2002, Elan made fixed and
contingent product payments totalling $49.3 million. Capital expenditure
resulted in a net cash outlay of $13.9 million.
Based on its recovery plan, Elan believes it has
sufficient cash, liquid resources, investments and other assets that are
capable of being monetised to meet its liquidity requirements. The focus of the
recovery plan is on maintaining financial flexibility through cash generation.
Elan's cash position will in future periods be dependent on a number of
factors, including its asset divestiture program, its balance sheet
restructuring, its debt service requirements and its future operating cash
flow. In addition to the actions and objectives outlined with respect to Elan's
recovery plan, Elan may in the future seek to raise additional capital,
restructure or refinance its outstanding indebtedness, repurchase its equity
securities or its outstanding debt, including the LYONs, in the open market or
pursuant to privately negotiated transactions, or take a combination of such
steps or other steps to increase or manage its liquidity and capital resources.
Any such refinancings or repurchases may be material.
Elan expects committed cash outlays such as capital
expenditures, restructuring costs, product payments (after taking into
consideration the divestment of the primary care franchise) and other
commitments, excluding operating cashflows, to be approximately $330.0 million
through December 31, 2003.
The following table sets out at December 31, 2002, the
major contracted and potential cash payments relating to Elan's business,
excluding capital expenditures or future investments in financial assets such
as in business venture partners, which together could amount to approximately
$70.0 million through December 31, 2003. On a pro-forma basis, after giving
effect to the proposed sale of the primary care franchise, the total contracted
potential and LYONs obligations at December 31, 2002, as set out in the table
below, will be reduced to $2.6 billion from $4.5 billion at December 31, 2001,
and $3.1 billion at December 31, 2002.
At December 31, 2002
------------------------------------------------------------
2003 2004 Thereafter Total Pro-forma Dec 31
US$m US$m US$m US$m (3)US$M 2001
------------------------------------------------------------ ---------
Contracted
-------------
7.25% Senior
Notes (2008) - - 650.0 650.0 650.0 650.0
Fixed Product
Payments 174.7 29.1 23.4 227.2 163.5 267.2
Contingent
Product
Payments (1) 102.9 75.4 29.4 207.7 58.0 406.3
EPIL II &
III (1) - 450.0 390.0 840.0 840.0 1,000.0
3.25%
LYONs (2) 816.9 - - 816.9 816.9 1,013.4
Other debt - - - - - 387.3
--------- -----------------------------------------------
Total
Contracted &
LYONs 1,094.5 554.5 1,092.8 2,741.8 2,528.4 3,724.2
Potential
-------------
Pharma
Marketing/
Autoimmune
(1) 225.0 - 110.0 335.0 110.0 550.0
Product
Acquisitions
(1) - - 47.3 47.3 - 226.9
---------------------------------------------------------
Total
Potential 225.0 - 157.3 382.3 110.0 776.9
---------------------------------------------------------
Total
Contracted,
Potential &
LYONs 1,319.5 554.5 1,250.1 3,124.1 2,638.4 4,501.1
---------------------------------------------------------
Cash Balances 1,005.0 1,380.0 1,572.5
----------------------------------------------------------------------
(1) In order to comply with US GAAP, these amounts are not included on
the balance sheet.
(2) If the LYONs are put to the company, Elan has the option to repay
the LYONs for cash or shares or any combination thereof.
(3) After taking account of sale of primary care franchise.
Included in fixed contingent and potential product
payments at December 31, 2002 is $260.8 million in respect of Sonata, which
represents the present value of the estimated gross payments due in connection
with Sonata of approximately $290.0 million. Approximately $240.0 million of
these obligations will be assumed by King Pharmaceuticals, Inc. upon closing of
the sale of the primary care franchise and the balance of approximately $50.0
million (which is included in fixed product payments above) will be paid by
Elan up to the closing.
On January 30, 2003, Elan announced its agreement with
Pharma Marketing that, contingent on closing of the sale of Sonata, Elan will,
on the closing date, pay Pharma Operating $225.0 million (less royalty payments
on all related products paid or due to Pharma Operating from January 1, 2003 to
the closing of the sale) to acquire the Pharma Operating royalty rights with
respect to Sonata and Prialt.
In addition, Elan will have the option to purchase
Pharma Operating's royalty rights on the Zonegran, Frova and Zanaflex products
until January 3, 2005, an extension from the earlier date of June 30, 2003. The
current purchase option price has been reduced to $110.0 million plus 15% per
annum from the earlier date of the Sonata sale closing or July 1, 2003, less
royalty payments (which are secured) made for periods after the Sonata sale
closing. Under the previous arrangements the option price at March 31, 2003,
would have been approximately $423.0 million for all the royalty rights held by
Pharma Marketing.
R&D Update
The most advanced products in Elan's pipeline are Antegren
and Prialt. In addition, Elan has one of the world's largest research efforts
in Alzheimer's disease ("AD").
Antegren
Elan and Biogen are collaborating on the development,
manufacturing and commercialisation of Antegren, a humanized monoclonal
antibody, the first in a new class of compounds known as selective adhesion
molecule inhibitors (SAM inhibitors).
Antegren has recently been the focus of two separate
publications in the New England Journal of Medicine ("NEJM") (January
2, 2003). The publications describe Antegren Phase II clinical study data in
Crohn's disease and in MS. The first NEJM publication of an investigational
study in Crohn's disease showed promising results on disease remission and
improved quality of life for patients with Crohn's disease. The clinical
remission data indicate a maximal response rate of up to 71% where 44% of
Antegren treated patients achieved clinical remission. The MS study results
published in the second NEJM article indicate that Antegren treatment reduced
new inflammatory brain lesions by up to 93% and produced a reduction of
approximately 50% in the number of patients experiencing relapses for patients
with relapsing forms of MS.
Based on the promising findings in Phase II, Elan and
Biogen are presently conducting four Phase III trials to evaluate the safety
and efficacy of Antegren (natalizumab) in both Crohn's disease and MS. The two
trials in Crohn's disease are progressing with a filing of the New Drug
Application ("NDA") for Crohn's disease expected in the fourth
quarter of this year. ENACT-1 (Evaluation of Natalizumab in Active Crohn's
Disease Trial - 1), the largest ever study in Crohn's disease conducted to
date, is now fully enrolled with more than 850 patients and will evaluate clinical
response and ability to induce remission; ENACT-2 (Evaluation of Natalizumab As
Continuous Therapy - 2) will evaluate duration of effect. ENACT-2 is also fully
enrolled. The two MS trials are both fully enrolled and will evaluate
natalizumab in patients with relapsing-remitting forms of the disease. AFFIRM
(natalizumab safety and efficacy in relapsing-remitting MS) will evaluate the
ability of natalizumab to slow the rate of disability in MS and reduce the rate
of clinical relapses; SENTINEL (safety and efficacy of natalizumab in
combination with AVONEX(R) (Interferon beta-1-a) in patients with
relapsing-remitting MS) will determine if the combination of natalizumab and
AVONEX is more effective than treatment with AVONEX alone in slowing rate of
disability and reducing rate of clinical relapses.
Elan continues to believe that Antegren will provide a
meaningful advance for patients with these debilitating diseases.
Prialt
The final Phase III trial for Prialt is currently
recruiting patients in line with planned enrollment and we expect to file the
NDA during this year. The U.S. Food and Drug Administration has granted
approval for a treatment IND program, which will follow the completion of
enrollment for the current Phase III trial.
Alzheimer's Immunotherapy Program
Elan and Wyeth are making significant progress in the
Alzheimer's immunotherapy program and have a goal of generating two INDs from
this program during 2003. These INDs include the previously announced
monoclonal antibody program, as well as a novel immunotherapeutic Abeta peptide
conjugate. Elan and Wyeth are leveraging the innovative conjugate technology
that Wyeth uses in some of their other products. This conjugate is engineered
to provide a strongly immunogenic non-self T-cell epitope in concert with the
critical N-terminus of the Abeta peptide.
Elan is focused on the discovery, development,
manufacturing, selling and marketing of novel therapeutic products in
neurology, pain management and autoimmune diseases. Elan shares trade on the
New York, London and Dublin Stock Exchanges.
This document contains forward-looking statements about
Elan's financial condition, results of operations and business prospects that
involve substantial risks and uncertainties. You can identify these statements
by the fact that they use words such as "anticipate",
"estimate", "project", "envisage",
"intend", "plan", "believe" and other words and
terms of similar meaning in connection with any discussion of future operating
or financial performance or events. Among the factors that could cause actual
results to differ materially from those described herein are the following: the
outcome of Elan's recovery plan and its ability to maintain flexibility and
maintain sufficient cash, liquid resources, and investments and other assets
capable of being monetized to meet its liquidity requirements; the risk that
Elan's shareholders will fail to approve the sale of the primary care
franchise, that regulatory approvals and third party consents necessary to
consummate the sale will not be received on a timely basis, or at all, or that
the further conditions necessary to consummate the sale will not be satisfied
on a timely basis, or at all; the outcome of the ongoing SEC investigation and
shareholder litigation; the success of research and development activities and
the speed with which regulatory authorizations and product launches may be
achieved; competitive developments affecting Elan's current products; the
ability to successfully market both new and existing products; difficulties or
delays in manufacturing; the ability to meet generic and branded competition
after the expiration of Elan's patents; trend towards managed care and health
care cost containment; possible legislation affecting pharmaceutical pricing;
exposure to product liability and other types of lawsuits; Elan's ability to
protect its intellectual property; interest rate and foreign currency exchange
rate fluctuations; governmental laws and regulations affecting domestic and
foreign operations, including tax obligations; general changes in US and Irish
generally accepted accounting principles; growth in costs and expenses; changes
in product mix; and the impact of acquisitions, divestitures, restructurings,
product withdrawals and other unusual items. A further list and description of
these risks, uncertainties and other matters can be found in Elan's Annual
Report on Form 20-F for the fiscal year ended December 31, 2001, and in its
Reports of Foreign Issuer on Form 6-K. Elan assumes no obligation to update any
forward-looking statements, whether as a result of new information, future
events or otherwise.
Three months Unaudited Income Statement Twelve months
Ended December 31, Data - Pro-forma ended December 31,
2001 2002 2001 2002
US$m US$m US$m US$m
----------------------------------------------------------------------
Revenues
350.7 182.9 Product revenues 1,432.2 1,116.2
136.9 40.7 Contract revenues 430.3 353.9
---------- ---------- ---------- ----------
487.6 223.6 Total revenues 1,862.5 1,470.1
---------- ---------- ---------- ----------
Costs and Expenses
87.0 107.4 Research & development 321.2 397.1
99.1 98.9 Cost of goods sold 379.5 417.0
Selling, general &
151.8 174.4 administrative 603.4 714.0
---------- ---------- ---------- ----------
337.9 380.7 Total operating expenses 1,304.1 1,528.1
---------- ---------- ---------- ----------
149.7 (157.1) Operating income/(loss) 558.4 (58.0)
---------- ---------- ---------- ----------
Net interest
(6.8) (17.9) income/(expense) 12.6 (43.4)
(6.2) (2.9) Business venture funding (23.3) (23.9)
85.4 2.4 Investment gains 175.0 19.7
Investment losses and
(11.6) 2.5 other (7.4) (44.6)
---------- ---------- ---------- ----------
Net interest and other
60.8 (15.9) income/(loss) 156.9 (92.2)
---------- ---------- ---------- ----------
Net income/(loss) before
210.5 (173.0) tax and other charges 715.3 (150.2)
(4.2) (15.0) Taxation (17.4) (19.8)
---------- ---------- ---------- ----------
Net income/(loss) before
206.3 (188.0) other charges 697.9 (170.0)
(202.8) (451.0) Other charges (355.1) (2,224.8)
---------- ---------- ---------- ----------
3.5 (639.0) Net income/(loss) 342.8 (2,394.8)
========== ========== ========== ==========
Diluted earnings/(loss)
per ordinary share before
$0.56 ($0.54) other charges $1.91 ($0.49)
Diluted earnings/(loss)
per ordinary share after
$0.01 ($1.83) other charges $0.95 ($6.85)
Other Information
388.5 124.7 Gross Margin 1,483.0 1,053.1
Depreciation and
amortisation included in
35.7 50.1 operating costs 177.8 204.8
Unaudited Consolidated US
Three months GAAP Income Statement Twelve months
Ended December 31, Data Ended December 31,
2001 2002 2001 2002
US$m US$m US$m US$m
----------------------------------------------------------------------
Revenues
350.7 182.9 Product revenues 1,426.7 1,116.2
136.9 40.7 Contract revenues 432.3 353.9
---------- ---------- ---------- ----------
487.6 223.6 Total revenues 1,859.0 1,470.1
---------- ---------- ---------- ----------
Costs and Expenses
101.9 183.6 Research & development 399.8 511.5
99.1 114.5 Cost of goods sold 386.9 474.1
Selling, general &
334.4 419.4 administrative 858.0 1,393.8
- 5.2 Severance - 45.3
Gain on disposal of Athena
- (177.9) Diagnostics/Abelcet - (177.9)
---------- ---------- ---------- ----------
535.4 544.8 Total operating expenses 1,644.7 2,246.8
---------- ---------- ---------- ----------
(47.8) (321.2) Operating income/(loss) 214.3 (776.7)
---------- ---------- ---------- ----------
Net interest
(6.8) (17.9) income/(expense) 8.0 (43.4)
(6.2) (2.9) Business venture funding (23.3) (23.9)
85.4 40.1 Investment gains 175.0 57.4
Investment losses and
(16.9) (322.1) other (13.8) (1,588.4)
---------- ---------- ---------- ----------
Net interest and other
55.5 (302.8) income/(loss) 145.9 (1,598.3)
---------- ---------- ---------- ----------
Net income/(loss) before
7.7 (624.0) tax 360.2 (2,375.0)
(4.2) (15.0) Taxation (17.4) (19.8)
---------- ---------- ---------- ----------
3.5 (639.0) Net income/(loss) 342.8 (2,394.8)
========== ========== ========== ==========
Diluted earnings/(loss)
$0.01 ($1.83) per ordinary share $0.95 ($6.85)
Unaudited Reconciliation
to Pro-Forma Income
Statement
Three months Twelve months
Ended December 31, Ended December 31,
2001 2002 2001 2002
US$m US$m Other charge has been US$m US$m
reclassified as follows:
Revenues
- - Product revenues (5.5) -
- - Contract revenues 2.0 -
---------- ---------- ---------- ----------
- - Total revenues (3.5) -
Costs and Expenses
14.9 76.2 Research & development 78.6 114.4
- 15.6 Cost of goods sold 7.4 57.1
Selling, general &
182.6 245.0 administrative 254.6 679.8
- 5.2 Severance - 45.3
Gain on disposal of Athena
- (177.9) Diagnostics/Abelcet - (177.9)
---------- ---------- ---------------------
197.5 (164.1) Operating effect (344.1) (718.7)
Net interest
- - income/(expense) (4.6) -
- 37.7 Investment gain - 37.7
Investment losses and
(5.3) (324.6) other (6.4) (1,543.8)
---------- ---------- ---------- ----------
(202.8) (451.0) Total other charge (355.1) (2,224.8)
========== ========== ========== ==========
Unaudited Balance Sheet Data December 31, December 31,
2001 2002
Assets US$m US$m
----------------------------------------------------------------------
Current Assets
Cash and cash equivalents 1,572.5 1,005.0
Marketable investment securities 798.4 370.4
Other current assets 608.7 314.1
------------ ------------
2,979.6 1,689.5
Intangible assets 2,124.6 1,434.5
Property, plant and equipment 401.1 442.2
Investments and marketable investment
securities 858.4 273.6
------------ ------------
Total Assets 6,363.7 3,839.8
============ ============
Liabilities and Shareholders' Equity
Shareholders' equity 3,283.9 874.8
Accounts payable and accrued liabilities 491.8 494.2
Deferred income 331.8 258.2
Investment provision - EPIL II and III - 543.1
Provision for product payments 267.2 227.2
7.25% senior notes due 2008 650.0 650.0
3.25% zero coupon subordinated exchangeable
notes due 2018 951.4 792.3
Senior unsecured revolving credit facility
2004 325.0 -
3.5% convertible subordinated notes due 2002 62.6 -
------------ ------------
Total Liabilities and Shareholders' Equity 6,363.7 3,839.8
============ ============
Q4 2002 YTD 2002
Cash Flow Data US$m US$m
----------------------------------------------------------------------
Cashflows from operating activities 9.9 (a) 130.7
Movement on debt interest and tax (26.3) (88.6)
Working capital movement 149.7 160.1
Net purchase of tangible assets (13.9) (161.6)
Net purchase of investments and marketable
investment securities (15.2) (90.7)
Product acquisition payments (49.3) (306.1)
Purchase of Autoimmune product royalty rights - (82.5)
Payment under guarantee re EPIL III - (141.6)
Proceeds of business disposals 443.1 443.1
Cash flows from financing activities (125.9) (520.5)
----------------------------------------------------------------------
Net Cash Movement 372.1 (657.7)
Cash and cash equivalents at beginning of
period 632.9 1,662.7 (b)
----------------------------------------------------------------------
Cash and cash equivalents at end of period 1,005.0 1,005.0
----------------------------------------------------------------------
(a) included in cashflows from operating activities are proceeds from
the disposals of Avinza and Actiq totalling $150.0 million
(b) included in cash and cash equivalents at December 2001 was $90.2
million related to cash equivalents with an instrument maturity
greater than 3 months. This is included in current assets
marketable investment securities in the balance sheet data above.
Financial Information Relating to Qualifying Including
Special Purpose Entities (QSPEs) - Twelve As reported QSPE's
months ended December 31, 2002 US$m US$m
----------------------------------------------------------------------
Net loss after other charges (2,394.8) (2,195.2)
Diluted earnings per ordinary share after
other charges ($6.85) ($6.28)
Total assets 3,839.8 4,103.7
Total indebtedness 2,965.0 3,262.1
Shareholders' equity 874.8 841.6
Historic Revenue
Analysis - Pro-forma
Basis (Unaudited) 12 Months 12 Months
Total revenue analysis Q4 2001A Q4 2002A 2001A 2002A
(US$m)
Revenues from Retained
Products
US Promoted Products
Maxipime 29.3 25.2 86.2 79.2
Azactam 10.9 9.5 46.4 33.0
Zonegran 9.3 6.0 37.8 43.1
Pain portfolio 15.4 18.1 15.4 59.8
Myobloc 2.5 8.0 10.5 17.5
Frova - 4.0 - 11.2
----------- ----------- ----------- -----------
67.4 70.8 196.3 243.8
US Non-promoted
Products
Zanaflex 38.1 1.1 161.7 123.5
Other 7.3 4.9 47.3 18.3
----------- ----------- ----------- -----------
45.4 6.0 209.0 141.8
Europe
Abelcet 3.6 0.1 12.2 13.8
Dilzem 3.3 3.6 12.6 12.9
Other 17.4 22.5 61.8 75.9
----------- ----------- ----------- -----------
Total European products 24.3 26.2 86.6 102.6
Contract manufacturing
and royalties 26.5 23.3 113.4 105.5
Total Revenues from
Retained Products 163.6 126.3 605.3 593.7
Revenues from Divested
Products
Skelaxin 37.7 19.9 117.9 145.4
Sonata 2.3 20.5 2.3 92.5
Abelcet 18.5 8.4 77.0 64.6
Dermatology 22.7 9.4 61.8 47.5
Diagnostics 17.1 17.7 57.3 70.6
Actiq/Adalat/Avinza - 35.4 - 37.6
Rationalisation program 21.5 13.3 352.9 69.5
----------- ----------- ----------- -----------
119.8 124.6 669.2 527.7
Co-promotion Fees
Autoimmune 15.9 - 15.9 38.8
Pharma
Marketing/Autoimmune 51.4 - 141.8 24.0
----------- ----------- ----------- -----------
67.3 - 157.7 62.8
Product Returns -
genericisation - (68.0) - (68.0)
Total Product Revenue 350.7 182.9 1,432.2 1,116.2
Contract Revenue
Amortisation of fees 85.9 20.2 283.2 234.7
Research revenue and
milestones 23.9 - 58.7 37.2
Pharma
Marketing/Autoimmune 27.1 20.5 88.4 82.0
----------- ----------- ----------- -----------
Total Contract Revenue 136.9 40.7 430.3 353.9
----------- ----------- ----------- -----------
Total Revenue 487.6 223.6 1,862.5 1,470.1
----------- ----------- ----------- -----------