Elan CorporationUnaudited Consolidated US GAAP Income Statement
Three Months Data Twelve Months
Ended December 31 Ended December 31
2002 2003 2002 2003
US$m US$m US$m US$m
---------------------------------------------------------------------------------------------
Revenue (see p. 9)
73.1 146.3 Product revenue 781.8 647.0
40.6 11.2 Contract revenue 350.7 99.0
--------- ---------- --------- ------------
113.7 157.5 Total revenue 1,132.5 746.0
--------- ---------- --------- ------------
Operating Expenses (see p. 14)
101.1 62.9 Research & development 368.3 289.2
70.3 71.0 Cost of goods sold 292.4 297.5
144.9 82.5 Selling, general & administrative 575.7 403.8
(37.7) - Gain on repurchase of LYONs (37.7) (1.6)
- (23.9)Net gain on divestment of businesses - (267.8)
394.9 196.1 Recovery plan and other significant charges 763.6 443.2
--------- ---------- --------- ------------
673.5 388.6 Total operating expenses 1,962.3 1,164.3
--------- ---------- --------- ------------
(559.8) (231.1)Operating loss (829.8) (418.3)
--------- ---------- --------- ------------
Net Interest and Investment Losses (see p.15)
(23.8) (24.0)Net interest expense (68.3) (95.0)
(2.9) - Business venture funding (23.9) (3.0)
7.6 - Investment gains 24.9 132.9
(325.9) (101.1)Investment losses and other (1,485.8) (171.7)
--------- ---------- --------- ------------
(345.0) (125.1)Net interest and investment losses (1,553.1) (136.8)
--------- ---------- --------- ------------
(904.8) (356.2)Net loss from continuing operations before tax (2,382.9) (555.1)
(3.6) 10.0 Taxation (8.1) (4.4)
--------- ---------- --------- ------------
(908.4) (346.2)Net loss before discontinued operations (2,391.0) (559.5)
219.9 18.0 Net income from discontinued operations 28.7 30.1
--------- ---------- --------- ------------
(688.5) (328.2)Net loss (2,362.3) (529.4)
========= ========== ========= ============
Weighted average no. of ordinary shares outstanding
349,825 373,838 (in thousands) 349,718 355,967
Basic and diluted loss per ordinary share -
($2.60) ($0.93)continuing operations ($6.84) ($1.57)
Basic and diluted earnings per ordinary share -
$0.63 $0.05 discontinued operations $0.09 $0.08
Basic and diluted loss per ordinary share - net
($1.97) ($0.88)loss ($6.75) ($1.49)
Unaudited Non-GAAP Financial Information - EBITDA
Three Months Twelve Months
Ended December 31 Ended December 31
2002 2003 2002 2003
US$m US$m US$m US$m
Non-GAAP Financial Information
Reconciliation Schedule
EBITDA
(559.8) (231.1) Operating loss (829.8) (418.3)
Depreciation and amortisation included in
35.7 35.2 operating loss 146.7 143.5
(25.8) (11.2) Amortised revenue included in total revenue (242.5) (83.6)
---------- ------- ----------- -------------
(549.9) (207.1) EBITDA (925.6) (358.4)
========== ======= =========== =============
Three Months Twelve Months
Ended December 31 Ended December 31
2002 2003 2002 2003
US$m US$m US$m US$m
Non-GAAP Financial Information
Reconciliation Schedule
EBITDA before net losses/(gains) on
divestment of businesses and recovery plan
related charges
(559.8) (231.1) Operating loss (829.8) (418.3)
Depreciation and amortisation included in
35.7 35.2 operating loss 146.7 143.5
(25.8) (11.2) Amortised revenue included in total revenue (242.5) (83.6)
Exceptional product returns -
83.0 - genericisation 83.0 -
(37.7) - Gain on repurchase of LYONs (37.7) (1.6)
- (23.9) Gain on divestment of businesses (net) - (267.8)
394.9 196.1 Recovery plan and other significant charges 763.6 443.2
---------- ------- ----------- -------------
EBITDA before net gains on divestment of
businesses and recovery plan related
(109.7) (34.9) charges (116.7) (184.6)
========== ======= =========== =============
To supplement our consolidated financial statements presented on a US GAAP
basis, Elan provides readers with EBITDA (Earnings Before Interest, Taxes,
Depreciation and Amortisation), a non-GAAP measure of operating results. Elan
has also provided EBITDA guidance for 2004 which has been calculated on a
consistent basis. EBITDA is defined as operating income/(loss) plus/minus
depreciation and amortisation of costs and revenues. EBITDA is not presented as
an alternative measure of operating results or cash flow from operations, as
determined in accordance with US GAAP. Elan's management uses EBITDA to evaluate
the operating performance of Elan and its business and is among the factors
considered as a basis for Elan's planning and forecasting for future periods.
Elan believes EBITDA is a measure of performance used by some investors, equity
analysts and others to make informed investment decisions. EBITDA is used as an
analytical indicator of income generated to service debt and to fund capital
expenditures. EBITDA does not give effect to cash used for interest payments
related to debt service requirements and does not reflect funds available for
investment in the business of Elan or for other discretionary purposes. EBITDA,
as presented in this press release, may not be comparable to similarly titled
measures reported by other companies. A reconciliation of EBITDA to operating
income/(loss) is set out in the table above titled "Non-GAAP Financial
Information Reconciliation Schedule".
Unaudited US GAAP Balance Sheet Data
December 31 December 31
2002 2003
Assets US$m US$m
------------------------------------------------------------------------------------------
Current Assets
Cash and cash equivalents 1,013.9 807.5
Marketable investment securities 450.6 349.4
Held for sale assets (1) 189.5 175.0
Other current assets 299.4 228.0
---------------------------
1,953.4 1,559.9
Intangible assets 1,338.8 934.9
Property, plant and equipment 410.1 329.3
Investments and marketable investment securities 313.2 192.9
---------------------------
Total Assets 4,015.5 3,017.0
===========================
Liabilities and Shareholders' Equity
Shareholders' equity 826.9 605.0
Accounts payable and accrued liabilities 549.8 364.5
Held for sale liabilities (1) 25.6 27.9
Deferred income 258.2 154.8
Guarantee provision - EPIL II 295.5 344.5
Product acquisition payments 227.2 19.4
6.5% convertible guaranteed notes due 2008 - 460.0
EPIL III notes 390.0 390.0
7.25% senior notes due 2008 650.0 650.0
3.25% zero coupon subordinated exchangeable notes due 2018 792.3 0.9
---------------------------
Total Liabilities and Shareholders' Equity 4,015.5 3,017.0
===========================
Reconciliation of Movement in Shareholders' Equity
US$m
At December 31, 2002 826.9
Net loss for the twelve months ended December 31, 2003 (529.4)
Movement on unrealised gains on securities 89.6
Net proceeds of share sale 168.0
Other 49.9
--------------
At December 31, 2003 605.0
==============
(1) In accordance with SFAS No. 144, Elan has recorded as held for sale the
assets and liabilities related to its former European sales and marketing
business, San Diego office property and Elan Pharma S.A., a manufacturing and
research and development business based in Mezzovia, Switzerland. Each of these
divestitures closed during the first quarter 2004.
Unaudited US GAAP Cash Flow Data
Three months Twelve months
Ended December 31, Ended December 31,
2002 2003 2002 2003
US$m US$m US$m US$m
--------------------------------------------------------------------------------------------------
(75.6) (53.0)Cashflows from operating activities 0.4 (200.1)
(41.2) (89.5)Movement on debt interest and tax (135.2) (202.2)
229.9 (52.3)Working capital movement 283.1 (105.2)
(63.2) (84.5)Net purchase of tangible/intangible assets (467.7) (222.3)
0.7 10.1 Net sale of investments 34.7 323.7
- (99.6)Purchase of Pharma Marketing royalty rights - (296.0)
- - Purchase of Autoimmune royalty rights (82.5) -
Sale of EPIL III assets in connection with
- - repayment of EPIL III debt 9.3 -
443.1 50.7 Net proceeds of business divestments 443.1 586.9
(125.9) 179.3 Cashflows from financing activities (670.7) (91.2)
--------------------------------------------------------------------------------------------------
367.8 (138.8)Net Cash Movement (585.5) (206.4)
Cash and cash equivalents at beginning of
646.1 946.3 period 1,599.4 1,013.9
--------------------------------------------------------------------------------------------------
1,013.9 807.5 Cash and cash equivalents at end of period 1,013.9 807.5
--------------------------------------------------------------------------------------------------
In accordance with SFAS No. 144 "Accounting for the Impairment or Disposal of
Long-Lived Assets", Elan has recorded the results and gains or losses on the
divestment of its discontinued operations including Elan Transdermal
Technologies, Athena Diagnostics, Elan Diagnostics, a manufacturing business in
Italy, the pain portfolio of products, Actiq™, the dermatology portfolio of
products and Abelcet™ US/Canada within discontinued operations in the income
statement. With the exception of Actiq and Elan Diagnostics, these businesses
and assets have been included as discontinued operations during the fourth
quarter of 2003 for the first time. Consequently, the revenues and costs of
prior quarters reflect this treatment. There is no impact on the net loss in
prior quarters. An analysis of the results of the discontinued operations is set
out for each quarter of 2002 and 2003 in Appendix 2.
During the course of the recovery plan, Elan sold a number of other assets and
businesses (principally the primary care franchise and the European sales and
marketing business) which in accordance with SFAS No. 144 are not included in
discontinued operations. Elan believes that it has a significant continuing
involvement in the operations of these businesses, for example through ongoing
supply arrangements or formulation activities.
The analysis below is based on the revenues and costs from continuing operations
presented in accordance with U.S. GAAP.
Revenue
Total revenue decreased 20% to $157.5 million in the fourth quarter of 2003 from
$196.7 million in the fourth quarter of 2002 (excluding exceptional provisions
for product returns, primarily Zanaflex, of $83.0 million) and decreased by 34%
from $1,132.5 million for the full-year 2002 to $746.0 million for the full-year
2003. The historical analysis of total revenue is set out in Appendix 1.
Elan's product revenue is analysed between revenue from currently retained
products and revenue arising from products that have been divested (including
the recent sale of the European sales and marketing business, which closed on
February 12, 2004).
Total revenue can be further analysed as follows:
Q4 2002 Q4 2003Full-Year 2002Full-Year 2003
US$m US$m US$m US$m
(a) Product Revenue
Revenue from retained products 74.1 107.8 406.8 393.3
Revenue from divested products 76.4 30.0 387.4 219.7
Amortised revenue - Adalat/Avinza 5.6 8.5 7.8 34.0
Pharma Marketing/Autoimmune - - 62.8 -
Exceptional product returns -
genericisation (83.0) - (83.0) -
--------------------------------------------------------
Total product revenue 73.1 146.3 781.8 647.0
--------------------------------------------------------
(b) Contract Revenue
Amortisation of fees 20.2 2.7 234.7 49.6
Research revenue and milestones 20.4 8.5 78.8 49.4
Pharma Marketing/Autoimmune - - 37.2 -
--------------------------------------------------------
Total contract revenue 40.6 11.2 350.7 99.0
--------------------------------------------------------
Total Revenue 113.7 157.5 1,132.5 746.0
--------------------------------------------------------
(a) Product Revenue
Total product revenue for the fourth quarter of 2003 was $146.3 million compared
to $73.1 million in the fourth quarter of 2002, an increase of 100%. Total
product revenue for the full-year 2003 was $647.0 million compared to $781.8
million for the full-year 2002, a decrease of 17%. The decline in product
revenue in 2003 is due mainly to the divestiture of a number of products as part
of the recovery plan and the impact of generic competition on sales of Zanaflex,
compensated for, in part, by the growth in sales of those products retained.
Revenue from retained products
Revenue from retained products was $107.8 million in the fourth quarter of 2003
compared to $74.1 million in the fourth quarter of 2002, an increase of 45%.
This increase primarily reflects the growth in prescriptions and demand for
those retained products.
Sales of Maxipime™ and Azactam™ in the fourth quarter of 2003 were $42.3 million
and $154.2 million for the full-year 2003, an increase of 22% and 37%
respectively over the comparable periods in 2002, reflecting stronger demand and
the negative impact on the sales of these products in the third quarter of 2002
due to a change in Elan's discounting strategy and short term supply issues
resulting from third party manufacturing constraints. Maxipime audited sales
volumes for the fourth quarter of 2003 increased by 12% compared to the same
period in 2002. Azactam audited sales volumes for the fourth quarter of 2003
increased by 14.3% compared to the same period in 2002. For the full-year 2003
audited sales volumes increased by 12.3% for Maxipime and 14.1% for Azactam.
Zonegran prescription demand remained strong for the fourth quarter of 2003 and
increased by 74.1% over the fourth quarter of 2002 and by 57% for the full-year
2003 compared to the full-year 2002. Zonegran demand continues to grow as a
result of Elan's promotional efforts as well as the increased interest in this
product following the approval of the 25mg and 50mg strengths in late 2003.
Zonegran recorded revenue of $19.5 million for the fourth quarter of 2003, an
increase of 225% compared to the same period in 2002. Revenues for full-year
2003 at $80.7 million were 87% higher than full-year 2002 revenues. Sales in
2002 were negatively affected by the change in Elan's discounting strategy.
Frova™, which was launched in the second quarter of 2002 by the combined Elan
and UCB Pharma, Inc ("UCB") sales forces, generated revenue of $13.7 million inthe fourth quarter of 2003 compared to $4.0 million in the fourth quarter of
2002. Frova prescription demand remained strong for the fourth quarter of 2003
and increased by 63.2% over the fourth quarter of 2002 and by 264% for the
full-year 2003. Revenues for full-year 2003 at $37.5 million were 235% higher
than full-year 2002 revenues of $11.2 million.
Revenue from divested products
As previously announced in December 2003, Elan agreed to sell its European sales
and marketing business to Medeus Pharma Ltd. The transaction closed on February
12, 2004, resulting in total consideration of approximately $120 million. On
February 17, 2004, Elan also sold a product which is marketed in the UK for
approximately $9 million. Product revenue from these businesses was $26.0
million in the fourth quarter of 2003 compared to $22.6 million in the fourth
quarter of 2002, and for the full-year 2003 was $97.9 million compared to $87.0
million for the full-year 2002.
During 2002 and 2003 Elan sold a number of other products and businesses,
principally Skelaxin™ and Sonata™, which contributed $4.0 million to product
revenue in the fourth quarter of 2003, $121.8 million in the full-year 2003,
$53.8 million in the fourth quarter of 2002 and $300.4 million in the full-year
2002.
Amortised Product Revenue
The fourth quarter of 2003 includes $8.5 million of amortised 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. ("Ligand"), compared to $5.6 million in the fourth quarter of 2002. Theremaining unamortised revenue on these products of $103.2 million will be
recognised as revenue over the next four years reflecting Elan's ongoing
involvement in the manufacture of these products.
Pharma Marketing/Autoimmune
During the fourth quarter of 2003, Elan purchased all the royalty rights in
respect of Zonegran, Frova and Zanaflex from Pharma Operating Ltd. ("PharmaOperating"), a wholly owned subsidiary of Pharma Marketing Ltd. ("PharmaMarketing") for $99.6 million. This amount was expensed during the fourth
quarter of 2003. As a result, all of Elan's agreements with Pharma Marketing
were terminated. This followed the acquisition in the second quarter of 2003 of
the royalty rights held by Pharma Operating in respect of Sonata and Prialt for
$196.4 million. No royalties were paid to Pharma Marketing in the fourth
quarters of 2003 and 2002. $43.3 million in royalties were paid to Pharma
Marketing in full-year 2003 compared to $24.1 million in full-year 2002. During
full-year 2003 Elan received no co-promotion or contract revenues from Pharma
Marketing compared to $31.3 million during 2002.
During the third quarter of 2002, Elan acquired all the royalty rights held by
Autoimmune Research and Development Corp. Ltd ("Autoimmune") and this risksharing arrangement was terminated. Consequently, no co-promotion or contract
revenues were received from Autoimmune during 2003 or the fourth quarter of 2002
compared to $68.7 million during full-year 2002.
(b) Contract Revenue
Contract revenue in the fourth quarter of 2003 was $11.2 million compared to
$40.6 million in the same period of 2002, a decrease of 72%. The amortisation of
fees amounted to $2.7 million in the fourth quarter of 2003 compared to $20.2
million in the fourth quarter of 2002. In the fourth quarter of 2002, $15.3
million of the $20.2 million related to the business ventures.
Contract revenue in the full-year 2003 was $99.0 million compared to $350.7
million in the full-year 2002. The amortisation of fees amounted to $49.6
million in the full-year 2003 compared to $234.7 million in the full-year 2002.
Included in the amortisation of fees for 2003 is $35.2 million related to the
business ventures compared to $203.8 million in 2002.
As part of the recovery plan outlined on July 31, 2002, Elan completed a review
of its business venture programme and, as a result all of the business ventures
have been terminated, restructured or are now inactive. The reduction in
amortised fees during the fourth quarter and full-year 2003 arose primarily from
the restructuring and termination of business ventures, which started in 2002.
There are no remaining unamortised fees from the business ventures at December
31, 2003.
Research revenues and milestones were $8.5 million in the fourth quarter of 2003
and $49.4 million for the full-year 2003 compared to $20.4 million and $78.8
million in the comparable periods in 2002. This reduction reflects a lower level
of activity in 2003 coupled with the timing of the receipt of milestone
payments.
Gross Profit
The gross profit margin on product revenue was 51% in the fourth quarter of 2003
compared to 4% in the fourth quarter of 2002 due primarily to the inclusion of
an exceptional product returns provision in 2002 of $83.0 million. The gross
profit margin on product revenue for full-year 2003 was 54% compared to 63% for
the full-year 2002. The reduction in the gross margin in 2003 reflects the
change in the mix of product revenues, including the divestment of a number of
products and businesses over the period of the recovery plan, under-utilisation
of capacity at Elan's manufacturing facility in Athlone and the payment of
royalties to Pharma Marketing. No royalties were paid to Pharma Marketing during
the fourth quarter of 2003 or 2002. During full-year 2003 royalties of $43.3
million were paid to Pharma Marketing compared to $24.1 million for full-year
2002. Royalties paid are charged to cost of sales.
During the second quarter of 2002, Frova was launched by the combined Elan and
UCB salesforce. Under the terms of these arrangements Elan pays UCB co-promotion
fees based on sales of Frova. These co-promotion fees are included in cost of
sales and have the impact of reducing the gross margin on revenues from Frova to
approximately 25%.
Operating Expenses
Research and development expenses were $62.9 million in the fourth quarter of
2003 and $289.2 million for the full-year 2003 compared to $101.1 million and
$368.3 million in the comparable periods of 2002. This reduction reflects the
refocusing of research and development efforts on key programmes: Antegren,
Prialt and the Alzheimer's programmes.
Selling, general and administrative expenses decreased by 43% to $82.5 million
in the fourth quarter of 2003 from $144.9 million in the fourth quarter of 2002.
For the full-year 2003 selling, general and administrative expenses decreased by
30% to $403.8 million from $575.7 million in 2002 reflecting the successful
implementation of the recovery plan and related cost reduction initiatives.
Recovery Plan and Other Significant Charges / Gains
During the fourth quarter of 2003 Elan recorded net costs primarily associated
with the implementation of the recovery plan of $196.1 million and $23.9 million
net gains on the divestment of certain businesses. These may be analysed as
follows:
Q4 2002 Q4 2003 Full-Year Full-Year
US$m US$m 2002 2003
US$m US$m
Write-down of tangible and intangible
assets 325.2 54.3 542.1 61.7
Net gain on divestment of businesses - (23.9) - (267.8)
Purchase of royalty rights - 99.6 72.5 296.0
Gain on repurchase of LYONs (37.7) - (37.7) (1.6)
Severance costs, relocation and exit costs 19.5 12.3 67.5 29.7
Costs related to shareholder litigation,
SEC investigation and 401k recission offer 19.5 1.8 46.4 11.2
EPIL II/III waiver fee - 16.8 - 16.8
Other 30.7 11.3 35.1 27.8
------------------------------------------------
357.2 172.2 725.9 173.8
------------------------------------------------
During the fourth quarter of 2003 Elan recorded impairments of $54.3 million
against tangible and intangible assets, primarily related to Myobloc, based on
revised estimates of its future prospects.
The net gain on the divestment of businesses in the fourth quarter of $23.9
million arises primarily from $25.0 million milestone payment, pursuant to a
previously announced term of the amended agreement between Elan and King
Pharmaceuticals, Inc. ("King") that was contingent upon ongoing patentexclusivity for Skelaxin. For the full-year 2003, the net gain on the divestment
of businesses relates principally to the profit of $264.4 million in relation to
the divestment of the primary care franchise to King.
During the fourth quarter of 2003, Elan purchased all the royalty rights in
respect of Zonegran, Frova and Zanaflex from Pharma Operating for $99.6 million.
This amount was expensed during the fourth quarter of 2003. This followed the
acquisition in the second quarter of 2003 of the royalty rights held by Pharma
Operating in respect of Sonata and Prialt for $196.4 million. This amount was
expensed in the second quarter of 2003.
On November 10, 2003, Elan announced that it had successfully completed a
private offering of $460.0 million in aggregate principal amount of 6.5%
Guaranteed Convertible Notes due 2008. In connection with this offering a waiver
fee of $16.8 million was paid to the holders of the EPIL II and EPIL III notes.
Although the recovery plan is complete, Elan may incur further charges related
to the SEC investigation and shareholder litigation.
Net Interest and Investment Losses
Net interest and investment losses amounted to $125.1 million in the fourth
quarter of 2003 compared to a loss of $345.0 million in the fourth quarter of
2002.
In the fourth quarter of 2003, net interest expense amounted to $24.0 million
(full-year 2003: $95.0 million) compared to $23.8 million (full-year 2002: $68.3
million) in the fourth quarter of 2002, reflecting lower interest income earned
on cash deposits and other investments, the interest costs associated with the
$460.0 million convertible notes issued in the fourth quarter of 2003, and
offset by lower interest expense due to previously announced Liquid Yield Option
Notes ("LYONs") repurchases. The loss on investments in the fourth quarter of2003 of $101.1 million included $14.3 million in relation to the mark-to-market
of certain investments, investment impairments of $47.1 million and an increase
in the EPIL II guarantee provision of $32.5 million.
In addition, certain other publicly quoted investments were marked-to-market and
the net increase in value of approximately $5 million in the quarter has been
included in unrealised gains on securities within shareholders' equity.
During the full-year 2003, Elan recorded net investment losses of $38.8 million
compared to $1,460.9 million during full-year 2002. Investment losses in 2002
resulted from a significant decline in the biotech sector overall, the impact on
the value of smaller biotech companies (that make up a significant part of
Elan's portfolio) of difficult financing markets and the impact of the business
venture restructuring programme initiated in the third quarter of 2002.
Liquidity
At December 31, 2003, Elan had $807.5 million in cash and cash equivalents
compared with $1,013.9 million at December 31, 2002 and $946.3 million at
September 30, 2003.
On November 5, 2003, Elan announced that it had successfully completed a private
offering of 35 million Ordinary Shares and on November 10, 2003, Elan announced
that it had successfully completed a private offering of $460.0 million in
aggregate principal amount of 6.5% Guaranteed Convertible Notes due 2008. The
offerings resulted in aggregate net proceeds (after giving effect to the payment
of commissions and concessions and the estimated expenses of the offerings,
including a waiver fee of $16.8 million paid to the holders of the EPIL II and
EPIL III notes) of approximately $595 million. The net proceeds from the
offerings were used by Elan's subsidiary, Elan Finance Corporation, Ltd., to
repurchase outstanding LYONs, including LYONs surrendered for purchase by the
holders on December 14, 2003, pursuant to the indenture under which the LYONs
were issued and for the repurchase of royalty rights from Pharma Operating.
As of December 2003, the major contracted and potential non-operating cash
payments relating to Elan's business are:
2004 2005 2008 Total Dec
US$m US$m US$m US$m 2002
------------------------------------------------------------------------------------------
Contracted & LYONs
------------------------------------
7.25% Senior Notes (2008) - - 650.0 650.0 650.0
6.5% Convertible Notes - - 460.0 460.0 -
Fixed Product Payments 19.4 - - 19.4 227.2
Contingent Product Payments (1) - - - - 207.7
EPIL II (2) 450.0 - - 450.0 450.0
EPIL III - 390.0 - 390.0 390.0
3.25% LYONs - - 0.9 0.9 816.9
------------------------------------------------------
Total Contracted & LYONs 469.4 390.0 1,110.9 1,970.3 2,741.8
------------------------------------------------------
Potential
------------------------------------
Pharma Marketing/Autoimmune (1) - - - - 335.0
Product Acquisitions (1) - - - - 47.3
------------------------------------------------------
Total Potential - - - - 382.3
------------------------------------------------------
Total Contracted, Potential & LYONs 469.4 390.0 1,110.9 1,970.3 3,124.1
------------------------------------------------------------------------------------------
(1) In order to comply with US GAAP, these amounts are not included on the
balance sheet.
(2) In order to comply with US GAAP, $344.5 million of this amount (2002: $295.5
million) is provided on the balance sheet.
Qualifying Special Purpose Entity ("QSPE")Elan has guaranteed loan notes issued by EPIL II (a QSPE, which is not
consolidated under U.S. GAAP) to the extent that the investments held by it 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 was $450.0 million at December 31, 2003, and is repayable on June 28, 2004.
The investments held by EPIL II will be sold to meet the maturity of the loan
notes.
During the fourth quarter of 2003, Elan increased the provision for its
guarantee by $32.5 million to $344.5 million, reflecting the net reduction in
the value of the investments held by EPIL II during this period after charging
interest of $10.6 million for the quarter. After providing for the estimated
investment shortfalls, the carrying values and cash position of EPIL II were as
follows:
US$m
Investments in public companies 76.3
Investments in private companies 9.0
Cash 20.5
Accrued interest and expenses (0.3)
---------------
Total assets 105.5
Provision for guarantees 344.5
---------------
Total guaranteed indebtedness 450.0
This provision has been arrived at based on the estimated value of the
investment portfolio at December 31, 2003, using established financial valuation
methodologies and consistent with the requirements of U.S. GAAP, and does not
reflect any liquidity discount.
Guidance
Elan is providing guidance as to the potential financial outcome for 2004. As
there are many variables which could have a significant impact on this outcome
and which are outside the control of Elan, such as strategic product divestments
or acquisitions and timing of regulatory filings and approvals, the actual
outcome could be significantly different.
This guidance does not take into account the additional investment required to
position Antegren for a successful potential launch in MS in 2005, which
investment may be significant given the press release of today. Based on today's
Antegren press release, Elan expects research and development and selling,
general and administrative expenses to increase significantly during 2004 and we
will provide updated guidance to the market at the appropriate time.
During 2004, Elan anticipates total revenues in the range of $575.0 million to
$625.0 million, of which approximately 85% will comprise product revenues.
Amortised revenues, mainly in relation to Adalat CC and Avinza, are anticipated
to be less than 10% of total revenues. The gross profit percent on revenues is
expected to be maintained in the range of 53% to 57%.
Selling, general and administration expenses from continuing operations are
expected to reduce by a further 20% to 25% from the $403.8 million recorded in
the full-year 2003. This reduction reflects the implementation of ongoing cost
reduction initiatives, together with an increased investment of approximately
$35 million for both pre-launch costs for Prialt and an increased investment in
Maxipime following the decision to retain this product.
Research and development expenses are expected to continue at about the same
level as in 2003. This includes an increased investment in Antegren, Prialt and
the Alzheimer's programmes of approximately $30 million. These increased
investments are considered critical to make sure Elan has all the necessary data
and studies completed to ensure the commercial success of its unique and
innovative pipeline. Approximately 15% of research and development expenses
relate to the drug delivery businesses which Elan decided to retain in December
2003, and these costs are expected to be more than covered by research revenues
and milestones from these businesses.
EBITDA for 2004 is expected to be negative and in the range of $150.0 million to
$170.0 million. Net cash interest and related financing costs are expected to
increase from $95.0 million to approximately $120 million.
R&D Update
Elan's research and development activities include the discovery and development
of products in the therapeutic areas of neurology, autoimmune diseases and
severe pain. Elan is a proven leader in the understanding of the pathology of
Alzheimer's disease and in the advancement of potential disease modifying
agents. Other neurology research and development efforts include work in the
areas of Parkinson's disease, multiple sclerosis (MS) and epilepsy. In
autoimmune diseases and severe pain, Elan has late-stage development efforts in
Antegren and Prialt.
Antegren™ (natalizumab)
Elan and Biogen Idec, Inc. ("Biogen Idec") are collaborating on the development,manufacturing and commercialisation of Antegren, a humanised monoclonal
antibody, and the first in a new class of compounds known as selective adhesion
molecule ("SAM") inhibitors. This novel mechanism of action lends itself topotential utility in several disease states, as the drug is designed to
selectively inhibit immune cells from leaving the bloodstream and migrating into
chronically inflamed tissue, such as the gastrointestinal tract in Crohn's
disease, the brain in MS, and the joints in RA.
Elan and Biogen Idec have engaged in four Phase III trials to evaluate the
safety and efficacy of Antegren in both Crohn's disease and MS. Combined, these
trials have enrolled over 3,000 patients.
Today, Elan and Biogen Idec announced the intention to submit to the FDA an
application for approval of Antegren as a treatment for MS. The companies expect
to submit the filing mid-year 2004. The decision to file a BLA was made after
discussions with the FDA of one-year data from the two on-going two-year Phase
III trials in MS. The companies are committed to completing the two-year trials.
To protect the integrity of the trials, the companies are not disclosing the
one-year data at this time.
On January 29, 2004, Elan and Biogen Idec announced positive results from the
Phase III maintenance trial of Antegren in Crohn's disease, known as ENACT-2
(Evaluation of Natalizumab as Continuous Therapy-2). ENACT-2 was designed to
evaluate the ability of Antegren to maintain efficacy in Crohn's disease as
assessed by the Crohn's Disease Activity Index (CDAI). The trial met the primary
endpoint of maintenance of response following six months of treatment in this
study. Maintenance of response was defined by a sustained CDAI score of less
than 220 as well as no use of rescue intervention throughout the six months of
this study. There was a significant treatment difference of greater than 30
percent in favour of Antegren in patients taking the drug compared to those
taking placebo.
Antegren was safe and well tolerated in the ENACT-2 trial, and the safety
profile remains similar to that seen in previous Antegren studies, with a low
incidence of infusion reactions and immunogenicity. There was no notable
difference in the overall rate of side effects between Antegren and placebo
treatment groups as observed through six months of treatment in ENACT-2.
Elan and Biogen Idec will present the data of the ENACT-1 and ENACT-2 studies to
U.S. and European regulatory authorities and determine the regulatory path
forward for Antegren in Crohn's disease.
The clinical development programme for Antegren in MS is ongoing with more than
2,000 patients enrolled in two Phase III studies.
In addition to the commitment to develop Antegren for Crohn's disease and MS, an
IND was filed with the FDA to evaluate the potential of Antegren for the
treatment of RA, and a Phase II trial is on track to be initiated in the first
half of this year. Elan and Biogen Idec believe Antegren will provide a
meaningful advance for patients with these debilitating diseases.
Prialt (ziconotide)
Elan recently announced that the Phase III trial evaluating Prialt in patients
with chronic severe pain met its primary endpoint. In the double-blind
placebo-controlled trial, patients treated with Prialt displayed a statistically
significant improvement at week three in the Visual Analog Scale of Pain
Intensity (VASPI) score, as compared to placebo. Based on these positive
results, Elan expects to file an amendment to its NDA with the FDA in the second
quarter of 2004 and to launch the product no later than the first quarter of
2005. The European MAA was filed and accepted by the European regulatory
authority during 2003, and the review of this application is ongoing.
Prialt is an innovative, highly potent intrathecal therapy for severe chronic
pain. Prialt is the first in a new class of non-opioid analgesics known as
N-type calcium channel blockers. Elan is encouraged by these most recent Phase
III results and is hopeful that Prialt may offer a meaningful advance for
patients currently suffering with chronic severe pain, many of whom are not
adequately treated by available therapies.
Zonegran (zonisamide)
Zonegran is currently marketed in the United States by Elan and by Dainippon in
Japan for the adjunctive treatment of partial seizures in adults with epilepsy.
Elan has also filed a MAA with the European regulatory authorities for Zonegran
for patients with partial seizures in epilepsy.
Alzheimer's Programmes
Elan has a broad-based research and development effort in the area of
Alzheimer's disease, which is primarily focused in three areas targeting the
beta-amyloid peptide. The first two approaches are focused on two distinct
enzyme inhibitors that may limit production of beta-amyloid: beta secretase and
gamma secretase inhibitors. In the third programme, Elan and Wyeth are utilising
an immunotherapeutic approach which may decrease beta amyloid in the brain.
Elan, with Wyeth, re-entered the clinic with our Alzheimer's programme and has
an ongoing Phase I study evaluating safety and tolerability of a humanised
monoclonal antibody targeted at the A-beta peptide. Preclinical efforts continue
with a novel immunotherapeutic A-beta peptide conjugate to evaluate the
potential for an active immunisation approach in parallel with the passive
monoclonal antibody approach.
About Elan
Elan is focused on the discovery, development, manufacturing, sale and marketing
of novel therapeutic products in neurology, severe pain and autoimmune diseases.
Elan (NYSE: ELN) shares trade on the New York, London and Dublin Stock
Exchanges.
Appendix 1
Historic Revenue Analysis (Unaudited)
Total revenue analysis (US$m) Q4 2002 Full-Year Q4 2003 Full-Year
2002 2003
Revenue from Retained Products
U.S. Promoted Products
Maxipime 25.2 79.2 31.5 109.1
Azactam 9.5 33.0 10.8 45.1
Zonegran 6.0 43.1 19.5 80.7
Myobloc 8.6 19.6 4.0 14.9
Frova 4.0 11.2 13.7 37.5
--------------------- ---------------------
53.3 186.1 79.5 287.3
U.S. Non-promoted Products
Zanaflex 1.1 123.5 2.7 (5.1)
Other 0.1 4.7 2.6 7.4
--------------------- ---------------------
1.2 128.2 5.3 2.3
Contract Manufacturing and Royalties 19.6 92.5 23.0 103.7
Total Revenue from Retained Products 74.1 406.8 107.8 393.3
Revenue from Divested Products
Skelaxin 19.9 145.4 - 60.2
Sonata 20.5 92.5 - 48.2
European business 22.6 87.0 26.0 97.9
Rationalisation programme 13.4 62.5 4.0 13.4
--------------------- ---------------------
76.4 387.4 30.0 219.7
Co-promotion Fees
Autoimmune - 38.8 - -
Pharma Marketing - 24.0 - -
--------------------- ---------------------
- 62.8 - -
Amortised Revenue - Adalat/Avinza 5.6 7.8 8.5 34.0
Exceptional Product Returns - Genericisation (83.0) (83.0) - -
Total Product Revenue 73.1 781.8 146.3 647.0
Contract Revenue
Amortisation of fees 20.2 234.7 2.7 49.6
Research revenue and milestones 20.4 78.8 8.5 49.4
Pharma Marketing/Autoimmune - 37.2 - -
--------------------- ---------------------
Total Contract Revenue 40.6 350.7 11.2 99.0
--------------------- ---------------------
Total Revenue 113.7 1,132.5 157.5 746.0
--------------------- ---------------------
Appendix 2
Discontinued Operations (unaudited)
Twelve Months Ended December 31, 2003
Total
Q1 2003 Q2 2003 Q3 2003 Q4 2003 2003
US$m US$m US$m US$m US$m
Product revenue 44.5 29.6 29.8 10.4 114.3
Contract revenue - 0.5 - - 0.5
----------------------------------------- ---------
Total revenue 44.5 30.1 29.8 10.4 114.8
----------------------------------------- ---------
Research & development 4.2 6.3 1.7 (0.3) 11.9
Cost of goods sold 17.5 14.6 7.4 5.5 45.0
Selling, general & administrative 7.8 4.8 7.3 2.8 22.7
Loss/(gain) on divestment of
businesses (net) 0.8 0.3 5.5 (18.6) (12.0)
Recovery plan and other significant
charges 0.8 4.7 6.0 2.8 14.3
----------------------------------------- ---------
Total operating expenses 31.1 30.7 27.9 (7.8) 81.9
----------------------------------------- ---------
Operating profit/(loss) 13.4 (0.6) 1.9 18.2 32.9
----------------------------------------- ---------
Net interest and investment losses (1.1) (1.0) (0.2) (0.2) (2.5)
----------------------------------------- ---------
Net income before tax 12.3 (1.6) 1.7 18.0 30.4
Taxation - (0.3) - - (0.3)
----------------------------------------- ---------
Net income/(loss) 12.3 (1.9) 1.7 18.0 30.1
========================================= =========
Non- GAAP Financial Information
EBITDA
Operating profit/(loss) 13.4 (0.6) 1.9 18.2 32.9
Depreciation & amortisation 4.9 5.6 6.4 2.7 19.6
Amortised revenue included in total
revenue (10.5) - - - (10.5)
----------------------------------------- ---------
EBITDA 7.8 5.0 8.3 20.9 42.0
Loss/(gain) on divestment of
businesses (net) 0.8 0.3 5.5 (18.6) (12.0)
Recovery plan and other significant
charges 0.8 4.7 6.0 2.8 14.3
----------------------------------------- ---------
EBITDA before net losses/(gains) on
divestment of businesses and recovery
plan related charges 9.4 10.0 19.8 5.1 44.3
========================================= =========
Appendix 2
Discontinued Operations (unaudited)
Twelve Months Ended December 31, 2002 Q1 2002 Q2 2002 Q3 2002 Q4 2002 Total 2002
US$m US$m US$m US$m US$m
Product revenue 79.3 89.2 56.0 94.8 319.3
Contract revenue 1.6 1.1 0.5 - 3.2
------------------------------------- ---------
Total revenue 80.9 90.3 56.5 94.8 322.5
------------------------------------- ---------
Research & development 7.2 6.9 8.5 6.2 28.8
Cost of goods sold 31.9 33.4 30.7 28.6 124.6
Selling, general & administrative 35.0 36.4 37.6 29.5 138.5
Gain on divestment of businesses (net) - - - (177.9) (177.9)
Recovery plan and other significant
charges/gains 2.7 63.0 119.4 (22.8) 162.3
------------------------------------- ---------
Total operating expenses 76.8 139.7 196.2 (136.4) 276.3
------------------------------------- ---------
Operating profit/ (loss) 4.1 (49.4) (139.7) 231.2 46.2
------------------------------------- ---------
Net interest and investment
(losses)/gains (1.9) (1.9) (2.2) 0.1 (5.9)
------------------------------------- ---------
Net income/(loss) before tax 2.2 (51.3) (141.9) 231.3 40.3
Taxation - - (0.2) (11.4) (11.6)
------------------------------------- ---------
Net income/(loss) 2.2 (51.3) (142.1) 219.9 28.7
===================================== =========
Non-GAAP Financial Information
EBITDA
Operating profit/(loss) 4.1 (49.4) (139.7) 231.2 46.2
Depreciation & amortisation 12.3 12.4 15.0 10.4 50.1
Amortised revenue included in total
revenue - - - (29.8) (29.8)
------------------------------------- ---------
EBITDA 16.4 (37.0) (124.7) 211.8 66.5
Gain on divestment of businesses (net) - - - (177.9) (177.9)
Recovery plan and other significant
charges/(gains) 2.7 63.0 119.4 (22.8) 162.3
------------------------------------- ---------
EBITDA before net losses/(gains) on
divestment of businesses and recovery
plan related charges 19.1 26.0 (5.3) 11.1 50.9
===================================== =========
Investors: Media:
Emer Reynolds Anita Kawatra
Ph: 353-1-709-4000 Ph: 212-407-5755
800-252-3526 800-252-3526