Elan Reports Third Quarter 2003 Financial Results
 
Elan Exercises Option to Purchase Royalty Rights from Pharma Marketing
 
Elan Corporation, plc (NYSE:ELN) ('Elan') today announced its third
quarter 2003 financial results and provided an update on the progress
of its product development activities and on its recovery plan.
 
Commenting on the results and recovery plan, Kelly Martin, Elan's
President and Chief Executive Officer, said 'Our third quarter results
are characterised by solid progress in research and development,
continued growth in our commercial business from retained products,
and continued reductions in operating costs.
 
We have continued to simplify our balance sheet, most recently by
exercising our option to purchase the remaining product royalty rights
from Pharma Marketing. Now, with major pieces of our recovery
programme close to complete, including the successful closing of our
financing with aggregate gross proceeds of approximately $630 million,
Elan believes that it has in place financial flexibility through 2005.
We believe that this flexibility, along with our strengthened
operating capabilities, will enable us to bring science and innovation
to patients in our core areas of neurology, severe pain, and
autoimmune diseases and, in particular, build upon our breakthrough
research in the treatment of Alzheimer's disease'.
 
Third Quarter 2003 Financial Highlights
 
-- Total revenue of $174.7 million compared to $331.7 million in the
third quarter of 2002, a decrease of 47%.
 
-- Revenue from retained products of $119.5 million compared to $91.1
million in the third quarter of 2002, an increase of 31%.
 
-- Reduction of 46% in selling, general and administrative expenses in
the third quarter of 2003 to $92.0 million from $170.9 million in the
third quarter of 2002 (approximately $37 million of this reduction
relates to asset divestitures). Reduction of 31% in research and
development expenditure in the third quarter of 2003 from $101.6
million to $70.6 million.
 
-- Negative EBITDA of $42.9 million (before including net losses on
disposal of businesses and recovery plan related charges of $37.9
million) for the third quarter of 2003 compared to negative EBITDA of
$74.9 million in the third quarter of 2002 (before charging recovery
plan related charges of $302.9 million). (See 'Non-GAAP Financial
Information' on Appendix 2).
 
-- Net loss of $91.0 million ($0.26 loss per diluted share) compared
to net loss of $996.4 million ($2.85 loss per diluted share) in the
third quarter of 2002.
 
-- Cash and cash equivalents at September 30, 2003, of $946.3 million
(including $7.2 million in restricted cash held by EPIL III) compared
to $1,013.9 million (including $8.9 million in restricted cash held by
EPIL III) at December 31, 2002.
 
R&D Highlights
 
-- Elan submitted a Marketing Authorisation Application ('MAA') to the
European Union regulatory authorities on November 5, 2003, to seek
approval for Zonegran (zonisamide) for use as adjunctive therapy in
partial seizures in epilepsy. Elan licensed zonisamide from Dainippon
Pharmaceutical Co., Ltd. ('Dainippon') for North America and Europe
and currently markets Zonegran in the United States. Dainippon
currently markets zonisamide in Japan as Exegran.
 
-- The Antegren(TM) (natalizumab) data from the Crohn's disease
(induction) Phase III trial was presented to the scientific and
medical community in October at the American College of
Gastroenterology 2003 Congress in Baltimore, Maryland and in November
at the United European Gastroenterology Week 2003 Congress in Madrid,
Spain.
 
-- The Phase III trial for Prialt(TM) in patients with severe pain is
fully enrolled; we expect to file a New Drug Application ('NDA') in
the first quarter of 2004.
 
-- The Investigational New Drug ('IND') application submitted by Elan
and our partner Wyeth to the U.S. Food and Drug Administration ('FDA')
for a monoclonal antibody against Alzheimer's disease is on track for
commencement of dosing of patients in a Phase I clinical trial later
this quarter.
 
Recovery Plan Implementation Update
 
-- Completed private offerings of 35 million Ordinary Shares and $460
million in aggregate principal amount of 6.5% Guaranteed Convertible
Notes due 2008 on November 5 and November 10, 2003, resulting in net
proceeds of approximately $595 million. The net proceeds from the
offerings will be used by Elan to repurchase outstanding Liquid Yield
Option Notes(TM) ('LYONs'), including LYONs surrendered for purchase
at the option of the holders thereof as of December 14, 2003.
 
-- Standard & Poor's raised Elan's corporate and senior unsecured debt
ratings to 'B-' from 'CCC+'.
 
-- Announced exercise of option to purchase the remaining royalty
rights in respect of Zonegran(TM), Frova(TM) and Zanaflex(TM) from
Pharma Operating Ltd. ('Pharma Operating'), a wholly owned subsidiary
of Pharma Marketing Ltd. ('Pharma Marketing'), for approximately $100
million. The transaction is expected to close in the fourth quarter of
2003 and is expected to result in a charge of approximately $100
million in the fourth quarter of 2003.
 
-- Consideration received to date from asset divestitures of
approximately $1.8 billion (excluding approximately $103 million in
consideration from the recent sale of four pain products, which is
expected to close in the fourth quarter of 2003).
 
-- Total contracted and potential future payments reduced to
approximately $2.2 billion at September 30, 2003.
 
-- Of a total of 55 active business ventures in July 2002, 41 have
been terminated or restructured to date.
 
-- Headcount reduced to approximately 2,400 from approximately 4,700
in July 2002 and approximately 2,500 in August 2003. Of the
approximate 2,300 headcount reduction since July 2002, approximately
1,100 relate to asset divestitures.
 
 Unaudited Consolidated US GAAP Income Statement Data
 
 Three Months Nine Months
Ended September 30  Ended September 30
 
 2002 2003 2002 2003
 US$m US$m US$m US$m
----------------------------------------------------------------------
 Revenue (see p. 7)
 213.9 157.7 Product revenue 909.3 585.0
 117.8 17.0 Contract revenue 313.3 88.3
--------- --------- --------- --------
  331.7 174.7 Total revenue 1,222.6 673.3
--------- --------- --------- --------
 
 Operating Expenses (see p. 10)
 101.6 70.6 Research & development 288.7 238.0
 88.9 78.5 Cost of goods sold 305.2 261.2
 Selling, general &
 170.9 92.0 administrative 528.2 337.7
 Loss/(gain) on disposal of
 - 10.8 businesses (net) - (238.9)
 Recovery plan and other
 302.9 27.1 significant charges 546.4 259.8
--------- --------- --------- --------
 664.3 279.0 Total operating expenses 1,668.5 857.8
--------- --------- --------- --------
 (332.6) (104.3) Operating loss (445.9) (184.5)
--------- --------- --------- --------
 
 Net Interest and Investment
 (Losses)/Income(see p.11)
 (21.4) (21.9) Net interest expense (47.5) (73.2)
 (3.7) (1.0) Business venture funding (21.0) (3.0)
 2.3 58.4 Investment gains 17.3 132.9
 (631.1) (15.4) Investment losses and other (1,163.0) (69.0)
--------- --------- --------- --------
 Net interest and investment
 (653.9) 20.1 (losses)/income (1,214.2) (12.3)
--------- --------- --------- --------
 
 Net loss from continuing
 (986.5) (84.2) operations before tax (1,660.1) (196.8)
 (2.7) (6.4) Taxation (4.7) (14.6)
--------- --------- --------- --------
 Net loss before discontinued
 (989.2) (90.6) operations (1,664.8) (211.4)
 Net (loss)/income from
 discontinued operations(see
 (7.2) (0.4) p.11) (9.0) 10.2
--------- --------- --------- --------
 (996.4) (91.0) Net loss (1,673.8) (201.2)
========= ========= ========= ========
 
 Weighted average no. of
 ordinary shares outstanding
 349,825 350,225 (in thousands) 349,683 349,963
 Basic and diluted loss per
 ordinary share - continuing
 ($2.83) ($0.26) operations ($4.76) ($0.60)
 Basic and diluted
  (loss)/earnings per ordinary
 share - discontinued
 ($0.02) - operations ($0.03) $0.03
 Basic and diluted loss per
 ($2.85) ($0.26) ordinary share - net loss ($4.79) ($0.57)
 
 Non-GAAP Financial Information
 EBITDA
 (332.6) (104.3) Operating loss (445.9) (184.5)
 Depreciation and amortisation
 54.6 38.2 included in operating loss 150.7 125.4
 Amortised revenue included in
 (99.8) (14.7) total revenue (216.7) (72.4)
---------- -------- --------- --------
 (377.8) (80.8) EBITDA (see Appendix 2) (511.9) (131.5)
========== ======== ========= ========
 
 
Unaudited US GAAP Balance Sheet Data
 Dec. 31 Sept. 30
  2002 2003
Assets US$m US$m
----------------------------------------------------------------------
Current Assets
Cash and cash equivalents 1,013.9 946.3
Marketable investment securities 450.9 359.4
Other current assets 351.6 292.2
 -------- --------
  1,816.4 1,597.9
 
Intangible assets 1,426.8 1,130.0
Property, plant and equipment 459.1 398.0
Investments and marketable investment securities 313.2 235.6
  -------- --------
Total Assets 4,015.5 3,361.5
 ======== ========
 
Liabilities and Shareholders' Equity
Shareholders' equity  826.9 717.1
Accounts payable and accrued liabilities 575.4 492.6
Deferred income 258.2 166.9
Guarantee provision - EPIL II 295.5 312.0
Product acquisition payments 227.2 142.0
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 792.3 490.9
 -------- --------
Total Liabilities and Shareholders' Equity 4,015.5 3,361.5
  ======== ========
 
Reconciliation of Movement in Shareholders' Equity
 US$m
At December 31, 2002 826.9
Net loss for the nine months ended September 30, 2003 (201.2)
Movement on unrealised gains on securities 84.8
Other 6.6
  --------
At September 30, 2003 717.1
 ========
 
 
 Unaudited US GAAP Cash Flow Data
 Three months  Nine months
Ended Sept. 30, Ended Sept. 30,
 
 2002 2003 2002 2003
 US$m US$m US$m US$m
----------------------------------------------------------------------
 (42.8) (59.3) Cashflows from operating activities 75.9 (177.0)
 (61.2) (27.9) Movement on debt interest and tax (94.0) (112.7)
 87.5 (3.3) Working capital movement 52.9 (53.0)
 Net purchase of tangible/intangible
 (129.5) (39.3) assets (404.4) (137.6)
 2.1 65.3 Net sale of investments 34.0 313.6
 Purchase of Autoimmune product
 (82.5) - royalty rights (82.5) -
 Sale of EPIL III assets in
 connection with repayment of EPIL
 9.3 - III debt 9.3 -
 - 41.1 Net proceeds of business disposals - 369.6
 (540.0) (3.3) Cashflows from financing activities (544.5) (270.5)
----------------------------------------------------------------------
 (757.1) (26.7) Net Cash Movement (953.3) (67.6)
 Cash and cash equivalents at
1,403.2 973.0 beginning of period 1,599.4 1,013.9
----------------------------------------------------------------------
 Cash and cash equivalents at end of
 646.1 946.3 period 646.1 946.3
----------------------------------------------------------------------
 
As previously announced on September 4, 2003, Elan filed with the
Securities and Exchange Commission ('SEC') its 2002 Annual Report on
Form 20-F, which included a restatement of its 2001 U.S. GAAP
financial results to consolidate Elan Pharmaceutical Investments III,
Ltd. ('EPIL III'), and an adjustment to its previously reported
unaudited U.S. GAAP financial information to consolidate Shelly Bay
Holdings Ltd. and to reflect certain other adjustments. The analysis
provided below reflects this restatement and the adjustments, which
are detailed in Appendix 3.
 
Revenue
 
Total revenue decreased 47% to $174.7 million in the third quarter of
2003 from $331.7 million in the third quarter of 2002. 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 four pain products, which is
expected to close in the fourth quarter of 2003).
 
Total revenue can be further analysed as follows:
 
 3 months ended 3 months ended
  September 30, September 30,
(a) Product Revenue 2002 2003
 US$m US$m
Revenue from retained products 91.1  119.5
Revenue from divested products 122.8 38.2
 -------------- --------------
Total product revenue 213.9 157.7
  -------------- --------------
(b) Contract Revenue
Amortisation of fees 97.5 6.2
Research revenue and milestones 20.3 10.8
 -------------- --------------
Total contract revenue 117.8 17.0
 -------------- --------------
Total Revenue 331.7 174.7
  -------------- --------------
 
(a) Product Revenue
 
Total product revenue for the third quarter of 2003 was $157.7 million
compared to $213.9 million in the third quarter of 2002, a decline of
26%. The decline in product revenue is due mainly to the divestiture
of a number of products as part of the recovery plan.
 
Revenue from retained products
 
Revenue from retained products was $119.5 million in the third quarter
of 2003 compared to $91.1 million in the third quarter of 2002, an
increase of 31%. This increase reflects the growth in prescriptions
and demand for those retained products, wholesaler inventory
adjustments, improvements in supply conditions, offset by an increase
in provisions for returns, discounts, allowances and rebates related
to Zanaflex, which resulted in negative revenue of $8.8 million for
Zanaflex in the third quarter of 2003.
 
Sales of Maxipime(TM) and Azactam(TM) in the third quarter of 2003
were $44.0 million, an increase of 170% over the comparable period in
2002, reflecting stronger demand and the negative impact on the sales
of these products in the third quarter 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 third quarter of 2003 increased by 5.7% compared to the same
period in 2002. Azactam audited sales volumes for the third quarter of
2003 increased by 5.9% compared to the same period in 2002.
 
Zonegran prescription demand remained strong for the third quarter of
2003 and increased by 66.0% over the third quarter of 2002. Zonegran
recorded revenue of $22.3 million for the third quarter of 2003, an
increase of 135% compared to the same period in 2002. Sales in 2002
were 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 $9.1 million in the third quarter of 2003 compared to $0.9
million in the third quarter of 2002 and $5.9 million in the second
quarter of 2003. Frova prescription demand remained strong for the
third quarter of 2003 and increased by 194% over the third quarter of
2002 and by 16% over the second quarter of 2003.
 
Revenue from divested products
 
As previously announced on October 22, 2003, Elan has agreed to sell
four pain products to aaiPharma Inc. for gross consideration of
approximately $103 million, consisting of approximately $51.6 million
in cash and the assumption by aaiPharma of $51.4 million in Elan's
future product related payments. The transaction is expected to close
during the fourth quarter of 2003. Elan expects to record a pre-tax
gain on closing of approximately $30 million in respect of the
disposal. During the third quarter of 2003, product revenue from the
pain portfolio was $23.9 million compared to $14.2 million in the
third quarter of 2002. Included in product revenues of $23.9 million
is $14.2 million related to a reduction in provisions for returns,
discounts, allowances and rebates, which arose in connection with the
sale of these products.
 
Revenue from divested products in the third quarter of 2003 includes
$8.5 million of amortised revenue related to the partnering of rights
to Elan's generic form of Adalat CC and the restructuring of Elan's
Avinza(TM) license agreement with Ligand Pharmaceuticals, Inc.
('Ligand'), which occurred in 2002. The remaining unamortised revenue
on these products of $111.7 million will be recognised as revenue over
the next four years reflecting Elan's ongoing involvement in the
manufacture of these products.
 
(b) Contract Revenue
 
Contract revenue in the third quarter of 2003 was $17.0 million
compared to $117.8 million in the same period of 2002, a decrease of
86%. The amortisation of fees amounted to $6.2 million in the third
quarter of 2003 compared to $97.5 million in the third quarter of
2002. Of the $6.2 million in amortised fees in the third quarter of
2003, $2.6 million related to business ventures. In the third quarter
of 2002, $94.5 million of the $97.5 million related to the business
ventures.
 
As part of the recovery plan outlined on July 31, 2002, Elan completed
a review of its business venture programme and, as a result, Elan is
terminating and restructuring most of its business ventures. Of a
total of 55 active business ventures in July 2002, 41 have been
terminated or restructured to date. The reduction in amortised fees
during the third quarter of 2003 arose primarily from the
restructuring and termination of business ventures, which started in
2002.
 
Gross Profit
 
The gross profit margin on product revenue was 50% in the third
quarter of 2003 compared to 57% in the second quarter of 2003, and 58%
in the third quarter of 2002. The reduction in the gross margin in
2003 reflects the change in the mix of product revenues, including the
divestiture of Skelaxin(TM) and Sonata(TM) during the second quarter
of 2003 and under-utilisation of capacity at Elan's manufacturing
facility in Athlone. During the third quarter of 2003, royalties paid
to Pharma Marketing in respect of sales of Zonegran, Frova and
Zanaflex of $10.9 million were included in cost of sales compared to
$20.6 million in the second quarter of 2003 (when royalties were also
paid in respect of Sonata), and $1.5 million in the third quarter of
2002.
 
On November 11, 2003, Elan exercised its option to purchase the
royalty rights in respect of Zonegran, Frova and Zanaflex from Pharma
Operating for approximately $100 million. The transaction is expected
to close in the fourth quarter of 2003. As a result no further royalty
payments will be made to Pharma Marketing.
 
Operating Expenses
 
Research and development expenses were $70.6 million in the third
quarter of 2003 compared to $101.6 million in the third quarter of
2002 and $80.9 million in the second quarter of 2003. This reduction
reflects the refocusing of research and development efforts on key
programs.
 
Selling, general and administrative expenses decreased by 46% to $92.0
million in the third quarter of 2003 from $170.9 million in the third
quarter of 2002 (approximately $37 million of the reduction related to
asset divestitures) and $120.4 million in the second quarter of 2003.
 
Update for Recovery Plan Charges
 
During the third quarter of 2003 Elan recorded net costs associated
with the implementation of the recovery plan of $27.1 million and
$10.8 million in relation to losses on the disposal of certain
businesses. Included in net costs associated with the implementation
of the recovery plan of $27.1 million are costs associated with
closing/restructuring certain businesses, severance, debt
restructuring and the SEC investigation.
 
Elan may in the future incur recovery plan related charges relating to
severance, retention and similar restructuring costs. Elan may incur
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.
 
Net Interest and Investment (Losses)/Income
 
Net interest and investment (losses)/income amounted to income of
$20.1 million in the third quarter of 2003 compared to a loss of
$653.9 million in the third quarter of 2002.
 
In the third quarter of 2003, net interest expense amounted to $21.9
million compared to $21.4 million in the third quarter of 2002,
reflecting lower interest income earned on cash deposits and other
investments offset by lower interest expense due to previously
announced LYONs repurchases. The gain on investments in the third
quarter of 2003 of $58.4 million included $33.6 million on the sale of
the remainder of Elan's investment in Ligand and $24.3 million in
relation to the mark-to-market of certain investments. These gains of
$58.4 million were offset by investment impairments of $13.5 million.
 
In addition, certain other publicly quoted investments were
marked-to-market and the net increase in value of approximately $10
million in the quarter has been included in unrealised gains on
securities within shareholders' equity.
 
Discontinued Operations
 
In accordance with SFAS No. 144 'Accounting for the Impairment or
Disposal of Long-Lived Assets', Elan has recorded the results of
operations of Actiq(TM) and Elan Diagnostics within discontinued
operations. Included in discontinued operations are revenue and
operating expenses related to Actiq and Elan Diagnostics for the third
quarter of 2003 of $nil and $0.4 million, respectively, compared to
$8.3 million and $15.8 million, respectively, for the third quarter of
2002.
 
EBITDA (See Appendix 2)
 
EBITDA for the third quarter of 2003 was negative $80.8 million
compared to negative $377.8 million for the same quarter in 2002.
However, before recovery plan related charges and net losses on the
disposal of businesses, EBITDA was negative $42.9 million in the third
quarter of 2003, compared to negative EBITDA of $74.9 million in the
third quarter of 2002.
 
Liquidity
 
At September 30, 2003, Elan had $946.3 million in cash and cash
equivalents (including $7.2 million in restricted cash held by EPIL
III), compared with $1,013.9 million at December 31, 2002 (including
$8.9 million in restricted cash held by EPIL III).
 
On November 5, 2003, Elan announced that it had successfully completed
its private offering of 35 million Ordinary Shares and on November 10,
2003, Elan announced that it had successfully completed the private
offering of $460 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 will by used by Elan's subsidiary,
Elan Finance Corporation, Ltd., to repurchase outstanding LYONs,
including LYONs surrendered for purchase at the option of the holders
thereof as of December 14, 2003, pursuant to the indenture under which
the LYONs were issued and for the repurchase of royalty rights from
Pharma Operating. Any excess proceeds are expected to be used by Elan
and its subsidiaries for general corporate purposes.
 
As of September 30, 2003, the major contracted and potential
non-operating cash payments relating to Elan's business are:
 
----------------------------------------------------------------------
 2003 2004 Thereafter Total
  US$m US$m US$m US$m
----------------------------------------------------------------------
Contracted
----------
7.25% Senior Notes (2008) - - 650.0 650.0
Fixed Product Payments 87.3  31.1 23.6 142.0
Contingent Product Payments (1) 12.7 - 6.5 19.2
EPIL II (2) - 450.0 - 450.0
EPIL III - - 390.0 390.0
3.25% LYONs  494.0 - - 494.0
Potential
---------
Pharma Marketing (1) - - 99.2 99.2
 ------ ------ ---------- --------
Total Contracted & Potential 594.0 481.1 1,169.3 2,244.4
----------------------------------------------------------------------
 
(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, $312.0 million of this amount is
 provided on the balance sheet
 
On November 11, 2003, Elan exercised its option to purchase the
remaining royalty rights in respect of Zonegran, Frova and Zanaflex
products from Pharma Operating for approximately $100 million. The
transaction is expected to close in the fourth quarter of 2003 and is
expected to result in a charge of approximately $100 million in the
fourth quarter of 2003. Elan had the option to purchase Pharma
Operating's royalty rights on these products until January 3, 2005,
for $110.0 million plus 15% per annum from June 12, 2003, less royalty
payments since that date. Royalties paid to Pharma Marketing are
included in cost of sales.
 
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. However, Elan's cash position will in future periods be
dependent on a number of factors, including asset divestitures,
balance sheet restructuring, debt service requirements, future
operating cash flow and the outcome of the ongoing SEC Enforcement
investigation and shareholder litigation.
 
Qualifying Special Purpose Entity ('QSPE')
 
Elan has guaranteed loan notes issued by EPIL II (a QSPE, which is not
consolidated under US 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 September 30, 2003,
and is repayable on June 28, 2004.
 
During the third quarter of 2003, Elan reduced the provision for its
guarantee by $2.4 million to $312.0 million reflecting the net
increase in the value of the investments held by EPIL II during this
period after charging interest of $11.1 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 91.3
Investments in private companies 30.2
Cash 27.9
Accrued interest and expenses (11.4)
 -------------
Total assets 138.0
Provision for guarantees 312.0
 -------------
Total guaranteed indebtedness 450.0
 
R&D Update
 
Antegren (natalizumab)
 
Elan and our partner, Biogen, Inc. ('Biogen') are collaborating on the
development, manufacturing and commercialisation of Antegren
(natalizumab), a humanised monoclonal antibody, the first alpha-4
antagonist in a new class of compounds known as selective adhesion
molecule inhibitors (SAM inhibitors).
 
Data from the Phase III Crohn's disease induction study were shared in
detail with the scientific and medical community in October at the
American College of Gastroenterology 2003 Congress in Baltimore and in
November at the United European Gastroenterology Week 2003 Congress in
Madrid, Spain.
 
As previously disclosed, the ENACT-1 Antegren in Crohn's induction
trial did not meet the primary endpoint of response as defined by a
70-point decrease in the Crohn's disease activity index (CDAI) at week
10. This result appears to be due to a high placebo response rate.
Review of the data from this investigational study clearly indicates
that Antegren is both biologically and clinically active. The activity
observed is consistent within both the ENACT-1 study and the data
reported in the Phase II study. There were no notable differences in
the overall rates of side effects between Antegren and placebo
treatment groups through week 12. The most common events seen were
headache, nausea and abdominal pain across both groups.
 
Elan and Biogen are currently working with the US and European
regulatory authorities to determine the regulatory path forward for
Antegren in Crohn's disease. Following discussions with the FDA, we
will initiate an additional three-month Phase III (induction) trial.
The definitive path forward for Antegren in Crohn's disease will be
strongly influenced by data generated from the maintenance trial,
ENACT-2, which becomes available in the first quarter of 2004.
 
We anticipate efficacy data to be available from the Multiple
Sclerosis ('MS') Phase III trials in 2004. Elan continues to believe
Antegren will provide a meaningful advance for patients with Crohn's
disease or MS.
 
About Elan
 
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.
 
The recent offerings of Ordinary Shares and Guaranteed Convertible
Notes were made outside the United States to non-U.S. persons in
reliance on Regulation S under the Securities Act of 1933, as amended
(the 'Securities Act'). The Ordinary Shares, the Guaranteed
Convertible Notes, the guarantee of the Notes and the shares to be
issued upon conversion of the Guaranteed Convertible Notes have not
been and will not be registered under the Securities Act and, unless
so registered, may not be offered, sold or distributed within the
United States or to U.S. persons (as defined in Regulation S under the
Securities Act) except pursuant to an exemption from, or in a
transaction not subject to, the registration requirements of the
Securities Act. This release does not constitute an offer to sell or
the solicitation of an offer to buy any Guaranteed Convertible Notes
or Ordinary Shares.
 
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 monetised to meet its liquidity requirements; the
outcome of the ongoing SEC investigation and the shareholder and other
pending litigation; the success of research and development activities
and the speed with which regulatory authorisations 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; the 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 U.S. 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, 2002, 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.
 
Appendix 1
Historic Revenue Analysis (Unaudited)
Total revenue analysis (US$m) Q3 YTD Q3 YTD
 2002 2002 2003 2003
 
Revenue from Retained Products
U.S. Promoted Products
Maxipime 13.5 54.0 35.2 77.6
Azactam 2.8 23.5 8.8 34.3
Zonegran 9.5 37.0 22.3 61.2
Myobloc 3.2 9.5 3.8 9.2
Frova 0.9 7.2 9.1 23.8
 --------------- -------------
 29.9 131.2 79.2 206.1
U.S. Non-promoted Products
Zanaflex 4.6 122.4 (8.8) (7.9)
Other 0.4 8.9 0.4 4.8
 --------------- -------------
 5.0 131.3 (8.4) (3.1)
Non-U.S. Product Revenue
Abelcet  6.2 18.2 6.7 21.4
Dilzem 3.1 9.3 2.9 9.6
Other 17.4 51.6 17.7 59.8
 --------------- -------------
Total Non-U.S. Product Revenue 26.7 79.1 27.3 90.8
 
Contract Manufacturing and Royalties 29.5 82.3 21.4 89.0
 
Total Revenue from Retained Products 91.1 423.9 119.5 382.8
 
Revenue from Divested Products
Skelaxin 49.9 125.5 - 60.2
Sonata 23.7 72.0 - 48.2
Abelcet 10.6 56.2 - -
Pain portfolio 14.2 41.7 23.9 58.8
Dermatology 3.1 38.2 - -
Diagnostics 10.4 30.7 - -
Adalat/Avinza 2.2 2.2 8.5 25.5
Rationalisation programme  8.7 56.1 5.8 9.5
 --------------- -------------
 122.8 422.6 38.2 202.2
Co-promotion Fees
Autoimmune - 38.8 - -
Pharma Marketing - 24.0 - -
 --------------- -------------
 - 62.8 - -
 
Total Product Revenue  213.9 909.3 157.7 585.0
 
Contract Revenue
Amortisation of fees 97.5 214.5 6.2 46.9
Research revenue and milestones 20.3 61.6 10.8 41.4
Pharma Marketing/Autoimmune - 37.2  - -
 --------------- -------------
Total Contract Revenue 117.8 313.3 17.0 88.3
 --------------- -------------
Total Revenue  331.7 1,222.6 174.7 673.3
 --------------- -------------
 
 
Appendix 2
 Three Months Nine Months
Ended September 30 Ended September 30
 
 2002 2003 2002 2003
 US$m US$m US$m US$m
 Non-GAAP Financial Information
 Reconciliation Schedule
 EBITDA
(332.6) (104.3) Operating loss (445.9) (184.5)
 Depreciation and amortisation included
 54.6 38.2 in operating loss 150.7 125.4
 Amortised revenue included in total
 (99.8)  (14.7) revenue (216.7) (72.4)
------- ------- ------- -------
(377.8) (80.8) EBITDA (511.9) (131.5)
======= =======  ======= =======
 
 
 Three Months Nine Months
Ended September 30 Ended September 30
 
 2002 2003 2002 2003
 US$m US$m  US$m US$m
 Non-GAAP Financial Information
 Reconciliation Schedule
 EBITDA before net losses/(gains) on
 disposal of businesses and recovery
 plan related charges
(332.6) (104.3) Operating loss (445.9) (184.5)
 Depreciation and amortisation included
 54.6 38.2 in operating loss 150.7 125.4
 Amortised revenue included in total
 (99.8) (14.7) revenue (216.7) (72.4)
 Loss/(gain) on disposal of businesses
 - 10.8 (net) - (238.9)
 Recovery plan and other significant
 302.9 27.1 charges 546.4 259.8
------- ------- ------- -------
 EBITDA before net losses/(gains) on
 disposal of businesses and recovery
 (74.9) (42.9) plan related charges 34.5 (110.6)
======= ======= ======= =======
 
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. 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'.
 
 
Appendix 3
Adjustment Analysis
Income Statement Q3 2002 Nine months
 ended 30
  September
 2002
 US$m US$m
 
Net loss - prior to adjustment (1,003.8) (1,755.8)
EPIL III adjustment  7.4 82.0
 
 -------------------------
Net loss - adjusted (996.4) (1,673.8)
 
 US$  US$
Diluted loss per share - prior to adjustment
 (2.87) (5.02)
EPS effect of:
EPIL III adjustment 0.02 0.23
 -------------------------
Diluted loss per share - adjusted (2.85) (4.79)
 =========================
 
 
Cashflow Prior to EPIL As
  restatement III restated
Nine months ended 30 September 2002 US$m US$m US$m
Cashflows from operating activities 78.0 (2.1) 75.9
Movement on debt interest and tax (62.4) (31.6) (94.0)
Working capital movement 53.1 (0.2) 52.9
Net purchase of tangible/intangible
 assets (404.4) - (404.4)
Net sale of investments 14.7 19.3 34.0
Purchase of Autoimmune Product Royalty
 Rights (82.5) - (82.5)
Payment under Guarantee re EPIL III (141.6) 141.6 -
Sale of EPIL III assets in connection
 with repayment of EPIL III debt  - 9.3 9.3
Cash flows from financing activities (394.5) (150.0) (544.5)
 ------------------------------
Net Cash Movement (939.6) (13.7) (953.3)
Cash and cash equivalents at beginning
 of period 1,572.5 26.9 1,599.4
 ------------------------------
Cash and cash equivalents at end of
 period 632.9 13.2 646.1
 ------------------------------
 
 
 Prior to EPIL As
 restatement III restated
Three months ended 30 September 2002 US$m US$m US$m
Cashflows from operating activities (40.0) (2.8) (42.8)
Movement on debt interest and tax (38.8) (22.4) (61.2)
Working capital movement 87.2 0.3 87.5
Net purchase of tangible/intangible
 assets (129.5) - (129.5)
Net (purchase) / sale of investments (3.6) 5.7 2.1
Purchase of Autoimmune Product Royalty
 Rights  (82.5) - (82.5)
Payment under Guarantee re EPIL III (141.6) 141.6 -
Sale of EPIL III assets in connection
 with repayment of EPIL III debt - 9.3 9.3
Cash flows from financing activities (392.0) (148.0) (540.0)
 ------------------------------
Net Cash Movement (740.8) (16.3) (757.1)
Cash and cash equivalents at beginning
 of period 1,373.7 29.5 1,403.2
 ------------------------------
Cash and cash equivalents at end of
 period 632.9 13.2 646.1
 ------------------------------