Elan planning to reduce cash costs by $40 million in response to generic competitors

By Jennifer Lanning Drey

Portland, Ore., July 26 - Elan Corp., plc will adjust its commercial infrastructure and reduce related selling and administration expenses as part of a plan expected to reduce annual cash costs by approximately $40 million when complete, Elan chief financial officer Shane Cooke said during the company's second-quarter earnings conference call held Thursday.

The restructuring plan is being implemented in response to the earlier-than-expected release of a generic competitor to Elan's already commercialized drug, Maxipime, and the expected approval of a generic competitor to Azactam, another of Elan's drugs already on the market.

The initiative should be complete in the second half of 2007.

The company also said that as a result of a $52.2 million non-cash amortization charge taken in the second quarter, it would have no amortization expense related to Maxipime and Azactam in 2008 and beyond.

The restructuring initiative combined with the write-off is expected to result in a roughly $100 million decrease in selling, general and administrative costs going into 2008, Cooke said.

Estimated upfront costs associated with the restructuring are estimated at $10 million to $15 million.

Elan had cash and cash equivalents of $826.0 million at June 30, compared with $907.6 million at March 31, according to a company news release.

Break-even pushed back

Elan had previously targeted achieving break-even status by the end of the year, but said Thursday that due to the generic drug introductions, it may not reach break-even on an EBITDA basis until sometime in 2008.

Year-over-year, Elan's revenue was up by 38% in the second quarter, driven by Tysabri. Revenues from Maxipime fell but were made up for by an increase in revenues from the business technology unit.

The company said it expects Tysabri to continue to drive revenue growth.

"We're pleased with the solid progress we and [partner] Biogen [Idec] are making with Tysabri, particularly in the EU markets, and we remain optimistic that as patient exposure continues to grow and the safety profile becomes clearer, Tysabri will eclipse all existing therapies," Cooke said.

The company continues targeting to contain adjusted EBITDA losses for 2007 at the previously guided $50 million level, Cooke said.

Based in Dublin, Elan is a neuroscience-based biotechnology company.

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