Elan looking to be profitable, cash flow positive by year-end 2010

By Jennifer Lanning Drey

Portland, Ore., July 21 - Elan Corp. plc believes the benefits of its recently announced transaction to sell its stake in a collaborative Alzheimer's program coupled with the current growth rate of Tysabri should allow the company to turn pre-tax profitable and cash flow positive by the end of 2010, Shane Cooke, chief financial officer of Elan, said Tuesday during the company's second-quarter earnings call.

As previously reported, Johnson & Johnson has agreed to acquire an 18.4% interest in Elan for $1 billion. The investment gives Johnson & Johnson a stake in Elan's Alzheimer's Immunotherapy Program, a collaborative effort with Wyeth to develop and commercialize products for the treatment and/or prevention of neurodegenerative conditions, including Alzheimer's.

Proceeds from the Johnson & Johnson transaction will be used to supplement Elan's liquidity and reduce leverage, Cooke said.

On a pro forma basis, net debt will be reduced to approximately $500 million from the current $1.5 billion.

As a result, transaction-related benefits for Elan include reduced financial risk, additional liquidity to accelerate development of its other pipeline candidates and reduced costs in the coming years, Cooke said.

Also under the transaction, Elan will receive a 49.9% equity interest in the newly formed Johnson & Johnson company that acquires the Alzheimer's program. Elan will be entitled to a 49.9% share of the profits and royalty payments upon commercialization of products.

"The transaction with J&J meets or exceeds all of the financial objectives we set when we embarked on the strategic review in January of this year," Cooke said.

The transaction is expected to close in the second half of 2009 and completes Elan's strategic review, which began in January.

Financing agreement

Cooke also said Tuesday that Elan has entered into a financing agreement with Johnson & Johnson that gives Elan more flexibility with respect to multiple sclerosis drug Tysabri if there were to be a change of control at Biogen Idec.

Elan and Biogen Idec jointly market Tysabri, and the companies currently have an agreement that if there is a change in control at either party, the other has the right to sell its interest in Tysabri or to buy the interest of the party undergoing the change of control.

Under the terms of the new financing arrangement, Johnson & Johnson has the right to finance Elan's purchase of the other half of Tysabri.

If Johnson & Johnson exercised that right, Elan would enter into a 50-50 collaboration with Johnson & Johnson.

"We're delighted with this aspect of the arrangement as it potentially gives us greater flexibility in the event of a change of control at Biogen Idec," Cooke said.

Tysabri drives revenues

Elan's second-quarter revenues were up 14%, led by a 30% increase in revenues from Tysabri and a 10% increase in revenues from the Elan Drug Technologies business. Adjusted EBITDA was $19.1 million for the second quarter, compared to an adjusted EBITDA loss of $6.2 million in the same period of 2008.

"The first half of the year for Elan was exceptionally busy and exceptionally productive," Kelly Martin, chief executive officer of Elan, said during the call.

The company posted a second-quarter net loss of $68.2 million, down slightly from a net loss of $71.5 million in the same period of 2008.

Johnson & Johnson is a New Brunswick, N.J.-based health care company.

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