Elan Corporation, plc today announced its second quarter 2008
financial results and provided a business update. Commenting on Elan’s
business, Kelly Martin, Elan’s president and chief executive officer,
said, “Disciplined execution and tangible results for the benefit of
patients and shareholders continue to be our enduring tenet. We are
encouraged by the recently reported top-line results from our Phase 2
trial of bapineuzumab which provides further validation of our
approach. We look forward to sharing the full clinical data later this
month. In addition, we are pleased to celebrate the second anniversary
of Tysabri in MS and the launch of Tysabri for Crohn’s patients. We
will continue to demonstrate focused and disciplined leadership that
will provide continuous progress that ultimately leads to benefits for
our shareholders, patients, and their caregivers.”
Commenting on Elan’s second quarter financial results, Shane
Cooke, Elan’s executive vice president and chief financial officer,
said, “We are very pleased with the results for the second quarter of
2008, which reflect the excellent progress we are making across all
our businesses and development programs. Revenues grew by 30%, driven
by another strong performance from Tysabri and we are confident that,
for the full year, Elan’s revenues will approach the $1 billion mark.
Growth in Tysabri, which recently celebrated its second anniversary,
continues to accelerate and with about 31,800 patients on therapy
globally we are confident it will reach blockbuster status on a run
rate basis in the coming months and our target of 100,000 patients on
therapy by the end of 2010. The loss for the second quarter of 2008
decreased by 49% as a result of the 30% increase in revenues, strong
cost management and the inclusion of charges in the second quarter of
2007 related to the impact of generic competition on Maxipime.”
Mr. Cooke added, “The continued acceleration in the growth of
Tysabri, coupled with reduced SG&A expenses, more than offsets our
increased investment in R&D, as a result of the continued progress in
our key development programs, and the loss of sales of Maxipime due to
generic competition. We remain on track to record Adjusted EBITDA
losses of less than $50 million for the year and to exit the year
profitable on an Adjusted EBITDA basis.”
Unaudited Consolidated U.S. GAAP Income Statement Data
Three Months Six Months
Ended June 30 Ended June 30
2007 2008 2007 2008
U.S.$m U.S.$m U.S.$m U.S.$m
———————————————————————-
Revenue (see page 7)
182.9 241.7 Product revenue 350.4 449.0
5.6 3.9 Contract revenue 14.1 11.3
——- ——- ——- ——-
188.5 245.6 Total revenue 364.5 460.3
82.6 122.0 Cost of goods sold 155.5 232.8
——- ——- ——- ——-
105.9 123.6 Gross margin (see page 13) 209.0 227.5
Operating Expenses (see page 14)
89.6 75.8 Selling, general and administrative 178.7 148.8
59.7 81.2 Research and development 121.0 154.7
67.1 2.6 Other net charges 67.1 5.6
——- ——- ——- ——-
216.4 159.6 Total operating expenses 366.8 309.1
——- ——- ——- ——-
(110.5) (36.0) Operating loss (157.8) (81.6)
Net Interest and Investment Gains and
Losses (see page 15)
26.2 33.5 Net interest expense 52.8 68.0
(0.6) (0.5) Net investment (gains)/losses (1.3) 2.8
— — Net charge on debt retirement 18.8 –
——- ——- ——- ——-
Net interest and investment gains
25.6 33.0 and losses 70.3 70.8
——- ——- ——- ——-
Net loss from continuing operations
(136.1) (69.0) before tax (228.1) (152.4)
5.0 2.5 Provision for income taxes 6.0 4.6
——- ——- ——- ——-
(141.1) (71.5) Net loss (234.1) (157.0)
======= ======= ======= =======
Basic and diluted net loss per
(0.30) (0.15) ordinary share (0.50) (0.33)
Basic and diluted weighted average
number of ordinary shares outstanding
467.9 473.1 (in millions) 467.3 472.4 Unaudited Non-GAAP Financial Information - EBITDA
Three Months Non-GAAP Financial Information Six Months
Ended Reconciliation Schedule Ended
June 30 June 30
2007 2008 2007 2008
U.S.$m U.S.$m U.S.$m U.S.$m
———————————————————————-
(141.1) (71.5) Net loss (234.1) (157.0)
26.2 33.5 Net interest expense 52.8 68.0
5.0 2.5 Provision for income taxes 6.0 4.6
83.1 17.1 Depreciation and amortization 114.2 34.1
(4.4) (1.1) Amortized fees (8.4) (2.3)
——- ——- ——- ——-
(31.2) (19.5) EBITDA (69.5) (52.6)
======= ======= ======= =======
Three Months Non-GAAP Financial Information Six Months
Ended Reconciliation Schedule Ended
June 30 June 30
2007 2008 2007 2008
U.S.$m U.S.$m U.S.$m U.S.$m
————— ————————————– —————
(31.2) (19.5) EBITDA (69.5) (52.6)
10.0 11.2 Share-based compensation 23.8 23.4
14.9 2.6 Other net charges 14.9 5.6
(0.6) (0.5) Net investment (gains)/losses (1.3) 2.8
— — Net charge on debt retirement 18.8 –
——- ——- ——- ——-
(6.9) (6.2) Adjusted EBITDA (13.3) (20.8)
======= ======= ======= =======
To supplement its consolidated financial statements presented on a
U.S. GAAP basis, Elan provides readers with EBITDA (Earnings Before
Interest, Taxes, Depreciation and Amortization) and Adjusted EBITDA,
non-GAAP measures of operating results. EBITDA is defined as net loss
plus or minus depreciation and amortization of costs and revenues,
provisions for income tax and net interest expense. Adjusted EBITDA is
defined as EBITDA plus or minus share-based compensation, other net
charges, net investment gains or losses and net charge on debt
retirement. EBITDA and Adjusted EBITDA are not presented as, and
should not be considered alternative measures of, operating results or
cash flow from operations, as determined in accordance with U.S. GAAP.
Elan’s management uses EBITDA and Adjusted EBITDA to evaluate the
operating performance of Elan and its business and these measures are
among the factors considered as a basis for Elan’s planning and
forecasting for future periods. Elan believes EBITDA and Adjusted
EBITDA are measures of performance used by some investors, equity
analysts and others to make informed investment decisions. EBITDA and
Adjusted EBITDA are used as analytical indicators of income generated
to service debt and to fund capital expenditures. EBITDA and Adjusted
EBITDA do not give effect to cash used for interest payments related
to debt service requirements and do not reflect funds available for
investment in the business of Elan or for other discretionary
purposes. EBITDA and Adjusted EBITDA, as defined by Elan and presented
in this press release, may not be comparable to similarly titled
measures reported by other companies. Reconciliations of EBITDA and
Adjusted EBITDA to net loss from continuing operations are set out in
the tables above titled, “Non-GAAP Financial Information
Reconciliation Schedule.”
Unaudited Consolidated U.S. GAAP Balance Sheet Data
December June 30
31 2007 2008
U.S.$m U.S.$m
———————————————————————-
Assets
Current Assets
Cash and cash equivalents 423.5 528.0
Restricted cash — current 20.1 10.2
Investment securities — current 276.9 79.2
Prepaid and other current assets 195.9 217.8
——— ——-
Total current assets 916.4 835.2
Non-Current Assets
Intangible assets, net 457.6 520.8
Property, plant and equipment, net 328.9 328.3
Investment securities — non-current 22.5 14.5
Restricted cash — non-current 9.5 14.9
Other assets 46.5 45.1
——— ——-
Total Assets 1,781.4 1,758.8
========= =======
Liabilities and Shareholders’ Deficit
Accounts payable, accrued and other liabilities 251.1 322.1
Long-term debt 1,765.0 1,765.0
Shareholders’ deficit(1) (see page 15) (234.7) (328.3)
——— ——-
Total Liabilities and Shareholders’ Deficit 1,781.4 1,758.8
========= =======
(1) Elan’s debt covenants do not require it to maintain or adhere
to any specific financial ratios. Consequently, the shareholders’
deficit has no impact on Elan’s ability to comply with its debt
covenants.
Unaudited Consolidated U.S. GAAP Cash Flow Data
Three Months Six Months
Ended Ended
June 30 June 30
2007 2008 2007 2008
U.S.$m U.S.$m U.S.$m U.S.$m
———————————————————————-
5.2 (4.4) Cash flows from operating activities 13.6 (14.6)
(67.8) (63.4) Movement on debt interest and tax (97.9) (74.3)
(18.7) 12.3 Working capital movement 29.6 (33.1)
Net purchases of tangible and
(5.4) (14.8) intangible assets (12.9) (23.2)
0.1 20.8 Net proceeds from sale of investments 2.4 205.2
2.0 — Net proceeds from product divestment 2.0 2.0
9.0 23.9 Cash flows from financing activities (615.4) 38.6
(6.0) 4.7 Restricted cash movement (6.0) 3.9
——- ——- ——- ——-
(81.6) (20.9) Net cash movement (684.6) 104.5
907.6 548.9 Beginning cash balance 1,510.6 423.5
——- ——- ——- ——-
Cash and cash equivalents at end of
826.0 528.0 period 826.0 528.0
======= ======= ======= =======
Summary
Total revenue increased by 30% in the second quarter of 2008 to
$245.6 million, compared to the same period in 2007. The increase was
driven by a strong performance from Tysabri, with Elan’s recorded
sales increasing almost threefold to $133.4 million in the second
quarter of 2008, more than compensating for the reduced sales of
Maxipime following the introduction of generic competition in June
2007. Total in-market sales of Tysabri were $200.0 million in the
second quarter 2008, an increase of 177% over the $72.1 million
recorded in the same quarter of 2007.
Revenue from the Biopharmaceuticals business grew by 62% while
revenue from the Elan Drug Technologies (EDT) business decreased by
12%. Revenues from EDT were impacted by the timing of customer orders
and by the inclusion of a $5 million milestone in 2007.
The gross margin was $123.6 million for the second quarter of
2008, compared to $105.9 million for the same quarter of 2007.
Increased gross margin earned from higher sales of Tysabri more than
replaced lost gross margin as a result of lower sales of Maxipime
following the introduction of generic competition.
Although revenue increased by 30%, selling, general and
administrative (SG&A) expenses declined by 15%, reflecting reduced
sales and marketing costs and amortization expense relating to
Maxipime and Azactam, and the operating leverage associated with
Tysabri.
Research and development (R&D) expenses increased by 36% primarily
related to the advancement of Elan’s Alzheimer’s disease programs in
the clinic.
The net loss for the second quarter of 2008 decreased by 49% to
$71.5 million from $141.1 million in the second quarter of 2007. The
decrease in the net loss was primarily due to the 30% increase in
revenues, strong cost management, and the inclusion of $67.1 million
in other charges in the second quarter of 2007 primarily related to
the introduction of a generic competitor to Maxipime and the
consolidation of Elan’s activities on the U.S. west coast. Excluding
these other charges and R&D expenses, performance at the operating
level improved by $31.5 million to a $47.8 million operating profit
driven by a 30% increase in revenues and improved operating margins.
EDT Strategic Evaluation
During the past several years, the Biopharmaceuticals and EDT
businesses have been run as distinct businesses and the results have
been reported separately reflecting this management practice. Given
the significant progress of both businesses, Elan has decided to
explore the alternative strategic options for a separation of the EDT
business. A formal separation of the two businesses would allow each
to better achieve its strategic goals and full potential through
dedicated management focus and allocation of capital. It is expected
that this evaluation will be completed over the next several months.
Adjusted EBITDA
Adjusted EBITDA losses for the second quarter of 2008 were $6.2
million, compared to $6.9 million in the same period of 2007. The
decrease principally reflects the 30% increase in revenues and lower
SG&A costs, offset by increased R&D investment.
A reconciliation of negative Adjusted EBITDA to net loss from
continuing operations, is presented in the table titled, “Unaudited
Non-GAAP Financial Information - EBITDA,” included on page 3. Included
at Appendices I and II are further analyses of the results and
Adjusted EBITDA between the Biopharmaceuticals business and the EDT
business.
Total Revenue
Total revenue for the second quarter of 2008 increased 30% to
$245.6 million from $188.5 million in the same period of 2007, driven
by the strong growth of Tysabri. Revenue from the Biopharmaceuticals
business increased by 62% (see page 8), while revenue from the EDT
business decreased by 12% (see page 11). Revenue is analyzed below
between revenue from the Biopharmaceuticals and EDT business units.
Three Months Six Months
Ended Ended
June 30 June 30
2007 2008 2007 2008
U.S.$m U.S.$m U.S.$m U.S.$m
———————————————————————-
Revenue from the Biopharmaceuticals
107.0 173.8 business 216.2 319.1
81.5 71.8 Revenue from the EDT business 148.3 141.2
——- ——- ——- ——-
188.5 245.6 Total revenue 364.5 460.3
======= ======= ======= =======
Revenue from the Biopharmaceuticals business
For the second quarter of 2008, revenue from the
Biopharmaceuticals business unit increased by 62% to $173.8 million
from $107.0 million in the second quarter of 2007. The increase was
driven by strong growth in Tysabri, which more than compensated for
reduced sales of Maxipime, which was impacted by generic competition.
Three Months Six Months
Ended Ended
June 30 June 30
2007 2008 2007 2008
U.S.$m U. ativan. S.$m U.S.$m U.S.$m
———————————————————————-
Product revenue
46.9 99.3 Tysabri - U.S. 82.6 185.6
— 34.1 Tysabri - Rest of world (ROW) (5.0) 54.8
——- —— ——- ——-
46.9 133.4 Total Tysabri 77.6 240.4
20.9 27.7 Azactam 42.2 51.9
35.6 8.2 Maxipime 87.5 18.3
3.3 4.1 Prialt 5.2 7.9
(0.3) 0.4 Royalties 0.2 0.6
——- —— ——- ——-
106.4 173.8 Total product revenue 212.7 319.1
0.6 — Contract revenue 3.5 –
——- —— ——- ——-
Total revenue from Biopharmaceuticals
107.0 173.8 business 216.2 319.1
======= ====== ======= =======
Tysabri
Global in-market net sales of Tysabri can be analyzed as follows:
Three Months Six Months
Ended Ended
June 30 June 30
2007 2008 2007 2008
U.S.$m U.S.$m U.S.$m U.S.$m
———————————————————————-
46.9 99.3 United States 82.6 185.6
25.2 100.7 ROW 37.9 174.1
——- ——- ——- ——-
72.1 200.0 Total Tysabri in-market net sales 120.5 359.7
======= ======= ======= =======
For the second quarter of 2008, Tysabri in-market net sales
increased by 177% to $200.0 million from $72.1 million in same period
of 2007, reflecting strong patient demand across global markets. At
the end of June 2008, approximately 31,800 patients were on therapy
worldwide, comprising approximately 31,200 on commercial therapy and
approximately 600 in the multiple sclerosis (MS) clinical trials,
representing an increase of 22% over the 26,100 patients who were on
therapy at the end of March 2008, and of 127% over the 14,000 patients
who were on therapy this time last year.
The number of net new patients on Tysabri continued to accelerate
during the second quarter 2008. During the second quarter 2008, a net
5,700 new patients were added compared to 3,800 in the second quarter
of 2007, an increase of 50%, and compared to the 5,000 which were
added in the first quarter of 2008.
As a result of the strong growth in Tysabri sales, Elan expects to
exercise its option to pay a $75.0 million milestone to Biogen Idec
Inc. (Biogen Idec) in order to maintain its percentage share of
Tysabri at approximately 50% for annual global in-market net sales of
Tysabri that are in excess of $700 million. The payment is expected to
be made in July 2008 and is included in intangible assets and accrued
other liabilities on Elan’s June 30, 2008 balance sheet. The
intangible asset will be amortized over approximately 10 years.
Tysabri was developed and is being marketed in collaboration with
Biogen Idec. In general, subject to certain limitations imposed by the
parties, Elan shares with Biogen Idec most of the development and
commercialization costs for Tysabri. Biogen Idec is responsible for
manufacturing the product. In the United States, Elan purchases
Tysabri from Biogen Idec and is responsible for distribution.
Consequently, Elan records as revenue the net sales of Tysabri in the
U.S. market. Elan purchases product from Biogen Idec at a price that
includes the cost of manufacturing, plus Biogen Idec’s gross margin on
Tysabri, and this cost, together with royalties payable to other third
parties, is included in cost of sales.
Outside of the United States, Biogen Idec is responsible for
distribution and Elan records as revenue its share of the profit or
loss on these sales of Tysabri, plus Elan’s directly-incurred expenses
on these sales.
Tysabri - U.S.
In the U.S. market, Elan recorded net sales of $99.3 million in
the second quarter of 2008, an increase of 112% over $46.9 million in
the same period of 2007.
As of the end of June 2008, over 3,100 doctors had enrolled
patients and approximately 17,800 patients were on commercial therapy,
which represents increases of 72% and 107%, respectively, since the
end of June 2007.
On January 14, 2008, the U.S. Food and Drug Administration (FDA)
approved the supplemental Biologics License Application for Tysabri,
for the treatment of patients with Crohn’s disease (CD), and Tysabri
was launched in this indication at the end of the first quarter of
2008. The focus of CD activities in the United States since launch has
been on educating health care professionals in relation to the
operation of the CD TOUCH prescribing program, to ensure that Tysabri
is made available to appropriate CD patients, and working with the
FDA’s Division of Drug Marketing, Advertising and Communication for
approval of marketing materials. We have made good progress with our
initial target physicians and are working to minimize the delay
between patients being prescribed Tysabri and beginning therapy.
By the end of June, nearly all of the initial “First Mover”
targeted CD physicians have been TOUCH educated and their affiliated
infusion sites certified. Initial review of the completed CD TOUCH
forms indicates that about a third of the patients have been on one
anti-TNF therapy during the past 12 months. A little over 100 Crohn’s
disease patients were on therapy generating $0.6 million in revenue
during the second quarter of 2008.
Tysabri - ROW
As previously mentioned, in the ROW market, Biogen Idec is
responsible for distribution and Elan records as revenue its share of
the profit or loss on ROW sales of Tysabri, plus Elan’s
directly-incurred expenses on these sales. As a result, in the ROW
market, Elan recorded net revenue of $34.1 million for the second
quarter of 2008, compared to $Nil for the same period of 2007. Elan’s
net Tysabri ROW revenue is calculated as follows:
Three Months Six Months
Ended Ended
June 30 June 30
2007 2008 2007 2008
U.S.$m U.S.$m U.S.$m U.S.$m
———————————————————————-
25.2 100.7 ROW in-market sales by Biogen Idec 37.9 174.1
ROW operating expenses incurred by Elan
(32.8) (63.1) and Biogen Idec (59.8) (117.5)
——- —— ——- ——-
ROW operating profit/(loss) incurred by
(7.6) 37.6 Elan and Biogen Idec (21.9) 56.6
——- —— ——- ——-
Elan’s 50% share of Tysabri ROW
(3.8) 18.8 collaboration operating profit/(loss) (10.9) 28.3
3.8 15.3 Elan’s directly incurred costs 5.9 26.5
——- —— ——- ——-
— 34.1 Net Tysabri ROW revenue (5.0) 54.8
======= ====== ======= =======
As of the end of June 2008, approximately 13,400 patients,
principally in the European Union (EU), were on commercial therapy, an
increase of 31% over the 10,200 who were on therapy at the end of
March 2008, and more than three times the 4,300 who were on therapy
this time last year.
Other Biopharmaceuticals products
Revenue from Azactam was $27.7 million in the second quarter of
2008, compared to $20.9 million in the same period of 2007, an
increase of 33%, reflecting increased demand. Azactam lost its patent
exclusivity in October 2005 and its future sales are expected to be
negatively impacted by generic competition. However, to date no
generic form of Azactam has been approved.
Revenue from Maxipime decreased 77% to $8.2 million in the second
quarter of 2008 from $35.6 million in the second quarter of 2007. The
decrease was principally due to the introduction of generic
competition. The first generic cefepime hydrochloride was launched in
June 2007, and additional generic forms of Maxipime have since been
launched. Elan expects that the generic competition will continue to
materially and adversely affect Elan’s revenues from, and gross margin
for, Maxipime.
Revenue from Prialt was $4.1 million in the second quarter of
2008, compared to $3.3 million in the same period of 2007. The 24%
increase is primarily due to higher demand for the product.
Revenue from the EDT business
Revenue from the EDT business unit decreased by 12% to $71.8
million in the second quarter of 2008 from $81.5 million in the second
quarter of 2007, reflecting the inclusion of a $5 million milestone
relating to Zanaflex in 2007 and the impact of the timing of customer
orders.
For the first half of 2008, revenues decreased by 5% due
principally to reduced non-cash amortized revenue related to Adalat.
Three Months Six Months
Ended Ended
June 30 June 30
2007 2008 2007 2008
U.S.$m U.S.$m U.S.$m U.S.$m
———————————————————————-
Product revenue
Manufacturing revenue and royalties
16.3 15.8 Tricor(R) 27.1 28.8
8.5 8.9 Focalin(R) XR / RitalinLA(R) 15.5 17.2
11.3 10.9 Skelaxin(R) 17.5 17.4
6.1 5.4 Verelan(R) 15.3 11.2
4.9 2.9 Diltiazem(R) 9.8 7.5
7.4 2.4 Zanaflex 7.7 8.9
19.8 21.6 Other 40.3 38.9
——- ——- ——- ——-
Total manufacturing revenue
74.3 67.9 and royalties 133.2 129.9
2.2 — Amortized revenue - Adalat(R) 4.5 –
——- ——- ——- ——-
76.5 67.9 Total product revenue 137.7 129.9
Contract revenue
1.1 1.0 Amortized fees 2.2 2.1
3.9 2.9 Research revenue and milestones 8.4 9.2
——- ——- ——- ——-
5.0 3.9 Total contract revenue 10.6 11.3
——- ——- ——- ——-
81.5 71.8 Total revenue from the EDT business 148.3 141.2
======= ======= ======= =======
Manufacturing revenue and royalties comprise revenue earned from
products manufactured for clients and royalties earned principally on
sales by clients of products that incorporate Elan’s technologies.
Except as noted above, no other product accounted for more than 10% of
total manufacturing revenue and royalties in the second quarter of
2008 or 2007. Of the total of $67.9 million (2007: $74.3 million) in
manufacturing revenue and royalties, 47% (2007: 45%) consisted of
royalties received on products that were not manufactured by Elan.
Potential generic competitors have challenged the existing patent
protection for several of the products from which Elan earns
manufacturing revenue and royalties. Elan and its clients defend the
parties’ intellectual property rights vigorously. However, if these
challenges are successful, Elan’s manufacturing revenue and royalties
will be materially and adversely affected.
Additional analyses of the results between the Biopharmaceuticals
and EDT business units are set out in Appendices I and II. In the
second quarter of 2008, EDT recorded EBITDA of $27.0 million compared
to $36.8 million in the second quarter of 2007. The reduction in
EBITDA is principally as a result of the inclusion in 2007 of a $5
million milestone in relation to Zanaflex and increased legal fees
associated with intellectual property litigation.
During the quarter, Jazz Pharmaceuticals, Inc. launched Luvox CR,
a once a day formulation of fluvoxamine which incorporates Elan’s
SODAS technology. Elan manufactures Luvox CR and, in addition to
manufacturing revenues, will receive royalties on sales.
EDT and its clients continued to make progress during the second
quarter of 2008 with its pipeline products. Notably, Acorda
Therapeutics (Acorda) announced positive data from a second Phase 3
study of Fampridine SR on walking ability in people with MS.
Fampridine SR, which incorporates Elan’s proprietary MXDAS technology,
is being developed by Acorda and will be manufactured by EDT. EDT will
also receive royalties on any sales of Fampridine SR.
In June 2008, a jury ruled in the U.S. District Court for the
District of Delaware that Abraxis BioScience Inc. (Abraxis) had
infringed a patent owned by Elan in relation to the application of
EDT’s nanocrystal technology to Abraxane. The jury awarded Elan $55
million, applying a royalty rate of 6% to sales of Abraxane from
January 2005 through June 13, 2008 (the date of the verdict). Abraxis
has announced its intention to appeal the ruling.
Gross Margin
The gross margin was $123.6 million for the second quarter of
2008, compared to $105.9 million for the same quarter of 2007, with
increased gross margin earned from higher sales of Tysabri more than
replacing lost gross margin due to reduced sales of Maxipime following
the introduction of generic competition.
The total gross margin as a percentage of revenue was 50% in the
second quarter of 2008, compared to 56% in the same period of 2007.
The decrease was due principally to the change in the mix of product
sales, including the impact of Tysabri and Maxipime as described
above. The Tysabri gross margin was 42% in the second quarter of 2008,
compared to 29% in the same period of 2007. The gross margin is
impacted by the profit sharing and operational arrangements in place
with Biogen Idec, and reflects Elan’s gross margin on sales of Tysabri
in the United States of approximately 37% in the second quarter of
2008 and 36% in the same period of 2007, partially offset by the
inclusion in cost of sales of the royalties payable by Elan on sales
of Tysabri outside of the United States. These royalties are payable
by Elan but reimbursed by the collaboration (see page 10).
Operating Expenses
Selling, general and administrative
For the second quarter of 2008, SG&A expenses decreased 15% to
$75.8 million from $89.6 million in the same period of 2007,
principally reflecting reduced amortization costs associated with
Maxipime and Azactam and can be analyzed as follows:
Three Months Six Months
Ended Ended
June 30 June 30
2007 2008 2007 2008
U.S.$m U.S.$m U.S.$m U.S.$m
———————————————————————-
57.7 54.5 Biopharmaceuticals 113.0 105.6
8.5 10.7 EDT 17.8 21.8
17.6 4.4 Depreciation and amortization 35.2 8.3
5.8 6.2 Share-based compensation 12.7 13.1
——- ——- ——- ——-
89.6 75.8 Total 178.7 148.8
======= ======= ======= =======
The SG&A expenses related to the Tysabri ROW sales are reflected
in the Tysabri ROW revenue as previously described on page 10.
Research and development
For the second quarter of 2008, R&D expenses increased 36% to
$81.2 million from $59.7 million in the same period of 2007. The
increase was primarily due to increased expenses associated with the
progression of Elan’s Alzheimer’s disease programs, including the
advance of bapineuzumab into Phase 3 clinical trials and the advance
of ELND-005 into Phase 2 clinical trials during the second half of
2007.
Other charges
For the second quarter of 2008, other net charges of $2.6 million
(2007: $67.1 million) were primarily related to site consolidation and
comprised of severance and office relocation costs. The total other
net charges of $67.1 million in the second quarter of 2007 consist of
an impairment charge of $52.2 million relating to the Maxipime and
Azactam intangible assets, arising from the approval of a first
generic cefepime hydrochloride in June 2007 and an anticipated
approval for a generic form of Azactam, and severance and
restructuring charges of $14.9 million arising principally from the
consolidation of Elan’s U.S. west coast locations, which resulted in
the closure of the San Diego facility and the expansion of Elan’s
operations in South San Francisco.
Net interest and investment gains and losses
For the second quarter of 2008, net interest and investment gains
and losses increased to $33.0 million from the $25.6 million recorded
for the second quarter of 2007. This increase was primarily due to an
increase in net interest expense. Net interest expense for the second
quarter of 2008 was $33.5 million, compared to $26.2 million in the
second quarter of 2007, principally reflecting decreased interest
income as a result of lower cash balances and reduced interest rates.
Movement in Shareholders’ Deficit
U.S.$m
————————————————————-
Balance at March 31, 2008 (293.9)
Net loss for the period (71.5)
Share-based compensation 11.4
Issuance of share capital 23.4
Other 2.3
—————
Balance at June 30, 2008 (328.3)
===============
Elan’s debt covenants do not require it to maintain or adhere to
any specific financial ratios. Consequently, the shareholders’ deficit
has no impact on Elan’s ability to comply with its debt covenants.
Research and Development Update
During the course of 2008, Elan’s goal is to continue its progress
throughout its R&D programs, including Alzheimer’s disease,
Parkinson’s disease, MS and other neurodegenerative areas.
Alzheimer’s disease and other neurodegenerative diseases
Elan is focused on building upon its breakthrough research and
extensive experience in Alzheimer’s disease, and other
neurodegenerative diseases including Parkinson’s disease. With
bapineuzumab, (AAB-001, a monoclonal antibody targeted against beta
amyloid peptide), Elan and Wyeth continue to actively investigate and
enroll patients into four Phase 3 clinical studies located throughout
North America and the ROW. In June 2008, the companies announced
encouraging top-line results from the Phase 2 clinical trial of
bapineuzumab for Alzheimer’s disease. The full Phase 2 data will be
presented at the International Congress of Alzheimer’s Disease (ICAD)
on July 29, 2008.
The FDA has accepted the Investigational New Drug Application
(IND) for AAB-002, a back up monoclonal antibody to bapineuzumab.
Additionally, an IND has been submitted for ELND-006, a small molecule
gamma-secretase inhibitor.
About Elan
Elan Corporation, plc (NYSE: ELN) is a neuroscience-based
biotechnology company committed to making a difference in the lives of
patients and their families by dedicating itself to bringing
innovations in science to fill significant unmet medical needs that
continue to exist around the world. Elan shares trade on the New York,
London and Dublin Stock Exchanges. For additional information about
the company, please visit http://www.elan.com.
Forward-Looking Statements
This document contains forward-looking statements about Elan’s
financial condition, results of operations, business prospects and
products in research and development that involve substantial risks
and uncertainties. You can identify these statements by the fact that
they use words such as “anticipate”, “estimate”, “project”, “target”,
“intend”, “plan”, “will”, “believe”, “expect” 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
or projected herein are the following: the potential of Tysabri, the
incidence of serious adverse events associated with Tysabri (including
cases of progressive multifocal leukoencephalopathy), and the
potential for the successful development and commercialization of
additional products;, the potential of Elan’s other marketed products;
Elan’s ability to maintain sufficient cash, liquid resources, and
investments and other assets capable of being monetized to meet its
liquidity requirements; the success of research and development
activities including, in particular, whether the Phase 3 clinical
trials for bapineuzumab are successful and the speed with which
regulatory authorizations and product launches may be achieved;
competitive developments affecting Elan’s products (including, in
particular, when Azactam will face generic competition); the ability
to successfully market both new and existing products; difficulties or
delays in manufacturing and supply of Elan’s products; trade buying
patterns; the impact of generic and branded competition, whether
restrictive covenants in Elan’s debt obligations will adversely affect
Elan; the trend towards managed care and health care cost containment,
including Medicare and Medicaid; the potential impact of the Medicare
Prescription Drug, Improvement and Modernization Act 2003; possible
legislation affecting pharmaceutical pricing and reimbursement, both
domestically and internationally; failure to comply with kickback and
false claims laws including in respect to past practices related to
the marketing of Zonegran(R) which are being investigated by the U.S.
Department of Justice and the U.S. Department of Health and Human
Services (the resolution of this Zonegran matter could require Elan to
pay substantial fines and to take other actions that could have a
material adverse effect on Elan); failure to comply with Elan’s
payment obligations under Medicaid and other governmental programs;
exposure to product liability and other types of lawsuits and legal
defense costs and the risks of adverse decisions or settlements
related to product liability, patent protection, governmental
investigations and other legal proceedings; Elan’s ability to protect
its patents and other intellectual property; claims and concerns that
may arise regarding the safety or efficacy of Elan’s products or
product candidates; interest rate and foreign currency exchange rate
fluctuations; governmental laws and regulations affecting domestic and
foreign operations, including tax obligations; general changes in
United States and International 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,
2007, and in its Reports of Foreign Issuer on Form 6-K filed with the
U.S. Securities and Exchange Commission. Elan assumes no obligation to
update any forward-looking statements, whether as a result of new
information, future events or otherwise.
Appendix I
Three Months Ended Three Months Ended
June 30, 2007 June 30, 2008
Biopharma- Biopharma-
ceuticals EDT Total ceuticals EDT Total
U.S.$m U.S.$m U.S.$m U.S.$m U.S.$m U.S.$m
———————————————————————-
Revenue
106.4 76.5 182.9 Product revenue 173.8 67.9 241.7
0.6 5.0 5.6 Contract revenue — 3.9 3.9
———– —— ——- ———- —— ——
107.0 81.5 188.5 Total revenue 173.8 71.8 245.6
51.3 31.3 82.6 Cost of goods sold 90.4 31.6 122.0
———– —— ——- ———- —— ——
55.7 50.2 105.9 Gross margin 83.4 40.2 123.6
Operating Expenses
Selling, general
and
80.2 9.4 89.6 administrative(1) 63.5 12.3 75.8
Research and
48.2 11.5 59.7 development 69.6 11.6 81.2
63.9 3.2 67.1 Other net charges 2.6 — 2.6
———– —— ——- ———- —— ——
Total operating
192.3 24.1 216.4 expenses 135.7 23.9 159.6
———– —— ——- ———- —— ——
Operating
(136.6) 26.1 (110.5) (loss)/income (52.3) 16.3 (36.0)
Depreciation and
74.2 8.9 83.1 amortization 7.5 9.6 17.1
(0.9) (3.5) (4.4) Amortized fees — (1.1) (1.1)
Share-based
7.9 2.1 10.0 compensation 9.0 2.2 11.2
11.7 3.2 14.9 Other net charges 2.6 — 2.6
———– —— ——- ———- —— ——
(43.7) 36.8 (6.9) Adjusted EBITDA (33.2) 27.0 (6.2)
=========== ====== ======= ========== ====== ======
(1) General and corporate costs have been allocated between the two
segments.
Appendix II
Six Months Ended Six Months Ended
June 30, 2007 June 30, 2008
Biopharma- Biopharma-
ceuticals EDT Total ceuticals EDT Total
U.S.$m U.S.$m U.S.$m U.S.$m U.S.$m U.S.$m
———————————————————————-
Revenue
212.7 137.7 350.4 Product revenue 319.1 129.9 449.0
3.5 10.6 14.1 Contract revenue — 11.3 11.3
———– —— ——- ———- —— ——
216.2 148.3 364.5 Total revenue 319.1 141.2 460.3
95.5 60.0 155.5 Cost of goods sold 169.1 63.7 232.8
———– —— ——- ———- —— ——
120.7 88.3 209.0 Gross margin 150.0 77.5 227.5
Operating Expenses
Selling, general
and
158.7 20.0 178.7 administrative(1) 124.6 24.2 148.8
Research and
98.0 23.0 121.0 development 131.2 23.5 154.7
63.8 3.3 67.1 Other net charges 5.6 — 5.6
———– —— ——- ———- —— ——
Total operating
320.5 46.3 366.8 expenses 261.4 47.7 309.1
———– —— ——- ———- —— ——
Operating
(199.8) 42.0 (157.8) (loss)/income (111.4) 29.8 (81.6)
Depreciation and
96.5 17.7 114.2 amortization 14.8 19.3 34.1
(1.5) (6.9) (8.4) Amortized fees — (2.3) (2.3)
Share-based
19.2 4.6 23.8 compensation 18.4 5.0 23.4
11.6 3.3 14.9 Other net charges 5.6 — 5.6
———– —— ——- ———- —— ——
(74.0) 60.7 (13.3) Adjusted EBITDA (72.6) 51.8 (20.8)
=========== ====== ======= ========== ====== ======
(1) General and corporate costs have been allocated between the two
segments.
*T