Elan Corporation PLC

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Elan Corporation PLC

Lincoln House, Lincoln Place
Dublin 2
Telephone: 353 1 709 4000
Fax: 353 1 662 4949
Web site: http://www.elan.com

Public Company
Employees: 2,000
Sales: $746.0 million (2003)
Stock Exchanges: New York Irish London
Ticker Symbol: ELN
NAIC: 325412 Pharmaceutical Preparation Manufacturing

Founded in a Dublin, Ireland garden shed, Elan Corporation PLC has grown into Ireland's leading pharmaceutical company and a global leader in drug-delivery technologies. Elan operates through two primary divisions. Elan Pharmaceuticals, which conducts discovery, development, and marketing of pharmaceutical preparations under the Elan brand name, focuses on the fields of neurology, oncology, infectious diseases, pain management, and dermatology. The company is currently conducting clinical trials on a number of promising drugs, including preparations for the treatment of Alzheimer's disease, Parkinson's disease, and multiple sclerosis, among others. Elan Pharmaceuticals Technologies, the group's second primary business unit, focuses on developing, licensing, and marketing of drug-delivery technologies, including transdermal patches and other time-release and absorption technologies. A massive acquisition campaign in the mid-1990s allowed Elan to grow into Ireland's largest corporation by market capitalizationvalued at more than $22 billion, Elan alone represented some 20 percent of the Irish Stock Exchange's total value. Yet accounting irregularities led Elan, which is also listed on the New York and London Stock Exchanges, into problems with the Securities and Exchange Commission (SEC), and the company's stock value plunged to below $800 million by 2003. In the face of these difficulties, Elan has engaged a companywide "recovery plan," completed at the beginning of 2004, which involved a number of divestments and the slashing of its payroll by more than half. At the end of 2003, Elan posted sales of $746 million, down from more than $1.13 billion the year before.

Delivery Drug Success in the 1960s

Donald E. Panoz was born in Ohio in 1935, but spent most of his childhood in Spencer, West Virginia. Panoz's father was Eugenio Panunzio, a first-generation American who enjoyed some success as a professional featherweight boxer. Panunzio, who began his career at the age of 15, changed the family name because Panoz fit better on the back of his robeand helped shield him from ethnic slurs from the audience. Yet a broken wrist ended his career at the age of 22.

That event was to mark the young Panoz. As he told the Van Nuys Journal, his father "didn't have the word 'quit' in his vocabulary. My father was fighting at Cadillac Gardens in Pittsburgh when he broke his wrist, but he didn't quit like they do nowadays. He started fighting left-handed and won the fight against a tough opponent named Joey Archibald who six months later won the world title."

Donald Panoz appeared to have inherited his father's determination as he began his own career. Panoz attended high school at the Greenbriar Military Academylearning to play golf under the great Sam Sneadwhere he met his wife and displayed his first talents as an entrepreneur. Panoz had recognized an opportunity to organize a transportation service for students returning home on weekends and for holidays. This early experience foreshadowed Panoz's later business successes. As Panoz told the Van Nuys Journal: "I've always had the ability to identify people's wants and needs."

Panoz joined the army at the age of 19, serving as an intelligence officer during the Korean War. Following the war, Panoz started studies in pharmacy and business at Duquesne University, but left school to buy two drugstores in Pittsburgh in the late 1950s. The retail stores became Panoz's first business success. Yet Panoz's interest turned toward pharmaceutical preparations themselves.

In 1960, after just two years in retail, Panoz took his first gamble, selling off the drugstores and buying a condemned skating rink in Pittsburgh. There, Panoz founded Mylan Pharmaceutical Corporation, later known as Mylan Laboratories. Panozwho, at the age of 25, became the youngest CEO of a U.S. pharmaceutical companywas backed in the venture by a $20,000 investment from a number of friends on the Pittsburgh Pirates baseball team. Mylan began specializing in packaging generic drugs, selling pills to prisons, orphanages, and other public institutions.

Yet Panoz had recognized the potential of developing expertise in drug delivery methods, and in the early 1960s became one of the first U.S. pharmaceutical companies to begin producing gelatin capsules. Going up against such industry heavyweights as Eli Lilly and Parke Davis, Mylan nonetheless carved a place for itself as a leading producer of gelatin-encapsulated generic pharmaceuticals.

By the end of the 1960s, Panoz had become convinced of the potential for developing new drug delivery technologies. Yet Panoz's idea met with a great deal of resistance from Mylan's board of directors. When they refused to allow Panoz to steer the company into the new direction, Panoz resigned and decided to gamble once again. Selling Mylan for $60,000, Panoz and his family decided to move to Ireland, which boasted lower tax rates and less restrictive bureaucracy, to found a new business based on developing new drug delivery technologies. The new company became known as Elan Corporation.

Building Elan in the 1970s

Panoz installed a laboratory in what was described as a garden shed in Dublin, backed by just four employees, as well as receiving assistance from his wife and five children, Elan began work on its first system for controlling dosage delivery. Into the 1970s, pharmaceutical delivery systems remained relatively primitive, even though dosage was a critical issue in pharmaceutical treatment. Maintaining therapeutic levelsbelow which a drug became ineffective, above which the same drug risked becoming toxicrepresented a particular challenge.

Panoz took up the challenge, developing an idea for controlling delivery, that is, providing a means for the regular release of the active ingredients of a single dose. Panoz initially pitched his idea to Ireland's pharmaceuticals industry. Instead, Elan's first contract came from the British arm of The Netherlands' Organon.

Organon asked Elan to devise a means for improving the delivery of the antibiotic tetracycline, which, while absorbed by the stomach, remained insoluble in the intestines. Elan developed a means of coating the tetracycline dose so that it mimicked the stomach's environment even when in the intestine, thereby improving delivery and reducing by half the number of daily doses normally needed in tetracycline treatment. In 1972, the company licensed its new process as Tetrabid, which became an immediate success for Organon.

Elan adapted Tetrabid's absorption control technology to other antibiotics during the first half of the 1970s. By the middle of the decade, Panoz had recognized the possibility of adapting the technology to other classes of drugs. The company began attracting business from the global pharmaceutical industryby the early 1980s, Elan had contracts for 25 pharmaceuticals from 16 different companies. Elan itself remained focused on research and development, establishing a new R&D center in Athlone, Ireland, in 1978. In 1981, Panoz reentered the United States, establishing a subsidiary, Elan Pharmaceutical Research Corporation, in Gainesville, Georgia, in 1981. That company took over licensing Elan technology to the U.S. pharmaceutical industry. Panoz himself, however, acquired Irish nationality, renouncing his U.S. citizenship.

In the meantime, Elan benefited from Irish tax law, which did not impose taxes on profits from R&D-based businesses. As a result, the company was extremely profitable, posting profits of more than $900,000 on sales of just $3.1 million in 1983. The company's contracts, and especially the impending launch of a number of new products, made the company's future seem particularly bright. As Panoz told Forbes: "We could go fishing tomorrow and within five years we'd earn $10 million a year based on contracts we already have." This optimism led Panoz to float the company's U.S. subsidiary on the NASDAQ, in the form of American Depositary Receipts, in January 1984. The successful stock offering of one million shares reduced Panoz's stake in the company to 57 percent.

Elan benefited especially from a new development in the U.S. pharmaceuticals industry. The patents for a large number of drugs were running out, often before the drug companies were able to recoup their research, development, and marketing investments. The Food and Drug Administration (FDA) ruled, however, that companies would be allowed to extend the lives of their products if they could reformulate the drugs with new therapeutic advantages. This in turn led more and more drug makers to turn to Elan for assistance in developing new preparations.

Among these was Merrill Dow, which contracted with Elan to develop a new delivery system for a treatment for hypertension, which presented the drawback of requiring patients to take the pills four times each day. By 1989, Elan had successfully guided the new formulation through the FDA approval process and the new Cardizem SR quickly became one of the world's most prescribed high blood pressure medications.

Company Perspectives:

Company Mission and Goals: Elan's mission is to become a fully integrated, world-class company capable of developing effective and novel treatments in the core areas of neurology, pain management and autoimmune diseases. Elan is committed to discovering, developing and marketing new, innovative products that address the world's most debilitating medical conditions, that improve the health and quality of life for patients and their families, and that meet the requirements of the healthcare professionals who treat them. Elan will conduct its business with the highest standards of ethics and integrity and believes in serving patients, customers, investors and employees.

While Elan continued to seek contract work for its drug delivery systems, the company's interests increasingly turned toward developing its own integrated operations capable of extending its reach from the research and development stages through the manufacturing and marketing areas as well. In 1985, the company opened a new Institute of Biopharmaceuticals in its Athlone home base, and also built its first manufacturing facility there. The company's efforts turned toward the development of a new nicotine delivery system based on a transdermal patcha product that helped revolutionize the market for smoking cessation products. The company became the first to receive FDA approval for its nicotine patch in 1992. Nonetheless, the company turned to a third-party partner for marketing the product, reserving only the Irish and Philippines markets for its own branded sales.

Full-Scale Pharmaceuticals Group in the 21st Century

By then, Elan restructured, taking over its U.S. subsidiary and launching a new public offering for Elan Corporation on the New York Stock Exchange. Elan then became the first Irish company to list its stock on the NYSE, while at the same time the company added listings on the Irish and London Stock Exchanges. The listing enabled Elan to continue to expand its manufacturing base, with the acquisition of a company in Lugano, Switzerland, in 1993, and another company in Israel in 1995.

Into the mid-1990s, Panoz, whose shares in Elan were reduced to 10 percent, withdrew from active leadership of the company in order to pursue a variety of other interestsincluding the operation of the Chateau Elan vineyard and golf estate in Georgia and the development of the Panoz sports car. Panoz's spot was filled by Donal Geaney, who led the company into the next phase of its growththat of becoming a full-scale pharmaceuticals company. Geaney took over a company that relied on just three core products, including Cardizem and Verelan, for the bulk of its $300 million in sales. Under Geaney, however, Elan now sought to broaden its focus; by the end of the 1990s, Cardizem and Verelan represented just 10 percent of company sales, which by then had topped $1 billion.

Elan grew through a two-pronged strategy during the 1990s. On the one hand, the company began an aggressive acquisition drive, buying up a large number of companies through the end of the decade and into the first years of the new century. At the same time, Elan began building a web of strategic partnerships, acquiring minority stakes in a number of companies that in turn paid the company licensing fees for its technology. Yet this practice, which allowed the company to report what were essentially research and development costs as revenue, was to lead to Elan's crash amid SEC investigations in 2002.

In the meantime, Elan lived up to its name, growing rapidly into the new century and transforming itself into a major pharmaceutical company. By 2001, at the height of its boom, Elan's market value had climbed past $22 billionmaking it Ireland's largest corporation, and representing some 20 percent of the total value of the Irish Stock Exchange.

A major step in Elan's growth came in 1996 with the merger-acquisition of Athena Neuroscience, a California-based company founded in 1991 that specialized in the treatment of brain diseases and other neurological disorders. The purchase of Athena, valued at $630 million, gave Elan its first branded products operation, and encouraged the company to launch its own U.S. sales force in 1997.

Elan's next major acquisition came at the end of 1997, when it agreed to purchase Sano Corporation, based in Florida, in a stock swap valued at $375 million. Sano gave Elan access to the newly opening market for generic nicotine patches, as this product became available to the over-the-counter market. Yet Sano also held a large number of promising drugs in its own development pipeline, including skin-based delivery systems for treating anxiety, attention deficit disorder, and similar afflictions. The next step in Elan's growth came in 1998, when it paid $150 million in cash to acquire GWC Health and its subsidiary Carnrick Laboratories. That acquisition followed the $700 million purchase of Neurex, another California-based company. The addition of these companies further expanded Elan's range, particularly in the area of pain management.

Key Dates:

Donald Panoz, founder of Mylan Laboratories in Pittsburgh, moves to Ireland and launches Elan Corporation, a specialist in developing drug delivery systems.
The company launches its first product, Tetrabid, developed for The Netherlands' Organon.
Elan begins extending the Tetrabid delivery system to other drug product families.
Elan opens a research and development center in Athlone, Ireland.
A U.S. subsidiary, Elan Pharmaceutical Research Corporation, is launched in Gainesville, Georgia.
Elan floats its U.S. subsidiary on the NASDAQ.
The Food and Drug Administration approves Elan-developed Cardizem SR for Merrill Dow.
Elan absorbs its U.S. subsidiary and launches a full public offering on the New York, London, and Irish Stock Exchanges.
The company acquires a manufacturing operation in Lugano, Switzerland.
The company acquires a manufacturing facility in Israel.
Elan launches a new strategic direction as a full-scale pharmaceuticals company with the acquisition of Athena Neuroscience in the United States; the company establishes its own U.S. sales force.
Elan acquires Sano Corp., in Florida.
Elan acquires GWC Health and Neurex.
Elan acquires the Liposome Co. and Dura Pharmaceuticals.
Elan's stock collapses after the Securities and Exchange Commission launches an investigation into the company's accounting practices; Elan begins a recovery plan, divesting a number of subsidiaries and licenses in an effort to drive down debt.
The company completes its divestiture program, raising more than $2 billion.

Elan's growth drive continued into the next decade. In 2000, the company completed several major acquisitions, including the $1.8 billion stock swap purchase of Dura Pharmaceuticals. That purchase doubled Elan's U.S. sales force and also added new specialty areas, including infectious diseases and respiratory ailments. That year also the company picked up New Jersey-based Liposome Co., in a stock swap valued at $575 million. The deal gave Elan access to Liposome's oncology products. By the end of that year, the company's product sales topped $1 billion for the first time, while total saleswhich included licensing fees from its "partners"reached $1.5 billion.

Yet those licensing fees soon brought Elan into conflict with the SEC, which was then tightening its scrutiny of corporations' accounting methods in the wake of the Enron scandal. Worse, the company was already reeling from the cancellation of its Phase IIA trials of a promising new Alzheimer's drug at the end of 2001. When news came out that Elan had come under SEC investigation, the group's stock price plummetedand Elan's market value plunged from a high of $22 billion to less than $800 million by 2002. The drop in its value came at an especially bad time, as the company faced debt payments of more than $2 billion before the end of 2004.

Elan responded by installing a new executive team, led by Garo Armen as chairman, who was later joined by Kelly Martin as CEO. The company then launched a "recovery plan" designed to restore shareholder confidence and to simplify the group's structure. As such, the company began divesting a number of assets, including much of its European operations and the rights to a number of products, such as the anti-fungal treatment Abelcet, sold to Enzon for $370 million. In 2003, the company sold off its rights to the drugs Sonata and Skelaxin and the rest of its primary care products group to King Pharmaceuticals for $850 million.

By the end of 2003, Elan's divestiture program had succeeded in raising more than $2 billion. While the group's revenues had been reduced to just $746 million, down from more than $1.13 billion the year before, Elan appeared to have emerged from its difficulties with a fresh commitment to regaining its place among the world's top pharmaceuticals groups.

Principal Subsidiaries

Elan International Services Ltd. (Bermuda); Elan Pharmaceuticals, Inc. (U.S.A.); Athena Neurosciences, Inc. (U.S.A.); Elan Pharma International Ltd.; Elan Pharma Ltd.; Elan Transdermal Technologies, Inc. (U.S.A.); Elan Holdings Ltd.

Principal Competitors

Pfizer Inc.; Johnson and Johnson; GlaxoSmithKline PLC; Bayer AG; Merck and Company Inc.; Aventis; Roche Holding AG; F. Hoffmann-La Roche Ltd.; Bristol-Myers Squibb Co.; Idemitsu Kosan Company Ltd.; AstraZeneca PLCB; Abbott Laboratories.

Further Reading

Almond, Siobhan, and Des Crowley, "Elan Chairman Sees Light at End of Tunnel," Sunday Times, October 27, 2002, p. 6.

Capell, Kerry, Arlene Weintraub, and Faith Amer, "Elan: One Ailing Celtic Tiger," BusinessWeekOnline, September 5, 2003.

Durman, Paul, "Troubled Elan Plans $500m Buyback Bid," Sunday Times, May 19, 2002, p. 1.

Hwang, Jeff, "Elan's Happy Pill?," Motley Fool, January 8, 2004.

"Laying Foundations for Growth," Euromoney, June 2000, p. 222.

MacDonald, Elizabeth, "Elan's Spin," Forbes, September 17, 2001, p. 100.

Murdoch, Bill, "Has Martin Got the Mettle for Herculean Task at Elan?," Irish Times, July 4, 2003, p. 52.

Murray-Brown, John, "Elan Expands Product Sales to More Than $1 Billion," Financial Times, January 30, 2001, p. 29.

Petre, Peter, "Elan's Tasty Dose of the Drug Business," Fortune, September 3, 1984, p. 68.

"Shame About the Name, Elan," Economist, July 13, 2002.

M.L. Cohen