As a flood of investor mistrust rose around Elan Corp. plc in 2002 - nearly drowning the Irish company - officials figuratively stood on the rooftop and contemplated a choice. They could hold tight to their worldly possessions of joint ventures and pharmaceutical products and sales forces, while the cold waters of suspicion and debt encompassed them. Or they could shed themselves of some fatal weight and reach for the dangling rescue ladder, taking with them only their most valuable assets, including a biotech pipeline.

The Dublin-based company just now is regaining its reputation on The Street, and today raised eyebrows of investors indicate interest more than doubt.

It has been "the most difficult period of the company's history," Chairman Garo Armen told shareholders during their annual meeting Thursday. "We have thus far achieved or exceeded all of the items in our recovery plan. Certainly we have dramatically improved the company's operating efficiencies. We have strengthened liquidity very significantly."

Elan's stock reached about $60 in mid-2001, but the company watched that price spiral down to less than $2 in 2002, following word of the company's restructuring efforts and an open SEC investigation. The stock fared a little better in 2003, fluctuating between the $3 and $8 range, but at mid-2004, it seems company officials can finally take a breath. Not only are they expecting closure of the SEC investigation within the next few months, but also the stock is running at more than $20 a share for the first time since January 2002. The stock (NYSE:ELN) closed Thursday at $21.30, down 70 cents.

"I think most people are a lot more comfortable than they had been with the management, with the balance sheet, the general finances of the company," said Deborah Knobelman, a specialty pharmaceutical analyst with ThinkEquity Partners in New York. "People are very, very excited about Antegren. It should be on the market in 2005. It's a multibillion-dollar product."

Fortunately for Elan, its 1996 purchase of South San Francisco-based biotech company Athena Neurosciences Inc. has proved to be a crystallizing moment that would later define its existence. From that $600 million acquisition, Elan gained a diagnostics unit, which it later divested, and a drug business that included Antegren (natalizumab). Knobelman told BioWorld Today that the product could reach $2 billion in worldwide sales by 2008 if it is approved for its first indication - multiple sclerosis - as well as for Crohn's disease and rheumatoid arthritis.

"We asked ourselves, What is the key value driver,'" said Lars Ekman, executive vice president and president of global research and development and corporate strategy for Elan. "We clearly came to the conclusion that it was the research and development pipeline and the science that came out of Athena Neurosciences."

Antegren is in the late stages of development for Crohn's disease and multiple sclerosis, and in a Phase II trial for rheumatoid arthritis. Elan also has a late-stage product called Prialt (ziconotide) for severe pain, but the company's main focus is on its four earlier stage Alzheimer's disease programs, Ekman said.

As it transformed itself into a biotech company, Elan stepped away from more than 50 joint ventures, sold off marketed products and sales forces, and reduced its head count from 5,000 employees to about 2,000 - essentially raising $2.1 billion from divested assets, up from the $1.5 billion it originally planned to gather. It eliminated its focus on hospital, primary care and oncology products, and narrowed its research to products for neurology, autoimmune disease and severe pain.

Looking back now, Ekman said Elan was "over leveraged" before the chain of events in 2002 that forced it to form a recovery plan. The first of those events was a safety issue in one of its Alzheimer's disease trials, causing Elan to discontinue dosing with the product, called AN-1792. In addition, Enron Corp. unfolded amidst corporate scandal and financial misdealings. WorldCom fell into the same predicament.

"In combination with that, there was an article in the Wall Street Journal, which put a number of question marks around our joint ventures," Ekman said. "Then we had a profit warning - one of our products got highly genericized. Each of these things in itself would have been manageable. I think that the combination of these things in an immediate post-Enron phase created a huge pressure on the stock and then created pressure on us to deal with our debt as the debt became accelerated."

Faced with either cutting weight or perhaps sinking to its death, the company reached for the knife.

Elan Strips Itself To Biotech Core

As it divested its joint ventures, several of the partner companies found new mates or the financial resources to advance the programs without help. Ekman said Elan left the joint ventures strictly for financial reasons, not because they were "scientifically unsound" or because there was any impropriety.

"There were speculations about [whether this was] another Enron or WorldCom and the answer is, No,'" he said. "There was no fraud or illegal things that occurred. We still have the SEC investigation, but if they had found anything, they would have notified us."

Elan's president and CEO, Kelly Martin, told shareholders that the SEC completed its investigation in the first quarter and recently finalized the analysis. Martin expects Elan officials will hold a conversation with investigators within the next two months. The company has $1 billion in cash and is prepared, if need be, to pay a penalty.

"Most people are comfortable with that aspect of the story," Knobelman said, "but some are holding off on investing in the stock until the SEC investigation is over."

Martin came to Elan from New York-based Merrill Lynch & Co. about 18 months ago, replacing Donal Geaney, who vacated his CEO and chairman positions in 2002, following the stock meltdown. Armen became chairman in July 2002, leading Elan's recovery plan. With the recovery plan finished, he announced Thursday his intention to resign this year.

Antegren Driving Investor Interest

As they await a meeting with the SEC, company officials said Elan would focus on its core development efforts. Within the last month, the company filed for approval of Antegren to treat multiple sclerosis in both the U.S. and Europe based on one-year data.

"That's really been what made the stock run like wildfire," Knobelman said.

Antegren is co-developed with Biogen Idec Inc., of Cambridge, Mass. As for the Crohn's disease indication, the companies intend to soon file for approval in the European Union, but they are conducting another Phase III trial before seeking approval in the U.S. (See BioWorld Today, Feb. 19, 2004, and May 20, 2004.)

If the MS filing gets priority review, Antegren could be approved and launched in the U.S. by early next year. That milestone would be somewhat bittersweet for Ekman, who recruited many individuals to work on the Antegren program over the years, then had to watch them leave their posts during the company's downsizing.

"There were thousands of co-workers in the company who joined it because of the Alzheimer's programs, because of Antegren," Ekman said. "They saw the opportunity; they saw the dream. They had seen the data. Many of the people who had to leave the company [were in] units that we had to close. That was terrible. That was very, very difficult because they were as engaged as those who stayed."

Many former employees also will have to watch from the sidelines the fate of Prialt, the company's non-opioid peptide-based analgesic. In January, it met its primary endpoint in a Phase III trial, prompting the company to aim for a first quarter 2005 launch in the U.S. Elan believes the data will satisfy questions raised in Prialt's 2001 approvable letter. Elan gained the product through its 1998 acquisition of biotech company Neurex Inc. Peak annual sales for the product could be between $150 million and $250 million, Martin has said. (See BioWorld Today, April 30, 1998, and Jan. 8, 2004.)

Even with two biotech products nearing the market, the core of Elan's focus, Ekman said, is on finding therapies for Alzheimer's disease. The company's research in that area began in the 1980s, when Elan scientists made significant discoveries concerning the role that A-beta plays in the disease. This year, Elan and partner Wyeth Laboratories, a division of Madison, N.J.-based Wyeth, began a Phase I trial with a humanized antibody to beta-amyloid, AAB-001, and they are exploring an A-beta immunoconjugate, ACC-001, which is in preclinical testing. Elan also is conducting early research showing that functional gamma secretase inhibitors appear to reduce A-beta levels in the brain.

And while Elan divested several of its commercial products, it still markets two hospital products - Maxipime and Azactam - for infectious diseases, and one neurology product, Myobloc, for cervical dystonia. Although lighter now, Elan still has sales of more than $500 million annually, Ekman said.

"We have, in many ways, converted a complex specialty pharma company to a biotech company, where the lead programs are biological, where we have a fully integrated research and development effort that spans through the early stage of drug discovery through drug development," Ekman said.

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