BioWorld International Correspondent

DUBLIN, Ireland - The top slot at ailing Irish biopharmaceutical firm Elan Corp. plc became available Tuesday as Chairman and CEO Donal Geaney vacated both roles, following a share price meltdown last Thursday, when Standard & Poor's reduced the company's debt rating to junk bond status.

Geaney has also resigned from the board of the Dublin-based company, as has Vice Chairman Thomas Lynch. Both will act as senior advisers to newly appointed chairman, Garo Armen. Armen, an Elan director since 1994 and the chairman and CEO of New York-based Antigenics Inc., now heads up a five-person executive committee that will assume management responsibility on an interim basis. A search for a replacement chief executive is under way.

Speaking to analysts Tuesday, Armen said the company's immediate priority was to strengthen its balance sheet to dispel any perceptions that the company might face a future liquidity crunch. "We are determined to raise an additional US$1 billion cash over the next nine months," he said.

Elan will pursue that goal by liquidating selected assets, businesses and investments. The company has positions in 55 biotechnology companies and joint ventures. Armen said that "no sacred cows" would be protected in the asset sale. He also pledged that Elan will adopt a more transparent way of communicating with investors and will simplify its balance sheet.

The performance drew a skeptical response from analyst Peter Frawley at Dublin-based Merrion Stockbrokers. "It didn't blow away any of the clouds surrounding Elan. If anything, it made the skies a bit darker," he told BioWorld International.

Elan currently holds US$1.367 billion in cash, but faces immediate debt obligations of close to US$400 million; an additional US$420 million in payments associated with product acquisitions, almost half of which are due in the next six months; and almost US$1 billion in maturing liquid yield option notes (LYON) in December 2003.

The company offered "very little specific information on what goes to constitute those one billion dollars [of additional liquidity]," Frawley said. The majority of its investments are in relatively small, privately held or publicly quoted biotechnology companies, he said. He identified its stakes in Belfast-based Galen Holdings plc; San Diego-based Ligand Pharmaceuticals Inc.; Carlsbad, Calif.-based Isis Pharmaceuticals Inc.; and Andrx Corp., of Fort Lauderdale, Fla., as those most likely to yield significant amounts of cash. Should it go ahead, the anticipated IPO of its Athena Diagnostics subsidiary is another potential money-spinner.

"[But] it is very hard to see them paying that LYON back in cash," he added. If bondholders were to receive equity instead, they could end up exerting significant control over the company. At its peak 12 months ago, Elan was valued at over US$20 billion. Its share price (NYSE:ELN) dropped 18.2 percent Tuesday to US$1.80, valuing the company at just US$606 million.

Stuart Draper, of Dublin-based Dolmen Securities, offered a more upbeat summation of the company's prospects, welcoming its belated switch into turnaround mode. "Fundamentally, what we are talking about here is a balance sheet exercise rather than a profit and loss exercise," he said. "There is the potential for significant shareholder value to be created from current levels following the disposal of noncore assets," he added. "Of course, the market is not going to believe that until it is achieved."

Elan has endured a litany of woes since a Wall Street Journal report on Jan. 30 questioned its practice of transferring certain research and development activities into off-balance-sheet vehicles, referred to as Qualified Special Purpose Entities. That prompted an SEC accounting probe, which still is ongoing. The company then spooked the market by issuing an unexpected profit warning for the first quarter of the year. The failure in Phase IIa clinical trials of its lead therapeutic vaccine for Alzheimer's disease added to the gloom. The final straw came with disclosures in the company's 2001 annual report on Form 20-F that raised new concerns about its financial stability.

Adding insult to injury, the Indian generic pharmaceutical maker Dr. Reddy's Laboratories, of Hyderabad, said last week it received FDA approval to market a rival to Elan's CNS drug Zanaflex, which achieved US$53.7 million in sales in the first quarter.

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