By Jennifer Van Brunt

The metamorphosis of Elan Corp. plc from a drug-delivery company to an international player in the pharmaceutical industry is still a work in progress, but it shouldn't be long before the Dublin, Ireland-based firm reaches its goal of becoming a billion-dollar company by the year 2001. Just since the beginning of 1998, Elan has taken some major strides in that direction. It's become a major partner for biotechnology companies — in almost every case taking an equity stake in the process — and it's spent well over $1.4 billion (in cash and/or stock) in acquisitions this year alone.

Even though it's been spending freely — if not lavishly — this year, Elan still has plenty of resources to continue the spree. In its earnings report for the quarter ended Sept. 30, the company reported an increase in net income of 44 percent over the same period in 1997 (to $66.4 million) and close to $425 million in cash and marketable securities. Moreover, its securities (NYSE:ELN) have gained 31 percent in price since the end of 1997, making it one of the few companies in the biotech universe whose stock has prospered despite the general market conditions. This means that Elan could continue to use its securities as payment (in part or in full) for its biotech ventures — even if it didn't have a tidy sum of cash on hand.

The biotech partnering craze is in full swing: As of Nov. 13, biotechs had formed a total of 172 alliances with other biotech firms. This is already more than the total number of new partnerships signed in 1997, and sharply up from previous years. Between 1993 and 1995, for instance, there was an average of about 50 new biotech — biotech collaborations announced each year. This year, there have been about 50 per quarter. And in 1998, the major partnering activity has been conducted by Elan, which until recently had occupied a slot in the biotech universe along with other drug delivery companies. But it's obvious that Elan has broken out of this category as it establishes itself as an international player in the pharmaceutical market.

Partnerships And Joint Ventures

Barely a month goes by without an announcement of yet another Elan deal. In its latest major partnership, Elan forged a strategic alliance with Ligand Pharmaceuticals Inc. to develop Elan's opioid analgesic drug Morphelan for pain control in AIDS and cancer. The deal is worth as much as $130 million to San Diego-based Ligand (NASDAQ:LGND), which gets exclusive rights to the drug in the U.S. and Canada. Elan bought $20 million in Ligand common stock and will buy an additional $110 million in zero coupon convertible senior notes. When the deal was finalized, earlier this month, Elan purchased the first $30 million of the notes; it now owns about 8 percent of Ligand, on a fully diluted basis.

Elan had reacquired the rights to Morphelan from Cytogen Corp., of Princeton, N.J., in August, when the two dissolved their Targon Corp. joint oncology venture. The move was spurred by a mutual recognition that Targon would require continued funding into the next fiscal year. And cash-strapped Cytogen (NASDAQ:CYTO) needs to focus its assets on its core business. Elan paid Cytogen $4 million on dissolution of the joint venture, including $2 million in a new convertible note that Elan can change into Cytogen stock, thus increasing its equity stake.

In October, Elan signed a preliminary agreement to license Vanguard Medica Group plc's frovatriptan anti-migraine therapy, a 5-hydroxytriptamine agonist, for which Phase III trials have been completed. Elan bought $10M in stock (LSE:VGD) of the Guildford, U.K.-based firm, giving it a 3 percent stake. Elan will also pay Vanguard as much as $50 million in milestones and other fees.

Also on the pharmaceutical side of the equation, Elan has secured a nonexclusive license to Mountain View, Calif.-based Protein Design Labs Inc.'s (NASDAQ:PDLI) antibody humanization patents. This license, secured in May, will cover Elan's humanized antibody Antegren (originally developed by Athena Neurosciences), which is currently in Phase II trials for treating multiple sclerosis.

More recently, Elan took out an exclusive sublicense to Cytel Corp.'s (NASDAQ:CYTL) patent covering antibodies that block VLA-4 integrin. Elan has the right to develop antibodies for treating inflammatory conditions and has an option to enter into nonexclusive sublicense rights to other VLA-4-blocking compounds. San Diego-based Cytel will get milestone and royalty payments from this arrangement, announced in July, as well as a $4 million equity investment from Elan.

Elan still maintains a high profile in the drug delivery arena, however. It formed a joint venture with a new subsidiary of Sheffield Pharmaceuticals Inc. (AMEX:SHM) in July to develop pulmonary drug delivery systems for systemic drugs — with an emphasis on therapies for respiratory diseases. The companies will develop St. Louis-based Sheffield's metered solution inhaler as well as Elan's unit-dose pulmonary system; they're also intent on acquiring additional technologies with funds supplied by Elan. Elan made a $17.5M equity investment in Sheffield, consisting of $6 million in common stock, for a 17 percent stake, as well as $11.5 million in convertible preferred stock, which Elan can convert into more shares of Sheffield — thus increasing its stake — or into shares of the new, as-yet-unnamed subsidiary.

In October, Elan finalized its partnership with Electropharmacology Inc. (OTC Bulletin Board:EPHI), of Pompano Beach, Fla. The partners will develop Elan's flexible iontophoretic patch technology for non-cosmetic dermatology and wound care applications; they will also develop a flexible patch version of Electropharmacology's pulsed electromagnetic signal technology. Elan made a $7.5M investment in Electropharmacology convertible preferred shares and warrants, and may purchase an additional $2M in common stock in the future.

Endorex Corp. (AMEX:DOR) has formed not one, but two joint ventures with Elan. The first, Innovax Corp., was announced in January and finalized in August. It's focused on developing oral versions of previously injectable vaccines by applying Chicago-based Endorex's Orasome oral drug delivery technology (which consists of polymerized liposomes). Elan bought $10 million in Endorex securities, both common and preferred stock.

The second joint venture — which, like the first, is 80.1 percent owned by Endorex and 19.9 percent by Elan — was announced in October. In this deal, the companies intend to commercialize products using Elan's Medipad drug delivery system (a disposable system that combines a patch and an infusion pump) for two undisclosed drugs. The partners contributed a total of $10.5 million to get the joint venture rolling. Elan increased its equity stake in Endorex by purchasing $8.4M in Endorex preferred stock, which it can change into stock in the joint venture or Endorex common stock at a premium to the market price.

Elan has also formed a joint venture with Delsys Pharmaceutical Corp., a privately held company located in Princeton, N.J. That deal, which was announced in July, is again focused on oral, controlled-release drug delivery technologies. It will take advantage of Delsys' Accudep technology, which involves an electrostatic powder deposition process that allows the active ingredient of a drug to be deposited in very precise quantities at high speed onto a variety of surfaces. In September, Elan purchased $3 million in Delsys stock.

Although the majority of Elan's biotech investments have been structured as joint ventures, collaborations or licensing deals, it's made a few stunning acquisitions — including Neurex Corp., Carnick Laboratories Inc. and NanoSystems LLC — in just the last six months.

Elan's first major biotech acquisition, however, occurred in 1996, when it bought South San Francisco-based Athena Neurosciences Inc. for $635 million in a stock swap. That move gave it a significant portfolio of products being developed for neurological disorders, a major therapeutic arena that Elan has strengthened even further through its more recent biotech alliances.

In 1998, Elan has acquired three companies in rapid succession. In April, it announced that it was buying Carnick Laboratories, of Cedar Knolls, N.J., for $150 million in a combination of cash and a promissory note. That acquisition was completed in June. Carnick, a subsidiary of GWC Health Inc., brought with it two painkilling drugs — skelaxin and midrin — which accounted for close to $40 million in sales in 1997.

Two weeks after it first announced the Carnick deal, Elan said it was also going to buy Neurex, another company that is developing drugs for pain management, as well as acute care. Elan paid $740 million in stock to acquire Neurex, of Menlo Park, Calif.; the transaction closed in August. Elan's CEO, Donal Geaney, said at the time that the Neurex acquisition was Elan's biggest to date — in financial terms — but that its acquisition of Athena was twice as large in relative terms. Neurex also brought a product with it: It started marketing its first commercial product, Corlopam for treating severe hypertension in a hospital setting, in January. Neurex also has a pipeline of synthetic peptide drugs based on neuronal calcium channel blockers. The most advanced is Ziconotide for treating neuropathic and malignant pain.

Elan's most recent acquisition points to its other main business focus — drug delivery. In a deal that closed in October, Elan bought NanoSystems from Eastman Kodak Co. for $150 million — in a combination of cash ($137 million) and warrants to purchase Elan stock. NanoSystems, based in King of Prussia, Pa., specializes in reformulating poorly water-soluble drugs by converting drug ingredients into tiny crystals which are more stable and bioavailable.

Earlier in the year, Elan acquired Sano Corp., of Miramar, Fla., for $393 million in a stock swap. Sano, which develops transdermal and solid-dose controlled-release drug delivery systems, will operate as a business unit of Elan Pharmaceutical Technologies — a division that the company has purposively repositioned as a development partner to the pharmaceutical industry. *