Troubled pharmaceutical group Elan hopes to get back on track by cutting a fifth of its workforce and raising $1.5 billion (€1.52 billion) from asset disposals over the next 18 months.
The struggling firm set out details of a recovery plan yesterday in a bid to allay investor fears of a cash crunch. Elan had already outlined plans to raise $1 billion from selling off non-core businesses, assets and products over the next nine months but it is now aiming to raise an extra $500 million by the end of 2003.
It declined to say which assets would be sold but anything outside its core areas of neurology, pain management and auto-immune diseases is likely to be on the block.
Elan will then concentrate on four core products in its pipeline, including multiple sclerosis treatment Antegren. It expects to file four new drug applications by the end of 2004 and up to five investigational new drug applications by the end of 2003.
"Through the implementation of the recovery plan and the repositioning of the business, we will secure the company's long-term future," Elan's new chairman, Dr Garo Armen, said yesterday.
Elan has also moved to simplify its balance sheet and reduce the complexity of its business by repurchasing all of the royalty rights, including those over Antegren, held by Autoimmune for a net $82.5 million. Investors had been deeply concerned when they learnt that Elan had sold royalty rights over certain key drugs to Autoimmune and another company, Pharma Marketing, and booked the revenues. The firm is still considering what to do about the Pharma Marketing royalties that it can repurchase, for $385 million, at any time up to June 2003.
Elan has also decided not to exercise its purchase option to acquire certain dermatology products from GlaxoSmithKline, eliminating further product payments of around $180 million.
Elan also posted second-quarter results yesterday, announcing a net loss of $802 million, or $2.29 per share, compared to net income of $134.3 million in the second quarter of 2001.
As part of its recovery plan, Elan aims to generate positive earnings before interest, tax, depreciation and amortisation in the 18 months ending in 2003. But despite the second-quarter loss, Elan said it had enough cash and resources to meet its needs. Following the royalty repurchase and the repayment of $388 million of debt, the firm has cash balances of $904 million. With the $1.5 billion it hopes to raise in asset disposals, Elan said it would have $2.4 billion for satisfying its debt obligations to the end of 2003.
However, investors remain to be convinced. Analysts expressed disappointment at the lack of detail on the disposal programme and said visibility had not yet returned to the company's liquidity situation. Much depends on the company's ability to raise the targeted $1.5 billion in a difficult economic climate and as a forced seller.
"That $1.5 billion looks like an aspirational figure," said Mr Peter Frawley, analyst with Merrion Stockbrokers. "They will only get credit from the market once they start transacting."
Elan shares rose after release of the recovery plan but fell back as investors digested the news. In Dublin, they were down 15 cents at €2.00 while in New York, they ended up 14.4 per cent at $2.54.
