Elan shares surged by 17.63 per cent yesterday after the drugmaker said it had beaten its asset disposal target nearly a year ahead of schedule with the sale of two prescription drugs for $850 million (€791 million).
The pharmaceutical company has sold the US and Puerto Rican rights to insomnia treatment Sonata and muscle relaxant Skelaxin to US-based King Pharmaceuticals.
The sale brings the amount raised from asset disposals over the past six months to $1.6 billion. Elan had set out to raise $1.5 billion by the end of the year.
Elan also confirmed that it had repurchased 19 per cent of its liquid yield option notes (LYON) at a 24 per cent discount in the fourth quarter at a cost of around $150 million. This leaves $792 million of the convertible bond outstanding.
Elan chairman Dr Garo Armen said yesterday that "our financial difficulties are behind us now" and Elan hoped to concentrate on its product pipeline, which it expects to start launching in 2004.
However, he said Elan would continue with its asset disposal programme into the second half of the year, possibly bringing its cash total to more than $2 billion.
"We will continue to sell smartly as long as we continue to get fair value for our assets," he said, adding that the company could bring in a significant amount of additional cash to put it in an "enviable" position.
Analysts welcomed the latest sale, which includes a sales team of more than 400 employees, saying Elan had got a better-than-expected price.
It will receive an upfront payment of $650 million, including an estimated $40 million for inventory, while King will also assume Elan's liabilities with regard to Sonata of around $240 million.
Elan, which expects to close the sale before the end of April, could also receive up to an additional $60 million in milestone payments relating to Sonata.
"It shows that there is greater hidden value in Elan than anticipated, while the disposals leave them in a stronger financial position," said Mr Peter Frawley, analyst with Merrion Stockbrokers.
However, he cautioned that the company continued to be very reliant on the success of its key drug, Antegren, and was still the subject of a SEC investigation and outstanding litigation.
Elan also said it would record non-cash charges not exceeding $540 million in the fourth quarter, the third quarter in a row in which it has taken significant writedowns.
Around $320 million of this relates to the writedown of investments as Elan continues the process of unwinding its 55 joint ventures. Around a third of the joint ventures have been restructured to date, Dr Armen said.
The $320 million also includes $60 million in relation to two off-balance sheet vehicles.
The balance relates to the writedown of the value of a whole host of small businesses with which it was involved around the globe, while Elan's recovery plan, which has seen 1,000 jobs cut from the workforce, has cost around $100 million to date.
Dr Armen said of the writedowns that "most of this has been done with. The numbers will be diminishing as we go forward."
The company, which has cash balances of more than $1 billion, has also settled its lawsuit with Pharma Marketing.
It will pay Pharma $225 million to acquire the royalty rights to Sonata and Prialt, below the original estimated price, which could lead Elan to record a once-off fourth-quarter gain of up to $225 million.
It will also have the option to purchase Pharma's royalty rights to three other drugs, Zonegran, Frova and Zanaflex, until January 2005.
Elan's shares added 75 cents to €4.40 in Dublin while in New York, where they are mainly traded, they were up 17.63 per cent to $4.67. The company will release fourth-quarter results next Wednesday.
