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ELAN CORP PLC 20-F 2010 Documents found in this filing:Table of Contents
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Commission file number:
001-13896
Elan Corporation, plc
William Daniel,
Secretary
Elan Corporation, plc
Treasury Building, Lower Grand
Canal Street
Dublin 2, Ireland
011-353-1-709-4000
(Name, Telephone,
E-mail
and/or Facsimile number and Address of Company Contact
person)
Securities registered or to be
registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Securities for which there is a
reporting obligation pursuant to Section 15(d) of the
Act:
None
Indicate the number of outstanding shares of each of the
issuer’s classes of capital or common stock as of the close
of the period covered by the annual report: 583,901,211 Ordinary
Shares.
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
If this report is an annual or transition report, indicate by
check mark if the registrant is not required to file reports
pursuant to Section 13 or 15(d) of the Securities Exchange
Act of
1934. Yes o No þ
Note — Checking the box above will not relieve any
registrant required to file reports pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934 from their
obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days: Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such
files). Yes o No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of “accelerated filer and large
accelerated filer” in
Rule 12b-2
of the Exchange Act. (Check one):
Large accelerated
filer þ Accelerated
filer o Non-accelerated
filer o
Indicate by check mark which basis of accounting the registrant
has used to prepare the financial statements included in this
filing: U.S. GAAP
þ
International Financial Reporting Standards as issued by the
International Accounting Standards Board
o Other
o
If “Other” has been checked in response to the
previous question, indicate by check mark which financial
statement item the registrant has elected to follow:
Item 17
o
Item 18
o
If this is an annual report, indicate by check mark whether the
registrant is a shell company (as defined in
Rule 12b-2
of the Exchange
Act): Yes o No þ
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As used herein, “we,” “our,” “us,”
“Elan” and the “Company” refer to Elan
Corporation, plc (public limited company) and its consolidated
subsidiaries, unless the context requires otherwise. All product
names appearing in italics are trademarks of Elan.
Non-italicized product names are trademarks of other companies.
Our Consolidated Financial Statements contained in this
Form 20-F
have been prepared on the basis of accounting principles
generally accepted in the United States (U.S. GAAP). In
addition to the Consolidated Financial Statements contained in
this
Form 20-F,
we also prepare separate Consolidated Financial Statements,
included in our Annual Report, in accordance with International
Financial Reporting Standards as adopted by the European Union
(IFRS), which differ in certain significant respects from
U.S. GAAP. The Annual Report under IFRS is a separate
document from this
Form 20-F.
Unless otherwise indicated, our Consolidated Financial
Statements and other financial data contained in this
Form 20-F
are presented in United States dollars ($). We prepare our
Consolidated Financial Statements on the basis of a calendar
fiscal year beginning on January 1 and ending on
December 31. References to a fiscal year in this
Form 20-F
shall be references to the fiscal year ending on December 31 of
that year. In this
Form 20-F,
financial results and operating statistics are, unless otherwise
indicated, stated on the basis of such fiscal years.
Statements included herein that are not historical facts are
forward-looking statements. Such forward-looking statements are
made pursuant to the safe harbor provisions of the
U.S. Private Securities Litigation Reform Act of 1995. The
forward-looking statements involve a number of risks and
uncertainties and are subject to change at any time. In the
event such risks or uncertainties materialize, our results could
be materially affected.
This
Form 20-F
contains forward-looking statements about our financial
condition, results of operations and estimates, business
prospects and products and potential products that involve
substantial risks and uncertainties. These statements can be
identified by the fact that they use words such as
“anticipate,” “estimate,”
“project,” “target,” “intend,”
“plan,” “will,” “believe,”
“expect” and other words and terms of similar meaning
in connection with any discussion of future operating or
financial performance or events. Among the factors that could
cause actual results to differ materially from those described
or projected herein are the following: (1) the potential of
Tysabri®
(natalizumab) and the incidence of serious adverse events
(including deaths) associated with Tysabri (including
cases of progressive multifocal leukoencephalopathy (PML)) and
the potential for the successful development and
commercialization of additional products; (2) the failure
to comply with anti-kickback and false claims laws in the United
States, including, in particular, with respect to past marketing
practices with respect to our former
Zonegran®
product, which are being investigated by the
U.S. Department of Justice and the U.S. Department of
Health and Human Services. The resolution of the Zonegran matter
could require us to pay very substantial fines and to take other
actions that could have a material adverse effect on us
(including the exclusion of our products from reimbursement
under government programs); (3) our ability to maintain
financial flexibility and sufficient cash, cash equivalents, and
investments and other assets capable of being monetized to meet
our liquidity requirements; (4) whether restrictive
covenants in our debt obligations will adversely affect us;
(5) our dependence on Johnson & Johnson and
Pfizer (which acquired Wyeth) for the development and potential
commercialization of bapineuzumab and any other potential
products in the Alzheimer’s Immunotherapy Program (AIP);
(6) the success of our research and development (R&D)
activities and R&D activities in which we retain an
interest, including, in particular, whether the Phase 3 clinical
trials for bapineuzumab (AAB-001) are successful, and the speed
with which regulatory authorizations and product launches may be
achieved; (7) Johnson & Johnson is our largest
shareholder with an 18.4% interest in our outstanding ordinary
shares and is largely in control of our remaining interest in
the AIP. Johnson & Johnson’s interest in Elan and
the AIP may discourage others from seeking to work with or
acquire us; (8) competitive developments affecting our
products, including the introduction of generic competition
following the loss of patent protection or marketing exclusivity
for our products and several of the products from which we
derive manufacturing or royalty revenues, which are under patent
challenge by potential generic competitors; (9) our ability
to protect our patents and other intellectual property;
(10) difficulties or delays in manufacturing our products
(we are dependent on third parties for the manufacture of our
products); (11) pricing pressures and uncertainties
regarding healthcare reimbursement and reform;
(12) extensive government regulation;
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(13) risks from potential environmental liabilities;
(14) failure to comply with our reporting and payment
obligations under Medicaid or other government programs;
(15) possible legislation affecting pharmaceutical pricing
and reimbursement, both domestically and internationally;
(16) exposure to product liability risks; (17) an
adverse effect that could result from the putative class action
lawsuits initiated following the release of the data from the
Phase 2 clinical trial for bapineuzumab and the outcome of our
other pending or future litigation; (18) the volatility of
our stock price; (19) some of our agreements that may
discourage or prevent others from acquiring us;
(20) governmental laws and regulations affecting domestic
and foreign operations, including tax obligations;
(21) general changes in U.S. generally accepted
accounting principles and IFRS; (22) growth in costs and
expenses; (23) changes in product mix, including in
particular that we will cease distributing
Azactam®
(aztreonam for injection, USP) as of March 31, 2010
and cease distributing
Maxipime®
(cefepime hydrochloride) as of September 30, 2010;
and (24) the impact of acquisitions, divestitures,
restructurings, product withdrawals and other unusual items. We
assume no obligation to update any forward-looking statements,
whether as a result of new information, future events or
otherwise, except as otherwise required by law.
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Not applicable.
Not applicable.
The selected financial data set forth below is derived from our
Consolidated Financial Statements and should be read in
conjunction with, and is qualified by reference to, Item 5.
“Operating and Financial Review and Prospects” and our
Consolidated Financial Statements and related notes thereto.
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Not applicable.
Not applicable.
You should carefully consider all of the information set
forth in this
Form 20-F,
including the following risk factors, when investing in our
securities. The risks described below are not the only ones that
we face. Additional risks not currently known to us or that we
presently deem immaterial may also impair our business
operations. We could be materially adversely affected by any of
these risks. This
Form 20-F
also contains forward-looking statements that involve risks and
uncertainties. Forward-looking statements are not guarantees of
future performance, and actual results may differ materially
from those contemplated by such forward-looking statements.
Our
future success depends upon the continued successful
commercialization of Tysabri and the successful development and
commercialization of additional products. If Tysabri is not
commercially successful, either because of the incidence of
serious adverse events (including deaths) associated with
Tysabri (including cases of PML) or for other reasons, or if
bapineuzumab or other potential products are not successfully
developed and commercialized in the AIP by Johnson &
Johnson and Pfizer Inc. (Pfizer) and we do not successfully
develop and commercialize additional products, we will be
materially and adversely affected.
We will cease distributing Azactam as of March 31,
2010 and cease distributing Maxipime as of
September 30, 2010, which will leave Tysabri as our
only material marketed product. While approximately 25% of our
2009 revenue was generated by our Elan Drug Technologies (EDT)
business unit, our future success depends upon the continued
successful commercialization of Tysabri, which accounted
for 65% of our total revenue for 2009, and the development and
the successful commercialization of additional products
(including bapineuzumab which is being developed by
Johnson & Johnson and Pfizer (which acquired Wyeth)
and in which we retain an approximate 25% economic interest).
Uncertainty created by the serious adverse events (including
death) that have occurred or may occur, with respect to
Tysabri, and the restrictive labeling and distribution
system for Tysabri mandated by regulatory agencies, may
significantly impair the commercial potential for
Tysabri. If there are more serious adverse events, an
increase in the incidence rates of serious adverse events in
patients treated with Tysabri (including cases of PML),
or
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additional restrictive changes in the labeling or distribution
system for Tysabri, up to and including withdrawal of
Tysabri from the market mandated by regulatory agencies,
then we will be seriously and adversely affected.
We commit substantial resources to our R&D activities,
including collaborations with third parties such as Biogen Idec,
Inc. (Biogen Idec) with respect to Tysabri, and
Transition Therapeutics, Inc. (Transition), with respect to a
part of our Alzheimer’s disease programs. Our
collaborators’ interests may not be aligned with our
interests, which may adversely affect the success of our
collaborations. We have committed significant resources to the
development and the commercialization of Tysabri and to
the other potential products in our development pipeline. These
investments may not be successful.
In the pharmaceutical industry, the R&D process is lengthy,
expensive and involves a high degree of risk and uncertainty.
This process is conducted in various stages and, during each
stage, there is a substantial risk that potential products in
our R&D pipeline will experience difficulties, delays or
failures. In addition, if the additional products in the AIP are
not successfully developed and commercialized by
Johnson & Johnson and Pfizer, we may be materially and
adversely affected.
A number of factors could affect our ability to successfully
develop and commercialize products, including our ability to:
Even if we obtain positive results from preclinical or clinical
trials, we may not achieve the same success in future trials.
Earlier stage trials are generally based on a limited number of
patients and may, upon review, be revised or negated by
authorities or by later stage clinical results. The results from
preclinical testing and early clinical trials have often not
been predictive of results obtained in later clinical trials. A
number of new drugs and biologics have shown promising results
in initial clinical trials, but subsequently failed to establish
sufficient safety and effectiveness data to obtain necessary
regulatory approvals. Data obtained from preclinical and
clinical activities are subject to varying interpretations,
which may delay, limit or prevent regulatory approval. Clinical
trials may not demonstrate statistically sufficient safety and
effectiveness to obtain the requisite regulatory approvals for
product candidates. In addition, as happened with
Tysabri, unexpected serious adverse events can occur in
patients taking a product after the product has been
commercialized.
Our failure to continue to successfully commercialize Tysabri
and develop and commercialize other products would
materially adversely affect us.
The
U.S. government is investigating marketing practices concerning
our former Zonegran product; this may require us to pay very
substantial fines or take other actions that could have a
material adverse effect on us.
Over the past few years, a significant number of pharmaceutical
and biotechnology companies have been the target of inquiries
and investigations by various U.S. federal and state
regulatory, investigative, prosecutorial and administrative
entities, including the Department of Justice and various
U.S. Attorney’s Offices, the Office of Inspector
General of the Department of Health and Human Services, the Food
and Drug Administration (FDA), the
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Federal Trade Commission (FTC) and various state Attorneys
General offices. These investigations have alleged violations of
various federal and state laws and regulations, including claims
asserting antitrust violations, violations of the Food, Drug and
Cosmetic Act, the False Claims Act, the Prescription Drug
Marketing Act, anti-kickback laws, and other alleged violations
in connection with off-label promotion of products, pricing and
Medicare
and/or
Medicaid reimbursement.
In light of the broad scope and complexity of these laws and
regulations, the high degree of prosecutorial resources and
attention being devoted to the sales practices of pharmaceutical
companies by law enforcement authorities, and the risk of
potential exclusion from federal government reimbursement
programs, many companies have determined that they should enter
into settlement agreements in these matters, particularly those
brought by federal authorities.
Settlements of these investigations have commonly resulted in
the payment of very substantial fines to the government for
alleged civil and criminal violations, the entry of a Corporate
Integrity Agreement with the federal government, and admissions
of guilt with respect to various healthcare program-related
offenses. Some pharmaceutical companies have been excluded from
participating in federal healthcare programs such as Medicare
and Medicaid.
In January 2006, we received a subpoena from the
U.S. Department of Justice and the Department of Health and
Human Services, Office of Inspector General, asking for
documents and materials primarily related to our marketing
practices for Zonegran, a product we divested to Eisai in April
2004. We are continuing to cooperate with the government in its
investigation. The resolution of the Zonegran matter could
require Elan to pay very substantial civil or criminal fines,
and take other actions that could have a material adverse effect
on Elan and its financial condition, including the exclusion of
our products from reimbursement under government programs. Any
resolution of the Zonegran matter could give rise to other
investigations or litigation by state government entities or
private parties.
We have considered the facts and circumstances known to us in
relation to the Zonegran matter and, while any ultimate
resolution of this matter could require Elan to pay very
substantial civil or criminal fines, at this time we cannot
predict or determine the timing of the resolution of this
matter, its ultimate outcome, or a reasonable estimate of the
amount or range of amounts of any fines or penalties that might
result from an adverse outcome. Accordingly, we have not
recorded any reserve for liabilities in relation to the Zonegran
matter as of December 31, 2009.
As of December 31, 2009, we had $1,540.0 million of
debt falling due in November 2011 ($300.0 million),
December 2013 ($615.0 million) and October 2016
($625.0 million). At such date, we had cash and cash
equivalents, current restricted cash and current investments of
$860.4 million. Our substantial indebtedness could have
important consequences to us. For example, it does or could:
We estimate that we have sufficient cash, liquid resources and
current assets and investments to meet our liquidity
requirements for at least the next 12 months. Our future
operating performance will be affected by general economic,
financial, competitive, legislative, regulatory and business
conditions and other factors, many of which are beyond our
control. Even if our future operating performance does meet our
expectations, including continuing
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to successfully commercialize Tysabri, we may need to
obtain additional funds to meet our longer term liquidity
requirements. We may not be able to obtain those funds on
commercially reasonable terms, or at all, which would force us
to curtail programs, sell assets or otherwise take steps to
reduce expenses or cease operations. Any of these steps may have
a material adverse effect on our prospects.
The agreements governing our outstanding indebtedness contain
various restrictive covenants that limit our financial and
operating flexibility. The covenants do not require us to
maintain or adhere to any specific financial ratio, but do
restrict within limits our ability to, among other things:
The breach of any of these covenants may result in a default
under the applicable agreement, which could result in the
indebtedness under the agreement becoming immediately due and
payable. Any such acceleration would result in a default under
our other indebtedness subject to cross-acceleration provisions.
If this were to occur, we might not be able to pay our debts or
obtain sufficient funds to refinance them on reasonable terms,
or at all. In addition, complying with these covenants may make
it more difficult for us to successfully execute our business
strategies and compete against companies not subject to similar
constraints.
We
depend on Johnson & Johnson, in addition to Pfizer,
for the clinical development and potential commercialization of
bapineuzumab and any other AIP products.
On September 17, 2009, Janssen Alzheimer Immunotherapy
(Janssen AI), a newly formed subsidiary of Johnson &
Johnson, completed the acquisition of substantially all of our
assets and rights related to AIP. In addition,
Johnson & Johnson, through its affiliate Janssen
Pharmaceutical, invested $885.0 million in exchange for
newly issued American Depositary Receipts (ADRs) of Elan,
representing 18.4% of our outstanding Ordinary Shares.
Johnson & Johnson has also committed to fund up to
$500.0 million towards the further development and
commercialization of AIP. We refer to these transactions as the
“Johnson & Johnson Transaction” in this
Form 20-F.
The Johnson & Johnson Transaction resulted in the
assignment of our AIP collaboration agreement with Wyeth (which
has been acquired by Pfizer) and associated business, which
primarily constituted intellectual property, to Janssen AI.
While we have a 49.9% interest in Janssen AI,
Johnson & Johnson exercises effective control over
Janssen AI and consequently over our share of the AIP
collaboration. Our financial interest in the AIP collaboration
has been reduced from approximately 50% to approximately 25%.
The success of the AIP will be dependent, in part, on the
efforts of Johnson & Johnson. The interests of
Johnson & Johnson may not be aligned with our
interests. The failure of Johnson & Johnson to pursue
the development and commercialization of AIP products in the
same manner we would have pursued such development and
commercialization could materially and adversely affect us.
Future
returns from the Johnson & Johnson Transaction are
dependent, in part, on the commercial success of bapineuzumab
and other potential AIP products.
Under the terms of the Johnson & Johnson Transaction
we are entitled to receive 49.9% of Janssen AI’s future
profits and certain royalty payments from Janssen AI in respect
of sales of bapineuzumab and other potential AIP products.
Royalties will generally only arise after Johnson &
Johnson has earned profits from the AIP equal to its
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(up to) $500.0 million investment. Any such payments are
dependent on the future commercial success of bapineuzumab and
other potential AIP products. If no drug is commercially
successful, we may not receive any profit or royalty payments
from Janssen AI.
The pharmaceutical industry is highly competitive. Our principal
pharmaceutical competitors consist of major international
companies, many of which are larger and have greater financial
resources, technical staff, manufacturing, R&D and
marketing capabilities than Elan. We also compete with smaller
research companies and generic drug manufacturers. In addition,
our collaborator on Tysabri, Biogen Idec, markets a
competing multiple sclerosis (MS) therapy,
Avonex®.
A drug may be subject to competition from alternative therapies
during the period of patent protection or regulatory exclusivity
and, thereafter, it may be subject to further competition from
generic products. The price of pharmaceutical products typically
declines as competition increases. Tysabri sales may be
very sensitive to additional new competing products. A number of
such products are expected to be approved for use in the
treatment of MS in the coming years. If these products have a
similar or more attractive overall profile in terms of efficacy,
convenience and safety, future sales of Tysabri could be
limited.
Our product Azactam lost its basic U.S. patent
protection in October 2005. We will cease distributing
Azactam as of March 31, 2010.
In addition, the U.S. basic patent covering our product
Maxipime expired in March 2007. Maxipime became
subject to generic competition following the expiration of the
basic patent, and that has materially and adversely affected our
sales of Maxipime. We will cease distributing Maxipime
as of September 30, 2010.
Generic competitors have challenged existing patent protection
for several of the products from which we earn manufacturing or
royalty revenue. If these challenges are successful, our
manufacturing and royalty revenue will be materially and
adversely affected.
Generic competitors do not have to bear the same level of
R&D and other expenses associated with bringing a new
branded product to market. As a result, they can charge much
less for a competing version of our product. Managed care
organizations typically favor generics over brand name drugs,
and governments encourage, or under some circumstances mandate,
the use of generic products, thereby reducing the sales of
branded products that are no longer patent protected.
Governmental and other pressures toward the dispensing of
generic products may rapidly and significantly reduce, or slow
the growth in, the sales and profitability of any of our
products not protected by patents or regulatory exclusivity and
may adversely affect our future results and financial condition.
The launch of competitive products, including generic versions
of our products, has had and will have a material and adverse
affect on our revenues and results of operations.
Our competitive position depends, in part, upon our continuing
ability to discover, acquire and develop innovative,
cost-effective new products, as well as new indications and
product improvements protected by patents and other intellectual
property rights. We also compete on the basis of price and
product differentiation and through our sales and marketing
organization. If we fail to maintain our competitive position,
then our revenues and results of operations may be materially
and adversely affected.
Because of the significant time and expense involved in
developing new products and obtaining regulatory approvals, it
is very important to obtain patent and intellectual property
protection for new technologies, products and processes. Our
success depends in large part on our continued ability to obtain
patents for our products and technologies, maintain patent
protection for both acquired and developed products, preserve
our trade secrets, obtain and preserve other intellectual
property such as trademarks and copyrights, and operate without
infringing the proprietary rights of third parties.
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The degree of patent protection that will be afforded to
technologies, products and processes, including ours, in the
United States and in other markets is dependent upon the scope
of protection decided upon by patent offices, courts and
legislatures in these countries. There is no certainty that our
existing patents or, if obtained, future patents, will provide
us substantial protection or commercial benefit. In addition,
there is no assurance that our patent applications or patent
applications licensed from third parties will ultimately be
granted or that those patents that have been issued or are
issued in the future will prevail in any court challenge. Our
competitors may also develop products, including generic
products, similar to ours using methods and technologies that
are beyond the scope of our patent protection, which could
adversely affect the sales of our products.
Although we believe that we make reasonable efforts to protect
our intellectual property rights and to ensure that our
proprietary technology does not infringe the rights of other
parties, we cannot ascertain the existence of all potentially
conflicting claims. Therefore, there is a risk that third
parties may make claims of infringement against our products or
technologies. In addition, third parties may be able to obtain
patents that prevent the sale of our products or require us to
obtain a license and pay significant fees or royalties in order
to continue selling our products.
There has been, and we expect there will continue to be,
significant litigation in the industry regarding patents and
other intellectual property rights. Litigation and other
proceedings concerning patents and other intellectual property
rights in which we are involved have been and will continue to
be protracted and expensive and could be distracting to our
management. Our competitors may sue us as a means of delaying
the introduction of our products. Any litigation, including any
interference proceedings to determine priority of inventions,
oppositions to patents or litigation against our licensors, may
be costly and time consuming and could adversely affect us. In
addition, litigation has been and may be instituted to determine
the validity, scope or non-infringement of patent rights claimed
by third parties to be pertinent to the manufacturing, use or
sale of our or their products. The outcome of any such
litigation could adversely affect the validity and scope of our
patents or other intellectual property rights, hinder, delay or
prevent the marketing and sale of our products and cost us
substantial sums of money.
If we
experience significant delays in the manufacture or supply of
our products or in the supply of raw materials for our products,
then sales of our products could be materially and adversely
affected.
We do not manufacture Tysabri,
Prialt®
(ziconotide intrathecal infusion), Maxipime or
Azactam. We will cease distributing Maxipime and
Azactam in 2010. Our dependence upon collaborators and
third parties for the manufacture of our products may result in
unforeseen delays or other problems beyond our control. For
example, if our third-party manufacturers are not in compliance
with current good manufacturing practices (cGMP) or other
applicable regulatory requirements, then the supply of our
products could be materially and adversely affected. If we are
unable to retain or obtain replacements for our third-party
manufacturers or if we experience delays or difficulties with
our third-party manufacturers in producing our products, then
sales of these products could be materially and adversely
affected. Our manufacturers require supplies of raw materials
for the manufacture of our products. We do not have dual
sourcing of our required raw materials. The inability to obtain
sufficient quantities of required raw materials could materially
and adversely affect the supply of our products.
We are
subject to pricing pressures and uncertainties regarding
healthcare reimbursement and reform.
In the United States, many pharmaceutical products and biologics
are subject to increasing pricing pressures. Our ability to
commercialize products successfully depends, in part, upon the
extent to which healthcare providers are reimbursed by
third-party payers, such as governmental agencies, including the
Centers for Medicare and Medicaid Services, private health
insurers and other organizations, such as health maintenance
organizations (HMOs), for the cost of such products and related
treatments. In addition, if healthcare providers do not view
current or future Medicare reimbursements for our products
favorably, then they may not prescribe our products.
Third-party
payers are increasingly challenging the pricing of
pharmaceutical products by, among other things, limiting the
pharmaceutical products that are on their formulary lists. As a
result, competition among pharmaceutical companies to place
their products on these formulary lists has reduced product
prices. If reasonable reimbursement for our products is
unavailable or if significant downward pricing pressures in the
industry occur, then we could be materially and adversely
affected.
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The Obama Administration and the Congress in the United States
have made significant healthcare reform a priority. Any
fundamental healthcare reform may change the manner by which
drugs and biologics are developed, marketed and purchased. In
addition, managed care organizations, HMOs, preferred provider
organizations, institutions and other government agencies
continue to seek price discounts. Further, some states in the
United States have proposed and some other states have adopted
various programs to control prices for their seniors’ and
low-income drug programs, including price or patient
reimbursement constraints, restrictions on access to certain
products, importation from other countries, such as Canada, and
bulk purchasing of drugs.
We encounter similar regulatory and legislative issues in most
other countries. In the European Union and some other
international markets, the government provides healthcare at low
direct cost to consumers and regulates pharmaceutical prices or
patient reimbursement levels to control costs for the
government-sponsored healthcare system. This price regulation
leads to inconsistent prices and some third-party trade in our
products from markets with lower prices. Such trade-exploiting
price differences between countries could undermine our sales in
markets with higher prices.
In addition to the FDA restrictions on marketing of
pharmaceutical products, several other types of state and
federal laws have been applied to restrict some marketing
practices in the pharmaceutical industry in recent years. These
laws include anti-kickback statutes and false claims statutes.
The federal healthcare program anti-kickback statute prohibits,
among other things, knowingly and willfully offering, paying,
soliciting, or receiving remuneration to induce or in return
for, purchasing, leasing, ordering or arranging for the
purchase, lease or order of any healthcare item or service
reimbursable under Medicare, Medicaid or other federally
financed healthcare programs. This statute has been interpreted
to apply to arrangements between pharmaceutical manufacturers on
one hand, and prescribers, purchasers and formulary managers on
the other. Although there are a number of statutory exemptions
and regulatory safe harbors protecting some common activities
from prosecution, the exemptions and safe harbors are drawn
narrowly, and practices that involve remuneration intended to
induce prescribing, purchases or recommendations may be subject
to scrutiny if they do not qualify for an exemption or safe
harbor.
Our practices may not in all cases meet all of the criteria for
safe harbor protection from anti-kickback liability.
Federal false claims laws prohibit any person from knowingly
presenting, or causing to be presented, a false claim for
payment to the federal government, or knowingly making, or
causing to be made, a false statement to get a false claim paid.
In recent years, many pharmaceutical and other healthcare
companies have been prosecuted under these laws for allegedly
providing free product to customers with the expectation that
the customers would bill federal programs for the product.
Additionally, other pharmaceutical companies have settled
charges under the federal False Claims Act, and related state
laws, relating to off-label promotion. The majority of states
also have statutes or regulations similar to the federal
anti-kickback law and false claims laws, which apply to items,
and services reimbursed under Medicaid and other state programs,
or, in several states, apply regardless of the payer. Sanctions
under these federal and state laws may include civil monetary
penalties, exclusion of a manufacturer’s products from
reimbursement under government programs, criminal fines, and
imprisonment.
The pharmaceutical industry is subject to significant regulation
by state, local, national and international governmental
regulatory authorities. In the United States, the FDA regulates
the design, development, preclinical and clinical testing,
manufacturing, labeling, storing, distribution, import, export,
record keeping, reporting, marketing and promotion of our
pharmaceutical products, which include drugs, biologics and
medical devices. Failure to comply with regulatory requirements
at any stage during the regulatory process could result in,
among other things, delays in the approval of applications or
supplements to approved applications, refusal of a regulatory
authority to review pending market approval applications or
supplements to approved applications, warning letters, fines,
import or export restrictions, product recalls or seizures,
injunctions, total or partial suspension of production,
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civil penalties, withdrawals of previously approved marketing
applications or licenses, recommendations by the FDA or other
regulatory authorities against governmental contracts, and
criminal prosecutions.
We must obtain and maintain approval for our products from
regulatory authorities before such products may be sold in a
particular jurisdiction. The submission of an application to a
regulatory authority with respect to a product does not
guarantee that approval to market the product will be granted.
Each authority generally imposes its own requirements and may
delay or refuse to grant approval, even though a product has
been approved in another country. In our principal markets,
including the United States, the approval process for a new
product is complex, lengthy, expensive and subject to
unanticipated delays. We cannot be sure when or whether
approvals from regulatory authorities will be received or that
the terms of any approval will not impose significant
limitations that could negatively impact the potential
profitability of the approved product. Even after a product is
approved, it may be subject to regulatory action based on newly
discovered facts about the safety and efficacy of the product,
on any activities that regulatory authorities consider to be
improper or as a result of changes in regulatory policy.
Regulatory action may have a material adverse effect on the
marketing of a product, require changes in the product’s
labeling or even lead to the withdrawal of the regulatory
marketing approval of the product.
All facilities and manufacturing techniques used for the
manufacture of products and devices for clinical use or for sale
in the United States must be operated in conformity with cGMPs,
the FDA’s regulations governing the production of
pharmaceutical products. There are comparable regulations in
other countries. Any finding by the FDA or other regulatory
authority that we are not in substantial compliance with cGMP
regulations or that we or our employees have engaged in
activities in violation of these regulations could interfere
with the continued manufacture and distribution of the affected
products, up to the entire output of such products, and, in some
cases, might also require the recall of previously distributed
products. Any such finding by the FDA or other regulatory agency
could also affect our ability to obtain new approvals until such
issues are resolved. The FDA and other regulatory authorities
conduct scheduled periodic regulatory inspections of our
facilities to ensure compliance with cGMP regulations. Any
determination by the FDA or other regulatory authority that we,
or one of our suppliers, are not in substantial compliance with
these regulations or are otherwise engaged in improper or
illegal activities could result in substantial fines and other
penalties and could cut off our supply of products.
We use hazardous materials, chemicals and toxic compounds that
could expose people or property to accidental contamination,
events of non-compliance with environmental laws, regulatory
enforcement and claims related to personal injury and property
damage. If an accident occurred or if we were to discover
contamination caused by prior operations, then we could be
liable for cleanup, damages or fines, which could have an
adverse effect on us.
The environmental laws of many jurisdictions impose actual and
potential obligations on us to remediate contaminated sites.
These obligations may relate to sites that we currently own or
lease, sites that we formerly owned or operated, or sites where
waste from our operations was disposed. These environmental
remediation obligations could significantly impact our operating
results. Stricter environmental, safety and health laws and
enforcement policies could result in substantial costs and
liabilities to us, and could subject our handling, manufacture,
use, reuse or disposal of substances or pollutants to more
rigorous scrutiny than is currently the case. Consequently,
compliance with these laws could result in significant capital
expenditures, as well as other costs and liabilities, which
could materially adversely affect us.
As a condition of reimbursement under Medicaid, we participate
in the U.S. federal Medicaid rebate program, as well as
several state rebate programs. Under the federal and state
Medicaid rebate programs, we pay a rebate to each state for our
products that are reimbursed by those programs. The amount of
the rebate for each unit of product is set by law, based on
reported pricing data. The rebate amount may also include a
penalty if our prices increase faster than the rate of inflation.
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As a manufacturer of single-source, innovator and non-innovator
multiple-source products, rebate calculations vary among
products and programs. The calculations are complex and, in some
respects, subject to interpretation by governmental or
regulatory agencies, the courts and us. The Medicaid rebate
amount is computed each quarter based on our pricing data
submission to the Centers for Medicare and Medicaid Services at
the U.S. Department of Health and Human Services. The terms
of our participation in the program impose an obligation to
correct the prices reported in previous quarters, as may be
necessary. Any such corrections could result in an overage or
shortfall in our rebate liability for past quarters (up to 12
past quarters), depending on the direction of the correction.
Governmental agencies may also make changes in program
interpretations, requirements or conditions of participation,
some of which may have implications for amounts previously
estimated or paid.
U.S. federal law requires that any company that
participates in the federal Medicaid rebate program extend
comparable discounts to qualified purchasers under the Public
Health Service’s pharmaceutical pricing program. This
pricing program extends discounts comparable to the Medicaid net
price to a variety of community health clinics and other
entities that receive health services grants from the Public
Health Service, as well as outpatient utilization at hospitals
that serve a disproportionate share of poor patients.
Additionally, each calendar quarter, we calculate and report an
Average Sales Price (ASP) for all products covered by Medicare
Part B (primarily injectable or infused products). We
submit ASP information for each such product within 30 days
of the end of each calendar quarter. This information is then
used to set reimbursement levels to reimburse Part B
providers for the drugs and biologicals dispensed to Medicare
Part B participants.
Furthermore, pursuant to the Veterans Health Care Act, a
Non-Federal Average Manufacturer Price is calculated each
quarter and a Federal Ceiling Price is calculated each year for
every Covered Drug marketed by us. These prices are used to set
pricing for purchases by the military arm of the government.
These price reporting obligations are complicated and often
involve decisions regarding issues for which there is no
clear-cut guidance from the government. Failure to submit
correct pricing data can subject us to material civil,
administrative and criminal penalties.
Risks relating to product liability claims are inherent in the
development, manufacturing and marketing of our products. Any
person who is injured while using one of our products, or
products that we are responsible for, may have a product
liability claim against us. Since we distribute and sell our
products to a wide number of end users, the risk of such claims
could be material. Persons who participate in clinical trials
involving our products may also bring product liability claims.
Excluding any self-insured arrangements, we currently do not
maintain product liability insurance for the first
$10.0 million of aggregate claims, but do maintain coverage
with our insurers for the next $190.0 million. Our
insurance coverage may not be sufficient to cover fully all
potential claims, nor can we guarantee the solvency of any of
our insurers.
If our claims experience results in higher rates, or if product
liability insurance otherwise becomes costlier because of
general economic, market or industry conditions, then we may not
be able to maintain product liability coverage on acceptable
terms. If sales of our products increase materially, or if we
add significant products to our portfolio, then we will require
increased coverage and may not be able to secure such coverage
at reasonable rates or terms.
We and some of our officers and directors have been named as
defendants in putative class actions filed in 2008. These
actions have been consolidated. The consolidated class action
complaint alleges claims under the U.S. federal securities
laws. The complaint alleges that we caused the release of
materially false or misleading information regarding
bapineuzumab. The complaint seeks damages and other relief that
the courts may deem just
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and proper. We believe that the claims in the consolidated
lawsuits are without merit and intend to defend against them
vigorously; however, adverse results in the lawsuits could have
a material adverse effect on us.
Provisions
of agreements to which we are a party may discourage or prevent
a third party from acquiring us and could prevent our
shareholders from receiving a premium for their
shares.
We are a party to agreements that may discourage a takeover
attempt that might be viewed as beneficial to our shareholders
who wish to receive a premium for their shares from a potential
bidder. For example:
Elan Corporation, plc, an Irish public limited company, is a
neuroscience-based biotechnology company, listed on the Irish
and New York Stock Exchanges, and headquartered in Dublin,
Ireland. We were incorporated as a private limited company in
Ireland in December 1969 and became a public limited company in
January 1984. Our registered office and principal executive
offices are located at Treasury Building, Lower Grand Canal
Street, Dublin 2, Ireland (Telephone: +353 (0)1 7094000).
We employ over 1,300 people and our principal R&D,
manufacturing and marketing facilities are located in Ireland
and the United States.
Our two principal business areas are BioNeurology (formerly
referred to as Biopharmaceuticals) and EDT.
BioNeurology —
Defining the Future of Degenerative Neurological
Therapies
In BioNeurology, we are developing therapies for serious
diseases that have long been considered intractable, including
MS, Alzheimer’s disease and Parkinson’s disease.
In 2009, we continued to fulfill our mission of making
significant scientific and clinical advancements in neuroscience
while sustaining overall growth of the business.
Our leadership in neuroscience is marked by more than two
decades of research and development in Alzheimer’s disease,
much of which comprises a significant foundation for the entire
Alzheimer’s scientific community.
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Our broad scientific approach and clinical development pipeline
in Alzheimer’s disease encompass four programs, including
the beta amyloid aggregation inhibitor ELND005, secretase
inhibitors and small molecule (p75) ligands.
As part of the Johnson & Johnson Transaction in
September 2009, Janssen AI acquired substantially all of the
assets and rights related to our AIP collaboration with Wyeth
(which has been acquired by Pfizer). Johnson & Johnson
has also committed to fund up to $500.0 million towards the
further development and commercialization of AIP, which includes
multiple compounds being evaluated for slowing the progression
of Alzheimer’s disease. In consideration for the transfer
of the AIP assets and rights, we received a 49.9% equity
interest in Janssen AI. We are entitled to a 49.9% share of the
future profits of Janssen AI and certain royalty payments upon
the commercialization of products under the AIP collaboration.
We have several active early discovery efforts in
Parkinson’s disease, guided by our expertise in
Alzheimer’s disease. Our scientists are exploring multiple
therapeutic strategies to tackle this poorly understood,
devastating disease; researching mechanics that may prevent
disease progression.
Multiple
Sclerosis — Tysabri
We continued to grow the value of Tysabri as an important
therapeutic approach to MS. Tysabri is an approved
therapy for relapsing forms of MS in the United States and for
relapsing-remitting MS in the European Union.
Tysabri is also approved in the United States for
inducing and maintaining clinical response and remission in
adult patients with moderately to severely active Crohn’s
disease, with evidence of inflammation, who have had an
inadequate response to, or are unable to tolerate, conventional
Crohn’s disease therapies and inhibitors of TNF-alpha.
The medical and scientific opportunity represented by our
BioNeurology pipeline remains significant.
Elan Drug
Technologies — 40 years of Drug Delivery
Leadership
EDT develops and manufactures innovative pharmaceutical products
that deliver clinically meaningful benefits to patients, using
our extensive experience and proprietary drug technologies in
collaboration with pharmaceutical companies.
In 2009, Elan celebrated its 40th anniversary in the drug
delivery business. Since our founding, we have applied our
skills and knowledge from concept development through to
full-scale manufacturing. Because of our successful
collaborations with leading pharmaceutical companies, every day
more than two million people use products enabled by EDT.
Our portfolio includes 24 products marketed by EDT licensees and
14 products in clinical development.
Our two principal drug technology platforms are our Oral
Controlled Release technology (OCR) and
NanoCrystal®
technology capabilities.
Conclusion
of Strategic Review
On January 13, 2009, we announced that our Board of
Directors had engaged an investment bank to conduct, in
conjunction with executive management and other external
advisors, a review of our strategic alternatives. The purpose of
the engagement was to secure access to financial resources and
commercial infrastructure that would enable us to accelerate the
development and commercialization of our extensive pipeline and
product portfolio while maximizing the ability of our
shareholders to participate in the resulting longer term value
creation.
On September 17, 2009, we completed a definitive
transaction with Johnson & Johnson whereby
Johnson & Johnson acquired substantially all of our
assets and rights related to AIP, through a newly formed
Johnson & Johnson subsidiary, Janssen AI. In addition,
Johnson & Johnson, through its subsidiary Janssen
Pharmaceutical, invested $885.0 million in exchange for
107.4 million newly issued ADRs of Elan, representing 18.4%
of our
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outstanding Ordinary Shares. Johnson & Johnson has
also committed to fund up to $500.0 million towards the
further development and commercialization of AIP. In
consideration for the transfer of our AIP assets and rights, we
received a 49.9% equity interest in Janssen AI. We are entitled
to a 49.9% share of the future profits of Janssen AI and certain
royalty payments upon the commercialization of products under
the AIP collaboration with Wyeth (which has been acquired by
Pfizer). We recognized a net gain on divestment of the AIP
business of $108.7 million for 2009.
Subsequent to the completion of the Johnson & Johnson
Transaction, we announced a cash tender offer for the
outstanding $850.0 million in aggregate principal amount of
7.75% senior notes due November 15, 2011
(7.75% Notes). The 7.75% Notes were fully redeemed by
the end of December 2009. In addition, we completed the offering
and sale of $625.0 million in aggregate principal amount of
8.75% senior notes due October 15, 2016
(8.75% Notes).
Following completion of the strategic review, and subsequent
debt refinancing, our total debt has been reduced from
$1,765.0 million at December 31, 2008, to
$1,540.0 million at December 31, 2009, and the
weighted average maturity of our debt was extended by
approximately 70%, from 35 months prior to the refinancing
to 60 months after the refinancing.
BIONEUROLOGY —
Defining the Future of Degenerative Neurological
Therapies
Important
Clinical Progress: Elan’s Alzheimer’s
Programs
Elan’s scientists have been leaders in Alzheimer’s
disease research for more than 25 years, and insights
gained from our work are an important part of the scientific
foundation of understanding this disease. We are known and
respected for our innovative Alzheimer’s disease platforms
and our commitment to creating new therapeutic opportunities for
patients desperately in need of them.
Our scientific approach to Alzheimer’s disease is centered
upon our landmark basic research that revealed the fundamental
biology that leads to the production and accumulation of a toxic
protein, beta amyloid, in the brains of Alzheimer’s disease
patients. The process by which this protein is generated,
aggregates and is ultimately deposited in the brain as plaque is
often referred to as the beta amyloid cascade. The formation of
beta amyloid plaques is the hallmark pathology of
Alzheimer’s disease.
Beta amyloid forms when a small part of a larger protein called
the amyloid precursor protein (APP) is cleaved from the larger
protein. This separation happens when enzymes called secretases
“clip” or cleave APP. It is becoming increasingly
clear that once beta amyloid is produced, it exists in multiple
physical forms with distinct functional activities. It is
believed that the toxic effects of some of these forms may be
involved in the complex cognitive, functional and behavioral
deficits characteristic of Alzheimer’s disease.
A growing body of scientific data, discovered by researchers at
Elan and other organizations, suggest that modulating the beta
amyloid cascade may result in breakthrough treatments for
Alzheimer’s disease patients. Elan scientists and others
continue to study and advance research in this critical
therapeutic area.
Our scientists and clinicians have pursued separate therapeutic
approaches to disrupting three distinct aspects of the beta
amyloid cascade:
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Beta
amyloid immunotherapies (AIP)
Beta amyloid immunotherapy pioneered by our scientists involves
the potential treatment of Alzheimer’s disease by inducing
or enhancing the body’s immune response in order to clear
toxic species of beta amyloid from the brain. In almost a decade
of collaboration with Wyeth (which has been acquired by Pfizer),
our scientists developed a series of therapeutic monoclonal
antibodies and active vaccination approaches that may have the
ability to reduce or clear beta amyloid from the brain. These
new approaches have the potential to alter the underlying cause
of the disease by reducing a key pathway associated with it. The
AIP includes bapineuzumab and ACC-001, as well as other
compounds.
Bapineuzumab is an experimental humanized monoclonal antibody
delivered intravenously that is being studied as a potential
treatment for mild to moderate Alzheimer’s disease.
Bapineuzumab is thought to bind to and clear beta amyloid
peptide in the brain. It is designed to provide antibodies to
beta amyloid directly to the patient (passive immunotherapy),
rather than prompting patients to produce their own immune
responses (active immunotherapy). Bapineuzumab has received
fast-track designation from the FDA, which means that it may
receive expedited approval in certain circumstances, in
recognition of its potential to address the significant unmet
needs of patients with Alzheimer’s disease. The Phase 3
program includes four randomized, double-blind,
placebo-controlled studies across two subpopulations (based on
ApoE4 genotype) with mild to moderate Alzheimer’s disease,
with patients distributed between North America and the rest of
world (ROW).
ACC-001, is a novel vaccine intended to induce a highly specific
antibody response by the patient’s immune system to beta
amyloid (active immunotherapy), and is currently being evaluated
in a Phase 2 clinical study.
ACC-001 has
also been granted fast track designation by the FDA.
As part of the Johnson & Johnson Transaction in
September 2009, Janssen AI acquired substantially all of the
assets and rights related to our AIP collaboration with Wyeth
(which has been acquired by Pfizer). Johnson & Johnson
has also committed to fund up to $500.0 million towards the
further development and commercialization of AIP. In
consideration for the transfer of these assets and rights, we
received a 49.9% equity interest in Janssen AI. We are entitled
to a 49.9% share of the future profits of Janssen AI and certain
royalty payments upon the commercialization of products under
the AIP collaboration.
ELND005,
an Aβ aggregation inhibitor
In 2006, we entered into an exclusive, worldwide collaboration
with Transition for the joint development and commercialization
of a novel therapeutic agent for Alzheimer’s disease. The
small molecule ELND005 is a beta amyloid anti-aggregation agent
that has been granted fast track designation by the FDA.
Preclinical data suggest that ELND005 may act through the unique
mechanism of preventing and reversing the fibrilisation of beta
amyloid (the aggregation of beta amyloid into clumps of
insoluble oligomers), thus enhancing clearance of amyloid and
preventing plaque deposition. Daily oral treatment with this
compound has been shown to prevent cognitive decline in a
transgenic mouse model of Alzheimer’s disease, with reduced
amyloid plaque load in the murine brain and increased life span
of these animals.
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ELND005 is currently in a Phase 2 clinical study, AD201, which
completed enrollment in October 2008. The study is a randomized,
double-blind, placebo-controlled, dose-ranging, safety and
efficacy study which enrolled approximately 350 patients
with mild to moderate Alzheimer’s disease. The planned
treatment period for each patient is approximately
18 months.
In December 2009, we and Transition announced modifications to
the ELND005 Phase 2 and Phase 2 open label extension study
(AD251). Patients were withdrawn from the study in the two
higher dose groups (1,000mg and 2,000mg dosed twice daily). The
Phase 2 study continued unchanged for patients who were assigned
to the lower dose (250mg dosed twice daily) and placebo groups.
The decision by the companies to take these actions was made in
concurrence with the Independent Safety Monitoring Committee
(ISMC) following a review of the ongoing ELND005-AD201 study.
Greater rates of serious adverse events, including nine deaths,
were observed among patients receiving the two highest doses. A
direct relationship between ELND005 and these deaths has not
been established.
The ISMC and both companies concurred that the tolerability and
safety data are acceptable among patients receiving the 250mg
dose and that the blinded study should continue for this dose
and the placebo group. We continue to expect the ongoing study
to provide important data to guide the next steps in the
development of ELND005 for the potential treatment of
Alzheimer’s disease.
Secretase
inhibitors
Beta and gamma secretases are proteases, or enzymes that break
down other proteins, that clip APP and result in the formation
of beta amyloid. This is significant because if the
“clipping” of APP could be prevented, the pathology of
Alzheimer’s disease may be changed. We have been at the
forefront of research in this area, publishing extensively since
1989, and have developed and are pursuing advanced discovery
programs focused on molecule inhibitors of beta and gamma
secretases.
Gamma secretase is a multi-protein complex that is required to
produce beta amyloid. We have played a critical leadership role
characterizing how gamma secretase may affect Alzheimer’s
disease pathology. Our finding that functional gamma secretase
inhibitors appear to reduce beta amyloid levels in the brain,
published in the Journal of Neurochemistry in 2001, was
an important step in this area of Alzheimer’s disease
research. We continue to progress our gamma secretase discovery
program with unique molecules that affect the activity of gamma
secretase in a substrate-specific manner.
Our development program for ELND006, a small molecule gamma
secretase inhibitor, continues to progress through Phase 1
clinical studies, with additional gamma secretase inhibitor
programs advancing in late stages of preclinical development.
In addition to our internal gamma secretase programs, we also
retain certain rights to Eli Lilly and Company’s (Lilly)
LY450139 compound, which arose from collaborative research
between us and Lilly. In 2008, Lilly initiated Phase 3 trials
for LY450319 for mild to moderate Alzheimer’s disease.
Beta secretase, sometimes called BACE (for Beta-site of APP
Cleaving Enzyme), is believed to initiate the first step in the
formation of beta amyloid, the precursor to plaque development
in the brain. Our findings concerning the role beta secretase
plays in beta amyloid production, published in Nature in
1999, are considered a landmark discovery. Today, we continue to
be at the center of understanding the complexities of beta
secretase. Our ongoing drug discovery efforts in this area focus
on inhibiting beta secretase and its role in the progression of
Alzheimer’s disease pathology.
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Small
Molecule (p75) Ligands
In June 2009, we entered into an exclusive collaboration with
PharmatrophiX, a biotechnology company focused on the
development of small molecule ligands for growth factor
receptors relevant to neurological disorders. We are working
with PharmatrophiX on continued research on all p75 ligands,
compounds that mimic the activity of neurotrophins by
interacting with neurons that are susceptible to loss in
Alzheimer’s disease, for neurologic indications.
LM11A-31, which is the lead compound in the PharmatrophiX
portfolio, interacts with and potentially protects neurons that
are susceptible to loss in Alzheimer’s disease. The
addition of this compound diversifies our portfolio by adding an
orally available therapeutic platform that may attack
Alzheimer’s disease from a different, and potentially
complementary, approach than current investigational molecules
in our pipeline.
Elan has several active early discovery efforts in
Parkinson’s disease, guided by our expertise in
Alzheimer’s disease. Elan scientists are exploring multiple
therapeutic strategies to tackle this poorly understood,
devastating disease, with specific focus on the analysis of
human genetics and pathology to discover mechanisms to prevent
disease progression.
Parkinson’s disease may be a result of misfolded proteins
in the brain. Parkinson’s disease is characterized by the
accumulation of aggregated alpha-synuclein, or abnormal fibrils
and inclusions known as Lewy bodies, in degenerating neurons in
specific regions of the brain.
Alpha-synuclein is a protein genetically linked to
Parkinson’s disease and a key component in degenerating
neurons in brain regions controlling movement. Alterations in
alpha-synuclein are believed to play a critical role in
Parkinson’s disease.
Our scientists have made significant scientific progress in
identifying unusual modified forms of alpha-synuclein in human
Parkinson’s disease brain tissue. In January 2009, our
scientists published new research in the Journal of
Biological Chemistry about the discovery of a protein that
may be involved in the modification of alpha-synuclein. The
normal function of alpha-synuclein is unknown, but modified
forms accumulate during pathological conditions and
form Lewy bodies.
Our scientists are studying the nature of these modifications
and, in the 2009 paper, reported the identity of a protein that
appeared to be a contributor to changes in the alpha-synuclein
protein. We are using experimental models of Parkinson’s
disease to conduct tests to determine the involvement of the
protein in the formation of Lewy bodies in brain tissue.
We are also studying parkin, a protein found in the brain that,
like alpha-synuclein, has been genetically linked to
Parkinson’s disease. Parkin may be involved in the
elimination of misfolded proteins within neurons, and has
demonstrated neuroprotective capabilities in cells. Some
familial forms of Parkinson’s disease have been linked to
mutations in parkin, with more than 50% of early-onset
Parkinson’s disease being linked to a loss of parkin
protein and function in neurons.
Our study of the relationship between parkin activity and
neurodegeneration is in the drug discovery stage.
Tysabri, which is co-marketed by us and Biogen Idec, is
approved in more than 45 countries, including the United States,
the European Union, Switzerland, Canada, Australia and New
Zealand. In the United States, it is approved for relapsing
forms of MS and in the European Union for relapsing-remitting MS.
According to data published in the New England Journal of
Medicine, after two years Tysabri treatment led to a
68% relative reduction in the annualized relapse rate, compared
with placebo, and reduced the relative risk of disability
progression by 42% to 54%.
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Tysabri is redefining success in the treatment of MS. In
post-hoc analyses of the clinical trial data published in The
Lancet Neurology, 37% of Tysabri-treated patients
remained free of their MS activity, based on MRI and clinical
measures, compared to 7% of placebo-treated patients.
Additional analyses have provided evidence that Tysabri
is associated with a significant improvement in functional
outcome, rather than only slowing or preventing progression of
disability, in those living with MS. Patients with a common
baseline expanded disability status scale score (an EDSS of 2.0)
treated with Tysabri showed a significant increase in the
probability of sustained improvement in disability; this
increase was 69% relative to placebo.
Tysabri increases the risk of PML, an opportunistic viral
infection of the brain, caused by the JC virus, that can lead to
death or severe disability. The risk of PML increases with
increasing duration of use.
In the United States, Europe and the ROW, provisions are in
place to ensure patients are informed of the risks associated
with Tysabri therapy, including PML, and to enhance
collection of post-marketing data on the safety and utilization
of Tysabri for MS.
On January 21, 2010, the European Medicines Agency (EMA)
finalized a review of Tysabri and the risk of PML. The
EMA’s Committee for Medicinal Products for Human Use (CHMP)
concluded that the risk of developing PML increases after two
years of use of Tysabri, although this risk remains low.
However, the benefits of the medicine continue to outweigh its
risks for patients with highly active relapsing-remitting MS,
for whom there are few treatment options available.
For 2009, Tysabri global in-market net sales increased by
30% to $1,059.2 million from $813.0 million for 2008.
As of the end of December 2009, approximately
48,800 patients were on therapy worldwide, including
approximately 24,500 commercial patients in the United States
and approximately 23,700 commercial patients in the ROW.
The safety data to date continues to support a favorable
benefit-risk profile for Tysabri. Complete information
about Tysabri for the treatment of MS, including
important safety information, is available at
www.Tysabri.com. The contents of this website are not
incorporated by reference into this
Form 20-F.
We evaluated Tysabri as a treatment for Crohn’s
disease in collaboration with Biogen Idec. The safety and
efficacy of Tysabri as both an induction and maintenance
therapy were evaluated in 11 clinical studies, including three
pivotal, randomized, double-blind, placebo-controlled,
multi-center trials.
On January 14, 2008, the FDA approved the supplemental
Biologics License Application (sBLA) for Tysabri, for
inducing and maintaining clinical response and remission in
adult patients with moderately to severely active Crohn’s
disease, with evidence of inflammation, who have had an
inadequate response to, or are unable to tolerate, conventional
Crohn’s disease therapies and inhibitors of TNF-alpha.
Also in January 2008, we were notified by the European
Commission that it had denied marketing authorization of
Tysabri as a treatment of Crohn’s disease.
We launched Tysabri for the treatment of Crohn’s
disease in the United States in the first quarter of 2008. On
December 12, 2008, we announced a realignment of our
commercial activities in Tysabri for Crohn’s
disease, shifting our efforts from a traditional sales model to
a model based on clinical support and education.
In October 2009, Tysabri data was presented at the
College of Gastroenterology Annual Scientific Meeting in
San Diego showing that treatment with Tysabri
significantly reduced the rate of hospitalization compared
with placebo in patients with moderate to severe Crohn’s
disease during both induction and maintenance treatment. These
results were obtained from retrospective subset analyses of
three registrational Phase 3 trials (ENACT-1 (Efficacy of
Natalizumab as Active Crohn’s Therapy), ENACT-2 (Evaluation
of Natalizumab as Continuous Therapy) and ENCORE (Efficacy of
Natalizumab in Crohn’s Disease Response and Remission)),
and one open-label study (ENABLE (Evaluation of the Natalizumab
Antibody for Long-term Efficacy)).
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Complete information about Tysabri for the treatment of
Crohn’s disease, including important safety information, is
available at www.Tysabri.com. The contents of this
website are not incorporated by reference into this
Form 20-F.
Revenue from the sales of Prialt was $16.5 million
for 2009 and 2008.
In 2009, we recorded an impairment charge of $30.6 million
relating to the Prialt intangible asset. Prialt
was launched in the United States in 2005. Revenues from
this product have not met expectations and, consequently, we
revised our sales forecast for Prialt and reduced the
carrying value of the intangible asset to $14.6 million as
of December 31, 2009.
Prialt is a non-opioid, intrathecal analgesic and
represents a therapeutic option for interventional pain
specialists. Prialt has had an impact in a broad range of
chronic pain syndromes, especially in the area of severe
neuropathic pain.
Prialt is administered through appropriate programmable
microinfusion pumps that can be implanted or external and that
release the drug into the fluid surrounding the spinal cord.
Prialt is in a class of non-opioid analgesics known as
N-type calcium channel blockers. It is a synthetic equivalent of
a naturally occurring conopeptide found in a marine snail known
as Conus Magus. Research suggests that the novel
mechanism of action of Prialt works by targeting and
blocking N-type calcium channels on nerves that ordinarily
transmit pain signals.
Hospital
Antibiotics
We distribute two products that treat severe bacterial
infections, which remain a major medical concern. Azactam
and Maxipime are designed to address medical needs
within the hospital environment.
We licensed the U.S. marketing rights to this injectable
antibiotic from Bristol-Myers Squibb Company (Bristol-Myers) in
January 1999. Azactam is a monobactam and is principally
used by surgeons, infectious disease specialists and internal
medicine physicians to treat pneumonia, post-surgical infections
and septicemia. Azactam is often used in these infections
for patients who have a known or suspected penicillin allergy.
For 2009, revenue from Azactam decreased 16% to
$81.4 million, compared to $96.9 million for 2008,
principally due to supply shortages. Azactam lost its
patent exclusivity in October 2005. We will cease distributing
Azactam as of March 31, 2010.
We licensed the U.S. marketing rights to Maxipime
from Bristol-Myers in January 1999. Maxipime is a
fourth-generation injectable cephalosporin antibiotic used to
treat patients with serious
and/or
life-threatening infections.
For 2009, revenue from Maxipime decreased 51% to
$13.2 million from $27.1 million for the 2008. The
decrease was principally due to generic competition. The first
generic cefepime hydrochloride was launched in June 2007, and
additional generic forms of Maxipime have since been
launched. We will cease distributing Maxipime as of
September 30, 2010.
Unique
Scientific Opportunities
Our BioNeurology pipeline includes a range of unique medical and
scientific opportunities across a number of indications and
formulations, particularly in our small molecule integrin
platform. We believe this reflects considerable potential value
for external licensing
and/or
collaborating opportunities, beyond our core focus in
neuroscience.
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Our therapeutic strategy for treating autoimmune and other
diseases is to identify mechanisms common to these diseases and
develop novel therapeutics that stop the underlying causes of
disease. Alpha 4 integrin is a protein expressed by immune cells
that allows those cells to leave the bloodstream and invade
target tissues. Blocking alpha 4 integrin stops immune cells
from entering tissues.
Since first publishing the hypothesis concerning the therapeutic
potential of blocking alpha 4 integrin in 1992, our scientists
have been expanding and refining our understanding of how cells
enter tissues. Through this deep understanding, we have
developed small molecules that can selectively block particular
alpha 4 integrin interactions.
We have advanced a number of compounds in this area, including
ELND002, which is currently being studied for MS and oncology.
Our progress, goals and achievements are underscored by a deep
commitment to creating, sustaining and growing the unique
patient relevance of our therapies, science and relationships.
In addition to the advancement of our products and clinical
studies, this fundamental focus on patients is also evidenced by
our collaborative research ventures, our patient assistance
programs, our intellectual property estate enabling the
advancement of innovation, and the widespread, patient-facing
outreach of our employees in the communities in which we work
and live.
Moving forward, we remain steadfastly committed to pursuing the
strategic opportunities that have the best potential to deliver
significant benefit to millions of patients around the world.
ADDF, a biomedical venture philanthropy, is a public charity
solely dedicated to rapidly accelerating the discovery and
development of drugs to prevent, treat and cure Alzheimer’s
disease and cognitive aging. Through the ADDF, Elan sponsors an
annual research award program, “Novel Approaches to Drug
Discovery for Alzheimer’s Disease.” In 2009, the
program funded five research projects.
In addition to our internal programs for Parkinson’s
disease, we collaborate with world-class experts to expand the
body of scientific knowledge around this disease. Our
researchers have worked with scientists from the
Parkinson’s Institute and Clinical Center and have made
significant progress in developing a new animal model, which
could enable us to evaluate new treatment approaches.
Since 2006, our efforts with the Michael J. Fox Foundation for
Parkinson’s Research have included a grant program,
“Novel Approaches to Drug Discovery,” designed to
identify and fund promising projects, to help them advance more
quickly from the lab to the clinic.
With a strong focus on the development of disease-modifying
therapies for Parkinson’s disease, Novel Approaches to Drug
Discovery provides funding for projects of up to one year’s
duration. Ideal proposals focus on efforts to develop promising
biological targets into novel disease-modifying therapeutic
strategies. Novel Approaches to Drug Discovery provides awardees
from both academic and biotech institutions with a clear
opportunity for follow-on funding and collaboration for further
development. We have an option for a right of first negotiation
for any promising approaches or materials that arise out of this
program. In 2009, the program funded six research projects.
The Alzheimer’s Association is the leading voluntary
U.S. health organization in Alzheimer’s care, support
and research, with a mission “to eliminate Alzheimer’s
disease through the advancement of research; to provide and
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enhance care and support for all affected; and to reduce the
risk of dementia through the promotion of brain health.”
Our multi-faceted relationship with the Alzheimer’s
Association includes participating in the Alzheimer’s
Association Research Roundtable, a consortium of scientific
thought-leaders working to facilitate the development and
implementation of new treatments for Alzheimer’s disease.
ACT-AD
ACT-AD is a coalition of national organizations representing
multiple stakeholders that are seeking to accelerate development
of potential cures and treatments for Alzheimer’s disease.
ACT-AD supports accelerating research for transforming therapies
to potentially slow, halt or reverse the progression of
Alzheimer’s disease. ACT-AD seeks immediate public and
government recognition of Alzheimer’s disease as a
debilitating, dehumanizing and life-threatening disease that
requires urgent attention and to bring interventional therapies
to patients, providers and families in the next decade by making
the acceleration of promising Alzheimer’s disease therapies
a top national priority. We are a member of the coalition and
support its programs intended to bring transformational
therapies to patients and their families.
Our collaborator on Tysabri, Biogen Idec, provides
Tysabri patients a wide range of support services and
programs to optimize access to Tysabri in the United
States. Biogen Idec partners patients with a Financial
Assistance Counselor to develop the best financial solution for
accessing Tysabri therapy, helping to ensure that no
patient is denied treatment based solely on financial reasons.
Financial assistance programs encompass a number of options; are
tailored to address the various needs of patients, including
those uninsured, privately insured, or insured through Medicare;
and include a co-pay assistance program with a low monthly cap,
subject to annual enrollment and income limit qualifications.
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ELAN DRUG
TECHNOLOGIES — 40 Years of Drug Delivery
Leadership
On December 18, 2009, EDT celebrated its official
anniversary and 40 years of leadership in the drug delivery
business. Since its founding in Ireland in 1969, EDT has been
focused on developing and applying technologies to unsolved drug
formulation challenges.
Throughout its 40 year history, EDT has been a leader,
bringing forth innovative solutions that have addressed real
patient needs, with significant benefits across the
pharmaceutical industry.
Since 2001, 11 products incorporating EDT technologies have been
approved and launched in the United States alone. To date,
EDT’s drug delivery technologies have been commercialized
in 35 products around the world, contributing to annual client
sales of more than $3.1 billion.
Highlights
Luvox®
CR was launched in the United States in January 2009, using our
SODAS®
technology for the treatment of social anxiety disorder (SAD)
and obsessive compulsive disorder (OCD), by Jazz Pharmaceuticals
Inc.
In July 2009, Janssen, a division of Ortho-McNeil-Janssen
Pharmaceuticals, announced the approval of
Invega®
Sustennatm,
a once monthly atypical antipsychotic injection, by the FDA. The
approval of Invega Sustenna was an important milestone as it
marks the first long-acting injectable product approved by
regulatory authorities using our NanoCrystal technology.
Invega Sustenna is the fifth licensed product using the
NanoCrystal technology for various formulations approved
by the FDA. Janssen also announced it had submitted an Marketing
Authorisation Application (MAA) for paliperidone palmitate with
the European Regulatory Agencies.
In October 2009,
Emend®
(aprepitant) was approved in Japan, thereby becoming the first
Japanese product approval incorporating our NanoCrystal
technology.
In January 2010, the FDA approved
Ampyratm
(dalfampridine) as a treatment to improve walking in patients
with MS. Ampyra will be marketed and distributed in the United
States by Acorda Therapeutics Inc. (Acorda) and outside the
United States by Biogen Idec. Ampyra is the first New Drug
Application approved by the FDA for a product using the
MXDAStm
(matrix drug absorption system) technology and is the first
medicine approved by the FDA indicated to improve walking speed
in people with MS. In addition, in January 2010, Biogen Idec
announced the submission of an MAA to the EMA for Fampridine
Prolonged Release (Fampridine-PR) tablets. Biogen Idec also
announced that it has filed a New Drug Submission (NDS) with
Health Canada. EDT will manufacture supplies of Ampyra for the
global market at its Athlone, Ireland, facility, under an
existing supply agreement with Acorda.
Advancing
Technologies, Improving Medicines
EDT is an established, profitable business unit of Elan, that
has been applying its skills and knowledge to enhance the
performance of dozens of drugs that have subsequently been
marketed worldwide. Today, products enabled by EDT technologies
are used by more than two million patients each day.
Throughout its 40 years in business, EDT has remained
committed to using its extensive experience, drug delivery
technologies and commercial capabilities to help clients develop
innovative products that provide clinically meaningful benefits
to patients. Committed to innovation – whether in the
products developed, advancing our existing technologies or
developing new technologies – EDT has been driven by
some of the best scientific talent in the area of drug delivery
formulation. We provide a broad range of creative drug
formulation approaches, including formulation development,
scale-up and
manufacturing. Commercialized technologies include those for
poorly water-soluble compounds as well as technology platforms
for customized oral release. Since 2001, our technologies have
been incorporated and subsequently commercialized in 11 products
in the United States. With 14 pipeline products in the clinic,
multiple preclinical programs and a strong client base, EDT
plans to maintain its position as the leading drug delivery
company worldwide.
During 2009, EDT generated $275.9 million (2008:
$301.6 million) in revenue and an operating profit of
$70.5 million in 2009 (2008: $85.8 million). EDT
generates revenue from two sources: royalties and manufacturing
fees from licensed products, and contract revenues relating to
R&D services, license fees and milestones.
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EDT revenues for 2009 were impacted by the withdrawal of, or
significantly decreased, promotional efforts by our clients in
respect of
Skelaxin® and
TriCor®
145. Revenues were also impacted by the scheduled expiry of
supply agreements for some smaller legacy products.
Typically, EDT receives royalties in the single-digit range as
well as manufacturing fees based on cost-plus arrangements where
appropriate. More recently, EDT has brought product concepts to
a later stage of development before out-licensing and as a
result will seek to attain an increasing proportion of revenue.
Throughout our
40-year
history, we have invested in the development of innovative
technologies, particularly in OCR platform technologies and
technologies for poorly water-soluble compounds. Although
revenues declined in 2009, over the medium term we are focused
on profitably growing as a drug delivery business, underpinned
by our product development capabilities and drug delivery
technologies.
In the near to medium term, we will drive growth through our
existing approved licensed products and pipeline of 14 products
in clinical development. We will also seek to generate new
pipeline opportunities by entering into further licensing
arrangements with pharmaceutical companies as well as
identifying and developing proprietary products as we evolve our
drug delivery business model. We will also seek to generate
revenue through our
scale-up and
manufacturing capabilities. As a leading provider of drug
delivery technologies, we will continue to invest in the
development and application of novel drug delivery technologies.
Our strategy, based on our comprehensive product development and
proprietary technology platforms, involves two complementary
elements:
Our drug delivery technologies are key to our future business.
Today, we have many patent and patent applications around our
key technology and product areas.
Twenty-four (24) products incorporating EDT technologies
are currently marketed by EDT licensees. EDT receives royalties
and, in some cases, manufacturing fees on these products, which
include:
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EDT’s current pipeline spans a range of therapeutic
classes, routes of administration and licensee profiles, as
outlined below. In addition, EDT has a large number of projects
at the preclinical or formulation development stage.
EDT has a unique platform of validated technologies to offer our
clients — including OCR, delayed release, and
pulsatile release delivery systems as well as technology
solutions for poorly water-soluble compounds. We have a complete
range of capabilities from formulation development through to
commercial-scale manufacture in modern facilities. Our
technologies are supported by a robust patent estate.
EDT’s proprietary NanoCrystal technology is a drug
optimization technology applicable to many poorly water-soluble
compounds. It is an enabling technology for evaluating new
chemical entities exhibiting poor water solubility and a tool
for optimizing the performance of established drugs.
NanoCrystal technology involves reducing drugs to
particles in the nanometer size. By reducing particle size, the
exposed surface area of the drug is increased and then
stabilized to maintain particle size. A drug in NanoCrystal
form can be incorporated into common dosage forms, including
tablets, capsules, inhalation devices, and sterile forms for
injection, with the potential for substantial improvements to
clinical performance.
Our NanoCrystal technology is:
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The potential benefits of applying the NanoCrystal
technology for existing and new products include:
EDT’s NanoCrystal technology has now been
incorporated into five licensed and commercialized products,
with more than 30 other compounds at various stages of
development.
OCR technologies provide significant benefits in developing
innovative products that provide meaningful clinical benefits to
patients. EDT has developed a range of OCR technologies, which
it applies to help overcome many of the technical difficulties
that have been encountered in developing OCR products. OCR
products are often difficult to formulate, develop and
manufacture. As a result, significant experience, expertise and
know-how are required to successfully develop such products.
EDT’s OCR technologies are focused on using advanced drug
delivery technology and its manufacturing expertise to
formulate, develop and manufacture controlled release, oral
dosage form pharmaceutical products that improve the release
characteristics and efficacy of active drug agents, and also
provide improved patient convenience and compliance. The drug
delivery technologies employed, coupled with its manufacturing
expertise, enable EDT to cost effectively develop value-added
products and to enhance product positioning.
EDT’s suite of OCR technologies has been incorporated into
many commercialized products. EDT’s OCR technology platform
allows a range of release profiles and dosage forms to be
engineered. Customized release profiles for oral dosage forms
such as extended release, delayed release and pulsatile release
have all been successfully developed and commercialized.
A unique platform of validated technologies to offer our clients:
EDT has a long and established history in the manufacture and
development of pharmaceutical dosage forms for pharmaceutical
markets worldwide, with multiple products successfully launched
in North America, Asia, Europe, Latin America and Australasia.
EDT’s main production facilities are located in Athlone,
Ireland, and Gainesville, Georgia, United States. We have
manufactured finished solid oral pharmaceutical products for
clients for well over 30 years.
In addition to formulation development, EDT provides a range of
contract manufacturing services that include analytical
development, clinical trial manufacturing,
scale-up,
product registration support and supply chain management for
client products.
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The U.S. market is our most important market. Refer to
Note 4 to the Consolidated Financial Statements for an
analysis of revenue by geographic region. For this reason, the
factors discussed below, such as “Government
Regulation” and “Product Approval,” place
emphasis on requirements in the United States.
The pharmaceutical industry is subject to significant regulation
by international, national, state and local governmental
regulatory agencies. Pharmaceutical product registration is
primarily concerned with the safety, efficacy and quality of new
drugs and devices and, in some countries, their pricing. A
product must generally undergo extensive clinical trials before
it can be approved for marketing. The process of developing a
new pharmaceutical product, from idea to commercialization, can
take in excess of 10 years.
Governmental authorities, including the FDA and comparable
regulatory authorities in other countries, regulate the design,
development, testing, manufacturing and marketing of
pharmaceutical products. Non-compliance with applicable
requirements can result in fines and other judicially imposed
sanctions, including product seizures, import restrictions,
injunctive actions and criminal prosecutions. In addition,
administrative remedies can involve requests to recall violative
products; the refusal of the government to enter into supply
contracts; or the refusal to approve pending product approval
applications for drugs, biological products or medical devices
until manufacturing or other alleged deficiencies are brought
into compliance. The FDA also has the authority to cause the
withdrawal of approval of a marketed product or to impose
labeling restrictions.
In addition, the U.S. Centers for Disease Control and
Prevention regulate select biologics and toxins. This includes
registration and inspection of facilities involved in the
transfer or receipt of select agents. Select agents are subject
to specific regulations for packaging, labeling and transport.
Non-compliance with applicable requirements could result in
criminal penalties and the disallowance of research and
manufacturing of clinical products. Exemptions are provided for
select agents used for a legitimate medical purpose or for
biomedical research, such as toxins for medical use and vaccines.
The pricing of pharmaceutical products is regulated in many
countries and the mechanism of price regulation varies. In the
United States, while there are limited indirect federal
government price controls over private sector purchases of
drugs, it is not possible to predict future regulatory action on
the pricing of pharmaceutical products.
In January 2006, we received a subpoena from the
U.S. Department of Justice and the Department of Health and
Human Services, Office of Inspector General, asking for
documents and materials primarily related to our marketing
practices for Zonegran, a product we divested to Eisai in April
2004. We are continuing to cooperate with the government in its
investigation. The resolution of the Zonegran matter could
require Elan to pay very substantial civil or criminal fines,
and take other actions that could have a material adverse effect
on Elan and its financial condition, including the exclusion of
our products from reimbursement under government programs. Any
resolution of the Zonegran matter could give rise to other
investigations or litigation by state government entities or
private parties.
Preclinical tests assess the potential safety and efficacy of a
product candidate in animal models. The results of these studies
must be submitted to the FDA as part of an Investigational New
Drug Application before human testing may proceed.
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The clinical trial process can take three to 10 years or
more to complete, and there can be no assurance that the data
collected will demonstrate that the product is safe or effective
or, in the case of a biologic product, pure and potent, or will
provide sufficient data to support FDA approval of the product.
The FDA may place clinical trials on hold at any point in this
process if, among other reasons, it concludes that clinical
subjects are being exposed to an unacceptable health risk.
Trials may also be terminated by institutional review boards,
which must review and approve all research involving human
subjects. Side effects or adverse events that are reported
during clinical trials can delay, impede or prevent marketing
authorization.
The results of the preclinical and clinical testing, along with
information regarding the manufacturing of the product and
proposed product labeling, are evaluated and, if determined
appropriate, submitted to the FDA through a license application
such as a New Drug Application (NDA) or a Biologics License
Application (BLA). In certain cases, an Abbreviated New Drug
Application (ANDA) can be filed in lieu of filing an NDA.
There can be no marketing in the United States of any drug,
biologic or device for which a marketing application is required
until the application is approved by the FDA. Until an
application is actually approved, there can be no assurance that
the information requested and submitted will be considered
adequate by the FDA. Additionally, any significant change in the
approved product or in how it is manufactured, including changes
in formulation or the site of manufacture, generally require
prior FDA approval. The packaging and labeling of all products
developed by us are also subject to FDA approval and ongoing
regulation.
Whether or not FDA approval has been obtained, approval of a
pharmaceutical product by comparable regulatory authorities in
other countries outside the United States must be obtained prior
to the marketing of the product in those countries. The approval
procedure varies from country to country. It can involve
additional testing and the time required can differ from that
required for FDA approval. Although there are procedures for
unified filings for European Union countries, in general, most
other countries have their own procedures and requirements.
Once a product has been approved, significant legal and
regulatory requirements apply in order to market a product. In
the United States, these include, among other things,
requirements related to adverse event and other reporting,
product advertising and promotion, and ongoing adherence to cGMP
requirements, as well as the need to submit appropriate new or
supplemental applications and obtain FDA approval for certain
changes to the approved product, product labeling or
manufacturing process.
The FDA also enforces the requirements of the Prescription Drug
Marketing Act, which, among other things, imposes various
requirements in connection with the distribution of product
samples to physicians. Sales, marketing and
scientific/educational grant programs must comply with the
Medicare-Medicaid Anti-Fraud and Abuse Act, as amended, the
False Claims Act, as amended, and similar state laws. Pricing
and rebate programs must comply with the Medicaid rebate
requirements of the Omnibus Budget Reconciliation Act of 1990,
as amended.
Each manufacturing establishment, including any contract
manufacturers, used to manufacture a product must be listed in
the product application for such product. In the United States,
this means that each manufacturing establishment must be listed
in the drug, biologic or device application, and must be
registered with the FDA. The application will not be approved
until the FDA conducts a manufacturing inspection, approves the
applicable manufacturing process for the product and determines
that the facility is in compliance with cGMP requirements.
At December 31, 2009, we employed 518 people in our
manufacturing and supply activities, with over half of these in
Athlone, Ireland. This facility is our primary location for the
manufacture of oral solid dosage products, including instant,
controlled release and oral nano particulate products.
Additional dosage capabilities may be added as required to
support future product introductions. Our facility in
Gainesville, Georgia, United States, provides additional OCR
dosage product manufacturing capability and is registered with
the U.S. Drug Enforcement Administration for the
manufacture, packaging and distribution of Schedule II
controlled drugs.
All facilities and manufacturing techniques used for the
manufacture of products and devices for clinical use or for sale
in the United States must be operated in conformity with cGMP
regulations. There are FDA regulations governing the production
of pharmaceutical products. Our facilities are also subject to
periodic regulatory inspections to ensure ongoing compliance
with cGMP regulations.
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During 2009, the extent of utilization of our manufacturing
facilities was approximately 50% of our total productive
capacity. This capacity underutilization principally relates to
our Athlone, Ireland, facility.
Our competitive position depends on our ability to obtain
patents on our technologies and products, to defend our patents,
to protect our trade secrets and to operate without infringing
the valid patents or trade secrets of others. We own or license
a number of patents in the United States and other countries.
These patents cover, for example:
Tysabri is covered by a number of issued patents and
pending patent applications in the United States and many other
countries. We have a basic U.S. patent, which expires in
2017, for Tysabri covering the humanized antibody and its
use to treat MS. Additional U.S. patents and patent
applications of Elan
and/or our
collaborator Biogen Idec that cover (i) the use of
Tysabri to treat irritable bowel disease and a variety of
other indications and (ii) methods of manufacturing
Tysabri, generally expire between 2012 and 2020. Outside
the United States, patents and patent applications on the
product and methods of manufacturing the product generally
expire between 2014 and 2020, and may be subject to additional
patent protection until 2020 in the nature of Supplementary
Protection Certificates. International patents and patent
applications covering methods of treatment using Tysabri
would generally expire between 2012 to 2020.
In addition to our Tysabri collaboration with Biogen
Idec, we have entered into licenses covering intellectual
property related to Tysabri. We pay royalties under these
licenses based upon the level of Tysabri sales. We may be
required to enter into additional licenses related to Tysabri
intellectual property. If these licenses are not available,
or are not available on reasonable terms, we may be materially
and adversely affected.
The fundamental U.S. patent covering the use of ziconotide,
the active ingredient of Prialt, to produce analgesia,
expires in 2016. A further U.S. patent covering the
stabilized formulation of Prialt expires in 2015.
The basic U.S. patent for Maxipime expired in March
2007. Following the introduction of generic cefepime to the
market, our revenues from, and gross margin for, Maxipime
were materially and adversely affected. We will cease
distributing Maxipime as of September 30, 2010.
The basic U.S. patent for Azactam expired in October
2005. We will cease distributing Azactam as of
March 31, 2010.
The primary patent covering Elan’s NanoCrystal
technology expires in the United States in 2011 and in some
countries outside the United States in 2012. We also have
numerous U.S. and international patents and patent
applications that relate to our NanoCrystal drug
optimization technology applicable to poorly water-soluble
compounds.
In addition, we have a robust patent estate resulting from our
Alzheimer’s disease research.
The pharmaceutical industry is highly competitive. Our principal
pharmaceutical competitors consist of major international
companies, many of which are larger and have greater financial
resources, technical staff, manufacturing, R&D and
marketing capabilities than we have. We also compete with
smaller research companies and generic drug manufacturers.
Tysabri, a treatment for relapsing forms of MS, competes
primarily with Avonex marketed by our collaborator Biogen Idec,
Betaseron®
marketed by Berlex (an affiliate of Bayer Schering Pharma AG) in
the United States and sold under the name
Betaferon®
by Bayer Schering Pharma in Europe,
Rebif®
marketed by Merck Serono and Pfizer Inc. in the United States
and by Merck Serono in Europe, and
Copaxone®
marketed by Teva Neurosciences, Inc. in the United States and
co-promoted by Teva and Sanofi-Aventis in Europe. Many companies
are working to
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develop new therapies or alternative formulations of products
for MS that, if successfully developed, would compete with
Tysabri.
A drug may be subject to competition from alternative therapies
during the period of patent protection or regulatory exclusivity
and, thereafter, it may be subject to further competition from
generic products. Our product Azactam lost its basic
U.S. patent protection in October 2005, and the basic
U.S. patent for Maxipime expired in March 2007. We
will cease distributing Azactam and Maxipime in
2010.
Generic competitors have challenged existing patent protection
for some of the products from which we earn manufacturing or
royalty revenue. If these challenges are successful, our
manufacturing and royalty revenue will be materially and
adversely affected.
Governmental and other pressures toward the dispensing of
generic products may rapidly and significantly reduce, slow or
reverse the growth in, sales and profitability of any of our
products not protected by patents or regulatory exclusivity, and
may adversely affect our future results and financial condition.
The launch of competitive products, including generic versions
of our products, has had and may have a material adverse effect
on our revenues and results of operations.
Our competitive position depends, in part, upon our continuing
ability to discover, acquire and develop innovative,
cost-effective new products, as well as new indications and
product improvements protected by patents and other intellectual
property rights. We also compete on the basis of price and
product differentiation and through our sales and marketing
organization that provides information to medical professionals
and launches new products. If we fail to maintain our
competitive position, our business, financial condition and
results of operations may be materially and adversely affected.
We sell our pharmaceutical products primarily to drug
wholesalers. Our revenue reflects the demand from these
wholesalers to meet the in-market consumption of our products
and to reflect the level of inventory that wholesalers of our
products carry. Changes in the level of inventory can directly
impact our revenue and could result in our revenue not
reflecting in-market consumption of our products. We often
manufacture our drug delivery products for licensees and
distributors but do not usually engage in any direct sales of
drug delivery products.
Raw materials and supplies are generally available in quantities
adequate to meet the needs of our business. We are dependent on
third-party manufacturers for the pharmaceutical products that
we market. An inability to obtain raw materials or product
supply could have a material adverse impact on our business,
financial condition and results of operations.
On December 31, 2009, we had 1,321 employees
worldwide, of whom 450 were engaged in R&D activities, 518
were engaged in manufacturing and supply activities, 105 were
engaged in sales and marketing activities and the remainder
worked in general and administrative areas.
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At December 31, 2009, we had the following principal
subsidiary undertakings:
We consider that our properties are in good operating condition
and that our machinery and equipment have been well maintained.
Facilities for the manufacture of products are suitable for
their intended purposes and have capacities adequate for current
and projected needs.
For additional information, refer to Note 16 to the
Consolidated Financial Statements, which discloses amounts
invested in land and buildings and plant and equipment;
Note 27 to the Consolidated Financial Statements, which
discloses future minimum rental commitments; Note 28 to the
Consolidated Financial Statements, which discloses capital
commitments for the purchase of property, plant and equipment;
and Item 5.B. “Liquidity and Capital Resources,”
which discloses our capital expenditures.
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The following table lists the location, ownership interest, use
and approximate size of our principal properties:
Not applicable.
The following discussion and analysis should be read in
conjunction with our Consolidated Financial Statements, the
accompanying notes thereto and other financial information,
appearing in Item 18. “Consolidated Financial
Statements.”
Our Consolidated Financial Statements contained in this
Form 20-F
have been prepared on the basis of U.S. GAAP. In addition
to the Consolidated Financial Statements contained in this
Form 20-F,
we also prepare separate Consolidated Financial Statements,
included in our Annual Report, in accordance with IFRS, which
differ in certain significant respects from U.S. GAAP. The
Annual Report under IFRS is a separate document from this
Form 20-F.
This financial review primarily discusses:
Our operating results may be affected by a number of factors,
including those described under Item 3.D. “Risk
Factors.”
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Our business is organized into two business units: BioNeurology
(formerly referred to as Biopharmaceuticals) and EDT. Our
BioNeurology business unit engages in research, development and
commercial activities primarily in the areas of Alzheimer’s
disease, Parkinson’s disease, MS, Crohn’s disease and
severe chronic pain. We have a range of products at various
stages of development in relation to each of these therapeutic
areas. EDT develops and manufactures innovative pharmaceutical
products that deliver clinically meaningful benefits to
patients, using its extensive experience and proprietary drug
technologies in collaboration with pharmaceutical companies. An
established, profitable, integrated drug delivery business unit
of Elan, EDT has been applying its skills and knowledge in
product development and drug delivery technologies to enhance
the performance of dozens of drugs that have subsequently been
marketed worldwide. For additional information on our current
operations, refer to Item 4.B. “Business
Overview.”
The Consolidated Financial Statements include certain estimates
based on management’s best judgments. Estimates are used in
determining items such as the carrying amounts of long-lived
assets, revenue recognition, estimating sales rebates and
discounts, the fair value of share-based compensation, and the
accounting for contingencies and income taxes, among other
items. Because of the uncertainties inherent in such estimates,
actual results may differ materially from these estimates.
Long-Lived
Assets and Impairment
Total goodwill and other intangible assets amounted to
$417.4 million at December 31, 2009 (2008:
$553.9 million). Our property, plant and equipment, and
equity method investment had carrying amounts at
December 31, 2009 of $292.8 million (2008:
$351.8 million) and $235.0 million (2008: $Nil),
respectively.
Goodwill and identifiable intangible assets with indefinite
useful lives are not amortized, but instead are tested for
impairment at least annually. At December 31, 2009, we had
no intangible assets with indefinite lives except for goodwill.
Intangible assets with estimable useful lives are amortized on a
straight-line basis over their respective estimated useful lives
to their estimated residual values and, as with other long-lived
assets such as property, plant and equipment, are reviewed for
impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. If
circumstances require a long-lived asset be tested for possible
impairment, we compare undiscounted cash flows expected to be
generated by an asset to the carrying amount of the asset. If
the carrying amount of the long-lived asset is not recoverable
on an undiscounted cash flow basis, an impairment is recognized
to the extent that the carrying amount exceeds its fair value.
We determine fair value using the income approach based on the
present value of expected cash flows. Our cash flow assumptions
consider historical and forecasted revenue and operating costs
and other relevant factors. If we were to use different
estimates, particularly with respect to the likelihood of
R&D success, the likelihood and date of commencement of
generic competition or the impact of any reorganization or
change of business focus, then a material impairment charge
could arise. We believe that we have used reasonable estimates
in assessing the carrying amounts of our intangible assets. The
results of certain impairment tests on intangible assets with
estimable useful lives are discussed below.
We review our goodwill for impairment at least annually or
whenever events or changes in circumstances indicate that the
carrying amount of these assets may not be recoverable. The
goodwill impairment test is a two-step test and is performed at
the
reporting-unit
level. A reporting unit is the same as, or one level below, an
operating segment. We have two reporting units: BioNeurology and
EDT, which are at the operating-segment level. Under the first
step, we compare the fair value of each reporting unit with its
carrying amount, including goodwill. If the fair value of the
reporting unit exceeds its carrying amount, goodwill of the
reporting unit is not considered impaired and step two does not
need to be performed. If the carrying amount of a reporting unit
exceeds its fair value, the second step of the goodwill
impairment test would be performed to measure the amount of
impairment charge, if any. The second step compares the implied
fair value of the
reporting-unit
goodwill with the carrying amount of that goodwill, and any
excess of the carrying amount over the implied fair value is
recognized as an impairment charge. The implied fair value of
goodwill is determined in the same manner as the amount of
goodwill recognized in a business combination is determined, by
allocating the fair value of a reporting unit to individual
assets and liabilities. The excess of the fair value of a
reporting unit over the amounts assigned to its assets and
liabilities is the
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implied fair value of goodwill. In evaluating goodwill for
impairment, we determine the fair values of the reporting units
using the income approach, based on the present value of
expected cash flows. We completed the annual goodwill impairment
test on September 30 of each year and the result of our tests
did not indicate any impairment in 2009, 2008 or 2007. In
addition, we performed a goodwill impairment test immediately
subsequent to the disposal of the AIP business in September 2009
and the result of our test did not indicate any impairment.
In performing our annual goodwill impairment test and the test
immediately subsequent to the disposal of the AIP business, we
noted that the combined fair value of our reporting units based
on the income approach exceeded our market capitalization at the
test dates. Furthermore, both the fair value of our reporting
units and our market capitalization exceeded the combined
carrying amounts of the reporting units by a substantial margin,
at the impairment test dates and as of December 31, 2009.
In December 2009, we recorded an impairment charge of
$30.6 million within other net charges in the Consolidated
Statement of Operations relating to the Prialt intangible
asset, thus reducing the carrying value of the intangible asset
to $14.6 million. Prialt was launched in the United
States in 2005. Revenues from this product have not met
expectations and, consequently, we revised our sales forecast
for Prialt. As a result, the revised projected future
cumulative undiscounted cash flows were lower than the
intangible assets’ carrying value, thus indicating the
intangible assets were not recoverable. The impairment charge
was calculated as the excess of the carrying amount over the
discounted net present value.
In June 2007, we recorded an impairment charge of
$52.2 million, within other net charges in the Consolidated
Statement of Operations, relating to the Maxipime and
Azactam intangible assets. As a direct result of the
approval of a first generic formulation of cefepime
hydrochloride in June 2007 and the anticipated approval for a
generic form of Azactam, we revised the projected future
cumulative undiscounted cash flows. The revised projected
cumulative undiscounted cash flows were lower than the
intangible assets’ carrying amount, thus indicating the
intangible assets were not recoverable. Consequently, the
impairment charge was calculated as the excess of the carrying
amount over the discounted net present value. In conjunction
with the impairment charge, we revised the estimated useful
lives of the intangibles by nine months from September 2008 to
December 2007. Accordingly, the remaining net intangible
assets’ carrying amount was amortized, on a straight-line
basis, through December 31, 2007. There were no material
impairment charges relating to intangible assets in 2008. For
additional information on goodwill and other intangible assets,
refer to Note 17 to the Consolidated Financial Statements.
We have invested significant resources in our manufacturing
facilities in Ireland to provide us with the capability to
manufacture products from our product development pipeline and
for our clients. To the extent that we are not successful in
developing these pipeline products or do not acquire products to
be manufactured at our facilities, the carrying amount of these
facilities may become impaired.
Following the transfer of our AIP manufacturing rights as part
of the sale of the AIP business to Janssen AI in September 2009,
we re-evaluated our longer term biologics manufacturing and
fill-finish requirements, and consequently recorded a non-cash
asset impairment charge related to these activities of
$41.2 million. The assets relating to biologics
manufacturing were written off in full. The remaining carrying
amount of the fill-finish assets at December 31, 2009 is
$5.7 million. In conjunction with the impairment charge, we
reviewed the estimated useful life of the fill-finish assets and
reduced the useful life of the assets that previously had a
useful life beyond 2018 to December 31, 2018.
Our equity method investment is reviewed for impairment whenever
events or circumstances indicate the fair value of the
investment has fallen below our carrying amount. The factors
affecting the assessment of impairments include both general
financial market conditions and factors specific to the
investee. When such a decline is deemed to be
other-than-temporary, an impairment charge is recorded for the
difference between the investment’s carrying amount and its
estimated fair value at the time. In making the determination as
to whether a decline is other-than-temporary, we consider such
factors as the duration and extent of the decline and the
investee’s financial and operating performance. Differing
assumptions could affect whether an investment is impaired in
any period, or the amount of the impairment.
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We recognize revenue from the sale of our products, royalties
earned and contract arrangements. Up-front fees received by us
are deferred and amortized when there is a significant
continuing involvement by us (such as an ongoing product
manufacturing contract or joint development activities) after an
asset disposal. We defer and amortize up-front license fees to
the income statement over the “performance period.”
The performance period is the period over which we expect to
provide services to the licensee as determined by the contract
provisions. Generally, milestone payments are recognized when
earned and non-refundable, and when we have no future legal
obligation pursuant to the payment. However, the actual
accounting for milestones depends on the facts and circumstances
of each contract. We apply the substantive milestone method in
accounting for milestone payments. This method requires that
substantive effort must have been applied to achieve the
milestone prior to revenue recognition. If substantive effort
has been applied, the milestone is recognized as revenue,
subject to it being earned, non-refundable and not subject to
future legal obligation. This requires an examination of the
facts and circumstances of each contract. Substantive effort may
be demonstrated by various factors, including the risks
associated with achieving the milestone, the period of time over
which effort was expended to achieve the milestone, the economic
basis for the milestone payment and licensing arrangement and
the costs and staffing to achieve the milestone. It is expected
that the substantive milestone method will be appropriate for
most contracts. If we determine the substantive milestone method
is not appropriate, we apply the proportional performance method
to the relevant contract. This method recognizes as revenue the
percentage of cumulative non-refundable cash payments earned
under the contract, based on the percentage of costs incurred to
date compared to the total costs expected under the contract.
We recognize revenue on a gross revenue basis (except for
Tysabri revenue outside of the United States) and make
various deductions to arrive at net revenue as reported in the
Consolidated Statements of Operations. These adjustments are
referred to as sales discounts and allowances and are described
in detail below. Sales discounts and allowances include
charge-backs, managed health care and Medicaid rebates, cash
discounts, sales returns and other adjustments. Estimating these
sales discounts and allowances is complex and involves
significant estimates and judgments, and we use information from
both internal and external sources to generate reasonable and
reliable estimates. We believe that we have used reasonable
judgments in assessing our estimates, and this is borne out by
our historical experience. At December 31, 2009, we had
total provisions of $26.5 million for sales discounts and
allowances, of which approximately 58.4%, 20.4% and 18.9%
related to Tysabri, Maxipime and Azactam,
respectively. We have almost four years of experience for
Tysabri and more than 10 years of experience in relation
to Azactam and Maxipime.
We do not conduct our sales using the consignment model. All of
our product sales transactions are based on normal and customary
terms whereby title to the product and substantially all of the
risks and rewards transfer to the customer upon either shipment
or delivery. Furthermore, we do not have an incentive program
that would compensate a wholesaler for the costs of holding
inventory above normal inventory levels, thereby encouraging
wholesalers to hold excess inventory.
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The table below summarizes our sales discounts and allowances to
adjust gross revenue to net revenue for each significant
category. An analysis of the separate components of our revenue
is set out in Item 5.A. “Operating Results,” and
in Note 3 to the Consolidated Financial Statements.
Total sales discounts and allowances were 11.3% of gross revenue
subject to discounts and allowances in 2009, 10.5% in 2008 and
13.7% in 2007, as detailed in the rollforward below and as
further explained in the following paragraphs.
Charge-backs as a percentage of gross revenue subject to
discounts and allowances were 5.7% in 2009, 5.5% in 2008 and
8.2% in 2007. The managed health care rebates and Medicaid
rebates as a percentage of gross revenue subject to discounts
and allowances were 0.2% and 1.0%, respectively, in 2009; 0.2%
and 0.9%, respectively, in 2008; and 0.6% and 0.7%,
respectively, in 2007. These changes are due primarily to
changes in the product mix.
Cash discounts as a percentage of gross revenue subject to
discounts and allowances remained fairly consistent at 2.4% in
2009, compared to 2.2% in 2008 and 2.3% in 2007. In the United
States, we offer cash discounts, generally at 2% of the sales
price, as an incentive for prompt payment by our customers.
Sales returns as a percentage of gross revenue subject to
discounts and allowances were 0.6% in 2009, Nil in 2008 and 0.8%
in 2007. In 2008, sales returns were impacted by provision
adjustments related to sales made in prior periods.
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The following table sets forth the activities and ending
balances of each significant category of adjustments for the
sales discounts and allowances (in millions):
In the United States, we participate in charge-back programs
with a number of entities, principally the U.S. Department
of Defense, the U.S. Department of Veterans Affairs, Group
Purchasing Organizations and other parties whereby pricing on
products is extended below wholesalers’ list prices to
participating entities. These entities purchase products through
wholesalers at the lower negotiated price, and the wholesalers
charge the difference between these entities’ acquisition
cost and the lower negotiated price back to us. We account for
charge-backs by reducing accounts receivable in an amount equal
to our estimate of charge-back claims attributable to a sale. We
determine our estimate of the charge-backs primarily based on
historical experience on a
product-by-product
and program basis, and current contract prices under the
charge-back programs. We consider vendor payments, estimated
levels of inventory in the wholesale distribution channel, and
our claim processing time lag and adjust accounts receivable and
revenue periodically throughout each year to reflect actual and
future estimated experience.
As described above, there are a number of factors involved in
estimating the accrual for charge-backs, but the principal
factor relates to our estimate of the levels of inventory in the
wholesale distribution channel. At December 31, 2009,
Tysabri, Azactam and Maxipime represented
approximately 41.2%, 6.0% and 52.2% respectively, of the total
charge-backs accrual balance of $5.6 million. If we were to
increase our estimated level of inventory in the wholesale
distribution channel by one month’s worth of demand for
Tysabri, Azactam and Maxipime, the accrual for
charge-backs would increase by approximately $4.3 million.
We believe that our estimate of the levels of inventory for
Tysabri, Azactam and Maxipime in the wholesale
distribution channel is reasonable because it is based upon
multiple sources of information, including data received from
all of the major wholesalers with respect to their inventory
levels and sell-through to customers, third-party market
research data, and our internal information.
We offer rebates and discounts to managed healthcare
organizations in the United States. We account for managed
healthcare rebates and other contract discounts by establishing
an accrual equal to our estimate of the amount attributable to a
sale. We determine our estimate of this accrual primarily based
on historical experience on a
product-by-product
and program basis and current contract prices. We consider the
sales performance of products subject to managed healthcare
rebates and other contract discounts, processing claim lag time
and estimated levels of inventory in the distribution channel
and adjust the accrual and revenue periodically throughout each
year to reflect actual and future estimated experience.
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In the United States, we are required by law to participate in
state government-managed Medicaid programs, as well as certain
other qualifying federal and state government programs whereby
discounts and rebates are provided to participating state and
local government entities. Discounts and rebates provided
through these other qualifying federal and state government
programs are included in our Medicaid rebate accrual and are
considered Medicaid rebates for the purposes of this discussion.
We account for Medicaid rebates by establishing an accrual in an
amount equal to our estimate of Medicaid rebate claims
attributable to a sale. We determine our estimate of the
Medicaid rebates accrual primarily based on historical
experience regarding Medicaid rebates, legal interpretations of
the applicable laws related to the Medicaid and qualifying
federal and state government programs, and any new information
regarding changes in the Medicaid programs’ regulations and
guidelines that would impact the amount of the rebates on a
product-by-product
basis. We consider outstanding Medicaid claims, Medicaid
payments, claims processing lag time and estimated levels of
inventory in the distribution channel and adjust the accrual and
revenue periodically throughout each year to reflect actual and
future estimated experience. At December 31, 2009,
Tysabri represented approximately 94% of the total
Medicaid rebates accrual balance of $8.9 million.
In the United States, we offer cash discounts, generally at 2%
of the sales price, as an incentive for prompt payment. We
account for cash discounts by reducing accounts receivable by
the full amount of the discounts. We consider payment
performance of each customer and adjust the accrual and revenue
periodically throughout each year to reflect actual experience
and future estimates.
We account for sales returns by establishing an accrual in an
amount equal to our estimate of revenue recorded for which the
related products are expected to be returned.
Our sales return accrual is estimated principally based on
historical experience, the estimated shelf life of inventory in
the distribution channel, price increases and our return goods
policy (goods may only be returned six months prior to
expiration date and for up to 12 months after expiration
date). We also take into account product recalls and
introductions of generic products. All of these factors are used
to adjust the accrual and revenue periodically throughout each
year to reflect actual and future estimated experience.
In the event of a product recall, product discontinuance or
introduction of a generic product, we consider a number of
factors, including the estimated level of inventory in the
distribution channel that could potentially be returned,
historical experience, estimates of the severity of generic
product impact, estimates of continuing demand and our return
goods policy. We consider the reasons for, and impact of, such
actions and adjust the sales returns accrual and revenue as
appropriate.
As described above, there are a number of factors involved in
estimating this accrual, but the principal factor relates to our
estimate of the shelf life of inventory in the distribution
channel. At December 31, 2009, Tysabri, Azactam and
Maxipime represented approximately 30.7%, 47.4% and
18.0%, respectively, of the total sales returns accrual balance
of $7.8 million. We believe, based upon both the estimated
shelf life and also our historical sales returns experience,
that the vast majority of this inventory will be sold prior to
the expiration dates, and accordingly believe that our sales
returns accrual is appropriate.
During 2009, we recorded adjustments of $1.0 million to
increase (2008: $2.7 million to decrease) the sales returns
accrual related to sales made in prior periods.
In addition to the sales discounts and allowances described
above, we make other sales adjustments primarily related to
estimated obligations for credits to be granted to wholesalers
under wholesaler service agreements we have entered into with
many of our pharmaceutical wholesale distributors in the United
States. Under these agreements, the wholesale distributors have
agreed, in return for certain fees, to comply with various
contractually defined inventory management practices and to
perform certain activities such as providing weekly information
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with respect to inventory levels of product on hand and the
amount of out-movement of product. As a result, we, along with
our wholesale distributors, are able to manage product flow and
inventory levels in a way that more closely follows trends in
prescriptions. We generally account for these other sales
discounts and allowances by establishing an accrual in an amount
equal to our estimate of the adjustments attributable to the
sale. We generally determine our estimates of the accruals for
these other adjustments primarily based on historical experience
and other relevant factors, and adjust the accruals and revenue
periodically throughout each year to reflect actual experience.
We use information from external sources to identify
prescription trends and patient demand, including inventory
pipeline data from three major drug wholesalers in the United
States. The inventory information received from these
wholesalers is a product of their record-keeping process and
excludes inventory held by intermediaries to whom they sell,
such as retailers and hospitals. We also receive information
from IMS Health, a supplier of market research to the
pharmaceutical industry, which we use to project the
prescription demand-based sales for our pharmaceutical products.
Our estimates are subject to inherent limitations of estimates
that rely on third-party information, as certain third-party
information is itself in the form of estimates, and reflect
other limitations, including lags between the date as of which
third-party information is generated and the date on which we
receive such information.
Share-based compensation expense for all equity-settled awards
made to employees and directors is measured and recognized based
on estimated grant date fair values. These awards include
employee stock options, restricted stock units (RSUs) and stock
purchases related to our employee equity purchase plans.
Share-based compensation cost for RSUs awarded to employees and
directors is measured based on the closing fair market value of
the Company’s common stock on the date of grant.
Share-based compensation cost for stock options awarded to
employees and directors and common stock issued under employee
equity purchase plans is estimated at the grant date based on
each option’s fair value as calculated using an
option-pricing model. The value of awards expected to vest is
recognized as an expense over the requisite service periods.
Share-based compensation expense for equity-settled awards to
non-employees in exchange for goods or services is based on the
fair value of awards on the vest date, which is the date at
which the commitment for performance by the non-employees to
earn the awards is reached and also the date at which the
non-employees’ performance is complete.
Estimating the fair value of share-based awards at grant or vest
date using an option-pricing model, such as the binomial model,
is affected by our share price as well as assumptions regarding
a number of complex variables. These variables include, but are
not limited to, the expected share price volatility over the
term of the awards, risk-free interest rates, and actual and
projected employee exercise behaviors. If factors change
and/or we
employ different assumptions in estimating the fair value of
share-based awards in future periods, the compensation expense
that we record for future grants may differ significantly from
what we have recorded in the Consolidated Financial Statements.
However, we believe we have used reasonable assumptions to
estimate the fair value of our share-based awards.
For additional information on our share-based compensation,
refer to Note 25 to the Consolidated Financial Statements.
We are currently involved in legal and administrative
proceedings relating to securities matters, patent matters,
antitrust matters and other matters, some of which are described
in Note 29 to the Consolidated Financial Statements. We
assess the likelihood of any adverse outcomes to contingencies,
including legal matters, as well as potential ranges of probable
losses. We record accruals for such contingencies when it is
probable that a liability has been incurred and the amount of
the loss can be reasonably estimated. If an unfavorable outcome
is probable, but the amount of the loss cannot be reasonably
estimated, we estimate the range of probable loss and accrue the
most
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probable loss within the range. If no amount within the range is
deemed more probable, we accrue the minimum amount within the
range. If neither a range of loss nor a minimum amount of loss
is estimable, then appropriate disclosure is provided, but no
amounts are accrued. As of December 31, 2009, we had
accrued $0.6 million (2008: $5.9 million),
representing our estimates of liability and costs for the
resolution of these matters.
In particular, we have considered the facts and circumstances
known to us in relation to the Zonegran matter described in
Note 29 to the Consolidated Financial Statements and, while
any ultimate resolution of this matter could require Elan to pay
very substantial civil or criminal fines, at this time we cannot
predict or determine the timing of the resolution of this
matter, its ultimate outcome, or a reasonable estimate of the
amount or range of amounts of any fines or penalties that might
result from an adverse outcome. Accordingly, we have not
recorded any reserve for liabilities in relation to the Zonegran
matter as of December 31, 2009.
We developed estimates in consultation with outside counsel
handling our defense in these matters using the facts and
circumstances known to us. The factors that we consider in
developing our legal contingency accrual include the merits and
jurisdiction of the litigation, the nature and number of other
similar current and past litigation cases, the nature of the
product and assessment of the science subject to the litigation,
and the likelihood of settlement and state of settlement
discussions, if any. We believe that the legal contingency
accrual that we have established is appropriate based on current
factors and circumstances. However, it is possible that other
people applying reasonable judgment to the same facts and
circumstances could develop a different liability amount. The
nature of these matters is highly uncertain and subject to
change. As a result, the amount of our liability for certain of
these matters could exceed or be less than the amount of our
estimates, depending on the outcome of these matters.
We account for income tax expense based on income before taxes
using the asset and liability method. Deferred tax assets (DTAs)
and liabilities are determined based on the difference between
the financial statement and tax basis of assets and liabilities
using tax rates projected to be in effect for the year in which
the differences are expected to reverse. DTAs are recognized for
the expected future tax consequences, for all deductible
temporary differences and operating loss and tax credit
carryforwards. A valuation allowance is required for DTAs if,
based on available evidence, it is more likely than not that all
or some of the asset will not be realized due to the inability
to generate sufficient future taxable income.
Previously, because of cumulative losses, we determined it was
necessary to maintain a valuation allowance against
substantially all of our net DTAs, as the cumulative losses
in recent years represented a significant piece of negative
evidence. However, due to the recent and projected future
profitability of our U.S. operations, arising from the continued
growth of the BioNeurology business in the United States, we
believe there is evidence to support the generation of
sufficient future income to conclude that most U.S. DTAs
are more likely than not to be realized in future years.
Accordingly, $236.6 million of the U.S. valuation
allowance was released during 2008.
Significant estimates are required in determining our provision
for income taxes. Some of these estimates are based on
management’s interpretations of jurisdiction-specific tax
laws or regulations and the likelihood of settlement related to
tax audit issues. Various internal and external factors may have
favorable or unfavorable effects on our future effective income
tax rate. These factors include, but are not limited to, changes
in tax laws, regulations
and/or
rates, changing interpretations of existing tax laws or
regulations, changes in estimates of prior years’ items,
past and future levels of R&D spending, likelihood of
settlement, and changes in overall levels of income before
taxes. Our assumptions, judgments and estimates relative to the
recognition of the DTAs take into account projections of the
amount and category of future taxable income, such as income
from operations or capital gains income. Actual operating
results and the underlying amount and category of income in
future years could render our current assumptions of
recoverability of net DTAs inaccurate.
In June 2009, the Financial Accounting Standards Board (FASB)
issued Accounting Standards Update (ASU)
No. 2009-16
“Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities,” which is effective for
financial statements issued for fiscal years beginning on or
after November 15, 2009. This update provides guidance on
transfers of financial assets. It amends previous guidance to
remove the concept of a
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qualifying special-purpose entity and its exemption from
consolidation in the transferor’s financial statements.
This update also establishes conditions for reporting a transfer
of a portion of a financial asset as a sale, modifies the
financial-asset derecognition criteria, revises how interests
retained by the transferor in a sale of financial assets are
initially measured, removes the guaranteed mortgage
securitization recharacterization provisions, and requires
additional disclosures. We do not expect that the adoption of
ASU No.
2009-16 will
have a material impact on our financial position or results of
operations.
In August 2009, the FASB issued ASU
No. 2009-05,
“Measuring Liabilities at Fair Value,” in relation to
the fair value measurement of liabilities that is effective for
financial statements issued for fiscal years beginning after
August 27, 2009. The update addresses practice difficulties
caused by the tension between fair-value measurements based on
the price that would be paid to transfer a liability to a new
obligor and contractual or legal requirements that prevent such
transfers from taking place. We do not expect that the adoption
of ASU
No. 2009-05
will have a material impact on our financial position or results
of operations.
In October 2009, the FASB issued ASU
No. 2009-14
“Certain Revenue Arrangements that Include Software
Elements,” which is effective for financial statements
issued for fiscal years beginning on or after June 15,
2010. This update addresses the accounting for revenue
transactions involving software. Currently, that guidance
applies to revenue arrangements for products or services that
include software that is “more-than-incidental” to the
products or services as a whole. This update amends the guidance
to exclude from its scope tangible products that contain both
software and non-software components that function together to
deliver a product’s essential functionality. We do not
expect that the adoption of ASU
No. 2009-14
will have a material impact on our financial position or results
of operations.
In October 2009, the FASB issued ASU
No. 2009-13,
“Multiple-Deliverable Revenue Arrangements,” which is
effective for financial statements issued for fiscal years
beginning on or after June 15, 2010. This update sets forth
requirements that must be met for an entity to recognize revenue
from the sale of a delivered item that is part of a
multiple-element arrangement when other items have not yet been
delivered. One of those current requirements is that there be
objective and reliable evidence of the standalone selling price
of the undelivered items, which must be supported by either
vendor-specific objective evidence (VSOE) or third-party
evidence (TPE). This update eliminates the requirement that all
undelivered elements have VSOE or TPE before an entity can
recognize the portion of an overall arrangement fee that is
attributable to items that already have been delivered. In the
absence of VSOE or TPE of the standalone selling price for one
or more delivered or undelivered elements in a multiple-element
arrangement, entities will be required to estimate the selling
prices of those elements. The overall arrangement fee will be
allocated to each element (both delivered and undelivered items)
based on their relative selling prices, regardless of whether
those selling prices are evidenced by VSOE or TPE or are based
on the entity’s estimated selling price. Application of the
“residual method” of allocating an overall arrangement
fee between delivered and undelivered elements will no longer be
permitted upon adoption of this update. Additionally, the new
guidance will require entities to disclose more information
about their multiple-element revenue arrangements. We do not
expect that the adoption of ASU
No. 2009-13
will have a material impact on our financial position or results
of operations.
In October 2009, the FASB issued ASU
No. 2009-15,
“Accounting for Own-Share Lending Arrangements in
Contemplation of Convertible Debt Issuance,” which is
effective for financial statements issued for fiscal years
beginning on or after December 15, 2009. This update
applies to an equity-classified share lending arrangement on an
entity’s own shares when executed in contemplation of a
convertible debt offering or other financing. The share lending
arrangement is required to be measured at fair value and
recognized as an issuance cost associated with the convertible
debt offering or other financing. If counterparty default is
probable, the share lender is required to recognize an expense
equal to the then fair value of the unreturned shares, net of
the fair value of probable recoveries. In addition, the loaned
shares are excluded from basic and diluted earnings per share
unless default of the share-lending arrangement occurs, at which
time the loaned shares would be included in the common and
diluted
earnings-per-share
calculation. If dividends on the loaned shares are not
reimbursed to the entity, any amounts, including contractual
(accumulated) dividends and participation rights in
undistributed earnings, attributable to the loaned shares shall
be deducted in computing income available to common
shareholders, consistent with the “two-class” method.
We do not expect that the adoption of ASU
No. 2009-15
will have a material impact on our financial position or results
of operations.
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In December 2009, the FASB issued ASU
No. 2009-17,
“Amendments to FASB Interpretation
No. 46 (R),” which is effective for financial
statements issued for fiscal years beginning on or after
November 15, 2009. This update provides guidance on the
consolidation of variable interest entities. It eliminates the
quantitative approach previously required for determining the
primary beneficiary of a variable interest entity and requires
ongoing qualitative reassessments of whether an enterprise is
the primary beneficiary of a variable interest entity. This
update also requires additional disclosures about an
enterprise’s involvement in variable interest entities. We
do not expect that the adoption of ASU
No. 2009-17
will have a material impact on our financial position or results
of operations.
2009
Compared to 2008 and 2007 (in millions, except share and per
share amounts)
Total revenue was $1.1 billion in 2009, $1.0 billion
in 2008 and $759.4 million in 2007. Total revenue from our
BioNeurology business increased 20% in 2009 and 51% in 2008,
while revenue from our EDT business decreased 9% in 2009 and
increased 2% in 2008. Total revenue is further analyzed between
revenue from the BioNeurology and EDT business units.
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Revenue
from the BioNeurology business
Total revenue from our BioNeurology business increased 20% to
$837.1 million from $698.6 million in 2008. The
increase was primarily driven by a solid performance from
Tysabri, which exceeded $1.0 billion in annual
global in-market net sales in 2009, and more than offsets the
reduced sales of Azactam and Maxipime.
In 2008, revenue from our BioNeurology business increased 51% to
$698.6 million from $463.9 million in 2007. The
increase was primarily due to the strong growth of
Tysabri, which more than compensated for reduced sales of
Maxipime, which was adversely impacted by the
introduction of generic competition in 2007.
Global in-market net sales of Tysabri can be analyzed as
follows (in millions):
Tysabri in-market net sales were $1,059.2 million in
2009, $813.0 million in 2008 and $342.9 million in
2007. The increases in 2009 and 2008 reflect strong patient
demand across global markets. At the end of December 2009,
approximately 48,800 patients were on therapy worldwide,
including approximately 24,500 commercial patients in the United
States and approximately 23,700 commercial patients in the ROW,
representing an increase of 30% over the approximately
37,600 patients who were on therapy at the end of December
2008. At the end of December 2007, approximately
21,100 patients were on therapy worldwide.
Tysabri was developed and is being marketed in
collaboration with Biogen Idec. In general, subject to certain
limitations imposed by the parties, we share with Biogen Idec
most of the development and commercialization costs for
Tysabri. Biogen Idec is responsible for manufacturing the
product. In the United States, we purchase Tysabri
46
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from Biogen Idec and are responsible for distribution.
Consequently, we record as revenue the net sales of Tysabri
in the U.S. market. We purchase product from Biogen
Idec at a price that includes the cost of manufacturing, plus
Biogen Idec’s gross margin on Tysabri, and this
cost, together with royalties payable to other third parties, is
included in cost of sales.
Outside of the United States, Biogen Idec is responsible for
distribution and we record as revenue our share of the profit or
loss on these sales of Tysabri, plus our directly
incurred expenses on these sales.
As a result of the strong growth in Tysabri sales, in
July 2008, we made an optional payment of $75.0 million to
Biogen Idec in order to maintain an approximate 50% share of
Tysabri for annual global in-market net sales of
Tysabri that are in excess of $700.0 million. In
addition, in December 2008, we exercised our option to pay a
further $50.0 million milestone to Biogen Idec in order to
maintain our percentage share of Tysabri at approximately
50% for annual global in-market net sales of Tysabri that
are in excess of $1.1 billion. These payments were
capitalized as intangible assets and have been and will be
amortized on a straight-line basis over approximately
11 years. There are no further milestone payments required
for us to retain our approximate 50% profit share.
In the U.S. market, we recorded net sales of
$508.5 million (2008: $421.6 million; 2007:
$217.4 million). Almost all of these sales are in relation
to the MS indication.
As of the end of December 2009, approximately
24,500 patients were on commercial therapy in the
United States, which represents an increase of 21% since
the end of December 2008. At the end of December 2007,
approximately 12,900 were on commercial therapy.
On January 14, 2008, the FDA approved the sBLA for
Tysabri for the treatment of patients with Crohn’s
disease, and Tysabri was launched in this indication at
the end of the first quarter of 2008. On December 12, 2008,
we announced a realignment of our commercial activities in
Tysabri for Crohn’s disease, shifting our efforts
from a traditional sales model to a model based on clinical
support and education.
As previously mentioned, in the ROW markets, Biogen Idec is
responsible for distribution and we record as revenue our share
of the profit or loss on ROW sales of Tysabri, plus our
directly incurred expenses on these sales. In 2008, we recorded
ROW revenue of $215.8 million (2008: $135.5 million;
2007: $14.3 million), which was calculated as follows (in
millions):
As of the end of December 2009, approximately
23,700 patients, principally in the European Union, were on
commercial Tysabri therapy, an increase of 40% over the
approximately 16,900 patients at the end of December 2008.
At the end of December 2007, approximately 7,500 patients
were on commercial therapy.
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Other
BioNeurology products
Azactam revenue decreased 16% to $81.4 million in
2009 from our 2008 sales level and increased 12% to
$96.9 million in 2008 from our 2007 sales level. The
decrease in 2009 was principally due to supply shortages and the
increase in 2008 mainly reflected increased pricing. Azactam
lost its patent exclusivity in October 2005. We will cease
distributing Azactam as of March 31, 2010.
Prialt revenue was $16.5 million for 2009 and 2008,
and $12.3 million for 2007. The increase in 2008 was
primarily due to higher demand for the product. In 2009, we
recorded an impairment charge of $30.6 million relating to
the Prialt intangible asset. Prialt was launched
in the United States in 2005. Revenues from this product have
not met expectations and, consequently, we revised our sales
forecast for Prialt and reduced the carrying value of the
intangible asset to $14.6 million as of December 31,
2009. Refer to page 37 for additional information regarding
this impairment.
Maxipime revenue decreased 51% to $13.2 million in
2009 from our 2008 sales level and decreased 78% to
$27.1 million in 2008 from our 2007 sales level. The
decreases in 2009 and 2008 were principally due to generic
competition. We will cease distributing Maxipime as of
September 30, 2010.
Revenue from the EDT business decreased 9% to
$275.9 million in 2009 and increased 2% to
$301.6 million in 2008 from $295.5 million in 2007.
Manufacturing revenue and royalties comprise revenue earned from
products we manufacture for clients and royalties earned
principally on sales by clients of products that incorporate our
technologies.
Manufacturing revenue and royalties decreased 9% to
$257.2 million in 2009 from our 2008 sales level and
increased 4% to $281.6 million in 2008 from our 2007 sales
level. The decrease in 2009 was primarily due to the withdrawal
of, or significantly decreased, promotional efforts by
EDT’s clients in respect of Skelaxin and TriCor 145.
Revenues were also impacted by the scheduled expiry of supply
agreements for some smaller legacy products. The increase in
2008 primarily reflected growth across a number of products in
our EDT portfolio and increased manufacturing activity.
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Except as noted above, no other single product accounted for
more than 10% of our manufacturing revenue and royalties in
2009, 2008 or 2007. In 2009, 47% of these revenues consisted of
royalties received on products that we do not manufacture,
consistent with 47% in both 2008 and 2007.
Potential generic competitors have challenged the existing
patent protection for several of the products from which we earn
manufacturing revenue and royalties. We and our clients defend
our intellectual property rights vigorously. However, if these
challenges are successful, our manufacturing revenue and
royalties will be materially and adversely affected.
In June 2008, a jury ruled in the U.S. District Court for
the District of Delaware that Abraxis BioScience, Inc. had
infringed a patent owned by us in relation to the application of
our NanoCrystal technology to Abraxane. The jury awarded
us $55 million, applying a royalty rate of 6% to sales of
Abraxane from January 2005 through June 13, 2008 (the date
of the verdict). This award and damages associated with the
continuing sales of the Abraxane product are subject to interest
based upon the three-month Treasury Bill Rate. Consequently, we
estimate the total amount of the award at December 31,
2009, including accrued interest, to be in excess of
$80 million. We are awaiting a ruling by the Court on both
parties’ post-trial motions. Consequently, pending final
resolution of this matter, no settlement amount has been
recognized in our financial statements as of and for the year
ended December 31, 2009.
Our EDT business continued to make positive progress on its
development pipeline with its clients, including:
Amortized revenue of $4.5 million in 2007 related to the
licensing to Watson Pharmaceuticals, Inc. (Watson) in 2002 of
rights to our generic form of Adalat CC. The deferred revenue
relating to Adalat CC was fully amortized by June 30, 2007.
Contract revenue was $18.7 million in 2009,
$20.0 million in 2008 and $21.5 million in 2007.
Contract revenue consists of research revenue, license fees and
milestones arising from R&D activities we perform on behalf
of third parties. The changes between years in contract revenue
were primarily due to the level of external R&D projects
and the timing of when the milestones are earned.
Cost of sales was $560.7 million in 2009, compared to
$493.4 million in 2008 and $337.9 million in 2007. The
fluctuations in the gross profit margin of 50% in 2009, 51% in
2008 and 56% in 2007 principally reflect the change in the mix
of product sales, including the impact of increasing sales of
Tysabri (which has a lower reported gross
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margin than our other products) and decreasing sales of
Maxipime and Azactam. The gross margin increased
by 9% in 2009 ($552.3 million), compared to 2008
($506.8 million), and by 20% in 2008, compared to 2007
($421.5 million), due to increased gross margin earned from
higher sales of Tysabri more than replacing loss of gross
margin from reduced sales of Azactam and Maxipime.
The Tysabri gross profit margin of 45% in 2009 (2008:
42%; 2007: 32%) is impacted by the profit sharing and
operational arrangements in place with Biogen Idec and reflects
our gross margin on sales of the product in the United States of
37% in 2009 (2008: 37%; 2007: 36%), and our reported gross
margin on ROW sales of 63% (2008: 58%; 2007: (33)%). The ROW
gross margin reflects our share of the profit or loss on ROW
sales plus our directly incurred expenses on these sales, offset
by the inclusion in cost of sales of royalties payable by us on
sales of Tysabri outside of the United States. These
royalties are payable by us but reimbursed by the collaboration.
SG&A expenses were $268.2 million in 2009,
$292.7 million in 2008 and $339.3 million in 2007. The
decrease of 8% in total SG&A expenses in 2009, compared to
2008, principally reflects lower headcount from the reduction of
support activities as a result of a redesign of the R&D
organization in 2009, lower legal litigation costs, along with
continued cost control.
The decrease of 14% in total SG&A expenses in 2008,
compared to 2007, principally reflected reduced sales and
marketing costs resulting from the restructuring of our
commercial infrastructure related to the approval of a generic
form of Maxipime in June 2007 and the anticipated
approval of a generic form of Azactam, along with reduced
amortization expense following the impairment of our Maxipime
and Azactam intangible assets. The SG&A expenses
related to the Tysabri ROW sales are reflected in the
Tysabri ROW revenue as previously described.
R&D expenses were $293.6 million in 2009,
$323.4 million in 2008 and $262.9 million in 2007. The
decrease of 9% in 2009, compared to 2008, primarily relates to
the cost savings as a result of the divestment of AIP and the
timing of spend on our key R&D programs. R&D expenses
in 2009 included $87.0 million (2008: $109.5 million;
2007: $53.5 million) in relation to AIP. The increase of
23% in 2008, compared to 2007, was primarily due to increased
expenses associated with the progression of the Alzheimer’s
disease programs, including the advancement of bapineuzumab into
Phase 3 clinical trials and the advancement of ELND005 into
Phase 2 clinical trials.
Net
Gain on Divestment of Business
As part of the Johnson & Johnson Transaction in
September 2009, Janssen AI acquired substantially all of the
assets and rights related to our AIP collaboration with Wyeth
(which has been acquired by Pfizer). Johnson & Johnson
has also committed to fund up to $500.0 million towards the
further development and commercialization of AIP. In
consideration for the transfer of these assets and rights, we
received a 49.9% equity interest in Janssen AI. We are entitled
to a 49.9% share of the future profits of Janssen AI and certain
royalty payments upon the commercialization of products under
the AIP collaboration. Our equity interest in Janssen AI has
been recorded as an equity method investment on the Consolidated
Balance Sheet at December 31, 2009, at a carrying amount of
$235.0 million.
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The net gain on divestment of the AIP business in 2009 amounted
to $108.7 million and was calculated as follows (in
millions):
The estimated fair value of the investment in Janssen AI was
based on the fair value of the AIP assets and rights that were
divested, which was estimated using a discounted cash flow
model. The inputs used in this model reflected management’s
estimates of assumptions that market participants would use in
valuing the AIP business. These assumptions included the
forecasting of future cash flows, the probability of clinical
success, the probability of commercial success, and the
estimated cost of capital.
We did not divest any businesses in 2008 or 2007.
Other
Net Charges
The principal items classified as other net charges include
intangible asset impairment charges, severance, restructuring
and other costs, other asset impairment charges, acquired
in-process research and development costs, legal settlements and
awards and the write-off of deferred transaction costs. These
items have been treated consistently from period to period. We
believe that disclosure of significant other charges is
meaningful because it provides additional information in
relation to analyzing certain items.
(a) Intangible
asset impairment charges
During 2009, we recorded a non-cash impairment charge of
$30.6 million relating to the Prialt intangible
asset. Prialt was launched in the United States in 2005.
Revenues from this product have not met expectations and,
consequently, we revised our sales forecast for Prialt
and reduced the carrying value of the intangible asset to
$14.6 million.
During 2007, we incurred a non-cash impairment charge of
$52.2 million related to the Maxipime and Azactam
intangible assets. As a direct result of the approval of a
first generic form of Maxipime in June 2007 and the
anticipated approval of a generic form of Azactam, we
revised the projected future cumulative undiscounted cash flows.
The revised projected cumulative undiscounted cash flows were
lower than the intangible assets’ carrying amount thus
indicating the intangible assets were not recoverable.
Consequently, the impairment charge was
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calculated as the excess of the carrying amount over the
discounted net present value. The remaining net intangible
assets’ carrying amount was amortized, on a straight-line
basis, through December 31, 2007.
During 2009, we incurred severance and restructuring charges of
$29.7 million principally associated with the strategic
redesign and realignment of the R&D organization within our
BioNeurology business and reduction of related support
activities.
During 2008, we incurred severance, restructuring and other
costs of $22.0 million related primarily to the realignment
of our commercial activities in Tysabri for Crohn’s
disease and the announced closure of our offices in New York and
Tokyo, which occurred in the first half of 2009.
During 2007, we incurred severance, restructuring and other
costs of $32.4 million arising principally from the
restructuring of our commercial infrastructure and consolidation
of our U.S. West Coast locations, which resulted in the
closure of the San Diego facility and the expansion of our
operations in South San Francisco. The restructuring of our
commercial infrastructure was primarily a result of the approval
of a generic form of Maxipime and the anticipated
approval of a generic form of Azactam.
(c) Other
asset impairment charges
In the first half of 2009, we incurred an asset impairment
charge of $15.4 million primarily associated with the
postponement of our biologics manufacturing activities.
Subsequently, as a result of the disposal of the AIP business in
September 2009, we re-evaluated the longer term biologics
manufacturing requirements and the remaining carrying amount of
these assets was written off. This impairment charge was
recorded as part of the net gain on divestment of business. For
additional information on the net gain on divestment of
business, refer to Note 5.
The acquired in-process research and development charge of
$5.0 million is in relation to a license fee incurred in
June 2009 under a collaboration agreement entered into with
PharmatrophiX to research, develop and commercialize the
neurological indications of PharmatrophiX’s portfolio of
compounds targeting the p75 neurotrophin receptor.
The net legal awards and settlement amount of $13.4 million
in 2009 is comprised of a legal award of $18.0 million
received from Watson and a legal settlement amount of
$4.6 million in December 2009 relating to nifedipine
antitrust litigation. The $18.0 million legal award related
to an agreement with Watson to settle litigation with respect to
Watson’s marketing of a generic version of Naprelan.
As part of the settlement, Watson stipulated that our patent at
issue is valid and enforceable and that Watson’s generic
formulations of Naprelan infringed our patent.
Following a settlement in late 2007 with the indirect purchaser
class of the nifedipine antitrust litigation, in December 2009
we entered into a separate settlement agreement with the
individual direct purchasers, resulting in a dismissal of this
second segment of the litigation and the payment of a legal
settlement amount of $4.6 million.
The legal settlement amount of $4.7 million, net of
insurance coverage, in 2008 relates to several shareholder class
action lawsuits, commencing in 1999 against Dura
Pharmaceuticals, Inc., one of our subsidiaries, and various
then-current or former officers of Dura. The actions, which
alleged violations of the U.S. federal securities laws,
were consolidated and sought damages on behalf of a class of
shareholders who purchased Dura common stock during a defined
period. The settlement was finalized in 2009 without admission
of fault by Dura.
During 2008, we wrote off $7.5 million of deferred
transaction costs related to the completed evaluation of the
strategic options associated with the potential separation of
our EDT business.
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Net interest expense was $137.9 million in 2009,
$132.0 million in 2008 and $113.1 million in 2007. The
increase of 4% in 2009, as compared to 2008, was primarily due
to decreased interest income as a result of lower interest rates
and net foreign exchange losses, partially offset by lower debt
interest expense as a result of lower interest rates associated
with the senior floating rate notes due November 15, 2011
(Floating Rate Notes due 2011) and the senior floating rate
notes due December 1, 2013 (Floating Rate Notes due 2013).
The increase of 17% in 2008, as compared to 2007, was primarily
due to decreased interest income as a result of lower cash
balances and reduced interest rates, partially offset by lower
debt interest expense as a result of lower interest rates
associated with the Floating Rate Notes due 2011 and the
Floating Rate Notes due 2013.
Net investment gains were $0.6 million in 2009, compared to
net losses of $21.8 million in 2008 and net losses of
$0.9 million in 2007. The net investment gains in 2009
primarily related to gains realized from a fund that had
previously been reclassified from cash equivalents to
investments due to dislocations in the capital markets. We fully
redeemed our remaining holding in this fund during 2009. The net
investment losses in 2008 were primarily comprised of impairment
charges of $20.2 million (2007: $6.1 million) and
$1.0 million in net realized losses on the sale of
investment securities (2007: $6.6 million net gain).
We did not record any impairment charges in relation to
investment securities during 2009. In 2008, we recorded a net
impairment charge of $10.9 million (2007: $Nil) related to
an investment in the fund described above. The remaining
impairment charges in 2008 were comprised of $6.0 million
(2007: $5.0 million) related to an investment in auction
rate securities (ARS) and $3.3 million (2007:
$1.1 million) related to various investments in emerging
pharmaceutical and biotechnology companies.
At December 31, 2009, we had, at face value,
$11.4 million (2008: $11.4 million) of principal
invested in ARS, held at a carrying amount of $0.4 million
(2008: $0.4 million), which represents interests in
collateralized debt obligations with long-term maturities
through 2043 supported by U.S. residential mortgages,
including sub-prime mortgages. The ARS, which historically had a
liquid market and had their interest rates reset monthly through
dutch auctions, have continued to fail at auction since
September 2007 as a result of the ongoing dislocations
experienced in the capital markets. In addition, the ARS, which
had AAA/Aaa credit ratings at the time of purchase, were
downgraded to CCC-/B1*- ratings in 2008. At December 31,
2009, the estimated fair value of the ARS was $0.4 million
(2008: $0.4 million). While interest continues to be paid
by the issuers of the ARS, due to the significant and prolonged
decline in the fair value of the ARS below their carrying
amount, we concluded that these securities experienced an
other-than-temporary decline in fair value and recorded an
impairment charge of $6.0 million in 2008 (2007:
$5.0 million). We did not record an impairment charge
relating to the ARS in 2009.
The framework used for measuring the fair value of our
investment securities, including the ARS, is described in
Note 26 to the Consolidated Financial Statements.
In 2008, the $1.0 million in net losses on the sale of
investment securities includes losses of $1.4 million
associated with the disposal of the fund described above.
In 2007, the $6.6 million in gains on the sale of
investment securities includes gains on sale of securities of
Adnexus Therapeutics, Inc. of $3.0 million and Women’s
First Healthcare, Inc. of $1.3 million.
During 2009, we redeemed the 7.75% Notes in full and
recorded a net charge on debt retirement of $24.4 million,
comprised of an early redemption premium of $16.4 million,
write-off of unamortized deferred financing costs of
$6.7 million and transaction costs of $1.3 million.
In December 2006, we issued an early redemption notice for the
7.25% senior notes (Athena Notes). In January 2007, the
remaining aggregate principal amount of $613.2 million of
the Athena Notes was redeemed and the related
$300.0 million of interest rate swaps were cancelled. As a
result, we incurred a net charge on debt retirement of
$18.8 million in 2007.
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We had a net tax provision of $46.4 million for 2009,
compared to a net tax benefit of $226.3 million in 2008 and
a net tax provision of $6.9 million for 2007.
The overall tax provision for 2009 was $50.0 million (2008:
$228.7 million benefit; 2007: $5.1 million provision).
Of this amount $3.6 million was deducted from
shareholders’ equity (2008: $2.4 million added; 2007:
$1.8 million added) to reflect the net shortfalls related
to equity awards. The remaining $46.4 million provision
(2008: $226.3 million benefit; 2007: $6.9 million
provision) is allocated to ordinary activities.
The 2009 tax provision reflects federal alternative minimum
taxes (AMT) and state taxes, income derived from Irish Patents,
other taxes at standard rates in jurisdictions in which we
operate, foreign withholding tax and includes a deferred tax
expense of $36.8 million for 2009 (2008:
$236.6 million benefit; 2007: $1.3 million benefit)
primarily related to the DTA recognized in 2008 as the
underlying loss carryforwards and other DTAs are utilized to
shelter taxable income in the United States.
We released $236.6 million of the U.S. valuation
allowance during 2008. A valuation allowance is required for
DTAs if, based on available evidence, it is more likely than not
that all or some of the asset will not be realized due to the
inability to generate sufficient future taxable income.
Previously, because of cumulative losses in the year ended
December 31, 2007 and the two preceding years, we
determined it was necessary to maintain a valuation allowance
against substantially all of our net DTAs, as the
cumulative losses in recent years represented a significant
piece of negative evidence. However, as a result of the
U.S. business generating cumulative earnings for the three
years ended December 31, 2008 and projected recurring
U.S. profitability arising from the continued growth of the
BioNeurology business in the United States, there was evidence
to support the generation of sufficient future taxable income to
conclude that most U.S. DTAs are more likely than not to be
realized in future years. Our U.S. business carries out a
number of activities that are remunerated on a cost-plus basis,
therefore future U.S. profitability is expected. As part of
our assessment in 2009 we updated our detailed future income
forecasts for the U.S. business, which cover the period
through 2019 and demonstrate significant future recurring
profitability. The cumulative level of taxable income required
to realize the federal DTAs is approximately $417.0 million
and approximately $930.0 million to realize the state DTAs.
U.S. pre-tax book income for 2009 was $163.1 million
and the quantum of projected earnings is significantly in excess
of the pre-tax income necessary to realize the DTAs. The
DTAs’ recoverability is not dependent on material
improvements over present levels of pre-tax income for the
U.S. business, material changes in the present relationship
between income reported for financial and tax purposes, or
material asset sales or other non-routine transactions. In
weighing up the positive and negative evidence for releasing the
valuation allowance we considered future taxable income
exclusive of reversing temporary differences and carry-forwards;
the timing of future reversals of existing taxable temporary
differences; the expiry dates of operating losses and tax credit
carry-forwards and various other factors which may impact on the
level of future profitability in the United States. Accordingly,
there was no need to materially alter our valuation allowance in
the United States during 2009.
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Adjusted
EBITDA — Non-GAAP Financial
Information
EBITDA (Earnings Before Interest, Taxes, Depreciation and
Amortization) and Adjusted EBITDA are non-GAAP measures of
operating results. Elan’s managements use these measures to
evaluate our operating performance and they are among the
factors considered as a basis for our planning and forecasting
for future periods. We believe that EBITDA and Adjusted EBITDA
are measures of performance used by some investors, equity
analysts and others to make informed investment decisions.
Adjusted EBITDA is defined as EBITDA plus or minus share-based
compensation, net gain on divestment of businesses or products,
other net charges or gains, net investment gains or losses, net
charge on debt retirement and net income from discontinued
operations. EBITDA and Adjusted EBITDA are not presented as, and
should not be considered alternative measures of, operating
results or cash flows from operations, as determined in
accordance with U.S. GAAP. Reconciliations of EBITDA and
Adjusted EBITDA to net loss are set out in the table above.
In 2009, we reported Adjusted EBITDA of $96.3 million,
compared to Adjusted EBITDA of $4.3 million in 2008. The
improvement reflects the 11% increase in revenue and the
resulting increase in gross margin, combined with the 9%
decrease in combined SG&A and R&D expenses, and
reflects the significant operating leverage associated with
Tysabri, where revenue increased 30% to
$724.3 million for 2009 from $557.1 million for 2008.
In 2008, we reported Adjusted EBITDA of $4.3 million,
compared to Adjusted EBITDA losses of $30.4 million in
2007. The improvement in Adjusted EBITDA reflects the improved
operating performance in 2008, driven by a 32% increase in
revenue while combined SG&A and R&D expenses increased
by only 2%, and reflects the strong performance of
Tysabri, where revenue increased 140% to
$557.1 million for 2008 from $231.7 million for 2007.
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision
maker (CODM). Our CODM has been identified as Mr. G. Kelly
Martin, chief executive officer. Our business is organized into
two business units: BioNeurology and EDT, and our chief
executive officer reviews the business from this perspective.
BioNeurology engages in research, development and commercial
activities primarily in the areas of Alzheimer’s disease,
Parkinson’s disease, MS, Crohn’s disease and severe
chronic pain. EDT is an established, profitable, integrated drug
delivery business unit of Elan, which has been applying its
skills and knowledge in product development and drug delivery
technologies to enhance the performance of dozens of drugs that
have been marketed worldwide.
For additional information on our current operations, refer to
Item 4.B. “Business Overview.”
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BIONEUROLOGY
(in millions)
Refer to page 46 for additional discussion on revenue from
our BioNeurology business.
Cost of sales was $444.4 million in 2009, compared to
$369.7 million in 2008 and $223.7 million in 2007. The
gross profit margin was 47% in 2009, 47% in 2008 and 52% in
2007. The gross profit margin was consistent in 2009, compared
to 2008. The decreases in the gross profit margin in 2008 and
2007 were principally due to the change in the mix of product
sales, including the impact of Tysabri and Maxipime
as described previously.
SG&A expenses were $232.3 million in 2009,
$248.2 million in 2008 and $294.8 million in 2007. The
decrease of 6% in total SG&A expenses in 2009, compared to
2008, principally reflects lower headcount from the reduction of
support activities, along with continued cost control.
The decrease of 16% in total SG&A expenses in 2008,
compared to 2007, principally reflected reduced sales and
marketing costs resulting from the restructuring of our
commercial infrastructure related to the approval of a generic
form of Maxipime in June 2007 and the anticipated
approval of a generic form of Azactam, along with reduced
amortization expense following the impairment of our Maxipime
and Azactam intangible assets.
R&D expenses were $246.1 million in 2009,
$275.8 million in 2008 and $214.5 million in 2007. The
decrease of 11% in 2009, compared to 2008, primarily relates to
the cost savings as a result of the divestment of AIP and the
timing of spend on our key R&D programs. R&D expenses
in 2009 included $87.0 million (2008: $109.5 million;
2007: $53.5 million) in relation to AIP.
The increase in R&D expenses of 29% in 2008 was primarily
due to increased expenses associated with the progression of the
Alzheimer’s disease programs, including the advancement of
bapineuzumab into Phase 3 clinical trials and the advancement of
ELND005 into Phase 2 clinical trials.
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Net
Gain on Divestment of Business
The net gain recorded on the divestment of substantially all of
the assets and rights related to our AIP collaboration with
Wyeth (which has been acquired by Pfizer) to Janssen AI amounted
to $108.7 million. Refer to page 50 for additional
discussion on the net gain on divestment of this business.
We did not divest any businesses in 2008 or 2007.
Other
Net Charges
Refer to page 51 for additional discussion on other net
charges from our BioNeurology business.
ELAN
DRUG TECHNOLOGIES (in millions)
Total
Revenue
Refer to page 48 for additional discussion on revenue from
our EDT business.
Cost of sales was $116.3 million in 2009, compared to
$123.7 million in 2008 and $114.2 million in 2007. The
gross profit margin was 58% in 2009, 59% in 2008 and 61% in
2007. The decrease in gross profit margin in 2009, as compared
to 2008, was primarily due to the reduction in manufacturing
revenue and royalties. The decrease in the gross profit margin
in 2008, as compared to 2007, was principally as a result of
changes in product mix and reduced amortized fees. In 2009, our
royalties on products that we do not manufacture were 47% of
total manufacturing revenue and royalties (2008: 47%; 2007: 47%).
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SG&A expenses were $35.9 million in 2009,
$44.5 million in 2008 and $44.5 million in 2007. The
decrease of 19% in SG&A expenses in 2009, compared to 2008,
principally reflects lower litigation costs, along with
continued cost control. The levels of spend were consistent in
2008 and 2007.
R&D expenses were largely flat over the three years at
$47.5 million in 2009, $47.6 million in 2008 and
$48.4 million in 2007.
Other
Net Charges
During 2009, we incurred severance, restructuring and other
costs of $5.7 million (2008: $Nil; 2007:
$3.6 million), arising from the realignment of resources to
meet our business structure.
Cash
and Cash Equivalents, Liquidity and Capital
Resources
Our liquid and capital resources at December 31 were as follows
(in millions):
We have historically financed our operating and capital resource
requirements through cash flows from operations, sales of
investment securities and borrowings. We consider all highly
liquid deposits with a maturity on acquisition of three months
or less to be cash equivalents. Our primary source of funds as
of December 31, 2009, consisted of cash and cash
equivalents of $836.5 million, which excludes current
restricted cash of $16.8 million, and current investment
securities of $7.1 million. Cash and cash equivalents
primarily consist of bank deposits and holdings in
U.S. Treasuries funds.
At December 31, 2009, our shareholders’ equity was
$494.2 million, compared to a deficit of
$232.2 million at December 31, 2008. The movement is
primarily due to the $885.0 million investment from
Johnson & Johnson in exchange for newly issued ADRs of
Elan and adjustments to additional
paid-in-capital
relating to employee stock issuances and share-based
compensation expense, partially offset by the net loss incurred
during the year and $17.0 million in transaction costs
attributable to the Johnson & Johnson ADR issuance.
The net loss for 2009 included a net gain on divestment of the
AIP business of $108.7 million.
On January 13, 2009, we announced that our Board of
Directors had engaged an investment bank to conduct, in
conjunction with executive management and other external
advisors, a review of our strategic alternatives. The purpose of
the engagement was to secure access to financial resources and
commercial infrastructure that would enable us to accelerate the
development and commercialization of our extensive pipeline and
product portfolio while maximizing the ability of our
shareholders to participate in the resulting longer term value
creation.
On September 17, 2009, we completed the Johnson &
Johnson Transaction, (as previously discussed), and subsequent
to the completion of this transaction, we announced a cash
tender offer for the outstanding $850.0 million in
aggregate principal amount of the 7.75% Notes. The
7.75% Notes were fully redeemed by the end of December
2009. In addition, we completed the offering and sale of
$625.0 million in aggregate principal amount of the
8.75% Notes.
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Under the terms of our debt, we are required to either reinvest
$235.0 million of the proceeds received from the
Johnson & Johnson Transaction in our business, or if
not reinvested, make a pro-rata offer to repurchase a portion of
our debt at par.
Following completion of the strategic review and the debt
refinancing, our total debt has been reduced from
$1,765.0 million at December 31, 2008, to
$1,540.0 million at December 31, 2009, and the
weighted average maturity of our debt was extended by
approximately 70%, from 35 months prior to the debt
refinancing to 60 months after the debt refinancing.
We believe that we have sufficient current cash, liquid
resources, realizable assets and investments to meet our
liquidity requirements for at least the next 12 months. Longer
term liquidity requirements and debt repayments will need to be
met out of available cash resources, future operating cash
flows, financial and other asset realizations and future
financing. However, events, including a material deterioration
in our operating performance as a result of our inability to
sell significant amounts of Tysabri, material adverse
legal judgments, fines, penalties or settlements arising from
litigation or governmental investigations, failure to
successfully develop and receive marketing approval for products
under development (in particular, bapineuzumab) or the
occurrence of other circumstances or events described under
Item 3.D. “Risk Factors,” could materially and
adversely affect our ability to meet our longer term liquidity
requirements.
We commit substantial resources to our R&D activities,
including collaborations with third parties such as Biogen Idec
for the development of Tysabri and Transition for
Alzheimer’s disease. We expect to commit significant cash
resources to the development and commercialization of products
in our development pipeline.
We continually evaluate our liquidity requirements, capital
needs and availability of resources in view of, among other
things, alternative uses of capital, debt service requirements,
the cost of debt and equity capital and estimated future
operating cash flow. We may raise additional capital;
restructure or refinance outstanding debt; repurchase material
amounts of outstanding debt (including the Floating Rate Notes
due 2011; the 8.875% senior notes due December 1, 2013
(8.875% Notes); the Floating Rate Notes due 2013 and the
8.75% Notes); consider the sale of interests in
subsidiaries, investment securities or other assets or the
rationalization of products; or take a combination of such steps
or other steps to increase or manage our liquidity and capital
resources. Any such actions or steps, including any repurchase
of outstanding debt, could be material. In the normal course of
business, we may investigate, evaluate, discuss and engage in
future company or product acquisitions, capital expenditures,
investments and other business opportunities. In the event of
any future acquisitions, capital expenditures, investments or
other business opportunities, we may consider using available
cash or raising additional capital, including the issuance of
additional debt.
Cash Flow
Summary
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The components of net cash used in operating activities at
December 31 were as follows:
Net cash used in operating activities was $86.3 million in
2009 (2008: $194.3 million; 2007: $167.5 million).
Net interest and tax are discussed further on page 53 for
net interest expense and on page 54 for income taxes. The
interest and tax expenses within net cash used in operating
activities exclude net non-cash charges of $42.4 million in
2009 (2008: gains of $229.5 million; 2007: charges of
$5.3 million), comprised of net non-cash interest expenses
of $5.6 million in 2009 (2008: $5.0 million; 2007:
$4.8 million) and a net non-cash tax charge of
$36.8 million (2008: benefit of $234.5 million; 2007:
charge of $0.5 million).
The divestment of business charge of $18.5 million includes
the transaction costs and other cash charges related to the
divestment of the AIP business to Janssen AI in 2009.
The other net charges of $18.8 million in 2009 (2008:
$31.5 million; 2007: $29.5 million) were principally
related to the other net charges described on pages 51 to 52,
adjusted to exclude non-cash other charges of $48.5 million
in 2009 (2008: $2.7 million; 2007: $55.1 million).
The improvement in net cash inflow from other operating
activities from $4.2 million in 2008 to $96.3 million
in 2009 reflects the 11% increase in revenue and the resulting
increase in gross margin, combined with the 9% decrease in
combined SG&A and R&D expenses, and reflects the
significant operating leverage associated with Tysabri,
where revenue increased 30% to $724.3 million for 2009 from
$557.1 million for 2008.
The improvement in net cash flow from other operating activities
from a $30.4 million outflow in 2007 to an inflow of
$4.2 million in 2008 was primarily due to improved
operating performance driven by a 32% increase in revenue while
combined SG&A and R&D expenses increased by only 2%,
reflecting the improved performance from Tysabri, where
product revenue increased 140% to $557.1 million for 2008
from $231.7 million for 2007.
The working capital increase in 2009 of $3.4 million was
primarily driven by Tysabri sales, partially offset by a
decrease in royalty receivables due to the timing of payments.
The working capital increase in 2008 of $31.8 million was
primarily driven by the increase in Tysabri sales. The
working capital decrease in 2007 of $7.1 million was
primarily driven by a decrease in prepaid and other assets of
$60.3 million (principally related to a $49.8 million
arbitration award, paid by King Pharmaceuticals, Inc. in January
2007), offset by the increase in Tysabri sales.
Net cash used in investing activities was $56.8 million in
2009. The primary components of cash used in investing
activities were the $50.0 million optional payment made to
Biogen Idec in order to maintain an approximate 50% share of
Tysabri for annual global in-market net sales of
Tysabri that are in excess of $1.1 billion and
additional capital expenditure of $45.9 million, partially
offset by proceeds of $7.3 million from the disposal of
property, plant and equipment and proceeds of $28.9 million
from the liquidation of an investment in a fund that had been
reclassified from cash equivalents to investments due to
dislocations in the capital markets. We fully redeemed our
remaining holding in this fund during 2009.
Net cash provided by investing activities was $94.5 million
in 2008. The primary components of cash provided by investing
activities were proceeds of $236.1 million from the sale of
investment securities, principally relating to liquidations of
an investment in the fund described above, and capital
expenditure of $137.9 million. Included
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within capital expenditures was a $75.0 million optional
payment made to Biogen Idec in order to maintain an approximate
50% share of Tysabri for annual global in-market net
sales of Tysabri that are in excess of
$700.0 million.
Net cash used in investing activities was $318.1 million in
2007. The primary component of cash used in investing activities
was a transfer of $305.9 million relating to the fund that
was reclassified from cash equivalents to investments in
December 2007.
Net cash provided by financing activities of $604.1 million
in 2009 was primarily comprised of net proceeds of
$868.0 million (net of $17.0 million in transaction
costs) from the investment by Johnson & Johnson, and
the net proceeds of $603.0 million (net of
$22.0 million in transaction costs and original issue
discount) from the issuance of the 8.75% Notes, partially
offset by total payments of $867.8 million (including
$17.8 million of an early redemption premium and
transaction costs) related to the early redemption of the
7.75% Notes.
Net cash provided by financing activities of $51.5 million
in 2008 was primarily comprised of the net proceeds from
employee stock issuances of $50.0 million.
Net cash used in financing activities totaled
$599.7 million in 2007, primarily reflecting the repayment
of loans and capital lease obligations of $629.6 million
(principally the redemption of the $613.2 million of the
Athena Notes), partially offset by $28.2 million of net
proceeds from employee stock issuances.
At December 31, 2009, we had outstanding debt of
$1,540.0 million, which consisted of the following (in
millions):
Our substantial indebtedness could have important consequences
to us. For example, it does or could:
During 2009, as of December 31, 2009, and, as of the date
of filing of this
Form 20-F,
we were not in violation of any of our debt covenants. For
additional information regarding our outstanding debt, refer to
Note 21 to the Consolidated Financial Statements.
For information regarding commitments and contingencies, refer
to Notes 28 and 29 to the Consolidated Financial Statements.
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We believe that our current and planned manufacturing, research,
product development and corporate facilities will adequately
meet our current and projected needs. In June and December 2007,
we entered into lease agreements for two additional buildings in
South San Francisco. The lease term for the first building
commenced in March 2009 and the building is utilized for our
R&D, sales and administrative functions. The lease for the
second building commenced in January 2010 and, following the
completion of the building fit out, will be utilized for our
R&D, sales and administrative functions. We will use our
resources to make capital expenditures as necessary from time to
time and also to make investments in the purchase or licensing
of products and technologies and in marketing and other
alliances with third parties to support our long-term strategic
objectives.
See Item 4.B. “Business Overview” for information
on our R&D, patents and licenses, etc.
See Item 4.B. “Business Overview” and
Item 5.A. “Operating Results” for trend
information.
As of December 31, 2009, we have no unconsolidated special
purpose financing or partnership entities or other off-balance
sheet arrangements that have, or are reasonably likely to have,
a current or future effect on our financial condition, changes
in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital
resources, that are material to investors.
The following table sets out, at December 31, 2009, our
main contractual obligations due by period for debt principal
and interest repayments and capital and operating leases. These
represent the major contractual, future payments that may be
made by Elan. The table does not include items such as expected
capital expenditures on plant and equipment or future
investments in financial assets. As of December 31, 2009,
the directors had authorized capital expenditures, which had
been contracted for, of $6.2 million (2008:
$31.4 million), primarily related to the leasehold
improvements for the second new building located in South
San Francisco. As of December 31, 2009, the directors
had authorized capital expenditures, which had not been
contracted for, of $26.1 million (2008: $43.1 million).
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Under our Collaboration Agreement with Transition we are
obligated to make various milestone payments to Transition,
including a $25.0 million payment upon the initiation of
the first Phase 3 clinical trial for ELND005. In addition,
dependant upon the continued successful development, regulatory
approval and commercialization of ELND005, Transition will be
eligible to receive additional milestone payments of up to
$155.0 million. Further, if ELND005 is successfully
commercialized we will be obligated to either share the net
income derived from sales of ELND005 with Transition or pay
royalties to Transition.
Under the terms of our debt, we are required to either reinvest
$235.0 million of the proceeds received from the
Johnson & Johnson Transaction in our business, or if
not reinvested, make a pro-rata offer to repurchase a portion of
our debt at par.
At December 31, 2009, we had liabilities related to
unrecognized tax benefits of $10.8 million (excluding total
potential penalties and interest of $2.4 million). It is
not possible to accurately assess the timing of or the amount of
any settlement in relation to these liabilities.
At December 31, 2009, we had commitments to invest
$4.6 million (2008: $5.1 million) in healthcare
managed funds.
In disposing of assets or businesses, we often provide customary
representations, warranties and indemnities (if any) to cover
various risks. We do not have the ability to estimate the
potential liability from such indemnities because they relate to
unknown conditions. However, we have no reason to believe that
these uncertainties would have a material adverse effect on our
financial condition or results of operations.
The two major rating agencies covering our debt, rate our debt
as
sub-investment
grade. None of our debt has a rating trigger that would
accelerate the repayment date upon a change in rating.
For information regarding the fair value of our debt, refer to
Note 21 to the Consolidated Financial Statements.
Our debt ratings as of December 31, 2009 were as follows:
Kyran McLaughlin (65)
Non-Executive Chairman, Member of the Nominating and
Governance Committee
Mr. McLaughlin was appointed a director of Elan in January
1998 and was appointed chairman of Elan in January 2005. He is
deputy chairman at Davy, Ireland’s leading provider of
stock broking, wealth management and financial advisory
services. He is also a director of Ryanair Holdings plc and is a
director of a number of private companies.
Vaughn Bryson (71)
Non-Executive Director
Mr. Bryson was elected a director of Elan in July 2009 and
has over 40 years of experience as an executive, a director
and advisor in the healthcare industry. He spent 32 years
with Eli Lilly and Company completing his career there as
president and chief executive officer. From April 1994 to
December 1996, Mr. Bryson was vice chairman of Vector
Securities International, a
healthcare-focused
investment banking firm. Mr. Bryson was president of Life
Science Advisors, LLC, a healthcare consulting company from 1995
to 2004. He has served on the board of directors of many public
and private companies including Lilly, Amylin Pharmaceuticals
Inc., Quintiles
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Transnational and Chiron Corporation. Mr. Bryson received a
B.S. in Pharmacy from the University of North Carolina and
completed the Sloan Program at the Stanford University Graduate
School of Business Administration.
Shane Cooke (47)
Executive Director, Chief Financial Officer and Head of Elan
Drug Technologies
Mr. Cooke was appointed a director of Elan in May 2005,
having joined Elan as executive vice president and chief
financial officer in July 2001. He was appointed head of Elan
Drug Technologies in May 2007. Prior to joining Elan,
Mr. Cooke was chief executive of Pembroke Capital Limited,
an aviation leasing company, and prior to that held a number of
senior positions in finance in the banking and aviation
industries. Mr. Cooke is a chartered accountant and a
graduate of University College Dublin.
Lars Ekman, MD, PhD (60)
Non-Executive Director, Chairman of the Science and
Technology Committee
Dr. Ekman was appointed a director of Elan in May 2005. He
transitioned from his role as Elan’s president of R&D
in 2007 to serve solely as a director. He joined Elan as
executive vice president and president, global R&D, in
2001. Prior to joining Elan, he was executive vice president,
R&D, at Schwarz Pharma AG since 1997. From 1984 to 1997,
Dr. Ekman was employed in a variety of senior scientific
and clinical functions at Pharmacia (now Pfizer). Dr. Ekman
is a board certified surgeon with a PhD in experimental biology
and has held several clinical and academic positions in both the
United States and Europe. He obtained his PhD and MD from the
University of Gothenburg, Sweden. He serves as an
executive-in-residence
to Sofinnova Ventures and as an advisor to Warburg Pincus. He is
a director of Amarin Corporation, plc., ARYx Therapeutics, Inc.,
Cebix Incorporated and InterMune, Inc.
Jonas Frick (52)
Non-Executive Director, Member of the Commercial Committee
Mr. Frick was appointed a director of Elan in September
2007. He is the former chief executive officer of Scandinavian
Life Science Ventures. He was the chief executive officer and
president of Medivir AB and served in senior executive positions
in Pharmacia’s international businesses in the central
nervous system and autoimmune areas across Italy, Sweden and
Japan. He is a founding member of the Swedish Biotechnology
Industry Organization, founder of Acacia Partners and chairman
of Frick Management AB.
Gary Kennedy (52)
Non-Executive Director, Chairman of the Audit Committee,
Member of the Leadership, Development and Compensation Committee
(LDCC)
Mr. Kennedy was appointed a director of Elan in May 2005.
From May 1997 to December 2005, he was group director, finance
and enterprise technology, at Allied Irish Banks, plc (AIB) and
a member of the main board of AIB and was also on the board of
M&T, AIB’s associate in the United States. Prior to
that, Mr. Kennedy was group vice president at Nortel
Networks Europe after starting his management career at
Deloitte & Touche. He served on the board of the
Industrial Development Authority of Ireland for 10 years
until he retired in December 2005. He is a director of Greencore
Group plc and a number of private companies. Mr. Kennedy is
a chartered accountant.
Patrick Kennedy (40)
Non-Executive Director, Chairman of the LDCC
Mr. Kennedy was appointed a director of Elan in May 2008.
He is chief executive officer of Paddy Power plc, an
international betting and gaming group listed on both the London
and Irish Stock Exchanges. Mr. Kennedy was previously chief
financial officer of Greencore Group plc and prior to that
worked with McKinsey & Company and KPMG.
Mr. Kennedy is a graduate of University College Dublin and
a Fellow of Chartered Accountants Ireland.
Giles Kerr (50)
Non-Executive Director, Member of the Audit Committee
Mr. Kerr was appointed a director of Elan in September
2007. He is currently the director of finance with the
University of Oxford, England, and a fellow of Keble College. He
is also a director and chairman of the audit committee of
Victrex plc and a director of BTG plc, Isis Innovation Ltd and a
number of private companies.
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Previously, he was the group finance director and chief
financial officer of Amersham plc, and prior to that, he was a
partner with Arthur Andersen in the United Kingdom.
G. Kelly Martin (50)
Executive Director, CEO
Mr. Martin was appointed a director of Elan in February
2003 following his appointment as president and chief executive
officer. He was formerly president of the International Private
Client Group and a member of the executive management and
operating committee of Merrill Lynch & Co., Inc. He
spent over 20 years at Merrill Lynch & Co., Inc.
in a broad array of operating and executive responsibilities on
a global basis.
Kieran McGowan (66)
Non-Executive Director, Lead Independent Director, Chairman
of the Nominating and Governance Committee
Mr. McGowan was appointed a director of Elan in December
1998. From 1990 until his retirement in December 1998, he was
chief executive of the Industrial Development Authority of
Ireland. He is chairman of CRH, plc and is also a director of a
number of private companies.
Donal O’Connor (59)
Non-Executive Director, Member of the Audit Committee
Mr. O’Connor was appointed a director of Elan in May
2008. He was the senior partner of PricewaterhouseCoopers in
Ireland from 1995 until 2007. He was a member of the
PricewaterhouseCoopers Global Board and was a former chairman of
the Eurofirms Board. He is chairman of Anglo Irish Bank
Corporation Limited, a director of Readymix plc and the
administrator of Icarom plc. He is a graduate of University
College Dublin and a Fellow of Chartered Accountants Ireland.
Richard Pilnik (52), Member of the Commercial Committee
Non-Executive Director
Mr. Pilnik was elected a director of Elan in July 2009 and
brings extensive industry experience to Elan. Mr. Pilnik
served in several leadership positions during his
25-year
career at Eli Lilly and Company, most recently as group vice
president and chief marketing officer, where he was responsible
for commercial strategy, market research and medical marketing.
Currently, Mr. Pilnik serves as president of Innovex, the
commercial group of Quintiles Transnational Corp., which is a
global pioneer in pharmaceutical services. Mr. Pilnik holds
a B.A. from Duke University and an M.B.A. from the Kellogg
School of Management at Northwestern University.
William Rohn (66)
Non-Executive Director, Chairman of the Commercial
Committee
Mr. Rohn was appointed a director of Elan in May 2006. He
is currently a director of Cebix, Inc., Cerus Corp and
Intellikine, Inc. Previously, he was chief operating officer of
Biogen Idec until January 2005 and prior thereto president and
chief operating officer of Idec Pharmaceutical Corporation from
1993.
Jack W. Schuler (69)
Non-Executive Director, Member of the Science and Technology
Committee
Mr. Schuler was elected a director of Elan in July 2009 and
has nearly 40 years of experience as an executive, director
and investor in the healthcare industry. He is currently a
partner in Crabtree Partners L.L.C., a private investment firm
located in Lake Forest, Illinois, and a director of Medtronic
Inc., Quidel Corporate and Stericycle Inc. He spent
17 years at Abbott Laboratories, where he rose to the
position of president and chief operating officer.
Mr. Schuler left his executive role at Abbott Laboratories
to help launch and grow several healthcare companies, including
Ventana Medical Systems and Stericycle. Mr. Schuler has
also served as a member of the board of directors of
ICOS Corporation, Chiron Corporation, Amgen Inc., and
Abbott Laboratories. Mr. Schuler holds a B.S. in Mechanical
Engineering from Tufts University and an M.B.A. from Stanford
University Graduate School of Business.
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Dennis J. Selkoe MD (66)
Non-Executive Director, Member of the LDCC, Member of the
Science and Technology Committee
Dr. Selkoe was appointed a director of Elan in July 1996,
following our acquisition of Athena Neurosciences, where he
served as a director since July 1995. Dr. Selkoe was a
founder of Athena Neurosciences. Dr. Selkoe, a neurologist,
is a professor of neurology and neuroscience at Harvard Medical
School. He also serves as
co-director
of the Center for Neurologic Diseases at The Brigham and
Women’s Hospital. Dr. Selkoe retired from the Board on
July 16, 2009 and was subsequently re-appointed on
August 26, 2009.
Nigel Clerkin (36)
Senior Vice President, Finance and Group Controller
Mr. Clerkin was appointed senior vice president, finance
and group controller, in January 2004, having previously held a
number of financial and strategic planning positions since
joining Elan in January 1998. He is also our principal
accounting officer. Mr. Clerkin is a chartered accountant
and a graduate of Queen’s University Belfast.
William F. Daniel (57)
Executive Vice President and Company Secretary
Mr. Daniel was appointed a director of Elan in February
2003 and served until July 2007. He has served as the company
secretary since December 2001, having joined Elan in March 1994
as group financial controller. In July 1996, he was appointed
group vice president, finance, group controller and principal
accounting officer. From 1990 to 1992, Mr. Daniel was
financial director of Xtravision, plc. He is a member of the
Council of the Institute of Directors in Ireland and a chartered
accountant. Mr. Daniel is a graduate of University College
Dublin.
Kathleen Martorano (48)
Executive Vice President, Strategic Human Resources
Ms. Martorano was appointed executive vice president,
strategic human resources, and a member of the office of the
chief executive officer, in January 2005. She joined Elan in May
2003 as senior vice president, corporate marketing and
communications. Prior to joining Elan, Ms. Martorano held
senior management positions at Merrill Lynch & Co.,
which she joined in 1996, and where she was most recently first
vice president of marketing and communications for the
International Private Client Group. Previously, she held senior
management positions with Salomon Brothers. Ms. Martorano
holds a Bachelor of Science degree from Villanova University.
Carlos V. Paya, MD, PhD (51)
President
Dr. Paya joined Elan as president in November 2008.
Dr. Paya joined Elan from Eli Lilly and Company, where he
was vice president, Lilly Research Laboratories, and global
leader of the Diabetes and Endocrine Platform, responsible for
the company’s franchise (insulin products). He had been an
executive with Lilly since 2001, gaining a wide range of
leadership experience in different therapeutic areas and
business strategy. Prior to his career at Lilly, Dr. Paya
had a
16-year
relationship with the Mayo Clinic in Rochester, Minnesota, which
began with his acceptance into the Mayo Graduate School of
Medicine in 1984 and concluded with a six-year tenure as
professor of medicine, Immunology and Pathology, and vice dean
of the Clinical Investigation Program. Dr. Paya’s
other responsibilities and positions at or associated with the
Mayo Clinic included two years as associate professor and senior
associate consulting staff, Infectious Diseases and Internal
Medicine, Pathology and Laboratory Medicine, and Immunology; and
four years as a research scientist at Institute Pasteur, Paris,
and as chief, Infectious Diseases Unit, Hospital
12 Octubre, Madrid, Spain.
For the year ended December 31, 2009, all directors and
officers as a group that served during the year
(22 persons) received total compensation of
$9.1 million.
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We reimburse directors and officers for their actual
business-related expenses. For the year ended December 31,
2009, an aggregate of $0.2 million was accrued to provide
pension, retirement and other similar benefits for directors and
officers. We also maintain certain health and medical benefit
plans for our employees in which our executive directors and
officers participate.
Officers serve at the discretion of the board of directors. No
director or officer has a family relationship with any other
director or officer.
Directors’
Remuneration
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