Elan Corporation (ELN)

 

Net investment losses were $21.8 million in 2008, compared to a loss of $0.9 million in 2007 and a gain of $1.6 million in 2006. The net investment losses in 2008 were primarily comprised of impairment charges of $20.2 million (2007: $6.1 million; 2006: $7.3 million) and $1.0 million in net realized losses on the sale of investment securities (2007: $6.6 million net gain; 2006: $8.3 million net gain).

 

At both December 31, 2008, and December 31, 2007, all of our liquid investments were invested in bank deposits and funds. In December 2007, due to the dislocations in the capital markets, one of these funds was closed. As a result, at December 31, 2007, the carrying value of our investment in this fund of $274.8 million was no longer included in cash and cash equivalents and was presented as an investment. In conjunction with the closure of the fund, a charge of $3.8 million (comprised of an impairment charge of $3.6 million and a realized loss of $0.2 million) was incurred and netted against a portion of the interest income earned from the fund in 2007. An additional charge of $12.3 million (comprised of an impairment charge of $10.9 million, net of interest income of $2.2 million earned from the fund in 2008, and realized losses of $1.4 million) was incurred in 2008.

 

In 2008, we recorded a net impairment charge of $10.9 million (2007: $Nil; 2006: $Nil) related to the fund described above and a further impairment charge of $6.0 million (2007: $5.0 million; 2006: $Nil) related to an investment in auction rate securities (ARS). The remaining impairment charges of $3.3 million (2007: $1.1 million; 2006: $7.3 million) were related to various investments in emerging pharmaceutical and biotechnology companies.

 

At December 31, 2008, we had, at face value, $11.4 million (2007: $11.4 million) of principal invested in ARS, held at a carrying value of $0.4 million (2007: $6.3 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, 2008, the estimated fair value of the ARS was $0.4 million (2007: $6.3 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 value, 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). Given that the ARS are illiquid, until there is a successful auction for them, the timing of which is presently unknown, the net carrying value has been classified as long-term investments in our Consolidated Balance Sheets at December 31, 2008 and 2007.

 

The framework used for measuring the fair value of our investment securities, including the ARS, is described in Note 19 to the Consolidated Financial Statements.

 

In 2008, we raised $236.1 million in net cash proceeds from the disposal of investment securities, principally relating to the liquidation of the investment in the fund described above. The $1.0 million in net losses on the sale of investment securities includes losses of $1.4 million associated with the disposal of this fund.

 

In 2007, we raised $31.3 million in net cash proceeds from the disposal of investment securities. The $6.6 million in gains on the sale of investment securities in 2007 includes gains on sale of securities of Adnexus Therapeutics, Inc. of $3.0 million and Women’s First Healthcare, Inc. of $1.3 million.

 

Net investment losses were $0.9 million in 2007, compared to a gain of $1.6 million in 2006 and a loss of $7.2 million in 2005. The net investment losses in 2007 were primarily comprised of $6.6 million gains on the sale of investment securities (2006: $8.3 million; 2005: $17.5 million) and an impairment charge of $6.1 million (2006: $7.3 million; 2005: $24.0 million).

 

In 2007, we raised $31.3 million in net cash proceeds from the disposal of investment securities. The $6.6 million in gains on the sale of investment securities in 2007 includes gains on sale of securities of Adnexus Therapeutics, Inc. of $3.0 million and Women’s First Healthcare, Inc. of $1.3 million.

 

In 2006, we raised $14.1 million in net cash proceeds from the disposal of investment securities. The $8.3 million in gains on the sale of investment securities in 2006 includes gains on sale of securities of Salu, Inc. of $3.0 million, Nobex Corporation of $2.5 million and Women’s First Healthcare, Inc. of $1.0 million.

 

In 2005, we raised $62.7 million in net cash proceeds from the disposal of investment securities. The $17.5 million in gains on the sale of investment securities in 2005 includes gains on sale of securities of Allergy Therapeutics plc of $10.0 million, Iomai Corporation of $3.2 million and Emisphere Technologies, Inc. of $1.8 million.

 

In 2007, we recorded an impairment of $5.0 million related to an investment of $11.4 million in auction rate securities. The remaining impairment charges of $1.1 million (2006: $7.3 million; 2005: $24.0 million) related to various investments in emerging pharmaceutical and biotechnology companies.

 

 

Net investment losses were $7.2 million in 2005, compared to net investment gains of $42.8 in 2004. The net investment losses in 2005 comprised primarily of gains on sale and maturity of investment securities of $17.5 million (2004: $106.2) and impairment of investments of $24.0 million (2004: $72.4 million). In 2005, we raised $62.7 million (2004: $255.5 million) in net cash proceeds from the disposal of investment securities. The $17.5 million in gains on the sale and maturity of investment securities in 2005 includes gains on the sale of securities of Allergy Therapeutics plc of $10.0 million, Iomai Corporation of $3.2 million and Emisphere Technologies, Inc. of $1.8 million. The $106.2 million in gains on the sale and maturity of investment securities in 2004 included a gain on the sale of securities of Warner Chilcott plc of $43.6 million, DOV Pharmaceutical, Inc. of $22.6 million, Curis, Inc. of $15.3 million and Atrix Laboratories of $13.1 million.

 

During 2005, investment impairment charges of $24.0 million (2004: $72.4 million) reflect other-than-temporary impairments to the value of a number of investments, primarily in privately-held biotech companies.