Elan Reports First Quarter 2004 Financial Results.Business Editors/Health/Medical Writers DUBLIN Dublin, city, Republic of Ireland Dublin, Irish Baile Átha Cliath, county borough (1991 pop. 915,516), Leinster, capital of the Republic of Ireland, on Dublin Bay at the mouth of the Liffey River. , Ireland--(BUSINESS WIRE)--May 13, 2004 Elan (Emulated LAN) A virtual LAN in the ATM world. See LANE and virtual LAN. Elan - ["Top-down Programming with Elan", C.H.A. Koster, Ellis Horwood 1987]. Corporation, plc today announced its first quarter 2004 results and provided an update on the progress of its product development activities. Commenting on the results Kelly Kel·ly , Ellsworth Born 1923. American abstract painter and sculptor whose works are characterized by flat color areas with sharply defined edges. Kelly, Emmett 1898-1979. Martin, Elan's President and Chief Executive Officer, said " In the first quarter of 2004, we continued our execution momentum across our core therapeutic areas of neurodegenerative diseases neurodegenerative diseases diseases characterized by neurodegeneration. Lesions are microscopic only but in chronic disease with massive involvement there may be grossly visible atrophy of affected nervous tissue. , autoimmune diseases Autoimmune diseases A group of diseases, like rheumatoid arthritis and systemic lupus erythematosus, in which immune cells turn on the body, attacking various tissues and organs. Mentioned in: Complement Deficiencies, Premature Menopause and severe pain. Our key second-quarter filings are on track - Antegren for multiple sclerosis multiple sclerosis (MS), chronic, slowly progressive autoimmune disease in which the body's immune system attacks the protective myelin sheaths that surround the nerve cells of the brain and spinal cord (a process called demyelination), resulting in damaged areas in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. and Europe Europe (y  r`əp), 6th largest continent, c.4,000,000 sq mi (10,360,000 sq km) including adjacent islands (1992 est. pop. 512,000,000). , and Prialt for severe pain in the United
States - and we continue discussions with the United States and European Europeanemanating from or pertaining to Europe. European bat lyssavirus see lyssavirus. European beech tree fagussylvaticus. European blastomycosis see cryptococcosis. regulators regarding potential filings for Antegren as a treatment in Crohn's disease Crohn's disease: see colitis. . Operationally, we are preparing for the anticipated launches of Antegren and Prialt, with specific targeted investments in the specialised Adj. 1. specialised - developed or designed for a special activity or function; "a specialized tool" specialized specific - (sometimes followed by `to') applying to or characterized by or distinguishing something particular or special or unique; "rules with infrastructure and personnel required for successful product launches." The financial highlights of Elan's performance from continuing operations continuing operations Parts of a business that are expected to be maintained as an ongoing segment of an overall business operation. Income and losses from continuing operations are reported separately if any segments have been discontinued during the are set out below. The results of the group's discontinued operations Discontinued operations Divisions of a business that have been sold or written off and that no longer are maintained by the business. under U.S. GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). are presented as a separate component of net loss for the current and prior periods. Details of the group's discontinued operations are discussed on page 8. First Quarter 2004 Financial Highlights - Continuing Operations -- Total revenue decreased 29% to $159.0 million compared to $224.7 million in the first quarter of 2003 due principally to the divestment divestment to strip one's investment from an entity. of a number of products as part of the completed recovery plan. -- Revenue from retained products increased 7% to $75.4 million from $70.5 million in the first quarter of 2003. -- Net loss from continuing operations was reduced by 52% to $67.1 million ($0.17 loss per share) from $140.2 million ($0.40 loss per share) in the first quarter of 2003. -- Total operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. were reduced by 29% to $212.6 million from $298.9 million in the first quarter of 2003. -- Negative EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) A metric used to show a company's profitability, but not its cash flow. EBITDA became popular in the 1980s to show the potential profitability of leveraged buyouts, but has become was reduced by 57% to $32.4 million from $75.4 million in the first quarter of 2003. (See "Non-GAAP Financial Information" on page 5). -- Net investment related gains of $10.7 million compared to net investment losses of $39.4 million in the first quarter of 2003. -- Cash and cash equivalents at March 31, 2004 of $910.9 million compared to $807.5 million at December December: see month. 31, 2003. -- The sale of Elan's interests in Zonegran Zonegran® Zonisamide Neurology An agent used to manage partial seizures in adults with epilepsy. See Seizures. (TM) to Eisai Co., Ltd. and Eisai Inc. was completed realising approximately $130 million in April 2004. Additional future deferred purchase payments of up to $110.0 million could be received. -- Agreed to terminate the development and license agreements regarding Frova(TM) and to sell Elan's commercialisation rights for Frova to Vernalis plc for up to $55.0 million. R&D Highlights -- Elan, in collaboration Working together on a project. See collaborative software. with Biogen Idec Biogen Idec, Inc. (NASDAQ: BIIB) is a biotechnology company specializing in drugs for neurological disorders, autoimmune disorders and cancer. The company was formed in 2003 by the merger of Cambridge, Massachusetts-based Biogen and San Diego, California-based Idec is on target to submit a Biologics License Application ("BLA BLA abbr. Bachelor of Liberal Arts ") to the U.S. Food and Drug Administration ("FDA FDA abbr. Food and Drug Administration FDA, n.pr See Food and Drug Administration. FDA, n.pr the abbreviation for the Food and Drug Administration. ") and a Marketing Authorisation Application ("MAA MAA abbr. macroaggregated albumin ") to the European Agency for the Evaluation of Medicinal Products medicinal product, n a substance administered to humans or animals through injection, application, oral ingestion, inhalation, and so forth, whose purpose is to ultimately restore health or eliminate disease in an individual. ("EMEA (Europe, Middle East, Africa) Refers to that region of the world. For example, one might see products packaged differently for the UK, EMEA and Asia Pacific markets. ") for Antegren(TM) (natalizumab) as a potential treatment for multiple sclerosis ("MS") in the second quarter of 2004. -- Elan, in collaboration with Biogen Idec, continues its discussions with the regulatory agencies regulatory agency Independent government commission charged by the legislature with setting and enforcing standards for specific industries in the private sector. The concept was invented by the U.S. in the United States and Europe regarding the timing of filings for Antegren as a potential treatment in Crohn's disease. Data from the Phase III induction induction, in electricity and magnetism induction, in electricity and magnetism, common name for three distinct phenomena. Electromagnetic induction trial (ENACT-1) and the maintenance trial (ENACT-2) for Crohn's disease will be presented at the Digestive Disease All diseases that pertain to the gastrointestinal tract are labelled as digestive diseases. This includes diseases of the esophagus, stomach, first, second and third part of the duodenum, jejunum, ileum, the ileo-cecal complex, large intestine (ascending, transverse and descending Week meeting in New Orleans New Orleans (ôr`lēənz –lənz, ôrlēnz`), city (2006 pop. 187,525), coextensive with Orleans parish, SE La., between the Mississippi River and Lake Pontchartrain, 107 mi (172 km) by water from the river mouth; founded next week. -- During the first quarter of 2004, two new trials with Antegren were initiated: A Phase III Noun 1. phase III - a large clinical trial of a treatment or drug that in phase I and phase II has been shown to be efficacious with tolerable side effects; after successful conclusion of these clinical trials it will receive formal approval from the FDA induction study to evaluate Antegren in patients with Crohn's disease and a Phase II trial to evaluate Antegren in patients suffering from rheumatoid rheumatoid /rheu·ma·toid/ (roo´mah-toid) 1. resembling rheumatism. 2. associated with rheumatoid arthritis. rheu·ma·toid adj. 1. Of or resembling rheumatism. arthritis arthritis, painful inflammation of a joint or joints of the body, usually producing heat and redness. There are many kinds of arthritis. In its various forms, arthritis disables more people than any other chronic disorder. . -- In January 2004, Elan announced that it had met the primary endpoint in its Phase III trial evaluating Prialt(TM) (ziconotide) in patients with severe chronic pain. Based on the positive results, the company is on target to file a supplement to its New Drug Application ("sNDA") with the FDA in the second quarter of 2004.
Three Months
Ended March 31
Unaudited Consolidated US GAAP Income Statement Data 2003 2004
US$m US$m
----------------------------------------------------------------------
Revenue (see page 8)
Product revenue 181.9 133.5
Contract revenue 42.8 25.5
---------------
Total revenue 224.7 159.0
---------------
Operating Expenses (see page 12)
Research & development 82.6 67.5
Cost of goods sold 74.4 50.3
Selling, general & administrative 119.8 85.7
Loss on disposal of businesses (net) 5.6 3.7
Recovery plan and other significant charges 16.5 5.4
---------------
Total operating expenses 298.9 212.6
---------------
Operating loss (74.2) (53.6)
---------------
Net Interest and Investment Gains and Losses (see page
13)
Net interest expense (23.2) (23.3)
Investment gains - 44.8
Investment losses and other (39.4) (34.1)
---------------
Net interest and investment gains and losses (62.6) (12.6)
---------------
Net loss from continuing operations before tax (136.8) (66.2)
Taxation (3.4) (0.9)
---------------
Net loss before discontinued operations (140.2) (67.1)
Net income from discontinued operations (see page 17) 12.7 4.9
---------------
Net loss (127.5) (62.2)
===============
Basic and diluted loss per ordinary share - continuing
operations ($0.40)($0.17)
Basic and diluted income per ordinary share -
discontinued operations $0.04 $0.01
Basic and diluted loss per ordinary share - net loss ($0.36)($0.16)
Weighted average number of ordinary shares outstanding
(millions) 349.9 385.9
Three Months
Non-GAAP Financial Information Reconciliation Schedule Ended March 31
2003 2004
US$m US$m
EBITDA
Operating loss (74.2)(53.6)
Depreciation and amortisation included in operating loss 39.5 32.8
Amortised revenue included in total revenue (40.7)(11.6)
------------
EBITDA (see page 13) (75.4)(32.4)
============
To supplement our consolidated financial statements Consolidated Financial Statements The combined financial statements of a parent company and its subsidiaries. Notes: Because consolidated financial statements present an aggregated look at the financial position of a parent and its subsidiaries, they enable you to gauge presented on a U.S. GAAP basis, Elan provides readers with EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortisation Noun 1. amortisation - the reduction of the value of an asset by prorating its cost over a period of years amortization reduction, step-down, diminution, decrease - the act of decreasing or reducing something 2. ), a non-GAAP measure of operating results. Elan has also provided EBITDA guidance for 2004, which has been calculated on a consistent basis. EBITDA is defined as operating income/(loss) plus/minus depreciation and amortisation of costs and revenues. EBITDA is not presented as an alternative measure of operating results or cash flow from operations Cash flow from operations A firm's net cash inflow resulting directly from its regular operations (disregarding extraordinary items such as the sale of fixed assets or transaction costs associated with issuing securities), calculated as the sum of net income plus noncash expenses , as determined in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with U.S. GAAP. Elan's management uses EBITDA to evaluate the operating performance of Elan and its business and is among the factors considered as a basis for Elan's planning and forecasting for future periods. Elan believes EBITDA is a measure of performance used by some investors, equity analysts and others to make informed investment decisions. EBITDA is used as an analytical analytical, analytic pertaining to or emanating from analysis. analytical control control of confounding by analysis of the results of a trial or test. indicator of income generated to service debt and to fund capital expenditures. EBITDA does not give effect to cash used for interest payments related to debt service requirements and does not reflect funds available for investment in the business of Elan or for other discretionary purposes. EBITDA, as presented in this press release, may not be comparable to similarly titled measures reported by other companies. A reconciliation of EBITDA to operating loss operating loss The excess of operating expenses over revenue. As with operating income, operating losses exclude revenues and expenses from operations that are not considered a regular part of the business. Also called deficit. Compare operating income. is set out in the table above titled "Non-GAAP Financial Information Reconciliation Schedule".
Unaudited Balance Sheet Data December 31 March 31
2003 2004
Assets US$m US$m
----------------------------------------------------------------------
Current Assets
Cash and cash equivalents 807.5 910.9
Marketable investment securities 349.4 331.8
Held for sale assets (1) 211.1 77.2
Other current assets 200.6 192.1
------------------
1,568.6 1,512.0
Intangible assets 880.4 884.0
Property, plant and equipment 369.1 324.5
Investments and marketable investment securities 192.9 160.0
----------------
Total Assets 3,011.0 2,880.5
------------------
Liabilities and Shareholders' Equity
Shareholders' equity 599.1 536.4
Accounts payable and accrued liabilities 365.3 333.8
Held for sale liabilities 27.9 7.2
Deferred income 154.8 142.9
Guarantee provision - EPIL II due June 2004 344.5 358.3
Product acquisition payments 19.4 1.9
6.5% convertible guaranteed notes due 2008 460.0 460.0
EPIL III Notes due 2005 390.0 390.0
7.25% senior notes due 2008 650.0 650.0
----------------
Total Liabilities and Shareholders' Equity 3,011.0 2,880.5
-------------------
Reconciliation of Movement in Shareholders' Equity US$m
At December 31, 2003 599.1
Net loss for the three months ended March 31, 2004 (62.2)
Movement on unrealised gains on securities (7.3)
Other 6.8
--------
At March 31, 2004 536.4
--------
(1) In accordance with SFAS No. 144, Elan has recorded as held for
sale the assets and liabilities related to the Zonegran product, the
divestiture of which was closed during the second quarter of 2004. As
at December 31, 2003, Elan also recorded as held for sale the assets
and liabilities related to its former European sales and marketing
business and Elan Pharma S.A., a manufacturing and research and
development business based in Mezzovia, Switzerland. Each of these
divestments closed during the first quarter of 2004.
Three Months Ended March 31
2003 2004
Unaudited Cash Flow Data US$m US$m
----------------------------------------------------------------------
Cashflows from operating activities (66.4) (26.9)
Movement on debt interest and tax (24.0) (25.7)
Working capital movement (1.9) (32.3)
Net (purchase of)/sale of tangible assets (8.6) 30.3
Net proceeds from sale of investments 153.5 56.8
Net purchase of intangible assets (64.6) (35.3)
Proceeds of business disposals 6.2 133.7
Cash flows from financing activities (1.7) 2.8
----------------------------------------------------------------------
Net Cash Movement (7.5) 103.4
Cash and cash equivalents at beginning of period 1,013.9 807.5
----------------------------------------------------------------------
Cash and cash equivalents at end of period 1,006.4 910.9
----------------------------------------------------------------------
In 2003, in accordance with SFAS SFAS Statement of Financial Accounting Standards SFAS Special Forces Assessment and Selection SFAS Student Financial Aid Services SFAS Sport Fishing Association of Singapore SFAS Safety Features Actuation System SFAS Statewide Fixed Assets System No. 144 "Accounting for the Impairment Impairment 1. A reduction in a company's stated capital. 2. The total capital that is less than the par value of the company's capital stock. Notes: 1. This is usually reduced because of poorly estimated losses or gains. 2. or Disposal of Long-Lived Assets", Elan recorded the results and gains or losses on the divestment of its discontinued operations including Elan Transdermal transdermal /trans·der·mal/ (-der´m'l) entering through the dermis, or skin, as in administration of a drug via ointment or patch. trans·der·mal adj. Through or by way of the skin. Technologies, Athena Diagnostics (1) Software routines that test hardware components (memory, keyboard, disks, etc.). Diagnostics are often stored in ROM chips and activated on startup. (2) Error messages in a programmer's source code that refer to statements or syntax that the compiler or assembler , Elan Diagnostics, a manufacturing business in Italy, the pain portfolio of products, Actiq Actiq® Fentanyl citrate A lollipop delivery system developed to alleviate breakthrough pain in cancer Pts. Cf Breakthrough pain. (TM), the dermatology dermatology (dûrmətŏl`əjē), branch of medicine concerned with diagnosis and treatment of diseases and disorders of the skin. portfolio of products and Abelcet(TM) U.S./Canada within discontinued operations in the income statement. In the first quarter of 2004, the results and gains on the divestments of two products, which were marketed in the United Kingdom and Ireland, were also included as discontinued operations. Consequently, the revenues and costs of the first quarter in 2003 have been adjusted to reflect this treatment. There is no impact on the net loss in prior quarters. An analysis of the results of the discontinued operations is set out in Appendix 2. During the course of the recovery plan, Elan sold a number of other assets other assets Assets of relatively small value. For financial reporting purposes, firms frequently combine small assets into a single category rather than listing each item separately. and businesses (principally the primary care franchise and the European sales and marketing business), which in accordance with SFAS No. 144 are not included in discontinued operations. Elan believes that it has a significant continuing involvement in the operations of these businesses, for example through ongoing supply arrangements or formulation formulation /for·mu·la·tion/ (for?mu-la´shun) the act or product of formulating. American Law Institute Formulation activities. The analysis below is based on the revenues and costs from continuing operations presented in accordance with U.S. GAAP. Revenue Total revenue decreased 29% to $159.0 million in the first quarter of 2004 from $224.7 million in the first quarter of 2003. An analysis of total revenue is set out on Appendix 1. Elan's product revenue is analysed between revenue generated from currently retained products and revenue arising from products that have been divested or are subject to divestment agreements (including the Zonegran and Frova products).
Total revenue can be further analysed as follows:
Three Months Ended March 31
2003 2004
(a) Product Revenue US$m US$m
Revenue from retained products 70.5 75.4
Revenue from divested products 102.9 49.6
Amortised revenue - Adalat/Avinza 8.5 8.5
------------
Total product revenue 181.9 133.5
------------
(b) Contract Revenue
Amortisation of fees 32.2 3.1
Research revenue and milestones 10.6 22.4
------------
Total contract revenue 42.8 25.5
------------
Total Revenue 224.7 159.0
------------
(a) Product Revenue Total product revenue for the first quarter of 2004 was $133.5 million compared to $181.9 million in the first quarter of 2003, a decrease of 27%. The decline in product revenue in 2004 is due principally to the divestment of a number of products as part of the recovery plan. Revenue from retained products Revenue from retained products was $75.4 million in the first quarter of 2004 compared to $70.5 million in the first quarter of 2003, an increase of 7%. This increase primarily reflects the growth in prescriptions and demand for those retained products offset by a reduction in revenue from contract manufacturing and royalties. Sales of Maxipime Max·i·pime A trademark for the drug cefepime hydrochloride. cefepime hydrochloride Maxipime Pharmacologic class: Fourth-generation cephalosporin Therapeutic class: (TM) and Azactam A·zac·tam A trademark for the drug aztreonam. aztreonam Azactam Pharmacologic class: Monobactam Therapeutic class: Anti-infective Pregnancy risk category B (TM) in the first quarter of 2004 were $42.0 million, an increase of 24% over the comparable period in 2003, reflecting stronger demand in 2004 and lower revenues in 2003 due to adjusting wholesaler inventories. Sales in the first quarter of 2004 were in line with the fourth quarter of 2003. Maxipime audited sales volumes for the first quarter of 2004 increased by 5.4% compared to the same period in 2003 while revenues increased from $18.4 million to $28.2 million. Azactam audited sales volumes for the first quarter of 2004 increased by 6% compared to the same period in 2003 while revenues decreased from $15.6 million to $13.8 million. Contract manufacturing and royalties were $24.1 million in the first quarter of 2004 compared to $30.8 million in the first quarter of 2003 and $23.0 million in the fourth quarter of 2003. The decline in contract manufacturing and royalty revenue of 22% when compared to the same quarter of 2003 was primarily due to wholesaler activity in relation to the Verelan Verelan® Verapamil, see there (TM) product in 2003. Revenue from divested products As previously announced in March 2004, Elan agreed to sell its rights to Zonegran and Frova, including related inventories. The sale of Zonegran closed on April 27, 2004, resulting in total consideration of approximately $130 million before making a $17.0 million payment to Dainippon Pharmaceutical Co., Ltd. related to the assignment of the Zonegran license agreements. Further deferred consideration of up to $110.0 million (including a $25.0 million milestone on the receipt of European regulatory approval for Zonegran) may be received in 2004 and 2005 provided no generic competitor product enters the market prior to December 31, 2005. The sale of Frova is expected to close in the second quarter of 2004 and will result in payments to Elan estimated at a total of $55.0 million in the period to December 31, 2005. On closing Elan will pay about $10.0 million to terminate arrangements with UCB UCB - University of California at Berkeley . Product revenue from these businesses and products was $36.7 million in the first quarter of 2004 compared to $21.2 million in the first quarter of 2003. The book value of intangible assets Intangible Asset An asset that is not physical in nature. Notes: Examples are things like copyrights, patents, intellectual property, and goodwill. These are the opposite of tangible assets. associated with Zonegran and Frova were $47.6 million and $22.4 million, respectively, at March 31, 2004. Inventories held at March 31, 2004, were approximately $30 million for Zonegran and approximately $5 million for Frova. In February 2003, Elan announced the completion of the sale of its European sales and marketing business to Medeus Pharma Limited, a new U.K. pharmaceutical company backed by Apax Partners Funds. The total consideration amounted to approximately $120 million (subject to adjustment for certain movements in indebtedness INDEBTEDNESS. The state, of being in debt, without regard to the ability or inability of the party to pay the same. See 1 Story, Eq. 343; 2 Hill. Ab. 421. 2. and working capital in the period to completion) and approximately 180 employees of Elan's European sales and marketing business transferred their employment to Medeus Pharma Limited. Product revenue from this business was $10.6 million in the first quarter of 2004 compared to $25.6 million in the first quarter of 2003. During 2002 and 2003 Elan sold a number of other products and businesses, which contributed $56.1 million to product revenue in the first quarter of 2003 compared to $2.3 million in the first quarter of 2004. Amortised Product Revenue The first quarter of 2004 and 2003 includes $8.5 million of amortised revenue related to the licensing of rights to Elan's generic form of Adalat Ad·a·lat A trademark for the drug nifedipine. CC and the restructuring restructuring - The transformation from one representation form to another at the same relative abstraction level, while preserving the subject system's external behaviour (functionality and semantics). of Elan's Avinza(TM) license agreement with Ligand ligand (lĭg`ənd), charged or uncharged molecule with one or more unshared pairs of electrons that can attach to a central metallic atom or ion to form an aggregate known as a complex ion (see chemical bond). Pharmaceuticals, Inc. The remaining unamortised revenue on these products of $94.7 million will be recognised as revenue over the next three years reflecting Elan's ongoing involvement in the manufacture of these products. (b) Contract Revenue Contract revenue in the first quarter of 2004 was $25.5 million compared to $42.8 million in the same period of 2003, a decrease of 40%. The amortisation of fees amounted to $3.1 million in the first quarter of 2004 compared to $32.2 million in the first quarter of 2003. Of the $32.2 million in amortised fees in the first quarter of 2003, $25.6 million (2004: $nil), related to business ventures. As part of the recovery plan outlined on July 31, 2002, Elan completed a review of its business venture programme and, as a result, all of the business ventures have been terminated, restructured or are now inactive in·ac·tive adj. 1. Not active or tending to be active. 2. a. Not functioning or operating; out of use: inactive machinery. b. . The reduction in amortised fees during the first quarter of 2004 arose primarily from the restructuring and termination of business ventures, which started in 2002. There are no remaining unamortised fees from the business ventures at March 31, 2004. Research revenue and milestones amounted to $22.4 million in the first quarter of 2004 compared to $10.6 million in the first quarter of 2003 reflecting an increase in milestones earned by Elan's drug delivery business. This increase results primarily from the receipt of a milestone payment from King Pharmaceuticals King Pharmaceuticals (NYSE: KG), the world's 39th largest pharmaceutical company, is based in Bristol, Tennessee.[1][2] King produces a wide range of pharmaceuticals, including Altace for heart attack prevention, Levoxyl for hypothyroidism, Sonata, a Inc. ("King") of $11.0 million in respect of Sonata sonata (sənä`tə), in music, type of instrumental composition that arose in Italy in the 17th cent. At first the term merely distinguished an instrumental piece from a piece with voice, which was called a cantata. (TM). Gross Profit The gross profit margin Gross profit margin Gross profit divided by sales, which is equal to each sales dollar left over after paying for the cost of goods sold. gross profit margin A measure calculated by dividing gross profit by net sales. on product revenue was 62% in the first quarter of 2004 compared to 59% in the first quarter of 2003. The increase in the gross margin in 2004 principally reflects the payment of royalties to Pharma Marketing Ltd. ("Pharma Marketing") in the first quarter of 2003 of $11.9 million, which is included in cost of sales. No royalties were paid to Pharma Marketing in the first quarter of 2004, following the termination of all remaining agreements with Pharma Marketing in the fourth quarter of 2003. Operating Expenses Research and development expenses were $67.5 million in the first quarter of 2004 compared to $82.6 million in the first quarter of 2003. This reduction reflects the refocusing Noun 1. refocusing - focusing again focalisation, focalization, focusing - the act of bringing into focus of research and development efforts on key programmes: Antegren, Prialt and the Alzheimer's programmes. Selling, general and administrative expenses decreased by 28% to $85.7 million in the first quarter of 2004 from $119.8 million in the first quarter of 2003. This year over year decline is expected to continue in 2004 but at a slower pace reflecting the successful implementation of the recovery plan and related cost reduction initiatives. Operating expenses in the first quarter of 2004 in respect of the European sales and marketing business which was divested during the quarter, and the Zonegran and Frova products for which agreements to divest To deprive or take away. Divest is usually used in reference to the relinquishment of authority, power, property, or title. If, for example, an individual is disinherited, he or she is divested of the right to inherit money. were executed during the first quarter of 2004 amounted to $38.5 million. Included in the $38.5 million is $15.0 million in respect of cost of goods sold Cost of goods sold The total cost of buying raw materials, and paying for all the factors that go into producing finished goods. cost of goods sold , and $23.5 million in respect of selling general and administration expenses.
Recovery Plan and Other Significant Charges / Gains
Three Months Ended March 31
2003 2004
US$m US$m
Net loss on divestment of businesses 5.6 3.7
Severance costs, relocation and exit costs 3.1 1.8
Costs related to shareholder litigation,
SEC investigation 3.0 4.3
Other 10.4 (0.7)
------------
22.1 9.1
------------
Negative EBITDA EBITDA for the first quarter of 2004 was negative $32.4 million compared to $75.4 million in the first quarter 2003. The reduction in negative EBITDA results primarily from the improvement in gross margin, the receipt of milestones from King and the reduction in operating expenses of 29%. Net Interest and Investment Gains and Losses Net interest and investment gains and losses amounted to a loss of $12.6 million in the first quarter of 2004 compared to a loss of $62.6 million in the first quarter of 2003. In the first quarter of 2004, net interest expense amounted to $23.3 million compared to $23.2 million in the first quarter of 2003, reflecting the interest costs associated with the $460.0 million convertible notes issued in the fourth quarter of 2003, offset by lower interest expense due to Liquid Yield Option Notes Liquid yield option note (LYON) Zero-coupon, callable, putable, convertible bond developed by Merrill Lynch & Co. ("LYONs") repurchases. The gain on investments in the first quarter of 2004 of $44.8 million included realised gains on investment disposals of $32.1 million and $12.7 million in relation to the mark-to-market Mark-to-market Adjustment of the book value or collateral value of a security to reflect current market value. of certain investments including managed funds. This gain was offset by investment and other losses of $34.1 million including investment impairments of $16.0 million and an increase in the EPIL EPIL Electron and Photon Impact Laboratory II guarantee provision of $13.8 million. In addition, as a result of the sale of certain publicly quoted investments and the mark-to-market of others, there was a net reduction in unrealised gains recorded as part of shareholders' equity Shareholders' Equity A firms' total assets minus its total liabilities. Equivalently, it is share capital plus retained earnings minus treasury shares. Shareholders' equity is the amount by which a company is financed through common and preferred shares. of $7.3 million. Liquidity At March 31, 2004, Elan had $910.9 million in cash and cash equivalents compared with $807.5 million at December 31, 2003. At March 31, 2004, the major contracted and potential non-operating cash payments relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc Elan's business are:
Less 4 years
than 1-3 and Total Dec 2003
One years after US$m US$m
year US$m US$m
US$m
----------------------------------------------------------------------
7.25% Senior Notes (2008) - - 650.0 650.0 650.0
6.5% Convertible Notes - - 460.0 460.0 460.0
Fixed Product Payments 1.9 - - 1.9 19.4
EPIL II (1) 450.0 - - 450.0 450.0
EPIL III - 390.0 - 390.0 390.0
3.25% LYONs - - 0.9 0.9 0.9
Capital Lease Obligations (2) 10.0 20.3 51.5 81.8 85.4
------------------------------------
461.9 410.3 1,162.4 2,034.6 2,055.7
Operating Lease Obligations (2) 15.3 31.7 96.8 143.8 157.6
------------------------------------
Total 477.2 442.0 1,259.2 2,178.4 2,213.3
----------------------------------------------------------------------
(1) In order to comply with U.S. GAAP, $358.3 million of this amount (2003: $344.5 million) is provided on the balance sheet. (2) In accordance with SEC Release No.43-47264 "Disclosure in Management's Discussion and Analysis Management's discussion and analysis (MD&A) A report from management to shareholders that accompanies the firm's financial statements in the annual report. It explains the period's financial results and enables management to discuss topics that may not be apparent in the financial about Off-Balance Sheet Arrangements and Aggregate Contractual Obligations", which is effective for financial statements ending on or after December 15, 2003, operating and capital lease obligations have been included in the table of contractual and potential future payments. Qualifying Special Purpose Entity ("QSPE QSPE Qualifying Special Purpose Entity ") Elan has guaranteed loan notes issued by EPIL II (a QSPE, which is not consolidated under U.S. GAAP) to the extent that the investments held by it are insufficient to repay the loan notes and accrued interest Accrued Interest The interest that has accumulated on a bond since the last interest payment up to but not including the settlement date. There are two methods for calculating accrued interest: 1) 360-day year method, used for corporate and municipal bonds. when they fall due. The aggregate principal amount outstanding under the loan notes issued by EPIL II was $450.0 million at March 31, 2004, and is repayable on June 28, 2004. The investments held by EPIL II will be sold to meet the maturity of the loan notes. The estimated value of the investment portfolio at March 31, 2004, using established financial valuation methodologies consistent with the requirements of U.S. GAAP and which does not reflect any liquidity discount, was $67.1 million. In addition, EPIL II had cash and receivable balances of $35.8 million. During the first quarter of 2004, Elan increased the provision for its guarantee by $13.8 million to $358.3 million, reflecting the net reduction in the value of the investments held by EPIL II during this period after charging interest of $10.9 million for the quarter. After providing for the estimated investment shortfalls, the carrying values Carrying Value Also know as "book value," it is a company's total assets minus intangible assets and liabilities, such as debt. Notes: This is different than market value, as it can be higher or lower depending on the circumstances. and cash position of EPIL II were as follows:
US$m
Investments in public companies 61.0
Investments in private companies 6.1
Cash and amounts due from investment disposals 35.8
Accrued interest and expenses (11.2)
---------------
Total assets 91.7
Provision for guarantees 358.3
---------------
Total guaranteed indebtedness 450.0
---------------
About Elan Elan is a neuroscience-based biotechnology company that is focused on discovering, developing, manufacturing and marketing of advanced therapies in neurology neurology (n rŏl`əjē, ny–), study of the morphology, physiology, and pathology of the human nervous system. , autoimmune diseases and severe pain. Elan (NYSE NYSESee: New York Stock Exchange : ELN Noun 1. ELN - a Marxist terrorist group formed in 1963 by Colombian intellectuals who were inspired by the Cuban Revolution; responsible for a campaign of mass kidnappings and resistance to the government's efforts to stop the drug trade; "ELN kidnappers target ) shares trade on the New York New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of , London and Dublin Stock Exchanges. This document contains forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. about Elan's financial condition, results of operations and business prospects that involve substantial risks and uncertainties. You can identify these statements by the fact that they use words such as "anticipate", "estimate", "project", "envisage en·vis·age tr.v. en·vis·aged, en·vis·ag·ing, en·vis·ag·es 1. To conceive an image or a picture of, especially as a future possibility: envisaged a world at peace. 2. ", "guidance" "intend", "plan", "believe" 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: Elan's intent to file with the FDA and the EMEA for approval for Antegren for MS; a delay in filing the Antegren BLA or MAA for MS; the potential of Antegren as a treatment for MS and Crohn's disease; Elan's intent to file the sNDA with the FDA for Prialt; a delay in filing the sNDA for Prialt; the potential of Prialt as an intrathecal intrathecal /in·tra·the·cal/ (-the´k'l) within a sheath; through the theca of the spinal cord into the subarachnoid space. Intrathecal treatment for severe pain; Elan's ability to maintain sufficient cash, liquid resources, and investments and other assets capable of being monetised to meet its liquidity requirements; the outcome of the ongoing SEC investigation and the shareholder and other pending litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. ; the success of research and development activities and the speed with which regulatory authorisations and product launches may be achieved; competitive developments affecting Elan's current products; the ability to successfully market both new and existing products; difficulties or delays in manufacturing; the ability to meet generic and branded competition after the expiration EXPIRATION. Cessation; end. As, the expiration of, a lease, of a contract, or statute. 2. In general, the expiration of a contract puts an end to all the engagements of the parties, except to those which arise from the non- fulfillment of obligations created of Elan's patents; the trend towards managed care and health care cost containment cost containment, n the features of a dental benefits program or of the administration of the program designed to reduce or eliminate certain charges to the plan. ; possible legislation affecting pharmaceutical pricing; exposure to product liability and other types of lawsuits; Elan's ability to protect its intellectual property; interest rate and foreign currency exchange rate fluctuations; governmental laws and regulations affecting domestic and foreign operations, including tax obligations; general changes in U.S. and Irish generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting ; growth in costs and expenses; changes in product mix; the impact of acquisitions, divestitures, restructurings, product withdrawals and other unusual items. A further list and description of these risks, uncertainties and other matters can be found in Elan's Annual Report on Form 20-F for the fiscal year ended December 31, 2003, and in its Reports of Foreign Issuer on Form 6-K. Elan assumes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.
Appendix 1
Revenue Analysis - (Unaudited) Three
Months Ended March, 31
2003 2004
US$m US$m
Revenue from Retained Products
U.S. Promoted Products
Maxipime 18.4 28.2
Azactam 15.6 13.8
Myobloc 3.5 3.6
-------------
37.5 45.6
U.S. Non-promoted Products
Zanaflex 0.8 0.4
Other 1.4 5.3
-------------
2.2 5.7
Contract Manufacturing and Royalties 30.8 24.1
Total Revenue from Retained Products 70.5 75.4
Revenue from Divested Products (1)
Skelaxin 27.2 -
Sonata 21.3 -
European business 25.6 10.6
Zonegran 12.4 30.0
Frova 8.8 6.7
Other 4.2 0.2
Rationalisation programme 3.4 2.1
-------------
102.9 49.6
Amortised Revenue - Adalat/Avinza 8.5 8.5
Total Product Revenue 181.9 133.5
Contract Revenue
Amortisation of fees 32.2 3.1
Research revenue and milestones 10.6 22.4
-------------
Total Contract Revenue 42.8 25.5
-------------
Total Revenue 224.7 159.0
-------------
(1) Products that have been divested or are subject to
divestment agreements
Appendix 2
Discontinued Operations (unaudited)
Three Months Ended March, 31
2003 2004
US$m US$m
----------------------------------------------------------------------
Revenue
Product revenue (1) 45.8 5.1
Contract revenue - -
-------------
Total revenue 45.8 5.1
-------------
Operating Expenses
Research & development 4.2 -
Cost of goods sold 18.4 0.3
Selling, general & administrative 7.9 -
Loss on disposal of businesses (net) 0.8 -
Recovery plan and other significant charges 0.7 -
-------------
Total operating expenses 32.0 0.3
-------------
Operating profit 13.8 4.8
-------------
Net Interest and Investment Losses
Net interest expense - -
Investment gains - -
Investment losses and other (1.0) 0.1
-------------
Net interest and investment losses (1.0) 0.1
-------------
Net income from discontinued operations before tax 12.8 4.9
Taxation (0.1) -
-------------
Net income from discontinued operations 12.7 4.9
-------------
Non-GAAP Financial Information
EBITDA
Operating profit 13.8 4.8
Depreciation and amortisation included in operating
profit 5.1 -
Amortised revenue included in total revenue (10.5) -
-------------
EBITDA 8.4 4.8
Loss on divestment of businesses (net) 0.8 -
Recovery plan and other significant charges 0.7 -
-------------
EBITDA before net losses on disposal of businesses and
recovery plan related charges 9.9 4.8
-------------
(1) Includes net proceeds from the sale of product rights of $4.3
million in the first quarter of 2004 (2003: $10.5 million).
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