Elan first quarter total revenue increases 17% to $288.4 million

Elan Corporation, plc, today reported its first quarter 2012 financial results.    

"Our first quarter financial performance was solid and represents a good start to the year across all aspects of our business," said Mr. Kelly Martin, chief executive officer. "We continue to build the business by delivering double digit top line growth, continuously strengthening our balance sheet and simultaneously investing in our unique science and clinical activities."

Commenting further, Mr. Martin added that, "the opportunities and patient need in the broad area of neurology are significant. We remain focused on the short and long term execution of our plans and committed to extending our leadership in the area of discovery and innovation while, at the same time, offering a unique investment proposition to current or prospective shareholders."

Mr. Nigel Clerkin, chief financial officer, said, "We are pleased with the start we have made to the year, with revenues growing by over 17% compared to the first quarter of 2011. Tysabri has now achieved an annualized run-rate of in-market sales of $1.6 billion. Additionally, the sale of 76% of our shareholding in Alkermes plc during the quarter for net proceeds of $380.9 million has substantially strengthened our capital structure. This solid start to the year places us on-track to achieve our full-year financial guidance."    

Overview

Total revenue for the first quarter of 2012 increased by 17% to $288.4 million from $247.1 million for the same period of 2011, as a result of the 14% growth in global in-market net sales of Tysabri^® to $399.0 million for the first quarter of 2012, from $349.4 million for the same period of 2011. The growth in in-market sales reflects the 13% increase in patients on therapy worldwide, to approximately 66,500 patients at the end of March 2012, from approximately 58,900 (revised) patients at the end of March 2011.

Adjusted EBITDA from continuing operations increased by 31% to $46.3 million for the first quarter of 2012, from $35.3 million for the same period of 2011, principally reflecting the continued growth of Tysabri, offset by increased Tysabri sales and marketing expenses. Operating income, excluding other net charges increased by 18% for the first quarter of 2012 to $24.0 million, compared to $20.3 million for the first quarter of 2011, reflecting the increase in Adjusted EBITDA from continuing operations, partially reduced by higher non-cash stock compensation expense following the increase in the Elan share price since the first quarter of 2011.

For the first quarter of 2012, Elan reported a net loss from continuing operations of $31.8 million, compared to a net loss from continuing operations of $27.7 million for the same period of 2011. The net loss from continuing operations in the first quarter of 2012 includes a loss of $13.3 million from the disposal of 76% of the Company's shareholding in Alkermes plc in March 2012, as described below.

The net income for the first quarter of 2011 of $68.2 million includes net income from discontinued operations of $95.9 million relating to the Elan Drug Technologies (EDT) business, which was divested to Alkermes, Inc. in September 2011 for $500.0 million in cash consideration and 31.9 million ordinary shares of Alkermes plc.

A reconciliation of Adjusted EBITDA from continuing operations to net loss from continuing operations, is presented in the table titled, "Unaudited Non-GAAP Financial Information - Adjusted EBITDA," included on page 3.

Sale of Alkermes Shares

As further described on page 11, in March 2012, Elan sold 76% (24.15 million shares) of its total shareholding of 31.9 million shares in Alkermes plc received on divestment of the EDT business in September 2011. Net proceeds of $380.9 million were received on disposal of the shares, after the deduction of underwriter and other fees, and a net loss of $13.3 million was recorded on the transaction, related to the transaction costs of $17.6 million. Elan continues to own 7.75 million ordinary shares of Alkermes plc, representing an approximate 6% equity interest.

Total Revenue

For the first quarter of 2012, revenue increased by 17% to $288.4 million from $247.1 million for the first quarter of 2011.

Tysabri

Global in-market net sales of Tysabri can be analyzed as follows:

For the first quarter of 2012, Tysabri global in-market net sales increased by 14% to $399.0 million from $349.4 million for the same period of 2011. The growth principally reflects an 18% increase in units sold, along with higher pricing in the United States, partially reduced by a $16.5 million revenue reserve for Italy (see page 9).

At the end of March 2012, approximately 66,500 patients were on therapy worldwide, including approximately 30,800 commercial patients in the United States and approximately 35,100 commercial patients in the ROW, representing an increase of 3% over the approximately 64,600 (revised) patients who were on therapy at the end of December 2011, and 13% over the approximately 58,900 (revised) patients who were on the therapy at the end of March 2011.

Tysabri was developed and is being marketed in collaboration with Biogen Idec, Inc. (Biogen Idec). In general, subject to certain limitations imposed by the parties, Elan shares with Biogen Idec most of the development and commercialization costs for Tysabri. Biogen Idec is responsible for manufacturing the product. In the United States, Elan purchases Tysabri from Biogen Idec and is responsible for distribution. Consequently, Elan records as revenue the net sales of Tysabri in the U.S. market. Elan purchases 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 Elan records as revenue its share of the profit or loss on these sales of Tysabri, plus Elan's directly-incurred expenses on these sales, which are primarily comprised of royalties that Elan incurs and are payable by Elan to third parties and are reimbursed by the collaboration.

Tysabri - U.S.

In the U.S. market, Elan recorded net sales of $201.0 million for the first quarter of 2012, an increase of 18% over net sales of $169.9 million in the same period of 2011, principally reflecting a 9% increase in units sold, along with the impact of price increases. Almost all of these sales are for the multiple sclerosis (MS) indication.

At the end of March 2012, approximately 30,800 patients were on commercial therapy, which represents an increase of 3% over the approximately 30,000 patients who were on therapy at the end of December 2011, and 11% over the approximately 27,800 patients who were on therapy at the end of March 2011.

Tysabri - ROW

ROW in-market sales grew by 10% in the first quarter of 2012 to $198.0 million, from $179.5 million for the same period of 2011. This increase principally reflects a 24% increase in units sold, reduced by a $16.5 million revenue reserve in Italy, as described further below, and unfavorable foreign currency movements.

At the end of March 2012, approximately 35,100 patients, principally in the European Union, were on commercial therapy, an increase of 3% over the approximately 34,000 (revised) patients who were on therapy at the end of December 2011 and 15% over the approximately 30,500 (revised) patients who were on therapy at the end of March 2011.

The revenue reserve for Italy relates to a notification received by Biogen Idec from the Italian National Medicines Agency during the fourth quarter of 2011, stating that sales of Tysabri had exceeded a limit established by the agency in 2007. Biogen Idec filed an appeal in December 2011 seeking a ruling that Biogen Idec's interpretation is valid and that the position of the agency is unenforceable, and hopes to have resolution in 2012. As a result of this dispute, Biogen Idec deferred $16.5 million of revenue recognized on in-market sales of Tysabri in Italy during the first quarter of 2012, having previously deferred $13.8 million of revenue in Italy during the fourth quarter of 2011. Elan expects that Biogen Idec will continue to defer a portion of in-market revenues on future sales of Tysabri for Italy until the matter is resolved. As a consequence of this deferral of in-market sales by Biogen Idec, Elan has deferred $7.9 million of revenue in the first quarter of 2012 related to these sales and $14.8 million to date, reflecting the operating and accounting arrangements between the companies.

In the ROW markets, Biogen Idec is responsible for distribution and Elan records as revenue its share of the profit or loss on ROW sales of Tysabri, plus Elan's directly-incurred expenses on these sales. As a result, in the ROW markets, Elan recorded net revenue of $87.2 million for the first quarter of 2012, compared to $75.3 million for the first quarter of 2011, an increase of 16%.

Elan's net Tysabri ROW revenue is calculated as follows:

Operating Expenses

Selling, general and administrative

SG&A expenses increased from $47.8 million for the first quarter of 2011 to $60.1 million for the same period of 2012. The increase principally reflects increased Tysabri sales and marketing expenses, along with higher non-cash stock compensation expense following the increase in the Elan share price since the first quarter of 2011.

The SG&A expenses related to the Tysabri ROW sales are reflected in the Tysabri ROW revenue as previously described on page 9.

Research and development

R&D expenses increased from $47.6 million for the first quarter of 2011 to $49.0 million for the same period of 2012. The increase primarily relates to higher non-cash stock compensation expense following the increase in the Elan share price since the first quarter of 2011.

Research and development update

At the 64th Annual Meeting of the American Academy of Neurology, findings from several studies of Tysabri are being presented that address its long-term safety and efficacy in the treatment of MS and its impact on MS-related fatigue, in addition to providing validation for the companies' risk stratification algorithm as a way to help enable individual benefit risk assessment for patients with MS.

In addition, data from the ELND005 Phase 2 trials describing responder analyses and characteristics, along with findings on the effect of ELND005 on the emergence of neuropsychiatric symptoms will be presented at the meeting.

Other net charges

Other net charges for the three months ended March 31, 2012 and 2011 were as follows:

The other net charges incurred during the first quarter principally relate to the restructuring of Elan's G&A and other support activities initiated in the fourth quarter of 2011, following the divestment of the EDT business.

Net Interest and Investment Gains and Losses

Net interest expense

For the first quarter of 2012, net interest expense decreased to $16.8 million, from $29.8 million for the first quarter of 2011. This decrease is due to the retirement of $660.5 million, or 51%, of the Company's debt during the fourth quarter of 2011.

Net loss on disposal of equity method investment

In March 2012, Elan sold 76% (24.15 million ordinary shares) of its shareholding in Alkermes plc at a price to the public of $16.50 per share and received net proceeds of $380.9 million after the deduction of underwriter and other fees. Elan continues to own 7.75 million ordinary shares of Alkermes plc, representing an approximate 6% equity interest. The remaining shareholding is subject to legal and contractual transfer restrictions. Following the sale of the 24.15 million ordinary shares, Elan's remaining equity interest in Alkermes plc ceased to qualify as an equity method investment and was recorded as an available-for-sale investment with an initial carrying value of $126.5 million. The available-for-sale investment is marked-to-market and had a carrying value of $143.8 million at March 31, 2012.

The net loss on disposal of $13.3 million was calculated as follows:

Net loss on equity method investments

The losses on equity method investments for the three months ended March 31, 2012 and 2011 can be analyzed as follows:

Janssen AI

As part of Elan's 2009 transaction with Johnson & Johnson, Janssen Alzheimer Immunotherapy (Janssen AI), a subsidiary of Johnson & Johnson, acquired substantially all of Elan's assets and rights related to its Alzheimer's Immunotherapy Program (AIP) collaboration with Wyeth (which has been acquired by Pfizer Inc. (Pfizer)). Under the terms of this transaction, Johnson & Johnson provided an initial $500.0 million funding to Janssen AI and Elan has a 49.9% shareholding in Janssen AI. Any required additional funding in excess of the initial $500.0 million funding commitment is required to be funded equally by Elan and Johnson & Johnson up to a maximum additional commitment of $400.0 million in total.

During the first quarter of 2012, the remaining $57.6 million of the initial $500.0 million funding commitment provided by Johnson & Johnson to Janssen AI was utilized. As a result, Elan will be called upon to provide funding to Janssen AI commencing in the second quarter of 2012.

As a consequence of the expenditures incurred by Janssen AI during the first quarter, Elan recorded a non-cash expense of $13.4 million (2011: $12.5 million), reflecting the amortization of the contingent funding commitment asset, now fully amortized, recorded by Elan on initial recognition of its investment in Janssen AI. Elan also recorded a net loss of $1.4 million on the equity method investment in the first quarter of 2012 relating to its share of the losses of Janssen AI in excess of the losses funded solely by Johnson & Johnson's initial $500.0 million funding commitment, as Elan is required to share up to an additional $400.0 million of losses equally with Johnson & Johnson.

Proteostasis

Elan holds a $20.0 million equity interest in Proteostasis Therapeutics, Inc. (Proteostasis) since May 2011 which represents approximately 24% of the equity of Proteostasis. The net loss recorded on the equity method investment in the first quarter of 2012 was $1.1 million.

Alkermes plc

Following the completion of the merger between Alkermes, Inc. and EDT on September 16, 2011, Elan held approximately 25% of the equity of Alkermes plc and accounted for this investment as an equity method investment. Elan recorded its share of Alkermes plc's net income or loss on a one-quarter time lag. The net loss recorded on the equity method investment in the first quarter of 2012 was $7.2 million.

In March 2012, Elan sold 76% (24.15 million ordinary shares) of its shareholding in Alkermes plc and recorded a net loss on this disposal of $13.3 million, which is discussed further above. Elan continues to own 7.75 million ordinary shares of Alkermes plc, representing an approximate 6% equity interest, which is subject to legal and contractual transfer restrictions. Following the sale of the 24.15 million ordinary shares, Elan's remaining equity interest in Alkermes plc is classified as an available-for-sale investment and equity method accounting will no longer apply to this investment.

Net Income from Discontinued Operations

In September 2011, Alkermes plc and Elan completed the merger between Alkermes, Inc. and EDT. Alkermes, Inc. and EDT were combined under a new holding company incorporated in Ireland named Alkermes plc. In connection with the transaction, Elan received $500.0 million in cash and 31.9 million ordinary shares of Alkermes plc common stock.

The results of EDT are presented as a discontinued operation following the sale of the Alkermes plc ordinary shares in March 2012, and the comparative amounts for the first quarter of 2011 have been restated to reflect this classification. The net income from discontinued operations for the three months ended March 31, 2011 is set out in detail in Appendix I.

Source: Elan Corporation, plc