Elan to cut spending by $100m

ELAN is to cut spending by $100m (€77m) this year, reducing cash-burn to $250m.

Elan chief financial officer Shane Cooke made the announcement after its losses almost doubled in the first quarter as it spent a significant sum on the launch of its ill-fated Tysabri multiple sclerosis drug before suspending sales in a blaze of publicity in late February.

“After the voluntary suspension of Tysabri in February, we took immediate actions which will reduce our operating cash burn by $100 million to about $250 million in 2005,” he said in a statement.

Elan said its net loss increased to $0.29 per share in the first three months of this year from $0.16 in the same period of 2004, though that beat the $0.32 median forecast of eight analysts polled by Reuters.

Elan had told investors it expected to be back in 2006 on the success of Tysabri after almost closing three years ago.

Shares, which have lost over 80% since February 28 when Tysabri sales were halted following a patient’s death, were up 7.3% at €3.55 in Dublin just after lunch yesterday and closed at €3.50, up 19 cent, a 5.74% increase in the day. Goodbody analyst Ian Hunter said: “my difficulty is that the core business is looking a little bit more rocky than we thought before.”

He said the revenue shortfall was across all sectors. “Maxipime dropped from $33.0m in Q4’04 to $19.8m in Q1’05. Likewise, Azactam slipped from $12.5m to $8.4m and Prialt, in its first quarter after launch, only booked a disappointing $1.0m in revenue,” he said in a note to clients.

Mr Hunter noted that with some concern on mid-term liquidity, all eyes were on cash-burn.

“With cash and investments on the balance sheet at the end of the quarter at $1.47bn, this would imply an absolute burn of $146.7m over the quarter. Annualised, this would equate to over $550m. The company is guiding that it will reduce operating cash-burn by $100m to c.$250m in 2005.

With little detail on Tysabri progress and a stalling ongoing business, which could have cashflow repercussions over time, we remain cautious on the stock. At first glance, it may be challenging for Elan to meeting its revised revenue (and thus earnings) guidance for FY05 on its Q1’05 performance,” he added.

Elan chief executive Kelly Martin told Reuters that he believes suspended multiple sclerosis treatment Tysabri will ultimately return to the market, adding that supply problems with other drugs had been resolved.

“I certainly believe that, given the unmet medical need and given the efficacy of Tysabri, that this will ultimately be back in the hands of patients and their doctors,” he said.