Losses mount at beleaguered Elan

FRAIL former pharmaceutical high-flyer Elan reported losses of 130 million in the first four months of the year, as it strives to manage its debilitating $3.1 billion debt mountain, of which $1.3bn falls due this year.

Elan, whose shares lost three-quarters of their value in the last 12 months, had a first-quarter loss, with revenue falling 42% as products are sold to pay debts.

The net loss was $130 million, or 37 cents a share, compared with net income of $50m, or 14 cents, in the first quarter of 2002, the company said. Revenue fell to $217 million from $332.9 million.

Elan’s plan to raise funds to pay off $1.3 billion in debt was set back when King Pharmaceuticals recently backed out of an $890m purchase of two of its products, due to a US investigation into Elan’s marketing. Elan has replaced its management but still faces other US probes.

Commenting on the results and recovery plan, Elan’s president and chief executive officer Kelly Martin said: “Elan remains on course with its 18-month recovery plan. We further reduced costs during the quarter, which has put us closer toward our goal of operating Elan on a break-even basis prior to the launch of our new products.”

Mr Martin concedes there is much to be done, but said Elan remains focused on simplifying its balance sheet, streamlining its operational model and advancing its science and product development.

Merrion Stockbrokers analyst Peter Frawley said Elan’s revenues from retained products were 8% ahead of forecasts at $150m driven by stronger European sales.

“If the group is successful in disposing of its primary care franchise and drug delivery businesses, EBITDA losses should fall further ,” he said.

Mr Frawley points out that despite the lower-than-expected cash burn, group liabilities remain in excess of $3bn, with up to $1.3bn due in 2003, against which the group has $983.6m in cash.

“Investment losses were higher than forecast due to further investment write-downs of $47.3m, of which $39m related to provisions for investment losses in the EPILs. These were much lower than has been the case in previous quarters and may reflect that a base level has been reached on Elan’s investment portfolio,” he added.

Goodbody analyst Ian Hunter described the results as mixed but said revenue of $260m was considerably higher than expected.

“But this did not filter through to the bottom line,” he added.

He said margins are continuing to fall and that Elan is going to greatly exceed its stated R&D budget for the year.

“The lack of improvement in operating expenses is a concern,” he said. “Significant newsflow on the recovery programme is now needed to give us comfort that the company is still on track to meet its $1.5bn cash goal.”