Elan not to spin off drug delivery business due to market concerns

PHARMACEUTICAL FIRM Elan has decided not to spin off its drug delivery business Elan Drug Technologies (EDT) in the immediate future due to concerns over its valuation.

The firm had first looked at the possibility of hiving off EDT from its bioneurology business back in 2008 before the credit crunch hit.

Last April Elan again said it was exploring off-loading the business, but it indicated yesterday that current market conditions were not conducive to getting the right price.

In 2008 it had valued EDT at about $1 billion (€750m).

According to the firm, in which Johnson Johnson took an 18.4 per cent stake for $885 million last year, although “it makes strategic and financial sense to separate the businesses”, due to current market conditions it has determined it will “not start a process to pursue a separation of the EDT business at this time”.

Elan has also announced plans to restructure its debt by retiring up to $500 million in outstanding debt due to mature in November 2011 and November 2013 respectively through a combination of cash on hand and the proceeds of a planned refinancing.

If this proceeds as expected, Elan would reduce its gross debt by 20 per cent, and would see its gross debt fall to about $1.24 billion.

The maturity profile of the firm’s outstanding debt would also be extended, with no required debt repayments until November 2013.

The firm would also use proceeds from its sale of a stake to Johnson Johnson last year, as per the deal agreement, to potentially reduce the amount of debt due in November 2013 by up to $190 million, from $615 million to $425 million.

Restructuring the firm’s debt would also reduce annual interest costs by between $5 million and $10 million.

Jack Gorman, analyst at Davy Stockbrokers, described Elan’s move to extend its debt maturity profile as “no bad thing in the current markets”.

Elan also confirmed its financial guidance for 2010 and expects revenues to grow over 2009, with expenses in the range of $475 million to $525 million, and adjusted EBITDA of more than $150 million.

It did, however, adjust its gross cash/investments expectation to end 2010 with cash and investments approaching $400 million, compared to $500 million previously.

For 2011, Elan expects to be cash-flow positive, with expenses at a similar level to this year.

Separately, the firm announced that a mid-stage trial of its Alzheimer’s drug ELND005 failed to show “statistical significance” but that it would nonetheless proceed with late-stage phase III trials.

In order to fund these trials it is thought likely that Elan and its Canadian partner Transition Therapeutics Inc (TTHI) could be looking to bring in another partner.

Doing so would “make sense”, said Mr Gorman, given “Elan’s balance sheet and its key skills in discovery and early research”.