Elan Corporation is to invest $16 million (£11 million) in a refinancing of the loss-making British pharmaceutical group Ethical Holdings which will ultimately see Elan end up with a 55 per cent stake in the company,
Elan is making the initial $16 million investment in loan notes which can convert into Ethical ordinary shares in December next year. This conversion will see Elan end up initially with a 71 per cent stake in Ethical.
When the refinancing is completed, Ethical shareholders will have the opportunity to take up $7.5 million in convertible loan notes on broadly the same terms as Elan and which also convert into ordinary shares at the end of next year. If there is a full take-up of the loan notes and they are fully converted, then Elan's stake in Ethical will fall to 55 per cent.
This refinancing of Ethical by Elan is effectively a rescue of the British company which has had a disastrous year during which its financial performance has plummeted and its shares on Nasdaq collapsed from a high of $63 3/4 to less than $1 recently. Yesterday, they traded marginally higher to $1 1/4 after the announcement of the Elan investment.
In the nine months to the end of May, Ethical reported losses of £6.8 million sterling and has only been able to continue trading until now because of working capital loans from Elan. The company develops oral and transdermal drug delivery technologies and its operations are complementary to Elan's activities in this sector.
Last year, a plan by Ethical to acquire Irish pharmaceutical group Clonmel Healthcare for £14 million was scrapped after Ethical abandoned a stock market listing and fundraising in London. Subsequently, Ethical took a listing in Nasdaq.
Meanwhile, Elanhas increased its profit before tax and exceptional charges from $46.6 million to $67.3 million (£44 million) in the three months ended September 30th 1998. Revenue was boosted from $104.9 million to $171 million, reflecting strong increases in product sales, research revenue and royalties, fees and other revenues. Product sales increased from $41.9 million to $72.5 million, an increase of 73 per cent. The growth in sales of Elan-marketed products from $25.2 million in the third quarter of 1997 to $54.5 million in the third quarter of 1998, reflected sales of Zanaflex and Permax and the inclusion of sales of Skelaxin and Mysoline which were acquired in the second quarter of 1998.
Elan had to contend with a once-off charge of $816.4 million, mainly associated with the acquisition of Neurex Corporation. This led to a net loss of $750 million. Diluted earnings per share (before the once off-charge) increased by 22 per cent from $0.41 to $0.50, reflecting higher net income which was-offset by an increase in the number of shares following the conversion of certain debt securities, shares issued on the acquisition of Sano and Neurex and the exercise of warrants. Elan's chairman and chief executive, Mr Donal Geaney, said the latest results were a notable achievement with record product sales.
