Cantillon

Inside the world of business

 

Elan holds on to cash cow while derisking its business

So Elan is getting out of the risky business of drug development. The announcement yesterday that Ireland’s largest indigenous biopharma company intends to split itself once again into two discrete listed entities is an admission by management that it can no longer expect shareholders to wait for a return on their investment.

Elan will hold on to the cash cow – the multiple sclerosis drug Tysabri which is responsible for almost all its revenues. ELND005, a drug that appears destined to target bipolar disorder, and the company’s interest in the bapineuzumab programme (its Alzheimer’s disease candidate) will also stay put. Everything else – ie all the earlier-stage drug development business – moves to Neotope Biosciences, which will be spun off as a new listed business.

With Dale Shenk, Ted Yednock and Lars Ekman at the helm – the lead developers of the Tysdabri and Alzheimer’s programmes down the years – Neotope will have credible prospects but it remains a remarkably early-stage drug business to go public.

Essentially, then, this is about derisking the Elan business. The company stressed yesterday that the split had nothing to do with the latest disappointing news – the failure of bapineuzumab in clinical trials – but questions are bound to be raised over the timing.

The big investment carrot for shareholders who must by now be well used to risk was the prospects for “bapi”. Absent that, there is little significant news expected in the pipeline in the immediate future. What’s left of Elan is a company designed to appeal to a very different investor – deriving return from a single drug, Tysabri. Of course, with immediate profit and expanding margins, that’s no lame duck, but it does increasingly look like a business being readied for market – and, with that, possibly an exit for chief executive Kelly Martin.

Call for UK economy to shape up

Bank of England Governor Mervyn King may be more noted for his gloomy outlook on economic matters than his sporting punditry but the avid sports fan made some astute points about the world of business and the lessons it can learn from the Olympics.

King pointed to London’s Olympic Games and said achievements such as winning a gold medal take “years of hard work”. The same applies to the economy, he said.

Britain’s long-term economic performance will depend on measures such as “reforming our banking system so that banks focus less on making money in the short term, and more on building businesses to serve their customers”, King said in an article in the British Mail on Sunday. He said: “as recent scandals have shown, banks could learn a thing or two about fair play from the Olympic movement”.

Lessons no doubt for Irish bankers and business leaders. While he was positive on the lessons from the Olympics, he was less certain about the economic benefits of the event. Britain’s economy has contracted for the past three quarters, and King said that while the Olympics may boost confidence, they “cannot alter the underlying economic situation we face”.

“Unlike the Olympians who have thrilled us, our economy is not at full fitness right now,” King said. “If we have learnt anything from the past fortnight , it is that commitment and hard work over a long period are necessary for eventual success,” King said. “Now is the time to start training for the economic marathon.”