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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.”

It will be interesting if any of the financial athletes pay attention to his call. Detractors might also note that the bill for this Olympic lesson is estimated at £9 billion.

Pensions provider looks beyond home shores for fund manager

It should come as no surprise to investors that when one Irish pensions provider came to developing a new product, it looked outside of Ireland to find a manager for its clients’ money.

After all, Irish pension fund managers have performed dismally in recent years, effectively charging customers an annual management fee just to lose their money.

Having fallen off a cliff in 2008, with losses of about 34 per cent on average, pension funds have yet to make up the losses for their investors.

While funds returned almost 10 per cent in the year to July 31st, five-year returns are still in the red, with the average fund losing about 2.1 per cent a year, and the worst offender losing 4.1 per cent a year.

And when you consider charges and the 0.6 per cent pension levy, Irish pension funds are still a long way from recovering the losses incurred through a market collapse and an over-dependence on Irish equities.

Now IFG is promising “genuine global high performance net of all fees” through its new active lifestyle product – and it has abandoned Irish pension fund managers in its effort to do so. IFG already offers a passive lifestyling pension investment, but for its new active product, it has partnered with global investment manager research provider Jeffries, to identify “the best global managers in each asset class”, with names such as GLG, JP Morgan and Yacktman making the grade.

IFG has also partnered with Scottish firm Barrie Hibbert, which will provide a stochastic risk modelling solution to create the optimal asset allocation throughout the working life of an individual based on age and appetite for risk.

The new product marks a welcome diversification in the market for beleagured pension fund investors looking for a new home for their money, and the returns, of about 8 per cent a year over the past five years, look impressive when compared with the past performance of the typical managed fund. But with above-average fees of 1.57 per cent annually, it will need to fulfill on its promises to win back the trust of disenchanted pension investors.

Quote of the day

We are in a serious economic situation, but you lifted the souls, the minds, the hearts of the country

– Minister for Sport Michael Ring tells Ireland’s Olympic medallists

Today

Building materials group CRH, Ireland’s largest listed business, will release results for the first half of the financial year

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