Lacking conviction on plans for SMEs

Thu, Dec 13, 2012, 00:00

Cantillon:The maxim that failing to prepare is preparing to fail is often attributed to Benjamin Franklin and, more recently, Roy Keane.

The Government, however, seems to be turning this wisdom on its head when it comes to its strategy for helping the small and medium enterprise (SME) sector.

Buried in the revised memorandum of understanding between Ireland and its bailout partners published on Tuesday is what looks like preparations for the failure of the Government’s seven-day-old strategy to get credit flowing to the SME sector.

Among the “actions” to be completed in time for the 12th review of the bailout programme in the autumn is a commitment under the heading “Access to SME credit” to “consider the appropriateness of further enhancements to the company law framework to reduce costs and achieve efficiency gains, including the potential for an administrative body to facilitate SME restructuring”.

Leaving aside for the moment the interesting conundrum of how a quango-bashing Government will justify the establishment of an SME quango on the basis of efficiency, the decision of the EU-IMF-ECB to take an interest in the area and insist on a review (and if necessary further action) in the middle of the year indicates that it is also far from convinced that what is planned will be sufficient.

Their concern is best understood in the context of deputy Central Bank governor Matthew Elderfield’s comments last October in which he identified SME debt as the next item on the agenda after residential mortgages when it came to sorting out the banks. He also noted similar foot-dragging on the part of the banks when it comes to facing up to the problem.

It is clear the Troika wants to see some progress in this area and hence the flurry of announcements starting with Circuit Court examinership for SMEs and culminating with the budget measures.

The Troika is giving the Government a chance, but at the same time has laid down a marker as to what will happen if it fails.

Elan’s future clearer – and less certain

It’s back to the future for Elan’s drug discovery business after shareholders voted yesterday to create a new listed business accommodating the group’s drug discovery business.

While the focus for Elan these days is very much on leveraging the success of its blockbuster therapy for multiple sclerosis, Tysabri, for the bulk of its existence Elan itself has been a drug development business.

The genesis of its success – and some spectacular failures – was the decision by former chief executive Donal Geaney to acquire Athena Neurosciences.

Dale Schenk was one of the early employees at Athena. Now he is the founding chief executive of the spin-off from Elan and one of his first moves has been to rename the fledgling business.

Originally called Neotope Biosciences, by yesterday’s extraordinary general meeting which sealed the deal, the company had morphed into Prothena – a very pointed nod in the direction of its predecessor.

That will be one of Schenk’s easier calls. Prothena will be a very rare creature – a listed company focused entirely on early stage drug development. That’s a very high risk punt, as Elan’s own stock market performance down the years attests – and it had the backstop of a solid drug delivery business that could deliver contract income.

It remains to be seen how successful Prothena can be on Nasdaq but it would be little surprise if it quickly became a target for a cash-rich, pipeline-poor pharma major. That would be especially so if it can get some of its promising drug candidates to clinical trial stage.

For Elan, the future looks at once clearer and less certain. It is now a straightforward punt for investors – Tysabri’s growth and how long it can continue to deliver earnings. Yes, there are some late-stage prospects, but nothing on the same scale.

But the cash Tysabri generates and the lack of complicating early-stage clutter means Elan could itself become a target for companies in pursuit of income.

This latest recasting of Ireland’s largest indigenous biotechs looks far from being the final chapter.

Santos’s plans for Ireland unclear

News that Australian giant Santos has taken an €8 million bet on Tamboran will more than likely be viewed with suspicion by those opposed to the latter’s plans to use hydraulic fracturing to extract natural gas from a reservoir stretching across Leitrim and Fermanagh.

But it is unlikely to speed up its plans to drill anywhere in Ireland, as the primary focus of the deal announced yesterday seems to be Tamboran’s interests in its home country, Australia.

When Santos announced details of the agreement that will see it acquire 14 per cent of Tamboran for the equivalent of €8 million, it made much of the Australian element of the deal.

That will see it acquire an immediate 50 per cent of some of Tamboran’s exploration licences in the country’s mineral and hydrocarbon rich north-west in return for providing 41 million Australian dollars (€36.8 million) to fund their development.

Santos is a big player in the Australian and Pacific Rim exploration industry. Last year it had sales of €2 billion and profits of €600 million. Its reserves were over 47 million barrels of oil.

It is interested in a 25,000 sq km chunk of Tamboran’s Australian licences because they could contain both natural gas and oil and they are close to existing infrastructure that will make it easy to take whatever is there out of the ground and get to the market where it can be sold.

Such partnerships are a common feature of the exploration industry, and they often involve small players such as Tamboran getting into bed with much biggers ones, such as Santos.

While Tamboran announced the overall deal as a joint venture, Santos’s own website put the emphasis on the Australian interests, and, in fact, neither mentions Ireland nor Botswana.

This makes a lot of sense. The Republic’s Government has yet to even decide on what its policy on fracking will ultimately be, let alone on what terms it might allow any company to use the technique here.

Apart from that, Tamboran is still a minimum of four years away from being in a position to drill anything in Ireland. The company has yet to get an exploration licence. It remains to be seen how enthusiastic its new partner is about Ireland, or if it is even interested in coming here.

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