Banking on drugs' success

THE FRIDAY INTERVIEW/Kelly Martin, Elan chief executive:BRINGING ONE life-changing drug to market is testimony enough for most people. Bringing a second close to the same point is a remarkable achievement for an Irish company in the ultra-competitive world of modern pharmaceuticals.

But, having guided one of Ireland’s most volatile companies to a point where its medium-term financial outlook is secure, Elan chief executive Kelly Martin is still a long way from resting on his laurels.

For him, the deal gives Elan the flexibility to chase a range of new opportunities in different approaches to addressing Alzheimer’s disease and other neurological conditions that are among the biggest areas of unmet need in medical science.

“We have the flexibility to chase new streams in Alzheimer’s disease and other areas. If we had kept all of the Alzheimer’s Immunotherapy Programme (AIP), or our half, it would have crowded out everything,” he says.

“The trick for Elan with this transaction is do we have enough runway, enough stability and now enough headroom to build out the vision that was there when they [former executives Donal Geaney and Tom Lynch] bought Athena Neuroscience and I think we do.”

Already the company has invested in a new technology initially developed by a company in Stanford in the US and Martin says it is likely to add a further three technologies to the Alzheimer’s programme in the next year or so.

“Our goal in Alzheimer’s disease is to be the leading company in the world from the RD point of view,” he says.

But that has not stopped rumblings in the background from Elan’s famously opinionated army of small shareholders. While market analysts viewed the Johnson Johnson deal as a coup for Elan, with most of the risk associated with the most advanced Alzheimer’s programme transferring to the US giant, the Elan message boards were talking of selling the family silver.

The chatter does not worry Martin. Since coming in to take over the company in 2003, his expertise and appetite for the job have been questioned continually.

Talking to him in his offices against the backdrop of the emerging new Lansdowne Road stadium in the Grand Canal Dock area of Dublin, he is more interested in looking forward at what the company can achieve. But he is still very satisfied with the Johnson Johnson agreement – one that would certainly draw favourable comment from his former employers in Merrill Lynch.

“We own half of a new company with JJ and, on the other side will ultimately be Pfizer. From a shareholder point of view, we say that if the immunotherapeutic assets work, the upside is so big that the return to our shareholders will be very significant.

“Elan has 25 per cent of the return on this technology, with the largest pharmaceutical company in the world marketing it and the largest healthcare company. I say that’s a great outcome.

“We didn’t give it away but we took the risk down drastically for us. This drug will either be the largest asset in our portfolio or it won’t work, there is no in between.”

In light of the financial commitments that continued development of the AIP programme would have involved, Martin feels holding on to its previous control was unsustainable.“This asset is too big for any one company – even Pfizer or JJ. It will take the full resources, if it is successful, of both Pfizer and JJ to optimise this asset around the world.

Among other things, the cash freed up by the deal will allow the company to concentrate on areas that were struggling for attention. Apart from the Alzheimer’s pipeline that Martin intends to stock up in the next year, there is also Elan’s drug technology business based in Athlone.

“EDT is a critical piece of the company. We would like to invest some more into EDT,” he says.

He defends the decision last year to look at “monetising” the division. “The whole rationale of monetising EDT was to give them acces to capital. That is still an issue. We can do a little bit incrementally but we cannot fundamentally shift the business unless we have more cash.”

That could mean seeking outside partners or possibly even a partial IPO. Martin is open to options but he insists that Elan wants to retain control of the business.

“EDT is a long-term part of Elan; the question is can we give them acces to capital on their own and, if we can do that in a way we retain control but they invest in it, we will do that. We want to grow it, to add products and add jobs.”

Of course, the jewel in the crown of Elan’s current, commercialised portfolio is multiple sclerosis therapy Tysabri.

Martin believes the drug is a winner now and into the future if for no other reason than its efficacy means there will always be demand from patients – two-thirds of whom, he says, see their condition worsening depsite other treatments.

“The challenge with Tysabri is now understanding and managing PML [progressive multifocal leukoencephalopathy].” The brain disease, initially thought fatal in most cases saw the drug pulled from shelves just months after its launch only forit to return after further medical investigation and hearings by the regulator, the Food and Drug Administration that featured strong patient advocacy.

He believes the market in Europe for Tysabri is bigger than previously beleived. Sales growth here has been steronger than the US in the past year, in part because of the lack of alternative treatments. However, he says growth in the US is starting to pick up, a view reinforced by strong sales figures published yesterday by Biogen Idec, its US partner in the Tysabri programme.

“The combination [of the US and European markets] is growing at a rate that we think people will find very acceptable.”

Despite the drug’s rollercoaster ride, he has no regrets about the company’s approach, especialy in withdrawing it when PML first emerged in patients.

“We did not put our patients in harm’s way which you just funadmentally cannot do. I mean our stock got killed. But I would make the same decision a thousand times in a row, it was a hard decision but it was a right decision.”

So how did a New Jersey bank executive with some distant Irish roots end up heading a company like Elan.

Like many things in business, it was more an element of chance and timing than any preplanned strategy.

Martin had spent his whole working life – nearly 22 years – with Merrill Lynch. Having started as a bond trader, he ended up working in areas as diverse as sales and information technology, always with the US group.

Along the way, he got to manage business that came within the remit of Merrill and, ultimately, he decided that this was a path he would prefer to pursue rather than continuing to build on his reputation within the bank as a troubleshooter who could fix problems within units of a business.

It was his luck – or not, some might say – to run into a consultant he knew from his time at Merrill but who had also been engaged by Elan as it struggled to emerge from the turmoil surrounding the company over a failed Alzheimer’s trial and accounting issues in the wake of the Enron scandal.

“It was a big decision. I had absolutely no knowledge of the industry but it was a chance to use the skills I had picked up in organising other businesses and to see if I could take on a challenge like this.”

The consultant through whom he had heard of the job assurred him he couldn’t go wrong. In many quarters, the company was not expected to survive. If he failed to resuce it, he would attract little blame. But succeed and the upside was considerable.

“I consider I am very lucky after workling all my life in one business to get a chance like this to make a go at another,” says Martin.

So is it time now to move on as some would suggest?

“Everyone is entitled to their opinion but my opinion is I’m not finished doing what we need to do,” says Martin.

“It’s hard being a CEO and I think you have got to stay within yourself. I’m not the scientist or the clinician. What we have is world class differentiated science. What it has to do with me is that you need a business platform to let them [the scientisits] succeed.

“We are not finished doing what we have intended to do. When I feel we are finished I will move on.

‘‘I am not interested in hanging around for the title or the profile. But I don’t think that is today and I don’t think it is any time in the near future. there are too many other things to do.”

ON THE RECORD

Name: Kelly Martin.

Age: 50.

Position: chief executive of listed Irish biotech group Elan.

Family: married to Elizabeth with five children, aged between nine and 18.

Career: Graduated from Princeton University with a degree in politics and economics before joining Merrill Lynch on an intern programme.

He spent more than 20 years with the US investment bank, earning a reputation as a troubleshooter and quick learner in areas as diverse as fixed income, equity sales and information technology.

In 2003, he left Merrill and, shortly after, took over as chief executive of Elan.

Something that won't surprise: He finds managing Elan a full-time job.

Something that might surprise: When he does get a break, he enjoys freshwater fishing or the occasional ski break.