Elan develops a strategy for change

THE surprise £406 million acquisition of Athena Neurosciences by Elan is only the latest "iteration of a strategy that has been going on for a while", its chief executive, Mr Donal Geaney, said.

Athlone based Elan is in the process of transforming from a developer of drug delivery systems for other drug companies into a fully integrated drugs company that also discovers, develops and markets its own drugs, he explained.

At present, 95 per cent of Elan's revenues is derived from fees and royalties on drugs that it has developed for, or with other companies. The most successful of these are the Cardizem family of angina and hypertension drugs which were originally developed by Marion Merrell Dow. Elan subsequently developed more effective versions of the drugs that have fewer side effects.

By the end of the decade Elan wants at least one third of its revenues to come from drugs that it has discovered, developed and marketed itself, explained Mr Geaney. The takeover of Athena is a key part of this process. It will add two new strings to Elan's bow a drug discovery capability and a sophisticated US marketing operation. Together, they will allow Elan to operate as fully integrated drug company in the niche market for neurological drugs. The only thing we can't do is prescribe the drugs," Mr Geaney said.

As Elan will be responsible for all the stages in bringing these drugs to the market, it will receive a much higher proportion of the eventual sales revenue than the 5 to 20 per cent it currently receives from drugs it has co developed, such as Cardizem.

However, Elan will only operate as a fully integrated drugs company in chosen niche markets so as not to compete directly with the companies that it collaborates with in the development of drugs, Mr Geaney said. Elan's strength has historically been in the development of drug delivery systems.

The company was founded in 1969 by the US pharmacologist, Dr Don Panoz, who remains a major shareholder and non executive chairman. Dr Panoz established his company in Ireland because of the favourable tax regime, among other reasons and concentrated on developing mechanisms to improve and control the absorption of drugs by the body.

Apart from the Cardizem family, Elan's other products include Naprelan, a formulation of the anti arthritis drug Naproxen and Verelan, a formulation of Verapamil, the hypertension drug.

The company has 65 products in the research and development pipeline, with 29 in clinical development. These include Nuerelan, a drug for the treatment of multiple sclerosis, which it hopes to market through Athena's US sales force, which deals directly with neurologists.

Athena is one of the leaders in the research and development of drugs for treating Alzheimer's disease. The company has genetically engineered a strain of mice that develop the disease on which the drugs can be tested. Athena was founded in 1986 and has six therapeutic drugs at various stages of development as well as three existing products for the diagnosis of Alzheimer's disease and the treatment of Parkinson's disease.

Athena had sales of $53 million last year but the company has yet to move into profitability because of its high spending on research and development. Last year it lost $30 million. The acquisition will have negative impact on Elan's earnings in the year to next March but should start to have a positive impact on profits in 1997, Mr Geaney said. Elan made profits of $67 million on a turnover of $192 million last year.

Athena does not have its own manufacturing facility and sub contracts out the production of its drugs. The manufacture of Athena products will be transferred to Elan's production facilities in Ireland, the USA, Switzerland and elsewhere over time, explained Mr Geaney.

The takeover has been well received by the US investment markets, where the bulk of Elan's shares are held and traded. The company first floated on the screen based NASDAQ market in 1984 and subsequently in Dublin and London. Last year it moved to the New York Stock Exchange. Elan shares fell slightly to $60.5 dollars after the announcement last Friday, but have subsequently recovered. The share price is the best indicator of the market's opinion of the deal, Mr Geaney said.

Elan's management structure is now being reorganised as part of the merger. Mr John Groom, the chief executive of Athena will become chief operating officer of the company, reporting to Mr Geaney. Mr Groom will be responsible for the day today running of the three main divisions - Elan Technologies, Athena and Elan Pharma - as well as developing a global marketing team.

Prior to joining Athena in 1988, Mr Groom worked from SmithKline and French, the pharmaceutical division of the former SmithKline Beecham corporation.

The acquisition of Athena has indicated Elan's strategy for the future but the transformation will take some time to complete. "We have never done anything like this before. I don't think we are in a position to do something so bold again in the short term," Mr Geaney said.