Eland Oil & Gas Regulatory News (ELA)

25 Oct 2006 07:30

Elan Corporation, plc (NYSE:ELN) today announced its third quarter 2006financial results. Commenting on Elan's business, Kelly Martin, Elan's presidentand chief executive officer, said, "The third quarter provided further evidenceof progress in key areas. We are encouraged by the initial results in therelaunch of Tysabri for MS in the U.S. market and the launch in the Europeanmarkets. As patients and physicians seek greater efficacy and therapeuticoptions for combating the degenerative nature of this disease, we remainconfident that Tysabri will play a significant role in the treatment of MSmoving forward. We plan to file for Crohn's in the U.S. by the end of this year.In our scientific pipeline, we recently announced a new collaboration in thearea of Alzheimer's with Transition Therapeutics and are working together toadvance this Phase 1 small molecule program. We are pleased to report that wehave started dosing patients with ELND-001, an oral compound from our autoimmuneprogram." Mr Martin added, "We remain focused on maintaining a disciplined approach in allareas of our business and on advancing our pipeline in order to enable patientsto choose from a range of therapeutically relevant choices that may meet theirunmet medical needs." Commenting on Elan's third quarter financial results, Shane Cooke, Elan'sexecutive vice president and chief financial officer, said, "We are pleased withthe overall outcome for the third quarter. We successfully launched Tysabri forMS in a number of EU countries and re-introduced it in the US, marking animportant step in our drive towards a return to profitability. License feespayable in relation to the expansion of our pipeline of innovative Alzheimer'stherapeutics together with temporary supply shortages of Maxipime impacted ourthird quarter results and led to increased losses." Mr. Cooke added, "We are confident that revenues for 2006, excluding anyrevenues from Tysabri, will exceed $500 million. We also expect EBITDA lossesfor the year to be less then previously guided due to solid revenue growth andimproved operating margins, and we look forward to the future with confidenceand enthusiasm." \* TUnaudited Consolidated Income Statement Data and Reconciliation of US GAAP Income Statement Data to Adjusted Income Statement Data Excluding Share-Based Compensation Three Months Ended September 30 ----------------------------------------- 2006 US$m 2006 Excluding US$m 2006 2005 Share-Based Share-Based US$m US$m Compensation Compensation Total----------------------------------------------------------------------Revenue (see page 8)Product revenue 118.4 112.5 -- 112.5Contract revenue 10.2 10.8 -- 10.8 ------ -------------------------- ------- Total revenue 128.6 123.3 -- 123.3 Operating Expenses (see page 12)Cost of goods sold 46.6 46.1 1.1 47.2Selling, general and administrative 80.0 84.2 7.5 91.7Research and development 60.3 51.8 2.3 54.1Net gains on divestment of productsand businesses (23.3) -- -- --Other net charges 3.2 19.7 -- 19.7 ------ -------------------------- -------Total operating expenses 166.8 201.8 10.9 212.7 ------ -------------------------- -------Operating loss (38.2) (78.5) (10.9) (89.4) ------ -------------------------- ------- Net Interest and Investment Gains and Losses (see page 14)Net interest expense 28.7 29.3 -- 29.3Net investment gains (0.3) (3.1) -- (3.1) ------ -------------------------- -------Net interest and investment losses 28.4 26.2 -- 26.2 ------ -------------------------- ------- Net loss from continuing operationsbefore tax (66.6) (104.7) (10.9) (115.6)Provision for income taxes 0.7 1.4 -- 1.4 ------ -------------------------- -------Net loss from continuing operations (67.3) (106.1) (10.9) (117.0)Net income from discontinued operations 0.2 -- -- -- ------ -------------------------- -------Net loss (67.1) (106.1) (10.9) (117.0) ------ -------------------------- ------- Basic and diluted net loss per ordinary share (0.16) (0.25) (0.02) (0.27)Basic and diluted weighted average number of ordinary shares outstanding (in millions) 425.5 431.3 431.3 431.3 To supplement its consolidated income statement data presented on a US GAAP basis for the three months ended September 30, 2006, Elan is providing its US GAAP income statement data adjusted to exclude the impact of share-based compensation. Effective January 1, 2006, Elan adopted Statement of Financial Accounting Standards No. 123R (SFAS 123R) regarding the expensing of share-based compensation. We believe the adjusted income statement data allows readers to better compare the performance of Elan before and after the adoption of SFAS 123R. Elan's management uses the adjusted income statement data in evaluating Elan's operating performance and when planning for future periods. The adjusted income statement data is not being presented as and should not be considered an alternative measure of Elan's income statement data as determined in accordance with US GAAP. The reconciliations of the adjusted income statement data to Elan's US GAAP income statement data are set out above in the table titled, "Unaudited Consolidated Income Statement Data and Reconciliation of US GAAP Income Statement Data to Adjusted Income Statement Data Excluding Share-Based Compensation."\* T \* TUnaudited Consolidated Income Statement Data and Reconciliation of US GAAP Income Statement Data to Adjusted Income Statement Data Excluding Share-Based Compensation Nine Months Ended September 30 ------------------------------------------ 2006 US$m 2006 Excluding US$m 2006 2005 Share-Based Share-Based US$m US$m Compensation Compensation Total----------------------------------------------------------------------Revenue (see page 8)Product revenue 325.4 371.5 -- 371.5Contract revenue 24.5 22.5 -- 22.5 ------- -------------------------- ------- Total revenue 349.9 394.0 -- 394.0 Operating Expenses (see page 12)Cost of goods sold 150.3 140.7 3.3 144.0Selling, general and administrative 273.0 250.6 22.9 273.5Research and development 180.5 146.6 10.9 157.5Net gains on divestment of products andbusinesses (88.4) (43.3) -- (43.3)Other net charges 2.3 23.1 -- 23.1 ------- -------------------------- -------Total operating expenses 517.7 517.7 37.1 554.8 ------- -------------------------- -------Operating loss (167.8) (123.7) (37.1) (160.8) ------- -------------------------- ------- Net Interest and Investment Gains and Losses (see page 14)Net interest expense 99.4 83.9 -- 83.9Net investment (gains)/losses 5.9 (4.2) -- (4.2)Net charge on debt retirement 52.2 -- -- -- ------- -------------------------- -------Net interest and investment losses 157.5 79.7 -- 79.7 ------- -------------------------- ------- Net loss from continuing operationsbefore tax (325.3) (203.4) (37.1) (240.5)Provision for income taxes 0.6 0.3 -- 0.3 ------- -------------------------- -------Net loss from continuing operations (325.9) (203.7) (37.1) (240.8)Net income from discontinued operations 0.6 -- -- -- ------- -------------------------- -------Net loss (325.3) (203.7) (37.1) (240.8) ------- -------------------------- ------- Basic and diluted net loss per ordinary share (0.80) (0.47) (0.09) (0.56)Basic and diluted weighted average number of ordinary shares outstanding (in millions) 409.0 430.1 430.1 430.1 To supplement its consolidated income statement data presented on a US GAAP basis for the nine months ended September 30, 2006, Elan is providing its US GAAP income statement data adjusted to exclude the impact of share-based compensation. Effective January 1, 2006, Elan adopted Statement of Financial Accounting Standards No. 123R (SFAS 123R) regarding the expensing of share-based compensation. We believe the adjusted income statement data allows readers to better compare the performance of Elan before and after the adoption of SFAS 123R. Elan's management uses the adjusted income statement data in evaluating Elan's operating performance and when planning for future periods. The adjusted income statement data is not being presented as and should not be considered an alternative measure of Elan's income statement data as determined in accordance with US GAAP. The reconciliations of the adjusted income statement data to Elan's US GAAP income statement data are set out above in the table titled, "Unaudited Consolidated Income Statement Data and Reconciliation of US GAAP Income Statement Data to Adjusted Income Statement Data Excluding Share-Based Compensation."\* T \* T Unaudited Non-GAAP Financial Information - EBITDA Three Months Non-GAAP Financial Information Nine Months Ended Reconciliation Schedule Ended September 30 September 30 2005 2006 2005 2006 US$m US$m US$m US$m--------------- ------------------------------------------------------ (67.3) (117.0) Net loss from continuing operations (325.9) (240.8) 28.7 29.3 Net interest expense 99.4 83.9 0.7 1.4 Provision for income taxes 0.6 0.3 30.6 32.6 Depreciation and amortization 95.8 98.7(17.9) (15.5) Amortized fees (42.8) (36.7) 3.5 -- Revenue received and deferred 4.2 -------- -------- ------- -------(21.7) (69.2) EBITDA (168.7) (94.6)====== ======== ======= =======\* T \* T Three Months Non-GAAP Financial Information Nine Months Ended Reconciliation Schedule Ended September 30 September 30 2005 2006 2005 2006 US$m US$m US$m US$m------ -------- -------------------------------------- ------- -------(21.7) (69.2) EBITDA (168.7) (94.6) -- 10.9 Share-based compensation -- 37.1 Net gains on divestment of products(23.3) -- and businesses (88.4) (43.3) 3.2 19.7 Other net charges 2.3 23.1 (0.3) (3.1) Net investment (gains)/losses 5.9 (4.2) -- -- Net charge on debt retirement 52.2 -------- -------- ------- -------(42.1) (41.7) Adjusted EBITDA (196.7) (81.9)====== ======== ======= ======= To supplement its consolidated financial statements presented on a US GAAP basis, Elan provides readers with EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) and Adjusted EBITDA, non-GAAP measures of operating results. EBITDA is defined as net loss from continuing operations plus or minus depreciation and amortization of costs and revenues, provisions for income tax and net interest expense. Adjusted EBITDA is defined as EBITDA plus or minus share-based compensation, net gains or losses on divestment of products and businesses, other net gains or charges, net investment gains or losses and net charge on debt retirement. EBITDA and Adjusted EBITDA are not presented as and should not be considered alternative measures of operating results or cash flow from operations, as determined in accordance with US GAAP. Elan's management uses EBITDA and Adjusted EBITDA to evaluate the operating performance of Elan and its business and these measures are among the factors considered as a basis for Elan's planning and forecasting for future periods. Elan believes EBITDA and Adjusted EBITDA are measures of performance used by some investors, equity analysts and others to make informed investment decisions. EBITDA and Adjusted EBITDA are used as analytical indicators of income generated to service debt and to fund capital expenditures. EBITDA and Adjusted EBITDA do not give effect to cash used for interest payments related to debt service requirements and do not reflect funds available for investment in the business of Elan or for other discretionary purposes. EBITDA and Adjusted EBITDA, as defined by Elan and presented in this press release, may not be comparable to similarly titled measures reported by other companies. Reconciliations of EBITDA and Adjusted EBITDA to net loss from continuing operations are set out in the tables above titled, "Non-GAAP Financial Information Reconciliation Schedule."\* T \* TUnaudited Consolidated US GAAP Balance Sheet Data December June 30 September 31 2005 2006 30 US$m US$m 2006 US$m----------------------------------------------------------------------AssetsCurrent AssetsCash and cash equivalents 1,080.7 1,024.8 989.9Restricted cash 20.4 20.9 21.1Marketable investment securities 10.0 6.8 6.5Held for sale assets 11.2 -- --Prepaid and other current assets 130.1 147.8 122.4 --------- -------- --------- Total current assets 1,252.4 1,200.3 1,139.9 Non-Current AssetsIntangible assets, net 665.5 623.1 600.8Property, plant and equipment, net 353.6 349.3 347.8Marketable investment securities 13.1 10.1 10.0Restricted cash 4.5 3.0 3.2Other assets 51.8 47.8 45.1 --------- -------- --------- Total Assets 2,340.9 2,233.6 2,146.8 ========= ======== ========= Liabilities and Shareholders' EquityAccounts payable and accrued liabilities 246.7 234.1 263.2Deferred income 60.1 39.0 23.46.5% convertible guaranteed notes due 2008 254.0 254.0 254.07.25% senior notes due 2008 613.2 613.2 613.27.75% senior notes due 2011 850.0 850.0 850.0Senior floating rate notes due 2011 300.0 300.0 300.0Shareholders' equity/(deficit)(1) 16.9 (56.7) (157.0) --------- -------- --------- Total Liabilities and Shareholders' Equity 2,340.9 2,233.6 2,146.8 ========= ======== ========= Movement in Shareholders' Equity(1)Opening balance 2.9 (56.7)Net loss for the period (90.5) (117.0)Share-based compensation 13.5 10.9Issuance of share capital 17.1 5.9Other 0.3 (0.1) -------- ---------Closing balance (56.7) (157.0) ======== =========(1) None of Elan's debt covenants require us to maintain or adhere to any specific financial ratios and consequently the shareholders' deficit has no impact on our ability to comply with our debt covenants.\* T \* T Unaudited Consolidated US GAAP Cash Flow Data Three Months Nine Months Ended Ended September 30 September 30 2005 2006 2005 2006 US$m US$m US$m US$m----------------- ---------------------------------------------------- Cash flows from operating (30.5) (26.2) activities (168.6) (43.4) (28.2) (32.2) Movement on debt interest and tax (111.6) (108.8) (12.4) 22.5 Working capital movement (1) (104.7) (7.9) Net purchases of tangible and (7.4) (8.1) intangible assets (42.3) (23.7) Net proceeds from sale of 5.0 3.0 investments 59.0 13.9 Net proceeds from product and 43.6 -- business divestments 93.8 50.3 Cash flows from financing 2.5 6.1 activities (71.6) 27.4 -- -- Release of restricted cash 168.1 1.4 -- -- Repayment of EPIL III notes (39.0) ---------- -------- -------- -------- (27.4) (34.9) Net cash movement (216.9) (90.8)1,158.1 1,024.8 Beginning cash balance 1,347.6 1,080.7-------- -------- -------- -------- Cash and cash equivalents at end of1,130.7 989.9 period 1,130.7 989.9======== ======== ======== ======== (1) For the nine months ended September 30, 2005, working capital movement includes a $40.0 million cash payment for the settlement of the 2002 class action.\* T Net Loss The net loss for the third quarter of 2006 amounted to $117.0 million, comparedto $67.1 million reported in the same quarter of 2005. The increase in net lossis principally due to a gain of $23.0 million on the sale of Zonegran(TM) in2005, the inclusion of share-based compensation expense of $10.9 million in 2006for the first time, and a $15.0 million license fee payable to TransitionTherapeutics, Inc. (Transition) relating to the novel Alzheimer's diseasetherapeutic agent, AZD-103. The net loss for the nine months ended September 30, 2006 was $240.8 million, areduction of 26% over the same period in 2005. The reduction in net loss isprincipally due to improved operating margins and reduced net interest and debtretirement costs, partially offset by share-based compensation, the license feesassociated with research and development collaborations with Archemix, Inc. andTransition entered into in 2006 and gains on the sale of Zonegran in 2005. Share-Based Compensation Effective January 1, 2006, Elan adopted the provisions of SFAS 123R, whichrequires share-based compensation to be measured at fair value and expensed overthe requisite service period. The adoption of SFAS 123R resulted in a charge forshare-based compensation of $10.9 million for the third quarter of 2006, whichis comprised of $1.1 million of cost of goods sold, $7.5 million of selling,general and administrative (SG&A) expense, and $2.3 million of research anddevelopment (R&D) expense. For the nine months ended September 30, 2006, thischarge was $37.1 million, which is comprised of $3.3 million of cost of goodssold, $22.9 million of SG&A expenses and $10.9 million of R&D expenses. Adjusted EBITDA A reconciliation of negative Adjusted EBITDA to net loss from continuingoperations, is presented in the table titled, "Unaudited Non-GAAP FinancialInformation - EBITDA," included on page 4. A further analysis of Adjusted EBITDAbetween Tysabri(TM) and the rest of the business is included in Appendices I andII. Negative Adjusted EBITDA was $41.7 million in the third quarter of 2006,compared to $42.1 million in the third quarter of 2005, and includes negativeAdjusted EBITDA of $28.7 million related to Tysabri (2005: $36.7 million). Theimprovement in negative Adjusted EBITDA related to Tysabri reflects theremarketing of Tysabri in the US and launch in the EU in 2006, and lower R&Dexpenses following the completion of the Tysabri safety evaluation in 2005. Negative Adjusted EBITDA in the third quarter of 2006 for the rest of thebusiness, excluding costs related to Tysabri, was $13.0 million (2005: $5.4million). The increase in negative Adjusted EBITDA for the rest of the businessreflects principally a reduction in revenue from Maxipime(TM) due to temporarysupply shortages from a third party supplier. Supply has been resumed and wecontinue to monitor the situation closely. Negative Adjusted EBITDA was $81.9 million for the nine months ended September30, 2006, compared to $196.7 million in the same period of 2005 and includes$78.1 million related to Tysabri (2005: $135.0 million), a reduction of 42%. Theimprovement in negative Adjusted EBITDA related to Tysabri reflects theinclusion in 2005 of the costs of the voluntary suspension of Tysabri inFebruary 2005, together with the costs of the subsequent safety evaluation. Negative Adjusted EBITDA for the rest of the business for the first nine monthsof 2006 was $3.8 million, a reduction of 94% from the $61.7 million in the sameperiod in 2005. This improvement reflects the 18% increase in revenues, togetherwith ongoing cost discipline with reduced aggregate SG&A and R&D expenses. Revenue Total revenue decreased to $123.3 million in the third quarter of 2006 from$128.6 million in the third quarter of 2005. The decrease reflects principally areduction in revenue from Maxipime due to temporary supply shortages from athird party supplier. In the first nine months of 2006, total revenue increased13% to $394.0 million from $349.9 million in the same period of 2005. Thisincrease reflects a 14% improvement in product revenue principally due toincreased demand. Revenue is analyzed below between product revenue and contractrevenue. \* TThree Months Nine Months Ended EndedSeptember 30 September 30 2005 2006 2005 2006 US$m US$m US$m US$m---------------------------------------------------------------------- Revenue from Marketed Products (0.2) 5.4 Tysabri- US 11.4 5.2 -- (5.7) Tysabri- EU -- (5.7) 33.8 26.4 Maxipime 93.5 113.7 17.0 16.7 Azactam(TM) 40.2 56.6 1.5 3.1 Prialt(TM) 4.3 8.7------ ------ ------ ------ 52.1 45.9 Total Revenue from Marketed Products 149.4 178.5 Manufacturing Revenue and Royalties (see 56.4 58.1 page 11) 148.8 167.5 8.5 8.5 Amortized Revenue - Adalat(TM)/Avinza(TM) 25.5 25.5 1.4 -- Revenue from Divested Products 1.7 -------- ------ ------ ------118.4 112.5 Total Product Revenue 325.4 371.5------ ------ ------ ------ Contract Revenue 7.0 6.8 Amortized fees 13.5 11.0 3.2 4.0 Research revenue and milestones 11.0 11.5------ ------ ------ ------ 10.2 10.8 Total Contract Revenue 24.5 22.5------ ------ ------ ------ ------ ------ ------ ------128.6 123.3 Total Revenue 349.9 394.0====== ====== ====== ======\* T Revenue from marketed products Tysabri Elan and Biogen Idec, Inc. (Biogen Idec) received approval from the US Food andDrug Administration (FDA) in June 2006 to re-introduce Tysabri for the treatmentof relapsing forms of multiple sclerosis (MS). Approval for the marketing ofTysabri in the EU was also received in June 2006. In October 2006, approval wasreceived for the marketing of Tysabri in Canada. The distribution of Tysabri inboth the US and EU commenced in July 2006. Global in-market net sales of Tysabriin the third quarter of 2006 were $8.1 million, $5.4 million in the US and $2.7million in the EU. The analysis of the operating loss between Tysabri and therest of the business is included in Appendices I and II. The focus of activities in the US since July 2006 has been on educating healthcare professionals in relation to the operation of the TOUCH prescribingprogram. This risk management program has been designed in cooperation with theFDA to ensure that Tysabri is made available to appropriate MS patients. Of the2,000 to 2,500 physicians and infusion sites in the US that treat the majorityof MS patients, to date approximately 1,000 have now been trained in the TOUCHprogram and more than 750 doctors have enrolled patients. We continue to focuson making Tysabri available to appropriate patients as quickly as possible. Todate, approximately 4,500 patients in the US have enrolled in the TOUCH Programand of these, approximately 1,700 patients have received their first infusion.It is too early to determine how many patients who enroll in the TOUCHprescribing program will convert to patients infused. In the EU, Tysabri is now available in Germany, Sweden, the UK, Ireland,Denmark, the Netherlands, Austria, Finland and Norway. We are at various stagesof discussions in relation to reimbursement in these countries. To date,approximately 500 to 600 patients in the EU have received infusions of Tysabri,mostly in Germany. Tysabri was developed and is now being marketed in collaboration with BiogenIdec, with costs and revenues shared approximately equally. Biogen Idec isresponsible for manufacturing the product. In the US, Elan purchases Tysabrifrom Biogen Idec and is responsible for distribution. Consequently, Elan recordsas revenue the net sales of Tysabri in the US market. Elan purchases productfrom Biogen Idec as required at a price which includes the cost ofmanufacturing, plus Biogen Idec's share of the gross profit and this cost,together with royalties payable to other third parties, is included in cost ofsales. During the third quarter of 2006, Elan recorded net sales of $5.4 millionin the US market. In the EU market, Biogen Idec is responsible for distribution and Elan recordsas revenue its share of the profit or loss on EU sales. In the third quarter of2006, Elan recorded negative revenue of $5.7 million, which was calculated asfollows: \* T Three months ended September 30 2006 US$m---------------------------------------------------------EU in-market sales $2.7EU operating expenses (14.7) ------------------EU operating loss (12.0) ------------------Elan's share of Tysabri EU collaboration operating loss (5.7) ------------------\* T Other marketed products Revenue from Maxipime for the quarter decreased by 22% to $26.4 million from$33.8 million in the third quarter of 2005 due to temporary supply shortages.Supply has been resumed and we continue to monitor the situation closely. In thefirst nine months of 2006, revenue from Maxipime increased 22% to $113.7 millionfrom $93.5 million in the same period of 2005 due to increased demand. Azactam revenue for the quarter decreased to $16.7 million from $17.0 million inthe third quarter of 2005. In the first nine months of 2006, revenue fromAzactam increased 41% to $56.6 million from $40.2 million in the same period of2005 due to increased demand. Azactam lost its patent exclusivity in October2005 and its sales are expected to be negatively impacted by genericcompetition. However, to date no generic form of Azactam product has beenapproved. Revenue from Prialt for the third quarter of 2006 was $3.1 million, compared to$1.5 million in the third quarter of 2005. Prialt was launched in the US marketduring the first quarter of 2005. In the first nine months of 2006, revenue fromPrialt increased to $8.7 million from $4.3 million in the same period of 2005due to increased demand. Manufacturing revenue and royalties Manufacturing revenue and royalties from Elan's Drug Technology businesscomprise revenue earned from products manufactured for third parties androyalties earned principally on sales by third parties of products thatincorporate Elan's technologies. Manufacturing revenue and royalties were $58.1 million in the third quarter of2006, compared to $56.4 million in the third quarter of 2005. In the first ninemonths of 2006, manufacturing revenue and royalties were $167.5 million, anincrease of 13% over the same period in 2005. These revenues can be furtheranalyzed as follows: \* T Three Months Nine Months Ended Ended September 30 September 30 2005 2006 2005 2006 US$m US$m US$m US$m--------------------------------------------------------------------- 11.1 13.3 Tricor(TM) 30.1 36.0 6.5 10.3 Skelaxin(TM) 14.7 24.7 10.6 7.8 Verelan(TM) 26.9 27.8 3.7 4.4 Diltiazem(TM) 12.8 14.3 4.2 3.5 Avinza(TM) 9.1 9.8 5.3 2.4 Ritalin(TM) 11.1 7.8 1.9 0.1 Zanaflex(TM) 7.1 1.8 13.1 16.3 Other 37.0 45.3--------- ------ ------- -------- 56.4 58.1 Total 148.8 167.5--------- ------ ------- --------\* T Except as noted above, no other product accounted for more than 10% of totalmanufacturing revenue and royalties in the third quarter of 2006 or 2005. Of thetotal of $58.1 million in manufacturing revenue and royalties in the thirdquarter 2006 (2005: $56.4 million), 43% (2005: 34%) consisted of royaltiesreceived on products that were not manufactured by Elan. In the first ninemonths of 2006, of the total of $167.5 million (2005: $148.8 million) inmanufacturing revenue and royalties, 39% (2005: 33%) consisted of royalties onproducts that were not manufactured by Elan. Amortized product revenue The results for the third quarters of 2006 and 2005 include $8.5 million ofamortized revenue related to the licensing of rights to Elan's generic form ofAdalat CC and the restructuring of Elan's Avinza license agreement with LigandPharmaceuticals, Inc. which occurred in 2002. The remaining unamortized revenueon these products of $9.7 million, which is included in deferred income, will berecognized as revenue through June 2007 (generic Adalat CC), and November 2006(Avinza), reflecting Elan's ongoing involvement in the manufacturing of theseproducts. Amortized revenue for the full-year 2006 is expected to be $30.7million for these two products. Gross Profit The gross profit margin on product revenue was 58% in the third quarter of 2006,compared to 61% in the same period of 2005. The decrease was principally due tothe change in the mix of sales. For the first nine months of 2006, the grossprofit margin on product revenue was 61%, compared to 54% in the same period of2005. The improvement is due principally to the change in the mix of productsales and the inclusion in 2005 of costs related to the voluntary suspension ofTysabri in the US. Operating Expenses Selling, general and administrative SG&A expenses increased 15% to $91.7 million (including $7.5 million ofshare-based compensation expense) in the third quarter of 2006 from $80.0million (including $nil share-based compensation expense) in the same quarter of2005 and can be analyzed as follows: \* TThree Months Nine Months Ended Ended September 30 September 30 2005 2006 2005 2006 US$m US$m US$m US$m-------------- ------------------------------------------------------ 45.9 49.1 Rest of business 151.9 141.6 16.7 16.0 Tysabri 64.9 52.2 Depreciation and amortization 17.4 19.1 (principally Maxipime and Azactam) 56.2 56.8 -- 7.5 Share-based compensation -- 22.9------- ------ ------- -------- 80.0 91.7 Total 273.0 273.5------- ------ ------- --------\* T SG&A expenses related to the rest of the business, excluding depreciation,amortization and share-based compensation, increased by 7% to $49.1 million inthe third quarter of 2006 from $45.9 million in the third quarter of 2005,principally due to the inclusion of $3.0 million related to the costs ofsettling certain legacy litigation. The SG&A expenses related to Tysabri,excluding amortization and share-based compensation, were $16.0 million in thethird quarter of 2006, compared to $16.7 million in the third quarter of 2005.The SG&A expenses related to the Tysabri EU sales are reflected in the negativeTysabri EU revenue as described on page 10. In the first nine months of 2006, SG&A expenses relating to the rest of thebusiness, excluding depreciation, amortization and share-based compensation,decreased 7% to $141.6 million from $151.9 million in the same period in 2005. Research and development R&D expenses were $54.1 million (including $2.3 million of share-basedcompensation expense) in the third quarter of 2006, compared to $60.3 million(including $nil of share-based compensation expense) in the same period of 2005.The decrease of 10% is primarily due to reduced expenses related to Tysabri,partially offset by the impact of expensing share-based compensation. Includedin R&D expenses for the third quarter of 2006 is $9.3 million (including $0.3million of shared-based compensation) related to Tysabri, compared to $19.4million (including $nil of share-based compensation expense) in the same periodin 2005. The decrease principally reflects the completion of the Tysabri safetyevaluation in 2005. R&D expenses were $157.5 million (including $10.9 million of share-basedcompensation) in the first nine months of 2006, compared to $180.5 million(including $nil of share-based compensation expense) in the same period in 2005,a decrease of 13%. This reduction is principally due to the reduced expensesrelated to Tysabri following the completion of the safety evaluation in 2005,partially offset by the cost of expensing share-based compensation. Net Gains on Divestment of Products and Businesses There were no divestments of products and businesses in the third quarter of2006 and the net gain of $43.3 million included for the first nine months of2006 related to the sale of the European rights to Prialt in February 2006. Thenet gain of $23.3 million in the third quarter of 2005 and the net gain of $88.4million included for the first nine months of 2005 related primarily to thedivestment of Zonegran in April 2004. Other Net Charges Other net charges for the three and nine months ended September 30, 2006 and2005 were as follows: \* TThree Months Ended Nine Months Ended September 30 September 30 2005 2006 2005 2006 US$m US$m US$m US$m------------------ ----------------------------------------------- In-process research and -- 15.0 development -- 22.0 4.3 4.7 Severance and restructuring 4.8 1.1 (1.1) -- Other (2.5) ----------- -------- ------- --------- 3.2 19.7 Total 2.3 23.1========= ======== ======= =========\* T The $15.0 million in-process research and development charge in the thirdquarter 2006 is in respect of a license fee payable under the recently executedcollaboration agreement with Transition (see page 17). A payment of $7.5 millionwill be made in the fourth quarter of 2006 and the remaining balance of $7.5million is due to be paid in 2007. Net Interest and Investment Gains and Losses Net interest and investment losses decreased to $26.2 million in the thirdquarter of 2006 from $28.4 million in the same period of 2005, principally dueto a net investment gain of $3.1 million in the third quarter of 2006. In thefirst nine months of 2006, net interest and investment losses decreased to $79.7million from $157.5 million in the same period of 2005, principally due to a netcharge of $52.2 million on the retirement of $242.8 million of debt in 2005, anda decrease in interest expense in 2006 as a result of the debt retirement. Financial Outlook 2006 In line with previous guidance, Elan expects total revenues, excluding revenuesfrom Tysabri, to exceed $500.0 million. In addition, negative Adjusted EBITDAlosses, excluding Tysabri revenue, are expected to be below the previous rangeof $150.0 million to $175.0 million. Research and Development Autoimmune Tysabri - MS ECTRIMS The Annual Congress of the European Committee for Treatment and Research in MS(ECTRIMS) was held in Madrid from September 27-30. A number of posters andpresentations relating to Tysabri, including data on cognitive function and thesustained effect on relapse rate in patients with MS treated for up to threeyears were presented and published during the meeting. The following are somekey highlights from the presentations: Cognitive function -- Data demonstrated that treatment with Tysabri significantly reduced the risk of sustained cognitive worsening by 43%, compared to placebo, in patients with MS. Sustained effect on relapse rate -- For approximately 250 patients who were on Tysabri monotherapy for nearly three years, the annualized relapse rate over the three year period was 0.23, translating into an average of one relapse every 4.3 years. This was consistent with the 0.23 annualized relapse rate seen in the two-year AFFIRM study, which represented a 68% relative reduction when compared to the two-year placebo annualized relapse rate of 0.73, as published in the New England Journal of Medicine. Tysabri - Crohn's disease In the US, we expect to file a Biologics License Application with the FDA forTysabri in CD by the year-end. The Marketing Authorisation Application forTysabri in CD is currently under review at the European regulatory agency. The Crohn's maintenance data presented at the United European GastroenterologyWeek on October 24, 2006, will also be presented at the Annual American Collegeof Gastroenterology meeting today, Wednesday, October 25, 2006. About Tysabri In the US, TYSABRI is approved as a monotherapy treatment for relapsing forms ofMS. TYSABRI increases the risk of progressive multifocal leukoencephalopathy(PML), an opportunistic viral infection of the brain that usually leads to deathor severe disability. Patients should be monitored at regular intervals for anynew or worsening signs or symptoms suggestive of PML. Because of the increasedrisk of PML, TYSABRI is generally recommended for patients who have had aninadequate response to, or are unable to tolerate, alternate MS therapies. It isavailable in the US only through a restricted distribution program called theTOUCH Prescribing Program. According to product labeling, after two years,TYSABRI treatment led to a 67% relative reduction (pless than0.001) in theannualized relapse rate compared to placebo and reduced the relative risk ofdisability progression by 42% (pless than0.001). TYSABRI treatment also resultedin sustained and statistically significant reductions in brain lesion activityas measured by MRI. Changes in MRI findings often do not correlate with changesin the clinical status of patients (e.g., disability progression). Theprognostic significance of the MRI findings in these studies has not beenevaluated. In the European Union, TYSABRI is indicated as a single disease-modifyingtherapy in highly active relapsing-remitting MS patients. Because of theincreased risk of PML, it is for patients with high disease activity despitetreatment with a beta-interferon or in patients with rapidly evolving severerelapsing-remitting MS. According to product labeling in the EU, after twoyears, TYSABRI treatment led to a 68% relative reduction (p less than 0.001) inthe annualized relapse rate compared to placebo and reduced the relative risk ofdisability progression by 42-54% (p less than 0.001). Serious adverse events that occurred in TYSABRI-treated patients includedhypersensitivity reactions (e.g., anaphylaxis), infections, depression andgallstones. In MS trials, the incidence and rate of other serious and commonadverse events, including the overall incidence and rate of infections, werebalanced between treatment groups. Herpes infections were slightly more commonin patients treated with TYSABRI. Serious opportunistic and other atypicalinfections have been observed in TYSABRI-treated patients, some of whom werereceiving concurrent immunosuppressants. Common adverse events reported inTYSABRI-treated patients include headache, fatigue, infusion reactions, urinarytract infections, joint and limb pain, lower respiratory infections, rash,gastroenteritis, abdominal discomfort, vaginitis, and diarrhea. For more information about TYSABRI please visit www.tysabri.com,www.biogenidec.com or www.elan.com, or call 1-800-456-2255. ELND-001 Elan has a broad research program in the area of autoimmune diseases. One ofthese programs is focused on delivering oral Alpha-4 inhibitors to diseases inthis category. The first compound in this program, ELND-001, has commenced Phase1 clinical trials and patients have recently received their first dose. Thefirst indication for this compound is expected to be Rheumatoid Arthritis. Alzheimer's Disease and other Neurodegenerative Diseases Elan is focused on building upon its breakthrough research and extensiveexperience in Alzheimer's disease (AD) and is also studying otherneurodegenerative diseases, such as Parkinson's disease. Elan is continuing toprogress its own internal Gamma and Beta secretase Alzheimer's programs. Two of our compounds from our AD immunotherapy program, Bapineuzumab (AAB-001)and ACC-001, in collaboration with Wyeth, are progressing through clinicaltrials. Bapineuzumab (AAB-001) Bapineuzumab (AAB-001), a humanized monoclonal antibody to A-beta, is currentlyin Phase 2 clinical trials. Interim analysis of the Phase 2 data will be made bythe end of this year to determine the time point at which this program can moveinto the next phase of clinical trials. ACC-001 ACC-001 (active Abeta immunotherapeutic conjugate) is currently in Phase 1clinical trials. We expect to move this program into Phase 2 clinical trials bythe end of the year. Elan and Transition Therapeutics Collaboration On September 27, 2006, Elan and Transition, announced an exclusive, worldwidecollaboration agreement for the joint development and commercialization of anovel therapeutic agent, AZD-103, for the treatment of Alzheimer's disease.AZD-103 is a small molecule compound in Phase 1 clinical development that actsby breaking down and preventing the assembly of beta amlyoid fibrils, a hallmarkpathology of Alzheimer's disease. About Elan Elan Corporation (NYSE: ELN), plc is a neuroscience-based biotechnology companycommitted to making a difference in the lives of patients and their families bydedicating itself to bringing innovations in science to fill significant unmetmedical needs that continue to exist around the world. Elan shares trade on theNew York, London and Dublin Stock Exchanges. For additional information aboutthe company, please visit http://www.elan.com. Forward-Looking Statements This document contains forward-looking statements about Elan's financialcondition, results of operations, business prospects and products in researchthat involve substantial risks and uncertainties. You can identify thesestatements by the fact that they use words such as "anticipate", "estimate","project", "target", "intend", "plan", "believe" and other words and terms ofsimilar meaning in connection with any discussion of future operating orfinancial performance or events. Among the factors that could cause actualresults to differ materially from those described or projected herein are thefollowing: the potential of Tysabri, the incidence of serious adverse eventsassociated with Tysabri (including cases of PML) and the potential for thesuccessful development and commercialization of additional products, includingthose utilizing Tysabri; the potential of Elan's other marketed products; Elan'sability to maintain sufficient cash, liquid resources, and investments and otherassets capable of being monetized to meet its liquidity requirements; thesuccess of research and development activities including, in particular, whetherthe Phase 2 clinical trials for AAB-001 and the Phase 1 clinical trials forACC-001 are successful and the speed with which regulatory authorizations andproduct launches may be achieved; competitive developments affecting Elan'sproducts; the ability to successfully market both new and existing products;difficulties or delays in manufacturing and supply of Elan's products(including, in particular, Maxipime); trade buying patterns; the impact ofgeneric and branded competition after the expiration of Elan's patents,including the impact of any generic competition following the loss of patentexclusivity for Azactam in October 2005; whether restrictive covenants in Elan'sdebt obligations will adversely affect Elan; the trend towards managed care andhealth care cost containment, including Medicare and Medicaid; the potentialimpact of the Medicare Prescription Drug, Improvement and Modernisation Act2003; possible legislation affecting pharmaceutical pricing and reimbursement,both domestically and internationally; failure to comply with kickback and falseclaims laws including in respect to past practice related to the marketing ofZonegran; failure to comply with Elan's payment obligations under Medicaid andother governmental programs; exposure to product liability and other types oflawsuits and legal defense costs and the risks of adverse decisions orsettlements related to product liability, patent protection, governmentalinvestigations and other legal proceedings; Elan's ability to protect itspatents and other intellectual property; claims and concerns that may ariseregarding the safety or efficacy of Elan's products or product candidates;interest rate and foreign currency exchange rate fluctuations; governmental lawsand regulations affecting domestic and foreign operations, including taxobligations; general changes in US and International generally acceptedaccounting principles; growth in costs and expenses; changes in product mix; andthe impact of acquisitions, divestitures, restructurings, product withdrawalsand other unusual items. A further list and description of these risks,uncertainties and other matters can be found in Elan's Annual Report on Form20-F for the fiscal year ended December 31, 2005, and in its Reports of ForeignIssuer on Form 6-K filed with the SEC. Elan assumes no obligation to update anyforward-looking statements, whether as a result of new information, futureevents or otherwise. Elan continually evaluates its liquidity requirements, capital needs andavailability of resources in view of, among other things, alternative uses ofcapital, debt service requirements, the cost of debt and equity capital andestimated future operating cash flow. Elan may raise additional capital,restructure or refinance outstanding debt, repurchase material amounts ofoutstanding debt, consider the sale of products, interests in subsidiaries,marketable investment securities or other assets, or take a combination of suchactions or other steps to increase or manage its liquidity and capitalresources. Any such actions or steps, including any sale of assets or repurchaseof outstanding debt, could be material. In the normal course of business, Elanmay investigate, evaluate, discuss and engage in future company or productacquisitions, capital expenditures, investment and other business opportunities.In the event of any future acquisitions, capital expenditures, investment orother business opportunities, Elan may consider using available cash or raisingadditional capital, including the issuance of additional debt. Elan Third Quarter 2006 Financial Results Appendix I \* T Three Months Ended Three Months Ended September 30, 2005 September 30, 2006 Tysabri Rest of Total Tysabri Rest of Total (1) Business (1) (1) Business (1) (1) (1) US$m US$m US$m US$m US$m US$m---------------------------------------------------------------------- Revenue (0.2) 118.6 118.4 Product revenue(2) (0.3) 112.8 112.5 5.6 4.6 10.2 Contract revenue 5.4 5.4 10.8----------- --------- ------ ------- --------- ------ 5.4 123.2 128.6 Total revenue 5.1 118.2 123.3----------- --------- ------ ------- --------- ------ Operating Expenses 0.4 46.2 46.6 Cost of goods sold 3.4 42.7 46.1 Selling, general and 17.2 62.8 80.0 administrative(3) 16.7 67.5 84.2 Research and 19.4 40.9 60.3 development 9.0 42.8 51.8 Net gain on divestment of products and -- (23.3) (23.3) businesses -- -- -- 0.3 2.9 3.2 Other net charges -- 19.7 19.7----------- --------- ------ ------- --------- ------ Total operating 37.3 129.5 166.8 expenses 29.1 172.7 201.8----------- --------- ------ ------- --------- ------ (31.9) (6.3) (38.2)Operating loss (24.0) (54.5) (78.5) Depreciation and 0.5 30.1 30.6 amortization 0.7 31.9 32.6 (5.6) (12.3) (17.9)Amortized fees (5.4) (10.1) (15.5) Net gain on divestment of products and -- (23.3) (23.3) businesses -- -- -- Revenue received -- 3.5 3.5 and deferred -- -- -- 0.3 2.9 3.2 Other net charges -- 19.7 19.7----------- --------- ------ ------- --------- ------ (36.7) (5.4) (42.1)Adjusted EBITDA (28.7) (13.0) (41.7)=========== ========= ====== ======= ========= ====== (1) Excludes share-based compensation.\* T \* T (2) Tysabri product revenue reflects (US$m): 2005 2006 --------- ---------US revenue (0.2) 5.2EU share of operating loss -- (5.7) --------- --------- Total Tysabri product revenue (0.2) (0.3) --------- --------- (3) General and corporate costs have not been allocated to Tysabri.\* T \* TAppendix II Nine Months Ended Nine Months Ended September 30, 2005 September 30, 2006 Tysabri Rest of Total Tysabri Rest of Total (1) Business (1) (1) Business (1) (1) (1) US$m US$m US$m US$m US$m US$m---------------------------------------------------------------------- Revenue 11.4 314.0 325.4 Product revenue(2) (0.5) 372.0 371.5 9.3 15.2 24.5 Contract revenue 6.8 15.7 22.5--------- --------- ------- ------- --------- ------- 20.7 329.2 349.9 Total revenue 6.3 387.7 394.0--------- --------- ------- ------- --------- ------- Operating Expenses Cost of goods 25.2 125.1 150.3 sold(3) 4.7 136.0 140.7 Selling, general and 66.4 206.6 273.0 administrative(4) 54.3 196.3 250.6 Research and 56.3 124.2 180.5 development 20.7 125.9 146.6 Net gain on divestment of products and -- (88.4) (88.4) businesses -- (43.3) (43.3) 0.3 2.0 2.3 Other net charges -- 23.1 23.1--------- --------- ------- ------- --------- ------- Total operating 148.2 369.5 517.7 expenses 79.7 438.0 517.7--------- --------- ------- ------- --------- ------- (127.5) (40.3) (167.8)Operating loss (73.4) (50.3) (123.7) Depreciation and 1.5 94.3 95.8 amortization 2.1 96.6 98.7 (9.3) (33.5) (42.8)Amortized fees (6.8) (29.9) (36.7) Net gain on divestment of products and -- (88.4) (88.4) businesses -- (43.3) (43.3) Revenue received -- 4.2 4.2 and deferred -- -- -- 0.3 2.0 2.3 Other net charges -- 23.1 23.1--------- --------- ------- ------- --------- ------- (135.0) (61.7) (196.7)Adjusted EBITDA (78.1) (3.8) (81.9)========= ========= ======= ======= ========= ======= (1) Excludes share-based compensation.\* T \* T(2) Tysabri product revenue reflects (US$m): 2005 2006 --------- ---------US revenue 11.4 5.2EU share of operating loss -- (5.7) --------- --------- Total Tysabri product revenue 11.4 (0.5) --------- --------- (3) Cost of goods sold for Tysabri for the nine months ended September 30, 2005 includes $14.0 million of inventory written-off related to the voluntary suspension of the marketing of Tysabri. (4) General and corporate costs have not been allocated to Tysabri.\* T \* T CONTACT: Elan Corporation, plc Investor Relations: Emer Reynolds Ph: 353-1-709-4000 Chris Burns Ph: 800-252-3526 or Media Relations: Davia Temin Ph: 212-407-5740 Elizabeth Headon Ph: 353-1-498-0300\* T Copyright Business Wire 2006