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“Financial Instruments: Presentation: Classification of Rights Issue”
Elan Corporation, plc
Half-Year Financial Report
Six Months Ended 30 June 2010Table of Contents
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| Chief Executive Officer’s Statement |
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| Half-Year Management Report |
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| Unaudited Condensed Consolidated Half-Year Financial Statements |
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| Notes to the Unaudited Condensed Consolidated Half-Year Financial Statements |
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| U.S. GAAP Information |
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| Responsibility Statement |
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| Independent Review Report of KPMG |
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CHIEF EXECUTIVE OFFICER’S STATEMENT
To Our Shareholders:
During the first half of 2010, we have focused on financial improvement across the Company while we continue to advance our diversified clinical portfolio to patients through disciplined investment in science. We continued to improve operating performance, with Adjusted EBITDA increasing six-fold to $82.4 million from $13.1 million for the same period in 2009. The increase principally reflects the increase in revenue, improved operating margins and the reduction in combined selling, general and administrative, and research and development expenses.
Revenue increases for the BioNeurology business were largely driven by growth of Tysabri®, which recorded in-market sales of $589.4 million in the first half of 2010, an increase of 22% over the $481.3 million recorded in the same time period of 2009. At the end of June 2010, approximately 52,700 patients were on therapy worldwide, an increase of 22% over the 43,300 who were on therapy at the end of June 2009. We are continuing to work with Biogen Idec, Inc., our collaborator on Tysabri, and the clinical community, to better understand both the efficacy and safety of the therapy.
Our Elan Drug Technologies (EDT) business continues to be a leader in drug delivery. By providing industry-leading advances in drug delivery technology, we are able to participate in the commercialization of several molecules with different pharmaceutical collaborators. The approval in January of Acorda Therapeutics, Inc.’s Ampyra®, which utilizes EDT’s MXDAS® technology, was a significant milestone for the business. Additionally, we have recently completed the evaluation process, announced in April 2010, for the possible separation of the EDT and BioNeurology businesses. While we have determined separating EDT would make strategic sense in the future, at present, we are focused on continuing to grow the business, until market conditions improve enough for us to achieve an appropriate valuation of EDT to move forward.
The BioNeurology pipeline continues to mature, and the first half of 2010 saw key milestones achieved for several compounds. ELND002, a potential therapeutic for multiple sclerosis, reached Phase 1b, with the inclusion of the first patient in the trial in June of this year. ELND005, which is being developed in collaboration with Transition Therapeutics, Inc. (Transition), recently completed its Phase 2 trial and we announced today the topline summary results of this trial and our plans to progress this compound to Phase 3. We have agreed to work with Transition to systematically explore all strategic, operational, and global options for the asset with the intent of maximizing the value of this innovative potential therapeutic.
Elan has reached an agreement in principle with respect to the U.S. Department of Justice’s investigation of sales and marketing practices with respect to Zonegran, a product that was divested in 2004. If this agreement in principle is finalized, Elan expects to pay $203.5 million as part of a comprehensive settlement of all U.S. federal and related state Medicaid claims. The Company has established a provision of $206.3 million, in the first half of 2010, for this expected settlement and related expenses.
The accomplishments of the first half of 2010 continue to allow Elan to focus on being a leader in neuroscience and disease-modifying novel therapeutics. We are confident that Elan, through our industry leading pipeline, will continue to define the future of degenerative neurological therapies.
G. Kelly Martin
Chief Executive Officer
HALF-YEAR MANAGEMENT REPORT
Introduction
This Half-Year Financial Report for the six months ended 30 June 2010 meets the reporting requirements pursuant to the Transparency (Directive 2004/109/EC) Regulations 2007 and the related Transparency Rules of the Republic of Ireland’s Financial Regulator.
This half-year management report includes the following:
• Business overview, including important events that have occurred during the half-year;
• Selected financial data;
• Principal risks and uncertainties relating to the remaining six months of the year;
• Results of operations for the six months ended 30 June 2010, compared to the six months ended 30 June 2009;
• Reconciliation of net loss to Adjusted EBITDA – non-GAAP financial information;
• Liquid resources and shareholders’ equity;
• Cash flows summary;
• Debt facilities;
• Related party transactions;
• Directors; and
• Events after the balance sheet date.
Business Overview
Elan Corporation, plc, an Irish public limited company (also referred to hereafter as “we”, “our”, “us”, “Elan” and “the Company”), is a neuroscience-based biotechnology company, listed on the Irish and New York Stock Exchanges, and headquartered in Dublin, Ireland. We were incorporated as a private limited company in Ireland in December 1969 and became a public limited company in January 1984. Our registered office and principal executive offices are located at Treasury Building, Lower Grand Canal Street, Dublin 2, Ireland and our telephone number is +353-1-709-4000. We employ over 1,200 people and our principal research and development (R&D), manufacturing and marketing facilities are located in Ireland and the United States.
Our operations are organised into two business units; BioNeurology and Elan Drug Technologies (EDT). BioNeurology engages in research, development and commercial activities primarily in the areas of Alzheimer’s disease, Parkinson’s disease and multiple sclerosis (MS). EDT is an established, profitable, integrated drug delivery business unit of Elan, which has been applying its skills and knowledge in product development and drug delivery technologies to enhance the performance of dozens of drugs that have been marketed worldwide.
Summary of Operating Performance
In assessing the first half performance, it is important to note that these results were achieved against a background where we have, as expected, seen reduced revenues from a number of products including Azactam® and Prialt® in the BioNeurology business and Skelaxin® and TriCor®145 in the EDT business, as well as an increased investment in development activities related particularly to Tysabri®, ELND005 (scylloinositol) and the EDT business. The loss of contribution from this decrease in revenue and the increased investment in our growth drivers was more than compensated for by the continued growth of Tysabri, the launch of Ampyra® (dalfampridine), reduced selling, general and administrative (SG&A) costs and the transfer of the Alzheimer’s Immunotherapy Program (AIP) to a subsidiary of Johnson & Johnson (Janssen AI) in September 2009.
Total revenue increased by 10% to $423.5 million in the first half of 2010, compared to the same period in 2009. The increase was driven by the growth of Tysabri and revenue from Ampyra, which more than offsets the expected decline in revenues from Azactam. We ceased distributing Azactam as of 31 March 2010 and will not earn any future revenues from this product. Total in-market sales of Tysabri were $589.4 million in the first half of 2010, an increase of 22% over the $481.3 million recorded in the same period of 2009, and resulted in recorded Tysabri revenue of $250.3 million (2009: $191.0 million).
For a reconciliation of operating loss before other charges to operating loss, refer to page 9. We believe this reconciliation is meaningful because it provides additional information when analysing certain items. The principal items classified as other charges include severance, restructuring and other costs, net loss on divestment of business and asset impairment charges.
The gross profit, excluding other charges of $0.7 million (2009: $20.9 million), increased by 15% to $260.2 million for the first half of 2009, compared to $226.8 million for the same period of 2009. The increased gross profit, excluding other charges, was earned from higher sales of Tysabri and revenue from Ampyra, which more than replaced lost gross profit as a result of lower sales of Azactam.
Although total revenue increased by 10%, SG&A expenses, excluding other charges of $3.5 million (2009: $9.5 million), declined by 12% to $96.5 million in the first half of 2010, compared to $109.9 million for the same period in 2009, reflecting lower headcount from the reduction in support activities in 2009, reduced sales and marketing costs and amortisation expense related to Prialt, along with continued cost control.
R&D expenses, excluding other charges of $0.1 million (2009: $10.2 million), decreased by 19% to $130.4 million in the first half of 2010, compared to $161.4 million for the same period in 2009. The decrease primarily relates to the cost savings as a result of the transfer of the AIP to Janssen AI in September 2009, partially offset by increased investment in R&D activities related to Tysabri, ELND005 and the EDT business. Under the terms of the September 2009 transaction with Johnson & Johnson, we received a 49.9% ownership interest in Janssen AI.
On 15 July 2010, we announced that we reached an agreement in principle with the U.S. Attorney’s Office for the District of Massachusetts with respect to the previously disclosed U.S. Department of Justice’s investigation of sales and marketing practices for Zonegran, which we divested in 2004. If the agreement in principle is finalised, we expect to pay $203.5 million as part of a comprehensive settlement for all U.S. federal and related state Medicaid claims and $203.5 million has been placed into an escrow account to cover the proposed settlement amount. We have established a provision of $206.3 million, in the first half of 2010, for this expected settlement and related costs. As part of this agreement in principle, Elan Pharmaceuticals, Inc., a U.S. subsidiary of Elan Corporation, plc, expects to plead guilty to a misdemeanour violation of the U.S. Federal Food, Drug and Cosmetic Act (FD&C Act) and to enter into a Corporate Integrity Agreement with the Office of Inspector General of the U.S. Department of Health and Human Services. While we expect to negotiate and enter into final settlement and Corporate Integrity Agreements, there can be no assurance as to when or if any settlement will be finalised or, if a settlement is finalised, what the final terms of the settlement will be. Additionally, the proposed resolution of the Zonegran investigation could give rise to other litigation by state government entities or private parties.
The gain on legal settlement of $18.0 million for the first half of 2009 relates to an agreement with Watson Pharmaceuticals, Inc. (Watson) to settle litigation with respect to Watson’s marketing of a generic version of Naprelan®. As part of the settlement, Watson stipulated that Elan’s patent at issue is valid and enforceable and that Watson’s generic formulations of Naprelan infringed Elan’s patent.
Excluding the settlement provision charge and other charges, we recorded an operating profit for the first half of 2010 of $33.3 million compared to an operating loss, excluding other charges and gain on legal settlement, of $44.5 million recorded in the first half of 2009. This improvement reflects the 10% increase in revenue, improved operating margins and a 16% reduction in combined SG&A and R&D expenses (excluding other charges).
The net loss increased by 33% to $219.8 million in the first half of 2010, compared to $165.3 million in the same period of 2009. The increase was primarily due to the inclusion of the settlement provision charge of $206.3 million in the first half of 2010. The net loss before tax, excluding the settlement provision charge and other charges, was $12.0 million for the first half of 2010, compared to a net loss before tax, excluding other charges and the gain on legal settlement, of $115.3 million for the same period of 2009. This improvement was due to the improved operating performance, lower interest expense and investment gains in the first half of 2010.
In the first half of 2010, Adjusted EBITDA increased six-fold to $82.4 million from $13.1 million for the same period in 2009. The increase principally reflects the increase in revenue, improved operating margins and the reduction in combined SG&A and R&D expenses. For a reconciliation of net loss to Adjusted EBITDA, refer to page 11.
For additional discussion of the results of operations for the first half of 2010, refer to pages 6 to 10 of this half-year management report.
BioNeurology Business Update
Total revenue from our BioNeurology business increased by 18% to $291.1 million in the first half of 2010 from $246.0 million for the same period of 2009. The increase was driven by growth of Tysabri, which more than offsets the expected decline in revenues from Azactam.
Total in-market sales of Tysabri were $589.4 million in the first half of 2010, an increase of 22% over the $481.3 million recorded for the same period of 2009, reflecting solid patient demand across global markets. At the end of June 2010, approximately 52,700 patients were on therapy worldwide, including approximately 26,200 commercial patients in the United States and approximately 26,000 commercial patients in rest of world (ROW), representing an increase of 22% over the 43,300 patients who were on therapy at the end of June 2009.
On 4 March 2010, Elan entered into a definitive agreement to divest its Prialt assets and rights to Azur Pharma International Limited. This transaction subsequently closed on 5 May 2010. We recorded a net loss of $0.8 million arising from the Prialt divestment in the first half of 2010, which is comprised of total consideration of $14.6 million less $14.0 million carrying value of intangible assets, $0.5 million carrying value of other assets and $0.9 million in transaction costs. Total consideration comprises cash proceeds received in the first half of 2010 of $5.0 million and the present value of deferred consideration of $9.6 million. We are also entitled to receive additional performance-related milestones and royalties.
Elan Drug Technologies Business Update
Revenue from the EDT business unit decreased to $132.4 million in the first half of 2010 from $138.6 million in the first half of 2009, due principally to lower revenues from TriCor 145 and Skelaxin, which were offset by revenues associated with the launch of Ampyra. The reduction in TriCor 145 revenues was primarily due to significantly decreased promotional efforts by EDT’s client and the decrease in Skelaxin revenues was principally as a result of generic competition. EDT revenues vary from period to period based on a number of factors including the timing of customer orders, licence fees earned, and contracted in-market sales hurdles for royalties.
Included within the revenue for the first half of 2010 was $20.8 million in relation to the manufacturing and royalty revenue for Ampyra Extended Release Tablets. Ampyra was approved by the U.S. Food and Drug Administration (FDA) in January 2010 as a treatment to improve walking ability in patients with MS; this was demonstrated by an improvement in walking speed. The product was subsequently launched in the United States in March 2010. Ampyra, which is globally licensed to Acorda Therapeutics, Inc. (Acorda), is marketed and distributed in the United States by Acorda and will be marketed and distributed outside the United States by Biogen Idec, Inc. (Biogen Idec), Acorda’s sub-licensee. Ampyra is the first New Drug Application (NDA) approved by the FDA for a product using EDT’s MXDAS® technology and is the first medicine approved by the FDA indicated to improve walking ability in people with MS as measured by walking speed. In addition, in January 2010, Biogen Idec announced the submission of a Marketing Authorisation Application to the European Medicines Agency for the product in the European Union, where it is called Fampridine Prolonged Release (Fampridine-PR). Biogen Idec also announced that it has filed a New Drug Submission with Health Canada. EDT manufactures supplies of Ampyra for the global market at its Athlone, Ireland facility, under a supply agreement with Acorda.
In the first half of 2010, Zogenix, Inc., the licensing partner for EDT’s hydrocodone product, ZX002, initiated Phase 3 clinical trials in the United States. ZX002 utilises EDT’s SODAS® technology and is being developed for the treatment of moderate to severe pain.
Exploration of EDT Separation
On 18 April 2010, we announced our decision to explore the possibility of a separation of our EDT business. The purpose of this exploration was to accurately assess the opportunities and impact on shareholder value. We have completed our evaluation of the separation of EDT from the BioNeurology business. The evaluation concluded that it makes strategic and financial sense to separate the businesses, provided that a separation can be done at an appropriate valuation. Given that market conditions at this time are not conducive to an appropriate valuation, we have determined that we will not start a process to pursue a separation of the EDT business at this time.
Selected Financial Data
The selected financial data set forth below is derived from our condensed consolidated half-year financial statements (half-year financial statements) in this Half-Year Financial Report and our 2009 Annual Report, and should be read in conjunction with, and is qualified by reference to, our half-year financial statements and related notes thereto.
| Six Months Ended 30 June | 2010 | 2009 | |||
| Income Statement Data (in $m, except for per share data): | |||||
| Total revenue | 423.5 | 384.6 | |||
| Settlement provision charge | 206.3 | — | |||
| Operating loss | (177.3) | (67.1) | |||
| Net loss | (219.8) | (165.3) | |||
| Basic and diluted net loss per Ordinary Share | $ (0.38) | $ (0.35) | |||
| Weighted-average number of shares outstanding – Basic and diluted (in millions) | 584.6 | 475.7 | |||
| Other Financial data (in $m): | |||||
| Adjusted EBITDA(1) | 82.4 | 13.1 |
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30 June
2010 |
31 December
2009 |
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| Balance Sheet Data (in $m): | |||||
| Cash and cash equivalents | 883.2 | 836.5 | |||
| Restricted cash and cash equivalents – current and non-current | 28.5 | 31.7 | |||
| Available-for-sale investments – current | 2.6 | 7.1 | |||
| Total assets | 2,307.0 | 2,321.3 | |||
| Long-term debt | 1,511.2 | 1,508.6 | |||
| Total shareholders’ equity | 302.6 | 514.4 |
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| (1) | Refer to page 11 for reconciliation of Adjusted EBITDA to net loss and our reasons for presenting this non-GAAP measure. |
Principal Risks and Uncertainties
During the first half of 2010, we reported an operating loss of $177.3 million on total revenues of $423.5 million, and after a settlement provision charge of $206.3 million.
We are encouraged by the continued operating progress made in the first half of 2010. Revenues grew by 10% which, coupled with a decrease of 16% in combined SG&A and R&D expenses (excluding other charges), resulted in a six-fold increase in Adjusted EBITDA to $82.4 million.
Our operating performance in the second half of 2010 is subject to risks and uncertainties. These include, but are not limited to, the following principal items:
• In respect of Tysabri, at the end of June 2010, approximately 52,700 patients were on therapy worldwide, including approximately 26,200 commercial patients in the United States and approximately 26,000 commercial patients in the ROW, representing an increase of 22% over the 43,300 patients who were on therapy at the end of June 2009. While we expect sales of Tysabri to continue to grow in the second half of 2010, the potential of Tysabri may be severely constrained by increases in the incidence of serious adverse events (including deaths) associated with Tysabri (in particular, if there are increases in the incidence rate for cases of progressive multifocal leukoencephalopathy (PML)) or by competition from existing or new therapies (in particular, oral therapies filed for U.S. and European approvals);
• We have reached an agreement in principle with respect to the U.S. Department of Justice’s investigation of our sales and marketing practices with respect to Zonegran, a product we divested in 2004. If this agreement in principle is finalised, we expect to pay $203.5 million as part of a comprehensive settlement of all U.S. federal and related state Medicaid claims. We have established a provision of $206.3 million, in the first half of 2010, for this expected settlement and related expenses. In addition, we expect to plead guilty to a misdemeanour violation of the U.S. FD&C Act and to enter into a Corporate Integrity Agreement with the Office of Inspector General of the Department of Health and Human Services. While we expect to negotiate and enter into final Settlement and Corporate Integrity Agreements; there can be no assurance as to when or if any settlement will be finalised or, if a settlement is finalised, what the final terms of the settlement will be. This proposed resolution of the Zonegran investigation could give rise to other investigations or litigation by state government entities or private parties;
• The Phase 2 clinical trial results of ELND005, which we are developing with Transition Therapeutics, Inc. (Transition), failed to achieve statistical significance in the primary endpoints; however, ELND005 did achieve targeted levels in cerebrospinal fluid, had an acceptable safety profile in the 250mg dose group and appeared to show some evidence of having a biological effect. Elan and Transition intend to move ELND005 into Phase 3 clinical trials and to work together to systematically explore all strategic, operational, and global options for the asset. There can be no assurance that ELND005 will successfully complete Phase 3 clinical trials or that the companies will be able to successfully complete their strategic exploration process for this asset;
• The EDT business unit generated revenues of $132.4 million in the first half of 2010. Some of the products from which we derive manufacturing or royalty revenues are under patent challenge by potential generic competitors. We and our clients defend our intellectual property rights vigorously. If some or all of these patent challenges were to be successful, then our manufacturing revenue and royalties would be materially and adversely affected;
• Whether the launch of Ampyra (marketed by Acorda), from which we derive manufacturing and royalty revenue, proves successful. Manufacturing and royalty revenue recorded for Ampyra in the first half of 2010 of $20.8 million principally reflects shipments to Acorda in the first quarter of 2010 to satisfy Acorda’s initial stocking requirements for the U.S. launch of the product as well as build-up of safety stock supply. U.S. Ampyra revenues for the remainder of the year are expected to be based only on ongoing restocking and supply needs; and
• Johnson & Johnson is our largest shareholder with an 18.4% interest in our outstanding Ordinary Shares and is in control of our remaining interest in the AIP. Johnson & Johnson’s interest in Elan and the AIP may discourage others from seeking to work with or acquire us.
Additionally, the pharmaceutical industry is highly competitive and subject to significant and changing regulation by international, national, state and local government entities; thus we face a number of other risks and uncertainties, which are discussed in more detail in our 2009 Annual Report.
Results of Operations for the Six Months Ended 30 June 2010
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2010 |
2009 |
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Increase/ (Decrease) |
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| $m | $m | ||||||
| Product revenue | 414.4 | 372.1 | 11% | ||||
| Contract revenue | 9.1 | 12.5 | (27)% | ||||
| Total revenue | 423.5 | 384.6 | 10% | ||||
| Cost of sales | 164.0 | 178.7 | (8)% | ||||
| Gross profit | 259.5 | 205.9 | 26% | ||||
| Selling, general and administrative expenses | 100.0 | 119.4 | (16)% | ||||
| Research and development expenses | 130.5 | 171.6 | (24)% | ||||
| Settlement provision charge | 206.3 | — | 100% | ||||
| Gain on legal settlement | — | (18.0) | (100)% | ||||
| Operating loss | (177.3) | (67.1) | 164% | ||||
| Interest expense | 60.7 | 71.4 | (15)% | ||||
| Interest income | (1.5) | (0.6) | 150% | ||||
| Investment gains | (13.9) | — | 100% | ||||
| Net interest and investment gains and losses | 45.3 | 70.8 | (36)% | ||||
| Loss before tax | (222.6) | (137.9) | 61% | ||||
| Income tax (benefit)/expense | (2.8) | 27.4 | (110)% | ||||
| Net loss for the period | (219.8) | (165.3) | 33% |
Total Revenue
Total revenue for the first half of 2010 increased 10% to $423.5 million from $384.6 million in the same period of 2009. Total revenue from our BioNeurology business increased by 18%, while total revenue from our EDT business decreased by 4%. Total revenue is analysed further between revenue from the BioNeurology and EDT business units.
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Six Months Ended
30 June |
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| 2010 | 2009 | ||||
| $m | $m | ||||
| Revenue from the BioNeurology business | 291.1 | 246.0 | |||
| Revenue from the EDT business | 132.4 | 138.6 | |||
| Total revenue | 423.5 | 384.6 | |||
Revenue from the BioNeurology Business
Total revenue from our BioNeurology business increased 18% to $291.1 million in the first half of 2010 from $246.0 million in the same period of 2009. The increase was driven by growth in Tysabri sales.
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Six Months Ended
30 June |
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| 2010 | 2009 | ||||
| $m | $m | ||||
| Tysabri | 250.3 | 191.0 | |||
| Azactam | 27.4 | 37.7 | |||
| Prialt | 6.2 | 8.7 | |||
| Maxipime® | 5.4 | 7.6 | |||
| Royalties | 0.8 | 1.0 | |||
| Total product revenue | 290.1 | 246.0 | |||
| Contract revenue | 1.0 | — | |||
| Total revenue from the BioNeurology business | 291.1 | 246.0 | |||
Tysabri
The Tysabri collaboration is a jointly controlled operation in accordance with International Accounting Standards (IAS) 31, “Financial Reporting of Interests in Joint Ventures”, (IAS 31). A jointly controlled operation is an operation of a joint venture (as defined by IAS 31) that involves the use of the assets and other resources of the venturers rather than establishing a corporation, partnership or other entity, or a financial structure that is separate from the venturers themselves. Each venturer uses its own property, plant and equipment and carries its own inventories. It also incurs its own expenses and liabilities and raises its own finance, which represent its own obligations.
The Tysabri collaboration operating profit or loss is calculated excluding R&D expenses (we record our share of the total Tysabri collaboration R&D expenses within our R&D expenses). In accordance with IAS 31, in any period where an operating loss has been incurred by the collaboration on sales of Tysabri, we do not recognise any Tysabri product revenue. In any period where an operating profit has been generated by the collaboration on sales of Tysabri, we recognise as revenue our share of the collaboration profit from the sale of Tysabri, plus our directly-incurred collaboration expenses on these sales. Accordingly, we recognised product revenue from Tysabri in the first half of 2010 and 2009 because the Tysabri collaboration incurred an operating profit during these periods. Our actual operating profit or loss on Tysabri differs from our share of the collaboration operating profit or loss because certain Tysabri-related expenses are not shared through the collaboration, and certain unique risks are retained by each party.
Global in-market net sales of Tysabri for MS, which we market in collaboration with Biogen Idec, were as follows:
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Six Months Ended
30 June |
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| 2010 | 2009 | ||||
| $m | $m | ||||
| United States | 280.1 | 240.4 | |||
| Rest of World | 309.3 | 240.9 | |||
| Total Tysabri in-market net sales | 589.4 | 481.3 | |||
Tysabri in-market net sales increased 22% to $589.4 million in the first half of 2010 from $481.3 million in the same period of 2009. The increase reflects the growth in patient demand across global markets.
The Tysabri revenue of $250.3 million in the first half of 2010 (2009: $191.0 million) was calculated as follows:
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Six Months Ended
30 June |
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| 2010 | 2009 | ||||
| $m | $m | ||||
| Tysabri in-market sales | 589.4 | 481.3 | |||
| Operating expenses incurred by Elan and Biogen Idec (excluding R&D expenses) | (283.1) | (267.1) | |||
| Tysabri collaboration operating profit | 306.3 | 214.2 | |||
| Elan’s 50% share of Tysabri collaboration operating profit | 153.2 | 107.1 | |||
| Elan’s directly-incurred costs (cost of sales and SG&A expenses) | 97.1 | 83.9 | |||
| Net Tysabri revenue | 250.3 | 191.0 | |||
Other BioNeurology Products
Azactam revenue decreased 27% to $27.4 million for the first half of 2010, compared to $37.7 million for the same period of 2009. We ceased distributing Azactam as of 31 March 2010 and will not earn any future revenues from this product.
On 4 March 2010, we entered into a definitive agreement to divest our Prialt assets and rights to Azur Pharma International Limited. This transaction subsequently closed on 5 May 2010. As a result, Prialt revenue decreased 29% to $6.2 million for the first half of 2010, compared to $8.7 million for the same period of 2009. We recorded a net loss of $0.8 million arising from the Prialt divestment in the first half of 2010.
Maxipime revenue decreased 29% to $5.4 million for the first half of 2010 from $7.6 million for the first half of 2010. The decrease was principally due to generic competition. We will cease distributing Maxipime as of 30 September 2010.
Revenue from the EDT Business
Revenue from the EDT business unit decreased to $132.4 million in the first half of 2010 from $138.6 million in the first half of 2009.
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Six Months Ended
30 June |
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| 2010 | 2009 | ||||
| $m | $m | ||||
| TriCor 145 | 25.0 | 30.0 | |||
| Ampyra | 20.8 | — | |||
| Focalin® XR/Ritalin® LA | 16.6 | 17.6 | |||
| Verelan® | 11.9 | 10.8 | |||
| Naprelan | 7.8 | 5.9 | |||
| Skelaxin | 5.2 | 15.6 | |||
| Other | 37.0 | 46.2 | |||
| Total product revenue — manufacturing revenue and royalties | 124.3 | 126.1 | |||
| Contract revenue | 8.1 | 12.5 | |||
| Total revenue from the EDT business | 132.4 | 138.6 | |||
Manufacturing revenue and royalties comprise revenue earned from products we manufacture for clients and royalties earned principally on sales by clients of products that incorporate our technologies.
In January 2010, the FDA approved Ampyra as a treatment to improve walking ability in patients with MS; this was demonstrated by an improvement in walking speed. The product was subsequently launched in the United States in March 2010. Ampyra, which is globally licensed to Acorda, is marketed and distributed in the United States by Acorda and will be marketed and distributed outside the United States by Biogen Idec, Acorda’s sub-licensee, where it is called Fampridine-PR. EDT manufactures supplies of Ampyra for the global market at its Athlone, Ireland facility, under a supply agreement with Acorda.
Manufacturing and royalty revenue recorded for Ampyra in the first half of 2010 of $20.8 million principally reflects shipments to Acorda in the first quarter of 2010 to satisfy Acorda’s initial stocking requirements for the U.S. launch of the product as well as build-up of safety stock supply. We record revenue upon shipment of Ampyra to Acorda as this revenue is not contingent upon ultimate sale of the shipped product by Acorda or its customers. U.S. Ampyra revenues for the remainder of the year are expected to be based only on ongoing restocking and supply needs.
Potential generic competitors have challenged the existing patent protection for several of the products from which we earn manufacturing revenue and royalties. We and our clients defend our intellectual property rights vigorously. However, if these challenges are successful, our manufacturing revenue and royalties will be materially and adversely affected. As a result of the approval and launch of generic forms of Skelaxin in April 2010, EDT’s royalty revenues from this product have significantly declined.
Contract Revenue
Contract revenue decreased 35% to $8.1 million in the first half of 2010 from $12.5 million for the same period in 2009. Revenue in the first half of 2009 included a license fee of $7.7 million from Acorda as a result of Acorda entering into an agreement with Biogen Idec to develop and commercialise Fampridine-PR in all territories outside the United States.
Other Charges Reconciliation
The following table shows a reconciliation of operating loss before other charges to operating loss:
| Six Months Ended 30 June 2010 | Six Months Ended 30 June 2009 | ||||||||||||
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Before
Other Charges |
Other Charges |
IFRS |
Before
Other Charges |
Other Charges |
IFRS |
|||||||
| $m | $m | $m | $m | $m | $m | ||||||||
| Product revenue | 414.4 | — | 414.4 | 372.1 | — | 372.1 | |||||||
| Contract revenue | 9.1 | — | 9.1 | 12.5 | — | 12.5 | |||||||
| Total revenue | 423.5 | — | 423.5 | 384.6 | — | 384.6 | |||||||
| Cost of sales | 163.3 | 0.7 | 164.0 | 157.8 | 20.9 | 178.7 | |||||||
| Gross profit | 260.2 | (0.7) | 259.5 | 226.8 | (20.9) | 205.9 | |||||||
| Selling, general and administrative expenses | 96.5 | 3.5 | 100.0 | 109.9 | 9.5 | 119.4 | |||||||
| Research and development expenses | 130.4 | 0.1 | 130.5 | 161.4 | 10.2 | 171.6 | |||||||
| Settlement provision charge | 206.3 | — | 206.3 | — | — | — | |||||||
| Gain on legal settlement | — | — | — | (18.0) | — | (18.0) | |||||||
| Operating loss | (173.0) | (4.3) | (177.3) | (26.5) | (40.6) | (67.1) | |||||||
Cost of Sales
Total cost of sales decreased to $164.0 million for the first half of 2010 from $178.7 million in the first half of 2009. Included within cost of sales were other charges of $0.7 million (2009: $20.9 million), as described in Note 5 to the half-year financial statements. Excluding other charges, the gross margin as a percentage of revenue was 61% for the first half of 2010 (2009: 59%).
Included within total cost of sales is $88.4 million of directly incurred collaboration cost of sales expenses related to Tysabri in the first half of 2010 (2009: $74.3 million), resulting in a reported Tysabri gross margin of 65% in the first half of 2010 (2009: 61%). The reported Tysabri gross margin is impacted by the profit sharing and operational arrangements in place with Biogen Idec.
Selling, General and Administrative Expenses
Total SG&A expenses were $100.0 million in the first half of 2010, compared to $119.4 million in the same period of 2009. Included within SG&A expenses were other charges of $3.5 million (2009: $9.5 million), as described in Note 5 to the half-year financial statements. Excluding other charges, SG&A expenses decreased 12% to $96.5 million in the first half of 2010 from $109.9 million in the first half of 2009. The decrease principally reflects lower headcount from the reduction of support activities in 2009, reduced sales and marketing costs and amortisation expense related to Prialt, along with continued cost control.
Research and Development Expenses
Total R&D expenses were $130.5 million in the first half of 2010, compared to $171.6 million in the same period of 2009. Included within R&D expenses were other charges of $0.1 million (2009: $10.2 million), as described further in Note 5 to the half-year financial statements. Excluding other charges, R&D expenses decreased 19% to $130.4 million in the first half of 2010, compared to $161.4 million in the first half of 2009. The decrease was primarily due to the cost savings as a result of the transfer of AIP to Janssen AI in the second half of 2009. R&D expenses incurred in relation to AIP in the first half of 2009 were $57.0 million. Excluding AIP and other charges, R&D expenses increased by $26.0 million (25%) in the first half of 2010, from $104.4 million in the same period in 2009, principally reflecting increased investment in R&D initiatives related to Tysabri.
Settlement Provision Charge
On 15 July 2010, we announced that we reached an agreement in principle with the U.S. Attorney’s Office for the District of Massachusetts with respect to the previously disclosed U.S. Department of Justice’s investigation of sales and marketing practices for Zonegran, which we divested in 2004. If the agreement in principle is finalised, we expect to pay $203.5 million as part of a comprehensive settlement for all U.S. federal and related state Medicaid claims and $203.5 million has been placed into an escrow account to cover the proposed settlement amount. We have established a provision of $206.3 million, in the first half of 2010, for this expected settlement and related costs. As part of this agreement in principle, Elan Pharmaceuticals, Inc., a U.S. subsidiary of Elan Corporation, plc, expects to plead guilty to a misdemeanour violation of the U.S. FD&C Act and to enter into a Corporate Integrity Agreement with the Office of Inspector General of the U.S. Department of Health and Human Services. While we expect to negotiate and enter into final settlement and Corporate Integrity Agreements, there can be no assurance as to when or if any settlement will be finalised or, if a settlement is finalised, what the final terms of the settlement will be. Additionally, the proposed resolution of the Zonegran investigation could give rise to other litigation by state government entities or private parties.
Gain on Legal Settlement
The gain on legal settlement of $18.0 million for the first half of 2009 relates to an agreement with. Watson to settle litigation with respect to Watson’s marketing of a generic version of Naprelan. As part of the settlement, Watson stipulated that Elan’s patent at issue is valid and enforceable and that Watson’s generic formulations of Naprelan infringed Elan’s patent.
Other Charges
For the first half of 2010, included within cost of sales, SG&A expenses, and R&D expenses were total other charges of $4.3 million (2009: $40.6 million). For further discussion of these other charges, refer to Note 5 to the half-year financial statements.
Net Interest and Investment Gains and Losses
Net interest and investment gains and losses amounted to a net expense of $45.3 million for the first half of 2010, compared to a net expense of $70.8 million for the same period of 2009. The interest expense in the first half of 2010 decreased to $60.7 million compared to $71.4 million in the first half of 2009, primarily due to lower interest expense following the Johnson & Johnson and debt refinancing transactions in the second half of 2009. We recorded net investment gains of $13.9 million in the first half of 2010 (2009: $Nil), including a gain of $7.9 million related to a recovery realised on a previously impaired investment in auction rate securities and gains on disposal of investment securities of $4.8 million.
Taxation
The income tax benefit was $2.8 million in the first half of 2010, compared to a $27.4 million expense in the first half of 2009. The tax benefit for the first half of 2010 reflects changes to U.S. net income, in addition to one-off tax benefits, recorded during the period. The tax benefit in the first half of 2010 includes a deferred tax benefit of $4.2 million (2009: $24.3 million expense) as a result of one-off tax benefits, partially offset by deferred tax expense related to the deferred tax asset (DTA) recognised in 2008, as the underlying loss carryforwards and other DTAs are utilised to shelter taxable income in the United States.
Reconciliation of Net Loss to Adjusted EBITDA — Non-GAAP Financial Information
|
|
Six Months Ended
30 June |
||||
| 2010 | 2009 | ||||
| $m | $m | ||||
| Net loss | (219.8) | (165.3) | |||
| Adjustments: | |||||
| Interest expense | 60.7 | 71.4 | |||
| Interest income | (1.5) | (0.6) | |||
| Income tax (benefit)/expense | (2.8) | 27.4 | |||
| Depreciation and amortisation | 32.2 | 38.8 | |||
| Amortised fees, net | (0.4) | (0.5) | |||
| EBITDA | (131.6) | (28.8) | |||
| Share-based compensation expense(1) | 17.3 | 19.3 | |||
| Settlement provision charge | 206.3 | — | |||
| Gain on legal settlement | — | (18.0) | |||
| Other charges | 4.3 | 40.6 | |||
| Investment gains | (13.9) | — | |||
| Adjusted EBITDA | 82.4 | 13.1 | |||
____________
| (1) | Share-based compensation expense excludes a $0.2 million credit included in other charges in the first half of 2010 (2009: $1.7 million charge). |
EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortisation) and Adjusted EBITDA are non-GAAP measures of operating results. Elan’s management uses these measures to evaluate our operating performance and they are among the factors considered as a basis for our planning and forecasting for future periods. We believe that EBITDA and Adjusted EBITDA are measures of performance used by some investors, equity analysts and others to make informed investment decisions.
Adjusted EBITDA is defined as EBITDA plus or minus share-based compensation, settlement provision charge, gain on legal settlements, other charges and investment gains. EBITDA and Adjusted EBITDA are not presented as, and should not be considered alternative measures of, operating results or cash flows from operations, as determined in accordance with IFRS. Reconciliations of EBITDA and Adjusted EBITDA to net loss are set out in the table above.
In the first half of 2010, we reported Adjusted EBITDA of $82.4 million, compared to Adjusted EBITDA of $13.1 million in the first half of 2009. The improvement reflects the 10% increase in revenue, improved operating margins and a 16% reduction in combined SG&A and R&D expenses, excluding other charges.
Liquid Resources and Shareholders’ Equity
Our liquid resources and shareholders’ equity were as follows:
|
|
30 June
2010 |
31 December
2009 |
% Increase/
(Decrease) |
||||
| $m | $m | ||||||
| Cash and cash equivalents | 883.2 | 836.5 | 6% | ||||
| Restricted cash and cash equivalents — current | 13.6 | 16.8 | (19)% | ||||
| Available-for-sale investments — current | 2.6 | 7.1 | (63)% | ||||
| Total liquid resources | 899.4 | 860.4 | 5% | ||||
| Shareholders’ equity | 302.6 | 514.4 | (41)% |
We have historically financed our operating and capital resource requirements through cash flows from operations, sales of investment securities and borrowings. We consider all highly liquid deposits with an original maturity of three months or less to be cash equivalents. Our primary source of funds at 30 June 2010 consisted of cash and cash equivalents of $883.2 million, which excludes current restricted cash and cash equivalents of $13.6 million and current available-for-sale investments of $2.6 million. Cash and cash equivalents primarily consist of bank deposits and holdings in U.S. Treasuries funds.
At 30 June 2010, our shareholders’ equity was $302.6 million, compared to $514.4 million at 31 December 2009. The movement is primarily due to the net loss of $219.8 million incurred in the first half of 2010. The net loss in the first half of 2010 included a settlement provision charge of $206.3 million.
Cash Flows Summary
|
|
Six Months Ended
30 June |
||||
| 2010 | 2009 | ||||
| $m | $m | ||||
| Net cash provided by/(used in) operating activities | 46.1 | (95.3) | |||
| Net cash provided by/(used in) investing activities | 0.1 | (62.8) | |||
| Net cash provided by financing activities | 0.8 | 1.4 | |||
| Effect of foreign exchange rate changes on cash | (0.3) | (0.2) | |||
| Net increase/(decrease) in cash and cash equivalents | 46.7 | (156.9) | |||
| Cash and cash equivalents at beginning of period | 836.5 | 375.3 | |||
| Cash and cash equivalents at end of period | 883.2 | 218.4 | |||
Operating Activities
The components of net cash used in operating activities were as follows:
|
|
Six Months Ended
30 June |
||||
| 2010 | 2009 | ||||
| $m | $m | ||||
| Adjusted EBITDA | 82.4 | 13.1 | |||
| Net interest and tax | (56.8) | (71.0) | |||
| Settlement provision charge | (206.3) | — | |||
| Other charges | (3.7) | (4.7) | |||
| Working capital decrease/(increase) | 230.5 | (32.7) | |||
| Net cash provided by/(used in) operating activities | 46.1 | (95.3) | |||
Net cash provided by operating activities was $46.1 million in the first half of 2010 (2009: net cash used $95.3 million).
The improvement in Adjusted EBITDA to $82.4 million for the first half of 2010 from $13.1 million in the same period in 2009 is discussed on page 11.
Net interest and tax of $56.8 million in the first half of 2010, was primarily comprised of debt interest expense and was lower than the $71.0 million incurred in the first half of 2009, as further discussed on page 10. The settlement provision charge of $206.3 million in the first half of 2010 is discussed in Note 6 to the half-year financial statements. The other charges of $3.7 million in the first half of 2010 (adjusted to exclude net non-cash other charges of $0.6 million) was primarily comprised of severance and restructuring charges. The other charges of $4.7 million in the first half of 2009 (adjusted to exclude non-cash other charges of $17.9 million) was comprised of $22.7 million of severance and restructuring charges, partially offset by $18.0 million received from Watson relating to a Settlement Agreement and Release to settle litigation with respect to Watson’s marketing of a generic version of Naprelan.
The working capital decrease of $230.5 million in the first half of 2010 was primarily driven by inclusion of the settlement provision discussed in Note 6 to the half-year financial statements. Excluding this settlement provision, the underlying decrease of $24.2 million was primarily due to the reduction in revenues from Azactam and Skelaxin following the launch of generic competitors during the first half of 2010, offset by increased revenues from Tysabri. The working capital increase of $32.7 million in the first half of 2009 was primarily driven by increased revenues along with the timing of royalty and other payments.
Investing Activities
Net cash provided by investing activities was $0.1 million in the first half of 2010. The primary components of cash provided by investing activities were capital expenditures of $23.8 million offset by investment and business disposal proceeds of $21.0 million.
Net cash used in investing activities was $62.8 million in the first half of 2009. The primary components of cash used in investing activities were capital expenditures of $83.9 million offset by proceeds of $10.6 million from the disposal of available-for-sale investments. Included within capital expenditures was a $50.0 million optional payment made to Biogen Idec in order to maintain an approximate 50% share of Tysabri for annual global in-market net sales of Tysabri that are in excess of $1.1 billion.
Financing Activities
Net cash provided by financing activities totaled $0.8 million in the first half of 2010 (2009: $1.4 million), primarily reflecting the net proceeds from employee stock issuances.
Debt Facilities
At 30 June 2010, we had outstanding debt of $1,540.0 million in aggregate principal amount (excluding unamortised financing costs and original issue discount), which consisted of the following:
| $m | |||
| Floating Rate Notes due 2011 | 300.0 | ||
| 8.875% Notes due 2013 | 465.0 | ||
| Floating Rate Notes due 2013 | 150.0 | ||
| 8.75% Notes due 2016 | 625.0 | ||
| Total debt | 1,540.0 |
Under the terms of our debt covenants, we are required to either reinvest $235.0 million of the proceeds received from the 17 September 2009 transaction with Johnson & Johnson within twelve months of that date, or if not reinvested, make a pro-rata offer to repurchase a portion of our debt at par. As of 30 June 2010, $192.0 million of the $235.0 million proceeds had not been reinvested.
During the first half of 2010, as at 30 June 2010, and as of the date of filing of this Half-Year Financial Report, we were not in violation of any of our debt covenants. For additional information regarding our outstanding debt, please refer to Note 15 to the half-year financial statements.
Related Party Transactions
We have related party relationships with our subsidiaries, directors and executive officers. All transactions with subsidiaries eliminate on consolidation and are not presented in accordance with IAS 24, “Related Party Disclosures” (IAS 24).
Except as noted below, there were no related party transactions that have taken place in the six months ended 30 June 2010 that materially affected the financial position or the performance of the Company during that period and there were no changes in the related party transactions described in the 2009 Annual Report that could have a material effect on the financial position or performance of the Company in the same period.
Transactions with Directors
On 3 June 2010, Elan announced that its Board and Mr. Kelly Martin, Chief Executive Officer, have agreed to transition his employment contract from an open-ended agreement to a fixed term agreement. Under this agreement, Mr. Martin has committed to remain in his current roles as Chief Executive Officer and Director of the Company through 1 May 2012. It is envisioned that upon the completion of this fixed term Mr. Martin will then serve the Board as Executive Adviser through 31 January 2013. This amendment provides that: (i) Mr. Martin’s base salary is increased from $800,000 to $1,000,000 per year effective 1 June 2010, (ii) when Mr. Martin moves to the role of Executive Adviser, his base salary will be reduced to $750,000 per year, he will not be eligible for a bonus and he will resign from the Board, and (iii) should Mr. Martin’s employment be involuntarily terminated, or should he resign for good reason, or should the amended agreement expire prior to 31 January 2013, then his stock options shall remain exercisable until 31 January 2015 or, if earlier, ten years from the applicable date of grant, and, in any such event or upon the expected expiry of the amended agreement, the severance provisions of his 2005 Employment Agreement will apply.
Directors
The names and functions of the directors are shown on pages 75 to 77 of our 2009 Annual Report. On 19 April 2010, the Company announced that Kyran McLaughlin, the Chairman of the Board has informed the Board of his intention to retire as Chairman. The Board has authorised a search for a new Chairman. Mr. McLaughlin will continue to serve as Chairman until a successor is appointed. On 17 April 2010, Bill Rohn retired from the Board.
Events After the Balance Sheet Date
ELND005
On 9 August 2010, Elan and Transition announced the results of a Phase 2 placebo-controlled study in 351 patients with mild to moderate Alzheimer’s disease who received study drug for up to 18 months (Study AD201). Study subjects with mini-mental state exam (MMSE) scores between 16 and 26 received ELND005 oral doses of 250mg, 1000mg or 2000mg twice daily or matching placebo. The study’s cognitive (neuropsychological test battery (NTB)) and functional (Alzheimer’s Disease Cooperative Study–Activities of Daily Living (ADCS-ADL)) co-primary endpoints did not achieve statistical significance.
The 250mg twice daily dose demonstrated a biological effect on amyloid-beta protein in the cerebrospinal fluid (CSF), in a subgroup of patients who provided CSF samples. This dose achieved targeted drug levels in the CSF, and showed some effects on clinical endpoints in an exploratory analysis. After reviewing the final safety data with the study’s independent safety monitoring committee (ISMC), we concluded that the 250mg twice daily dose has acceptable safety and tolerability. Elan and Transition intend to share all of the Phase 2 data in a peer-reviewed publication.
The two high dose groups were electively discontinued by the companies in December 2009 due to an observed imbalance of serious adverse events, including deaths; no causal relationship between the drug and these events could be determined. After discontinuation of the two high dose groups the final analysis was based on subjects who received either 250mg twice daily or placebo for up to 18 months.
Based on the preponderance of evidence from both biomarker and clinical data, and after extensive discussions with experts in the field, Elan and Transition intend to advance ELND005 into Phase 3 development. Specifics of the Phase 3 study design will be finalised after receiving input and concurrence from regulatory authorities.
Elan and Transition have agreed to work together to systematically explore all strategic, operational, and global options for the asset with the intent of maximising the value of this innovative potential therapeutic. No timetable for completing the exploration has been set. No further disclosure is intended until its completion.
UNAUDITED CONDENSED CONSOLIDATED HALF-YEAR INCOME STATEMENT
For the Six Months Ended 30 June
| Notes | 2010 | 2009 | |||||
| $m | $m | ||||||
| Product revenue | 3 | 414.4 | 372.1 | ||||
| Contract revenue | 3 | 9.1 | 12.5 | ||||
| Total revenue | 423.5 | 384.6 | |||||
| Cost of sales | 5 | 164.0 | 178.7 | ||||
| Gross profit | 259.5 | 205.9 | |||||
| Selling, general and administrative expenses | 5 | 100.0 | 119.4 | ||||
| Research and development expenses | 5 | 130.5 | 171.6 | ||||
| Settlement provision charge | 6 | 206.3 | — | ||||
| Gain on legal settlement | 7 | — | (18.0) | ||||
| Operating loss | (177.3) | (67.1) | |||||
| Interest expense | 8 | 60.7 | 71.4 | ||||
| Interest income | 8 | (1.5) | (0.6) | ||||
| Investment gains | 8 | (13.9) | — | ||||
| Net interest and investment gains and losses | 45.3 | 70.8 | |||||
| Loss before tax | (222.6) | (137.9) | |||||
| Income tax (benefit)/expense | 9 | (2.8) | 27.4 | ||||
| Net loss | (219.8) | (165.3) | |||||
| Basic and diluted loss per ordinary share: | |||||||
| Net loss | 11 | $ (0.38) | $ (0.35) | ||||
| Weighted-average shares outstanding (in millions) | 584.6 | 475.7 |
The net losses for the six months ended 30 June 2010 and 30 June 2009 are wholly attributable to the owners of the Parent Company. The accompanying notes are an integral part of these unaudited condensed consolidated half-year financial statements.
UNAUDITED CONDENSED CONSOLIDATED HALF-YEAR STATEMENT OF COMPREHENSIVE INCOME
For the Six Months Ended 30 June
| 2010 | 2009 | ||||
| $m | $m | ||||
| Net loss | (219.8) | (165.3) | |||
| Other comprehensive income/(loss): | |||||
| Foreign currency translation | (0.2) | (0.1) | |||
| Net gain on available-for-sale investments | 2.2 | 1.6 | |||
| Net gain on available-for-sale investments transferred to the income statement | (4.8) | — | |||
| Other comprehensive income/(loss) for the period | (2.8) | 1.5 | |||
| Total comprehensive loss for the period | (222.6) | (163.8) |
The total comprehensive losses for the six months ended 30 June 2010 and 30 June 2009 are wholly attributable to the owners of the Parent Company. The accompanying notes are an integral part of these unaudited condensed consolidated half-year financial statements.
UNAUDITED CONDENSED CONSOLIDATED HALF-YEAR BALANCE SHEET
|
|
Notes |
30 June
2010 |
31 December
2009(1) |
||||
| $m | $m | ||||||
| Non-Current Assets | |||||||
| Goodwill and other intangible assets | 12 | 235.7 | 263.3 | ||||
| Property, plant and equipment | 297.9 | 292.8 | |||||
| Investment in associate | 13 | 235.0 | 235.0 | ||||
| Available-for-sale investments | 9.3 | 9.5 | |||||
| Deferred tax asset | 9 | 341.2 | 344.1 | ||||
| Restricted cash | 14.9 | 14.9 | |||||
| Other non-current assets | 31.8 | 23.4 | |||||
| Total Non-Current Assets | 1,165.8 | 1,183.0 | |||||
| Current Assets | |||||||
| Inventory | 14 | 36.1 | 53.5 | ||||
| Accounts receivable | 177.1 | 192.4 | |||||
| Other current assets | 25.8 | 29.0 | |||||
| Income tax prepayment | 2.8 | 3.0 | |||||
| Available-for-sale investments | 2.6 | 7.1 | |||||
| Restricted cash | 13.6 | 16.8 | |||||
| Cash and cash equivalents | 883.2 | 836.5 | |||||
| Total Current Assets | 1,141.2 | 1,138.3 | |||||
| Total Assets | 2,307.0 | 2,321.3 | |||||
| Non-Current Liabilities | |||||||
| Long-term debt | 15 | 1,511.2 | 1,508.6 | ||||
| Other liabilities | 16 | 38.8 | 35.2 | ||||
| Income tax payable | 13.2 | 12.6 | |||||
| Total Non-Current Liabilities | 1,563.2 | 1,556.4 | |||||
| Current Liabilities | |||||||
| Accounts payable | 35.9 | 52.4 | |||||
| Accrued and other liabilities | 16 | 198.2 | 196.5 | ||||
| Provisions | 17 | 206.9 | 0.6 | ||||
| Income tax payable | 0.2 | 1.0 | |||||
| Total Current Liabilities | 441.2 | 250.5 | |||||
| Total Liabilities | 2,004.4 | 1,806.9 | |||||
| Shareholders’ Equity | |||||||
| Share capital | 35.8 | 35.8 | |||||
| Share premium | 7,086.4 | 7,085.6 | |||||
| Share-based compensation reserve | 230.6 | 237.2 | |||||
| Foreign currency translation reserve | (11.3) | (11.1) | |||||
| Available-for-sale investment reserve | 2.5 | 5.1 | |||||
| Retained loss | (7,041.4) | (6,838.2) | |||||
| Total Shareholders’ Equity | 302.6 | 514.4 | |||||
| Total Shareholders’ Equity and Liabilities | 2,307.0 | 2,321.3 |
____________
| (1) | Amounts as at 31 December 2009 are derived from the 31 December 2009 audited financial statements. |
The accompanying notes are an integral part of these unaudited condensed consolidated half-year financial statements.
UNAUDITED CONDENSED CONSOLIDATED HALF-YEAR STATEMENT OF CASH FLOWS
|
|
Six Months
Ended 30 June |
||||
| 2010 | 2009 | ||||
| $m | $m | ||||
| Net loss | (219.8) | (165.3) | |||
| Adjustments to reconcile net loss to net cash used in operating activities: | |||||
| Depreciation and amortisation | 32.2 | 38.8 | |||
| Gain on auction rate securities recovery | (7.9) | — | |||
| Gain on disposal of investments | (4.8) | — | |||
| Impairment of property, plant and equipment | — | 15.4 | |||
| Share-based compensation expense | 17.1 | 21.0 | |||
| Net loss on divestment of business | 0.8 | — | |||
| Debt interest expense | 60.2 | 68.7 | |||
| Interest income | (0.5) | (0.4) | |||
| Investment interest income | — | (0.2) | |||
| Income tax (benefit)/expense | (2.8) | 27.4 | |||
| Other | (3.0) | 0.5 | |||
| (128.5) | 5.9 | ||||
| Decrease/(increase) in accounts receivable | 15.3 | (23.0) | |||
| Decrease/(increase) in prepayments and other current assets | 3.0 | (17.0) | |||
| Decrease/(increase) in inventory | 17.2 | (7.6) | |||
| Increase in accounts payable and accrued and other liabilities | 199.6 | 15.3 | |||
| Cash provided by/(used in) operating activities | 106.6 | (26.4) | |||
| Interest received | 0.7 | 0.4 | |||
| Interest paid | (59.7) | (66.6) | |||
| Income taxes paid | (1.5) | (2.7) | |||
| Net cash provided by/(used in) operating activities | 46.1 | (95.3) | |||
| Investing activities | |||||
| Decrease in restricted cash and cash equivalents | 3.2 | 3.5 | |||
| Proceeds from disposal of property, plant and equipment | — | 7.3 | |||
| Purchases of property, plant and equipment | (22.4) | (32.1) | |||
| Purchases of intangible and other non-current assets | (1.4) | (51.8) | |||
| Purchase of investments | (0.3) | (0.3) | |||
| Proceeds from auction rate securities recovery | 7.9 | — | |||
| Proceeds from disposal of non-current available-for-sale investments | 0.1 | — | |||
| Proceeds from disposal of current available-for-sale investments | 8.3 | 10.6 | |||
| Net proceeds from divestment of business | 4.7 | — | |||
| Net cash provided by/(used in) investing activities | 0.1 | (62.8) | |||
| Financing activities | |||||
| Proceeds from issue of share capital | 0.8 | 1.6 | |||
| Repayment of loans and finance lease obligations | — | (0.2) | |||
| Net cash provided by financing activities | 0.8 | 1.4 | |||
| Effect of foreign exchange rate changes | (0.3) | (0.2) | |||
| Net increase/(decrease) in cash and cash equivalents | 46.7 | (156.9) | |||
| Cash and cash equivalents at the beginning of period | 836.5 | 375.3 | |||
| Cash and cash equivalents at the end of the period | 883.2 | 218.4 | |||
The accompanying notes are an integral part of these unaudited condensed consolidated half-year financial statements.
UNAUDITED CONDENSED CONSOLIDATED HALF-YEAR STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY/(DEFICIT)
|
|
Number of Shares |
Share Capital |
Share Premium |
Share-Based Compensation Reserve |
Foreign Currency Translation |
Available-
for-sale Investment Reserve |
Retained Loss |
Total Amount |
|||||||||
| m | $m | $m | $m | $m | $m | $m | $m | ||||||||||
| Balance at 1 January 2009 | 474.7 | 27.6 | 6,221.8 | 239.0 | (11.0) | 2.1 | (6,702.9) | (223.4) | |||||||||
| Net loss | — | — | — | — | — | — | (165.3) | (165.3) | |||||||||
| Other comprehensive income/(loss): | |||||||||||||||||
| Foreign currency translation | — | — | — | — | (0.1) | — | — | (0.1) | |||||||||
| Available-for-sale investments | — | — | — | — | — | 1.6 | — | 1.6 | |||||||||
| Total other comprehensive income | 1.5 | ||||||||||||||||
| Total comprehensive income | (163.8) | ||||||||||||||||
| Issue of share capital, net of issue costs | 1.2 | 0.2 | 1.4 | — | — | — | — | 1.6 | |||||||||
| Share-based compensation cost | — | — | — | 21.0 | — | — | — | 21.0 | |||||||||
| Share-based compensation-deferred tax | — | — | — | (5.9) | — | — | — | (5.9) | |||||||||
| Transfer of exercised and expired share-based awards | — | — | — | (21.6) | — | — | 21.6 | — | |||||||||
| Balance at 30 June 2009 | 475.9 | 27.8 | 6,223.2 | 232.5 | (11.1) | 3.7 | (6,846.6) | (370.5) | |||||||||
| Net income | — | — | — | — | — | — | 3.0 | 3.0 | |||||||||
| Other comprehensive income/(loss): | |||||||||||||||||
| Available-for-sale investments | — | — | — | — | — | 1.4 | — | 1.4 | |||||||||
| Total other comprehensive income | 1.4 | ||||||||||||||||
| Total comprehensive income | 4.4 | ||||||||||||||||
| Issue of share capital, net of issue costs | 108.0 | 8.0 | 862.4 | — | — | — | — | 870.4 | |||||||||
| Share-based compensation cost | — | — | — | 10.8 | — | — | — | 10.8 | |||||||||
| Share-based compensation — deferred tax | — | — | — | (0.7) | — | — | — | (0.7) | |||||||||
| Transfer of exercised and expired share-based awards | — | — | — | (5.4) | — | — | 5.4 | — | |||||||||
| Balance at 31 December 2009 | 583.9 | 35.8 | 7,085.6 | 237.2 | (11.1) | 5.1 | (6,838.2) | 514.4 | |||||||||
| Net loss | — | — | — | — | — | — | (219.8) | (219.8) | |||||||||
| Other comprehensive income/(loss): | |||||||||||||||||
| Foreign currency translation | — | — | — | — | (0.2) | — | — | (0.2) | |||||||||
| Available-for-sale investments | — | — | — | — | — | (2.6) | — | (2.6) | |||||||||
| Total other comprehensive loss | (2.8) | ||||||||||||||||
| Total comprehensive income | (222.6) | ||||||||||||||||
| Issue of share capital, net of issue costs | 0.9 | — | 0.8 | — | — | — | — | 0.8 | |||||||||
| Share-based compensation cost | — | — | — | 17.1 | — | — | — | 17.1 | |||||||||
| Share-based compensation — deferred tax | — | — | — | (7.1) | — | — | — | (7.1) | |||||||||
| Transfer of exercised and expired share-based awards | — | — | — | (16.6) | — | — | 16.6 | — | |||||||||
| Balance at 30 June 2010 | 584.8 | 35.8 | 7,086.4 | 230.6 | (11.3) | 2.5 | (7,041.4) | 302.6 |
The accompanying notes are an integral part of these unaudited condensed consolidated half-year financial statements.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS
1 BASIS OF PREPARATION
These unaudited half-year financial statements, which should be read in conjunction with our 2009 Annual Report, have been prepared by Elan Corporation, plc in accordance with IAS 34, “Interim Financial Reporting” (IAS 34), as adopted by the European Union. In addition, these half-year financial statements have been prepared in accordance with the Transparency (Directive 2004/109/EC) Regulations 2007 and the related Transparency rules of the Republic of Ireland’s Financial Regulator. They do not include all of the information required for full annual financial statements, and should be read in conjunction with our Consolidated Financial Statements as at and for the year ended 31 December 2009.
These half-year financial statements are presented in U.S. dollars, which is the functional currency of the parent company and the majority of the group companies. They are prepared on the historical cost basis, except for certain financial assets and derivative financial instruments, which are stated at fair value.
The half-year financial statements include the accounts of Elan and all of our subsidiary undertakings. All significant intercompany account balances, transactions, and any unrealised gains and losses or income and expenses arising from intercompany transactions have been eliminated in preparing the half-year financial statements.
The preparation of half-year financial statements requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. Actual results could differ materially from these estimates. In preparing these half-year financial statements, the critical judgements made by management in applying the Company’s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the Consolidated Financial Statements as at and for the year ended 31 December 2009, and described on pages 120 to 125 of the 2009 Annual Report.
The comparative figures included for the year ended 31 December 2009 do not constitute statutory financial statements of Elan within the meaning of Regulation 40 of the European Communities (Companies; Group accounts) Regulations, 1992. Statutory financial statements for the year ended 31 December 2009 have been filed with the Companies’ Office. The auditor’s report on those financial statements was unqualified and did not contain an emphasis of matter paragraph.
We have incurred significant losses during the last number of fiscal years. However, our directors believe that we have adequate resources to continue in operational existence for the foreseeable future, a period of not less than 12 months from the date of this report, and that it is appropriate to continue to prepare our consolidated half-year financial statements on a going concern basis.
These half-year financial statements were approved by the directors on 9 August 2010.
2 SIGNIFICANT ACCOUNTING POLICIES
The accounting policies applied in these half-year financial statements are the same as those applied in our Consolidated Financial Statements as at and for the year ended 31 December 2009, as set out on pages 113 to 120 of the 2009 Annual Report, except for the impact of the standards described below.
The following new interpretations and amendments to standards are mandatory for the first time for the financial year beginning 1 January 2010.
• IFRIC 17, “Distribution of Non-Cash Assets to Owners”,
• Amendments to IAS 39, “Financial Instruments: Recognition and Measurement: Eligible Hedged Items”, (effective for annual periods beginning on or after 1 July 2009).
• Amendments to IAS 32, “Financial Instruments: Presentation: Classification of Rights Issue”.
The adoption of these amendments to standards and interpretations did not impact on our financial position or results from operations.
3 REVENUE
The composition of our revenue for the six months ended 30 June was as follows:
|
|
Six Months Ended
30 June |
||||
| 2010 | 2009 | ||||
| $m | $m | ||||
| Revenue from the BioNeurology business | 291.1 | 246.0 | |||
| Revenue from the EDT business | 132.4 | 138.6 | |||
| Total revenue | 423.5 | 384.6 | |||
Revenue from the BioNeurology business can be further analysed as follows:
| Six Months Ended 30 June | |||||
| 2010 | 2009 | ||||
| $m | $m | ||||
| BioNeurology: | |||||
| Tysabri | 250.3 | 191.0 | |||
| Azactam | 27.4 | 37.7 | |||
| Prialt | 6.2 | 8.7 | |||
| Maxipime | 5.4 | 7.6 | |||
| Royalties | 0.8 | 1.0 | |||
| Total product revenue | 290.1 | 246.0 | |||
| Contract revenue | 1.0 | — | |||
| Total revenue from the BioNeurology business | 291.1 | 246.0 | |||
The Tysabri collaboration is a jointly controlled operation in accordance with IAS 31. A jointly controlled operation is an operation of a joint venture (as defined by IAS 31) that involves the use of the assets and other resources of the venturers rather than establishing a corporation, partnership or other entity, or a financial structure that is separate from the venturers themselves. Each venturer uses its own property, plant and equipment and carries its own inventories. It also incurs its own expenses and liabilities and raises its own finance, which represent its own obligations.
The Tysabri collaboration operating profit or loss is calculated excluding R&D expenses (we record our share of the total Tysabri collaboration R&D expenses within our R&D expenses). In accordance with IAS 31, in any period where an operating loss has been incurred by the collaboration on sales of Tysabri, we do not recognise any Tysabri product revenue. In any period where an operating profit has been generated by the collaboration on sales of Tysabri, we recognise as revenue our share of the collaboration profit from the sale of Tysabri, plus our directly-incurred collaboration expenses on these sales. Accordingly, we recognised product revenue from Tysabri in the first half of 2010 and 2009 because the Tysabri collaboration incurred an operating profit during these periods. Our actual operating profit or loss on Tysabri differs from our share of the collaboration operating profit or loss because certain Tysabri-related expenses are not shared through the collaboration, and certain unique risks are retained by each party.
Global in-market net sales of Tysabri were as follows:
|
|
Six Months Ended
30 June |
||||
| 2010 | 2009 | ||||
| $m | $m | ||||
| United States | 280.1 | 240.4 | |||
| Rest of World | 309.3 | 240.9 | |||
| Total Tysabri in-market net sales | 589.4 | 481.3 | |||
For the first half of 2010, we recorded net Tysabri revenue of $250.3 million which was calculated as follows:
|
|
Six Months Ended
30 June 2010 |
||||||
| U.S. | ROW | Total | |||||
| $m | $m | $m | |||||
| Tysabri in-market sales | 280.1 | 309.3 | 589.4 | ||||
| Operating expenses incurred by Elan and Biogen Idec (excluding R&D expenses) | (138.7) | (144.4) | (283.1) | ||||
| Tysabri collaboration operating profit | 141.4 | 164.9 | 306.3 | ||||
| Elan’s 50% share of Tysabri collaboration operating profit | 70.7 | 82.5 | 153.2 | ||||
| Elan’s directly incurred costs (cost of sales and SG&A expenses) | 53.5 | 43.6 | 97.1 | ||||
| Net Tysabri revenue | 124.2 | 126.1 | 250.3 | ||||
For the first half of 2009, we recorded net Tysabri revenue of $191.0 million, which was calculated as follows:
|
|
Six Months Ended
30 June 2009 |
||||||
| U.S. | ROW | Total | |||||
| $m | $m | $m | |||||
| Tysabri in-market sales | 240.4 | 240.9 | 481.3 | ||||
| Operating expenses incurred by Elan and Biogen Idec (excluding R&D expenses) | (138.5) | (128.6) | (267.1) | ||||
| Tysabri collaboration operating profit | 101.9 | 112.3 | 214.2 | ||||
| Elan’s 50% share of Tysabri collaboration operating profit | 51.0 | 56.1 | 107.1 | ||||
| Elan’s directly incurred costs (cost of sales and SG&A expenses) | 48.0 | 35.9 | 83.9 | ||||
| Net Tysabri revenue | 99.0 | 92.0 | 191.0 | ||||
Revenue from the EDT business can be further analysed as follows:
|
|
Six Months Ended
30 June |
||||
| 2010 | 2009 | ||||
| $m | $m | ||||
| TriCor 145 | 25.0 | 30.0 | |||
| Ampyra | 20.8 | — | |||
| Focalin XR/RitalinLA | 16.6 | 17.6 | |||
| Verelan | 11.9 | 10.8 | |||
| Naprelan | 7.8 | 5.9 | |||
| Skelaxin | 5.2 | 15.6 | |||
| Other | 37.0 | 46.2 | |||
| Total product revenue — manufacturing revenue and royalties | 124.3 | 126.1 | |||
| Contract revenue | 8.1 | 12.5 | |||
| Total revenue from the EDT business | 132.4 | 138.6 | |||
4 SEGMENT INFORMATION
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker (CODM). Our CODM has been identified as Mr. G. Kelly Martin, chief executive officer. Our business is organised into two business units: BioNeurology and EDT, and our chief executive officer reviews the business from this perspective. BioNeurology engages in research, development and commercial activities primarily in Alzheimer’s disease, Parkinson’s disease and MS. EDT is an established, profitable, integrated drug delivery business unit of Elan, which has been applying its skills and knowledge in product development and drug delivery technologies to enhance the performance of dozens of drugs that have been marketed worldwide.
Segment performance is evaluated based on operating loss and Adjusted EBITDA. Interest income, interest expense, investments and income tax expense are managed on a group basis. Therefore, these items are not allocated between operating segments for the purposes of the information presented to the CODM, and are accordingly omitted from the measure of segment profit or loss and Adjusted EBITDA.
The same accounting principles used for the group as a whole are applied to segment reporting. There has been no change in the basis of segmentation or in the basis of measurement of segment profit or loss in the period. Inter-segment pricing is determined on an arm’s length basis.
| BioNeurology | EDT | Total | |||||||||||
|
|
Six Months Ended
30 June |
Six Months Ended
30 June |
Six Months Ended
30 June |
||||||||||
| 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | ||||||||
| $m | $m | $m | $m | $m | $m | ||||||||
| Segment revenue | |||||||||||||
| Segment revenue | 291.1 | 246.0 | 133.0 | 139.3 | 424.1 | 385.3 | |||||||
| Less inter-segment sales | — | — | (0.6) | (0.7) | (0.6) | (0.7) | |||||||
| Total revenue from external customers | 291.1 | 246.0 | 132.4 | 138.6 | 423.5 | 384.6 | |||||||
| Cost of sales | 105.1 | 119.4 | 58.9 | 59.3 | 164.0 | 178.7 | |||||||
| Gross margin | 186.0 | 126.6 | 73.5 | 79.3 | 259.5 | 205.9 | |||||||
| Operating expenses: | |||||||||||||
| Selling, general and administrative expenses | 79.4 | 99.1 | 20.6 | 20.3 | 100.0 | 119.4 | |||||||
| Research and development expenses | 103.4 | 147.5 | 27.1 | 24.1 | 130.5 | 171.6 | |||||||
| Settlement provision charge | 206.3 | — | — | — | 206.3 | — | |||||||
| Gain on legal settlement | — | (18.0) | — | — | — | (18.0) | |||||||
| Total operating expenses | 389.1 | 228.6 | 47.7 | 44.4 | 436.8 | 273.0 | |||||||
| Segment operating profit/(loss) | (203.1) | (102.0) | 25.8 | 34.9 | (177.3) | (67.1) | |||||||
| Segment Adjusted EBITDA | 35.9 | (45.9) | 46.5 | 59.0 | 82.4 | 13.1 | |||||||
Reconciliation of segment results to net loss:
| BioNeurology | EDT | Total | |||||||||||
|
|
Six Months Ended
30 June |
Six Months Ended
30 June |
Six Months Ended
30 June |
||||||||||
| 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | ||||||||
| $m | $m | $m | $m | $m | $m | ||||||||
| Segment Adjusted EBITDA | 35.9 | (45.9) | 46.5 | 59.0 | 82.4 | 13.1 | |||||||
| Depreciation and amortisation | (15.9) | (21.8) | (16.3) | (17.0) | (32.2) | (38.8) | |||||||
| Share-based compensation expense(1) | (13.1) | (15.3) | (4.2) | (4.0) | (17.3) | (19.3) | |||||||
| Amortised fees | 0.2 | 0.1 | 0.2 | 0.4 | 0.4 | 0.5 | |||||||
| Settlement provision charge | (206.3) | — | — | — | (206.3) | — | |||||||
| Gain on legal settlement | — | 18.0 | — | — | — | 18.0 | |||||||
| Other charges | (3.9) | (37.1) | (0.4) | (3.5) | (4.3) | (40.6) | |||||||
| Segment operating profit/(loss) | (203.1) | (102.0) | 25.8 | 34.9 | (177.3) | (67.1) | |||||||
| Interest expense | (60.7) | (71.4) | |||||||||||
| Interest income | 1.5 | 0.6 | |||||||||||
| Investment gains | 13.9 | — | |||||||||||
| Income tax benefit/(expense) | 2.8 | (27.4) | |||||||||||
| Net loss | (219.8) | (165.3) | |||||||||||
____________
| (1) | Share-based compensation expense excludes a $0.2 million credit included in other charges in the first half of 2010 (2009: $1.7 million charge). |
The segment total assets for BioNeurology and EDT as at 31 December 2009 of $1,865.8 million and $455.5 million, respectively, did not materially change as at 30 June 2010, therefore this segmental disclosure has been omitted in accordance with IAS 34.
5 OTHER CHARGES
For the first half of 2010, included within cost of sales, SG&A expenses, and R&D expenses were total other charges of $4.3 million (2009: $40.6 million) consisting of the following:
2010
|
|
Cost of
Sales |
SG&A |
R&D |
Total |
| $m | $m | $m | $m | |
| Severance, restructuring and other costs | 0.7 | 2.7 | 0.1 | 3.5 |
| Net loss on divestment of business | — | 0.8 | — | 0.8 |
| Total other charges | 0.7 | 3.5 | 0.1 | 4.3 |
During the first half of 2010, we incurred $3.5 million of severance and restructuring principally associated with the realignment of resources announced in 2009, as described further below.
On 4 March 2010, Elan entered into a definitive agreement to divest its Prialt assets and rights to Azur Pharma International Limited. This transaction subsequently closed on 5 May 2010. We recorded a net loss of $0.8 million arising from the Prialt divestment in the first half of 2010, which is comprised of total consideration of $14.6 million less $14.0 million carrying value of intangible assets, $0.5 million carrying value of other assets and $0.9 million in transaction costs. Total consideration comprises cash proceeds received in the first half of 2010 of $5.0 million and the present value of deferred consideration of $9.6 million. We are also entitled to receive additional performance-related milestones and royalties.
2009
|
|
Cost of
Sales |
SG&A |
R&D |
Total |
|||||
| $m | $m | $m | $m | ||||||
| Severance, restructuring and other costs | 7.8 | 7.2 | 10.2 | 25.2 | |||||
| Asset impairment charges | 13.1 | 2.3 | — | 15.4 | |||||
| Total other charges | 20.9 | 9.5 | 10.2 | 40.6 |
During the first half of 2009, we incurred severance, restructuring and asset impairment charges of $40.6 million which were principally associated with the postponement of our biologics manufacturing activities, the strategic redesign and realignment of the R&D organisation within our BioNeurology business, and reduction of related support activities. These restructuring activities resulted in a reduction in our global workforce of approximately 230 positions.
6 SETTLEMENT PROVISION CHARGE
On 15 July 2010, we announced that we reached an agreement in principle with the U.S. Attorney’s Office for the District of Massachusetts with respect to the previously disclosed U.S. Department of Justice’s investigation of sales and marketing practices for Zonegran, which we divested in 2004. If the agreement in principle is finalised, we expect to pay $203.5 million as part of a comprehensive settlement for all U.S. federal and related state Medicaid claims and $203.5 million has been placed into an escrow account to cover the proposed settlement amount. We have established a provision of $206.3 million, in the first half of 2010, for this expected settlement and related costs. As part of this agreement in principle, Elan Pharmaceuticals, Inc., a U.S. subsidiary of Elan Corporation, plc, expects to plead guilty to a misdemeanour violation of the U.S. FD&C Act and to enter into a Corporate Integrity Agreement with the Office of Inspector General of the U.S. Department of Health and Human Services. While we expect to negotiate and enter into final settlement and Corporate Integrity Agreements, there can be no assurance as to when or if any settlement will be finalised or, if a settlement is finalised, what the final terms of the settlement will be. Additionally, the proposed resolution of the Zonegran investigation could give rise to other litigation by state government entities or private parties.
7 GAIN ON LEGAL SETTLEMENT
For the first half of 2009, we recorded a gain on legal settlement of $18.0 million related to a Settlement Agreement and Release entered into by Elan and Watson in March 2009 to settle litigation with respect to Watson’s marketing of a generic version of Naprelan. As part of the Settlement Agreement and Release, Watson stipulated that our patent at issue is valid and enforceable and that Watson’s generic formulations of Naprelan infringed our patent.
8 NET INTEREST AND INVESTMENT GAINS AND LOSSES
|
|
Six Months Ended
30 June |
||||
| 2010 | 2009 | ||||
| $m | $m | ||||
| Interest expense: | |||||
| Interest on Floating Rate Notes due 2011 | 7.0 | 8.7 | |||
| Interest on 8.875% Notes | 21.3 | 21.2 | |||
| Interest on Floating Rate Notes due 2013 | 3.5 | 4.4 | |||
| Interest on 8.75% Notes | 28.4 | — | |||
| Interest on 7.75% Notes | — | 34.4 | |||
| Total debt interest expense | 60.2 | 68.7 | |||
| Net foreign exchange losses | — | 2.2 | |||
| Other financial charges | 0.5 | 0.5 | |||