Elan Shareholder Wants CEO To Go
5 CommentsBy Ed Silverman // December 15th, 2008 // 7:32 am
The pressure on Kelly Martin is intensifying. Amid accusations that he has mishandled the marketing of Elan’s key drug, the Tysabri multiple sclerosis treatment, and has failed to control costs (back story), Jack Schuler, a former Abbott Labs president, whose firm holds 1 percent of Elan stock, has written the board seeking Martin’s ouster.
“Lack of relevant industry experience, gross incompetence related to the management of Tysabri and its partnership with Biogen, and egregious misuse of company resources have caused investors to lose confidence in Mr. Martin and his management team,” according to Schuler, a former board member of Chiron, ICOS and Amgen, who co-founded Crabtree Partners. “Given the company’s unacceptable performance, the board has a fiduciary obligation to take immediate action.”
In his letter to the Elan board, Schuler notes Elan shares have plunged from $37 to $7 in the past four months and he complains of unacceptably low sales performance for Tysabri; mismanagement of Biogen partnership to market Tysabri; management inexperience; egregious misuse of company resources; inappropriate and outlandish expenses for use of private jets for executives; and locating Elan headquarters in New York, where Martin lives, instead of California, where most Elan US facilities are based.
“What was the board thinking when they chose a Merrill Lynch employee to be the ceo of Elan? As far as I can see, he has no experience in pharmaceuticals or in managing any type of operation. Why did the board approve the ceo bringing two friends along with him from Merrill Lynch who also had no prior pharmaceutical or operations experience and make them executive vice presidents?” Schuler wrote. “In my view, the missteps that have hurt Elan over the past several years are directly related to the lack of basic understanding of the pharmaceutical business and the ceo’s arrogance in his belief that this experience is not needed.”
He also that Kelly’s “alleged mismanagement” resulted in Elan receiving the Nance Trophy as “The Worst Biotech CEO” of 2008, according to a recent column in TheStreet.com.
In response, Elan chairman Kyran McLaughlin the drugmaker rejected “assertions about our management team,” according to a letter he sent to Schuler. He wrote that Elan is also “frustrated with our current stock price,” but called Tysabri a “success,” noting that the drug is close to achieving annual global sales of $1 billion, the paper writes.
McLaughlin also rejected the claim that Elan managers lack pharmaceutical marketing experience, and maintained that private jet use accounts for “only 20% of total travel costs.” He then insisted Martin had significantly cut costs over the years. However, late last week, Elan did suddenly close offices in New York and Tokyo, and eliminate 114 jobs. There was no word, however, on whether Martin and other execs would eliminate or minimize the use of corporate jets.
Ivan
The news seems to be conjured up to create maximum impact and to unsettle other Elan shareholders. The timely outburst of alleged unhappiness with the Elan management comes very soon after other comic book journalism from TheStreet.com. The recent news seems like nothing more than a badly contrived smear campaign bizarrely timed when Elan is on the verge of an epic breakthrough in the treatment of Alzheimer’s. In adddition Elan’s MS drug Tysabri (arguably the most efficacious MS drug available)gaining ground every week is it likely that Elan is on the Christmas list of many large pharmaceutical companies?
Are we seeing the start of a dirty tricks campaign to persuade Elan shareholders in to accepting various falsehoods? Is the aim of such a campaign to bring about a change in Elan management in order to facilitate the buying of Elan (or bits of it) at a knock down price?
A concerned ‘long-term’ shareholder
Ann
Ivan, you are deluded. Elan’s two assets are partnered - Tysabri with Biogen-Idec and bapineuzumab with Wyeth - with companies who have right of first refusal if Elan is sold. That is, the partner has the right to buy out any acquirer of Elan, eliminating the value of Elan to anyone other than BIIB or WYE. That “epic breakthrough” you are looking for from bapineuzumab is a 2011-12 event, and the odds are 50/50 given the phase 2 results.
Ivan
I do not wish to be antagonistic but I suggest you take a closer look at Elan as it has far more than two assets.
If you do not believe these things go on then take a look at what has happened to the stocks on various exchanges and the assets that have been plundered at massively discounted prices due to orchestrated short selling and timely media coverage.
No I am not deluded or naïve enough to think that such deals cannot be brokered behind closed doors to the detriment of the small retail investor.
We will see how this story evolves but I do not intend on being a silent victim of someone else’s greed.
another Shareholder
Ha! Ivan, whose to say that Ann isn’t from Novartis?
By the way, the FTY720 drug works excellent in Blast Phase Chronic Myelogenous Leukemia: http://www.jci.org/articles/view/JCI31095v1?ck=nck&content_type=abstract
See the full PDF here: http://www.jci.org/117/9/2408/pdf
Yet they have with held this drug from this group of patients, preferring to let them die as there is nothing else to treat BC CML with. There is no excuse for this, and before any lab researchers get up on their soapbox to defend this despicable behavior, save your breath. After all, my monnicker doesn’t give full details, but I am informed enough to know that there is no basis of any justification for this, other than pure greed - patients last, as usual.
Shame on Novartis and shame on their shareholders for allowing this to happen.
Never trust the Swiss……
JimK
I have no financial stake in Elan but I think the Stock’s performance has more to do with the current market conditions and the company’s relatively fragile financial picture.
The following is from SEC Form 20 F dated February 28, 2008:
“At December 31, 2007, we had $1,765.0 million of debt. At such date, we had cash and cash equivalents, current restricted cash and current investments of $720.5 million. Our substantial indebtedness could have important consequences to us. For example, it does or could:
• Increase our vulnerability to general adverse economic and industry conditions;
• Require us to dedicate a substantial portion of our cash flow from operations to payments on indebtedness, thereby reducing the availability of our cash flow to fund R&D, working capital, capital expenditures, acquisitions, investments and other general corporate purposes;
• Limit our flexibility in planning for, or reacting to, changes in our businesses and the markets in which we operate;
• Place us at a competitive disadvantage compared to our competitors that have less debt; and
• Limit our ability to borrow additional funds.
We estimate that we have sufficient cash, liquid resources and current assets and investments to meet our liquidity requirements for at least the next 12 months. Although we expect to continue to incur operating losses in 2008, in making our liquidity estimates, we have also assumed a certain level of operating performance. Our future operating performance will be affected by general economic, financial, competitive, legislative, regulatory and business conditions and other factors, many of which are beyond our control.”