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TheStreet Open House

Elan Reports Second Quarter And First Half 2012 Financial Results

Elan Corporation, plc today reported its second quarter and first half 2012 financial results.

“Progress continued during the course of the second quarter,” said Mr. Kelly Martin, chief executive officer. “Underlying strength in the Tysabri business was driven by continued adoption of the assay on a global basis, which established the clinical framework to enable additional net new patients to be added to Tysabri.”

“We continue to invest time, capital and talent on neuroscience. Advancement in the field across systems biology, computational chemistry, companion diagnostics, biomarkers and their utilization, as well as genetics, provides the ingredients for significant success and patient therapeutic choice in the years ahead.”

Mr. Nigel Clerkin, chief financial officer, said, “We continue to see strong growth in demand for Tysabri. There are now over 69,000 patients on therapy, an increase of 13% since the end of June 2011. Total revenues grew by 6% in the second quarter of 2012 over the second quarter of 2011, reflecting this increase in patient numbers, offset by the impact of a revenue reserve against sales of Tysabri in Italy, as well as the impact of foreign currency movements, including an 11% decline in the dollar-euro exchange rate. Our net loss from continuing operations was reduced by almost 40%, to $28.5 million in the second quarter of 2012, from $47.0 million in the second quarter of 2011, demonstrating the benefit of the lower interest expense following the substantial debt reduction completed in the fourth quarter of 2011.”

Unaudited Consolidated U.S. GAAP Income Statement Data

Three Months Ended June 30

   

Six Months Ended June 30

2011

US$m

  2012

US$m

      2011

US$m

  2012

US$m

270.6   288.0 Revenue (see page 8) 517.7   576.4
144.9 160.2 Cost of goods sold 276.3 315.5
125.7 127.8 Gross margin 241.4 260.9
 
Operating Expenses (see page 11)
50.3 60.6 Selling, general and administrative 98.1 120.7
50.9 49.2 Research and development 98.5 98.2
2.3 (0.1) Other net charges/(gains) (see page 13) 4.6 1.9
103.5 109.7 Total operating expenses 201.2 220.8
22.2 18.1 Operating income 40.2 40.1
 
Net Interest and Investment Gains and Losses
29.7 12.4 Net interest expense 59.5 29.2
(0.2) Net loss/(gain) on disposal of equity method investments 13.1
39.1 34.3 Net loss on equity method investments (see page 13) 51.6 57.4
(2.3) Net investment gains (2.3)
66.5 46.5 Net interest and investment gains 108.8 99.7
 
(44.3) (28.4) Net loss from continuing operations before tax (68.6) (59.6)
2.7 0.1 Provision for income taxes 6.1 0.7
(47.0) (28.5) Net loss from continuing operations (74.7) (60.3)
 
Discontinued Operations
(0.1) Net income/(loss) from discontinued operations, net of tax (see page 14) 95.8
(47.1) (28.5) Net income/(loss) 21.1 (60.3)
 
(0.08) (0.05) Basic net loss per ordinary share - continuing operations (0.13) (0.10)
Basic net income/(loss) per ordinary share – discontinued operations 0.16
586.9 591.8 Basic weighted average number of ordinary shares outstanding (in millions) – continuing and discontinued operations 586.4 591.3
 
(0.08) (0.05) Diluted net loss per ordinary share - continuing operations (0.13) (0.10)
Diluted net income per ordinary share – discontinued operations 0.16
586.9 591.8 Diluted weighted average number of ordinary shares outstanding (in millions) – continuing operations 586.4 591.3
592.7 Diluted weighted average number of ordinary shares outstanding (in millions) – discontinued operations 591.4
Unaudited Non-GAAP Financial Information – Adjusted EBITDA
 

Three Months Ended June 30

  Non-GAAP Financial Information

Reconciliation Schedule

 

Six Months Ended June 30

2011

US$m

  2012

US$m

      2011

US$m

  2012

US$m

   
(47.0) (28.5) Net loss from continuing operations (74.7) (60.3)
29.7 12.4 Net interest expense 59.5 29.2
2.7 0.1 Provision for income taxes 6.1 0.7
7.3 6.7 Depreciation and amortization 14.5 13.4
(0.4) Amortized fees (0.3) (0.1)
(7.7) (9.3) EBITDA from continuing operations 5.1 (17.1)
6.5 10.6 Share-based compensation 14.2 26.3
2.3 (0.1) Other net charges/(gains) 4.6 1.9
39.1 34.3 Net loss on equity method investments 51.6 57.4
(0.2) Net loss/(gain) on disposal of equity method investment 13.1
(2.3) Net investment gains (2.3)
37.9 35.3 Adjusted EBITDA from continuing operations 73.2 81.6

To supplement its consolidated financial statements presented on a U.S. GAAP basis, Elan provides readers with Adjusted EBITDA from continuing operations, a non-GAAP measure of operating results. Adjusted EBITDA from continuing operations is defined as net loss from continuing operations plus or minus net interest expense, provision for income taxes, depreciation and amortization of costs and revenue, share-based compensation, other net charges and gains, net loss on equity method investments, net loss or gain on disposal of equity method investment and net investment gains. Adjusted EBITDA from continuing operations is not presented as, and should not be considered an alternative measure of operating results or cash flows from operations, as determined in accordance with U.S. GAAP. Elan’s management uses Adjusted EBITDA from continuing operations to evaluate the operating performance of Elan and its business and this measure is among the factors considered as a basis for Elan’s planning and forecasting for future periods. Elan believes Adjusted EBITDA from continuing operations is a measure of performance used by some investors, equity analysts and others to make informed investment decisions. Adjusted EBITDA from continuing operations is used as analytical indicator of income generated to service debt and to fund capital expenditures. Adjusted EBITDA from continuing operations does not give effect to cash used for interest payments related to debt service requirements and does not reflect funds available for investment in the business of Elan or for other discretionary purposes. Adjusted EBITDA from continuing operations, as defined by Elan and presented in this press release, may not be comparable to similarly titled measures reported by other companies. A reconciliation of Adjusted EBITDA from continuing operations to net loss from continuing operations is set out in the table above titled, “Non-GAAP Financial Information Reconciliation Schedule”. A reconciliation of Adjusted EBITDA from discontinued operations to net income from discontinued operations for the three and six months ended June 30, 2011 is set out in Appendix II.

Unaudited Consolidated U.S. GAAP Balance Sheet Data

     
   

December 31 2011 US$m

   

June 30 2012 US$m

Assets
Current Assets
Cash and cash equivalents 271.7 626.4
Restricted cash and cash equivalents — current 2.6 2.6
Investment securities — current 0.3 131.9
Deferred tax assets — current 26.2 25.8
Other current assets 217.2 222.6
Total current assets 518.0 1,009.3
 
Non-Current Assets
Intangible assets, net 309.9 303.7
Property, plant and equipment, net 83.2 80.3
Equity method investments 675.8 146.4
Investment securities — non-current 9.8 10.2
Deferred tax assets — non-current 118.9 119.0
Restricted cash and cash equivalents — non-current 13.7 13.7
Other assets 24.5 21.8
Total Assets 1,753.8 1,704.4
 
Liabilities and Shareholders’ Equity
Accounts payable, accrued and other liabilities 337.0 307.0
Long-term debt 615.0 615.8
Shareholders’ equity 801.8 781.6
Total Liabilities and Shareholders’ Equity 1,753.8 1,704.4

Movement in Shareholders’ Equity

   

Three Months ended June 30, 2012 US$m

     

Six Months ended June 30, 2012 US$m

808.2 Opening shareholders’ equity 801.8
(28.5) Net loss for the period (60.3)
10.7 Share-based compensation 26.4
3.6 Issuance of share capital 8.6
(12.4) Increase/(decrease) in net unrealized gain on investment securities 5.1
781.6 Closing shareholders’ equity 781.6
Unaudited Consolidated U.S. GAAP Cash Flow Data

Three Months Ended June 30

   

Six Months Ended June 30

2011

US$m

 

2012

US$m

     

2011

US$m

 

2012

US$m

   
59.7 (1) 35.3 Adjusted EBITDA 123.0 (1) 81.6
(30.5) (13.8) Net interest and tax (60.4) (28.5)
(12.1) (0.1) Other net charges (142.7) (2) (1.5)
(1.4) (2.3) Working capital increase (29.4) (38.5)
15.7 19.1 Cash flows provided by/(used in) operating activities (109.5) 13.1
(4.7) (1.5) Net purchases of tangible and intangible assets (11.1) (6.0)
2.5 (0.2) Net proceeds from sale/(purchase) of investments 2.1 (0.4)
(20.0) Purchase of equity method investment (20.0)
0.2 Net proceeds from sale of equity method investment 381.1
(48.7) Funding provided to equity method investment (48.7)
7.0 Receipt of deferred consideration 7.0
1.2 3.6 Cash flows from financing activities 2.4 8.6
(0.1) Restricted cash and cash equivalents movement 205.5 (2)
(5.4) (20.5) Net cash movement 69.4 354.7
497.3 646.9 Beginning cash balance 422.5 271.7
491.9 626.4 Cash and cash equivalents at end of period 491.9 626.4

(1) Includes Adjusted EBITDA from discontinued operations of $21.8 million for the three months ended June 30, 2011 and $49.8 million for the six months ended June 30, 2011. A reconciliation of Adjusted EBITDA from discontinued operations to net income/(loss) from discontinued operations for the three and six months ended June 30, 2011 is set out in Appendix II.

(2) Other charges includes the settlement reserve charge outflow of $206.3 million related to the Zonegran settlement that was paid in March 2011. The restricted cash and cash equivalents movement includes the $203.7 million that was held in escrow in relation to this settlement.

Overview

Operating Results

Quarter 2, 2012

Total revenue for the second quarter of 2012 increased by 6% to $288.0 million from $270.6 million for the same period of 2011. Tysabri ® global in-market net sales grew by 2% to $395.5 million in the second quarter of 2012, from $389.0 million in the second quarter of 2011. This reflects a 16% growth in U.S. in-market net sales of Tysabri, offset by an 11% decrease in rest of world (ROW) in-market net sales, which were negatively impacted by a $16.3 million revenue reserve in Italy (see page 10), and foreign currency movements, including an 11% decrease in the average dollar-euro exchange rate from the second quarter of 2011 to the second quarter of 2012. Worldwide, the number of patients on Tysabri increased by 13% to approximately 69,100 patients at the end of June 2012, from approximately 61,200 patients (revised) at the end of June 2011.

Gross margin was 44.4% of total revenue for the second quarter of 2012, compared to 46.5% for the second quarter of 2011. This decrease is primarily due to the change in mix between U.S. and ROW reported revenues, as described above, and because of the costs associated with the administration of the JC virus antibody assay to patients.

Adjusted EBITDA from continuing operations decreased to $35.3 million for the second quarter of 2012, from $37.9 million for the same period of 2011, principally reflecting the 13% increase in patients taking Tysabri, offset by the revenue reserve for Italy and unfavorable foreign currency movements, and a 6% increase in cash operating expenses. Operating income excluding other net gains for the second quarter of 2012 decreased to $18.0 million, compared to operating income excluding other net charges of $24.5 million for the second quarter of 2011, reflecting the decrease in Adjusted EBITDA and a $4.1 million increase in non-cash stock compensation expense.

Net loss from continuing operations was $28.5 million for the second quarter of 2012, a 39% decrease from the $47.0 million for the second quarter of 2011. This improvement is primarily due to a decrease in the net interest expense for the second quarter of 2012 to $12.4 million compared to $29.7 million in the second quarter of 2011, following the significant debt retirement during the fourth quarter of 2011.

First Half of 2012

Total revenue for the first half of 2012 increased by 11% to $576.4 million from $517.7 million for the same period of 2011, as a result of an 8% growth in global in-market net sales of Tysabri to $794.5 million for the first half of 2012, from $738.4 million for the same period of 2011. This reflects a 17% increase in U.S. in-market net sales of Tysabri, offset by a 1% decrease in ROW in-market net sales, which were negatively impacted by a $32.8 million revenue reserve in Italy, and foreign currency movements, including an 8% decrease in the average dollar-euro exchange rate from the first half of 2011 to the first half of 2012.

For the first half of 2012, Elan reported a net loss from continuing operations of $60.3 million, compared to a net loss from continuing operations of $74.7 million for the same period of 2011. This improvement is primarily due to the decrease in the net interest expense following the debt retirement during the fourth quarter of 2011. The net loss from continuing operations in the first half of 2012 includes a loss of $13.1 million from the disposal of 76% of the Company’s shareholding in Alkermes plc in March 2012.

The net income for the first half of 2011 of $21.1 million includes net income from discontinued operations of $95.8 million relating to the Elan Drug Technologies (EDT) business, which was divested to Alkermes, Inc. in September 2011. This net income from discontinued operations includes legal settlement gains of $84.5 million.

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