Little Elan Becomes a Big Deal

October 1, 2001
Wayne Koberstein
Wayne Koberstein

Wayne Koberstein, a 25-year veteran of the publishing industry, is editor-in-chief of Pharmaceutical Executive magazine. In 14 years as PE's Editor, he has overseen the emergence of the magazine as the leading business and marketing publication for the global pharma industry. He has interviewed and profiled more than 150 top executives in pharmaceutical companies, as well as major regulatory and healthcare leaders, around the world. Wayne has also directed the launch of numerous supplements and other ancillary business for the publication.

Pharmaceutical Executive

Pharmaceutical Executive, Pharmaceutical Executive-10-01-2001, Volume 0, Issue 0

"My father had some great sayings, and one of them was: 'Never do a deal that's not a good deal for the other guy.'" So remembers Donal Geaney, chairman and CEO of Ireland-based Elan. Geaney's new American colleague Daniel Welch, president of Elan Pharmaceuticals, smiles in agreement from the other side of the table.

"My father had some great sayings, and one of them was: 'Never do a deal that's not a good deal for the other guy.'" So remembers Donal Geaney, chairman and CEO of Ireland-based Elan. Geaney's new American colleague Daniel Welch, president of Elan Pharmaceuticals, smiles in agreement from the other side of the table.

Geaney and Welch greet Pharmaceutical Executive in their headquarters on Lincoln Place in Dublin. Together, they deliver a broad but detailed picture of a company that has turned a market cap of $120 million into $20 billion in just 15 years, demonstrating its prowess in research, marketing, and deal making.

Once one of the world's first companies devoted to innovative drug delivery, Elan has spent the last several years building a division to launch and market its own therapeutic pharmaceuticals. Its Rx products now include Permax (pergolide), a dopamine agonist for adjunct therapy of Parkinson's disease; Naprelan (naproxen), a nonsteroidal anti-inflammatory for osteoarthritis and rheumatoid arthritis; Zonegran (zonisamide), an adjunct therapy for epileptic seizures; and Zanaflex (tizanidine), an oral treatment for spasticity. (See "Key Products," page 43.)

Elan also provides more than 50 diagnostic neurological testing services for peripheral neuropathies, movement, and neuromuscular disorders, stroke, and attention disorders. Though separate from the relatively new pharmaceuticals business, the neurological testing unit complements Elan's focus on neurology and pain management as major targets for future growth.

Pipeline projects include Myobloc (botulinum toxin type B) for cervical dystonia; Frovelan (frovatriptan) for acute treatment of migraine; Prialt (ziconotide) for severe chronic pain; Zelapar (selegiline) for Parkinson's disease, and Antegren (natalizumab) for multiple sclerosis and Crohn's disease. (See "In the Pipeline," page 46.)

Geaney and Welch chronicle Elan's origins, development, and emergence as one of the industry's fastest growing players. They describe the important and controversial acquisition of US-based Athena Neurosciences. They also detail the company's many partnerships in new-product development, including Elan's collaboration with American Home Products to develop AN-1792, an experimental immunotherapy for Alzheimer's disease.

Elan's partnerships have raised wide interest and not only for scientific reasons. Its CFO Thomas Lynch recently attracted a left-handed compliment from Forbes' September issue. The magazine cited Lynch's skillful but convoluted deals that funnel large investments into R&D alliances while siphoning big revenues back onto the books-possibly inflating results, according to the Forbes article. (See "Does Elan Cook the Books?" page 48.) In January, Forbes' global edition listed Elan as its "A+" healthcare company, the world's best, with an estimated 2001 earnings-per-share growth of 23 percent.

Native Sons

In 2000, Elan kept its 1995 pledge to top $1 billion in revenues, grossing $1.3 billion. It now aims for $5 billion by 2005 Elan's impressive growth has made it Ireland's largest corporation. In Dublin, it is a local success story of the first magnitude. Geaney and Lynch have guided the company since the mid-1980s.

Now rumored as a possible candidate for national leadership, Geaney, who is as public as Lynch is private, personifies the role of native son. He works only a few hundred yards from his birthplace at Hollis Street Hospital and mid-block from where his father's tire business once stood.

Growing up in Dublin, Geaney finished public school there and attended a Franciscan boarding school north of the city before earning a degree in business and economics at Dublin's Trinity College. He then joined a precursor of the consulting and accounting firm KPMG in 1973.

Though he intended to eventually join his father's business, Geaney took the KPMG job on his father's advice to learn accounting. But before the training period ended, his father died, and he stayed with the firm for more than a decade.

Geaney joined Elan in 1987, invited by its founder, Donald Panoz, to head strategic planning and business development. By then, he was a partner at KPMG and had worked with Elan since its first IPO in 1983. At that time, the company had only 22 employees in Ireland and about 10 in the United States. It now has a global work force of nearly 5,000.

"On our first deal, the IPO raised gross proceeds of $13 million, but it cost us $3 million to do it," Geaney says. "So we had a net gain of $10 million. That wouldn't put too much jam on the bread these days!"

Over the following decade, Geaney helped the company through a series of acquisitions and partnerships that accelerated along with its internal growth. He became CEO in 1995 and chairman in 1997, when Panoz retired.

Now, in addition to "looking after the board," Geaney says his chief responsibilities are keeping the company "on track" strategically, developing its "human capital," protecting shareholder value, and "making sure the structures are in place" for regulatory compliance.

To hire the head of pharmaceuticals, Geaney recruited outside his familiar circle, reaching all the way across the Atlantic. Welch is Boston born and bred, with bachelor degrees in business and marketing from the University of Massachusetts and the University of Miami and an MBA from the University of North Carolina. Since his first industry job at Adria Laboratories (now part of Pharmacia) starting in 1979, Welch has worked for Sterling Drug, American Hospital Supply (now Baxter), and a number of other pharma companies. Most recently before Elan, he played a major role as one of the principal architects of Sanofi-Synthelabo's transformation from a $2-billion-per-year European-focused company to a $6 billion company recognized as a scientific leader and worldwide commercial player.

Welch says his current job is to build an organization that can catch up to and anticipate Elan's fast pace of growth, including product developments and launches. That position requires him to be closely involved in launch planning and branding strategies for recent and imminent new products.

Getting to Know Them

For many industry players and observers, Elan still casts an unfamiliar shadow. Beyond a few short news reports, it has seldom appeared in high profile. Its historic role as a drug delivery company began in 1972 with the approval of Tetrabid, a controlled release formulation of the antibiotic tetracycline, licensed to Organon in the United Kingdom. It reached a new high with a 1989 license agreement with Marion Labs for the slow-release Cardizem SR (diltiazem), Elan's first major deal in the United States. Marion also licensed and launched successor Cardizem CD two years later.

All products that Elan developed and licensed out up to that time used the company's proprietary technology SODAS, or Spheroidal Oral Drug Absorption System. (See "Delivery Deals," page 44.)

"We got to a stage where our original technology ideas had matured and were contained in very large products in the marketplace," Geaney recounts. "It wasn't Elan that made the success of those products on the market; it was Marion and its successor companies."

Reaching for something more, Elan explored the idea of inventing new delivery technologies sparked by external investment or internal efforts in basic research. It now funds a research operation at nearby Trinity College that Geaney says is at least five years away from bearing fruit.

Meanwhile, according to Geaney, the company augmented its licensing program with more extensive product development efforts. It instituted a "mind-to-market" strategy aimed at increasing its equity in licensed products. That strategy, in turn, allowed the company to build more extensive development and regulatory functions in house.

By 1995, though, Geaney admits that even mind-to-market had played itself out. Elan realized that drug delivery alone would never sustain long-term success in the pharmaceuticals business. Only proprietary compounds would put the company in that league.

Elan decided to pursue involvement in basic research targeted at the central nervous system (CNS) as an "underserved market with many unmet medical needs." Figuring it lacked the time and resources to construct its own research group, Elan looked to acquire one. It eventually found and settled on Athena Neurosciences in San Francisco in 1996.

"That was considered a very brave move-which is a euphemism for a dangerous move, a risky thing to do," Geaney says. "There were a number of people in the company at that stage who disagreed with the decision and left."

He maintains that the purchase of Athena has since vindicated itself by freeing the drug delivery business from carrying the whole company. Now, he says, that unit can concentrate on developing drug-delivery solutions for specific clients while Elan helps its pharmaceutical division become, among other things, a "world-class CNS research, development, and marketing operation."

Since the acquisition, Elan has continued "adding pieces and buying infrastructure" toward that goal. "We have a much more vigorous drug delivery group with more modern solutions and technologies," Geaney says. "And here we are with a product about to enter Phase III for MS and Crohn's disease and another product about to enter Phase II for Alzheimer's disease, which is not simply a palliative but a real potential treatment. From '96 to now-not too bad."

Key to Elan's expansion strategy is an avoidance of the "not-invented-here" syndrome. Geaney mentions several partnership initiatives to demonstrate: with Biogen on a monoclonal antibody for MS, with AHP and Pharmacia for Alzheimer's treatments, and with Isis and Targeted Genetics on new gene-based CNS therapies.

"As we get really good at partnering in that way, more and more companies want to partner with us," he says. "We believe this is an efficient model, and we believe it can deliver very good shareholder value in the long term for us and for our partners because, like my father said, the other guy has to win, too."

Nerve Endings

Welch offers more perspective on Elan's choice of neurology as an area of competitive advantage: "Because of our acquisitions of Athena and Neurex and others, we have technology as good or better than so-called Big Pharma in the areas where we decided to compete. The chronic neurodegenerative diseases are the subsegment within neurology that we've chosen, because we feel that today, we are as good as anyone."

He allows that the marketing of such products will involve special challenges. "With Alzheimer's, MS, and the more degenerative diseases-Parkinson's, for example-there's a huge emotional component. There's also a large political component. So we must be mindful of the pressure on the company's investigators to develop products that deal with those devastating diseases, and of the patient/caregiver advocacy groups and work with them carefully, as we do."

On the organizational level, Welch says the pharmaceuticals unit begins dealing with those groups during product development. Its new head of R&D, Dr. Lars Ekman, "has already made a huge contribution in helping us organize ourselves so we can market compounds right out of the approval gates. We will address the needs of patients better than we might have in years past."

Welch also points to acquisitions in the United States that have strengthened Elan's marketing organization since the Athena purchase. In 1998, it bought Carnrick and Neurex; in 2000, the Liposome Company and Dura Pharmaceuticals. As a result, its US sales force has grown to almost 1,100 reps.

Elan is now consolidating all the acquired entities into one US pharmaceuticals business, with commercial and development functions located at the former Dura site in San Diego. Athena's basic research unit will remain in San Francisco, and the San Diego headquarters will manage about a dozen of the company's near-70 joint ventures.

"San Diego is the perfect place to build Donal's vision of biopharmaceuticals and drug delivery as the two pillars of the company," Welch says. "Biopharmaceuticals is a great match for San Diego."

Structural Core

Elan organizes its US sales force as four business units-primary care, neurology, specialty, and hospital. Robert Whitehead, president of the Americas division, oversees all four units.

"In primary care, we employ about 500 representatives, which is a credible force," Welch says. "In neurology and dermatology, we're among the top in presence. And the hospital sales force is around 200-also very credible in the United States." In Europe, he says, the company's sales forces are national rather than business-unit organizations.

Welch acknowledges that Elan is still far from a global marketing organization. "The reason for that is partly cultural," he says, "because neither Donal nor I want a big, heavy, classical Big Pharma approach. At the same time, we recognize that you have to coordinate pricing, reimbursement, and clinical development strategies and all of the aspects that you would expect-publications and so on. We will do that. But we don't want to be heavy at the center. We want to be light and move quickly."

He notes that Elan's new corporate branding campaign depicts an "entrepreneurial, inquisitive, and dynamic" culture. Welch continues, "It's interesting that we're rolling out our new campaign of corporate branding, and it centers around vigor, spirit, and drive, which is the meaning of the word elan. In this industry, the company aims to be incomparable.

"We don't define ourselves by how we stack up against Big Pharma. Our point of reference is our own: biopharmaceuticals and drug delivery."

Seasoned Navigators

Global or not, according to Welch, Elan plans to foster wider use of common marketing tools such as market research among all its units. "My first job out of the sales force was in marketing and market research, where I worked for almost two years. I am a big believer in appropriate market research, though not to the point of being paralyzed with analysis. But if you're not using it effectively, you're dead in the water."

Welch says he marvels at the "richness, depth, and texture of data on US customers compared with that in Europe and Asia." He believes organizations in those other areas could learn to make better use of market and marketing research tools.

Likewise, the most global part of the company, R&D, may benefit from the same tools. Welch mentions that the company's customer-data guru, David Silver, works with Ekman to make wise use of marketing input in the development phase of managing product life cycles.

An example he offers is the pipeline product Antegren. "With what we hope is a wide application-multiple sclerosis, Crohn's disease, irritable bowel disease, perhaps asthma, rheumatoid arthritis, and others-there will be a very important reimbursement component. There is also a lot of future competition in all those fields at various stages of development. So we have to think about how we will position ourselves against them even now. There's a great deal of work with our partner, Biogen, to figure out how to develop it."

"It's interesting that the marketing people see that as a marketing exercise," says Geaney. "However, there is more to it than that, because there's no point in deriving something without a clear claim. It may not be perceived that way by classical marketing people, but that's the task that we're asking them to undertake."

Welch elaborates: "We like to begin almost at the endpoint and work backward from that. What is the package insert that will compel governments to reimburse doctors to prescribe? It has to be a difference that makes a difference. We were in Japan, listening to the socioeconomic and healthcare challenges that government has with its aging population. We know that Europe, country by country, is facing huge budgetary challenges, and America won't be immune to that. The baby boomers are graying, and we have to take steps to make sure we can pay for our healthcare. So who pays, or will they pay? That's the major question now. So we have to have a difference that makes a difference. Otherwise, as Donal says, we shouldn't be messing around with it."

Although Welch considers none of Elan's products appropriate for DTC advertising, he does see a big future for them on the Internet: "For chronic neurodegenerative diseases, in which both caregivers and patients have a huge appetite for information, those are classic hybrid segments. So using the web to inform and interact and develop communities of information is absolutely huge for us going forward."

Best Laid Plan

Despite the global economic slump and recent earthshaking events, Geaney and Welch remain optimistic about Elan's future. By 2005, they vow, the company will launch several new products and reach $5 billion in sales. Organic growth, along with more company and product acquisitions, will get it there, they say. In that time, Elan may well realize its vision of a biopharmaceutical drug delivery company.

"Although we've reached all of the goals we set for ourselves publicly, we've never gotten there by the route we thought we were going to," says Geaney with a sly grin. "I could show you a five-year projection-everything that will make up the $5 billion. The only thing we know about it is that it's not going to happen that way. But you still have to manage it. That's the point."

A possible, if unlikely, scenario for Elan would be an offer it might not refuse-to merge with a much larger company. "The first question I'd ask is 'How much?'" Geaney jokes. "On the other hand, I would be surprised. It would take a fairly substantial offer to divert us from our course at this point. If somebody wants to make a very substantial offer, we have a website, and our phone number is there. We don't mind.

"Ultimately, we have a responsibility to our shareholders. And one thing about the Novartises and the Glaxos and all the rest is that I'm fairly certain that they wouldn't buy a company like Elan unless they were comfortable that we had products that they could make something out of.

"If patients get the products, shareholders get paid, and employees are looked after in either of those circumstances-fine. I have no worries. I would feel that my mission is complete if any one of Elan's new products really makes a big difference when we get them into patients' hands."

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