February 17, 2011
By Staff Reporter
The pharmaceutical corporation Elan last week announced a deal with the U.S. Securities and Exchange Commission in which the Irish firm agreed to pay a $15 million fine over the allegations.
Meanwhile, Elan’s former chief executive is proceeding with a wrongful dismissal case against the company.
There are some bright spots for Elan, however. The firm is currently being buoyed up by a favorable response to its new drug for the treatment of multiple sclerosis, Tysabri. On Monday, Elan was one of the key stocks leading the Irish index, ISEQ, to an all-time high.
The SEC complaint against Elan charged that during 2000 and ’01 the company made its financial affairs appear healthier than they actually were. According to a statement released by the SEC, this deception took three forms.
First, Elan failed to disclose that a substantial portion of its reported product revenue had been generated by selling off some drug product lines entirely, and by selling partial royalty rights to other important products.
“As a result,” the SEC alleged, “investors were falsely led to believe that the company’s product revenue growth was due to drug sales in the normal course of business.”
Second, the complaint charged, Elan misled investors about its joint venture program.
“The company failed to disclose that it required its joint venture partners to engage in ’round-trip’ transactions, in which the ventures paid license fees to Elan using money that Elan had provided to the partners,” the SEC said.
Third, during June 2002, Elan facilitated an artificial sale of joint-venture related securities.
The Irish company said publicly that a subsidiary had sold securities at “estimated fair value” to an “unaffiliated third party.”
According to the SEC, “these statements were materially false and misleading.” The commission claimed that that “the purchaser was not an ‘unaffiliated third party’ because Elan created it.”
Elan agreed to pay the fine while neither admitting nor denying the allegations.
Elan’s president and CEO, Kelly Martin, said in a statement that the settlement was “an important step forward for Elan, its shareholders and patients.”
“Closure on the SEC investigation removes uncertainty and allows us to focus all of our energies on bringing innovative science to patients,” Martin said.
Although all sides acknowledge that the settlement is the end of the matter, the SEC official overseeing the case, Scott Friestad, stood by the initial charges.
“The company was telling half-truths about their results, “Friestad said in an interview with the Bloomberg News Service. “What they said was literally true, but it presented a false picture.”
The SEC investigation into Elan began in February 2002 and was responsible, at least in part, for a collapse in the company’s share price. In the first six months of 2002, Elan’s share price fell to around $2 from over $40.
The combination of the SEC investigation, the dismal share performance and the abandonment of crucial drug trials is understood to have precipitated the departure of Donal Geaney from his position as Elan’s chairman and CEO. Geaney began an unfair dismissal claim in Dublin last month, though the exact basis for his suit is not yet known.
Elan’s executives must be thankful that Tysabri, which was launched in late November, looks set to become a success. Take-up of the treatment for multiple sclerosis exceeded expectations, according to the company. The drug has already been prescribed by 2,000 neurologists in the nine weeks since it became available in the U.S.
On Monday, Elan shares closed at