Biotech Values

[DewDiligence]

Another Large Shareholder Demands Cleanup of ELN Management/BoD

http://online.wsj.com/article/SB10001424052748703954804575381323007252744.html

›JULY 22, 2010
By JEANNE WHALEN

An activist shareholder in Elan Corp. is launching a campaign to shake up the Irish biotech company's board and management, saying "ineptitude and mismanagement" have destroyed shareholder value in recent years.

In a letter to the board, Danish investor Ib Sonderby accused it of failing to "monitor" Chief Executive Kelly Martin, who he claims has "publicly misled investors, destroyed collaborations with Elan's corporate partners" and "extracted millions of dollars in compensation." Mr. Sonderby, founder of Zoar Invest, controls about two million Elan shares, or about a 0.3% stake.

Elan, which markets the multiple sclerosis drug Tysabri with Biogen Idec Inc., has faced shareholder discontent for the past several years, in part because its stock is trading at around $5 on the New York Stock Exchange. At Elan's recent annual meeting, 28% of shareholders opposed the re-election of Chairman Kyran McLaughlin and another director.

Elan declined to make Messrs. Martin and McLaughlin available for comment.

In an emailed statement, the company said: "Over the last several years, Elan's board, including the independent directors, have met with investors frequently and taken significant steps to address concerns. In fact, many of the matters Mr. Sonderby raises in the letter have been addressed previously, and we regret that he appears seriously misinformed on others."

The company added: "We recognize that the real issue for all investors is to ensure that Elan is positioned to capitalize on its undisputed strong science for the benefit of patients and its shareholders."

In his letter, Mr. Sonderby said he wants the board "rebuilt with a majority of directors who have valuable, relevant experience and are willing to serve their fiduciary duty." If the board isn't willing "to affect this change in a friendly way, I am fully prepared to pursue alternative measures for doing so," he wrote, saying he has an alternate slate of directors lined up. "I am confident that Elan's shareholders would support such an effort, and will seek their input through my website, saveElan.com."

Echoing past shareholder complaints, Mr. Sonderby accuses Elan of failing to promptly disclose important elements of a recent partnership with Johnson & Johnson. He also criticizes Elan for paying Irish firm Davy Stockbrokers for consulting work related to the J&J deal. Elan's chairman, Mr. McLaughlin, is also deputy chairman of Davy, according to an Elan securities filing, which says Elan paid Davy $2.4 million for the J&J work in 2009.

Mr. Sonderby also accused Elan of mismanaging the marketing of pain drug Prialt "for years," before selling it for an undisclosed sum to a privately held Irish company called Azur Pharma, which is managed by a former Elan executive.

In an emailed response to questions about the deal, an Elan spokeswoman said: "Several current Elan directors have minor shareholding interests in Azur. These directors recused themselves from the section of the board meeting at which the final Azur terms were discussed. Additionally, these directors were not involved in the negotiations with Azur."‹