A small Athlone-based drug delivery business rose to take its place on the world stage in the late 1990s. Within a few years, however, it had over-reached itself and now looks lost.

TAKE A LOOK at the share price and you would assume Elan, Ireland’s largest indigenous pharma business, was a failure. At about $6, the stock trades at just 10 per cent of the peak it hit less than a decade ago. It is not as straightforward as that, of course. Working in some of the highest risk areas of bioneuroscience, the company has in many ways come back from the dead to promise both shareholders and patients in a range of categories a better future.

The destruction of shareholder value has had an impact, however, and Elan has spent considerable time and energy in recent years fighting off the attentions of activist shareholders. Having flattered to deceive on more than one occasion, a sceptical stockholder base is hardly a surprise.

In some ways, Elan mirrors the progress of Ireland through the Celtic Tiger years. A new management team with a more extensive understanding of finance than of pharmaceuticals aimed to take a small Athlone-based drug delivery business to a global scale only to over-reach itself and come crashing down.

The company Italian-American Don Panoz, started in Athlone in 1969 to develop the technology behind the nicotine patch, is still recognisable today in the Elan Drug Technologies division, but it is the burgeoning neuroscience drug development programme that catapulted Elan to the big time and attracted investors.

Donal Geaney, a former partner at accountancy firm KPMG, was the man behind the company’s metamorphoses. Having left the comfort of the Big Four partner’s desk in 1987, he took over the management reins in 1995, succeeding Panoz as chief executive.

The following year, he acquired a small Californian biotech company called Athena Neurosciences in an all-stock deal. It was research being undertaken by Athena that provided the starting point for both the multiple sclerosis (MS) and Alzheimer’s programmes on which Elan has since built its name. It was a coup for Geaney.

Elan was working in some of the most exciting, but untreated areas of medicine. Investor belief in the prospects of the business saw the company become the largest constituent on the Irish Stock Exchange, with a valuation in excess of €20 billion in 2001.

Alzheimers disease has become something of a holy grail for the pharmaceutical industry, with as many as five million Alzheimers patients in the US alone and an estimated 26 million worldwide. More significantly, as the baby-boomer generation ages and modern medicine succeeds in keeping people alive for longer, scientists say that as much as half the population over the age of 85 will suffer from Alzheimers.

But it was also a high-risk bet, and in early 2002, the wheels came off. A clinical trial for an Alzheimer’s drug on which Elan and the market had pinned great hopes was halted after some patients suffered inflammation in the brain. Within weeks, the shares dropped by a third.

Worse was to come. On January 30th, 2002, the Wall Street Journal published an extensive piece raising questions about the accounting practices at Elan. It wasn’t the first time Elans “aggressive” accounting had been queried. In 1999, the US regulator, the Securities and Exchange Commission (SEC), had raised a series of issues about Elans numbers, especially in the area of research and development, where the company operated myriad joint ventures.

But by 2002, the climate had changed. Enron had only recently imploded on the back of “creative accounting” issues. Coming hard on the heels of the Alzheimer’s announcement, the markets reaction was severe. Overnight, the value of Elan stock more than halved to $14.85. Six months later, with the shares trading at just $2, and real doubt about the company’s prospects for survival, Geaney stepped aside.

Industry veteran Garo Armen took over and immediately set about lowering the profile and hype around the company. Gone were the exotic financial structures which the market felt were designed more to disguise what was happening at the company than to inform development and transparency. The company also adopted an altogether more cautious tone about pipeline development.

In a radical restructuring of the company methods of operating, its pipeline targets and its finance, Armen decided to focus on one drug Antegren, a prospective treatment for multiple sclerosis and, in the longer term, the groups Alzheimers programme. He hired Merrill Lynch banker Kelly Martin to lead the group. Martin had a track record of turning around troubled companies, though little experience in pharmaceuticals.

After an early setback with an adverse trial for the use of Antegren as a treatment for chronic bowel disorder Crohn’s – which again hit the stock for 30 per cent despite the fact that it was always a secondary target for the drug – things improved.

Positive results for Antegren as a treatment for multiple sclerosis emerged in early 2004. This meant Elan and its US partner were able to file an application for the drug a full year ahead of schedule, and it was fast-tracked.

Investors once again started to believe in the company and its stock recovered to giddy heights above $25. In November, the Food and Drug Administration approved the drug and, within weeks, it was on the market. With a sure-fire blockbuster on its hands, Elan seemed set for sustained market advance.

Just weeks later the drug, which was now called Tysabri, was taken off the shelves. Two patients had started to display symptoms of a generally fatal brain condition – progressive multifocal leukoencephalopathy (PML) – with a third emerging subsequently.

An unforgiving market, rueful at having fallen for Elan’s promise a second time, slashed the value of the company by more than two-thirds overnight – from $26.90 to $8.

Withdrawn drugs don’t, as a rule, return to market, especially when the potential side effects are so serious. That Tysabri did says much for its efficacy and the lack of suitable alternatives. Patient power got Elan’s lead bet back to market in June 2006. While still the major revenue generator for the company, its prospects have been held back by the spectre of PML, more cases of which have subsequently emerged.

News in May 2007 that Elan was moving a series of Alzheimers treatments to clinical trials saw shares jump again by a third to almost $20.

A year later, Elan and its partner in the Bapineuzumab (Bapi) Alzheimer’s programme, Wyeth, disclosed topline results which they said showed it was successful in meeting “statistically significant and clinically meaningful benefits” for a substantial proportion of Alzheimer’s disease patients. The stock spiked to almost $35, its highest level since the 2002 crash.

When the full results of the “Bapi” test were disclosed just over a month later, showing the drug had no impact for at least half of Alzheimer’s patients, the market was aghast.

Bad luck was one matter but this time, the market accused the companies of sending out misleading signals in the initial figures. Again the shares fell by more than two-thirds to just above $10. Within Elan, investors who had been grumbling about a perceived lack of pharmaceutical industry experience on the board and other corporate governance issues adopted a harsher more activist approach.

As the share price stabilised, Elan’s considerable debt was becoming a growing issue. The company looked at selling the drug technology business (EDT) but was forced to abandon that move as the credit crunch bit. The fact that the financial crisis – and attendant bank collapses – were already a feature in the US before it started the exercise again left it open to criticism.

In an effort to address its debt, the company undertook a group wide review. The end result was the sale of a strategic 18.4 per cent stake to healthcare giant Johnson Johnson (JJ) for $1 billion. JJ also committed to funding the Bapi programme over which it assumed control.

No one was satisfied. Investors who had stuck with the company accused it of selling off the family silver. Then it emerged that JJ had also been granted the prospect of acquiring Biogen’s half of the Tysabri programme in the event of a change of control at the US group. A US judge forced a U-turn, JJ paid $150 million less and shareholders cried foul, accusing Elan of doing secret deals.

A request from the SEC for all information relating to the June 2008 Bapi announcement and the announcement of new cases of PML just weeks after a bullish update on Tysabri served to fuel investor anger.

In the boardroom, rebel shareholders Jack Schuler and Vaughn Bryson – appointed in June 2009 – started agitating again for action against Martin and a broader review of the myriad corporate governance issues.

Despite positive indications this year on the Alzheimer’s programme, it is corporate governance that has again been the focus of attention – leading to further criticism of the board for failing to focus properly on its business. Kelly Martin announced he was stepping down from the board in two years’ time and was rewarded with improved terms for that period. Chairman Kyran McLaughlin has also announced his imminent departure. Following the boardroom clash and a High Court injunction, Schuler and Bryon will also step aside.

In the meantime, the company has again toyed with and abandoned the notion of hiving off the drug technology unit, creating more uncertainty about the medium term future and strategy of the group.

It’s not hard to see why shareholders – and institutions in particular – continue to view Ireland’s largest pharma with a somewhat jaundiced eye.