Major Shareholder Jack W. Schuler Calls for Termination of Elan
CEO
LAKE FOREST, Ill.--(BUSINESS WIRE)--December 12, 2008--
Crabtree Partners, an independent healthcare and biotechnology
investment company, announced today that it has submitted a letter
to Elan Pharmaceuticals Chairman of the Board, Kyran Mclaughlin,
calling for the termination of Elan's CEO, Kelly Martin. Letter
follows below. The move comes following a drop in the company's
stock price from $37 to $7 over the last four months (most of this
prior to general market decline).
"Lack of relevant industry experience, gross incompetence
related to the management of Tysabri and its partnership with
Biogen, and egregious misuse of company resources have caused
investors to lose confidence in Mr. Martin and his management
team," said Crabtree Co-Founder Jack Schuler. "Given the company's
unacceptable performance, the board has a fiduciary obligation to
take immediate action."
This comes on the heels of recent news coverage detailing
Kelly's alleged mismanagement, as well as receiving the Nance
Trophy as, "The Worst Biotech CEO" of 2008.
Jack Schuler is a co-founder and partner of Crabtree Partners,
and is one of the largest shareholders of Elan with more than 5.5
million shares. He is a former president of Abbott Laboratories and
former board member of Chiron, ICOS and Amgen. Schuler was
instrumental in forming two highly successful healthcare companies,
Stericycle and Ventana Medical Systems, where he was chairman and
the largest shareholder. Recently Ventana was sold to Roche. He is
currently on the board of directors of Stericycle, Quidel, and
Medtronic.
Elan Corp. plc
Treasury Building
Lower Grand Canal Street
Dublin, 2
Ireland
Dear Mr. McLaughlin,
As you know, Elan has one of the most impressive pipelines in
the biotech industry. The Alzheimer's drug, Bapineuzumab, has the
potential to be the largest selling drug ever.
With all this potential, you and your other directors must be
wondering why investors have fled Elan stock which has dropped from
$37 to $7 in the last four months.
As one of Elan's largest shareholders (I own more than 5.5
million shares) and given my experience in the industry, many of
the other large investors have contacted me to get my thoughts and
to give me theirs.
Mr. McLaughlin, as I see it, investors have completely lost
confidence in your CEO and his management team. The combination of
management incompetence and misuse of company resources have caused
Elan to lose more than $13 billion in value in the last four
months. (Most of the drop occurred before the overall market
decline.)
I am writing to express my serious concern about the state of
the company, and to urge you and the Board to take immediate
action. In my opinion, the actions that should be taken are as
follows:
-- Replace top members of existing management with executives who have
relevant and needed pharmaceutical marketing experience
-- Eliminate egregious misuse of company funds
-- More closely monitor the decisions and actions of the CEO
Let's look at each issue in a little more detail.
Management incompetence
Unacceptably low sales performance for Tysabri
Tysabri is by all accounts, the best drug for MS, and management
has only converted 9% of the MS patients after 28 months on the
market. Elan's attempt to use its own sales force to promote the
Crohns disease indication, despite Tysabri's remarkable
effectiveness, has been a complete failure. In my opinion, this
issue directly stems from management's lack of understanding
pharmaceutical marketing. The extremely rare incidence of PML is no
excuse for not achieving greater success given the consequences of
an MS patient not taking Tysabri.
Mismanagement of Biogen partnership
The managing of your partnership with Biogen is even more
critical, since they have a competing drug, Avonex, which is
currently the market leader. As I see it, Elan has failed to
monitor the Biogen sales force to insure that Tysabri is promoted
to all MS patients including those on Avonex. The poor
communication of Tysabri clinical results, the relationship with
the FDA, and lack of control of the Biogen sales force has resulted
in Tysabri greatly underperforming its potential
Management Inexperience
What was the board thinking when they chose a Merrill Lynch
employee to be the CEO of Elan? As far as I can see, he has no
experience in pharmaceuticals or in managing any type of operation.
Why did the board approve the CEO bringing two friends along with
him from Merrill Lynch who also had no prior pharmaceutical or
operations experience and make them Executive Vice Presidents?
In my view, the miss-steps that have hurt Elan over the past
several years are directly related to the lack of basic
understanding of the pharmaceutical business and the CEO's
arrogance in his belief that this experience is not needed.
As I look at Elan's top ten executives, I do not see anyone with
any pharmaceutical marketing experience. Who represents Elan when
you meet with Biogen to develop promotional strategy? How do you
insure that Tysabri is being aggressively promoted to Avonex
patients? Do the Elan representatives have equal weight as far as
marketing experience as the Biogen people sitting at the table? It
is clear that Elan is being taken advantage of because it does not
adequately understand pharmaceutical sales promotion.
Over the next year there will be critical negotiations with
Wyeth over the launch of Bapineuzumab. These will include pricing,
promotional strategy, and which company will field a sales force in
which countries. This requires a clear understanding of each
country where the product will be launched. Given the complete lack
of pharmaceutical marketing experience of your CEO and management
team, I am afraid Elan will be taken advantage of in these
negotiations.
Egregious misuse of company resources
Inappropriate and outlandish expenses for use of private jets
for executives
I was shocked to read recently in a press article that the
company provides the CEO access to corporate jets, some of which
are the largest and most expensive. For your CEO to fly from his
home to the heart of the company in San Francisco would cost
between $100,000 and $150,000 depending on the plane he chooses. A
commercial ticket could typically be had for less than $1,000. Do
you and the other Board members also use these jets? I wonder what
would be the results if the money spent on corporate jets were
instead spent with the talented Elan scientists to create life
savings drugs.
I know of no other biotech company that has corporate jets, yet
alone a small, struggling one. Why can't the Elan CEO fly
commercial? Has there been any discussion by the Board about this
highly unusual practice? In addition to the expense, what signal
does the CEO send to the rest of the employees by his high profile
excesses when he is asking them to control expenses?
Locating of company headquarters in CEO's home city
Investors are also bothered by the CEO's decision to effectively
locate the headquarters in New York City. Even ignoring the expense
associated with this decision, it is generally accepted that the
CEO and the executive vice presidents should be located at the
heart of the company (San Francisco). You now have an executive
team that is not only inexperienced in pharmaceutical marketing but
also separated geographically from the employee base.
There are many more examples that have lead investors to the
same conclusions. The bottom line is that Elan is a small
struggling biotech company with a lot of debt coming due in 2011
and has lost the confidence of its shareholders. It also has great
potential but desperately needs to control expenses, quickly boost
sales of the drug Tysabri, and skillfully manage the approval and
marketing of your Alzheimer's drug Bapineuzumab.
I urge you to carefully consider the recommended actions.
Sincerely,
Jack W. Schuler
Crabtree Partners
CONTACT: Jack W. Schuler
Founder, Crabtree Partners
(847.607.2067)
SOURCE: Crabtree Partners
Copyright Business Wire 2008
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