It's no secret that Elan has mulled a potential sale since the start of 2009 year, when the Irish biotech hired Citigroup to conduct a review of its business. The likelihood of a takeout remains uncertain but the drumbeat for the ouster of CEO Kelly Martin only grew June 11 when the company nominated two of its strongest critics to join its board.

Standing for election to the board at Elan's annual meeting July 16 will be Jack Schuler, cofounder of Crabtree Partners and former Abbott president, along with Vaughn Bryson, the former CEO at Eli Lilly. In a separate announcement released May 12, Elan announced the nomination of a third non-executive director, Richard Pilnik.

Both Schuler and Bryson bring important operational experience, an important consideration and one Elan chairman Kyran McLaughlin alluded to in a press release announcing the nominations. These men "bring a wealth of management experience and strategic insights" and "will strengthen the commercial pharmaceutical experience on the Elan Board," he said.

And it's likely to mean difficult times for Martin. Schuler, whose Crabtree Partners owns 5 million shares of Elan, has been a vocal critic of the CEO and first called for change at the top of the company in a scorching letter made public in December 2008 ¹ Also see "Debt Clock, Cash Situation Push Elan To Explore Options – Sale, Alliance, Merger?" - Pink Sheet, 13 January, 2009.).

Investor complaints center around Tysabri

He and other shareholders have criticized Martin and his executive team on a number of items, including questions of whether the biotech has the infrastructure and know-how needed to maximize the potential of multiple sclerosis blockbuster Tysabri (natalizumab), which is partnered with Biogen Idec. "Tysabri is, by all accounts, the best drug for MS, and management has only converted 9 percent of the MS patients, after 28 months on the market," Schuler wrote in his December letter.

But Tysabri has struggled in the marketplace because of its potential to cause progressive multifocal leukoencephalopathy, and the announcement of additional cases of the disease in July 2008 (² Also see "More PML Cases Inevitable For Tysabri, But How Many?" - Pink Sheet, 5 August, 2008.).

Although Tysabri sales now look to be rebounding, analysts remain cautious. In a note to investors in April, JP Morgan's Geoffrey Meacham noted "revenue per patient was down for the third straight quarter and is now $5,776, down from $5,876 in 4Q08 and $6,810 in 3Q08." He suspected that some patients were skipping doses or deferring treatment, a pattern that could stall the medicine's re-uptake, especially with several new MS treatments waiting in the wings (³ Also see "Biogen Idec Says Tysabri Patient Counts Are On The Upswing" - Pink Sheet, 17 April, 2009.).

Meanwhile, Martin has been doing his best to show that he is in charge at the beleaguered biotech company. Speaking at a Goldman Sachs healthcare conference on June 10, he tried to allay concerns about the company's ability to do a deal, suggesting that a strategic transaction "in the near term" might transpire. "A lot of people are interested in talking to us, he said.

Such talk, however, hasn't yet resulted in a deal with either Bristol-Myers Squibb or Pfizer - the two pharmas most often mentioned as potential buyers of the perpetually troubled Dublin-based firm. On May 30, the Wall Street Journal reported Bristol was in late-stage talks to buy a minority stake in the company, but talks apparently broke down a few days later.

That the company decided to forgo a costly proxy fight and simply nominate both Schuler and Bryson to the board speaks to an important trend in the industry today. Shareholder activism has been front-and-center in recent weeks. In late May, Icahn and Eastbourne each won a seat on Amylin's 12-person board (⁴ Also see "Icahn And Eastbourne Win Some, Lose Some In Amylin Match" - Pink Sheet, 1 June, 2009., p. 26). More recently Icahn scored another victory, winning two of four contested seats on Biogen Idec's 13-member board of directors (⁵ Also see "But Who’s Counting? Icahn Wins A Biogen Seat, Another Is “Too Close To Call”" - Pink Sheet, 8 June, 2009., p. 26).

Has Martin's bravuro performance assuaged investors or Elan's board? It doesn't appear so, suggesting that the July 16 meeting could be very interesting, or at least very loud.

-Ellen Foster Licking (e.licking@elsevier.com) and Joseph Haas (j.haas@elsevier.com)

As Rumors About A Potential Acquisition Fly, Elan Names Two Dissidents To Its Board

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