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Elan Corporation PLC (ELN) Will Shutter South S.F. Center as it Shifts R&D to New Company; Job Cuts Ahead


10/1/2012 8:34:55 AM

San Francisco Business Times by Ron Leuty, Reporter

Elan Corp. will shutter its South San Francisco drug discovery operations as it shifts the work into a new publicly held company.

The Irish biotech company (NASDAQ: ELN), which this summer saw a high-profile experimental Alzheimer's drug crash in late-stage clinical trials, will have no drug discovery or preclinical drug development programs by Dec. 31, it said in a Securities and Exchange Commission filing this week.

Closing the South San Francisco facilities, where most of Elan's roughly 400 employees are housed, will translate into $160 million to $180 million in employee severance costs, facilities costs and other restructuring charges, according to the Tuesday filing.

It is unclear, however, how many Elan employees will shift to the new company, called Neotope, and how much of Elan's space will be occupied by Neotope. Elan leases 441,000 square feet of in South San Francisco, including 15-year deals for newly constructed buildings in the Science Center at Oyster Point in 2009 and 2010.

Neotope will provide research and development services to Elan.

Elan officials could not be reached to comment for this story.

At least a few Elan employees already are working at Neotope or another Elan wholly owned subsidiary, called Onclave Therapeutics Ltd. Those employees include Dr. Menghis Bairu, who was Elan's chief medical officer and now is head of Onclave, and Dale Schenk, Elan's chief scientific officer who is Neotope's CEO.

Elan said in February that 226 of its 412 employees were in research and development.

The formal decision to close the South San Francisco space -- at least under the auspices of Elan -- cements Elan's announcement last month that it would spin off of its R&D operations into Neotope. It also caps a bizarre string of management decisions and drug failures by Elan.

The most damning scientific strike came in July and early August, when the experimental Alzheimer's drug bapineuzumab failed Phase III clinical trials. Yet some shareholders also have been highly critical for years of spending by CEO Kelly Martin and his management team.

Elan -- which axed 130 employees in January 2011, mainly in South San Francisco -- plans to shift a "substantial portion" of its drug discovery business into Neotope, the company said in an SEC filing. Neotope will be a publicly traded company set up in Ireland.

Elan will infuse Neotope with $130 million and ultimately will hold 18 percent of the new company's outstanding ordinary shares, it said in the SEC filing. It expects to complete the deal by Dec. 31.

Elan will retain its rights to the multiple sclerosis drug Tysabri, which is marketed by Biogen Idec (NASDAQ: BIIB), as well as a mid-stage bipolar 1 disorder drug and a 49.9 percent stake in Janssen Alzheimer Immunotherapy.

Elan also said in the SEC filing that it will take a non-cash impairment charge of $117.3 million on its equity investment in Janssen AI, which is operated by Pfizer Inc. (NYSE: PFE) and Johnson & Johnson (NYSE: JNJ).

Elan has a 25 percent economic interest in Janssen AI, which was built around Johnson & Johnson's purchase of Elan's rights to the Alzheimer's program.

Janssen AI subleases 66,636 square feet from Elan in South San Francisco.

Neotope's U.S. operations, under the banner of Neotope Biosciences Inc., will focus on immunotherapy treatments for diseases such as melanoma and psoriasis. Neotope Biosciences Ltd. is targeting treatment for Parkinson's, Lewy body dementia, Alzheimer's and type 2 diabetes, while Onclave eyes cancer-related diseases.



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