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Elan Cuts Deal With U.S. Drug Firm King

May 20, 2003

DUBLIN, Ireland (AP) _ Elan Corp. of Ireland announced a revised deal Tuesday for selling two drugs to King Pharmaceuticals Inc., a breakthrough that analysts said meant the cash-strapped Irish firm could avoid bankruptcy.

Elan also suspended its lawsuit against King, which was filed after the Bristol, Tenn.-based firm threatened to back out of its Jan. 31 agreement to buy the drugs in a deal originally valued at $850 million.

The new terms require King to pay Elan around $750 million for patent rights to muscle relaxant Skelaxin and the insomnia drug Sonata. Elan shareholders must approve the deal by the end of June.

The deal allows Elan to receive additional payments from King if the two drugs remain protected from more competition from generic brands.

That issue had given King cold feet after the U.S. Federal Trade Commission in March launched an investigation into whether Elan illegally suppressed competitors’ efforts to produce generic rivals to Skelaxin, known as metaxalone in its generic form. Elan announced May 8 that the commission was no longer considering stripping patent rights from Skelaxin.

Irish analysts welcomed the news as likely to allow Elan to survive a year-end payment demand for $1.5 billion in outstanding debts. Elan since last summer has been trying to sell assets to other pharmaceutical firms in hopes of drumming up sufficient cash, and the deal with King involved the biggest payoff.

``This deal’s position in the overall recovery plan was critical,″ said analyst Ronan Wallace at Dolmen Butler Briscoe Stockbrokers in Dublin.

King said completing the deal was also likely to boost its 2003 profitability. It boosted its forecast earnings per share to a range of $1.50-$1.65 on projected revenue of $1.57 billion to $1.67 billion.

In Dublin, Elan shares surged 12 percent to 4.20 euros ($4.87) by midmorning.

Elan shares rose above 50 euros in 2001 when its reputation as an aggressively expanding, risk-taking firm proved attractive to investors, making it for a time the biggest-value company on the Irish exchange.

But Elan suffered a series of setbacks in early 2002.

Its most high-profile trials into developing a cure for Alzheimer’s disease had to be abandoned after potentially lethal side-effects emerged. The U.S. Securities and Exchange Commission launched an ongoing probe into allegedly misleading accounting practices. The company’s founder, Donal Geaney, denied the charges but slashed Elan’s earnings forecasts and resigned in June.

The new management said Tuesday’s announced terms with King would ensure the revival of a pared-down Elan focused chiefly on developing drugs for treating pain and neurological disorders.

``Upon closing, Elan will have exceeded its target of raising $1.5 billion from asset divestitures,″ said Kelly Martin, Elan’s president and chief executive officer.

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