Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message| ()  

Executives

David Marshall - Vice President of Investor Relations

G. Kelly Martin - Chief Executive Officer and Executive Director

Nigel Clerkin - Chief Financial Officer and Executive Vice President

John Given - General Counsel and Advisor to the Chairman

Analysts

Michael J. Yee - RBC Capital Markets, LLC, Research Division

Marshall Urist - Morgan Stanley, Research Division

Adrian Howd - Berenberg Bank, Research Division

Corey B. Davis - Jefferies & Company, Inc., Research Division

William Tanner - Lazard Capital Markets LLC, Research Division

Eric Schmidt - Cowen and Company, LLC, Research Division

Vincent Meunier - Exane BNP Paribas, Research Division

Guillaume van Renterghem - UBS Investment Bank, Research Division

Richard J. Parkes - Deutsche Bank AG, Research Division

Elan (ELN) Q1 2013 Earnings Call April 24, 2013 8:30 AM ET

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Elan Corporation First Quarter 2013 Financial Results Call. [Operator Instructions] As a reminder, this conference is being recorded, Wednesday, April 24, 2013. I would now like to turn the conference over to David Marshall, Vice President of Investor Relations. Please go ahead, sir.

David Marshall

Thanks, Demetra. Good morning and good afternoon, everybody. Welcome to Elan's First Quarter 2013 Financial Results Call. If you have not reviewed our press release, please go to our website at www.elan.com where you will find it.

On today's call would be Chief Executive Officer, Kelly Martin; Chief Financial Officer, Nigel Clerkin; and our General Counsel, John Given. Before we begin, I will review Elan's Safe Harbor statement. Today's call will contain forward-looking statements about Elan's financial condition, results of operations, business and prospects.

These forward-looking statements involve substantial risks and uncertainties that could cause actual results to differ materially from those described or projected. Lists of these risks and uncertainties are included in our first quarter 2013 financial results press release and in our 2012 annual report on Form 20-F and our Form-6K filed with or furnished to the Securities and Exchange Commission. Elan assumes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. In addition, today's conference call and webcast will include non-GAAP financial measures such as adjusted EBITDA. Reconciliations of these non-GAAP financial measures to the most directly-comparable GAAP measures are included in today's call.

I'll now turn the call over to Kelly Martin.

G. Kelly Martin

Thanks, David. Good morning, afternoon, everybody. On behalf of Bob Ingram, our Chairman of the Board, and myself, we appreciate your taking some time to get updated from us regarding Elan.

A few comments and then I'll turn the call to our Chief Financial Officer, Nigel Clerkin.

First comment upfront is, obviously, people will know that we're under what's called an Offer Period from an Irish Takeover point of view. Given that, we have our General Counsel, John Given, on the phone to answer any specific questions or to step in if there are topics that are frankly just out of bounds. Some of the Irish Takeover Rules frankly are a bit opaque, but we will do our best to stay within the bounds of what's advised. Also, there's some U.S. security laws that, to me, as a lay man are a little bit illogical, but again, we will do our best to stay within the bounds of what's advised.

We also have on this call our advisors, particularly Citibank, Andra Davis [ph], as they need to make sure that our communications are consistent with the various rules and regulations in both jurisdictions. A few things I just want to touch on again, before I turn the call to Nigel. In my comments and in my quote for this quarter, I tried to lay out some principles that have guided us for basically a decade.

Broadly speaking, this is a risky industry and everything we've tried to do in the past has been to reduce or quantify that risk as much as possible on behalf of shareholders and allow shareholders to maintain any upside that may be forthcoming with either the asset or the product or the science. And if you look at over the last decade or so, roughly speaking, we've done 10 or more capital market transactions. We've done at least 15 corporate transactions in different sizes and shapes, different assets, different geographies. So if you take that over a decade or so, we're averaging 2 to 3 transactions a year across either our capital structure or our business.

Very specifically, in the last 4 years, we've done 4 transactions that were $1 billion in size or greater: J&J transaction with the AIP technology from a science point of view; the EDT transaction with Alkermes and the combining of those assets, which has worked out well for both companies; the Tysabri and Biogen Idec transaction that was worked on second half of last year and announced the early part of this year; and last but not least, our recently completed $1 billion share repurchase, which Nigel will shed some further light on.

Again, characteristically, our view is that each of those $1 billion or more transactions has been to the mutual benefit of the counterparty. In the case of AIP, J&J and Elan, EDT was Elan plus Alkermes and the Tysabri transaction benefit both Biogen and Elan. And again, characteristically, each of those reduced risks, risks for us and our shareholders, and maintain some optionality on the upside.

Our strategic process post the close of Tysabri, which was only a couple of weeks ago, is going to be consistent in theme and consistent in focus. I and members of the executive team, in the last several months, have talked to dozens of CEOs around the world. As we have done in the past, we will do in the future, when we engage with different companies and different CEOs, we try to figure out what's a win-win for them and a win-win for us. I would characterize these discussions as fantastic across multiple dimensions. It's not easy in today's world being a CEO of a public company, or for that matter, a CEO of a private company, given the fact of the regulatory complexity, the science complexity and the long cycle time in our business. All of these discussions, I am pleased, to date have been highly confidential and there has been no leakage whatsoever in our discussions anywhere across the globe.

As we move forward, we intend to create a number of opportunities that we believe strongly will create value for shareholders that we described that value on multiple dimensions. First and foremost, P&L, improvement of P&L, growth of P&L. It's first and foremost on our list, that is because this again is a long-cycle business, capital-intensive business and a highly risky business.

Second part of the value will be the option value for late-stage pipeline clearly for future growth and future value, you need new products, new product comes through pipeline and the advancements of pipeline. And the third way, we believe we can bring value to shareholders is diversification, that diversification can be in science, it can be in molecules, it can be in therapeutic approaches or geographies.

Next steps. Over the course of the near future, we will finalize some of these discussions with some of these counterparties that we have made a lot of progress on. And we have found areas that we believe and they believe are win-wins with regard to their situation and ours.

To clarify some misinformation out there, we can, as Elan, bring to shareholders under the Offer Period, we can bring transactions. We intend to do so. I, personally, and the board collectively, very much look forward to that to bring to shareholders transactions, which we believe again will add value across those 3 dimensions that I just outlined.

Lastly, but again, before I turn it over to Nigel, I just want to fundamentally reiterate that both myself and the Board of Directors completely understand our responsibility and stewardship of the reinvestment and reallocation of several billion dollars post the unlocking of value of Tysabri.

We will endeavor to do that in a very disciplined, consistent and logical manner. We won't be rushed into doing things that we are not comfortable with. On the other hand, we certainly won't hesitate to bring forward transactions that we believe are in the best interest of shareholders. So I look forward to receiving your questions after Nigel's comments. And with that, I'll turn it over to our Chief Financial Officer, Nigel Clerkin.

Nigel Clerkin

Thanks, Kelly, and good morning and good afternoon, everyone. It's been a busy few months. Since we reported our Q4 results on the 6th of February, we have completed the Tysabri transaction, retired our debt and conducted a $1 billion share buyback.

We've also launched a dividend policy, under which we will pay 20% of the future Tysabri royalties to shareholders as a twice-yearly dividend.

As Kelly has walked you through, we believe the Tysabri transaction has the potential to unlock substantial value for shareholders.

The combination of the $3.25 billion upfront payment, along with the significant continued financial participation in Tysabri, through the ongoing royalties, provides a powerful platform for creating enhanced shareholder value.

We have now taken the first steps on this journey by utilizing some of the upfront payment to transform our capital structure. Following the completion of the Tysabri transaction on the 2nd of April, we moved immediately to issue a redemption notice to retire all of our outstanding bonds.

The redemption is expected to complete in early May. As a consequence, we expect to record a debt retirement charge in the second quarter of approximately $119 million.

In parallel to the debt redemption, we have also recently completed our $1 billion share buyback. We were very pleased with the results of the Dutch Auction.

The strike price was set at $11.25, the lowest point in the offered range and so resulted in the purchase and cancellation of almost 90 million shares or close to 15% of the number in issue. This has reduced our share count to approximately 510 million.

The largest participant in the Dutch Auction was Johnson & Johnson. They tendered their entire holding at $11.25 and constituted 92% of the total shares tendered at the strike price. As a consequence, their shareholding in the company was reduced from just over 18% to just under 5%. Having taken these steps to transform our capital structure, we now look forward to transforming our business structure to executing the strategy that Kelly has outlined. Following these transactions, we now have approximately $2 billion in cash and no debt and so we have ample financial capacity to execute on that strategy.

In addition, we are very pleased with the continued interest in Tysabri that we have achieved under the agreement with Biogen. As a reminder, in addition to the upfront payment, we will receive a 12% royalty on global net sales for the first 12 months, after which the royalties will increase to 18% on the first $2 billion of net sales per year and to 25% on annual net sales above $2 billion.

This will be across all indications for the life of the asset. Tysabri is a tremendous product. Most importantly, for the many sizes of patients who benefit from its powerful impact. We believe Tysabri's compelling efficacy will continue to drive strong growth in its usage for many years ahead.

We are delighted that our shareholders will continue to share in that growth through the substantial royalties that we will continue to receive and directly through the 20% dividend stream. Tysabri's value is further enhanced by its robust patent stage. It was Elan's great privilege to invent Tysabri, and we look forward to sharing in its continued success for many years to come.

Before I hand the call back to David, let me comment briefly on the mechanics of the dividend policy. We expect to pay the first dividend in the fourth quarter this year in relation to royalties received in the first half. In essence, this will equate to 20% of our Q2 reported Tysabri revenues.

As noted in the press release, those revenues will reflect the transition arrangements in the agreement with Biogen. Under this, we will receive as revenue a 50% share of the Tysabri profits for the month of April with the initial 12% royalty on end-market sales of Tysabri commencing on the 1st of May. And now, I'll turn the call back to David.

David Marshall

Thank you, Nigel. Operator, we are now ready to begin the question-and-answer session. Could you please remind participants of the procedure of requesting a question?

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Michael Yee with RBC Capital Markets.

Michael J. Yee - RBC Capital Markets, LLC, Research Division

Looking forward, you've completed these transactions in the past, but they were generally sales of things or partnering things or selling back partnered assets. So as you look to acquire things on the buy side perspective, how do you use your sales experiences to purchase things? And when you look at purchasing things, how should we think about commercial assets versus developmental stage assets? What do you prefer?

G. Kelly Martin

Michael, look, the skill sets are the same and how you analyze things, whether you're buying or selling something. If you look at our history of transactions and several dozens, there's all shapes and sizes. And therefore, the skill sets, the assessment, the analysis, and frankly, the market opportunities are the same. It's just different side of the equation. So we're completely, not only comfortable, but we're quite enthusiastic for our team with advisors, with the board, the ability to assess things on the buy side, as well as the sell side. And if you look at the industry, to expand your question slightly, the industry has got some great assets, some great companies. Everybody needs capital short of the very large pharmaceutical companies. We have capital. We look to diversify, again, as I said into different areas, whether it's molecules, geographies or therapeutics. And we're quite flexible as I think we've demonstrated in our business models. So our challenge, frankly, is the amount of different opportunities and conversations we could have is beyond our ability to execute because we are a rather small company. There's only so many things we're going to look at, at least in the first wave of things. Your question about commercial. It's a balance, Michael. I think that there are clearly are some interesting commercial pieces of the equation that we would like to add. One of the things we want to do in reallocating the capital is to make sure the P&L continues to be robust and grows and diversify so that would imply directly that commercial activity our assets would be, as we've said before, part of the equation. We also want to maintain a balance. There are some also interesting late-stage clinical assets that we think look interesting. The host company thinks look interesting, and from a risk-reward point of view, they would be interesting investments as well. So you will -- when the market hears from us about the first phase of reallocation, the market should look for a collection of different things, not any one big transaction, but things that would check a number of boxes, so.

Michael J. Yee - RBC Capital Markets, LLC, Research Division

Can I just ask you one slightly different way and I'll jump back in the queue, which is I think Wall Street generally views part of your advantage as basically being an Irish-based infrastructure obviously for tax rates. Is it generally easy for you to apply those low tax rates to higher tax rate assets, i.e., the United States?

Nigel Clerkin

Michael, it's Nigel. So that will depend on the nature of the specific assets. And in general, we should be able to get some benefits of the feature of Irish structure. We've clearly demonstrated that in the past in terms of how we've been able to use the advantage of being in Ireland given our 40-year history there. And it's typically easier to get advantages with development assets than commercial assets, but there are things you can do with commercial assets as well to lower the tax rates as well. So it will be situation specific. Tax will not be a driver of the overall strategy. That is driven more by the potential [ph] that Kelly went through. But certainly we will use our tax structure where that makes sense to further boost the benefits of any particular transaction.

Operator

Our next question comes from the line of Marshall Urist with Morgan Stanley.

Marshall Urist - Morgan Stanley, Research Division

My question is, it would be helpful if you could lay out for us what the process is from here under the Irish Takeover Rules. What you be looking for as next steps on that front from your perspective. And second, how does that impact as you think about talking about the next stage of the executing on the strategy? How does that impact or does it all impact the type of assets or the speed at which the speed or size with which you move forward?

G. Kelly Martin

Okay, Marshall, it's Kelly. I will answer some. Nigel will jump in and/or our General Counsel. So with regard to what we're doing and how we're thinking about reallocation of our capital, the takeover rules have 0 impact on how we're thinking, what we do is frankly totally the current situation with this counterparty that has interest us in Elan is completely irrelevant and non-consequential as far as how we spend our time. It's an odd lot at best as far as how we think about things. We are completely focused on, as we said, sort of the stewardship and the proper reallocation of capital into an interesting portfolio and that's our focus. With regard to the process and if I misspeak, our General Counsel will correct me, what we do have to do, which we actually are delighted to do is should we tee up in this next phase a number of transactions, we would take them directly to our shareholders through an extraordinary general meeting as we just did with our share buyback. And that's the only, as far as I know, the only process that's slightly different. Again, our view is many of our shareholders have been with us for quite some time. Our top 5 or 6 shareholders have been magnificent long-term supporters and believers in our ability to again take out risks and give them the prospects of the upside. That's certainly important to us. And so, we'll actually be delighted with this opportunity to take to those shareholders and all the shareholders, frankly, a next phase of things. Is there anything, John, that I have misspoken on?

John Given

No, I don't think so, Kelly. Just a couple of things to add. Under Irish Takeover Rules process Royalty Pharma are obliged to bring forward an offer document, which is in effect, a fleshed out question of their 2.5 announcement which was the announcement that went out last week and the offer document is in effect the offer to Elan shareholders and that needs to come out within 28 days of last Monday. And then frankly, it's up to the shareholders whether or not to accept that offer and the process will run for a little while more, but as Kelly says the only significant piece of all of this, from our perspective, is that we would be putting our transactions to shareholders, which isn't a particularly onerous requirement and is not particularly unusual requirement. So that's really it.

Marshall Urist - Morgan Stanley, Research Division

And then just if I could one just quick follow up, so then just to give us an idea what is kind of pacing timelines for hearing about next steps strategically in terms of what are the assets you guys plan to bring forward first?

G. Kelly Martin

Yes, so when we -- as I said in my comments, when we have reached agreement with a number of various counterparties, then we will bring those forward to an EGM. We will announce them and we will move forward. We're not going to give a specific timeline. We're not going to M&A on a conference call, but you should -- the market will understand that we are in lots of interesting discussions, with lots of great people, different assets, and when we are prepared to move them forward and they are prepared to move them forward, we will do that as soon as practical because we think that earning 3 basis points on cash in our bank account isn't necessarily a great return to shareholders. And if you look at the assets in the world that we could potentially get involved in, we think that, that's a significant benefit to shareholders.

Operator

Your next question comes from the line of Adrian Howd with Berenberg Bank.

Adrian Howd - Berenberg Bank, Research Division

Firstly, could you perhaps give us a bit more color on what you received from Intarcia for the payment of $12.5 million there in terms of the Phase III study? And the other question I had, just looking at the types of areas that you're thinking about for reallocation, I think on the day the -- of the Biogen news, Kelly, you talked about being agnostic in terms of therapeutic area, I just wondered how that view had evolved or if it remains the same?

G. Kelly Martin

Adrian, so Intarcia is just a small funding. They have an interesting platform technology that we are interested in, and they're terrific people who are quite talented. So it's a small investment. So we can learn more and they can move some of their technology forward. It's a different stage of technology, but it's not dissimilar to what we did with Proteostasis, which was discovery size. This is a little bit later than that but it's a platform that we think is interesting and this is a small investment in us in that. And we think they're very high-quality folks. The therapeutic area, our view has not changed at all. We are agnostic therapeutically. Within the therapeutics, however, that the science has to be logical. The biology has to be logical. There needs to be alignment between the science, the clinical application and what we think is rational from a therapeutic point of view, our reimbursement point of view, et cetera. You've heard us say I think multiple times that on our own very large markets and very large indications would not be our sweet spot, at least being directly involved from an operational point of view. So we're agnostic therapeutically. There's lots of different opportunities. If you look across different therapies, not to go through each one, there's advancements being made across the board. Science is advancing. Clinical is advancing, and we believe that we can participate multiple ways in multiple therapeutic areas. Again, in different ways. So frankly, the more discussions we've had, the more that philosophy has deepened with regard to different opportunities and different therapeutic areas.

Operator

Our next question comes from the line of Corey Davis with Jefferies & Company.

Corey B. Davis - Jefferies & Company, Inc., Research Division

A couple of questions. The first is, how predictive is the SG&A and R&D numbers that you put up this quarter of what we're going to see in the next 3 quarters this year?

Nigel Clerkin

Corey, so when you look at the total OpEx for the first quarter, that's trending higher than the guidance we gave to the year as a whole of OpEx in the range of 170 to 190. And so in totality, it's not indicative. We'd expect the OpEx trend to come down from there and we remain comfortable with the guidance for the year of the 170 to 190. In particular on the SG&A side, it would seem Q1 is north of run rate you’d expect to see for the year as a whole.

Corey B. Davis - Jefferies & Company, Inc., Research Division

A similar question on EPS. I know there's a lot of moving parts this quarter, but what EPS number would you like us to use as our official number? That you reported this quarter, you get a loss of 12, you got positive 23, you got positive 11, but which is going to be most predictive of where you're going to be in the next 3 quarters?

Nigel Clerkin

None of the above, Corey. The challenge with Q1 is that it's a combination of the old without really the commencement of the new. And so Q1 contains Tysabri collaboration results for the full quarter, but classified as a discontinued operation. Whereas it's really only when you get to the start of Q2 that the new arrangements commence, that's why we didn't have any reported revenue from Tysabri in our continuing operations and that in the discontinued reflects the old collaboration arrangements. So we recognize that challenge for you to try and model, and obviously, what we try to do we laid our revenue guidance earlier in terms of the year as a whole for end-market sales. You can now see what the end-market sales were for the first quarter. And we've laid out pretty clearly how the new arrangement works in terms of profit share for April and royalties commencing from the 1st of May. So Q1 essentially is not reflective of the new arrangement at all, frankly.

Corey B. Davis - Jefferies & Company, Inc., Research Division

You think you'll be profitable in the next 3 quarters?

Nigel Clerkin

Corey, given that we're in this offer period, we're restricted frankly, in terms of providing any new material information because of that so we can't actually get into that.

Corey B. Davis - Jefferies & Company, Inc., Research Division

Right. Last question. I know that Biogen's now in charge of patient numbers, but if only qualitatively, can you give us any sense for whether or not the trend of the previous few quarters has held and that patient numbers both in the U.S. and the rest of the world are going up?

Nigel Clerkin

Again, Corey, I suppose Q1 reflects the transition from the old to the new to some degree. Obviously, under the new arrangements, we're no longer in a 50-50 collaboration. So you'll need to look to Biogen to be the primary provider of detail in relation to the underlying Tysabri trend, so.

Operator

Our next question comes from the line of Bill Tanner with Lazard Capital Markets.

William Tanner - Lazard Capital Markets LLC, Research Division

Kelly, just, I have a couple of questions. The first one for you. You mentioned that you're not in a rush to make an acquisition, which we think makes sense. I'm just wondering what your view point is on the M&A landscape over the next call, it 5 years as to whether think patience is going to be rewarded or you think it's going to be a little bit disadvantageous?

G. Kelly Martin

Wow, Bill. I appreciate you asked me my view of M&A for the next 5 years or 2 years. Well, 2 to 5 is fine. Look, let me give you some broad characteristics. To me, and I've had this view for many years, is this industry is a bit of a barbell industry. You have the super large oil tanker pharma guys with by and large a lot of capital but they are burdened, in our opinion, with legacy infrastructure and their hurdle rates to pay for the infrastructure are high. And to deconstruct a large company into different pieces takes enormous fortitude, courage and strength and many of the CEOs are trying to do that. So I applaud them, but that takes time. They need to replenish their pipeline constantly to maintain even reasonable performance. So there is, in my little view here, for the next 5 or even 10 years, there's a constant buyer of pipeline assets that are successful and those buyers are the large pharmaceutical companies. On the other hand, because of EPS pressure, which is enormous, published shareholder pressure which is also enormous, the compression on multiples and the lack of value placed on pipeline, there is a hesitancy, Bill, by all companies of all shapes and sizes to fund pipeline assets that look like their pretty high quality and looked like the risk-reward is pretty reasonable and the reason the public CEO are hesitant to do that is they're concerned about moving a pipeline asset forward that looks like it's pretty high-quality, but being short term harmed by shareholders. So with all of that -- and last thing I'll say, since you give me a pretty broad question is I do believe science is moving forward and progressing. A bit of clinical knowledge is moving forward and progressing. Diagnostics are moving forward. And by and large, the regulators around the world are also moving forward on their thinking on many diseases. So you have cross currents of that underlying progress, in a world where capital, risk capital by and large, very general statements, has shriveled up, private equity venture capital, big pharma and public shareholders not particularly interested in any way, shape, or form with risk capital and pipeline. So if you put all that together, I think that if you can find win-wins, Bill, across the industry, different companies, different countries, different molecules, different therapeutics and enter some risks reward sharing programs, I think, there's almost an endless amount of things that people can do. And that's why we're trying to take our time and make good decisions for the intermediate to long-term on that part of that equation. So I think that the M&A business defined as not just big large single transactions, but business model transactions, it should be very, very active. The last thing I'll say, then I'll stop talking, is many transactions get held up at the end of the day because it becomes a battle of the spreadsheets. Bottoms up, financial models on what some molecule might look like in the year 2022 to 2028 which is nearly impossible to predict, but many transactions, unfortunately, which are good business transactions gets scuttled or cannot go forward because there is a disagreement on 10 or 15-year models that basically back as CEO and/or board into a non deal structure from a legal point of view. So I can go on and on, I have a lot of views on it, but those are my broad opinions.

William Tanner - Lazard Capital Markets LLC, Research Division

That's actually very helpful and kind of dovetails with my second question. As you mentioned looking at late-stage assets, I mean obviously Elan R&D component I guess is kind of being spun out. So I'm just thinking about what's the value proposition that you bring to the table with the potential partners. So it does sound like there would be some contemplation of helping to fund some of the later or the end R&D expense or is it mainly going to be the attraction is, as Nigel talked about, with the tax program, just thinking about something like when Alkermes moved BYDUREON IP pre-approval to Ireland?

G. Kelly Martin

Broadly, it's any or all of the above. Again, I've met personally with some terrific CEOs. We think have some pretty good assets. The confidential discussions I've had with some of the CEOs is they are loathe to bring those things forward for fear of the wrath of current perception by, by and large, not all shareholders, but many shareholders, who don't want any risk capital. And again that you've got shareholders at the end of the day, in broad definition, will get what they want. You can see the inverse of that, Bill, by companies that have earnings and P&L, and you can see the value proposition of some of those companies, at least in our opinion, being several standard deviations away from what we would think are reasonable value. So evidence would suggest that if you look at people who have some earnings, they're certainly enjoying huge wins in their sales and their values are significantly above what we think would make sense for our shareholders.

Operator

Your next question comes from the line of Eric Schmidt with Cowen & Company.

Eric Schmidt - Cowen and Company, LLC, Research Division

It's another one on your M&A strategy. I think, as you mentioned Kelly, you have about $2 billion in net cash, no debt. Is there a maximum investment that you want to redeploy or in other words, is there a minimum net cash balance you want to retain?

Nigel Clerkin

Eric, it's Nigel. So in terms of cash balance, we would always want to keep a substantial cash buffer given the nature of this industry and frankly our own hedge [indiscernible] as well and the value of preserving significant liquidity at all times. Now that's not necessarily a static number that doesn't change over time. So we've been very active, as Kelly mentioned, in managing our capital structure and over the last 10 years, we've got multiple, multiple transactions running into many billions of dollars in terms of managing the capital structure, and we will continue to do that. We certainly have lots of experience and capability there. So we will continue to actively manage the capital structure, while all of preserving a meaningful cash buffer. But again, it's not a specific hard number that never moves. And so, but in broad terms, Kelly went through one of our core themes is mitigating risk and part of that will always be preserving adequate liquidity.

Eric Schmidt - Cowen and Company, LLC, Research Division

So Nigel, just to follow up, I think historically from time to time you've had a net debt position, you're suggesting you're not going to go back to such a balance sheet?

Nigel Clerkin

Eric, again, look it would depend in terms of the mix, the future opportunities. We've certainly used debt in our capital structure in the past and we're not averse to using debt in the capital structure. It will depend on the mix of opportunities that are available. Again to Kelly's point before, for sure one of the primary focuses as we execute on the strategy will be improving the P&L over time. And so we will clearly maintain that as an objective as well in managing the capital structure, but again, we will continue to actively manage the capital structure as we hold it all [ph].

G. Kelly Martin

What we won't do is we had $4.5 billion of debt 10 years ago, and now have 0. And so what we won't do is use debt to fund long-term science. We were kind of caught for a variety of reasons. We were caught years ago with over-leveraged, long-timeline business, which is not ideal. And we've worked our way through that to Nigel's point. When we first started 10 years ago, our debt was trading at $0.30 on $1. We worked exceptionally hard to work with our credit folks around the world. I don't want to speak for them, but I think they understand that we can manage debt against the right assets. So to Nigel's point, we don't have a pre-prescribed capital structure. We're not afraid of debt. We're not afraid of not having debt, but what we won't do is use debt to fund long-term pipeline assets. So hopefully that's helpful to you.

Eric Schmidt - Cowen and Company, LLC, Research Division

It is.

Operator

Our next question comes from the line of Vincent Meunier with Exane BNP.

Vincent Meunier - Exane BNP Paribas, Research Division

I have a question on Royalty Pharma, please. Can you tell us if you have already discussed directly or indirectly with the management or even their lawyers or their bankers, and if not, why? And what could open the door? Because it appears that you are really reticent to any discussion or any deal with them. And what could potentially change that situation or not? And the second question is with regards to your strategy of acquisition and did you say that you want to improve the P&L, but just assuming that you spend USD 2 billion of cash 1 shot, assuming that it will be 3x, 4x the level of sales and assuming that the business will be profitable with, let's say, a 30%-ish EBIT margin, it will just bring USD 200 million [ph] to the P&L and it is not really meaningful, what's your view on that? And in your view, what is interesting for the shareholders in that perspective?

G. Kelly Martin

So I'll answer some of the questions or I'll give you some thoughts. Once this organization, Royalty Pharma, showed an indication of interest, which led to a firm bid for the company, we have not engaged with them or their advisors or anybody associated with them as far as we know. And frankly, we see no reason to do that. As our board has said, we have looked -- the board's responsibility is on behalf of shareholders to assess where the company is and what's in the best interest of the shareholders. They've done that. They understand our board, what our strategic universe potentially looks like. And based on that and based on where we are today and fundamentally based on the long-term cash flow value of Tysabri, I think they spoke fairly clearly on Monday, categorically and unanimously rejecting the offer from Royalty. And our focus, as I've said and Nigel has said, our focus is the reallocation of this capital in a prudent, thoughtful, innovative way. And that's where our focus is. Other comments and I'll ask Nigel to add whatever he would like is that we're not necessarily looking at 1 large transaction. I didn't understand all your math, but that's fine. We're not necessarily looking at 1 large transaction. We don't think that -- we wouldn't be afraid of 1 large transaction, but by and large, when you look at the universe of possibilities, it seems to us and it seems to our board that a constellation of transactions that are put together would be more beneficial to shareholders. And as I said, we will bring those to the shareholders through an EGM as and when we and our counterparties who are working closely with are ready, and I'll ask Nigel to add any other thoughts he might have.

Nigel Clerkin

Vincent, the only thing I would add to that is in relation to your question about multiple application to cash, et cetera, frankly, we're not going to speculate with you or anyone else on any hypothetical transaction. And what we will do is, as Kelly said earlier, when we have actual transactions, we are quite happy to bring those to our shareholders and then let the shareholders to decide. We think we certainly have a very good track record in terms of doing that in the past and we're quite happy to do that again.

Operator

Our next question comes from the line of Guillaume van Renterghem with UBS.

Guillaume van Renterghem - UBS Investment Bank, Research Division

One quick question on Bapi and the AIP, I mean I'm just wondering what level of intangible is left if you've done sentence and once you complete [indiscernible] project what kind of write-off you will have left. And I'm wondering whether you can update us on the latest thoughts of J&J on Bapi and the rest of the pipeline? And as well, Kelly, maybe I misunderstood, but it sounds to me that you hinted that some of your long-term shareholders, who are keen to get to the upside from the project you're using of bringing to Elan, and I'm just wondering what kind of -- not exactly what can be more [ph] compatible but still can afford to make it more comfortable the look like the overall market in your ability to provide substantial upside? And if you believe in that, why haven't we seen actually any of this large shareholders increasing their stake in Elan?

Nigel Clerkin

Guillaume, maybe I'll start with your question on Bapi and AIP. We don't have any intangible on the balance sheet in relation to that and when the trial failed last summer, we wrote off our investments in full. So there would be no further balance sheet impact. And as to Johnson & Johnson's view on Bapi and AIP, I think you should ask Johnson & Johnson. We're not going to comment specifically on what their thoughts might be in terms of the future. It is a 50-50 collaboration between themselves and Pfizer. So I think that's a question you should place to them. And Kelly maybe if you want to address Guillaume's other question?

G. Kelly Martin

Shareholders, Guillaume, look, there's rotation all the time. I think the onus is on us for certain shareholders to demonstrate the tangible transactions that we would propose to them, which we will do, there's also been some other interesting shareholders added to the register. I can also tell you that globally there's also some significant interest in previous shareholders and/or new bases of capital around the world. So if you look at our shareholder base, again, the top 4 or 5 financial shareholders have been pretty much stable for the last decade or so. There's been some movement in and out. We would expect to see some more movement in out, but the underlying core. The most difficult thing in today's world is to have interesting assets that people have cash but they don't have enough places to put cash. So if you look at the intrinsic value of Elan just based on Tysabri and cash flow, we believe, and many people believe, it's a quite a significantly attractive asset. As future growth, the MS business is growing. Broadly, we have a great marketing now, former partner, but still indirect partner in Biogen Idec on the MS business. It's globalizing. So if you look at the long-term flows of cash from that asset at those margins, that's attractive and that's a great offset for us as we look at other assets. So again, we're pretty comfortable in our ability to understand different parts of the value chain, bring them forward and we think that the composition of the business will continue to improve. Our whole thrust was to move away from 1 product with 1 partner in 1 therapeutic area. Tysabri in relapsing remitting MS was just 1 partner was not really a sustainable business, and by unlocking that value, we can do many, many different things with that, and we look forward to sharing that with the market at the right time.

Operator

Our next question comes from the line of Richard Parkes with Deutsche Bank.

Richard J. Parkes - Deutsche Bank AG, Research Division

Just one more on your planned business development activities. Just thinking when you look at what you're planning in aggregate, and I know there's absolute number of different deals that you're thinking about and different types of deals, but is it your expectation that those deals would be immediately accretive to earnings or is there likely to be a period of investment required to maximize the potential value of production. I suppose I'm just trying to get a sense of the time frame that you're thinking about looking for these deals to be accretive and how you kind of manage that in the decision-making process about the mix of deals that you do. And the second question was just on the pro forma cash position, you've given us that number, but should we now think about use being immediately cash generative post the debt closure or you're more likely to be neutral to the remainder of the year given your obligations in JAI?

G. Kelly Martin

I'll do the first, first and Nigel will do the second. Richard, thanks for your question. Your question is good because it's not thinking about any one Big Bang theory necessarily, it's a series of different things and clearly, some of those particular components of a series of transactions would be immediately accretive, additive to the P&L and allow for diversification again of molecule, which we think is a significant benefit for the long term of the company. We want to be in a position where we are generating a substantial amount of cash that we are self-funding. And then we will work then with the capital markets as and when we think there are different opportunities. But by and large, we're self-sustaining, long-term, self-generating and have cash flow that we can utilize opportunistically down the road. So the answer to your question is, very specifically, that when we bring forward Phase 1 of our reallocation, some components of that will be accretive and impact the P&L presumably upon approval from our shareholders. And the second part of your question, Nigel will tackle.

Nigel Clerkin

So Richard, again, just being respectful of the fact that we are in an Offer Period and the takeover rules associated with that, we're not in this call going to be providing any new guidance, whether on cash flows or anything else. We obviously have laid out for you previously our thoughts in terms of what our OpEx would be for the year as a whole and in terms of end-market sales, we've also laid out the likely funding for Johnson AI, and the new Royalty writs et cetera and how that works, but we're not going to explicitly provide any new guidance on this call.

David Marshall

Okay. Thank you, everyone, for joining us today in our call and the call is now ended. The webcast of our call will be available on our website for 90 days.

Operator

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Elan Management Discusses Q1 2013 Results - Earnings Call Transcript
This Transcript
All Transcripts