Cash-strapped Elan settles with King in dispute over drugs' value

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Elan, the Irish pharmaceuticals company, yesterday settled a pending lawsuit to agree the sale of two drugs that will pull it further back from the brink of bankruptcy.

Elan, the Irish pharmaceuticals company, yesterday settled a pending lawsuit to agree the sale of two drugs that will pull it further back from the brink of bankruptcy.

In reaching an agreement, however, Elan had to accept a lower price of $750m (£458m) for the sale - 16 per cent less than the two groups had agreed on in January.

Elan settled out of court with King Pharmaceuticals, the buyer of its sleep drug Sonata and muscle relaxant Skelaxin, in order to complete the sale.

King had tried to back away from the deal after an investigation was launched by the US Federal Trade Commission into the way Skelaxin had been marketed. Fears that the drugs would become open to competition from generic rivals as a result of the investigation made King unwilling to complete the deal. The FTC last month called off parts of its inquiry, fuelling hopes the sale could be signed off.

Elan was intending to sue King for breaking the sale agreement and the two were due to meet in court this month.

Kerry Martin, the Irish group's chief executive, said: "This gives us much more momentum on the restructuring plan and reduces our liabilities. It gives us more cash, and more cash is good." He described the agreement as an "excellent result" for Elan and its shareholders.

The reduced price of the Sonata and Skelaxin deal will be offset by other payments and royalties to Elan, meaning it shares more of the risk of rival drugs coming on to the market.

David Marshall, an analyst at the Dublin-based NCB Stockbrokers, said: "This was the sensible arrangement to come to and ends an expensive process that could have dragged on for months, with nobody winning in the end but lawyers.

"Elan wanted the matter to be resolved, although they have had to take on more of the risk contingent on the patent. But it does remove Elan from its immediate financial uncertainties and it should be able to meet its obligations for the next 12 months. There is now much less pressure on the company."

Elan is struggling under $2.6bn of debt and other liabilities, half of which is due for repayment by the end of the year. Yesterday's agreement helps Elan reach its target of $1.5bn of disposals.

The company is still, however, under the shadow of a Securities and Exchange Commission investigation in the US, which is looking into its accounting practices and caused senior management heads to roll last year.

Elan will have a pre-tax gain of $35m from the transaction and King will offer jobs to the 375 workers in the Elan unit marketing the drugs. It had sales of $238m last year in the US.

"We continue to move forward on multiple aspects of our recovery plan, including product development, the simplification of our balance sheet and further adjustments of costs," Mr Martin said.

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