Elan CEO Kelly Martin Ought to Resign, But He Won't
Now that the civil war inside Elan (ELN) has broken out into the open, it is time for CEO Kelly Martin to resign. Never heard of Elan? You're not alone, but it's an important company. It markets Tysabri for multiple sclerosis and is developing a promising new Alzheimer's disease therapy, bapineuzumab. A lot of very sick people need this company to succeed.
But Martin and his management are a slapstick comedy act. Elan's top brass once claimed that their Irishness qualified them for tax breaks, for instance. Elan's stock once traded above $35; it now oscillates miserably around the $5 mark.
Yesterday, Martin and his gang sued two of their own board members and successfully won an injunction preventing them from hiring an independent law fim to investigate Martin's alleged conflicts of interest. Martin wants the law firm he hired to do that probe.
The day before, Martin wrote an 18-page letter to his shareholders defending his record. It reads more like a resignation letter. Even if you give Martin the benefit of the doubt, it still confirms that Martin is too conflicted, and has made too many enemies, to remain in charge of the company. Among the controversies that Martin's letter actually confirms are:
- Three Elan directors own stock in Azur Pharma, the company that bought Prialt, a painkiller, from Elan. Martin says Azur was " the winning bidder based on price" but the terms of the deal are undisclosed.
- Elan chairman Kyran McLaughlin is also the deputy chairman of J&E Davy, the brokerage that handled the Prialt deal. Martin also confirms that J&E Davy "operates a nominee company called Davycrest" which has "200 private individuals who happen to own shares in Azur" as its clients.
- Elan CFO Shane Cooke's brother works at Amarin, a company to which Elan gave a licensing agreement for the anti-seizure drug Lorazapam.
- Martin did assist with the founding of Kinsale Capital Management six years ago and he served as a non-executive director of Kinsale until March of 2010. Martin denies he was distracted from his main job by his Kinsale duties.
That's not even half the reasons that three of Martin's directors -- former Eli Lilly (LLY) CEO Vaughn Bryson, former Abbott Labs (ABT) COO Jack Schuler, and investor Ib Sonderby -- want adult supervision of Elan. You can read more about Elan's tangled skein of friends-and-family deals here; and about how Martin managed to install an anti-takeover "poison pill" controlled by Johnson & Johnson (JNJ) without telling his investors here. Retail investors are openly calling for Martin's head.
Of course, Martin won't go. If he believed he couldn't win he would have gone last year, when this battle first started. Rather, Martin will hang on despite being an international laughing-stock because he has so riddled his company with kill-switches -- both Elan's development partners, J&J and Biogen (BIIB), have the option to walk away with its most valuable drug assets in the event of a change of control. If anyone tries to sell its assets in order to realize their true value, or to take over the company and eject Martin, then the whole company basically implodes. It's an astonishing situation: Executive leadership based on a suicide pact.
Related: