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Executive Summary

Kodak's second investment in the drug development business is a $6.7 mil. equity investment in Elan Pharmaceutical. The investment was completed on Dec. 19 and recorded with the Securities & Exchange Commission in a 13D filing received by the commission on Dec. 24. With the purchase of 740,000 American depository shares in the Irish drug development company, Kodak is acquiring a 13.7% share of Elan's outstanding depository shares. Along with that position, Kodak is getting guarantees for one spot on the Elan board. The Elan purchase follows an initial Kodak investment in the drug business in 1984 through an equity purchase in ICN and its subsidiary, Viratek. Kodak is making the investments through its Life Sciences Division, headed by Senior VP Leo Thomas. Through an $8.4 mil. investment in ICN, Kodak bought 5% of the parent company and 10% of the subsidiary. Kodak followed that investment in April 1985 with an agreement to help fund a six-year $45 mil. commitment to a Nucleic Acid Research Institute at ICN's headquarters in Costa Mesa, California. Kodak's timing in the ICN investment was good; the film company bought in at the end of a long R&D cycle. ICN's 15-year development work on ribavirin in the U.S. was rewarded with initial FDA approval of the product (Virazole) for respiratory synctial virus on January 2. The Kodak/Elan agreement will pump about $3.3 mil. into the Irish company. The stock purchase is being split evenly between new company shares and shares owned by the chairman and founder of ICN, Donald Panoz. As part of the purchase agreement, Kodak also has a three-year option to increase its stake in Elan up to 20%. The Elan agreement has provisions for an upward revision in the Kodak purchase price. The SEC document describes the purchase price as "subject to an upward adjustment in certain circumstances." The ICN deal had a similar clause which reevaluates the purchase price on the closing date anniversaries for two and three years after the deal -- if the ICN and/or Viratek stocks appreciate by more than 45%. The Elan purchase gives Kodak an unusual opportunity to participate indirectly in the sales of a broad range of new versions of existing products. Because of Elan's license and manufacturing agreements with a wide variety of drug companies, Kodak is in the position to derive a piece of those revenues while learning about the drug industry. The SEC filing states the purpose of the investment as a way "to establish a relationship between Kodak and the company [Elan] as a basis for long term collaboration in the development and marketing of products of the company and the exchange of technical information." In October, Kodak announced the licensing of one unnamed product from Elan and a short-term option agreement for two other products. Kodak is describing its investment in Elan primarily as a way to learn more about becoming a technology supplier to the drug industry, instead of an active, direct participant in the business. A Kodak press release on the Elan agreement states: "Working with Elan, Kodak will explore opportunities for emerging controlled drug delivery technologies for the Pharmaceutical Industry." Among the reported Elan development projects are a once-a-day formulation of diltiazem (Cardizem) for Marion and a 350 mg formulation of alpha-methyldopa for Johnson & Johnson. Elan is also working with Robins on a once-daily form of quinidine and a once-daily formulation of theophylline. Elan reportedly filed NDAs for a controlled release calcium antagonist and for alpha-methyldopa during calendar 1985. The firm reported in October that it was nearing the start of clinicals on a liquid theophylline using its Pharmazome delivery system. In the year ended March 31, 1985, Elan said it added 16 new development contracts -- "eight of which were with new clients." The new contracts are apparently improving Elan's operating results. In first half figures released late in November, the company showed revenues more than doubling in Irish pounds. In dollars, Elan reported first half revenues of $3.14 mil. for the six months ended Sept. 30. In the previous full year, Elan's revenues were $3.95 mil.

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