Geaney, Donal

by Terry Clavin

Geaney, Donal (1951–2005), businessman, was born Daniel John Geaney in Hollis Street hospital, Dublin, on 21 January 1951, the first of two sons of Daniel Geaney, wholesaler, of Raheny, Dublin, and his wife Mary (née Diran), dress designer. He grew up in Clontarf, Dublin, attending a local national school and then the Franciscan College, Gormanston, Co. Meath. In his youth he worked in his father's clothing, food and tyre wholesaling business.

Intending to continue the family business, he sought business qualifications, graduating BBS from Trinity in 1973 before joining accountancy firm SKC and qualifying ICAI in 1976. As a young man he participated in motorcar rallies and later enjoyed golf; he was a member of the Royal Dublin Golf Club. Following his father's death, he decided to remain at SKC and in the late 1970s ran the SKC practice in Lesotho for two and a half years as part of an Irish government aid package.

Elan In 1983, he advised Elan Corporation, a small Athlone-based pharmaceutical research company, as it unavailingly sought a public listing on the Dublin and London stock exchanges. He suggested the USA instead to Elan's owner Don Panoz who seized on this casual remark; within days both men were meeting investment bankers in New York. In January 1984, Elan became the first Irish company to secure a public listing in America, floating on the NASDAQ. This formative experience widened Geaney's horizons. Thereafter, Panoz retained him as adviser to his personal estate, particularly his development of a 3,000-acre golf and hotel complex in Georgia, USA.

Geaney divided his time between Georgia and Ireland, becoming an SKC partner in 1986, charged with heading the Limerick office. He had a safe position in SKC, which was absorbed by the international accounting firm KPMG in 1987, but yearned for greater challenges. Later, he disliked being pigeon-holed as an accountant, contending that the Irish accounting environment was increasingly characterised by pedantry, legalism and a lack of business acumen. In November 1987 he left KPMG to become Elan's executive vice-president of corporate planning. During 1987–9 he lived and worked in Georgia, where Elan had a plant, before re-establishing his residence in Clontarf. While his office was in Dublin, he was frequently in Athlone and the USA.

Elan specialised in drug delivery: the reformulation of existing drugs to assist their absorption into the bloodstream. Panoz determined on capturing a greater proportion of the product markup by expanding Elan's capabilities from merely licensing applications into manufacturing and playing a bigger role in developing drug-delivery products. Geaney expedited this transition by developing a network of alliances with third parties for the purposes of marketing, manufacturing, and research and development. This approach facilitated aggressive accounting practices whereby Elan invested in and effectively controlled a seemingly independent unconsolidated affiliate, which reimbursed Elan for hiring its staff and technology to conduct research. Many pharmaceutical firms employed similar mechanisms to delay recognising research and development expenses in their accounts, but the payments received by Elan were higher than normal and crucial to its unerring ability to meet quarterly earnings targets. A small, fast-developing company dependent on market funding and with an investor base accustomed to growth, Elan was vulnerable to a sustained decline in its share price. Geaney's accounting, abetted by chief financial officer Tom Lynch, whom he recruited from KPMG in 1993, bought Elan the time to become a more broad-based drug-delivery company.

Chief executive Promoted rapidly, he became chief financial officer (1989); director, company president and chief operating officer (1992); chief executive (1995); and chairman and chief executive (1997). In the mid 1990s, Panoz substantially reduced his shareholding and involvement in Elan, leaving Geaney to drive the company's progress. Cultivating a calm, fastidious and hardnosed exterior, he was a consummate and sinuous networker, well suited to a co-operative environment in which the cash-devouring nature of drug research necessitated continuous interaction with financial institutions and encouraged competitors to share knowledge, technology and financial risk. His liking for fast cars hinted at the daring that characterised his leadership.

In 1995 Elan was reliant on three hypertension treatments (of which two were approaching the end of their life-cycle) for 40 per cent of its revenues and was experiencing tough competition in a drug-delivery sector that it formerly dominated. Resolving to transform Elan into an enterprise that created drug products from scratch, Geaney identified a neglected niche that would not place him in competition with his existing business partners: treatments for neurological diseases. In 1996, Elan acquired US biotechnology company Athena Neurosciences in a share swap deal worth $638 million. Elan provided Athena with manufacturing and drug development facilities as well as a steady stream of cash, while Athena presented Elan with drug discovery and marketing functions. Nonetheless, this takeover was a risky plunge into a still-unproven biotechnology sector that substantially diluted shareholders' earnings. Geaney's courage was handsomely vindicated. Athena had the most advanced research programmes in treatments for Alzheimer's disease and for multiple sclerosis (MS), and made encouraging progress in developing two drugs: Antegren, for chronic MS, Crohns disease and others, and AN–1742, for Alzheimer's disease; each promised yearly sales revenues surpassing $1 billion.

In full flight Needing more cash and credit to fund this research and wary of being taken over by larger companies, Geaney resolved on rapidly achieving organisational critical mass. Between 1997 and 2001 he acquired fourteen US companies for $4.3 billion, thereby accessing cash-generating products and expanding beyond the early focus on neurology into cancer, acute-pain management, epilepsy, dermatology and respiratory illnesses. These companies either had drugs close to gaining regulatory approval or a strong marketing infrastructure. Furthermore, during 1996–2001, Elan spent $1 billion on minority stakes in fifty-five joint ventures, mainly small biotechnology research companies.

Through his acquisitions and investments, he played the pivotal role in financially lubricating the nascent biotechnology sector. Elan's smallness re-assured struggling biotech companies fearful of the redundancies and loss of independence incumbent on being subsumed by behemoths. Buying to plug strategic gaps, Geaney preserved the acquired companies' staff. Based in his small headquarters in Dublin, he had neither the means nor inclination to administer closely his sprawling, US-centred empire, instead presiding over a number of loosely integrated business units. If anything, there was a reverse take-over whereby the historic Irish-centred drug-delivery part of the business was marginalised. Though the company's headquarters were in Dublin (mainly for tax reasons) and most of the directors and senior financial executives were Irish, Elan's research and development engine lay in the USA.

This breakneck growth was mostly self-financing as the acquired companies' shareholders preferred to be paid in Elan's appreciating stock. From 1999 Elan sold $2.1 billion worth of corporate bonds in the expectation that bondholders would opt for a share conversion in lieu of cash repayment. Geaney accordingly prioritised the maintenance of the company's share price and proved a masterful manipulator of investor sentiment, displaying considerable ingenuity in devising innovatory and sophisticated financial mechanisms and structures that flattered Elan's finances. Dexterously exploiting loopholes in the accounting standards, Geaney confounded the regulators, abiding by the rules while straining them to their limits, thereby earning the plaudits of leading Wall Street opinion makers. Availing himself of the costly services of a number of prestigious investment banks in devising his financing measures, Geaney, who nurtured grudges against inveterate Elan sceptics, thereby gained leverage over those institutions' share analysts. A vocal minority of analysts remained unconvinced: Elan's shares were targeted by short sellers and consistently traded at a discount to the company's size and profitability.

Between 1995 and 2001, Elan grew by 20 to 25 per cent annually with reported 2001 profits of $697 million and revenues of $1.9 billion (up from revenues of $183 million in 1995). Boasting thirty-two plants and 5,000 employees spread across the US, Ireland, Britain, Switzerland and Israel, making it the twentieth biggest drug firm in the world, Elan traded its shares on the New York, London and Dublin exchanges. Geaney was accorded the privilege of ringing the bell to open trading on the New York Stock Exchange (NYSE) for St Patrick's Day in 2000.

Ireland, personal wealth Geaney had a lower profile in Ireland due to Elan's orientation towards America and to the unfamiliarity of local investors with pharmaceutical stocks. This was despite Elan becoming the largest share on the Dublin stock exchange, at one point comprising 25 per cent of the index. From 1996 Geaney sat on the board of the Trinity Foundation, having, since the early 1990s, abetted the establishment and maintenance of Elan's scientific collaborations with TCD; the company had a research site on the Trinity campus. He was appointed chairman of the Irish Aviation Authority (IAA) (1998), a Bank of Ireland director (2000), and chairman of the National Pension Reserve Fund (NPRF) (2001), which was to invest government money to help fund social welfare and public sector pensions. At the NPRF, Geaney and his fellow commissioners decided on strategy, but not specific investments. They determined on an 80:20 ratio between investing in equities and bonds, a higher equity weighting than most sovereign pension funds thought prudent. He defended this as reasonable for a newly established fund, observing that the annual infusions of government contributions relieved the NPRF of short-term liquidity concerns.

Geaney's total annual remuneration at Elan rose from $1.5 million to $3 million between 2000 and 2001. He did not pay tax on a substantial portion of this, exploiting a loophole by being partially paid in the form of a tax-free dividend. Benefiting from stock options that enabled him to buy at discounted prices, he amassed Elan shares; by mid 2001 he owned 1.1 million shares worth $71.5 million, and also held options for a further 2.63 million shares representing a potential profit (before taxes) of $124.5 million. He sold shares in 1999 for $2.8 million and in 2001 for $8.7 million facilitating his participation in various consortia, which engaged in property speculation and development ventures. One such was the acquisition of the Galloping Green site in south Co. Dublin for €31.75 million in 2000; it was sold for development in 2004 for €85 million.

Thin ice In 1999 an investigation into aspects of Elan's accounting by the Securities and Exchange Commission (SEC) of the USA sparked a share price fall and take over rumours. The SEC forced Elan to reduce its reported 1997 profits by $344 million and to change its accounting for acquisitions and for revenues from joint ventures. Geaney navigated this fraught period by publicising the progress of Elan's AN–1742 Alzheimer's treatment. In 2000 he secured credibility-enhancing collaborations with the American Home Products Corporation and with Pharmacia Corporation for separate strands of Elan's Alzheimer's programme. Under these agreements (and a collaboration with Biogen regarding Antegren), the rights to these treatments would fall to Elan's partners were Elan taken over, further shielding the company from corporate predation.

As Geaney had no grounding in science, his rise within Elan was due to his financial skills, which he could display most tellingly through relentless dealing. Ultimately, he overreached through ill-judged, overpriced corporate acquisitions that produced insufficient drugs sales and threw Elan into structural disarray. More seriously, frequent delays in getting regulatory approval for new drugs, arising from the inadequacies of Elan's clinical trials, proved costly and heightened worries about the lack of scientists and surfeit of accountants in the company's upper echelons.

In response Geaney adopted more convoluted accounting methods, particularly for joint ventures. Essentially, a joint venture paid licensing fees to Elan using money provided by Elan either directly or via the joint venture partner, which was effectively controlled by Elan. By holding its direct stake below 20 per cent, Elan kept the joint venture's losses (effectively its own research and development costs) off Elan's books. During 1999–2001, Elan invested $845 million in joint ventures, receiving $541 million in revenues. Geaney stopped creating joint ventures in mid 2001, perhaps because the Wall Street Journal was investigating Elan's practices in this respect.

From 1999, Elan created three off-balance sheet subsidiaries known as qualified special purpose entities (QSPEs), using them to raise $1 billion in bonds secured on Elan's biotechnology investments, which were vested in the QSPEs. The true worth of these assets covered only a fraction of the debt, which Elan guaranteed; Elan also paid the interest incurred. This extra debt and interest expense did not have to be included in the company's financial results under US accounting practices and were slipped quietly into the Irish financial statements.

In 2000–01, Elan sold a portion of the royalty rights to some of its key drug products and sold outright some of its lesser drug products, overwhelmingly classifying the proceeds as sales revenue, not as a non-recurring disposal of assets; Elan retained the right to repurchase the drugs and royalties within a specified timeframe. During the first nine months of 2001, these quasi-disposals accounted for 30 per cent of reported revenue. When selling drug products, Elan lent money to, or held significant investments in, the purchasers, but these buyers were not identified in financial statements as related parties.

Crisis and downfall Unsurprisingly, Elan had inordinately complex financial statements, but any qualified observer studying the copious footnotes should have suspected that impressive headline figures created a misleading impression. Besides, this juggling could not indefinitely compensate for fundamental shortcomings. In late 2001, Elan's share price weakened amid ongoing delays in gaining regulatory approval for new drugs and the news that two of its best-selling products would shortly face generic drug competition. In desperation, Geaney sold some of Antegren's future royalties. With Elan's future increasingly hinging on its Alzheimer's treatment, the announcement on 17 January 2002 of a serious setback in clinical trials for AN–1792 precipitated a sharp share price fall. This retreat became a rout on 30 January when the Wall Street Journal published an unsympathetic report highlighting Elan's accounting practices. A series of scandals had undermined confidence in US accounting standards, provoking investors to flee companies with a reputation for massaging their figures.

Following disagreements between senior Elan executives, Geaney unexpectedly issued a profit warning on 4 February and admitted the existence of off-balance sheets debts of $1 billion. Within days the SEC announced an investigation into Elan's accounting. The reaction against Elan was overblown, but the haziness of its accounting prevented this from being apparent. Formerly sanguine about Geaney's fiscal creativity, brokers and fund managers assumed the worst and denounced him self-righteously. His refusal to resign disgusted American observers, clearly unfamiliar with Irish custom. Critics noted that Geaney had an unusually broad role within Elan and expressed doubts over the independence of the board and the external auditors: many of the non-executive directors held share options and had personal associations with Geaney while the company's three most senior executives were alumni of its auditors, KPMG.

Elan's public responses to the unfolding calamity were inept and contradictory, involving long periods of refusing to communicate with the press. In February 2002 Geaney was diagnosed with cancer and successfully underwent surgery that incapacitated him for a month. He returned to work in April without his illness becoming public knowledge and re-asserted his authority. Unwilling to countenance retrenchment, he believed Elan could spend its way out of trouble through corporate acquisitions and share buybacks. Under pressure, he fitfully released financial details, further dismaying analysts whose worst fears were repeatedly exceeded.

In extremis, Geaney tolerated some dubious initiatives. From April, Elan promoted its poorly selling anti-epilepsy drug Zonegran for uses not sanctioned by the US Food and Drug Administration (FDA). This culminated in a federal prosecution of Elan and its payment of fines totaling $199 million. Seeking to postpone a $148 million debt redemption demand on one of the QSPEs, Elan arranged in June a $148 million sale of investment assets (far above their real value) by the QSPE to a so-called unaffiliated third party, which was created by Elan and executed the purchase courtesy of a bank loan guaranteed by Elan. The SEC later ruled that this transaction proved that the relevant QSPE did not qualify for off-balance sheet treatment and forced a restatement in Elan's 2001 accounts.

Elan's share price on the NYSE (its main exchange market) fell from over $40 in mid January to $1.65 by early July, rendering Geaney's stock options worthless and reducing the value of his shares to $2 million. This had grave implications for Elan, given that it had to repay bonds worth $2.1 billion in 2003–4, which could no longer be redeemed through shares. As the crisis deepened his relationship with Lynch collapsed, adding to the company's paralysis. In June he forced Lynch's resignation as executive vice-chairman and announced plans to pare the company back and focus on Alzheimer's research and on developing Antegren. However he was undone by the announcement of write-downs in Elan's investments of some $420–$630 million on 2 July and the concurrent public realisation that royalty rights to Antegren had been mortgaged.

The board prevailed upon Geaney to resign first as chief executive and then a few days later as chairman. The correct procedures were not followed, but he signed a legal agreement assenting to his removal in return for continuing with Elan in an advisory capacity for two years on an annual salary of $1 million. He struggled to accept his ousting and continued for a time to attend his Dublin office, though there was no work for him.

Postcript His presiding over the greatest destruction of shareholder wealth in Irish stock exchange history led to calls for his resignation as chairman of the IAA and the NPRF, which he withstood, benefiting from the support of the Fianna Fáil minister for finance, Charlie McCreevy. Geaney was close to the governing Fianna Fáil party whose director of elections served as Elan's press handler. Despite the crisis besetting Elan, in May 2002 Geaney publicised plans to open a new factory at Macroom, Co. Cork, employing 300 people. This provided an ideal start to the outgoing government's successful re-election campaign, and Taoisech Bertie Ahern travelled to Macroom to associate himself with the news. The project was eventually cancelled, and Geaney's successor stated that the board had not fully discussed the proposal prior to the announcement.

In early 2004 Geaney claimed vindication when Elan reached a settlement with the SEC whereby Elan paid a $15 million fine and neither admitted nor denied wrongdoing. Meanwhile, Elan's restructuring succeeded, demonstrating that there was substance to the company and enabling Geaney's shares and stock options to recover in value. Upon resigning as chairman and chief executive, he was assured that he would have a further two years after his employment formally ended in July 2004 to exercise his options. When he tried to do so in November 2004, Elan balked, allegedly because its Irish directors, many of whom were former friends of Geaney, feared the negative publicity that would ensue in Ireland. In January 2005 he took legal action against Elan claiming he had been unjustly deprived of $12 million. The company settled in June agreeing to pay $3.5 million and legal costs.

After resigning as Elan chief executive, he served as chairman of Clinical Grid and of Automsoft, both Irish software companies catering to the pharmaceutical industry, but spent much of his time in the USA attending to investments. He remained a wealthy man and invested in Automsoft and in a biotechnology investment fund, Frontier Equity Partners. His cancer recurred in December 2003 and, though he remained active, his health deteriorated steadily. He died 7 October 2005 at the Mater Hospital in Dublin and was survived by his wife Anne and their three sons.

Assessment At Elan, Geaney pursued a worthy goal – finding cures for neurological diseases. Doing so required the support of the flighty financial markets, which, lacking any reliable gauge of whether the lengthy and expensive drug development process would bear fruit, fell back on short-term financial results. By providing superficial re-assurance in this respect, he gave credulous investors, entranced by the prospective riches arising from an apparently imminent pharmaceutical breakthrough, enough justification to suspend their critical faculties. This culminated in Elan's financial decision-making being determined more by the demands of accounts presentation than by commercial considerations. Increasingly reckless, he was fortunate the crash occurred while Elan – unlike his reputation – was still salvageable.

He was part of a generation of Irish accountants who prospered by providing financial services to multi-national corporations established in the country. Though American-funded, Elan was Irish-controlled: a rare instance of indigenous management harnessing the foreign capital flowing in and out of the country. Geaney seized on this opportunity by bidding to catapult Elan into the ranks of the pharmaceutical giants. His dynamic protagonism marked a welcome departure from the passivity of his Irish peers, content with subordinate positions within international networks. However, he eschewed a strategy of organic, Irish-rooted growth – admittedly a time-consuming and uncertain proposition – instead transforming the company into an American biotechnology group with an Irish manufacturing and drug-delivery rump, retained mainly for tax avoidance purposes. This was a happy outcome for the Irish financiers perched atop this corporate edifice, given free rein to express their particular talents, but not for the Irish economy, denied the opportunity to advance its rudimentary (by American standards) pharmaceutical research and development capabilities.

Geaney's career confirmed the trend whereby the symbiosis between foreign capital and indigenous financiers generated considerable, but ephemeral, wealth while reinforcing the historic dominance of finance over industry with potentially harmful consequences for Ireland's future.