Troubled Elan must find answers

SHAREHOLDERS in the troubled Elan Corporation gather in Dublin tomorrow for the annual general meeting (AGM).

Elan’s prospects were first stood on their head after the 2001 Securities and Exchange Commission investigation into the group’s accounting practices.

That investigation was preceded earlier in the year by the withdrawal of its Alzheimer’s drug after 18 patients suffered swelling of the brain.

Combined the two events resulted in the share price falling from a high of €51.6 in 2001 to €0.83 the following year.

Ever since it’s been a roller coaster ride for investors and come Thursday they will want answers.

Elan had pinned much of its future earnings prospects on tysabri.

Its withdrawal from market in January, following the deaths of a number of patients, was a severe blow, because it was the first drug in 10 years to offer some hope to MS sufferers.

Since 2001 the group has been forced to re-state the value of its drugs portfolio and to sell a huge amount of its acquisitions to tackle the then massive impending debt obligations of over €2.38 billion exposed by the SEC investigation.

By the end of last year many of those issues had been addressed.

Up to €1.59bn was generated through the sale of assets and drugs while an additional €476.22m was raised from selling a share and convertible loan note issue.

Elan still faces substantial debt repayment from 2008 onwards, an issue that won’t go away unless it starts to generate returns soon from its operations.

Both the Alzheimer’s drug and tysabri were seen as the two engines of growth for the Irish based group.

First quarter results suggest a loss of between €39.7m and €55.55m in the current financial year while question marks remain over the re-introduction of both drugs to the market.

With the restructuring out of the way by end of last year 2005 looked more optimistic. Then out of the blue the markets were hit in late January by the tysabri debacle after a patient died.

The drug was withdrawn and the crisis deepened when another patient also died while on the drug.

Arising from all of this Elan and its partner Biogen face class actions.

Shareholders allege insider trading by Biogen prior to the January announcement and suppression of safety concerns by the two companies in order to get the drug fast tracked by the FDA. Why Elan was allowed by the FDA to introduce the drug prematurely is a question shareholders will want answered on Thursday.

Tysabri had an estimated €2.38bn a year sales potential before it was taken off the market.

The group’s balance sheet still remains a worry despite the corrective action of recent years.

It has shareholders’ funds of €72.18m against debts of €713.93m.

When in fact does the company expect to start making realistic profits is a question shareholders might also ask the beleaguered board at the AGM?