Elan to take a €45m hit on profits to cover class action lawsuit in US

ATHLONE-BASED pharmaceutical company Elan is to take a €45 million hit on profits to cover a class action lawsuit in the US and the anticipated costs of the Securities & Exchange Commission (SEC) investigation.

The company will take the €45 million charge in its first-half results. Goodbody Stockbrokers analyst Ian Hunter says the cost to the firm is as low as could be expected.

“Given that the company is in the final stages of negotiation with the SEC on the investigation and, we assume, is concurrently in contact with the lead plaintiffs in the class action, this reserve would imply a total settlement in the $100m-plus region.

“This is at the lower end of our expected range given (i) our estimates that an SEC fine of $50m would be seen as minimal; and (ii) our previously-stated plaintiff exposure range of between $50m and $295m.

“We believe this will be seen as a positive conclusion to the litigation overhang. With net cash of $677m on 30 June, the company will have enough liquid resources to cover this fine/litigation exposure,” he said.

The market reacted positively to the outcome shares in the firm closed at €19.24 last night, up 29 cent, a 1.53% increase on Friday’s close. Elan had said it expected a probe the SEC into its accounting methods to be wrapped up by the end of September.

Yesterday, it said it hoped the investigation would be resolved “as soon as practicable.” Davy analyst Jack Gorman said that while the final resolution of the SEC investigation into Elan’s accounting practices is yet to occur, “we believe this statement would only have been made public with the blessing of the agency,” he said.

Once one of the biggest companies on the Irish Stock Exchange, with a market value of €18bn, Elan’s off-balance sheet units came under scrutiny after the collapse of Enron.