Accountancy storm that left workers and investors in troubled waters
BARELY a year ago, Elan Corporation commanded a market value of close to 25 billion.
It once boasted a market value greater than AIB and Bank of Ireland combined.
Today, shorn of its top management team, it is worth around $600m. The loss in shareholder value for a plc is without precedent in Ireland.
The company has had to come clean on a whole series of practices which have made a mockery of its published accounts.
At the turn of the year, it had an apparent cash surplus of $1.5bn. Now, it is fighting for survival with levels of cash at less than 10% of this amount. Heavy debts are falling due.
The new management team has announced plans to raise as much as $1.5bn through asset disposals while 1,000 jobs are going worldwide, almost 400 of them in Ireland.
The vessel is leaking and the crew are frantically bailing water.
Elan has become a textbook case, a leading symbol of what could be politely described as "aggressive accounting ", which is practiced across America and far beyond.
The group sold forward future revenues without accounting for them clearly. Royalty rights to future revenues were sold on and used to boost reported revenues.
Large paper gains on financial transactions within the group appear to have been booked as income in the accounts. Calculating the actual sums involved is no easy matter given the large number of transactions in question.
New Elan chairman Garo Armen, a longtime director, has admitted even he has faced great difficulty in understanding the company's balance sheet.
The financial tidy up is proving painful. Elan posted a net loss of $800m for the second quarter of 2002.
The firm also invested over $2bn in biotech industry investments, most of which have performed disastrously.
Some analysts believe they are now worth just 30% of the original purchase price.
This follows a long period of poor performance across the biotech industry as reality failed to match up to the hype and as accounting practices came under the microscope.
The company's own drug project pipeline has generated much in the way of disappointment its much heralded drug to combat Alzheimer's disease failed in January to secure regulatory approval while one of its key earner drugs, Zanaflex, is faces competition from generic versions developed by US rivals.
Mr Armen, a respected industry figure, has his hands full as he seeks to keep the ship afloat.
The ratings agencies have further downgraded the company some analysts believe if the company were to look for cash in the marketplace it would have to pay an additional risk related premium of 8-9%.
It is feared the firm could be forced to default on existing debt as it falls through.
Mr Armen is facing a looming deadline of December 2003 by which stage a $1bn convertible bond falls through.
It is also operating under a large cloud in the form of a US Securities and Exchange Commission investigation. If it comes down heavily on the company, the move would pave the way for a raft of private actions by shareholders already leading US class action specialists are lining up for what is expected to be a blizzard of litigation.
The commission is severely overstretched with a whole raft of high profile investigations pending so this story is set to run and run.
Much will depend on the ability of the management team to secure a decent price for the group's portfolio of assets.
It is hoping to raise at least $750m from the sale of three drugs, Abelcet, Azaxtam and Maxipime.
It is admitted a deal is unlikely to be clinched before the year end.
Some analysts are sceptical that the company can achieve the figure of $1.5bn from disposals outlined recently by the chairman.
Much depends on a recovery in the biotech sector as leading players develop renewed interest in adding to their drug product portfolios.
At a human level, the people of Athlone, not to mention the Elan workforce in Dublin, are only beginning to come to terms with the implications of the group's dramatic job loss announcement.
The people of Macroom, meanwhile, are waking up to the fact the pre-election promise of a $60m investment in the former GSI plant in the town was not worth the paper it was printed on.
And Elan's own near-worthless paper is likely to trouble the country's fund managers, not to mention ordinary investors and members of pension schemes, for a long time to come.
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