ELAN shares lost ground yesterday after the company said it was being sued by Pharma Marketing, the controversial company to which Elan sold royalty rights on certain key products.
The lawsuit, filed in New York on Thursday, relates to Pharma's royalty rights to an insomnia drug, Sonata.
Among other things, the lawsuit seeks to establish that Pharma's approval would be required in the event that Elan sells its interest in Sonata to a third party.
Elan said it believed the lawsuit was without merit and it intended to " vigorously and expeditiously defend against it".
A spokesman for Elan also said the lawsuit did not impact on the company's recovery plan, which is expected to be completed ahead of target by the middle of the year.
He also said the company expected "a fairly quick resolution" of the issue. But analysts were less confident.
Mr Ian Hunter, analyst with Goodbody Stockbrokers, said the litigation over Sonata was not positive, would overhang the stock and could be a pointer to what might happen with other products over which Pharma Marketing holds royalty rights.
These include drugs such as epilepsy treatment Zonegran, migraine treatment Frova, and Prialt, for the treatment of acute and chronic pain.
Elan shares fell 4 per cent to $3.43 in New York yesterday while they lost 33 cents, or more than 9 per cent in Dublin, to close at €3.25. Sonata, which is used to treat sleep disorders, accounted for revenues of around $100 million (€94 million) last year.
Mr Hunter said a sale of the drug, one of the two main drugs used in the treatment of insomnia, could have been expected to raise $350-$450 million, although it is not clear whether it was on the company's asset disposal menu.
This is the second time that Elan has run into problems because of Pharma Marketing.
Along with AutoImmune Research & Development, Pharma was one of two controversial companies set up by investors to acquire royalty rights on certain Elan products in return for funding its research.
When their existence was revealed in the small print of Elan's annual report last year, it caused consternation among Elan shareholders, horrified that Elan has sold its royalty rights to certain key products.
Elan, which recently appointed Mr G Kelly Martin as president and chief executive, has an option to re-acquire the royalty rights from Pharma, which includes Credit Suisse First Boston among its shareholders, at any time before June.
However, the cost of buying them has been steadily rising. While it would have cost Elan a maximum of $385 million at the end of 2001, the maximum purchase price has increased by 25 per cent annually since then.
The Elan spokesman said it saw the lawsuit as an attempt by Pharma to strengthen its negotiating position in the talks on buying out the royalty rights.
