Elan Corporation has been given a boost after the Securities and Exchange Commission upheld Elan's 1998 annual report. The SEC had raised questions over Elan's accounting treatment of its research and development costs, but has now cleared the group's accounting practice.

After suffering a fall of some 2.5 per cent in New York after the news, the group shares recovered for a time, but lost ground late to close down 2.4 per cent at $32.8125 (€34.2825).

Elan shares fell sharply in July to as low as $27 after it emerged that the SEC had sent a comment letter to Elan raising numerous questions about its accounting, especially in the area of R&D.

The SEC said in the July letter that Elan's accounting for transactions with third parties funded by the company "may materially inflate reported earnings and interfere with objective analysis of operating trends". At that time, Elan said the group had dealt "substantially" with the SEC's queries and the firm's accounting complied with SEC rules. The company also stated then that it did not expect to have to restate its results for 1998.

The SEC seems to have been largely satisfied with Elan's explanations as it has declared effective a registration statement relating to warrants which incorporates Elan's Form 20-F annual report.

Elan chief financial officer Mr Tom Smyth said the amended 20F statement contained no change to Elan's reported results for 1998 but made a two cent adjustment to Elan's 1997 earnings. This would reduce Elan's 1997 earnings per share from 79 cents to 77 cents. A company spokeswoman said last night that the discussion on accounting policy with the SEC was now concluded.

Elan has made a string of major acquisitions since 1996, involving major one-time write-offs of in-process research and development costs at the companies it has acquired. The SEC was concerned that by writing off these large amounts in one transaction, Elan's future earnings would be boosted. However, by clearing its 1998 accounts, it appears to have given Elan the all-clear.

The small re-statement to the 1997 accounts came because the SEC insisted that Elan account for its share of the losses, rather than just accounting for the purchase price of the shares.

Elan's shares rose to over $34.8 in New York immediately after yesterday's announcement, which came too late to affect trade in Dublin.

But they later lost ground, indicating that many investors had already taken account of the expected outcome of the SEC review, before staging something of a late rally.

The SEC review has reflected concerns among some investors about Elan's accounting policies and the sustainability of its acquisition-driven growth strategy. Investors are also awaiting FDA approval for Elan's new pain-killing drug, Zinconitide, which has been subject to delay but is now due to be approved by the end of the year.

Elan's first big US acquisition was its 1996 purchase of California biotechnology company, Athena Neurosciences, and it has since made a string of other purchases.