Shares in Irish pharmaceutical company Elan fell yesterday after reports that the Securities and Exchange Commission (SEC) had said its accounting practices "may materially inflate reported earnings". But shares were expected to recover somewhat in late trading, after the company announced it had successfully reversed a possible cause of Alzheimer's disease in a mouse.
Elan's share price began trading at $29.75 (#29.06), but fell at one point to just $27, and the stock was downgraded by brokerage house SG Cowen from "strong buy" to "buy". Later, after the potentially good news about its Alzheimer's research, the price recovered to close at $27.94. According to The Wall Street Journal, the SEC's division of corporate finance sent a comment letter to Elan in January, raising numerous questions about its accounting, especially in the area of research and development.
It said the firm's accounting for transactions with third parties funded by Elan "may materially inflate reported earnings and interfere with an objective analysis of operating trends", and described the practice as "pervasive" at the Athlone-based company.
In Dublin yesterday, Elan's chief financial officer, Mr Tom Lynch, said the SEC's letter had raised several questions which had been "substantially dealt with". He insisted that the firm's accounting practices complied with SEC rules.
Asked if Elan would have to re-issue any of its figures, Mr Lynch said: "I don't believe that will happen."
Elan said it had reversed the development in mice of amyloid plaque, a substance that builds up in the brain in Alzheimer's patients. Mr Seamus Mulligan, Elan vice-president, corporate development, said the company believed amyloid plaque to be the cause of the disease, and that if the treatment worked on humans, Alzheimer's could be prevented or cured.
The company said it was delighted with the breakthrough, but stressed that such technologies did not always transfer successfully from mice to humans.
Mr Lynch said Elan had already spent some $250 million (#245 million) researching Alzheimer's, and expected to devote a similar amount to the latest project.
Some four million people in the United States suffer from Alzheimer's, costing an estimated $100 billion each year in medical costs, Mr Lynch said. Around a quarter of all people over 85 have the disease, he added, and with people living longer, the number of sufferers is expected to triple over the next 20 years. The financial rewards for the company that finds a cure would therefore be enormous.
