Elan sheds 10% value as markets get the jitters

Shares in troubled pharmaceutical company Elan shed more than 10 per cent of their value in New York yesterday, as the markets nervously awaited the filing of the company's annual report with the Securities and Exchange Commission.

Standard & Poor's warned early in the afternoon that it was reviewing its credit rating for Elan "with negative implications", basing the decision on last week's announcement that new generic competition for the company's top-selling Zanaflex pain drug would seriously erode sales for the second half of the year.

Zanaflex generated $160 million (€161 million) in revenues for Elan last year, and was one of the fastest-growing products within the company's portfolio when US regulator, the Food and Drug Administration, approved competitor Eon Labs for the production of a generic version of the drug.

"Standard & Poor's will assess the financial implications of the pending loss of Zanaflex sales to generics as well as the implications of previously announced plans to raise R&D expenditures, expand its US and European marketing infrastructures and pursue further acquisitions before resolving the Credit Watch," said Standard & Poor's credit analyst, Mr Arthur Wong.

The rating agency has warned that Elan's current strategy could lead to the exhaustion of a significant portion of its existing cash reserves of $1 billion in the foreseeable future.

Elan, which currently holds a triple B-minus rating, announced a major management restructuring last month in an attempt to restore market confidence, but was criticised for not going far enough.

The company had been under fire for a lack of transparency in joint ventures and worryingly high debt levels.

As pledges were made to simplify the company's balance sheet, commentators raised concerns about the decision of chairman and chief executive, Mr Donal Geaney, to retain his dual role.

Meanwhile, investment bank Merrill Lynch has issued a dramatic downgrade in its earnings expectations for Elan both for 2002 and 2003.

Merrill Lynch is now forecasting an earnings per share of $1.19 for this year, down from a $1.35 prediction made just three weeks ago.

Expectations for 2003 have been slashed from $1.44 to just $0.95.

By late afternoon yesterday, Elan shares had fallen by 56 US cents to $4.91, having staged a small recovery from an intra-day low of $4.48, but still trailing a long way from the company's 52-week high of $62.85.