The US Securities and Exchange Commission confirmed yesterday that Elan is to pay $15 million to settle charges that it had misled investors. The US financial watchdog said it had charged Elan with disclosure fraud for failing to disclose material information about its financial results.

Elan settled without admitting or denying the allegations.

According to the SEC, Elan issued misleading public statements that made it appear that it was generating record amounts of revenue, net income and operating cashflow from drug sales and licensing activities.

"Elan also claimed that it was making significant progress towards achieving its goal of transforming itself into a fully integrated pharmaceutical company and generating $5 billion of annual revenue by 2005," the SEC said.

The SEC charge alleged that the company failed to disclose certain transactions that were critical to Elan's perceived success. "As a result, investors were led to believe that Elan had achieved record results through improvements in the company's business, when in fact it had not."

The SEC charged that Elan had failed to disclose to investors that a substantial portion of its reported product revenue was generated by selling partial royalty rights to some of its most important products, and by selling off other drug product lines entirely. Although these were once-off transactions, Elan classified the proceeds as product revenue on its income statement, falsely leading investors to believe product revenue growth was due to drug sales.

The SEC confirmed an agreement reached with company officials last autumn that will see Elan pay $15 million to settle the charges.

Elan also expects to reach a final resolution later this month of a shareholder class action lawsuit that followed from the SEC inquiry.

A hearing is scheduled for February 18th on the final approval of an agreement to settle the class action pending in the US District Court for the southern district of New York.

Elan agreed to settle with these shareholders for $75 million, again without admitting any wrongdoing. The firm's insurance will cover $35 million of this, thus leaving Elan's overall financial liability on the matter at $55 million.

Elan reserved exactly this sum to cover the issue in its most recent accounts.