Investor/An insider's guide to the market: The drugs group Elan has long been a major feature of the Irish equity market, at times the darling of investors and at other times their bête noire.

During the bear market, it was firmly in the latter camp as the share price plunged due to a variety of adverse factors. By 2002, the focus of the market's attention had switched to accounting policies and irregularities. Elan came under the spotlight as a major investigation into its accounting policies was initiated by the US Securities and Exchanges Commission (SEC).

The company was caught in a liquidity squeeze and was forced to sell most of its complicated off-balance-sheet joint ventures.

As the shares plunged to a low of well under €5, it seemed that the company might not survive. Having once been the largest stock on the Irish Stock Exchange, the company had become an also-ran.

Fortunately for shareholders, salvation was at hand in the form of a new drug called Antegren, which Elan owns jointly with US pharmaceutical firm Biogen. The drug is being developed for the treatment of multiple sclerosis (MS), Crohn's disease and rheumatoid arthritis.

In the all-important US market, Antegren has been given fast-track status in the treatment of MS and the drug is expected to be launched in 2005.

The approval process to use the drug in the treatment of Crohn's disease and rheumatoid arthritis is not quite as advanced but is proceeding apace.

The potential market for this drug is enormous and, on the back of this good news, the shares have risen dramatically this year, reaching a high of more than €20, compared with the 12-month low of €3.60.

Analysts have estimated that the global market for the drug could be $4 billion (€3.32 billion) for the MS market alone.

Elan's phoenix-like rise from the ashes is not exclusively due to the potential offered by its pipeline of new drugs. The company's new management has been successful in divesting many of Elan's older drugs at reasonable prices.

Some tough negotiations with Elan's bondholders together with a share-placing added further impetus to the huge task of repairing Elan's balance sheet. It recently reported its second-quarter figures and these were broadly in line with market expectations.

The figures, however, highlight that Elan is still a company in transition. For the quarter, operating losses were $68 million - an earnings-per-share loss of $0.24.

At quarter-end, Elan had cash of $677 million and debt of $1.503 billion, leaving net debt of $826 million. In view of the potential that is offered by Antegren, this is a manageable level of debt.

Indeed, the company's focus is now firmly on ensuring its reserves are focused on the commercialisation of Antegren. Marketing and distribution costs will be substantial and Elan is likely to engage in some debt financing towards year-end.

While the company has made huge strides in rehabilitating itself, it is still not completely out of the woods.

The long-running SEC investigation into its accounting policies has still not been completed. Elan chief executive Mr Kelly Martin said that the company hoped the matter would be settled before the end of September.

Until this is fully resolved, it will continue to hang over the shares.

However, given the transformation that has taken place, the potential negative impact of the investigation's findings would appear to be small.

Although Elan's second-quarter results contained no new information, the share price fell after the results announcement. In fact, the shares had been volatile in the run-up to the results. Given the surge in Elan's share price over the past six months, it is perhaps not too surprising to see some profit-taking.

This seems to have been triggered by some negative comments on Antegren by rival pharmaceutical firm Pfizer. Pfizer currently sells drugs for the treatment of MS and will suffer if Antegren is successfully introduced next year.

Despite this recent bout of profit-taking, Elan has regained its position as one of the Irish market's leading stocks.

At a share price of €17, its market capitalisation is €6.6 billion - compared with AIB (€11 billion) and CRH (€10 billion).

How Elan performs from here depends entirely on its pipeline of new drugs. Antegren is the key product, although there are others.

Elan has a pain drug, Prialt, that is awaiting filing with the US Food and Drug Administration (FDA). However, over the next six to nine months, Antegren holds the key.

Approval by the FDA is expected by end-November and the product will then be introduced in early 2005.

If sales go well, the Elan share price will respond positively to give Elan more than a sporting chance of regaining its position as the largest firm on the Irish stock exchange as measured by market capitalisation.