ANALYSIS: Liquidity fears were calmed by an upbeat Garo Armen on the recovery plan's progress, writes Jane O'Sullivan

It's not often that a company sees its shares rise by 14 per cent after running up a net loss of more than $1 billion in a quarter.

But Elan managed this remarkable feat yesterday amid growing optimism that the troubled drugmaker might survive its recent difficulties.

Concerns about the company's liquidity problems, which have dogged Elan in recent months, receded after upbeat comments from executive chairman Dr Garo Armen about the progress of its recovery plan, particularly its asset disposal programme.

But though things look better for Elan than they have done for some time, the company still has some way to go to get back on track.

Investors may no longer be fretting over Elan's short-term survival prospects. Instead, they are starting to consider just what will be left at the end of this process and whether Elan will have something worth driving forward.

"Things are more positive today than yesterday given their confidence about the asset disposal programme," said Mr Peter Frawley of Merrion Stockbrokers. "But the question is what are they disposing of and what will be left," said the analyst, who is retaining his "avoid" rating on the stock for now.

After the results yesterday, Dr Armen painted a sketch of the kind of company that is set to emerge when the recovery plan is completed at the end of 2003.

He foresees a group with a revenue base of $400-$500 million, around a quarter of its former size in sales terms.

But with likely research and development costs of $250 million and general operating expenses of $300 million, it will be some time before Elan is back in the black.

"The business won't be profitable until the pipeline comes through," said Mr Jack Gorman, analyst at Davy Stockbrokers. "The essential call is how good the pipeline is."

The company's hopes rest on a number of key drugs such as Antegren - for use in the treatment of Crohn's disease and multiple sclerosis - and its Alzheimer's programme. But it also faces a number of other stumbling blocks on the road to recovery.

Given the continued volatility of stock markets, further write-down of the value of its investments cannot be ruled out.

Meanwhile, the SEC investigation into the company's accounting practices looks like it could drag on for some time while the company has still to recruit a chief executive to lead it forward.

Elan is not out of the woods yet.