STORY OF THE WEEK - ELAN'S YEAR OF WOE:If Elan is defined as an impetuous rush, living up to its name may have been the company's downfall. In its dash to become one of the largest pharmaceutical companies in the world, Elan has come a cropper.

Shares in the once high-flying drugmaker have plunged by nearly 98 per cent since January, hitting a low of €1.10 on the Irish market this week compared to a year high of more than €50 ($46.40.

Once the largest company on the Irish Stock Exchange - accounting for a quarter of its value - Elan now makes up less than 1 per cent of the market. At one stage this week, its market capitalisation had dwindled to less than €400 million - from more than €17 billion in January - ranking it behind a second-line domestic stock like United Drug.

Elan's large weighting on the Irish stock market meant that most Irish pension fund managers held the shares, with the notable exception of Bank of Ireland Asset Management.

Having an average exposure to Elan is believed to have cost fund managers about 1.5 per cent in relative performance in the first quarter. "Desperately disappointed" is how one fund manager described his feelings about Elan.

So what went wrong? Founded in a four-bedroom bungalow 33 years ago by Mr Don Panoz, Elan's early focus was on drug delivery systems. The company was a service provider to the world's leading drugmakers, receiving royalty payments based on user sales.

Although the business proved highly successful for Elan, it had one major drawback - revenues were determined not by Elan's efforts but by its clients. It was entirely dependent on the priority they afforded certain products.

In the mid-1990s, around the time that chairman and chief executive Mr Donal Geaney took over the helm from Mr Panoz, Elan began to look at ways of moving from being a service provider to having products of its own.

It took the first step in that direction with the 1996 acquisition of Athena Neurosciences, which specialised in developing drugs to treat neurological disorders, including Alzheimer's.

While the change in strategy boosted the share price, switching business models was never going to be easy. Elan had two choices - it could build up the business in-house or by acquisitions.

The company opted for the latter, embarking on a spending spree that saw it make 15 acquisitions over the next six years.

Its 1998 acquisition of bio-pharmaceutical group Neurex, a deal worth $700 million (€715 million), was announced just a week after the company detailed plans to buy Carnrick Laboratories for $150 million.

"Elan was punching above its own weight, trying to accelerate the move to becoming one of the established pharma players," said one company observer. "The rate at which they did that was fast and hectic but it suited the bull markets of the1990s."

The rapid expansion threw up challenges, as Elan sought to integrate its purchases while racing towards its goal of becoming a product-only business.

Meanwhile, most of its acquisitions were funded using Elan paper rather than cash, increasing pressure on the company to maintain the momentum and keep the share price moving ahead.

Caught in a vicious circle, some observers believe Elan became a slave to market expectations.

"They were overly focused on guiding markets and institutions toward 20 per cent plus revenue growth every year," one analyst said. "That became unsustainable so they were forced to do more of these financial deals," he said, referring to the complex web of business ventures entered into by Elan in recent years.

These include around 50 R&D companies set up by Elan, which paid their parent hefty licence fees. It has been alleged that Elan used these vehicles to inflate earnings.

In the changed climate that prevails in the wake of Enron and WorldCom, such deals were always going to come under scrutiny. As an analyst noted, delivering earnings growth is no longer enough, it is the quality of the earnings that count.

The focus on Elan's accounting practices followed concern in recent years that the company, top heavy with accountants, lacked sufficient pharmaceutical experience following a number of disappointments on the regulatory front.

Setbacks relating to migraine drug Frovatriptan and pain-killer Ziconotide fuelled fears that the fast-growing company, intent on getting a product to market, might not have the patience needed to succeed in a highly regulated industry.

But Elan has also been a victim of bad luck. The sell-off in the shares was triggered in January, not by accounting worries but by news that Elan had been forced to halt tests of its Alzheimer's drug after trials left 15 people suffering from brain inflammation.

More recently, news that approval has been granted for a generic version of its key drug, Zanaflex, months ahead of expectation has also hit the company.

Although Elan has taken steps in recent years to dilute the number of accountants at the top with managers with pharmaceutical expertise, concerns remain about the make-up of its board and its corporate governance.

With its heavy US investor base, Elan has staunchly defended the determination of Mr Geaney to retain his dual role of chairman and chief executive. But investors can only wonder whether an independent chairman might have raised questions about management's accounting wizardry. Instead, the company's aggressive accounting policies appear to have gone unquestioned.

The irony for a company on the rack over the complexity of accounts is that issues surrounding Elan have now become very simple and can be summed up in a single word - cash.

The big focus for analysts and investors is whether Elan can generate sufficient cashflow to meet its liabilities. While most observers believe it will not collapse in the short term, they are not so sure about its fate 12 to 18 months out.

With a buyer unlikely to emerge while it remains under investigation by the Securities and Exchange Commission in the US, the company needs to restructure and refinance if it is to recover.

However, analysts note that it still has substantial intellectual property and products like Antegren, a drug to treat multiple sclerosis.

"At the peak, they failed. At the low point, they could turn," one observer said.