Shares in Elan fell by over 50 per cent today after a debt rating agency cut its credit rating to "junk" status, compounding existing worries over its book-keeping.
Standard and Poor's cut Elan's credit rating by three notches to BB-minus from BBB-minus - deep into junk territory - citing Elan's shrinking access to capital and a possible funding need of more than $1 billion over the next two years.
The stock fell to a low of just €1.20 in morning trade, its second heavy fall in as many days, before edging back to €1.35.
Plagued by accounting concerns ahead of the downgrade, Elan has lost over 90 per cent of its value so far this year.
S&P highlighted Elan's move to raise cash by selling royalties on future sales of five products. Elan has the option of buying back the royalty rights for $481 million in 2002.
S&P said the credit downgrade reflected the increased risk of repurchasing these rights.
"Such a repurchase could well create a funding need in excess of $1 billion over the next couple of years," said Standard & Poor's credit analyst Mr Michael Kaplan.
S&P said Elan's imploding stock price reduced the likelihood it could repay its debts with shares.
Elan has dismissed speculation it is facing a cash squeeze, saying it has total current financial assets of $2.2 billion.
Elan shares were also in a tailspin yesterday when it released its 2001 annual report and revealed its business recovery plan and a drop in the value of its investments would result in "significant" charges.
Once Ireland's largest firm by market value, Elan is now worth around euro500 million. A year ago it was worth 22 billion euros.
But in a research note, NCB Stockbrokers said it remained wary of the stock. "With poor cashflow visibility and financing to prove more difficult, we remain concerned about the company's long-term financial position."
Elan has said it would release details next week of its recovery plan and the "significant" impairment charges on the value of its investments in drug delivery, biotechnology and pharmaceutical companies - held on its balance sheet and in two off-balance sheet subsidiaries.
In New York, where the stock is more heavily traded, the company plummeted 66 per cent yesterday, closing at $1.65.