-Caveat Lector-
From
http://www.nytimes.com/2002/02/06/business/worldbusiness/06ELAN.html
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February 6, 2002
Shareholders' Doubts Shake Elan and the Irish Market
By BRIAN LAVERY
DUBLIN, Feb. 5 � Investors who think that they detect the whiff of
another Enron (news/quote) at the Elan Corporation have beaten the
company's share price down by two-thirds in a week, despite a report
of strong sales growth.
Elan, the Dublin-based specialty drug maker that until recently was
Ireland's largest company by market value, said today that its sales
rose 22 percent in 2001, to $1.9 billion. But it warned on Monday
that profits would fall by one- third this year.
Most worrisome of all, the company estimated that if it included two
off- balance-sheet investments on its books, its debt would be half
again as high � $3 billion instead of $2 billion � and its reported
earnings would be nearly 40 percent lower.
At least four shareholder lawsuits have been filed this week against
Elan, seeking class-action status. The suits, including one filed in
federal court in California by Milberg Weiss Bershad Hynes & Lerach
and another in New York by Wolf Haldenstein Alder Freeman & Herz,
accuse Elan of using deceptive accounting to exaggerate its earnings.
Elan's constellation of 55 joint ventures and partnerships have come
under close scrutiny. Critics say Elan's practice of setting up joint
ventures to take responsibility for developing new drugs, then
quickly reclaiming its investment in each venture as a licensing fee,
had the effect of recycling the company's own money as revenue. The
Securities and Exchange Commission investigated the practice in 1999;
the inquiry caused Elan to eliminate two such ventures and restate
its earnings, lowering them by $344 million.
In a conference call today, Elan officials played down the role of
joint ventures and said the company wanted to phase them out by 2004.
Max Gershenoff, Elan's spokesman, said in an interview that 53 of the
55 partnerships were actively developing drugs that are in advanced
trial stages. "There's a lot of promise in those partnerships," he
said, "and in any event, we feel our practices can stand up to any
scrutiny. These tired innuendoes will play themselves out."
He said the company had no comment on the shareholder lawsuits.
Analysts in Dublin said Elan's partnerships had little similarity to
Enron's. "In terms of accounting policy and legality, it's
aboveboard," said Ronan Wallace of Dolmen Butler Briscoe, speaking of
Elan's approach. "We would consider those revenues to be proper
revenues."
But other bad news has compounded the situation. Two weeks ago, Elan
suspended trials of a potential treatment for Alzheimer's disease � a
serious setback for a company with just four or five major new
products in the pipeline. Another drug, a potential treatment for
chronic pain, has been pushed back 18 months for further trials.
Elan's fall from grace has been difficult not just for the company
but for the whole Irish stock market. Its market capitalization of
nearly 17 billion euros ($14.8 billion) in January represented about
one-quarter of the entire Irish Stock Exchange; at today's close of
16 euros a share, the company was worth about 5.4 billion euros ($4.7
billion).
Its difficulties have reignited rumors about the possibility of the
company's becoming a takeover candidate, a notion widely discussed
when Elan grew from a small biotechnology concern into a sizable drug
manufacturer. But no suitors have yet surfaced. Even with revenue
growth of only 15 percent expected this year, Mr. Wallace said, the
company is an attractive target.
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