Seeds of salvation found in US acquisition from 1990s

Opinions differ over the extent to which Elan was simply unlucky - a victim of a more puritan stance on accounting in the wake of the fraud that precipitated the collapse of energy giant Enron - or an accident waiting to happen.

Having started life under Mr Don Panoz as a services company effectively reformulating existing drugs for other companies, the Irish pharmaceuticals group was transformed into a proprietary producer of drugs under Mr Donal Geaney, the accountant who advised the company on its Nasdaq flotation before joining its executive team.

The company grew rapidly by acquisition in the 1990s. However, it struggled to address the twin requirements of growing profit on an annual basis while funding a growing R&D budget.

With fellow accountant and then chief financial officer Mr Tom Lynch, Mr Geaney turned to off-balance-sheet vehicles that stopped some of the firm's losses showing up in its bottom line.

While perfectly legitimate, it was seen as bending the rules. That was fine in the gung-ho, tech-driven 1990s. In the more sober post-Enron environment, investors were less forgiving.

Having traded as high as $73.80 in mid-2002, the company's share value plummeted to $1.55 just over a year later after two events that destroyed the company's credibility.

In mid-January 2002, Elan had to suspend trials into a drug treatment for Alzheimer's after a number of patients suffered severe side effects including inflammation of the brain.

Less than a fortnight later, the Wall Street Journal questioned Elan's accounting policies, exacerbating the run on the shares and triggering an inquiry by the SEC.

By mid-2002, it was clear that wholesale changes were required if the company was to survive. Mr Geaney and Mr Lynch were replaced and a drastic restructuring would see asset sales of more than $1.5 billion (€1.18 billion) and 20 per cent of the firm's employees let go.

Dr Garo Armen, who was installed as executive chairman, has refused to be diverted from the job he inherited. With chief financial officer Mr Shane Cooke and, following his appointment in January 2003, chief executive Mr Kelly Martin, he worked assiduously to keep alive a company many assumed was doomed.

The asset sales have raised around $1.8 billion and are concluded. This week, the company agreed a $75 million settlement to a series of class actions from disgruntled investors and a $15 million civil fine from the SEC - well below most forecasts.

The irony is that one of the series of acquisitions in those halcyon 1990s - the $600 million purchase of Californian firm Athena Neurosciences - provided the seeds of Elan's salvation. One of the drugs included in the deal was Antegren.