Elan expected to cut earnings forecasts at investor conference

Pharmaceuticals company is likely to face intense questioning over deals to sell royalty rights on products

Elan, the crisis-ridden pharmaceuticals company, is expected to lower expectations significantly for this year's earnings when it holds a conference call for investors tomorrow.

The company, which has seen its share price tumble by 95 per cent this year on accounting concerns, has already said it will take an "impairment" charge on some of its biotechnology investments, which analysts estimate could be $400 million to $700 million.

However, in addition to the charge, Elan will not be able to meet the earnings goal of $1.55 to $1.65 per share it set out at the beginning of the year, people close to the company say.

Shares in the group rallied by around 20 per cent in Dublin late last week, to close at €1.90, following falls of 60 per cent on Wednesday and 51 per cent on Tuesday. However, at their current price in New York of $2 the shares are nearly 90 per cent below their peak last July of $62.80.

Investors, however, are likely to be more concerned about what the company says about its cash position. In its annual report published last week, Elan disclosed new information about its financial obligations, which has left many investors worrying that it could face a cash crunch.

In its forecast for this year, Elan predicted that it would boost revenues by $250 million from product acquisitions.

However, although the company says it is in negotiations over certain products, there were no acquisitions in the first half and the pressure on its finances is likely to inhibit aggressive deal-making.

The collapse in biotechnology stocks, which has led to the group incurring an impairment charge, will also lead the company to undershoot its target for net interest and other income.

Elan has already admitted that sales of Zanaflex, a pain treatment and its best-seller in 2001, will be lower in the second half than the first, due to the earlier-than- expected launch of a generic competitor for the 4mg dose, which accounts for 75 per cent of sales.

However, the group is expected to tell investors that other products are selling well.

The group is likely to face intense questioning over deals to sell royalty rights on products to two groups of investors, which were only fully disclosed for the first time in the company's annual report.

A number of shareholders and analysts have said the deals were more extensive than they had been led to believe.

As a result of one of the deals, Elan has sold royalty rights to Antegren, the product in its pipeline with the most potential, including for its use in treating multiple sclerosis and Crohn's disease.

"In the discussions I had about Antegren, I was given the impression that the agreements were for indications other than multiple sclerosis and Crohn's," said one analyst.

"The agreements were much broader than we had thought they would be," said a shareholder

Investors have also been alarmed by a deal the group conducted to pay off a $160 million debt owed by an off-balance sheet financing vehicle.

While investors thought the vehicle had enough cash to meet the payment comfortably, Elan revealed in the report that the vehicle had instead sold $148 million of securities at a loss to a third party, which used a bank loan guaranteed by Elan to finance the purchase.

Although analysts are comfortable Elan has enough cash to meet its obligations at least until the end of next year, there is likely to be a lengthy queue to pose questions at tomorrow's conference call.

Elan declined to comment on the deals before tomorrow's conference call. - (Financial Times Service)