Elan faces fresh inquiry

Elan shares closed up $1.17, or 8.67 per cent, at $14.66 in New York after turbulent trading which saw the stock close 50 cent lower in Dublin at €15.50 as the market digested news that the US Securities and Exchange Commission (SEC) had started another investigation into its accounting practices.

Elan shares are now well off their 12-month high of $65. In Dublin, the shares have fallen 68 per cent from their 2002 high of €50.27 on January 17th. In recent weeks, Elan shares have fallen sharply for a number of reasons.

They were hit first when it announced the suspension of testing of its long-awaited Alzheimer's treatment. Questions raised in the Wall Street Journal about its accounting policies then rocked the market. Some days later, when Elan announced its 2001 results, it issued a profits warning for 2002 while market analysts found its accounts lacked clarity.

The shares fell again yesterday when Dublin opened as the market digested the overnight news of the latest SEC investigation. The Irish pharmaceutical company has rejected criticisms of its accounting practices and said it welcomed the opportunity to resolve matters raised by the SEC.

"Today's announcement of the SEC review is not surprising given the events of the past few weeks. We welcome the enquiry. We intend to co-operate fully and we hope for a quick resolution," a company spokesman said.

As the Dublin market opened, Elan shares lost €1 in light trading to fall to €15, a new low for 2002. Dealers were anticipating further sharp falls when the New York market opened but the shares, which have fallen almost 80 per cent from their 2001 high, traded in a narrow range.

A SEC spokeswoman refused to comment on the investigation or to discuss how long it would take. But market sources speculated it could take about nine months.

A SEC investigation of Elan accounting practices in 1999 led to a restatement of Elan's earnings. The company said it reduced earnings by about $4.4 million or two US cents per share as a result of that SEC investigation. Elan disputes reports that a $344 million write-off at that time was on foot of the SEC investigation. It contends this $344 million write-off reflected the industry-wide adoption of a new accounting standard.

The accounting practices under investigation at Elan include the treatment of off-balance sheet Qualified Special Purposes Entities and business ventures, and how the company recognises revenue. Yesterday, US bank Goldman Sachs in a reassessment of its European model portfolio removed Elan from the stocks list and reduced its weightings in British American Tobacco and Heineken.