Elan shares lost half their value on the Irish stock market yesterday on news that a drop in the value of its investments would result in significant charges.
The embattled drugmaker, whose shares had already fallen by more than 90 per cent since the start of the year, plunged by more than 50 per cent to €2.45 in late trading.
This values the company at around €850 million, a fraction of its €16.6 billion valuation at the start of the year.
Once the largest stock on the Irish market, dealers said it no longer featured among the top ten.
In New York, where the shares are mainly traded, they fared even worse, losing more than 60 per cent to close below $2.
News that Elan's recovery plan would lead to a fall in the value of its investments triggered the latest downward spiral.
The announcement was contained in documents lodged with the US Securities and Exchange Commission (SEC) yesterday. Analysts expect this will materialise as an exceptional charge that will affect its second-quarter profits figures, due at the end of the month.
The writedown, or impairment charge, has been necessitated by the slump in the value of a range of bio-tech firms in which Elan had invested.
That investment portfolio will be revalued, creating further nervousness among investors.
The extent of the writedown has not been disclosed but an indicative range of 20 to 30 per cent has been mentioned. Its investment portfolio was valued last year at €2.1 billion.
Mr Ian Hunter, analyst at Goodbody Stockbrokers, suggested that negative sentiment would overshadow Elan for some time, with further negative news and the SEC investigation expected to weigh on the share price.
"The effect of the statement should have been neutral to mildly negative but with nervous sentiment there has been an overreaction. The results are crucial," he said.
In a statement with the SEC documents, Elan chairman and chief executive Mr Donal Geaney said Elan was experiencing "the most challenging time in its corporate history".
He added that the company's management remained committed to rebuilding shareholder value, achieving clarity and transparency, and simplifying its financial reporting.
It was concerned about accounting policies that caused the shares to crash in February.
Mr Geaney also outlined Elan's recovery plan, which was centred on refocusing the business on its core biopharmaceutical business an'd selling non-core businesses and investments.
It would continue to invest in research and development programmes, and reduce the complexity of its balance sheet.
Elan dismissed speculation that it faced cashflow problems, saying it held total current financial assets of $2.2 billion (€2.24 billion).
There are also lingering concerns about its ability to service its debts next year if its assets are substantially reduced.
This announcement followed a downgrading of Elan's corporate credit rating by international ratings agency Standard & Poor's. It said it was placing Elan on creditwatch with negative implications following the earlier-than-expected approval of a generic version of its main revenue earning drug, Zanaflex, by a rival firm, which will affect its future earnings growth.
In its note, Standard & Poor's stated that, while the company had considerable cash reserves, it remained concerned that, given its low credit rating and share price, it would have little financial flexibility to meet its financial commitments.
Standard & Poor's also considered that the continuing SEC inquiry would limit the company's access to debt and equity markets.
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