Giant of the Irish stock exchange has had its ups and downs

Elan is well-known among investors as the third largest company on the Irish Stock Exchange. Its sheer size currently accounts for over 12 per cent of the ISEQ Index.

The shares have traded in a high/low of €40 to €24.06 (£31.50 to £18.95) in Dublin in the year to date, hitting their high in early March. They are currently trading at around €28. Elan is quoted on the New York Stock Exchange where the share price hit a high of $41.75 (€40.80) in March - equivalent to $83.5 before the June share split.

The shares have traded in a high/low range of $41.75 to $25.3 over the past year. They are currently trading at around $27, not much above their April low level for the year, in heavy volume trading.

The share-price performance has been hit by criticism in the first quarter of some of its accounting policies. Critics, including the influential US magazine Fortune, maintained that some of Elan's policies were over aggressive and overstated earnings. A review by the US Securities and Exchange Commission into its accounting procedures is expected to be completed within weeks.

In January, the SEC wrote to Elan raising questions about some of its accounting procedures, particularly in the area of research and development.

Elan's chief financial officer said that these issues have been substantially dealt with and remaining issues will be resolved in the next few weeks.

Particular concerns involved the use of separate research companies, thus keeping some of its research expense off the balance sheet, the practice of obtaining licence revenues from smaller companies in which Elan had invested cash and its write-off treatment of acquired in-house research.

In a examination of these accounting policies in April, NCB Stockbrokers supported Elan's argument that the policies were supported by underlying commercial logic and had helped its transition into a fully integrated pharmaceutical company. In addition, the broker commented that concerns about the accounting policies are set to be alleviated.

It forecast that by 2001, just 2 per cent of Elan's total earnings per share will be derived from companies which are in any way connected with Elan, improving the quality of its earnings. Elan shares have been volatile performers, which probably explains why the company has not found particular favour with Irish fund managers.

No Irish institution has a disclosable shareholding - more than 3 per cent - although a number of important US institutions have significant disclosable interests. Late last month, the $7.3 million Abbott Laboratories bid for Alza Corporation focused attention on Elan as a possible bid target because of its similarity to Alza. Applying the Abbott/Alza bid value to Elan would value the company at well over $10 billion and would imply a price per share of about $40.

A number of potential bidders were suggested for Elan including British giant Glaxo. Bid fever appears to have died down for the moment.

The company's business is researching and developing and then manufacturing and selling (either directly or through joint venture operations or collaboration agreements) new pharmaceutical products.

Elan has two revenue generating divisions: Elan Pharmaceuticals, which is a prescription drugs business; and Elan Pharmaceutical Technologies. The latter specialises in developing drug-delivery technologies to improve and control the absorption and utilisation by the human body of pharmaceutical compounds.

The process from research to market is necessarily a long one, with US Food and Drugs Administration (FDA) approval required before human trials can take place and before any new drugs can be put on the huge US market.

Pharmaceutical companies go through a process of filing for approval of new drugs before the drugs can be marketed.

At any one time, in a very competitive sector any company whose research activities are successful will have a timetable for lodging new filings before the FDA. At its annual general meeting in March, Elan chairman and chief executive, Mr Donal Geaney, said he was confident that the company would be on time with all its filings for new drugs over the next 18 months.

Often when a pharmaceutical company has a new drug approved its competitors will not be far behind with either a similar or alternative drug.

The market is very competitive but it can be highly lucrative for companies that get it right.

This year Elan expects to generate an annual turnover of $1 billion and has a target of $2 billion by 2003. Despite these targets the share price has been weak. At the a.g.m. Mr Geaney attributed this to a general downturn in healthcare stocks, saying that Elan had weathered the storm better than most.

Established in 1969 in a mews in Mount Street in Dublin, Elan now has research and manufacturing facilities in Athlone, Georgia in the US and in Israel. The company employs 1,100 people in Ireland and a total of 3,000 people worldwide.