Elan Hits Bottom

Donal Geaney and Tom Lynch, chairman/CEO and vice-chairman, respectively, of the troubled Irish pharma company Elan, resigned following intense pressure from investors. Their departure came shortly after the company's credit rating was cut to junk bond status by Standard & Poor. Elan has had a difficult couple of months, with scrutiny of its accounting methods and cash position causing the share price to plummet in both Dublin and New York. The price had fallen by more than 90 percent since January but recovered slightly following news of the resignations.

The US Securities and Exchange commission is investigating Elan's accounting policies, particularly the use of off-balance sheet vehicles for research joint ventures. The company has admitted that more transparent accounting would have made last year's reported profits substantially lower.

In an attempt to calm the markets, in mid-June Elan announced a range of organizational changes, eliminating divisional structures in the process. Its future focus will be on the three core therapeutic areas of neurology, pain management, and autoimmune diseases. The company also said it will eliminate 500 jobs and has abandoned plans to expand into Japan.

But those measures failed to reassure investors, who remain concerned about a looming cash crisis, exemplified by Elan's recent sale of financial assets-the royalty rights to some of its products-at a loss to fund debt payments. A pending US lawsuit from shareholders, who claim the accounting practices inflated revenues, has also undermined investor confidence.