Elan received further bad news yesterday with the announcement that rival drugmaker Eon Labs had received approval for a generic version of its key drug, Zanaflex, writes Jane O'Sullivan.

The approval by the US Food and Drug Administration (FDA) comes six to nine months ahead of expectations and is expected to hit Elan's revenues in the second half.

Company broker Davy described it as "a serious blow to product revenues and profits" and estimated that around $90 million (€91.2 million) could be wiped off sales over the next four quarters.

This would represent 5 to 6 per cent of total revenue forecast. "This is a bad break for Elan," said Davy analyst Mr Jack Gorman.

"The main reason it's negative is that it will impact on cashflow generation, which will be the driver of recovery at the company."

Shares in the company fell on the news, closing nearly 8 per cent lower at €5.85 in Dublin. In New York, they fell 1.13 to close at $5.47.

However, Elan said it had a balanced commercial portfolio in which no one product dominated sales.

"While it's an important issue, it's not calamitous," said Mr Seamus Mulligan, Elan's head of global business development and planning.

Mr Mulligan said the company had a patent issued last week for Skelaxim, a drug to treat pain, which accounts for around 7 per cent of sales and also faces a threat from generic products.

"This gives us the potential to protect that for a longer period of time," he said.

He declined to quantify the financial impact of the Zanaflex generic approval on revenues, saying Elan would provide guidance when it released second-quarter earnings towards the end of July.

However, Mr Ian Hunter, analyst at Goodbody Stockbrokers, was less pessimistic than Davy, saying the development would cut revenues this year by $25 million although he expected the knock-on effect to be more pronounced for 2003 onwards.

Zanaflex, which treats spasticity, is sold in two and four milligram dosage forms and accounted for 11 per cent of Elan's total revenue in the first quarter.

Of Elan's total Zanaflex sales of $53.7 million in the first three months, the four milligram dosage, which is affected by the approval, accounted for $40.3 million, or 9 per cent of total revenue.

The company had been working on a number of initiatives to counter generic versions, including new formulations and dosage forms, and these would continue to be pursued, Mr Mulligan said.

New York-based Eon Labs said it planned to begin shipments of the generic drug immediately.