Elan expected to announce $900m investment write-down

Analysts predict that pharmaceutical group Elan will announce a write-down of up to $900 million (€912.6 million) in its investment portfolio during a crucial conference call this afternoon.

The write-down will relate to the company's $1.6 billion joint-venture investment portfolio and is likely to represent just one aspect in Elan's attempts to assuage market concerns over the clarity of its accounting practices and its future liquidity. Currently, Elan holds approximately $1.5 billion in cash, but is carrying $3 billion in debt and is due to make $1.5 billion in other contingent payments in the short term.

Mr Ian Hunter, of Goodbody Stockbrokers, yesterday forecast a write-down of $500 million, but acknowledged that this may be "conservative". Mr Peter Frawley of Merrion Stockbrokers said a charge of up to $900 million was possible.

Mr Frawley has previously suggested that Elan could emerge as a loss-making company if "circular accounting and non-sustainable income" were to be eliminated from its balance sheet. He claimed in a research note last week that the company may have boosted its pre-tax profits by as much as $900 million over the last five years.

Today's conference call is also due to deliver some guidance as to future earnings, with the consensus view anticipating a significant downgrade from previously forecast earnings per share (EPS) of between $1.55 and $1.65.

ABN Amro research suggested yesterday that up to 75 cents could be wiped off this guidance before an expected drop in sales of Elan's high-profile pain drug, Zanaflex, was even considered.

Concerns are also likely to be voiced over Elan's policy of forward-selling the royalties on some of its flagship products, with one analyst describing such a policy as "selling the cash away" at a time when a liquidity crunch could be on the cards.

In Dublin yesterday, Elan shares bucked the market trend to build on last week's gains and close up 24 per cent at €2.35. In New York, where the company trades most heavily, shares gained 16 per cent to reach $2.34 in intra-day trading, again escaping the downward trend at play in the main indices. Mr Frawley said the performance could be attributed to both the closing of short positions in the stock and the activities of bottom-fishing investors.

As for the likely impact of today's conference call, Mr Hunter said the extent of the uncertainty still hanging over Elan made it impossible to predict where the company's share price would go from here. Most analysts had already priced in a profit warning to their expectations, he said.

Other commentators suggested, however, that even a hint of good news could immediately be seized upon by an anxious market. "At this stage, if people came to the conclusion that the company wasn't bankrupt, it would be taken as positive news," said one dealer.