Shares in Elan plunged 33 per cent in Dublin yesterday as the markets digested news of poor third-quarter trading and larger-than-expected asset write-offs. The company's trading statement, which flagged a write-down of €542 million, has raised new concerns about Elan's overall financial position.
In particular, analysts have questioned the company's prospects of meeting cash obligations which some believe could be as high as $3.5 billion (€3.55 billion).
Concern has also arisen about the rate at which the pharmaceutical firm is "burning" money, with cash held having fallen by $800 million since the end of June, leaving just $600 million on the balance sheet. On the basis of one analyst's calculations that Elan's quarterly operating cash burn could be up to $180 million, this would leave the company with less than one year's worth of cash to hand.
Shares in Elan fell by 69 cents to close at an all-time low of €1.34 on the Irish exchange last night. In New York, where the stock is mainly traded, the shares had lost 36 per cent to reach $1.23 by lunchtime.
The company's statement, issued late on Monday evening, said that product revenues for the third quarter were likely to come in at $200 million, down from $375 million in the previous three months, and $100 million beneath some analysts' expectations.
The company attributed the shortfall to the level of generic competition for flagship drug, Zanaflex, as well as other factors including "a change in the company's discounting strategy".
A spokesman said this meant, in the main, that Elan had ceased offering discounts on product lines that it intended to off-load under its asset disposal programme.
Elan has committed to raising $1.5 billion by the end of 2003, largely through the sale of assets. It is understood that the company has received "pre-emptive bids" in respect of some such assets and is expecting to receive "full bids" in the near future. A spokesman said that the company was "confident" of meeting its debt obligations.
Elan's statement also said that it would take an exceptional charge of $400 million for the quarter to reflect the declining value of its investment portfolio. In addition, $142 million has been written down in relation to the sale of assets by one of its "qualifying special purpose entities", or off-balance sheet vehicles.
"On the face of it, reading the statement, it's not very positive news," said Mr Peter Frawley of Merrion Stockbrokers.
Mr Frawley noted that Elan had recorded exceptional charges of $1.4 billion in the year to date, saying that this must "call into question the reliability of the remaining investments held by Elan on its balance sheet".
He also suggested that the shortfall in third-quarter revenues was likely to impact on Elan's ability to attract bidders for its non-core assets. Merrion maintains an "avoid" recommendation on the stock
Other analysts have criticised the "opaque" nature of the trading statement, calling for more information to be made available. "Until they give us detail, we can only make assumptions," said one analyst.
Elan is due to release third-quarter results at the end of this month.
