This weekend, Elan declined to address the questions thrown up by its latest disclosures, ahead of an investor conference call scheduled for Tuesday.
In May, Geaney told The Sunday Times that Elan had always made full disclosure of its joint ventures and transactions. He said: �This really annoys me, that in some way or other the thing was hidden. It was perfectly clear throughout, at least in our view.�
This is hard to square with the latest revelations. Investors knew nothing about the royalty deals until last week � even though the first, with Pharma Marketing, was concluded more than two years ago.
The products covered by the �risk-sharing deals� include several of the most important present or future revenue generators. Selling their royalties could damage future profitability.
Elan was similarly tardy in disclosing and explaining the off-balance-sheet vehicles that now own many of its investments in small biotechnology companies. It was the realisation that Elan had guaranteed $1 billion of debt issued by these vehicles that prompted the initial collapse of its share price in February.
Geaney has insisted that the company�s finances are fundamentally sound and that it can meet its obligations. Yet the collapse in the share price has damaged its ability to repay $900m of loan notes at the end of 2003. Signs of distress are already evident in Elan�s decision to take a heavy loss on the sale of investments needed to meet a $160m debt that fell due last month.
And, shareholders are entitled to ask, if Elan�s finances are in such good shape, why is it resorting to secret sales of its product royalties? Underlying all this is the difficulty the company has in calling a spade a spade. So-called product revenue is flattered by the inclusion not just of the Pharma Marketing contribution, but also the proceeds from product disposals. Last year, �exceptional product revenue� from disposals contributed $231.4m out of the total of $1.74 billion.
Operating cashflow included $361m from product rationalisations, while research and development spending also covered asset writedowns and redundancy costs.
Elan has used an excessive amount of discretion in its accounting. In the current air of suspicion, investors are left fearing that the published numbers bear little relation to the underlying reality of the business.
"Yet the collapse in the share price has damaged its ability to repay 900 m of loan notes at the end of 2003."
Let's see ...:
Do they have maybe some valuable assets:
Cash: 1.4 B $ x 1 = 1.4 B $ Other current : 0.6 B $ x 1 = 0.6 B $ Investments : 1.4 B $ x 0.6 = 0.84 B $ Products value : 1.4 B $ x 6 = 8.4 B $ Contract rev. : 0.5 B $ x 6 = 3.0 B $ Property : 0.44B $ x 1 = 0.44 B $
Total : = 14.68 B $
Liabilities : = 2.9 B $
Off balance sheet debt guar. = 1.0 B $ Value of the collateral = 0.4 B $