Washington

Falling stock: Elan's share price has plunged against the US average since mid-January. Credit: BLOOMBERG

The plummeting share price of a leading Irish drug company could lead to closer scrutiny of how such firms account for their research and development spending, analysts say.

Elan, based in Dublin, was until recently the largest company on the Irish stock market, and is also listed on the New York Stock Exchange. Its stock price, which fell from a high of $63 last July to $44 at the beginning of the year, has dropped by 70% since then, driven by a number of factors — including comparisons of its accounting practices with those of Enron, the failed US energy trading company.

Elan may have stumbled, but it is not about to fall: it reported sales of $350 million last year, and has several products in late-stage clinical trials. “We've got $2 billion in the bank and another $2.4 billion in marketable securities,” says a company spokesman.

But analysts say that Elan's example is a warning to other drug companies that use some of its accounting techniques. According to an investigation published in the Wall Street Journal on 30 January, Elan had set up 55 joint ventures, structured so that it could charge research costs to its partners, instead of counting them as part of its own expenses. It also charged the partners a licensing fee, which Elan counted as income. To wary investors, this set-up looks not unlike that used by Enron to hide its debt.

Analysts say that many drug and biotechnology companies are involved in joint ventures. “If Elan had had five of these it would have been okay,” says Ian Sanderson, an analyst at SG Cowen Securities in Boston, “but it had 55 of them generating total revenues of about $200 million a year.”

Elan's announcement on 18 January that four French patients had become ill during a clinical trial of its drug for Alzheimer's disease (see Nature 415, 462; 2002) initially pushed its stock price down (see chart). This was compounded by disappointing financial results released on 4 February, which included new details about Elan's accounting methods — triggering an investigation by the US Securities and Exchange Commission.