American competition inquiry casts doubt over future of Elan

The financial future of the drug maker Elan, once Ireland's biggest company, was thrown back into doubt yesterday when a competition inquiry threatened to scupper a key plank of its disposal programme.

The financial future of the drug maker Elan, once Ireland's biggest company, was thrown back into doubt yesterday when a competition inquiry threatened to scupper a key plank of its disposal programme.

The US Federal Trade Commission has launched an investigation into Elan's muscle relaxant, Skelaxin, and whether the company's claims of patents covering the drug prevent fair competition.

Elan had agreed to sell the rights to Skelaxin, a second drug and much of its salesforce in an $850m (£530m) deal that forms the largest part of its plans to raise $1.5bn from disposals and cut debt. But the buyer, King Pharmaceuticals of Tennessee, said the deal may not now go ahead.

Both companies said it would take several days to assess the impact of the investigation on the deal, but Elan shares were marked down almost 20 per cent. At 175p last night, the stock is worth barely 5 per cent of its value at the start of last year, when off-balance sheet liabilities were first revealed.

Garo Armen, Elan's chairman, attempted to calm investors' nerves. He said the company had already raised enough cash to pay an $800m debt due this year and would still be able to eat into the company's total debt mountain, estimated at $2.8bn.

He said: "In our list of potential asset disposals we still have multiple other businesses that we feel comfortable have considerable value. In any case, our intention would be to work with King to complete this transaction."

Analysts said King could walk away from the deal, but also said it was possible the company would prefer to strip Skelaxin out of the acquisition or simply clarify that it was insulated from negative FTC findings.

The FTC investigation is another example of the growing pressures on pharmaceuticals companies operating in the US, the largest drug market in the world. There is considerable pressure from politicians and health insurers to reduce the cost of drugs, and numerous legal efforts are being made to enable the use of cheap copycat products, generics, instead of branded pharmaceuticals.