Elan ousts two top executives as investors' fury mounts

Elan has ousted its chairman and chief executive, Donal Geaney, the man who built the drug group into Ireland's largest company only to see it collapse under the weight of his own complex accounting policies.

He and Tom Lynch, the vice president, both quit yesterday. Investors were infuriated by a string of financial revelations, culminating last week in news it has sold off future product royalties to a vehicle part-owned by Elan and CSFB. The transaction was done in June 2000 but not disclosed until this year's annual report.

"It was clear over the weekend that Donal had lost respect," an insider said.

Although Mr Geaney and Mr Lynch will both continue to act as advisers to Elan, they lose their seats on the board and were negotiating their pay-offs last night.

The new chairman, Garo Armen, told investors Elan would raise $1bn (£650m) from asset sales, after its decision to concentrate on a smaller number of clinical areas. The company is planning to slash costs, but insists it has cash balances of $1.4bn and will not default on its debts.

"We want to be transparent, so that you don't have to go through 55 footnotes in order to be able to interpret what our cash level is," he said.

But Mr Armen had no answers to questions on the current year's earnings. Although he confirmed the company would write off about $600m from the value of its biotech investments, he said Elan would re-evaluate its earnings guidance over the coming weeks.

The stock has slumped 95 per cent since the start of the year after a profits warning, the failure of Elan's new alzheimer's drug, and fierce criticism of its accounting policies in the wake of Enron's collapse. The company's accounts are currently under investigation by the Securities and Exchange Commission, the US regulator.

They company is facing lawsuits from shareholders as a result of the drip-drip of revelations so far this year.

Mr Geaney and Mr Lynch both joined Elan from its auditors, KPMG, and have managed to keep most of its research funding off the balance sheet by setting up 55 joint ventures with other drug developers.

Elan has also inflated revenues by booking licence fees from the joint ventures – in effect recycling its own investment.

The maze of special vehicles has grown up to allow Elan to turn itself from a modest drug delivery technology group when Mr Geaney arrived in 1987 into a major pharmaceuticals group with products and a large salesforce of its own. He had been chief executive since 1995. Most of Elan's board are drawn from the finance industry rather than pharmaceuticals, a fact which has long attracted criticism.