Pharmaceuticals group Elan has repaid $471.5 million (€388.8 million) owed by one of its subsidiaries that sparked a controversy over its accounting policies two years ago

The Dublin- and New York-listed company said that Elan Pharmaceutical Investments Ltd II (EPIL II) had repaid $450 million in loan notes borrowed on June 28th, 2000, and $21.5 million in interest. The notes were due to be repaid this week.

Elan said that, of the $471.5 million, EPIL II paid $79.7 million, while its parent accounted for the $391.8 million balance. Elan guaranteed the loan. The repayment will result in a charge against Q2 2004 earnings of $33.4 million.

The company said yesterday that the repayment had left it with cash balances of $670 million, and had cut its debts to $1.5 billion. Of this, $1.1 billion is not due for repayment until 2008.

The corporation will have to repay around $390 million raised by another vehicle, EPIL III, in March of next year. Analysts believe it will need around $300 million to fund its ongoing business for the rest of the year.

Together, these demands amount to more than its current cash balance. However, Merrion Stockbrokers analyst Mr Peter Frawley said yesterday that the company should be able to finance next year's repayment through a bond issue. He pointed out that ratings agencies have already signalled that using a bond issue to repay the EPIL III debt would improve Elan's credit rating.

In addition, the anticipated 2005 launch of its multiple sclerosis treatment, Antegren, should mean that the company will generate extra cash next year.

Several years ago, Elan moved its investment portfolio into the the EPIL vehicles, which then borrowed cash against those assets. Elan guaranteed the loans. However, the value of the investment portfolio shrank during the stock market slump, leaving the company with a big exposure.

In the US, Elan was allowed to account for the subsidiaries "off balance sheet". This prompted comparisons with Enron that the company strongly denied. However, its shares plummeted, hitting lows of less than €1.25, a fraction of its €73.80 high, which prompted a management shake- up leading to the appointment of Mr Kelly Martin as chief executive.

Separately yesterday, Elan, announced that tests on its pain killer, Prialt, had indicated that it was effective at lower doses than originally believed.