Shares in Elan suffered a drop of 9.64 per cent yesterday after the pharmaceutical firm's fourth-quarter results failed to meet market expectations.

Elan chairman, Dr Garo Armen, has insisted that the company remains on course for recovery however, saying he was "very pleased with the performance from a commercial standpoint".

Elan shares slipped by 30 cents in Dublin, closing at €3.78. In New York, they fell by 43 cents to $4.03 .

The company reported a net loss of $639 million (€587 million) for the quarter, down from net income of $3.5 million for the same months of 2001.

Much of this was attributable to an exceptional charge of $451 million, of which $170 million related to products the company intends to sell.

Litigation and restructuring costs also had an impact.

The company has taken an unexpected $68 million charge in respect of flagship drug, Zanaflex, which was badly hit by cheaper generic competition last year.

This charge hit revenues, which came in 54 per cent below the same quarter of 2001 at $223.6 million.

This leaves full-year revenues at $1.47 billion, down from $1.8 billion in the previous year.

Elan's net loss for 2002 was $2.4 billion, compared with net revenues of $342 million in 2001.

Analysts said the results had come in below their forecasts largely because of the extent of the write-downs.

Mr Peter Frawley of Merrion Stockbrokers also expressed some concern about the rate at which Elan was "burning" cash.

Cash balances at the end of the quarter stood at about $1 billion, compared with obligations of $2.6 billion.

Dr Armen rejected suggestions that Elan could be on the cusp of cashflow difficulties. The company has signalled that it will face cash outlays of about $330 million this year.

"We are, if anything, ahead of target in terms of the cash health of the balance sheet," Dr Armen told reporters in a conference call.

He also suggested that revenue numbers for the fourth quarter were "not reflective" of rising prescription trends among the company's products.

Elan, which initiated a radical restructuring last summer, announced a week ago that it had met its target for asset disposals almost a year ahead of schedule with the sale of two prescription drugs for $850 million.

The company has raised $1.6 billion within the past six months.

Elan chief executive, Mr Kelly Martin, said yesterday that the company would continue to take a "very disciplined approach" towards its recovery programme and, in particular, its divestment plans.

He said there was no specific timetable attached to this disposal programme however.

"We'll continue to be active where it will make sense," Mr Martin said.

Goodbody analyst, Mr Ian Hunter, has identified Elan's drug delivery business as a lucrative divestment possibility, suggesting that it could generate cash of about $500 million if sold.

"If they get that way, they're covered for cash requirements over the next two to three years," Mr Hunter said.

Looking forward, Dr Armen said it was "reasonable" to expect that exceptional charges had reached their peak in the third quarter of last year.

He said he was confident that charges would "move down steadily" this year.

"Certainly anything flagged as unusual charges will come to an end pretty much in the second half," he said.

In line with the "simplification" of Elan's balance sheet, the company has also left the way open to a further buyback of its liquid yield option notes (LYON), of which almost $800 million remains outstanding following a $150 million repurchase.

Both Dr Armen and Mr Martin said they were "very encouraged" by Elan's product pipeline, citing positive prospects for Crohn's Disease and Multiple Sclerosis treatment, Antegren and painkiller Prialt.

According to Dr Armen: "The recovery programme was undertaken largely to make sure the potential of these products was realised."