Document:

EXHIBIT 10.2

                      CONSENT OF INDEPENDENT ACCOUNTANTS

The Board of Directors
Elan Corporation, plc

Dear Sirs:

     We consent to incorporation by reference in the Post-Effective Amendments
on Forms F-3 and S-8 to the Registration Statement on Form F-4 (No. 333-12756)
of Elan Corporation, plc, the Registration Statements on Form S-8 (Nos.
333-13996, 333-12344, 333-11940, 333-09644, 333-09284, 333-09048, 333-08384,
333-07361, 333-07136, 333-14240, 33-27506 and 333-100252) of Elan Corporation,
plc, and the Registration Statement on Form F-3 (No. 333-13130) of Elan
Corporation, plc and Athena Neurosciences Finance, LLC, of our report dated
April 23, 2004, relating to the consolidated balance sheets of Elan
Corporation, plc as of December 31, 2003 and 2002 and the related consolidated
profit and loss accounts, statements of cash flows, statements of changes in
shareholders' funds and statements of total recognised gains and losses for
each of the years in the three year period ended December 31, 2003, all
prepared in accordance with Irish generally accepted accounting principles,
which report appears in the Annual Report on Form 20-F of Elan Corporation, plc
for the fiscal year ended December 31, 2003.

/s/ KPMG

KPMG
Chartered Accountants
Dublin, Ireland

April 28, 2004Table of Contents
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          
	
             
                Statement from the Chairman
             

          	
             
                2
             

          
	
             
                 
             

          	
             
                 
             

          
	
             
                Statement from the President and CEO
             

          	
             
                3
             

          
	
             
                 
             

          	
             
                 
             

          
	
             
                Operating Review
             

          	
             
                4
             

          
	
             
                 
             

          	
             
                 
             

          
	
             
                Financial Review
             

          	
             
                31
             

          
	
             
                 
             

          	
             
                 
             

          
	
             
                Directors’ Report
             

          	
             
                70
             

          
	
             
                 
             

          	
             
                 
             

          
	
             
                Corporate Governance
             

          	
             
                79
             

          
	
             
                 
             

          	
             
                 
             

          
	
             
                Independent Auditors’ Report
             

          	
             
                83
             

          
	
             
                 
             

          	
             
                 
             

          
	
             
                Financial Statements
             

          	
             
                85
             

          
	
             
                 
             

          	
             
                 
             

          
	
             
                Notes Relating to Financial Statements
             

          	
             
                91
             

          
	
             
                 
             

          	
             
                 
             

          
	
             
                Selected Financial Data
             

          	
             
                179
             

          
	
             
                 
             

          	
             
                 
             

          
	
             
                Group Financial Record-Irish GAAP
             

          	
             
                179
             

          
	
             
                 
             

          	
             
                 
             

          
	
             
                Group Financial Record-U.S. GAAP
             

          	
             
                180
             

          
	
             
                 
             

          	
             
                 
             

          
	
             
                Shareholders’ Information
             

          	
             
                181
             

          
	
             
                 
             

          	
             
                 
             

          
	
             
                Risk Factors
             

          	
             
                186
             

          
	
             
                 
             

          	
             
                 
             

          
	
             
                Additional Information
             

          	
             
                194
             

          
	
             
                 
             

          	
             
                 
             

          
	
             
                Cross Reference to Form 20-F
             

          	
             
                199
             

          

 
 

     
        Terms 
     

     
        In this Annual Report and Form 20-F, Elan Corporation, plc
        and its consolidated subsidiaries are referred to as “Elan”,
        “the Company”, “the Group”, “we”, “our”
        and “us”. 
     

     
        Financial Statements 
     

     
        We prepare our financial statements in accordance with
        Irish generally accepted accounting principles (“Irish GAAP”), which
        differ in certain significant respects from U.S. generally accepted accounting
        principles (“U.S. GAAP”). For a discussion of the significant
        differences between Irish GAAP and U.S. GAAP, please refer to Note 33 to the
        Consolidated Financial Statements. 
     

     
        Statements of Competitive Position 
     

     
        Except as otherwise stated, market information in this
        Annual Report and Form 20-F regarding the position of Elan’s business or
        products relative to its or their competition is based upon published
        statistical data obtained from IMS Health Incorporated (“IMS Health”
        or “IMS”) (noted as “1” in text. Source: IMS Health,
        Copyright 2003. All Rights Reserved) and Verispan, L.L.C.
        (“Verispan”) (noted as “2” in text. Source (Trade Mark)
        Prescription Audit (SPA) January 2003 to December 2003). IMS Health and
        Verispan are leading suppliers of statistical data to the pharmaceutical
        industry. Except as otherwise stated, this market share and industry data from
        IMS Health and Verispan has been derived by comparing Elan’s sales revenue
        to competitors’ and total market sales revenue. 
     

     
        Trademarks 
     

     
        All product names appearing in italics are trademarks
        owned by or licensed to Elan. 
     

     
        Cautionary Factors That May Affect Future Results
        
     

     
        (Cautionary Statements Under the United States Private
        Securities Litigation Reform Act of 1995) 
     

     
        Our disclosure and analysis in this Annual Report and Form
        20-F contain some forward-looking statements that set forth anticipated results
        based on management’s plans and assumptions. From time to time, we also
        provide forward-looking statements in other materials we release to the public
        as well as oral forward-looking statements. Such statements give our current
        expectations or forecasts of future events; they do not relate strictly to
        historical or current facts. We have tried, wherever possible, to identify such
        statements by using words such as “anticipate”, “estimate”,
        “expect”, “project”, “intend”, “plan”,
        “believe”, “strategy” and similar expressions in connection
        with any discussion of future operating or financial performance. In
        particular, these include statements relating to future actions, our ability to
        meet our future financial obligations, prospective products or product
        approvals, future performance or results of current and anticipated products,
        sales efforts, expenses, interest rates, the outcome of contingencies, such as
        legal proceedings and governmental investigations, and financial results.
        
     

     
        We cannot guarantee that any forward-looking statements
        will be realised. Achievement of future results is subject to risks,
        uncertainties and potentially inaccurate assumptions. Should known or unknown
        risks or uncertainties materialise, or should underlying assumptions prove
        inaccurate, actual results could vary materially from past results and those
        anticipated, estimated or projected. Investors should bear this in mind as they
        consider forward-looking statements. 
     

     
        We undertake no obligation to publicly update
        forward-looking statements, whether as a result of new information, future
        events or otherwise. You are advised, however, to consult any further
        disclosures we make on related subjects in our Form 6-K reports submitted to
        the United States Securities and Exchange Commission (“SEC”). Also
        note that we provide the following cautionary discussion of risks,
        uncertainties and possibly inaccurate assumptions related to our business. This
        discussion, together with the discussion under “Risk Factors” located
        elsewhere in this Annual Report and Form 20-F, describe the factors that,
        individually or in the aggregate, we think could cause our actual results to
        differ materially from expected and historical results. We note these factors
        for investors as permitted by the United States Private Securities Litigation
        Reform Act of 1995. You should understand that it is not possible to predict or
        identify all such factors. Consequently, you should not consider these factors
        to be a complete discussion of all potential risks or uncertainties. These
        factors include those set forth under the heading “Risk Factors”
        located elsewhere in this Annual Report and Form 20-F and the following:
        
     

     		
             
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                the timing and outcome of the ongoing SEC
                investigation and the putative shareholder class action; 
             

          

     		
             
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                the success of our development and commercialisation
                efforts with respect to Antegren and our other product development candidates and the speed with which
                necessary product approvals may be achieved; 
             

          

     		
             
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                our ability to maintain financial flexibility and
                maintain sufficient cash, liquid resources and investments and other assets
                capable of being monetised to meet our liquidity requirements; 
             

          

     		
             
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                the continued acceptance of our currently marketed
                products, including, in particular, Maxipime and Azactam, and competitive developments
                affecting those products; 
             

          

     		
             
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                the high cost and uncertainty of research, clinical
                trials and other development activities involving pharmaceutical products;
                
             

          

     		
             
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                our ability to protect our intellectual property;
                
             

          

     		
             
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                our ability to successfully market both new and
                existing products; 
             

          

     		
             
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                difficulties or delays in manufacturing; 
             

          

     		
             
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                our ability to meet generic and branded competition
                after the expiration of our patents or our regulatory exclusivity; 
             

          

     		
             
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                our future capital expenditure requirements; 

             

          

     		
             
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                the trend towards managed care and health care cost
                containment; 
             

          

     		
             
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                possible legislation affecting pharmaceutical
                pricing;
             

          

     		
             
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                exposure to product liability and other types of
                lawsuits; 
             

          

     		
             
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                interest rate and foreign currency exchange rate
                fluctuations; 
             

          

     		
             
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                governmental laws and regulations affecting domestic
                and foreign operations, including tax obligations; 
             

          

     		
             
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                general changes in Irish and U.S. GAAP;
             

          

     		
             
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                our ability to reduce costs and expenses;
             

          

     		
             
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                changes in product mix; and 
             

          

     		
             
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                the impact of acquisitions, divestitures,
                restructurings, product withdrawals and other unusual items. 
             

          

 

     
         
     

     

     
     

     
     
        

        
     

     
         
     

     
         
     

     
         
     

     
         
     

     
         
     

     
         
     

     
         
     

     
        2003 was an important year for Elan. The company focused
        on continuing the successful execution of its recovery plan, communicating the
        value of its research and development programme accurately and consistently,
        and delivering against clear expectations. As a result, Elan experienced
        renewed stakeholder interest in its science and business plans and a greater
        appreciation of its accomplishments and goals. 
     

     

     
         
     

     

     
     

     
     
        

        
     

     
        Statement From The Chairman 
     

     
        Garo Armen 
     

     
        Dear Shareholders: 
     

     
        2003 was a pivotal year for Elan, marked by a number of
        key events, decisions and milestones that ultimately reshaped both the Company
        and its future. It was also a year where the Company focused intensely on
        executing against well-defined goals and delivering on previous commitments.
        Successes in our scientific and business plans, and our transparent
        articulation of each, helped set the stage for a return of confidence in the
        Company and a renewed interest in our pipeline, our science and our
        future.
     

     
        By year’s end, we had completed almost all of the
        elements of the recovery plan announced in July 2002, and we formally concluded
        the plan in February 2004. We achieved or exceeded all of the plan’s
        goals, raising aggregate consideration of $2.7 billion, including $0.6 billion
        from an equity and convertible notes offering, reducing headcount and related
        costs by more than 50 percent, simplifying our business model and balance
        sheet, and strengthening our liquidity position. Other elements from 2002 and
        2003 are as yet unresolved, including the timing and outcome of the ongoing SEC
        investigation and the putative shareholder class action.
     

     
        Throughout 2003, we made steady progress in the research
        and development of novel treatments in our core therapeutic focus areas of
        neurology, autoimmune diseases and severe pain, bringing the Company to a new
        threshold in each.
     

     
        In neurodegenerative diseases, our Alzheimer’s
        programme saw a return to the clinic with a Phase I immunotherapy study
        evaluating a monoclonal antibody directed against A-beta as a potential
        treatment of mild-to-moderate Alzheimer’s disease. In autoimmune diseases,
        we earned the interest — and admiration — of the entire industry with
        our news concerning Antegren, whose unique inflammatory-inhibiting characteristics were reported
        in announcements concerning Crohn’s disease, multiple sclerosis and
        rheumatoid arthritis. And our advances with Prialt, our first-in-class therapy for
        severe pain, have reached the point where it is appropriate for us to prepare
        arduously for potential product launches. 
     

     
        Today, our financial and scientific accomplishments speak
        clearly of a company that has been successfully transformed. This
        transformation encompassed more than our business and scientific ventures;
        equally important was how we executed against our plans, delivered on our
        pledge of transparency, and were guided by strong principles and strong
        leaders.
     

     
        I thank CEO Kelly Martin for articulating Elan’s
        vision in a manner that resonates deeply within and outside the Company, and
        for strengthening the business processes that will make that vision a reality.
        I appreciate the tireless efforts of our board of directors, as they engaged
        fully in guiding and supporting difficult decisions and in helping to set
        Elan’s new course.
     

     
        Most importantly, I want to acknowledge our shareholders
        and express my gratitude for the extraordinary efforts of our employees.
        Neither our accomplishments of the last year nor the promise of what is yet to
        come would exist without their support and commitment. Their understanding of
        our Company’s priorities and our purpose reflects the true measure of its
        value. 
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                
 
 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                
 

             

          
	
             
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          

 
 

     
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        Statement From The President and CEO 
     

     
        G. Kelly Martin 
     

     
        Dear Shareholders: 
     

     
        A dispassionate assessment of Elan’s performance in
        2003 would accurately report that we were required to respond rapidly to a
        series of difficult challenges and important opportunities, and that we did so
        successfully. Throughout the year, we continued to focus our energies on the
        transformation of our Company. 
     

     
        I would suggest, however, that Elan’s transformation
        into a world-class, neuroscience-based biotechnology company — rooted in
        Ireland and focused on neurology, autoimmune disease and severe pain —
        cannot be assessed dispassionately. Our identity, our strategy and alignment,
        and our commitment to creating value cannot be understood unless you understand
        our passion.
     

     
        And our passion starts with patients.
     

     
        Everything we do at Elan is predicated on the possibility
        of bringing our products and moving our research toward the millions of
        patients who desperately need our help. Our employees know this, and our
        scientific approach embodies it. Our commitment to patients reflects even more
        than how we work; it says who we are. 
     

     
        We are passionate about our potential to lead — to
        create a new industry model for taking science from the lab to the marketplace
        — and in neurology, autoimmune disease and severe pain, we are absolutely
        clear and purposeful about our strategic direction and focus. Last year, this
        clarity was self-evident, culminating in a stunning accomplishment: three
        groundbreaking clinical milestones in a single six-week period.
     

     
        This year, our next steps with Antegren and Prialt, as well as our continued clinical
        development in Alzheimer’s disease, will be closely watched by the
        industry, our competitors and, of course, by you, our shareholders. We welcome
        that attention, and the opportunity to demonstrate that a well-executed
        science-to-market continuum is more than just a new phrase; it is a new way of
        doing business and helping patients.
     

     
        We also look forward to showing the importance of all our
        operations and the organisational alignments that support them.
     

     
        We will have some key opportunities this year, as we
        prepare to leverage the value of a strategically aligned, hospital-based
        specialty sales and marketing group, and as we extend the value of our biologic
        supply chain business and our recently integrated manufacturing services unit.
        In these areas, we will be driven by the same forces that cut across all of
        Elan: the knowledge that our work is important, and the desire to make a
        difference.
     

     
        We will demonstrate that knowledge and desire in
        everything we do, every day. We will continue our execution momentum across all
        the dimensions of our Company, prioritising, planning and working strategically
        with others to extend the progress of last year. We will continue to set
        identifiable goals — such as filing two to three U.S. NDAs and two
        European MAAs by the end of 2004, as well as two INDs in the next one to two
        years. We will deliver against these goals with an operating discipline that is
        efficient and measurable. And we will maintain our focus on value creation
        — delivering the work and the results that the market and our shareholders
        expect.
     

     
        Most of all, however, we will continue our commitment to
        patients. In some ways, this commitment will be large and visible, such as our
        premier sponsorship, in July, of the Alzheimer’s Association’s
        9th International Conference on Alzheimer’s Disease and Related
        Disorders, or the announcements we may make
        concerning regulatory filings or trial results. In other ways, it will be small
        or quiet, but no less important.
     

     
        Our passion for patients reminds us — and the world
        — that we are more than a company with great people, strategies, science,
        or execution. We’re a company with a great purpose. 
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                

                
             

          	
             
                 
             

          	
             
                 
             

          	
             
                
 

             

          
	
             
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          

     
         
     

     

     
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        Operating Review 
     

     
        Company Overview 
     

     
        Elan, an Irish public limited company, is a
        neuroscience-based biotechnology company headquartered in Dublin, Ireland that
        is focused on discovering, developing, manufacturing and marketing advanced
        therapies in neurology, autoimmune diseases and severe pain. 
     

     
        Elan was incorporated as a private limited company in
        Ireland on 18 December 1969 and became a public limited company on 3 January
        1984. Elan’s principal executive offices are located at Lincoln House,
        Lincoln Place, Dublin 2, Ireland and its telephone number is 353-1-709-4000.
        Elan’s principal research and development, manufacturing and marketing
        facilities are located in Ireland, the United States and the United Kingdom.
        
     

     
        In the early months of 2002, the Company suffered a number
        of setbacks in rapid succession, including the cessation of dosing in a Phase
        IIA clinical trial of AN-1792, an experimental immunotherapeutic that was under
        development for the treatment of Alzheimer’s disease (“AD”), the
        announcement of a profit warning and an investigation by the SEC. These
        disappointments ultimately led to a loss of confidence in the Company. To
        address these issues, Elan announced a recovery plan on 31 July 2002 to
        restructure Elan’s business, assets and balance sheet in order to enable
        it to meet its financial commitments. The principal elements and outcomes of
        the recovery plan are set out in the Operating Review on page 16 under the
        heading “Completion of Recovery Plan”. As a result of this recovery
        plan, Elan’s business has now been transformed, and the Company is now
        focused clearly on three core therapeutic areas: neurology, autoimmune diseases
        and severe pain. One significant result of the number of product and business
        divestments since the beginning of 2002 is that Elan’s financial
        performance in historical years is of limited relevance to an understanding of
        its future prospects. Near term, Elan is focusing its development, sales and
        marketing efforts to enable it to focus resources on the anticipated launch of
        its late stage pipeline candidates, Antegren for multiple sclerosis
        (“MS”) and Crohn’s disease, and Prialt for severe pain. In research, Elan is
        focused on neurology, in which it is continuing its research and advances in
        neurodegenerative diseases, including multiple sclerosis, Alzheimer’s
        disease and Parkinson’s disease. On 12 February 2004, Elan announced the
        formal completion of its recovery plan.
     

     
        Core Elan is engaged in biopharmaceutical research and
        development activities (“Research and Development”), pharmaceutical
        commercial activities (“Therapeutic Markets”) and pharmaceutical
        manufacturing activities (“Global Services & Operations” or
        “GS&O”). Biopharmaceutical research and development activities
        include the discovery and development of products in the therapeutic areas of
        neurology, autoimmune diseases and severe pain. Elan’s pharmaceutical
        commercial activities include the marketing of neurology/pain management
        products and hospital/ specialty products. The Company’s initiatives in
        product development, optimisation and manufacturing are encompassed by Global
        Services & Operations, which is focused on providing technology platforms
        that address the drug delivery challenges of the pharmaceutical
        industry.
     

     
        Elan’s biopharmaceutical product pipeline includes
        innovative products in research and development in neurology, autoimmune
        diseases and severe pain. In neurology, Elan has an Alzheimer’s disease
        immunotherapy programme, in collaboration with Wyeth, which currently includes
        a Phase I development project. Other efforts in neurology include a number of
        AD research projects and work in neuropathology-based disorders such as
        Parkinson’s disease. 
     

     
        In autoimmune diseases, Elan, in collaboration with Biogen
        Idec, Inc. (“Biogen Idec”) (formerly Biogen Inc.), is developing
        Antegren, which is currently
        in Phase III clinical trials in multiple sclerosis and Crohn’s disease,
        and Phase II studies in rheumatoid arthritis (“RA”). Elan’s
        primary autoimmune research emphasis is studying cell trafficking to discover
        ways to provide disease-modifying therapies for a wide range of autoimmune
        diseases. In severe pain, Elan’s filing of a European Market Authorisation
        Application (“MAA”) for Prialt, a late-stage development product for
        severe chronic pain, is under regulatory review. Elan also expects to file an
        amendment to its New Drug Application (“NDA”) for Prialt, with the U.S. Food and Drug
        Administration (“FDA”), in the second quarter of 2004. Research
        efforts in severe pain focus on inflammatory and neuropathic pain.
     

     
        Elan expects to file two to three U.S. NDAs and two
        European MAAs by the end of 2004. Elan also expects to file two Investigational
        New Drug Applications (“INDs”) in the next one to two years, based on
        its current research efforts. 
     

     
        With the completion of the recovery plan on 12 February
        2004, Elan announced the end of operations for its Elan Enterprises business
        unit. Elan Enterprises was mainly comprised of Elan’s drug delivery
        businesses and other assets such as business ventures and non-core
        pharmaceutical products. Drug delivery activities have historically included
        the development, licensing and marketing of drug delivery products,
        technologies and services to pharmaceutical industry clients on a worldwide
        basis. Elan Enterprises divested many of these businesses and assets. 
     

     

     
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        Operating Review 
     

     
        Core Elan 
     

     
        Core Elan is comprised of biopharmaceutical research and
        development activities, pharmaceutical commercial activities and pharmaceutical
        manufacturing activities. Biopharmaceutical research and development activities
        include the discovery and development of products in the therapeutic areas of
        neurology, autoimmune diseases and severe pain. Elan’s pharmaceutical
        commercial activities include the marketing of neurology/pain management
        products and hospital/specialty products. The Company’s initiatives in
        product development, optimisation and manufacturing are encompassed by Global
        Services & Operations, which is focused on providing technology platforms
        that address the drug delivery challenges of the pharmaceutical industry.
        
     

     
        Research and Development 
     

     
        Elan’s biotechnology research and development
        activities include the discovery and development of products in the therapeutic
        areas of neurology, autoimmune diseases and severe pain. Elan’s focus on
        improving the health of patients suffering from chronic and debilitating
        conditions is exemplified by its breakthrough research and development
        programmes in Alzheimer’s disease. Other neurology research and
        development efforts include work in the areas of Parkinson’s disease and
        epilepsy. In autoimmune diseases, products in mid- or late-stage development
        efforts include Antegren
        (natalizumab), being developed for multiple sclerosis, Crohn’s disease and
        rheumatoid arthritis; and research efforts centre on Elan’s cell
        trafficking programme and new disease-modifying approaches to treat autoimmune
        diseases such as MS, Crohn’s, inflammatory bowel disease (“IBD”)
        and RA. In severe pain, Prialt (ziconotide) is in late stage development and research efforts focus
        on inflammatory and neuropathic pain. 
     

     
        Antegren (natalizumab) 
     

     
        Antegren, a humanised
        monoclonal antibody, is the first alpha 4-integrin antagonist in a new class of
        potential therapeutics known as selective adhesion molecule (“SAM”)
        inhibitors. SAM inhibitors are designed to selectively inhibit immune cells
        from leaving the bloodstream and to prevent these cells from migrating into
        chronically inflamed tissue — the brain in MS, the gastrointestinal tract
        in Crohn’s disease, and the joints in RA — where they may cause or
        maintain inflammation.
     

     
        Since August 2000, Elan and Biogen Idec have engaged in a
        worldwide, exclusive, mutually beneficial agreement to develop, manufacture and
        commercialise Antegren and
        together are investigating its use as a potential treatment in patients with
        MS, Crohn’s disease, and RA. Under the terms of the agreement, Elan and
        Biogen Idec share costs for ongoing development activities. In 2000, Biogen
        Idec paid a one-time, non-refundable license fee of $15.0 million to Elan. In
        2001 and 2002, Biogen Idec paid $16.0 million and $7.0 million, respectively,
        to Elan for the achievement of certain milestones in those years. Biogen Idec
        is obligated to pay Elan additional amounts upon the completion of certain
        future milestones. If all future milestones were achieved, Biogen Idec would be
        required to pay up to an additional $14.0 million over the remaining life of
        the agreement. 
     

     
        To date, approximately 2,800 patients have been treated
        with Antegren in clinical
        trials. Elan and Biogen Idec are encouraged by results thus far and believe
        that, due to its unique mechanism of action, Antegren may provide a meaningful
        advancement for patients with debilitating autoimmune diseases. 
     

     

     
        5
     

     

     
     

     
     
        OPERATING REVIEW — CORE ELAN 
     

     
        Autoimmune Diseases
        
     

     
        In autoimmune diseases, the immune system targets the
        cells, tissues, and organs of a person’s own body. Inflammation is a
        response of body tissues to trauma, infection, chemical or physical injury,
        allergic reaction or other factors and is usually characterised by a collection
        of immune system cells and molecules at a target site. Different autoimmune
        diseases affect the body in different ways. For example, in MS the autoimmune
        reaction is directed against the brain; in Crohn’s disease it is directed
        against the gastrointestinal tract; and in RA, it is directed against the
        joints. Autoimmune diseases afflict millions of
     

     
         
     

     
        

        
     

     
         
     

     
        

        
     

     
         
     

     
         people worldwide and some, including MS, strike women
        — particularly those of working age and in their childbearing years —
        more often than men. Autoimmune diseases are often chronic, with patients
        requiring life-long care, and most autoimmune diseases cannot currently be
        reversed or cured. The social, economic, and health impacts from autoimmune
        diseases are far-reaching. 
     

     
        MS is the most common neurological autoimmune disorder
        among young adults; approximately one million people are thought to be affected
        worldwide. MS is a disorder involving repeated episodes of inflammation of
        nervous tissue in the central nervous system (“CNS”). This
        inflammation destroys the myelin sheath or covering of the nerve cells, leaving
        multiple areas of scar tissue and impacting the CNS function. The cause or
        causes of the inflammation associated with MS have not been scientifically
        determined or proven.
     

     
        Crohn’s disease is a chronic inflammatory
        relapsing-remitting disease of the gastrointestinal tract characterised by
        abdominal pain and diarrhoea; other symptoms include rectal bleeding, weight
        loss and fever. Crohn’s disease affects men and women equally, and
        evidence indicates that it may have a hereditary component. Approximately one
        million people worldwide have Crohn’s disease. Crohn’s disease is an
        IBD, the general name for diseases that cause inflammation in the intestines.
        Crohn’s disease can result in frequent hospitalisations for patients and
        may necessitate surgery.
     

     
        RA is a chronic progressive autoimmune disease affecting
        approximately six million people worldwide. RA often begins with pain, swelling
        and stiffness in the small joints of the hands and feet, and can progress to
        involve other joints, sometimes with severe disability and disfigurement.
        Although a number of medicines are approved to treat symptoms of RA, the
        disease itself cannot currently be cured nor reversed. 
     

     
        Evaluating Antegren in MS 
     

     
        Elan and Biogen Idec are conducting two, two-year Phase
        III trials evaluating Antegren in MS patients with relapsing-remitting forms of the disease. The
        AFFIRM (natalizumab safety and efficacy in relapsing-remitting MS) Phase III
        trial is a two-year, randomised, multi-centre, placebo-controlled, double-blind
        study of approximately 900 patients, evaluating the ability of natalizumab to
        slow the progression of disability in MS and reduce the rate of clinical
        relapses. The SENTINEL (safety and efficacy of natalizumab in combination with
        Avonex in patients with relapsing-remitting MS) Phase III trial is a two-year,
        randomised, multi-centre, placebo-controlled, double-blind study of
        approximately 1,200 patients with relapsing-remitting MS, evaluating the effect
        of the combination of natalizumab and Avonex compared to treatment with Avonex
        alone in slowing the progression of disability and reducing the rate of
        clinical relapses. The primary endpoints for both trials are based on Expanded
        Disability Status Scale scores and relapse rates. The pre-specified primary
        endpoint of the one-year analysis was relapse rates. Both studies are fully
        enrolled. 
     

     
        Elan and Biogen Idec plan to submit an application for
        approval to market Antegren
        as a treatment for MS to the FDA and European regulatory agencies around
        mid-year 2004. The decision to file a Biologics License Application
        (“BLA”) was made after discussions with the FDA and the European
        Rapporteur and Co-Rapporteur based on one-year data from the two ongoing Phase
        III trials. To protect the integrity of the trials, the companies are not
        disclosing the one-year data at this time. It is important to note that no
        other MS therapy currently on the market has been approved with less than two
        years of data.
     

     
        In January 2003, Antegren was the focus of two separate
        publications in the New England Journal of
        Medicine (“NEJM”) regarding Phase II
        studies with Antegren in
        both MS and Crohn’s disease. The first publication reported on the results
        of the Phase II MS study and noted a greater 
     

     

     
        6
     

     

     
     

     
     
         than 90% reduction in the volume of new inflammatory
        brain lesions in Antegren-treated patients. For patients with relapsing forms of MS, the study
        showed an approximate 50% reduction in the number of patients experiencing
        relapse in the natalizumab group compared to placebo. The second publication
        reported the results of the Antegren Phase II Crohn’s disease study. That study showed promising data
        on patient response rate, disease remission, and quality of life for patients
        with Crohn’s disease, as determined by the Crohn’s Disease Activity
        Index (“CDAI”) and the Inflammatory Bowel Disease Questionnaire
        (“IBDQ”). 
     

     
        
     

     
        Evaluating Antegren in Crohn’s Disease
     

     
        The safety and efficacy of Antegren in Crohn’s disease is the
        subject of two key Phase III trials conducted by Elan and Biogen Idec: ENACT-1
        and ENACT-2. 
     

     
        Evaluation of Natalizumab in Active Crohn’s Disease
        Trial-1 (“ENACT-1”), the largest-ever study in Crohn’s disease
        conducted to date, was fully enrolled with more than 900 patients. This trial
        evaluated clinical response and ability to induce remission. This Phase III,
        double-blind, placebo-controlled trial randomised patients to one of two
        treatment groups: 300 mg natalizumab or placebo in a 4:1 ratio (active to
        placebo) dosed at weeks 0, 4 and 8. The primary endpoint of inducing a
        “response” was defined as a 70-point decrease in the CDAI score and
        inducing a “remission” was defined as a CDAI score of less than or
        equal to 150, both at week 10. Secondary and tertiary endpoints included
        response and remission at other time points through week 12, “time to
        remission and response,” mean changes in CDAI, as well as quality of life
        measurements and inflammatory markers (for example, C-reactive protein). In
        this study, the primary endpoint of “response” as defined by a
        70-point decrease in the CDAI at week 10 was not met, and this result appears
        to be due to a larger than expected placebo response rate. Data from the study
        indicated evidence of a consistent clinical effect similar to the biological
        activity of natalizumab seen in the Phase II study published in the NEJM
        earlier in 2003. The week 12 response and remission endpoints were
        statistically significant compared to placebo, as was a secondary endpoint of
        IBDQ, a validated quality of life measurement, at week 10. Over the course of
        the study, the time to remission and, at weeks 6 through 12, mean changes in
        CDAI, were also statistically significant in natalizumab treated patients
        compared to those treated with placebo. The most common adverse events seen in
        the trial were headache, nausea and abdominal pain across both groups. Patients
        who achieved a 70-point decrease in the CDAI following three months of
        treatment in ENACT-1 were designated as responders and allowed to enter the
        Evaluation of Natalizumab As Continuous Therapy-2 (“ENACT-2”) trial,
        where they were re-randomised equally to receive either Antegren at 300 mg or placebo for a further
        12-month period. The ENACT-2 trial was designed to evaluate the ability of
        Antegren to maintain
        efficacy following the induction of an initial response from the first trial,
        ENACT-1. 
     

     
        In January 2004, Elan and Biogen Idec announced that the
        second of the two Phase III studies in Crohn’s disease, ENACT-2 met its
        primary endpoint. The primary 
     

     
         
     

     
        

        
     

     
         
     

     
        

        
     

     
         
     

     
        endpoint for ENACT-2 was defined as the maintenance of
        response, or a sustained CDAI score of less than 220, in addition to no use of
        rescue medication throughout the first six months of the ENACT-2 study
        comparing Antegren to placebo. A
        significant treatment difference of greater than 30% in favour of
        Antegren as compared to
        placebo was seen, and no difference in the overall rates of side effects
        between natalizumab and placebo treatment groups were observed through month
        six. In addition to the clear evidence of efficacy observed in ENACT-2, which
        is further supported by ENACT-1, it is also noteworthy that there were no
        differences in the overall rates of side effects between Antegren and placebo in these two pivotal
        trials. Based on the clinical data from ENACT-2, Elan is currently working with
        both the U.S. and European regulatory agencies to determine the path forward
        for Antegren in Crohn’s
        disease. A further three-month Phase III Crohn’s disease
        “induction” trial was initiated in the first quarter of 2004. 

     

     
        Evaluating Antegren in Rheumatoid Arthritis
     

     
        In February 2004, Elan and Biogen Idec announced that they
        had filed an IND for Antegren for the treatment of RA and planned to initiate a Phase II clinical
        trial in the first half of 2004 to evaluate Antegren in patients with
     

     

     
        7
     

     

     
     

     
     
        OPERATING REVIEW — CORE ELAN 
     

     
         RA. The Phase II study will be a multi-centre,
        double-blind, placebo-controlled study of the efficacy, safety and tolerability
        of intravenous natalizumab (300 mg) in patients with moderate-to-severe RA
        receiving concomitant treatment with methotrexate. 
     

     
        Prialt (ziconotide) 
     

     
        Prialt is the first in a new
        class of non-opioid analgesics known as N-type calcium channel blockers. N-type
        calcium channel blockers are a new class of drugs that are believed to
        selectively block the nerve channels responsible for transmission of pain
        signals. Elan is developing Prialt, which is the synthetic equivalent of a naturally occurring
        conopeptide found in a marine snail, as a potential intrathecal treatment for
        patients suffering from severe chronic pain.
     

     
        About Severe Pain 
     

     
        There are many different ways to classify pain, including:
        duration or time (acute or chronic), disease base (malignant or non-malignant)
        and whether physiologically the pain is based in nerves that sense and respond
        to damage to parts of the body (nociceptive) or if the pain is the result of an
        injury or malfunction in the peripheral or central nervous system
        (neuropathic). Chronic pain can be defined as pain that has lasted over six
        months and is not relieved by medical and/or surgical care. Chronic pain may
        result from a previous injury long since healed; or, it may be from an ongoing
        condition, such as back and/or leg pain, cancer pain, complex regional pain
        syndromes, or painful neuropathy. Pain severity is often measured by the Visual
        Analog Scale of Pain Intensity (“VASPI”). The VASPI uses a 0-100
        millimetres scale with 0=no pain to 100=worst-ever pain. 
     

     
        Evaluating Prialt for Severe Chronic Pain
     

     
        In June 2000, Elan received an approvable letter from the
        FDA for its application to market Prialt as a treatment for patients with
        severe chronic pain. Following discussions with the FDA, Elan agreed to conduct
        an additional Phase III clinical trial. In January 2004, Elan announced that
        this additional Phase III trial for Prialt had met its primary endpoint in
        patients with severe chronic pain who had not achieved pain relief with other
        therapies, including intrathecally delivered morphine. In the double-blind,
        placebo controlled trial, patients treated with Prialt displayed a statistically significant
        improvement at week three in the VASPI score, as compared to placebo. Based on
        these positive results, Elan expects to file an amendment to its NDA in the
        second quarter of 2004. Additionally, the FDA granted Elan approval to initiate
        a treatment IND programme. In Europe, Elan has received orphan drug designation
        for treatment of patients with severe chronic pain with Prialt, and Elan filed an MAA with the
        European regulatory authorities in 2003. Regulatory review of this submission
        is ongoing. Additionally, results of an earlier Phase III study were published
        in the January 2004 issue of the Journal of the
        American Medical Association in an article entitled
        “Intrathecal Ziconotide in the Treatment of Refractory Pain in Patients
        with Cancer or AIDS: A Controlled Clinical Trial.” 
     

     
        Alzheimer’s Immunotherapy in
        Development
     

     
        About Alzheimer’s Disease 
     

     
        Approximately four million people in the United States
        presently have AD, according to the Alzheimer’s Association. Most of these
        people are over age 65 and almost half of all Americans over age 85 are thought
        to have AD. AD is a degenerative brain disorder that primarily affects older
        persons. AD can begin with forgetfulness and progress into more advanced
        symptoms, including confusion, language disturbances, personality and behaviour
        changes, impaired judgement and profound dementia. As the disease advances,
        patients will eventually need complete skilled nursing care, and in the absence
        of other illnesses, the progressive loss of brain function itself will cause
        death.
     

     
        Today, the leading scientific approach to develop
        therapeutic treatments for AD focuses on strategies that block the generation
        or enhance the clearance of neurotoxic forms of the beta-amyloid peptide in the
        brain. The beta-amyloid peptide — A-beta — is the main building block
        of amyloid plaques, which are a hallmark of AD neuropathology and are found in
        the brain tissue of affected patients. 
     

     
        Evaluating AAB-001 in Mild-to-Moderate Alzheimer’s
        Disease
     

     
        In March 2000, Elan and Wyeth formed one of the broadest
        research and development alliances in the pharmaceutical industry to discover
        and develop immunotherapeutic approaches to treat and prevent AD. These
        approaches encompass both passive and active immunisation therapies. Elan and
        Wyeth are currently conducting Phase I safety studies with an antibody
        (AAB-001) directed against the A-beta peptide in patients with mild-to-moderate
        AD. AAB-001 is a humanised monoclonal antibody specifically designed and
        engineered to neutralise the neurotoxic beta-amyloid peptide that accumulates
        in the brains of patients with AD. The rate and extent to which A-beta is
        removed by immunotherapy is believed to be controlled by the amount of antibody
        delivered. In essence, the antibody AAB-001 is designed to provide 
     

     

     
        8
     

     

     
     

     
     
        the necessary highly specific component of the immune
        response (antibody) for the patient, while avoiding the activation of
        non-essential components. In this way, Elan hopes to reverse beta-amyloid
        accumulation while minimising side effects such as inflammation of the CNS.
        Additionally, Elan and Wyeth continue to use Wyeth’s innovative conjugate
        technology to evaluate a novel immunotherapeutic A-beta peptide conjugate in
        preclinical studies. 
     

     
        Collaboration to Develop Alzheimer’s
        Immunotherapies
     

     
        The Elan and Wyeth collaboration was originally formed to
        use the early preclinical research demonstrating that Elan’s original AD
        immunotherapy project, AN-1792, reduced and prevented the development of
        amyloid plaque in mice, and to develop additional products based upon an
        immunotherapeutic approach. The potential impact of this novel
        immunotherapeutic approach to treating AD was highlighted in 2002 in two
        publications in Nature Medicine. In one of these papers, an independent group of investigators at the
        University of Zurich studied a subset of patients in the Phase IIa study of
        AN-1792 carried out by Elan and Wyeth, in which dosing was suspended early in
        2002 following reports of inflammation within the CNS. The authors concluded
        that most of the patients developed antibodies against beta-amyloid, which is
        thought to be a critical step in plaque clearance in humans. The investigators
        found that the antibodies in the cerebrospinal fluid had unique specificity for
        the targeted pathogenic structures containing beta amyloid. In another
        independent study from the University of Toronto, the study authors
        demonstrated in transgenic mice over-expressing the beta amyloid peptide that
        an immune response directed to the amino terminus of that peptide can prevent
        the precipitous cognitive decline typically observed in these mice. 
     

     
        In March 2003, a report published in Nature Medicine summarised the
        neuropathology of one patient with AD who participated in the AN-1792 Phase I
        study. The paper 
     

     
          
     

     
        

        
     

     
          
     

     
        

        
     

     
        provides the first evidence that the immune response
        generated against the A-beta peptide may elicit clearance of A-beta plaques in
        humans. The report also identifies the accumulation of inflammatory cells as
        the likely cause of the CNS inflammation reported in approximately 6% of
        patients in the Phase IIa study. 
     

     
        Elan’s Research Programmes 
     

     
        For almost two decades, Elan has been discovering novel,
        disease-modifying, and potentially life-changing therapies in neurology,
        autoimmune diseases and severe pain. In the past year, Elan has made important
        progress in its key research programmes in Alzheimer’s disease, as well as
        in its programmes for Parkinson’s disease, autoimmune diseases and severe
        pain. 
     

     
        Alzheimer’s Disease Research Programmes

     

     
        Elan currently has one of the largest research efforts
        dedicated to developing disease-modifying therapies which are
        neuropathology-  
     

     
        

        
     

     
         
     

     
        

        
     

     
        based approaches to the treatment of AD. Elan scientists
        have researched approaches to the detection, prevention and treatment of AD
        since 1987. These research advances have been discussed in distinguished
        scientific publications, such as Nature, and by scientific organisations such
        as the American Academy of Neurology. 
     

     
        Elan’s extensive knowledge of the processes of
        beta-amyloid peptide formation has led to identification of new disease targets
        and the development of one of the first animal models of the disease. As a
        result of this work, Elan has developed several new therapeutic approaches for
        the treatment of AD based on the beta-amyloid hypothesis. These include two
        distinct enzyme inhibitor programmes, one focused on beta secretase inhibitors
        and a second focused on gamma secretase inhibitors, as 
     

     

     
        9
     

     

     
     

     
     
        OPERATING REVIEW — CORE ELAN 
     

     
        well as an immunotherapeutic approach. 
     

     
        Beta Secretase Programme 
     

     
        Beta secretase is a discrete, attractive therapeutic
        target for a disease-modifying therapy for AD, because it is believed to
        initiate and be the rate-limiting step in the formation of A-beta. Elan has
        been an industry leader in beta secretase research for more than 10 years, and
        its 1999 publication concerning the role beta secretase plays in A-beta
        production is considered a landmark discovery. Today, Elan continues to be at
        the centre of understanding the complexities of beta secretase and advancing
        potential disease-modifying agents that inhibit its role in AD pathology. Elan
        has been collaborating with Pfizer Inc. (“Pfizer”) (formerly
        Pharmacia Corporation) since July 2000, focusing on the discovery of inhibitors
        of beta secretase. On 11 December 2003, Elan commenced AAA arbitration
        proceedings against Pfizer in connection with certain alleged breaches of the
        agreement governing the collaboration. As a result of these breaches, Elan
        believes it holds an exclusive worldwide licence of all of Pfizer’s
        interest in the subject matter of the parties’ collaboration. While Elan
        believes that it holds the exclusive worldwide licence to the intellectual
        property developed in connection with the Pfizer collaboration, Pfizer disputes
        this. There can be no assurance that the arbitral tribunal or court will
        ultimately accept Elan’s position.
     

     
        Gamma Secretase Programme 
     

     
        Gamma secretase is an unusual multi-protein complex, and
        its role in the formation of A-beta was both unknown and un-assumed until the
        early 1990s, when discoveries about A-beta production showed that earlier
        explanations regarding it were incorrect. Since then, Elan has played a
        critical leadership role in the increased awareness of how gamma secretase may
        affect AD pathology. Elan’s finding, published in 2001, that functional
        gamma secretase inhibitors appear to reduce A-beta levels in the brain, was a
        breakthrough in this area of AD research. That research continues today, as
        does Elan’s position as a world leader in the discovery and development of
        disease-modifying therapies for AD. 
     

     
        Alzheimer’s Immunotherapy Programme
     

     
        In addition to its monoclonal antibody immunotherapy
        approach, Elan is exploring, with Wyeth, a novel A-beta immunoconjugate that
        leverages the innovative conjugate technology that Wyeth uses in some of its
        other products. This research project is in the pre-clinical research and
        development phase.
     

     
        Cell Trafficking Research Programme
     

     
        Elan’s Cell Trafficking research programme is focused
        on discover-
     

     
          
     

     
        

        
     

     
          
     

     
        

        
     

     
        ing disease-modifying approaches to treat autoimmune
        diseases such as MS, Crohn’s, IBD and RA. Antegren emerged from this
        research programme, and Elan scientists continue to make progress in the
        discovery of novel disease-modifying therapeutics. 
     

     
        Pain Research Programme 
     

     
        In severe pain, Elan’s research efforts focus on
        inflammatory and neuropathic pain. In March 2003, Elan formed a strategic
        research alliance with Ingenium Pharmaceuticals AG (“Ingenium”) to
        develop novel therapeutics for pain management. Elan and Ingenium are funding a
        four-year research programme leading to the identification of clinical
        candidates. In October 2003, Elan expanded the scope of its strategic alliance
        with Ingenium to increase the use of specific Ingenium technologies for drug
        target validation. 
     

     
        Parkinson’s Disease Research Programme
     

     
        Elan’s research programme in Parkinson’s disease
        is focused on the discovery of disease-modifying approaches to potentially
        treat this devastating disease. Much of this effort is based upon analysis of
        genes known to be involved in early forms of the disease, such as synuclein and
        parkin.
     

     
        Parkinson’s disease is a slowly progressive disease
        of the nervous system and the second most common degenerative neurological
        disorder after Alzheimer’s disease. It affects an estimated four million
        people worldwide. The disease typically occurs at a late age, affecting
        approximately 1% of the population over the age of 65. In the United States,
        Japan, and the five major European markets (France, Germany, Italy, Spain and
        the United Kingdom), about 2.7 million people suffer from Parkinson’s
        disease. Of this group, approximately 85% are over 65 years of age. 
     

     

     
        10
     

     

     
     

     
     
        

        
     

     

     
        11
     

     

     
     

     
     
        OPERATING REVIEW — CORE ELAN
     

     
        Therapeutic Markets
     

     
        Elan’s pharmaceutical commercial activities include
        the marketing of neurology/pain management products and hospital/specialty
        products. 
     

     
        The following table sets forth Elan’s aggregate U.S.
        revenue from its main product lines.
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                2003
 $m
             

          	
             
                    
             

          	
             
                2002
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Neurology/Pain Management Products
             

          	
             
                 
             

          	
             
                304.4
             

          	
             
                    
             

          	
             
                428.3
             

          	
             
                 
             

          
	
             
                Hospital/Specialty Products
             

          	
             
                 
             

          	
             
                155.3
             

          	
             
                 
             

          	
             
                176.8
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                459.7
             

          	
             
                 
             

          	
             
                605.1
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        Product revenue from Elan’s main product lines,
        including divested products, decreased by 24% to $459.7 million for 2003 from
        $605.1 million for 2002. The decline in product revenue in 2003 is due mainly
        to the divestment of a number of products and businesses as part of the
        recovery plan and the impact of generic competition on sales of Zanaflex, which was compensated for, in
        part, by the growth in sales of those products retained. Divested products are
        products or businesses which have been sold or which are subject to an
        agreement to divest.
     

     
        Please refer to the Financial Review for further
        information on product revenue.
     

     
        Neurology/Pain Management Products
     

     
        Neurological diseases and disorders affect the body’s
        central nervous system, which is made up of the brain and spinal chord. CNS
        diseases and disorders can be classified into two types: neurological, which
        includes Alzheimer’s disease and other dementia disorders,
        Parkinson’s disease and epilepsy, and psychiatric disorders, including
        depression, anxiety disorders and schizophrenia. Elan’s focus is on
        neurological conditions.
     

     
        Myobloc
     

     
        Myobloc (Neurobloc in
        Europe) was developed by Elan. It is a sterile liquid formulation of a purified
        neurotoxin that acts at the neuromuscular junction to produce flaccid
        paralysis. Myobloc was
        approved by the FDA for the treatment of patients with cervical dystonia to
        reduce the severity of abnormal head position and neck pain. Myobloc was launched in the United States in
        December 2000 and Neurobloc
        was launched in the European Union (“EU”) in March 2001. Revenue for
        Myobloc amounted to $14.9
        million for 2003. Elan recorded an impairment charge of $37.1 million in 2003
        related to the Myobloc
        intangible assets based on revised estimates of its future prospects. 
     

     
        U.S Neurology/Pain Management Products
        Revenue
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                2003
 $m
             

          	
             
                   
             

          	
             
                2002
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Total Neurology/Pain Management
             

          	
             
                 
             

          	
             
                304.4
             

          	
             
                   
             

          	
             
                428.3
             

          	
             
                 
             

          
	
             
                Retained Products(1)
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Myobloc
             

          	
             
                 
             

          	
             
                14.9
             

          	
             
                 
             

          	
             
                19.6
             

          	
             
                 
             

          
	
             
                Zanaflex
             

          	
             
                 
             

          	
             
                (5.1
             

          	
             
                )
             

          	
             
                56.8
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                9.8
             

          	
             
                 
             

          	
             
                76.4
             

          	
             
                 
             

          
	
             
                Divested Products(2)
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Pain Portfolio(3)
             

          	
             
                 
             

          	
             
                68.0
             

          	
             
                 
             

          	
             
                59.8
             

          	
             
                 
             

          
	
             
                Skelaxin(4)
             

          	
             
                 
             

          	
             
                60.2
             

          	
             
                 
             

          	
             
                145.3
             

          	
             
                 
             

          
	
             
                Sonata(4)
             

          	
             
                 
             

          	
             
                48.2
             

          	
             
                 
             

          	
             
                92.5
             

          	
             
                 
             

          
	
             
                Zonegran(5)
             

          	
             
                 
             

          	
             
                80.7
             

          	
             
                 
             

          	
             
                43.1
             

          	
             
                 
             

          
	
             
                Frova(5)(6)
             

          	
             
                 
             

          	
             
                37.5
             

          	
             
                 
             

          	
             
                11.2
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                294.6
             

          	
             
                 
             

          	
             
                351.9
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     		
             
                (1)
             

          	
             
                Products described as “Retained
                Products” include products or businesses not divested and not subject to
                divestment agreements.
             

          

     		
             
                 (2)
             

          	
             
                Products described as “Divested
                Products” include products or businesses divested since the beginning of
                2001, and products or businesses subject to divestment agreements.
             

          

     		
             
                (3)
             

          	
             
                Sold to aaiPharma Inc. (“aaiPharma”) in
                December 2003.
             

          

     		
             
                (4)
             

          	
             
                Sold to King Pharmaceuticals Inc.
                (“King”) in June 2003.
             

          

     		
             
                (5)
             

          	
             
                On 30 March 2004, Elan announced an agreement to
                divest this product. This divestment is expected to close before the end of the
                second quarter of 2004.
             

          

     		
             
                (6)
             

          	
             
                Launched in the United States in May
                2002.
             

          

 

     
        12
     

     

     
     

     
     
        Zanaflex
     

     
        In June 2002, Elan announced that Eon Labs. Inc.
        (“Eon”) received FDA approval to market a generic alternative for
        Zanaflex. A number of other
        generic applications for Zanaflex have since received approval from
        the FDA. Arising from the approval of generic alternatives for Zanaflex, Elan has experienced a significant
        decline in the sales and profitability of this product. Product returns of
        Zanaflex during 2003
        exceeded the Company’s best estimate of returns at 31 December 2002,
        resulting in net negative revenues of $(5.1) million for 2003. 
     

     
        Pain Portfolio
     

     
        In September 2001, Elan acquired a portfolio of pain
        products (the “Pain Portfolio”) from Roxane Laboratories, Inc.
        (“Roxane”). In December 2003, Elan sold the Pain Portfolio to
        aaiPharma. The Pain Portfolio was comprised of Roxicodone, Oramorph, Roxanol
        and Duraclon. These products were marketed in the United States. Elan’s
        revenue from the Pain Portfolio for 2003 amounted to $68.0 million. 
     

     
        Skelaxin
     

     
        Elan acquired Skelaxin through its acquisition of GWC
        Health, Inc. (“Carnrick”) in 1998. Skelaxin is approved by the FDA as
        an adjunctive treatment for the relief of discomfort associated with acute,
        painful musculoskeletal conditions. On 12 June 2003, Elan sold Skelaxin to King
        as part of the divestment of Elan’s primary care franchise. Product
        revenue from Skelaxin during 2003 amounted to $60.2 million. 
     

     
        Sonata
     

     
        In December 2001, Elan entered into a strategic alliance
        with Wyeth pursuant to which Elan assumed responsibility for the U.S. marketing
        of Sonata, a non-benzodiazepine hypnotic for the treatment of sleep disorders,
        which was launched by Wyeth in 1999. Sonata was also part of Elan’s
        primary care franchise which was sold to King on 12 June 2003. Product revenue
        from Sonata was $48.2 million for 2003. 
     

     
        Zonegran
     

     
        Elan licensed Zonegran for the United States and Europe
        from Dainippon Pharmaceuticals Co., Ltd. (“Dainippon”). Zonegran was
        launched in the United States in May 2000 as an adjunctive therapy in the
        treatment of partial epileptic seizures in adults. U.S. revenue for Zonegran
        for 2003 amounted to $80.7 million. Zonegran has been marketed by Dainippon in
        Japan since 1989. A European MAA filing for Zonegran was submitted in November
        2003. In August 2003, Elan received approval from the FDA to market two new
        additional dosage strengths of Zonegran, 25 mg and 50 mg capsules; this is in
        addition to the original 100 mg capsule which was previously approved. In 2003,
        Zonegran prescription demand increased by 57%2. Zonegran demand
        continues to grow as a result of increased promotional efforts as well as the
        increased interest in this product following the approval of the 25 mg and 50
        mg capsules. On 30 March 2004, Elan announced an agreement with Eisai Co. Ltd.
        (“Eisai”) for the sale of Elan’s interests in Zonegran in North
        America and Europe. The transaction is expected to close before the end of the
        second quarter of 2004. 
     

     
        Frova
     

     
        Elan licensed exclusive North American sales and
        distribution rights for Frova in October 1998 from Vernalis plc
        (“Vernalis”). Frova is a 5HT1B/1D agonist used as an anti-migraine
        therapy. In November 2001, the FDA approved Frova for the acute treatment of
        migraine. In March 2002, Elan and UCB Pharma, Inc. (“UCB”) entered
        into an agreement to co-promote Frova. The companies launched Frova during the
        second quarter of 2002. Revenue from Frova for 2003 amounted to $37.5 million.
        On 30 March 2004, Elan announced an agreement with Vernalis for the termination
        of the development and licence agreements between Elan and Vernalis regarding
        Frova. Vernalis agreed to purchase Elan’s commercialisation rights in
        North America for Frova. The transaction is expected to close before the end of
        the second quarter of 2004.
     

     
        Hospital/Specialty Products
     

     
        Severe bacterial infections remain a major concern, even
        more so with the rise in resistance seen to many available therapies. Currently
        Elan markets two products that treat severe infections; each designed to
        address specific medical needs within the hospital market. As distinct from the
        community or home 
     

     
         
     

     
        

        
     

     
         
     

     
        

        
     

     

     
        13
     

     

     
     

     
     
        OPERATING REVIEW — CORE ELAN 
     

     
        U.S. Hospital/Specialty Products Revenue
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                2003
 $m
             

          	
             
                   
             

          	
             
                2002
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Total Hospital/Specialty
             

          	
             
                 
             

          	
             
                155.3
             

          	
             
                 
             

          	
             
                176.8
             

          	
             
                 
             

          
	
             
                Retained Products(1)
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Maxipime
             

          	
             
                 
             

          	
             
                109.1
             

          	
             
                 
             

          	
             
                79.2
             

          	
             
                 
             

          
	
             
                Azactam
             

          	
             
                 
             

          	
             
                45.1
             

          	
             
                 
             

          	
             
                33.0
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                154.2
             

          	
             
                 
             

          	
             
                112.2
             

          	
             
                 
             

          
	
             
                Divested Products(2)
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Abelcet(3)
             

          	
             
                 
             

          	
             
                1.1
             

          	
             
                 
             

          	
             
                64.6
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     		
             
                (1)
             

          	
             
                Products described as “Retained
                Products” include products or businesses not divested and not subject to
                divestment agreements. 
             

          

     		
             
                (2)
             

          	
             
                Products described as “Divested
                Products” include products or businesses divested since the beginning of
                2001, and products or businesses subject to divestment agreements. 
             

          

     		
             
                (3)
             

          	
             
                Divested in November 2002 to Enzon
                Pharmaceuticals, Inc. (“Enzon”) 
             

          

     
        settings markets, the hospital market is highly
        specialised and often relies on a team of healthcare professionals that
        influence the decision-making process. Elan is committed to meeting the needs
        of the infectious disease-community within the hospital market. 
     

     
        Maxipime
     

     
        Elan licensed the U.S. marketing rights to Maxipime from Bristol-Myers Squibb Company
        (“Bristol-Myers”) in January 1999. Maxipime is a fourth-generation injectable
        cephalosporin antibiotic used to treat patients with serious and/or
        life-threatening infections. Pulmonologists, infectious disease specialists,
        urologists, internal medicine physicians, haematologists and oncologists
        prescribe Maxipime for
        patients with severe hospital-based respiratory and non-respiratory conditions
        such as pneumonia, urinary tract infection and febrile neutropenia. An
        important attribute of Maxipime is its broad spectrum of activity, including activity against many
        pathogens resistant to other antibiotics. U.S. revenue for Maxipime amounted to $109.1 million for 2003. 
     

     
        Azactam
     

     
        Elan licensed the U.S. marketing rights to this injectable
        product from Bristol-Myers in January 1999. Azactam is a monobactam and is principally
        used by surgeons, infectious disease specialists and internal medicine
        physicians to treat pneumonia, post-surgical infections and septicemia. U.S.
        revenue for Azactam was
        $45.1 million for 2003. 
     

     
        Abelcet 
     

     
        Elan acquired Abelcet when it acquired The Liposome
        Company, Inc. (“Liposome”) in May 2000. Abelcet, which is an
        amphotericin B lipid complex, is used for the treatment of systemic fungal
        infections. These infections mainly occur in immuno-compromised patients such
        as those undergoing cancer chemotherapy. On 22 November 2002, Elan announced
        the completion of the sale of its U.S., Canadian and any Japanese rights to
        Abelcet, and certain related assets, to Enzon. In February 2004, Elan sold its
        remaining marketing rights to Abelcet to Medeus Pharma Limited
        (“Medeus”) as part of the sale of its European sales and marketing
        business. 
     

     
        Commercial—Non-U.S. 
     

     
        On 12 February 2004, Elan announced the sale of its
        European sales and marketing business to Medeus. Product revenue from
        Elan’s European business amounted to $112.4 million for 2003. 
     

     
        Sales and Marketing
     

     
        In 2003, Elan marketed its products through two focused
        sales forces in the United States. The U.S. sales forces promoted the following
        products:
     

     
         
     

     	
             
                Sales Force
             

          	
             
                 
             

          	
             
                Primary Care
             

          	
             
                 
             

          	
             
                Specialty
             

          
	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 
	
             
                Approximate Average Number of U.S. Sales
                Representatives
             

          	
             
                 
             

          	
             
                390
             

          	
             
                 
             

          	
             
                270
             

          
	
             
                Products
             

          	
             
                 
             

          	
             
                Skelaxin
 Sonata
             

          	
             
                 
             

          	
             
                Maxipime
 Azactam
 Zonegran

                Frova
 Roxicodone
             

          

 

     
        In June 2003, Elan sold its primary care franchise to
        King. This divestment included Elan’s primary care sales force of
        approximately 390 representatives. In December 2003, Elan sold the Pain
        Portfolio, including Roxicodone, to aaiPharma. In March 2004, Elan agreed to
        sell Zonegran to Eisai, including the associated sales team of approximately
        115 employees, and also agreed to sell Frova to Vernalis. Going forward,
        Elan’s sales forces will continue to be re-configured to optimise the
        products in the portfolio and to prepare for the launch of the pipeline
        products.
     

     

     
        14
     

     

     
     

     
     
        Global Services & Operations 
     

     
        GS&O encompasses the Company’s initiatives in
        product development, optimisation and manufacturing and is focused on providing
        superior technology platforms that can offer innovative, high-value, quality
        technologies to address the drug delivery challenges of the pharmaceutical
        industry. Elan’s drug delivery businesses engage in the development and
        commercialisation of pharmaceutical products for clients through the
        application of drug delivery technologies. Drug delivery technologies can
        improve the performance of existing marketed drugs or drugs under development
        and can improve the efficacy of research and development processes. Elan has a
        long and established history in the manufacture and development of
        pharmaceutical dosage forms for pharmaceutical markets worldwide, with dozens
        of products successfully launched in more than 40 countries in North America,
        Asia and Europe. Elan’s GS&O unit assists companies with their
        pharmaceutical manufacturing, scale-up and development requirements. 
     

     
        
     

     
        Elan has a fully compliant FDA/European Agency for the
        Evaluation of Medicinal Products (“EMEA”)-approved site in Athlone,
        Ireland, where it recently completed an investment of approximately $178
        million in its key strategic pharmaceutical manufacturing and development
        facilities. The Athlone campus now comprises 138,000 square feet of dedicated,
        fully-equipped current Good Manufacturing Practices (“cGMP”)
        manufacturing capacity to manufacture two billion units annually. 
     

     
        Elan also has a manufacturing, scale-up and development
        facility approved for the manufacture of controlled substances (through
        Schedule II), in Gainesville, Georgia. The Company’s development and
        scale-up facility in King of Prussia, Pennsylvania is home to its proprietary
        NanoCrystal technology for delivery of poorly water-soluble compounds. Prior to
        the completion of the Company’s recovery plan, Elan’s King of Prussia
        and Gainesville drug delivery businesses were included within Elan
        Enterprises.
     

     
         
     

     
        

        
     

     
         
     

     
        

        
     

     
         
     

     
        

        
     

     

     
        15
     

     

     
     

     
     
         
     

     
        

        
     

     
        Operating Review 
     

     
        Completion of Recovery Plan 
     

     
        On 12 February 2004, Elan announced the formal completion
        of its recovery plan. The recovery plan, which was announced on 31 July 2002,
        involved the restructuring of the Company’s businesses, assets and balance
        sheet; and resulted in gross consideration of $2.1 billion, ahead of the target
        of $1.5 billion. 
     

     
        The principal elements and outcomes of the recovery plan
        were:
     

     		
             
                •
             

          	
             
                A focus on three core therapeutic areas: neurology,
                autoimmune diseases and severe pain. In accordance with this new focus, the
                Group was reorganised and two new units were created: Core Elan and Elan
                Enterprises. For additional information on Core Elan, please refer to pages 5
                to 15. Additional information on Elan Enterprises is provided on page
                17;
             

          

     		
             
                •
             

          	
             
                The divestment of financial assets, non-core
                businesses, products and assets targeting proceeds of $1.0 billion in the first
                nine months of the recovery plan and a further $500.0 million by the end of
                2003. The total target of $1.5 million was exceeded six months ahead of
                schedule, and by the end of the recovery plan gross consideration of $2.1
                billion was achieved. For additional information on recovery plan divestments
                since the beginning of 2003, please refer to pages 17 to 18;
             

          

     		
             
                •
             

          	
             
                To enable Elan to meet its financial obligations.
                Contractual and potential future payments have been reduced by $2.5 billion
                since 31 December 2001 to $2.2 billion at 31 December 2003. For additional
                information on the impact of the recovery plan on Elan’s financial
                commitments and contingencies during 2003, please refer to pages 19 to
                20;
             

          

     		
             
                •
             

          	
             
                The implementation of a cost reduction programme
                through headcount and infrastructure reductions and business rationalisations.
                At the completion of the recovery plan, headcount had been reduced to less than
                2,000 from approximately 4,700 in July 2002; and
             

          

     		
             
                •
             

          	
             
                A review of Elan’s business venture portfolio
                to conserve cash and reflect the reduced scope of Elan’s activities. As a
                result, Elan decided to restructure or terminate substantially all of its
                business ventures with the aim of substantially reducing or eliminating future
                cash outlays by Elan. All business ventures have been terminated, restructured
                or are now inactive. As a consequence, Elan does not expect to provide any
                additional financing to the business ventures and business venture parents. For
                additional information on the business ventures, please refer to pages 20 to
                23. 
             

          

 

     
        16
     

     

     
     

     
     
        Elan Enterprises 
     

     
        The conclusion of Elan’s recovery plan also marked
        the end of operations for the Company’s Elan Enterprises business unit.
        Elan Enterprises was mainly comprised of Elan’s drug delivery businesses
        and other assets such as business ventures and non-core pharmaceutical
        products. Elan Enterprises divested many of these businesses and assets.
        Following the completion of the recovery plan, Elan’s King of Prussia and
        Gainesville drug delivery businesses are now included within Global Services
        & Operations. 
     

     
        The business venture programme was included within Elan
        Enterprises. For additional information on the business venture programme,
        please refer to pages 20 to 23. 
     

     
        Recovery Plan—Divestment Programme
     

     
        A key element of the recovery plan was the divestment of
        businesses, products, investments and other assets. The objective was to
        complete $1.5 billion in asset divestments by the end of 2003. From its
        commencement in August 2002 to its completion in February 2004, the divestment
        programme generated gross consideration from asset divestments of $2.1
        billion.
     

     
        The divestment programme evolved over the period and the
        Company sold more products and businesses than initially envisaged due to
        market demand for non-core assets. The following is a summary of the principal
        divestments resulting from the recovery plan that occurred since the beginning
        of 2003: 
     

     
        European Sales and Marketing Business
     

     
        On 12 February 2004, Elan announced the completion of the
        sale of its European sales and marketing business to Medeus, a new U.K.
        pharmaceutical company backed by Apax Partners Funds. Elan realised total
        consideration of approximately $120 million from this transaction (subject to
        adjustment for certain movements in indebtedness and working capital in the
        period to completion), which was previously announced on 23 December 2003.
        Approximately 180 employees of Elan’s European sales and marketing
        business have transferred their employment to Medeus. Separately, Elan
        completed the sale of certain rights to two products in the U.K. and Ireland
        for approximately $10 million during the first quarter of 2004. 
     

     
        Pain Portfolio 
     

     
        On 2 December 2003, Elan announced the completion of the
        sale of the Pain Portfolio, acquired from Roxane in September 2001, and related
        assets to aaiPharma. These products included the rights to Roxicodone tablets
        and oral solution, Oramorph SR tablets, Roxanol and Duraclon. The total
        consideration was $101.8 million, comprising a cash payment to Elan of $50.4
        million and the assumption, by aaiPharma, of $51.4 million of Elan’s
        product payment obligations to Roxane. 
     

     
        Xcel 
     

     
        On 1 April 2003, Elan announced that it received $89.5
        million in cash from Xcel Pharmaceuticals, Inc. (“Xcel”) in exchange
        for all of Elan’s shareholding in, and loans to, Xcel. 
     

     
        Skelaxin & Sonata 
     

     
        On 30 January 2003, Elan announced that it had agreed to
        sell its primary care franchise, principally consisting of its U.S. and Puerto
        Rican rights to Sonata and Skelaxin, related inventory and related rights to
        enhanced formulations of these products, to King.
     

     
        On 17 March 2003, Elan commenced a lawsuit against King to
        compel King to complete its purchase of the primary care franchise. On 19 May
        2003, Elan and King agreed to proceed with the transaction on amended terms and
        on 12 June 2003 the transaction was completed. Effective upon the closing of
        the transaction, all claims under the pending litigation were released and Elan
        and King dismissed the litigation with prejudice.
     

     
        Under the terms of the amended transaction, King paid
        gross consideration on closing of $749.8 million, which included the transfer
        to King of Sonata and Skelaxin inventory with a value of approximately $40
        million and obligations related to Sonata of $218.8 million that were assumed
        by King at closing. In addition, Elan received an additional $25.0 million
        payment in January 2004 which was contingent on the ongoing patent exclusivity
        of Skelaxin through 31 December 2003. Elan will also receive payments of 5% of
        net sales of the current formulation of Skelaxin through 31 December 2005 and,
        thereafter, beginning in 2006 and continuing through December 2021, Elan will
        receive payments of 10% of net sales of the current formulation of Skelaxin in
        excess of $50.0 million of net sales annually. Finally, Elan may receive up to
        an additional $61.0 million in milestone payments (comprised of up to $86.0
        million in clinical, regulatory and sales milestones less up to $25.0 million
        in milestones that Elan would be obligated to pay to a third party) relating to
        the development of enhanced formulations of Sonata, contingent on the
        achievement of certain clinical and regulatory events. Elan received the first
        of these milestone payments, for $11.0 million, in March 2004. 
     

     

     
        17
     

     

     
     

     
     
        OPERATING REVIEW — COMPLETION OF RECOVERY PLAN
        
     

     
        Ligand Common Stock 
     

     
        On 12 November 2002, Elan announced that Ligand
        Pharmaceuticals, Inc. (“Ligand”) had agreed to repurchase from Elan
        approximately 2.2 million shares of Ligand common stock for a cash purchase
        price of $20.0 million. This share sale closed in February 2003. 
     

     
        On 28 May 2003, Elan sold an additional 6.4 million shares
        of Ligand common stock in the open market for net cash proceeds of $73.0
        million. On 11 July 2003, Elan sold its remaining 5.8 million shares of Ligand
        common stock to a number of qualifying institutional investors for net cash
        proceeds of $65.1 million. 
     

     
        Other Divestments 
     

     
        In July 2003, Elan sold a transdermal technology business
        located in Miramar, Florida, United States to Nitto Americas, Inc. (“Nitto
        Americas”), the U.S. subsidiary of Nitto Denko Corporation.
     

     
        In July 2003, Elan also sold an oral controlled-release
        and pulmonary technologies business located in Nottingham, United Kingdom to a
        company managed by former employees of the business.
     

     
        On 29 April 2003, Elan completed the sale of the assets of
        Elan Diagnostics, Inc. (“Elan Diagnostics”) to Novitron
        International, Inc. 
     

     
        Zonegran & Frova 
     

     
        On 30 March 2004, Elan announced an agreement with Eisai
        for the purchase of Elan’s interests in Zonegran in North America and
        Europe. On closing, Eisai will pay Elan consideration of up to $130.0 million
        for these interests, including inventory with an estimated value of
        approximately $26 million and the associated sales team of approximately 115
        employees. In addition, Elan may earn future deferred purchase payments of up
        to $110.0 million, primarily contingent on when generic zonisamide is
        introduced in the U.S., and including up to $25.0 million contingent on
        receiving marketing approval for Zonegran in Europe. Elan will also receive
        additional deferred purchase payments on net sales of Zonegran in North America
        and Europe if certain additional conditions are met. Elan will be required to
        pay $17.0 million to Dainippon on closing for the assignment of the Zonegran
        North American and European licence agreements to Eisai. Elan will continue to
        manufacture Zonegran in all three dosage strengths of 25 mg, 50 mg, and 100 mg
        capsules in Athlone, Ireland. The transaction is subject to regulatory
        approvals, third party consents and other customary conditions, and is expected
        to close before the end of the second quarter of 2004. 
     

     
        Also on 30 March 2004, Elan announced an agreement with
        Vernalis for the termination of the development and licence agreements between
        Elan and Vernalis regarding Frova. Vernalis agreed to purchase Elan’s
        commercialisation rights in North America for Frova. Vernalis will pay Elan a
        total of approximately $55 million for rights to Frova in North America,
        comprising $5.0 million on closing; $20.0 million and $25.0 million on 31
        December 2004 and 31 December 2005, respectively; and, no later than 31
        December 2004, Elan will receive a payment for its Frova inventory, estimated
        at approximately $5 million. Vernalis intends to seek additional equity funding
        over the next twelve months to assist with the payments to Elan. Elan’s
        co-promotion agreement with UCB will be terminated at closing, and Elan will
        pay UCB approximately $10 million as a result of the termination. The
        completion of the transaction is subject to the approval of Vernalis’
        shareholders, U.S. anti-trust clearance if required, third party consents and
        other customary conditions. The transaction is expected to close before the end
        of the second quarter of 2004.
     

     
        While the divestments of Zonegran and Frova did not form
        part of the recovery plan, and are not included in the $2.1 billion of gross
        consideration from recovery plan asset divestments described above, they
        further align Elan’s strategy in research, development, sales and
        marketing with the Company’s core therapeutic areas. They enable Elan to
        focus its resources on the anticipated launch of the Company’s late-stage
        pipeline candidates, Antegren for multiple sclerosis and Crohn’s disease, and Prialt for severe pain. 
     

     
        For further information on these disposals, including the
        impact of these disposals on Elan’s financial results, please refer to the
        Financial Review. 
     

     
        Future Transactions 
     

     
        Neither the completion of the recovery plan nor the
        dissolution of Elan Enterprises preclude the Company from considering future,
        specifically-targeted divestment and acquisition opportunities. For example, as
        described above, on 30 March 2004 Elan announced agreements to sell Zonegran
        and Frova. 
     

     

     
        18
     

     

     
     

     
     
        Recovery Plan—Financial Commitments and
        Contingencies
     

     
        A key objective of the recovery plan was to enable Elan to
        meet its financial obligations. 
     

     
        During 2003, contractual and potential future payments
        have been reduced by approximately $1.2 billion, from $3.4 billion at 31
        December 2002 to $2.2 billion at 31 December 2003. The main elements of this
        reduction were: 
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Contractual and potential future payments at 31
                December 2002 — as previously reported
             

          	
             
                 
             

          	
             
                3,124.1
             

          	
             
                 
             

          
	
             
                Inclusion of operating and capital lease
                obligations (1)
             

          	
             
                 
             

          	
             
                251.3 
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Contractual and potential future payments at 31
                December 2002 – revised
             

          	
             
                 
             

          	
             
                3,375.4
             

          	
             
                 
             

          
	
             
                Net reduction during 2003:
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Risk-sharing arrangements
             

          	
             
                 
             

          	
             
                (335.0
             

          	
             
                )
             

          
	
             
                Repurchase of 3.25% zero coupon subordinated
                exchangeable notes (“LYONs”)
             

          	
             
                 
             

          	
             
                (816.0 
             

          	
             
                )
             

          
	
             
                Reduction of fixed, contingent and potential product
                payment obligations
             

          	
             
                 
             

          	
             
                (451.6 
             

          	
             
                )
             

          
	
             
                Operating and capital lease obligations
             

          	
             
                 
             

          	
             
                (8.3 
             

          	
             
                )
             

          
	
             
                Issuance of 6.5% convertible guaranteed notes due
                2008 (“6.5% Convertible Notes”)
             

          	
             
                 
             

          	
             
                460.0 
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Contractual and potential future payments at 31
                December 2003
             

          	
             
                 
             

          	
             
                2,224.5
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          

     		
             
                (1)
             

          	
             
                In accordance with SEC Release No 34-47264
                “Disclosure in Management’s Discussion and Analysis about Off-Balance
                Sheet Arrangements and Aggregate Contractual Obligations,” which is
                effective for financial statements ending on or after 15 December 2003,
                operating and capital lease obligations have been included in the table of
                contractual and potential future payments at 31 December 2003 on page 61. The
                table above has also been revised to include the amounts for these items at 31
                December 2002 for comparative purposes. For additional information on operating
                and capital leases, please refer to Note 23 to the Consolidated Financial
                Statements. 
             

          

     
        Risk-Sharing Arrangements 
     

     
        Elan’s risk-sharing arrangement with Pharma Marketing
        Ltd. (together with its subsidiary, “Pharma Marketing”) was
        restructured in January 2003, such that effective upon the sale of Sonata to
        King on 12 June 2003, (i) Elan paid Pharma Operating Ltd. (“Pharma
        Operating”) $196.4 million in cash (representing $225.0 million less
        royalty payments on all related products paid or due to Pharma Operating from 1
        January 2003 through 12 June 2003) to acquire Pharma Operating’s royalty
        rights with respect to Sonata and Prialt and (ii) Elan’s maximum purchase
        price for the remaining products in the arrangement, Zonegran, Frova and
        Zanaflex, was reduced to
        $110.0 million, which increased at a rate of 15% per annum from 12 June 2003
        (less royalty payments made for periods after 12 June 2003). The parties also
        agreed to extend Elan’s purchase option termination date to 3 January
        2005, from the original termination date of 30 June 2003. Elan exercised that
        option and, on 20 November 2003, announced the completion of the purchase of
        royalty rights in respect of Zonegran, Frova and
        Zanaflex from Pharma Operating for $101.2 million. As
        a result, all of Elan’s agreements with Pharma Marketing were terminated.
        
     

     
        For additional information on Pharma Marketing, please
        refer to Note 24 to the Consolidated Financial Statements. 
     

     
        LYONs 
     

     
        In December 1998, Elan Finance Corporation Limited
        (“EFC”), a wholly owned subsidiary of Elan, issued in a private
        placement, at a substantial discount, LYONs due 2018 in the principal amount of
        $1,643.5 million at maturity. The issue price of the LYONs was $524.78 per
        $1,000 principal amount at maturity and the gross proceeds to the Company
        amounted to $862.5 million.
     

     
        In December 2002, Elan repurchased $318.6 million in
        principal amount at maturity of the LYONs.
     

     
        Through 3 June 2003, Elan repurchased an additional $523.7
        million in principal amount at maturity of the LYONs (representing
        approximately 32% of the originally issued LYONs) in separate privately
        negotiated purchases. The aggregate cost was $310.3 million. This was a
        discount of approximately 4% to the accreted value of such LYONs at 14 December
        2003 of $322.9 million.
     

     
        On 14 November 2003, Elan announced that holders of the
        remaining outstanding LYONs had the right to surrender their LYONs for purchase
        during the period that began on that date and ended on 15 December 2003.
        Pursuant to the indenture under which the LYONs were issued in December 1998,
        each holder of LYONs had the right to require Elan to purchase, until 5:00
        p.m., New York time, on 15 December 2003, such holder’s LYONs at a price
        equal to $616.57 per $1,000 principal amount at maturity of the LYONs.
     

     
        Under the terms of the LYONs, Elan had the option to pay
        for the LYONs in cash, in American Depositary Shares (“ADSs”),
        representing Ordinary Shares of Elan, or in any combination of cash and ADSs.
        Elan elected to pay for the LYONs in cash. The aggregate principal amount due
        at maturity for all outstanding LYONs was approximately $801.3 million.
     

     

     
        19
     

     

     
     

     
     
        OPERATING REVIEW — COMPLETION OF RECOVERY PLAN
        
     

     
        On 16 December 2003, Elan announced that LYONs with an
        aggregate principal amount at maturity of approximately $799.7 million were
        validly surrendered for repurchase and not withdrawn, and Elan had repurchased
        all such LYONs. Approximately $1.6 million in aggregate principal amount at
        maturity of LYONs remain outstanding following the completion of the
        repurchase. The aggregate purchase price for all LYONs validly surrendered for
        repurchase and not withdrawn was approximately $493.1 million. The accreted
        value of the remaining LYONs was $0.9 million at 31 December 2003. 
     

     
        For additional information on the LYONs, please refer to
        Note 15 to the Consolidated Financial Statements. 
     

     
        Fixed, Contingent and Potential Product Payment
        Obligations
     

     
        The net reduction of $451.6 million in fixed, contingent
        and potential product payment obligations from 31 December 2002 to 31 December
        2003 primarily reflects product payments made during 2003 of $212.4 million and
        product payment obligations assumed by King and aaiPharma of $218.8 million and
        $51.4 million respectively. 
     

     
        Issuance of Ordinary Shares and 6.5% Convertible
        Notes
     

     
        On 5 November 2003, Elan announced that it had
        successfully completed a private offering of 35 million Ordinary Shares at a
        price of $4.95 per share and, on 10 November 2003, Elan announced that it had
        successfully completed a private offering of $460.0 million in aggregate
        principal amount of 6.5% Convertible Notes. The offerings resulted in aggregate
        net proceeds (after giving effect to the payment of commissions and concessions
        and the expenses of the offerings, including a waiver fee of $16.8 million paid
        to the holders of Elan Pharmaceutical Investments II, Ltd (“EPIL II”)
        9.56% guaranteed senior notes (the “EPIL II Notes”) and Elan
        Pharmaceutical Investments III, Ltd (“EPIL III”) Series B guaranteed
        senior notes (the “Series B Guaranteed Notes”) and Series C
        guaranteed senior notes (the “Series C Guaranteed Notes”) (together
        with the Series A guaranteed senior notes (the “Series A Guaranteed
        Notes”) which matured and were repaid on 29 June 2002, the “EPIL III
        Notes”)) of $592.6 million. The net proceeds from the offering were used
        to repurchase outstanding LYONs, including LYONs surrendered for purchase by
        the holders on 15 December 2003, pursuant to the indenture under which the
        LYONs were issued, and for the repurchase of royalty rights from Pharma
        Operating. 
     

     
        Business Ventures 
     

     
        Since 1996, Elan has pursued collaborations with
        biotechnology, drug delivery and pharmaceutical companies in order to leverage
        Elan’s drug delivery technologies and its proprietary neurological and
        oncology research, and to access complementary or synergistic research and
        development programmes in Elan’s areas of expertise. Elan has historically
        referred to this programme in a number of ways, including as a joint venture
        programme, a business venture programme, and a strategic licensing programme.
        For the purposes of this discussion, this programme will be referred to as the
        “business venture programme”. Elan has not entered into any new
        business ventures under the business venture programme since mid-2001.
     

     
        In 2002, as part of the recovery plan, Elan completed a
        review of its business venture portfolio to conserve cash and reflect the
        reduced scope of Elan’s activities. As a result, Elan decided to
        restructure or terminate substantially all of its business ventures with the
        aim of substantially reducing or eliminating future cash outlays by Elan. The
        restructuring process and any terms agreed have been the result of negotiations
        between Elan and the respective business venture parents. As such, the agreed
        terms arising from the restructuring process vary between different business
        venture relationships. Typically, as part of the termination of a business
        venture, the technologies contributed by the business venture parent and Elan
        are returned, the technology developed in the business venture is transferred
        to the business venture parent and/or Elan, and Elan transfers its interest in
        the business venture to the business venture parent in exchange for a
        continuing interest in the product or technology previously in the business
        venture, such as a royalty. There were approximately 55 business ventures in
        place prior to the announcement of the recovery plan on 31 July 2002. All
        business ventures have been terminated, restructured or are now inactive. As a
        consequence, Elan does not expect to provide any additional financing to the
        business ventures and business venture parents. 
     

     
        As all business ventures have been terminated,
        restructured or are now inactive, the description of the business venture
        programme below is described in the past tense. 
     

     
        The business venture programme generally involved
        licensing drug delivery technologies and know-how, or pharmaceutical research
        and development assets, to a 
     

     

     
        20
     

     

     
     

     
     
         newly formed subsidiary (“the business
        venture”) of an emerging biotechnology; drug delivery or pharmaceutical
        company (“the business venture parent”) and the establishment of a
        joint development collaboration.
     

     
        Contemporaneously with the licensing and collaborative
        transaction, Elan typically made an investment in the business venture.
        Investments in business ventures were in various forms. Prior to mid 1999,
        those investments were generally in the form of voting common stock.
        Subsequently, these investments were in the form of non-voting preferred stock
        convertible into common stock after a period of two years. Elan typically held
        an initial fully diluted equity interest of 19.9% in the business venture. Elan
        also typically made a contemporaneous investment in the business venture parent
        in the form of common equity and convertible/exchangeable preferred stock
        and/or convertible/exchangeable debt. The convertible/exchangeable securities
        in the business venture parent were generally convertible, at Elan’s
        option, into common equity of the business venture parent or exchangeable for
        up to 30.1% of the common equity in the business venture, potentially bringing
        Elan’s fully diluted equity interest in the business venture up to 50%. In
        many transactions, if Elan chose to exchange the convertible/exchangeable
        securities in the business venture parent into common equity of the business
        venture, then it would be required to pay the business venture parent an amount
        equal to 30.1% of the cumulative operating funding of the business venture to
        the date of exchange such that Elan and the business venture parent would have
        shared equally (on a cumulative basis) in such funding. Elan sold certain of
        its investments in the business ventures and the business venture parents to
        EPIL II in June 2000 and to EPIL III in March 2001. EPIL II and EPIL III are
        securitisation entities and the investments are held by EPIL II and EPIL III as
        security for outstanding indebtedness issued by the entities. For additional
        information regarding these special purpose entities, please refer to Notes 15
        and 33 to the Consolidated Financial Statements. 
     

     
        The business venture generally conducted research and
        development activities using its technologies and proprietary know-how in an
        agreed research field. Elan’s partner, the business venture parent,
        principally managed the business venture. The technologies and proprietary
        know-how of the business venture were in-licensed by the business venture from
        Elan and the business venture parent. On formation, a number of contracts were
        entered into to govern the in-licensing of intellectual property assets to the
        business venture from Elan and the business venture parent.
     

     
        Development of products and technologies for
        pharmaceutical applications involves risk. The nature of pharmaceutical
        development, with stringent regulatory constraints and guidelines designed to
        protect the health and safety of patients and those working with the products,
        means that development activities are costly and time consuming. Elan’s
        portfolio of business ventures allowed it to diversify the risks associated
        with product development. Individual development programmes within the business
        ventures had varying degrees of success and failure. Elan and the business
        venture parent would typically work together using commercially reasonable
        efforts and their combined technical, regulatory and clinical expertise to
        increase the likelihood of success of the business ventures. This could lead to
        changes in the direction of a development programme, adding or substituting
        technologies or products and redirection of clinical programmes as deemed
        necessary.
     

     
        The business venture, the business venture parent and Elan
        continually reviewed the progress of the research and development activities in
        the business venture. As part of this review, the parties could decide that it
        was not commercially or technically practical to continue to support the
        business venture. 
     

     
        Elan received and recorded initial revenue from the
        business ventures of $Nil, $Nil and $172.5 million for 2003, 2002 and 2001,
        respectively, and Elan’s initial investments in the business ventures and
        the business venture parents were $Nil, $Nil and $229.2 million for 2003, 2002
        and 2001, respectively. These amounts for 2001 are set out in the table on page
        23.
     

     
        The business ventures typically had the following
        operational structure. The board of directors of a business venture was
        generally comprised of a majority of directors from the business venture parent
        and one director nominated by Elan. For a quorum, the presence of the Elan
        nominated director was required. The business plan required the approval of the
        board of directors of the business venture, including the Elan nominated
        director. This approval was subject to the directors’ fiduciary duty to
        the business venture. The contracts of establishment provided for subsequent
        reviews, either annually or more frequently, of the business plan and required
        the continuing approval by the Elan nominated director. The business 
     

     

     
        21
     

     

     
     

     
     
        OPERATING REVIEW — COMPLETION OF RECOVERY PLAN
        
     

     
        The business ventures also typically had a management
        committee and/or research and development committee. These committees generally
        provided for equal representation by Elan and the business venture parent. The
        committees had responsibility for day to day activities of the business venture
        and for the implementation of the business plan. At their inception, the
        business ventures typically had no funds after payment of the initial fee to
        Elan. The operating funding of the business venture was provided by the
        business venture parent and Elan, subject to the approval of both parties.
        Funding was generally utilised to pay for research and development activities.
        Typically, such subsequent financial support was provided in proportion to the
        respective fully diluted ownership of the business venture by the business
        venture parent and Elan (typically 80.1% and 19.9%, respectively). Elan
        expensed the subsequent funding it provided directly to the business venture.
        This was expensed within the interest and other expense line. Elan expensed
        $3.0 million, $23.9 million and $24.6 million of subsequent business venture
        funding in 2003, 2002 and 2001, respectively. If both Elan and the business
        venture parent agreed to provide subsequent financial support to the business
        venture through their ongoing approval of a business plan, then, if requested
        by the business venture parent, Elan was required to make additional
        investments in the business venture parent, typically in the form of
        convertible debt, in an amount equal to the business venture parent’s
        proportion of such subsequent financial support, the proceeds of which the
        business venture parent was required to use to fund its proportion of the
        subsequent support of the business venture. This amount was recorded by Elan as
        a financial asset. Elan provided additional financing of $7.1 million, $83.4
        million and $92.2 million to business venture parents in 2003, 2002 and 2001,
        respectively. All business ventures have been terminated, restructured or are
        now inactive. As a consequence, Elan does not expect to provide any additional
        financing to the business ventures and business venture parents. 
     

     
        The business ventures incurred research and development
        expenditures of approximately $17 million, $125 million and $125 million in
        2003, 2002 and 2001, respectively. While the business ventures and the business
        venture parents were generally responsible for ongoing research and development
        activities, they could request that Elan conduct research and development on
        their behalf. If Elan undertook such work, the work was typically charged to
        the business venture at pre-determined rates, which were set to recover
        Elan’s costs plus a mark-up. Elan received research revenue from the
        business ventures of $3.7 million, $13.4 million and $15.0 million in 2003,
        2002 and 2001, respectively. Elan does not expect to receive any future
        research revenues from the business ventures. 
     

     
        Investments in the business ventures and the business
        venture parents were made at fair value. The fair value of investments was
        typically initially determined by Elan using established financial
        methodologies, including quoted market prices for quoted equity securities.
        Unquoted equity investments and non-traded securities of public entities were
        assessed using methodologies including the Black-Scholes option-pricing model,
        the valuation achieved in the most recent private placement by an investee, an
        assessment of the impact of general private equity market conditions, and
        discounted projected future cash flow models. 
     

     
        Subsequent to Elan’s investment in a business venture
        and business venture parent, the fair values of the investments have been
        typically determined periodically, but not less frequently than yearly, by an
        independent financial institution using methodologies similar to those
        described above.
     

     
        The table on page 23 sets forth certain information
        regarding the 12 business ventures that were formed in 2001. No new business
        ventures were formed in 2003 or 2002. Of all of the business ventures formed
        since the commencement of the business venture programme in 1996, approximately
        55 were still in place prior to the announcement of the recovery plan on 31
        July 2002. All business ventures have been terminated, restructured or are now
        inactive. As a consequence, Elan does not expect to provide any additional
        financing to the business ventures and business venture parents.
     

     
        Elan recognised exceptional charges in its profit and loss
        account for 2003 to reflect impairments to the Group’s investment
        portfolio, including investments held by EPIL II and EPIL III. This includes
        impairment charges relating to investments in business ventures and business
        venture parent companies of $4.0 million (2002: $114.4 million; 2001: $13.4
        million) and $106.0 million (2002: $880.0 million; 2001: $NiL), respectively.
        
     

     

     
        22
     

     

     
     

     
     
        Business Ventures—2001
     

     
         
     

     	
             
                Business Venture Parent
             

          	
             
                 
             

          	
             
                Aggregate Initial
 Amount Invested
 (in both
                business
 venture and business

                venture parent)
             

          	
             
                 
             

          	
             
                Field of Research and Development
             

          	
             
                 
             

          	
             
                Initial Fee
 Received
 by Elan
             

          	
             
                 
             

          
	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Allergy Therapeutics Ltd.
             

          	
             
                 
             

          	
             
                $20.7 million
             

          	
             
                 
             

          	
             
                Development of anti-histamine formulations
             

          	
             
                 
             

          	
             
                $15.0 million
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Applied Genetics
 Incorporated Dermatics
             

          	
             
                 
             

          	
             
                $19.0 million
             

          	
             
                 
             

          	
             
                Topical treatments of skin disease including skin
                cancer
 (DimericineTM—liposomal T4N5)
             

          	
             
                 
             

          	
             
                $15.0 million
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Beyond Genomics, Inc.
             

          	
             
                 
             

          	
             
                $15.0 million
             

          	
             
                 
             

          	
             
                Research into Alzheimer’s disease and/or mild
                cognitive impairment
             

          	
             
                 
             

          	
             
                $10.0 million
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                CeNeS Limited
             

          	
             
                 
             

          	
             
                $21.0 million
             

          	
             
                 
             

          	
             
                Treatment of pain
 (morphine-6-glucuronide)
             

          	
             
                 
             

          	
             
                $15.0 million
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                ChemGenex
 Therapeutics,
                Inc.
             

          	
             
                 
             

          	
             
                $20.0 million
             

          	
             
                 
             

          	
             
                Treatment of cancer
             

          	
             
                 
             

          	
             
                $15.0 million
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Cogent Neuroscience, Inc.
             

          	
             
                 
             

          	
             
                $17.5 million
             

          	
             
                 
             

          	
             
                Treatment of CNS diseases
             

          	
             
                 
             

          	
             
                $12.5 million
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Curis, Inc.
             

          	
             
                 
             

          	
             
                $19.0 million
             

          	
             
                 
             

          	
             
                Treatment of neurological disorders
             

          	
             
                 
             

          	
             
                $15.0 million
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                eNOS Pharmaceuticals, Inc.
             

          	
             
                 
             

          	
             
                $17.0 million
             

          	
             
                 
             

          	
             
                Treatment of neurological and cardiovascular
                diseases in non-hypercholesterolemic humans (EN-110)
             

          	
             
                 
             

          	
             
                $15.0 million
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                GlycoGenesys, Inc.
             

          	
             
                 
             

          	
             
                $20.0 million
             

          	
             
                 
             

          	
             
                Treatment of cancer (GCS-100, formerly known as
                GBC-590)
             

          	
             
                 
             

          	
             
                $15.0 million
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Inex Pharmaceuticals Corporation
             

          	
             
                 
             

          	
             
                $20.0 million
             

          	
             
                 
             

          	
             
                Treatment of cancer (VSLI TM)
             

          	
             
                 
             

          	
             
                $15.0 million
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Lipocine Inc.
             

          	
             
                 
             

          	
             
                $20.0 million
             

          	
             
                 
             

          	
             
                Oral hormone replacement therapy combination
                product
             

          	
             
                 
             

          	
             
                $15.0 million
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Nobex Corporation
             

          	
             
                 
             

          	
             
                $20.0 million
             

          	
             
                 
             

          	
             
                Treatment of post-menopausal osteoporosis or
                Paget’s disease (OratoninTM)
             

          	
             
                 
             

          	
             
                $15.0 million
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Total
             

          	
             
                 
             

          	
             
                $229.2 million
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                $172.5 million
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          

 
 

     
        23
     

     

     
     

     
     
        Operating Review
     

     
        Environment
     

     
        
     

     
        Many factors and elements contribute to the environment in
        which the Company conducts its activities. Key factors and elements include the
        world pharmaceutical market, government regulation, the product approval
        process, manufacturing, patents and intellectual property rights, competition,
        distribution, raw materials and product supply, employees and principal
        properties.
     

     
        World Pharmaceutical Market
     

     
        IMS audited global pharmaceutical sales increased by 9%
        from 2002 to $466.3 billion in 20031. In 2002, IMS audited global
        pharmaceutical sales increased by 8% over 20011. Sales increased due
        to ageing of the global population and an increasingly robust drug development
        pipeline, among other factors. 
     

     
        North America, Japan and Europe accounted for
        approximately 88%1 of global pharmaceutical sales in 2003. North
        America’s pharmaceutical sales grew 11% to $229.51 billion,
        representing almost half of all global pharmaceutical sales in 2003. 
     

     
        The U.S. market is Elan’s most important market.
        Please refer to Note 2 to the Consolidated Financial Statements for an analysis
        of revenue by geographic region. For this reason, the factors discussed below,
        such as “Government Regulation” and “Product Approval
        Process”, place emphasis on requirements in the United States. 
     

     
        Government Regulation 
     

     
        The pharmaceutical industry is subject to significant
        regulation by international, national, state and local governmental regulatory
        agencies. Pharmaceutical product registration is primarily concerned with the
        safety, efficacy and quality of new drugs and devices, and, in some countries,
        their pricing. A product must generally undergo extensive clinical trials
        before it can be approved for marketing. The process of developing a new
        pharmaceutical product, from idea to commercialisation, can take in excess of
        ten years. This period varies considerably from case to case and from country
        to country. 
     

     
        An application for registration includes specific details
        concerning not only the chemical composition, but also the manufacturing plant
        and procedures involved in the production of the product. The time from
        submission of an application to commercialisation of the product is typically
        two years or longer. After a product has been approved by the regulatory
        authorities and has been launched, it is a condition of the product approval
        that all aspects relating to its safety, efficacy and quality remain under
        review. 
     

     
        Governmental authorities, including the FDA and comparable
        regulatory authorities in other countries, regulate the design, development,
        testing, manufacturing and marketing of pharmaceutical products. For example,
        the Federal Food, Drug and Cosmetic Act (“FDCA”), the Public Health
        Service Act, the Controlled Substances Act and other federal statutes and
        regulations impose requirements on the clinical and non-clinical testing,
        safety, effectiveness, manufacturing, labelling, storage, record-keeping,
        reporting, advertising, marketing, import, export, distribution and approval of
        Elan’s products in the United States. Non-compliance with applicable
        requirements can result in fines and other judicially imposed sanctions,
        including product seizures, import restrictions, injunctive actions and
        criminal prosecutions. In addition, administrative remedies can involve
        requests to recall violative products, the refusal of the government to enter
        into supply contracts and/or the refusal to approve pending product approval
        applications (such as NDAs and Abbreviated New 
     

     

     
        24
     

     

     
     

     
     
        Drug Applications (“ANDAs”) for drugs, BLAs for
        biological products, or Premarket Approval Applications and “510(k)s”
        for medical devices), until manufacturing or other alleged deficiencies are
        brought into compliance. The FDA also has the authority to cause the withdrawal
        of approval of a marketed product or to impose labelling restrictions.
     

     
        In addition, the U.S. Centers for Disease Control and
        Prevention regulate select biologics and toxins. This includes registration and
        inspection of facilities involved in the transfer or receipt of select agents.
        Select agents are subject to specific regulations for packaging, labelling and
        transport. Non-compliance with applicable requirements could result in criminal
        penalties and the disallowance of research and manufacturing of clinical
        products. Exemptions are provided for select agents used for a legitimate
        medical purpose or for biomedical research, such as toxins for medical use and
        vaccines.
     

     
        Certain in vitro diagnostic products and certain delivery
        systems, such as MEDIPAD, are regulated or potentially regulated in the United
        States under the FDCA as medical 
     

     
        
     

     
        
     

     
        devices. These products are subject to pre-marketing and
        post-marketing requirements. Among other things, medical devices are subject to
        quality system requirements, including design control and good manufacturing
        practices, and to requirements for adverse event reporting by manufacturers,
        distributors and user facilities. The failure to adhere to these requirements
        can result in a refusal of permission to market and the imposition of
        sanctions, including seizure, recall notification, replacement or refund,
        injunction, and civil and criminal penalties. Additionally, as a condition to
        marketing or continued marketing, the FDA could impose certain post-market
        surveillance and/or tracking requirements, which could significantly increase
        the regulatory costs associated with a product. Under the FDCA, it is also
        possible for a given product to be regulated both as a drug and a medical
        device or as a biologic and medical device. In vitro diagnostic products are
        also subject to certain requirements under the Clinical Laboratory Improvement
        Act of 1988, as amended, relating to test complexity and risk.
     

     
        The pricing of pharmaceutical products is regulated in
        many countries. The mechanism of price regulation varies. For example, certain
        countries regulate the price of individual products while in other countries
        prices are controlled by limiting overall company profitability. In the United
        States, while there are limited indirect federal government price controls over
        private sector purchases of drugs, there have been ongoing discussions on
        potential reforms of the healthcare system, including the pricing of
        pharmaceuticals, which could result, directly or indirectly, in the
        implementation of price controls on a larger number of pharmaceutical products.
        Certain states are attempting to impose requirements, processes, or systems
        that would result in indirect price controls. It is not possible to predict
        future regulatory action on the pricing of pharmaceutical products. 
     

     
        In June 2002, Elan entered into a settlement with the U.S.
        Federal Trade Commission (“FTC”) resolving the FTC’s
        investigation of a licensing arrangement between Elan and Biovail Corporation
        (“Biovail”) relating to nifedipine, a generic version of the
        hypertension drug Adalat CC. The settlement is reflected in a consent order
        which, by its terms, does not constitute an admission by Elan that any law had
        been violated, and does not provide for monetary fines or penalties. Elan
        continues to satisfy all of the terms of the consent order. 
     

     
        In June 2001, Elan received a letter from the FTC stating
        that the FTC was conducting a non-public investigation to determine
        “whether Brightstone Pharma, Inc., Elan Corporation or others may have
        engaged in an effort to restrain trade by entering into an agreement which may
        restrict the ability of Brightstone or others to market a bioequivalent or
        generic version of Naprelan.” In October 2001, counsel for Elan met
        informally with the FTC staff to discuss the matter. No further communication
        from the FTC was received until December 2002, when Elan was served with a
        subpoena duces tecum from the FTC for the production of documents related to
        Naprelan. Elan has voluntarily provided documents and witness testimony in
        response to the subpoena and continues to cooperate with the FTC relating to
        this investigation. Elan does not believe that it is feasible to predict or
        determine the outcome of the investigation and any possible effect on
        Elan’s business, or reasonably to estimate the amounts or potential range
        of loss, if any, with respect to the resolution of the investigation. 
     

     
        On 13 March 2003, Elan received notification from the FTC
        that the FTC’s Bureau of Competition was conducting an investigation to
        determine whether Elan, King or any 
     

     

     
        25
     

     

     
     

     
     
        OPERATING REVIEW — ENVIRONMENT
     

     
        other person was engaging in unfair methods of competition
        in violation of Section 5 of the Federal Trade Commission Act, including, among
        other things, by preventing or slowing generic competition to Skelaxin. The
        FTC’s stated focus of the investigation was Elan’s listing in the
        FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations
        (“Orange Book”) of at least one patent for Skelaxin, and other
        actions with regard to the FDA regulatory process. On 8 May 2003, Elan received
        notification from the FTC that it had discontinued that portion of its
        investigation concerning whether Elan wrongfully listed its patent for Skelaxin
        in the Orange Book. Elan does not believe that it is feasible to predict or
        determine the outcome of the remaining portion of the investigation and any
        possible effect on the Group’s business or reasonably estimate the amounts
        or potential range of loss, if any, with respect to the resolution of the
        investigation. 
     

     
        Product Approval Process
     

     
        Preclinical tests assess the potential safety and efficacy
        of a product candidate in animal models. The results of these studies must be
        submitted to the FDA as part of an IND before human testing may proceed.
        
     

     
        For ethical, scientific and legal reasons, animal studies
        are required in the discovery and safety evaluation of new medicines.
        Elan’s policy is to seek alternatives to animal studies through the
        replacement of animal models with non-animal models. Alternatives used include
        various in vitro cell culture assays. If animal studies are unavoidable, Elan
        seeks to refine the animal models used to either reduce the number of animals
        utilised or to eliminate or lessen animal discomfort. 
     

     
        Under U.S. law, an IND must be submitted to the FDA and
        become effective before human clinical trials may commence. U.S. law further
        requires that studies conducted to support approval for product marketing be
        “adequate and well controlled.” In general, this means that either a
        placebo or a product already approved for the treatment of the disease or
        condition under study must be used as a reference control. Studies must also be
        conducted in compliance with good clinical practice (“GCP”)
        requirements, and adverse event and other reporting requirements must be
        followed. 
     

     
        The clinical trial process can take three to ten years or
        more to complete, and there can be no assurance that the data collected will be
        in compliance with GCP regulations, will demonstrate that the product is safe
        or effective, or, in the case of a biologic product, pure and potent, or will
        provide sufficient data to support FDA approval of the product. The FDA may
        place clinical trials on hold at any point in this process if, among other
        reasons, it concludes that clinical subjects are being exposed to an
        unacceptable health risk. Trials may also be terminated by institutional review
        boards, who must review and approve all research involving human subjects. Side
        effects or adverse events that are reported during clinical trials can delay,
        impede, or prevent marketing authorisation.
     

     
        The results of the preclinical and clinical testing
        (described in the table below), along with information regarding the
        manufacturing of the product and proposed product labelling, are evaluated and,
        if determined appropriate, submitted to the FDA through a licence application
        such as an NDA. In certain cases an ANDA can be filed in lieu of filing an NDA.
        An ANDA relies on bioequivalency tests that compare the applicant’s drug
        with an already approved reference drug rather than on clinical safety and
        efficacy studies. An ANDA might be available to Elan for a new formulation of a
        drug for which bioequivalent forms have already been approved by the FDA. In
        responding to applications for approval, the FDA could grant marketing
        approval, approve the product for a narrower indication, impose labelling or
        distribution restrictions, request additional information, require
        post-approval studies or deny the application. Applications are often referred
        to an outside FDA advisory committee of independent experts prior to the FDA
        acting on the application. Similar systems are in place for the testing and
        approval of biologics and medical devices. 
     

     
        Product Approval Process
     

     
        The stages of testing required before a pharmaceutical
        product can be marketed in the United States are generally as follows:
     

     
         
     

     	
             
                Phase of Development
             

          	
             
                    
             

          	
             
                Description
             

          	
             
                 
             

          
	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Preclinical
             

          	
             
                 
             

          	
             
                Animal studies and laboratory tests to evaluate
                safety and efficacy, demonstrate activity of a product candidate and identify
                its chemical and physical properties
             

          	
             
                 
             

          
	
             
                Phase I
             

          	
             
                 
             

          	
             
                Clinical studies to test safety profile of drug in
                humans
             

          	
             
                 
             

          
	
             
                Phase II
             

          	
             
                 
             

          	
             
                Clinical studies conducted with groups of patients
                to determine preliminary efficacy, dosage and expanded evidence of
                safety
             

          	
             
                 
             

          
	
             
                Phase III
             

          	
             
                 
             

          	
             
                Larger scale clinical studies conducted in patients
                to provide sufficient data for statistical proof of efficacy and safety
             

          	
             
                 
             

          

 

     
        26
     

     

     
     

     
     
        There can be no marketing in the United States of any
        drug, biologic or device for which a marketing application is required until
        the application is approved by the FDA. Until an application is actually
        approved, there can be no assurance that the information requested and
        submitted will be considered adequate by the FDA. Additionally, any significant
        change in the approved product or in how it is manufactured, including changes
        in formulation or the site of manufacture, generally
        require prior FDA approval. The packaging and labelling of all products
        developed by Elan are also subject to FDA approval and ongoing regulation.
        
     

     
        In the United States, under the Prescription Drug User Fee
        Act and the Medical Device User Fee and Modernization Act, the FDA receives
        fees for reviewing product applications and supplements thereto, as well as
        annual fees for commercial manufacturing establishments and for approved
        products. These fees can be significant. For example, the NDA or BLA review fee
        alone can exceed $500,000, although certain deferrals, waivers and reductions
        may be available. Even when user fees are significant, they do not generally
        constitute a major expense relative to the overall cost associated with product
        development and regulatory approval. 
     

     
        Whether or not FDA approval has been obtained, approval of
        a pharmaceutical product by comparable regulatory authorities in other
        countries outside the United States must be obtained prior to the marketing of
        the product in those countries. The approval procedure varies from country to
        country. It can involve additional testing and the time required can differ
        from that required for FDA approval. Although there are procedures for unified
        filings for EU countries, in general, most other countries have their own
        procedures and requirements. 
     

     
        Once a product has been approved, significant legal and
        regulatory requirements apply in order to market a product. In the United
        States these include, among other things, requirements related to adverse event
        and other reporting, product advertising and promotion, and ongoing adherence
        to cGMP requirements, as well as the need to submit appropriate new or
        supplemental applications and obtain FDA approval for certain changes to the
        approved product, product labelling or manufacturing process. Adverse events
        that are reported after marketing authorisation can result in additional
        limitations being placed on a product’s use and, potentially, withdrawal
        of the product from the market. Any adverse event, either before or after
        marketing authorisation, can result in product liability claims against the
        Company. 
     

     
        The FDA also enforces the requirements of the Prescription
        Drug Marketing Act, which, among other things, imposes various requirements in
        connection with the distribution of product samples to physicians. 
     

     
        
     

     
        Sales, marketing and scientific/educational grant
        programmes must comply with the Medicare-Medicaid Anti-Fraud and Abuse Act, as
        amended, the False Claims Act, as amended, and similar state laws. Pricing and
        rebate programmes must comply with the Medicaid rebate requirements of the
        Omnibus Budget Reconciliation Act of 1990, as amended. If products are made
        available to authorised users of the Federal Supply Schedule of the General
        Services Administration, additional laws and requirements apply. 
     

     
        Manufacturing
     

     
        Each manufacturing establishment, including any contract
        manufacturers, used to manufacture a product must be listed in the product
        application for such product. In the United States, this means that each
        manufacturing establishment must be listed in the drug, biologic, or device
        application, and must be registered with the FDA. The application will not be
        approved until the FDA conducts a manufacturing inspection, approves the
        applicable manufacturing process for the product, and determines that the
        facility is in compliance with cGMP requirements. If the manufacturing
        facilities and processes fail to pass the FDA inspection, the FDA will not
        grant approval to market the product. All facilities are also subject to
        periodic regulatory inspections to ensure ongoing compliance with cGMP. 

     

     
        At 31 December 2003, Elan had manufacturing facilities in
        Ireland, the United States and Switzerland. The Switzerland facility was sold
        in February 2004. 
     

     
        At 31 December 2003, Elan employed 617 people in its
        manufacturing and supply activities, over half of these in Athlone, Ireland.
        This facility is the primary location for the manufacture of oral solid dosage
        products, including instant, controlled-release and oral microparticulate
        products. Additional dosage capabilities may be added as required to support
        future product introductions. Elan’s facility in Gainesville, Georgia,
        United States, provides additional oral controlled-release dosage product
        manufacturing capability and is registered with the U.S. Drug 
     

     

     
        27
     

     

     
     

     
     
        OPERATING REVIEW — ENVIRONMENT 
     

     
        Enforcement Administration for the manufacture, packaging
        and distribution of Schedule II controlled drugs. Elan also manufactures
        Myobloc in the United States. Elan’s former facility in Switzerland was
        the primary location for the manufacture of effervescent and fast melt oral
        dosage products. Elan sold this facility in February 2004. Elan sold a
        transdermal dosage products manufacturing facility in Miramar, Florida, United
        States in July 2003 to Nitto Americas, as part of the divestment of a
        transdermal technology business. 
     

     
        Capital expenditures at Elan’s manufacturing sites
        amounted to approximately $22 million in 2003, mainly at the Athlone facility,
        where a new building was completed. 
     

     
        All facilities and manufacturing techniques used for the
        manufacture of products and devices for clinical use or for sale in the United
        States must be operated in conformity with cGMP regulations. There are FDA
        regulations governing the production of pharmaceutical products. Elan’s
        facilities are also subject to periodic regulatory inspections to ensure
        ongoing compliance with cGMP regulations. In May 2001, Elan Holdings, Inc.
        (“Elan Holdings”), a wholly owned subsidiary of Elan, Donal J.
        Geaney, then chairman and chief executive officer of Elan, William C. Clark,
        then president, operations, and two then employees of Elan Holdings, Hal
        Herring and Cheryl Schuster, entered into a consent decree of permanent
        injunction with the U.S. Attorney for the Northern District of Georgia, on
        behalf of the FDA, relating to alleged violations of cGMP at Elan’s
        Gainesville facility. The facility manufactured, and continues 
     

     
        
     

     
        
     

     
        to manufacture, verapamil hydrochloride controlled-release
        capsules used in the treatment of high blood pressure. The consent decree does
        not represent an admission by Elan Holdings of any of the allegations set forth
        in the decree. Under the terms of the consent decree, which will continue in
        effect until at least May 2006, Elan Holdings is permanently enjoined from
        violating cGMP regulations. In addition, Elan Holdings is required to engage an
        independent expert, subject to FDA approval, to conduct inspections of the
        facility at least annually through May 2004, in order to ensure the
        facility’s compliance with cGMP. The first of these inspections was
        completed and reported upon by the independent expert to the FDA on 3 September
        2002. A corrective action plan was prepared and sent to the FDA in response to
        this inspection. A second independent consultant audit occurred in May 2003 and
        was reported upon by the independent expert to the FDA on 14 August 2003. In
        response to this inspection a corrective action plan was prepared and sent to
        the FDA. During the term of the consent decree, Elan expects that the facility
        will be subject to increased FDA inspections and, under the terms of the
        consent decree, Elan will be required to reimburse the FDA for its costs
        related to these inspections. Elan believes that, during the term of the
        consent decree, the FDA will continue to process approvals for products to be
        manufactured at the facility. For example, during 2002 the FDA approved Avinza
        and Ritalin LA, which are being manufactured at the Gainesville
        facility.
     

     
        Patents and Intellectual Property Rights
     

     
        Intellectual property is a vital asset for Elan.
        Elan’s competitive position depends on its ability to obtain patents on
        its current and future technologies and products, to defend its patents, to
        protect its trade secrets and to operate without infringing the valid patents
        or trade secrets of others. In addition, under a number of licence agreements
        for its drug delivery products, Elan’s failure to obtain patents on the
        drug delivery product would reduce the royalty rate that Elan receives on sales
        of such product.
     

     
        Elan’s products are sold around the world under
        brand-name, logo and certain product design trademarks that Elan considers in
        the aggregate to be of material importance. Trademark protection continues in
        some countries for as long as the mark is used and, in other countries, for as
        long as it is registered. Registrations generally are for fixed, but renewable,
        terms. 
     

     
        Elan owns or licenses a number of U.S. and foreign
        patents. These patents cover:
     

     		
             
                •
             

          	
             
                Pharmaceuticals and other products and their
                uses;
             

          

     		
             
                •
             

          	
             
                Pharmaceutical formulations; and
             

          

     		
             
                •
             

          	
             
                Product manufacturing processes. 
             

          

     
        Patents for individual products extend for varying periods
        according to the date of patent filing or grant and the legal term of patents
        in various countries. The actual protection afforded by a patent, which can
        vary from country to country, depends upon the type of patent, the scope of its
        coverage and the availability of legal remedies in the country.
     

     

     
        28
     

     

     
     

     
     
        The following are the basic U.S. patent expiration dates
        for various Elan products and products under development:
     

     
         
     

     	
             
                Drug 
             

          	
             
                 
             

          	
             
                Basic U.S. Patent
 Expiration year 
             

          	
             
                 
             

          	
             
                U.S. Regulatory
 Exclusivity (1)
             

          	
             
                 
             

          
	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                A. Antegren
             

          	
             
                 
             

          	
             
                See text
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                B. Azactam
             

          	
             
                 
             

          	
             
                2005
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                C. Maxipime
             

          	
             
                 
             

          	
             
                See text
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                D. Prialt
             

          	
             
                 
             

          	
             
                See text
             

          	
             
                 
             

          	
             
                See text
             

          	
             
                 
             

          
	
             
                E. Myobloc
             

          	
             
                 
             

          	
             
                Expired
             

          	
             
                 
             

          	
             
                2007
             

          	
             
                 
             

          

     
        (1) Five years of regulatory exclusivity is provided by
        U.S. laws upon FDA approval of a product incorporating a previously unapproved
        active ingredient, which prevents the FDA from approving a generic version
        which relies on data from the original FDA approval. 
     

     

     
        In some instances, there are later-expiring patents
        relating to these products directed to particular forms or compositions of the
        drug or to methods of manufacturing or using the drug in the treatment of
        further diseases or conditions. Although such patents may provide some
        additional exclusivity, they may not protect Elan’s drug from generic drug
        competition after the expiration of the basic patent. 
     

     
        Elan has a basic U.S. patent for its developmental product
        Antegren which covers the
        humanised antibody and its use to treat MS which expires in 2015. Additional
        U.S. patents covering the use of Antegren to treat irritable bowel disease
        and to inhibit brain inflammation expire in 2012 and 2017, respectively. In the
        event that Antegren is
        approved by the FDA, one of the patents would qualify for a patent term
        extension of up to 5 years.
     

     
        The basic U.S. patent for Maxipime expires in 2007. However, two
        formulation U.S. patents covering Maxipime expire in 2008.
     

     
        For the developmental product Prialt, the fundamental U.S. patent covering
        the use of Prialt to produce
        analgesia expires in 2011. Two further U.S. patents covering (i) the planned
        commercial, stabilised formulation of Prialt and (ii) a method for preventing
        progression of neuropathic pain expire in 2015. If Prialt is approved by the FDA, it will be
        subject to five years of U.S. regulatory exclusivity and a U.S. patent term
        extension of up to five years. 
     

     
        Elan has proactive programmes to maximise global patent
        and exclusivity protection for its key commercial and developmental products.
        As part of its normal business activity, Elan monitors competitor activity
        carefully and will enforce its intellectual property rights whenever
        appropriate. 
     

     
        Competition 
     

     
        The pharmaceutical industry is highly competitive. Our
        principal pharmaceutical competitors consist of major international companies,
        many of which are larger and have greater financial resources, technical staff,
        manufacturing, research and development and marketing capabilities than Elan.
        Other competitors consist of smaller research companies and generic drug
        manufacturers. 
     

     
        A drug may be subject to competition from alternative
        therapies during the period of patent protection or regulatory exclusivity and,
        thereafter, it may be subject to further competition from generic products. The
        price of pharmaceutical products typically declines as competition increases.
        Elan’s basic U.S. patent for Maxipime expires in 2007. However, two
        formulation U.S. patents covering Maxipime expire in 2008. Elan’s basic
        U.S. patent for Azactam
        expires in 2005. 
     

     
        Generic competitors may also challenge existing patent
        protection or regulatory exclusivity. Generic competitors do not have to bear
        the same level of research and development and other expenses associated with
        bringing a new branded product to market. As a result, they can charge much
        less for a competing version of our product. Managed care organisations
        typically favour generics over brand name drugs, and governments encourage, or
        under some circumstances mandate, the use of generic products, thereby reducing
        the sales of branded products that are no longer patent protected. Governmental
        and other pressures toward the dispensing of generic products may rapidly and
        significantly reduce, slow, or reverse the growth in, sales and profitability
        of any of our products not protected by patents or regulatory exclusivity, and
        may adversely affect our future results and financial condition. For example,
        generic forms of Zanaflex
        were launched in the second quarter of 2002. As a result, product revenue from
        Zanaflex declined from $53.7
        million in the first quarter of 2002 to $0.8 million in the first quarter of
        2003. Product returns of Zanaflex during 2003 exceeded the
        Company’s best estimate of returns at 31 December 2002, resulting in net
        negative revenues of $(5.1) million for 2003. The launch of competitor
        products, including generic versions of Elan’s products, may 
     

     
         
     

     
        

        
     

     

     
        29
     

     

     
     

     
     
        OPERATING REVIEW — ENVIRONMENT 
     

     
         materially adversely affect our business, financial
        condition and results of operations.
     

     
        Our competitive position depends, in part, upon our
        continuing ability to discover, acquire and develop innovative, cost effective
        new products, as well as new indications and product improvements protected by
        patents and other intellectual property rights. We also compete on the basis of
        price and product differentiation and through our sales and marketing
        organisation that provides information to medical professionals and launches
        new products. If we fail to maintain our competitive position, our business,
        financial condition and results of operations may be materially adversely
        affected.
     

     
        Distribution
     

     
        Elan sells its pharmaceutical products primarily to drug
        wholesalers. Elan’s revenue reflects the demand from these wholesalers to
        meet the in-market consumption of Elan’s products and to reflect the level
        of inventory that wholesalers of Elan’s products carry. Changes in the
        levels of inventory can directly impact Elan’s revenue and could result in
        Elan’s revenue not reflecting in-market consumption of its
        products.
     

     
        Elan generally manufactures its drug delivery products for
        licencees and distributors but does not usually engage in any direct sales of
        drug delivery products. 
     

     
        Raw Materials and Product Supply
     

     
        Raw materials and supplies are generally available in
        quantities adequate to meet the needs of Elan’s business. However, Elan
        does not have dual sourcing or manufacturing for many of its raw materials or
        products. Elan is also dependent on third party manufacturers for most of the
        pharmaceutical products that Elan markets and for raw materials. An inability
        to obtain raw materials or product supply could have a material adverse impact
        on Elan’s business, financial condition and results of operations.
     

     
        Employees
     

     
        On 31 December 2003, Elan had 2,159 employees worldwide,
        of whom 606 were engaged in research and development activities, 617 were
        engaged in manufacturing and supply activities, 498 were engaged in sales and
        marketing activities and the remainder worked in general and administrative
        areas. The number of employees has been reduced from approximately 3,600
        employees at 31 December 2002 as a result of the implementation of the recovery
        plan.
     

     
        Principal Properties
     

     
        Elan considers that its properties are in good operating
        condition and that its machinery and equipment has been well maintained.
        Facilities for the manufacture of products are suitable for their intended
        purposes and have capacities and projected capacities adequate for current and
        projected needs.
     

     
        For additional information, please refer to Note 11 to the
        Consolidated Financial Statements, which discloses amounts invested in land and
        buildings and plant and equipment, Note 23 to the Consolidated Financial
        Statements, which discloses future minimum rental commitments, capital
        commitments for the purchase of property, plant and equipment and dispositions
        of plant and equipment, and “Financial Review—Capital Expenditures
        and Investment” on pages 62 to 63, which discloses Elan’s capital
        expenditures. 
     

     
        Principal Properties
     

     
        The following table lists the location, ownership
        interest, use and size of Elan’s principal properties.
     

     
         
     

     	
             
                Location and Ownership Interest
             

          	
             
                 
             

          	
             
                Use
             

          	
             
                 
             

          	
             
                Size
             

          
	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 
	
             
                Dublin, Ireland
             

          	
             
                 
             

          	
             
                Corporate administration
             

          	
             
                 
             

          	
             
                21,600 Sq. Ft.
             

          
	
             
                Leased
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Athlone, Ireland
             

          	
             
                 
             

          	
             
                Research and development, manufacturing and
                administration
             

          	
             
                 
             

          	
             
                402,000 Sq. Ft.
             

          
	
             
                Owned
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                San Diego, California, United States
             

          	
             
                 
             

          	
             
                Product development, sales and administration

             

          	
             
                 
             

          	
             
                274,800 Sq. Ft.
             

          
	
             
                Leased
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                South San Francisco, California, United
                States
             

          	
             
                 
             

          	
             
                Research and development and administration
             

          	
             
                 
             

          	
             
                255,000 Sq. Ft.
             

          
	
             
                Leased
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Gainesville, Georgia, United States
             

          	
             
                 
             

          	
             
                Manufacturing and administration
             

          	
             
                 
             

          	
             
                71,200 Sq. Ft.
             

          
	
             
                Owned
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                King of Prussia, Pennsylvania, United States
             

          	
             
                 
             

          	
             
                Research and development, sales and
                administration
             

          	
             
                 
             

          	
             
                47,000 Sq. Ft.
             

          
	
             
                Leased
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Stevenage, United Kingdom
             

          	
             
                 
             

          	
             
                Product development and administration
             

          	
             
                 
             

          	
             
                35,800 Sq. Ft.
             

          
	
             
                Leased
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          

 

     
        30
     

     

  
     
        FINANCIAL REVIEW 
     

     
        This financial review discusses Elan’s financial
        performance as prepared under Irish GAAP. It also includes an overview of its
        results presented in accordance with U.S. GAAP on pages 63 to 67 of this Annual
        Report and Form 20-F. The reconciliation of Elan’s performance under Irish
        GAAP to U.S. GAAP is set out on pages 167 to 168. 
     

     
        Introduction
     

     
        This financial review primarily discusses: 
     

     		
             
                •
             

          	
             
                Recovery plan (page 31)
             

          

     		
             
                •
             

          	
             
                Critical accounting policies (pages 31 to
                34);
             

          

     		
             
                •
             

          	
             
                The results of operations for the year ended 31
                December 2003 compared to the year ended 31 December 2002 (pages 34 to
                47);
             

          

     		
             
                •
             

          	
             
                The results of operations for the year ended 31
                December 2002 compared to the year ended 31 December 2001 (pages 34, 47 to
                55);
             

          

     		
             
                •
             

          	
             
                Segmental analysis (page 55);
             

          

     		
             
                •
             

          	
             
                Risk-sharing arrangements (pages 56 to 57);
             

          

     		
             
                •
             

          	
             
                Elan’s financial position, including its
                capitalisation and liquidity (pages 58 to 63);
             

          

     		
             
                •
             

          	
             
                Post balance sheet events (page 63); and
             

          

     		
             
                •
             

          	
             
                U.S. GAAP (pages 63 to 67) 
             

          

     
        Elan’s operating results can be affected by a number
        of factors, including those described under “Cautionary Factors That May
        Affect Future Results” and “Risk Factors”. 
     

     
        Recovery Plan
     

     
        In the early months of 2002, the Company suffered a number
        of setbacks in rapid succession, including the cessation of dosing in a Phase
        IIA clinical trial of AN-1792, an experimental immunotherapeutic that was under
        development for the treatment of AD, the announcement of a profit warning and
        an investigation by the SEC. These disappointments ultimately led to a loss of
        confidence in the Company. To address these issues, Elan announced a recovery
        plan on 31 July 2002 to restructure Elan’s business, assets and balance
        sheet in order to enable it to meet its financial commitments. The principal
        elements and outcomes of the recovery plan are set out in the Operating Review
        on page 16 under the heading “Completion of Recovery Plan”. As a
        result of this recovery plan, Elan’s business has now been transformed,
        and the Company is now focused clearly on three core therapeutic areas:
        neurology, autoimmune diseases and severe pain. One significant result of the
        number of product and business divestments since the beginning of 2002 is that
        Elan’s financial performance in historical years is of limited relevance
        to an understanding of its future prospects. Near term, Elan is focusing its
        development, sales and marketing efforts to enable it to focus resources on the
        anticipated launch of its late stage pipeline candidates, Antegren for multiple sclerosis and
        Crohn’s disease, and Prialt for severe pain. In research, Elan is focused on neurology, in which
        it is continuing its research and advances in neurodegenerative diseases,
        including multiple sclerosis, Alzheimer’s disease and Parkinson’s
        disease. On 12 February 2004, Elan announced the formal completion of its
        recovery plan. 
     

     
        Critical Accounting Policies
     

     
        The Consolidated Financial Statements include certain
        amounts that are based on management’s best estimates and judgements.
        Estimates and judgements are used in determining items such as the carrying
        values of intangible assets, the carrying values of financial assets, the
        accounting for contingencies and estimating sales rebates and discounts, among
        other items. Because of the judgements and uncertainties inherent in such
        estimates, actual results may differ from these estimates. 
     

     
        Irish GAAP
     

     
        Intangible Assets and Impairment 
     

     
        The principal judgements and uncertainties affecting
        Elan’s accounting for intangible assets relate to the determination of
        carrying values. The carrying values of intangible assets are assessed
        annually, using discounted cash flows and net realisable values
        (estimated
     

     

     
        31
     

     

     
     

     
     
        FINANCIAL REVIEW
     

     
        sales proceeds less costs to sell). The estimates and
        judgements used to assess carrying values include those relating to research
        and development risk, commercial risk, revenue and cost projections, the
        intention of the Group with respect to the intangible asset, such as the sales
        and marketing support for a product or the continued focus or level of
        resources for a particular development project or technology, the impact of
        competition, including generic competition, the impact of any reorganisation or
        change of business focus of the Group, the level of third party interest in
        Elan’s intangible assets and market conditions. 
     

     
        In July 2002, Elan announced a recovery plan. This
        resulted in material impairment charges in Elan’s profit and loss account
        of $189.5 million and $1,614.6 million in 2003 and 2002, respectively. For
        additional information on these impairment charges, please refer to Note 3 to
        the Consolidated Financial Statements. Where the carrying value of intangible
        assets exceeds their recoverable amounts, the carrying values of those
        intangible assets have been written down to their recoverable amounts. If Elan
        were to use different estimates or judgements, particularly with respect to
        expected proceeds from divestments, the likelihood of research and development
        success, the likelihood and date of commencement of generic competition or the
        impact of any reorganisation or change of business focus, an additional
        material impairment charge to the profit and loss account could arise. For
        example, a 10% decrease in the carrying value of intangible assets at 31
        December 2003 would have resulted in an additional impairment charge of $125.2
        million. Intangible assets amounted to $1,252.4 million and $2,079.5 million at
        31 December 2003 and 31 December 2002, respectively. Elan believes that it has
        used reasonable estimates and judgements in assessing the carrying values of
        its intangible assets. 
     

     
        Financial Assets and Impairment 
     

     
        The principal judgements and uncertainties affecting
        Elan’s accounting for financial assets relate to carrying values. In
        general, Elan’s accounting policy for financial assets is to carry such
        assets at cost less provision for impairment in value. The carrying values of
        financial assets are assessed using established financial methodologies,
        including quoted market prices for quoted equity securities. Unquoted equity
        investments and non-traded securities of public entities are typically assessed
        using methodologies such as the Black-Scholes option-pricing model, the
        valuation achieved in the most recent private placement by an investee, and an
        assessment of the impact of general private equity market conditions. The
        factors affecting carrying values include both general financial market
        conditions for pharmaceutical and biotechnology companies and factors specific
        to a particular company. Different market conditions, negative developments or
        news affecting a specific investee could result in a material impairment charge
        for the applicable investment. Additionally, many of Elan’s investments
        are in emerging drug delivery, pharmaceutical and biotechnology companies. In
        assessing the carrying values of these investments, Elan has assumed that it
        holds the investments for the medium to long-term and that no liquidity
        discount is required. If Elan were to dispose of investments in a forced sale
        or in an accelerated manner, it is likely that material impairment charges
        would arise. For example, a 10% decrease in the carrying values of financial
        assets at 31 December 2003 would have resulted in an additional impairment
        charge of $49.5 million. Fixed and current financial assets amounted to $494.5
        million and $809.4 million at 31 December 2003 and 31 December 2002,
        respectively. The investments held by EPIL II will be sold to meet the maturity
        of the EPIL II Notes in June 2004. The financial markets for emerging
        biotechnology, drug delivery and pharmaceutical companies declined
        significantly in 2002. In 2003, Elan incurred a charge, arising from
        impairments to its investment portfolio, including those investments held by
        EPIL II and EPIL III, in its profit and loss account of $120.4 million (2002:
        $1,262.9 million). Elan also recorded a net gain on financial assets of $106.3
        million (2002: net loss of $10.0 million). For additional information on these
        investment charges, gains and losses, please refer to Note 3 to the
        Consolidated Financial Statements. Elan believes that it has used reasonable
        estimates and judgements in assessing the carrying values of its financial
        assets. 
     

     
        Exceptional Items 
     

     
        Exceptional items are those items that in
        management’s judgement are material items which derive from events or
        transactions that fall within the ordinary activities of the Group and which
        individually or, if of a similar type, in aggregate, need to be disclosed by
        virtue of their size or incidence. Elan believes that it has used reasonable
        judgements in determining exceptional items. 
     

     
        The principal items classified as exceptional items
        include exceptional revenues recorded on the disposal of products and gains or
        losses recorded on the disposal of businesses, tangible and intangible asset
        impairments, purchase of royalty rights, severance and relocation costs, losses
        from litigation or regulatory actions including shareholders litigation and SEC
        investigation, and investment gains, losses and impairments (including those
        related to investments in business ventures and business venture parents).
        These items have been treated consistently from period to period. Management
        believes that disclosure of exceptional items is meaningful because it provides
        additional information in relation to these material items.
     

     

     
        32
     

     

     
     

     
     
        Contingencies 
     

     
        The principal judgements used by Elan in accounting for
        contingencies include the likelihood of the contingency occurring and the
        ability to estimate the financial impact, including the minimum loss, or range
        of losses, that will ultimately be incurred to resolve the matter. Elan’s
        contingencies include shareholder litigation and an investigation by the SEC.
        For additional information on these and other contingencies and litigation,
        please refer to Notes 23 and 25 to the Consolidated Financial Statements. As
        discussed in Note 25 to the Consolidated Financial Statements, the Group is
        unable to ascertain the ultimate aggregate amount of monetary liability or
        financial impact, if any, of the shareholder litigation, which seeks damages of
        material or indeterminate amounts, or the SEC investigation. The principal
        judgements and estimates in accounting for the litigation contingency relate to
        the Group’s assessment of the outcome of the litigation and the SEC
        investigation, which can evolve over time. 
     

     
        Revenue—Discounts, Sales Returns, Rebates and
        Charge-backs 
     

     
        Estimated sales returns, pursuant to rights of return
        granted to the Company’s customers, are reflected as a reduction of
        revenue in the same period that the related sales are recorded. The sales
        returns provisions are based on actual experience, although in certain
        situations, for example, a new product launch or at patent expiry, further
        judgement may be required. Additionally, revenue is also recorded net of
        provision, made at the time of sale for estimated cash discounts, rebates and
        charge-backs. These amounts are included in other current liabilities (rebates)
        or deducted from trade debtors (other discounts). Discounts, sales returns,
        rebates and charge-backs that require the use of judgement in the establishment
        of the accrual include Medicaid, managed care, long-term care, hospital and
        various other government programmes. The Company enters into contracts with
        certain managed care organisations to provide access to the Company’s
        products. Based on a managed care organisation’s market share performance
        and utilisation of the Company’s products, the organisation receives
        rebates from the Company. In addition, the Company is bound by certain laws and
        regulations to provide product at a discounted rate to Medicaid recipients.
        Medicaid rebates are paid to each state in the United States based on claims
        filed by pharmacies that provide the Company’s products to Medicaid
        recipients at the reduced rate. Charge-backs are amounts paid to reimburse
        wholesalers for sales to third parties at reduced prices based on contracts the
        Company negotiates. Cash discounts are provided to customers that pay their
        invoice within a certain time period. Discounts, sales returns, rebates and
        charge-backs are primarily based upon historical rebate/discount payments made
        to the Company’s customer segment groups. These amounts are calculated
        based upon a percentage of sales for each of the Company’s products as
        defined by the statutory rates and the contracts with Elan’s various
        customer groups. 
     

     
        The largest of the discounts, sales returns, rebates and
        charge-backs amounts are rebates associated with the Medicaid rebate programme
        in the United States. Although Elan generally accrues a liability for Medicaid
        rebates at the time the product is shipped, there is typically up to a
        six-month difference between the time in which Elan records sales of products
        and the payment of the Medicaid rebate amounts to the state government. In
        determining the appropriate Medicaid rebate accrual amount, the assumptions
        consider historical Medicaid rebate payments by product as a percentage of
        historical sales as well as any significant changes in sales trends, evaluation
        of the current Medicaid rebate laws and interpretations, the percentage of the
        products that are sold to Medicaid recipients, and Elan’s product pricing
        and current rebate/discount contracts. Elan believes that it has used
        reasonable judgements in assessing discounts, sales returns, rebates and
        charge-backs. 
     

     
        Equity Accounting 
     

     
        Investments in associated undertakings are accounted for
        under the equity method where the Company holds voting equity in the investee
        and exercises significant influence over the operating and financial policies
        of the investee. Significant influence may exist even if the Company owns less
        than 20% of the investee’s equity depending on the existence of factors
        such as representation on the board of directors, participation in policy
        making processes, material intercompany transactions, interchange of managerial
        personnel or technological dependency. Certain circumstances, such as majority
        ownership by another company, can offset the impact of such factors. The
        determination to use cost or equity accounting requires a significant degree of
        judgement on the facts and circumstances of a particular investment. Financial
        asset investments which are accounted for under the equity method are stated at
        cost, adjusted for the Company’s share of the earnings or losses of the
        investee after the date of investment, less any provision for impairment in
        value. 
     

     
        For additional information regarding Elan’s
        significant accounting policies, please refer to Note 1 to the Consolidated
        Financial Statements. 
     

     
        U.S. GAAP 
     

     
        Revenue Recognition 
     

     
        Under U.S. GAAP, the accounting treatment for
        non-refundable up-front fees was similar to Irish GAAP prior to 2000. In
        December 1999, the SEC issued Staff Accounting Bulletin No. 101 (“SAB
        101”) which provides guidance on revenue recognition under U.S.
        GAAP,
     

     

     
        33
     

     

     
     

     
     
        FINANCIAL REVIEW 
     

     
        and which was adopted by the Company in 2000. In December
        2003, the SEC issued Staff Accounting Bulletin No. 104 (“SAB 104”)
        which updates the guidance in SAB 101. SAB 104 generally requires the deferral
        and amortisation of up-front fees when there is a continuing involvement (such
        as an ongoing product manufacturing contract) by the seller with the asset
        disposed of. SAB 104 does not apply under Irish GAAP. Elan defers and amortises
        up-front licence fees to the income statement over the “performance
        period”. The performance period is the period over which Elan expects to
        provide services to the licencee. It is determined by the provisions, facts and
        circumstances, such as the research and development period, of the relevant
        contract. Additionally, under Irish GAAP, revenue from the sale of product
        rights and related inventory is recognised when earned and non-refundable. The
        same accounting is generally applicable under U.S. GAAP. In certain
        circumstances, however, when Elan has continuing involvement with the product,
        deferral and amortisation of such revenue may be appropriate. 
     

     
        For additional information on the significant differences
        between Irish and U.S. GAAP, please refer to Note 33 to the Consolidated
        Financial Statements. 
     

     
        Results of Operations for the Years Ended 31 December
        2003, 2002 and 2001
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                Year Ended 31 December
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                2003
 $m
 Before
 Exceptional
 Items
             

          	
             
                 
             

          	
             
                2003
 $m
 Exceptional

                Items
             

          	
             
                 
             

          	
             
                2003
 $m
 Total
             

          	
             
                 
             

          	
             
                2002
 $m
 Before
 Exceptional
 Items
             

          	
             
                 
             

          	
             
                2002
 $m
 Exceptional

                Items
             

          	
             
                 
             

          	
             
                2002
 $m
 Total
             

          	
             
                 
             

          	
             
                2001
 $m
 Before
 Exceptional
 Items
             

          	
             
                 
             

          	
             
                2001
 $m
 Exceptional

                Items
             

          	
             
                 
             

          	
             
                2001
 $m
 Total
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Revenue—continuing operations
             

          	
             
                 
             

          	
             
                 
             

          	
             
                445.3
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                445.3
             

          	
             
                 
             

          	
             
                 
             

          	
             
                550.1
             

          	
             
                 
             

          	
             
                 
             

          	
             
                172.5
             

          	
             
                 
             

          	
             
                 
             

          	
             
                722.6
             

          	
             
                 
             

          	
             
                 
             

          	
             
                1,057.5
             

          	
             
                 
             

          	
             
                 
             

          	
             
                233.4
             

          	
             
                 
             

          	
             
                 
             

          	
             
                1,290.9
             

          	
             
                 
             

          
	
             
                Revenue—discontinued
             

          	
             
                 
             

          	
             
                 
             

          	
             
                316.8
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                316.8
             

          	
             
                 
             

          	
             
                 
             

          	
             
                610.4
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                610.4
             

          	
             
                 
             

          	
             
                 
             

          	
             
                455.4
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (5.6
             

          	
             
                )
             

          	
             
                 
             

          	
             
                449.8
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          
	
             
                Total revenue
             

          	
             
                 
             

          	
             
                 
             

          	
             
                762.1
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                762.1
             

          	
             
                 
             

          	
             
                 
             

          	
             
                1,160.5
             

          	
             
                 
             

          	
             
                 
             

          	
             
                172.5
             

          	
             
                 
             

          	
             
                 
             

          	
             
                1,333.0
             

          	
             
                 
             

          	
             
                 
             

          	
             
                1,512.9
             

          	
             
                 
             

          	
             
                 
             

          	
             
                227.8
             

          	
             
                 
             

          	
             
                 
             

          	
             
                1,740.7
             

          	
             
                 
             

          
	
             
                Cost of sales
             

          	
             
                 
             

          	
             
                 
             

          	
             
                342.6
             

          	
             
                 
             

          	
             
                 
             

          	
             
                6.9
             

          	
             
                 
             

          	
             
                 
             

          	
             
                349.5
             

          	
             
                 
             

          	
             
                 
             

          	
             
                417.0
             

          	
             
                 
             

          	
             
                 
             

          	
             
                66.1
             

          	
             
                 
             

          	
             
                 
             

          	
             
                483.1
             

          	
             
                 
             

          	
             
                 
             

          	
             
                364.0
             

          	
             
                 
             

          	
             
                 
             

          	
             
                22.8
             

          	
             
                 
             

          	
             
                 
             

          	
             
                386.8
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          
	
             
                Gross profit/(loss)
             

          	
             
                 
             

          	
             
                 
             

          	
             
                419.5
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (6.9
             

          	
             
                )
             

          	
             
                 
             

          	
             
                412.6
             

          	
             
                 
             

          	
             
                 
             

          	
             
                743.5
             

          	
             
                 
             

          	
             
                 
             

          	
             
                106.4
             

          	
             
                 
             

          	
             
                 
             

          	
             
                849.9
             

          	
             
                 
             

          	
             
                 
             

          	
             
                1,148.9
             

          	
             
                 
             

          	
             
                 
             

          	
             
                205.0
             

          	
             
                 
             

          	
             
                 
             

          	
             
                1,353.9
             

          	
             
                 
             

          
	
             
                Selling, general and administrative expenses
             

          	
             
                 
             

          	
             
                 
             

          	
             
                470.3
             

          	
             
                 
             

          	
             
                 
             

          	
             
                546.0
             

          	
             
                 
             

          	
             
                 
             

          	
             
                1,016.3
             

          	
             
                 
             

          	
             
                 
             

          	
             
                835.4
             

          	
             
                 
             

          	
             
                 
             

          	
             
                1,788.0
             

          	
             
                 
             

          	
             
                 
             

          	
             
                2,623.4
             

          	
             
                 
             

          	
             
                 
             

          	
             
                697.5
             

          	
             
                 
             

          	
             
                 
             

          	
             
                1,084.2
             

          	
             
                 
             

          	
             
                 
             

          	
             
                1,781.7
             

          	
             
                 
             

          
	
             
                Research and development expenses
             

          	
             
                 
             

          	
             
                 
             

          	
             
                307.6
             

          	
             
                 
             

          	
             
                 
             

          	
             
                23.8
             

          	
             
                 
             

          	
             
                 
             

          	
             
                331.4
             

          	
             
                 
             

          	
             
                 
             

          	
             
                402.6
             

          	
             
                 
             

          	
             
                 
             

          	
             
                114.7
             

          	
             
                 
             

          	
             
                 
             

          	
             
                517.3
             

          	
             
                 
             

          	
             
                 
             

          	
             
                323.3
             

          	
             
                 
             

          	
             
                 
             

          	
             
                78.6
             

          	
             
                 
             

          	
             
                 
             

          	
             
                401.9
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          
	
             
                Operating (loss)/profit—continuing
                operations
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (383.1
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (432.9
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (816.0
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (486.1
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (1,369.9
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (1,856.0
             

          	
             
                )
             

          	
             
                 
             

          	
             
                131.6
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (635.5
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (503.9
             

          	
             
                )
             

          
	
             
                Operating (loss)—acquisitions
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (3.3
             

          	
             
                )
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (3.3
             

          	
             
                )
             

          
	
             
                Operating profit/(loss)—discontinued
             

          	
             
                 
             

          	
             
                 
             

          	
             
                24.7
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (143.8
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (119.1
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (8.4
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (426.4
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (434.8
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (0.2
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (322.3
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (322.5
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          
	
             
                Operating (loss)/profit
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (358.4
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (576.7
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (935.1
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (494.5
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (1,796.3
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (2,290.8
             

          	
             
                )
             

          	
             
                 
             

          	
             
                128.1
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (957.8
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (829.7
             

          	
             
                )
             

          
	
             
                Share of (losses)/profits of associates
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (8.1
             

          	
             
                )
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (8.1
             

          	
             
                )
             

          	
             
                 
             

          	
             
                6.0
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                6.0
             

          	
             
                 
             

          	
             
                 
             

          	
             
                10.3
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                10.3
             

          	
             
                 
             

          
	
             
                Loss on sale of securities/guarantee
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (217.0
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (217.0
             

          	
             
                )
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Gain on disposal of businesses
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                293.3
             

          	
             
                 
             

          	
             
                 
             

          	
             
                293.3
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                77.9
             

          	
             
                 
             

          	
             
                 
             

          	
             
                77.9
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          
	
             
                (Loss)/profit on ordinary activities before interest
                and tax
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (366.5
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (283.4
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (649.9
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (488.5
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (1,935.4
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (2,423.9
             

          	
             
                )
             

          	
             
                 
             

          	
             
                138.4
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (957.8
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (819.4
             

          	
             
                )
             

          
	
             
                Net interest and other expense
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (153.8
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (33.7
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (187.5
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (156.7
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (1,014.0
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (1,170.7
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (76.3
             

          	
             
                )
             

          	
             
                 
             

          	
             
                25.9
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (50.4
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          
	
             
                (Loss)/profit on ordinary activities before
                tax
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (520.3
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (317.1
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (837.4
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (645.2
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (2,949.4
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (3,594.6
             

          	
             
                )
             

          	
             
                 
             

          	
             
                62.1
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (931.9
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (869.8
             

          	
             
                )
             

          
	
             
                Tax on (loss)/profit on ordinary activities
             

          	
             
                 
             

          	
             
                 
             

          	
             
                22.0
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                22.0
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (19.8
             

          	
             
                )
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (19.8
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (17.4
             

          	
             
                )
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (17.4
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          
	
             
                (Loss)/profit on ordinary activities after
                tax
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (498.3
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (317.1
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (815.4
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (665.0
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (2,949.4
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (3,614.4
             

          	
             
                )
             

          	
             
                 
             

          	
             
                44.7
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (931.9
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (887.2
             

          	
             
                )
             

          
	
             
                Minority interest
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (0.7
             

          	
             
                )
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (0.7
             

          	
             
                )
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          
	
             
                Retained (loss)/profit for the year
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (498.3
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (317.1
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (815.4
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (665.7
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (2,949.4
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (3,615.1
             

          	
             
                )
             

          	
             
                 
             

          	
             
                44.7
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (931.9
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (887.2
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          
	
             
                Basic (loss)/earnings per Ordinary Share
             

          	
             
                 
             

          	
             
                $
             

          	
             
                 (1.40
             

          	
             
                )
             

          	
             
                $
             

          	
             
                 (0.89
             

          	
             
                )
             

          	
             
                $
             

          	
             
                 (2.29
             

          	
             
                )
             

          	
             
                $
             

          	
             
                 (1.90
             

          	
             
                )
             

          	
             
                $
             

          	
             
                 (8.44
             

          	
             
                )
             

          	
             
                $
             

          	
             
                 (10.34
             

          	
             
                )
             

          	
             
                $
             

          	
             
                0.13
             

          	
             
                 
             

          	
             
                $
             

          	
             
                 (2.77
             

          	
             
                )
             

          	
             
                $
             

          	
             
                 (2.64
             

          	
             
                )
             

          
	
             
                Diluted (loss)/earnings per Ordinary Share
             

          	
             
                 
             

          	
             
                $
             

          	
             
                 (1.40
             

          	
             
                )
             

          	
             
                $
             

          	
             
                 (0.89
             

          	
             
                )
             

          	
             
                $
             

          	
             
                 (2.29
             

          	
             
                )
             

          	
             
                $
             

          	
             
                 (1.90
             

          	
             
                )
             

          	
             
                $
             

          	
             
                 (8.44
             

          	
             
                )
             

          	
             
                $
             

          	
             
                 (10.34
             

          	
             
                )
             

          	
             
                $
             

          	
             
                0.12
             

          	
             
                 
             

          	
             
                $
             

          	
             
                 (2.77
             

          	
             
                )
             

          	
             
                $
             

          	
             
                 (2.64
             

          	
             
                )
             

          
	
             
                Weighted average number of Ordinary Shares
                outstanding (millions)
             

          	
             
                 
             

          	
             
                 
             

          	
             
                356.0
             

          	
             
                 
             

          	
             
                 
             

          	
             
                356.0
             

          	
             
                 
             

          	
             
                 
             

          	
             
                356.0
             

          	
             
                 
             

          	
             
                 
             

          	
             
                349.7
             

          	
             
                 
             

          	
             
                 
             

          	
             
                349.7
             

          	
             
                 
             

          	
             
                 
             

          	
             
                349.7
             

          	
             
                 
             

          	
             
                 
             

          	
             
                336.0
             

          	
             
                 
             

          	
             
                 
             

          	
             
                336.0
             

          	
             
                 
             

          	
             
                 
             

          	
             
                336.0
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          

 

     
        A reconciliation between Elan’s Irish GAAP financial
        results and Elan’s financial results determined in accordance with U.S.
        GAAP is provided in Note 33 to the Consolidated Financial Statements. 
     

     

     
        34
     

     

     
     

     
     
        2003 Compared To 2002 
     

     
        Revenue 
     

     
        Total revenue decreased 43% to $762.1 million for 2003
        from $1,333.0 million for 2002. 
     

     
         
     

     	
             
                Product Revenue
             

          	
             
                 
             

          	
             
                2003
 $m
             

          	
             
                 
             

          	
             
                2002
 $m
             

          	
             
                 
             

          
	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                (A) Revenue from Retained
                Products(1)
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                U.S. Promoted Products
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Maxipime
             

          	
             
                 
             

          	
             
                109.1
             

          	
             
                 
             

          	
             
                79.2
             

          	
             
                 
             

          
	
             
                Azactam
             

          	
             
                 
             

          	
             
                45.1
             

          	
             
                 
             

          	
             
                33.0
             

          	
             
                 
             

          
	
             
                Myobloc
             

          	
             
                 
             

          	
             
                14.9
             

          	
             
                 
             

          	
             
                19.6
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                169.1
             

          	
             
                 
             

          	
             
                131.8
             

          	
             
                 
             

          
	
             
                U.S. Non-Promoted Products
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Zanaflex(2)
             

          	
             
                 
             

          	
             
                (5.1
             

          	
             
                )
             

          	
             
                56.8
             

          	
             
                 
             

          
	
             
                Other
             

          	
             
                 
             

          	
             
                10.2
             

          	
             
                 
             

          	
             
                0.7
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                5.1
             

          	
             
                 
             

          	
             
                57.5
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Contract manufacturing and royalties
             

          	
             
                 
             

          	
             
                112.0
             

          	
             
                 
             

          	
             
                109.3
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Total Revenue from Retained Products
             

          	
             
                 
             

          	
             
                286.2
             

          	
             
                 
             

          	
             
                298.6
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                (B) Revenue from Divested
                Products(3)
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Skelaxin(4)
             

          	
             
                 
             

          	
             
                60.2
             

          	
             
                 
             

          	
             
                145.3
             

          	
             
                 
             

          
	
             
                Sonata(4)
             

          	
             
                 
             

          	
             
                48.2
             

          	
             
                 
             

          	
             
                92.5
             

          	
             
                 
             

          
	
             
                Abelcet(5)
             

          	
             
                 
             

          	
             
                1.1
             

          	
             
                 
             

          	
             
                64.6
             

          	
             
                 
             

          
	
             
                Dermatology
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                47.6
             

          	
             
                 
             

          
	
             
                Diagnostics
             

          	
             
                 
             

          	
             
                9.0
             

          	
             
                 
             

          	
             
                70.6
             

          	
             
                 
             

          
	
             
                Pain Portfolio(6)
             

          	
             
                 
             

          	
             
                68.0
             

          	
             
                 
             

          	
             
                59.8
             

          	
             
                 
             

          
	
             
                Avinza(7)
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                75.6
             

          	
             
                 
             

          
	
             
                Actiq/nifedipine(7)
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                79.1
             

          	
             
                 
             

          
	
             
                European business
             

          	
             
                 
             

          	
             
                112.4
             

          	
             
                 
             

          	
             
                102.6
             

          	
             
                 
             

          
	
             
                Zonegran(8)
             

          	
             
                 
             

          	
             
                80.7
             

          	
             
                 
             

          	
             
                43.1
             

          	
             
                 
             

          
	
             
                Frova(8)(9)
             

          	
             
                 
             

          	
             
                37.5
             

          	
             
                 
             

          	
             
                11.2
             

          	
             
                 
             

          
	
             
                Other
             

          	
             
                 
             

          	
             
                —
             

          	
             
                
             

          	
             
                1.3
             

          	
             
                 
             

          
	
             
                Product rationalisations(7)
             

          	
             
                 
             

          	
             
                9.3
             

          	
             
                 
             

          	
             
                17.8
             

          	
             
                 
             

          
	
             
                Product sales of rationalised products
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                32.0
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                426.4
             

          	
             
                 
             

          	
             
                843.1
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                (C) Co-promotion Fees 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Autoimmune Diseases Research & Development Corp.
                Ltd. (“Autoimmune”)
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                38.8
             

          	
             
                 
             

          
	
             
                Pharma Marketing
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                24.0
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                62.8
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Total Product Revenue
             

          	
             
                 
             

          	
             
                712.6
             

          	
             
                 
             

          	
             
                1,204.5
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                2003
 $m
             

          	
             
                 
             

          	
             
                2002
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Contract Revenue
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Licence fees
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                7.1
             

          	
             
                 
             

          
	
             
                Pharma Marketing / Autoimmune
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                37.2
             

          	
             
                 
             

          
	
             
                Research revenue and milestones
             

          	
             
                 
             

          	
             
                49.5
             

          	
             
                 
             

          	
             
                84.2
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Total Contract Revenue
             

          	
             
                 
             

          	
             
                49.5
             

          	
             
                 
             

          	
             
                128.5
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Total Revenue
             

          	
             
                 
             

          	
             
                762.1
             

          	
             
                 
             

          	
             
                1,333.0
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     		
             
                (1)
             

          	
             
                Products described as “Retained
                Products” include products or businesses not divested and not subject to
                divestment agreements. 
             

          

     		
             
                (2)
             

          	
             
                While Zanaflex was promoted during 2001 and part
                of 2002, it is shown here under “U.S. Non-promoted Products” as
                promotion ceased following the launch of generics during 2002. 
             

          

     		
             
                (3)
             

          	
             
                Products described as “Divested
                Products” include products or businesses divested since the beginning of
                2001, and products or businesses subject to divestment agreements. 
             

          

     		
             
                (4)
             

          	
             
                Sold to King in June 2003. 
             

          

     		
             
                (5)
             

          	
             
                Sold to Enzon in November 2002. 
             

          

     		
             
                (6)
             

          	
             
                Sold to aaiPharma in December 2003. 
             

          

     		
             
                (7)
             

          	
             
                Exceptional product revenue in 2002. 
             

          

     		
             
                (8)
             

          	
             
                On 30 March 2004, Elan announced an agreement to
                divest this product. This divestment is expected to close before the end of the
                second quarter of 2004. 
             

          

     		
             
                (9)
             

          	
             
                Launched in the United States in May 2002.
                
             

          

 

     
        35
     

     

     
     

     
     
        FINANCIAL REVIEW 
     

     
        Product Revenue 
     

     
        Total product revenue decreased by 41% to $712.6 million
        for 2003 from $1,204.5 million for 2002. 
     

     
        (A) Revenue from Retained Products 
     

     
        Revenue from retained products was $286.2 million for 2003
        compared with $298.6 million for 2002. Combined revenue from Maxipime and Azactam was $154.2 million for 2003 compared
        to $112.2 million for 2002, an increase of 37%. This increase was due to
        stronger demand in 2003 and the negative impact on the sales of these products
        in 2002 due to a change in Elan’s discounting strategy and short-term
        supply issues resulting from third party manufacturing constraints.
        Myobloc product revenue
        decreased 24% for 2003 to $14.9 million from $19.6 million for 2002. Generic
        competitor products to Zanaflex were launched in the United States during 2002. Product returns of
        Zanaflex during 2003
        exceeded the Company’s best estimate of returns at 31 December 2002,
        resulting in net negative revenues of $(5.1) million for 2003 compared to
        revenues of $56.8 million for 2002. 
     

     
        (B) Revenue from Divested Products 
     

     
        On 30 January 2003, Elan announced that it had agreed to
        sell its primary care franchise, principally consisting of its U.S. and Puerto
        Rican rights to Skelaxin and Sonata, related inventory and related rights to
        enhanced formulations of these products, to King. On 17 March 2003, Elan
        commenced a lawsuit against King to compel King to complete its purchase of the
        primary care franchise. On 19 May 2003, Elan and King agreed to proceed with
        the transaction on amended terms and on 12 June 2003 the transaction was
        completed. Effective upon the closing of the transaction, all claims under the
        pending litigation were released and Elan and King dismissed the litigation
        with prejudice. During 2003, product revenue from Skelaxin and Sonata was
        $108.4 million (2002: $237.8 million). 
     

     
        During 2002, Elan divested its dermatology and Athena
        Diagnostics Inc. (“Athena Diagnostics”) businesses and its U.S.,
        Canadian and any Japanese rights to Abelcet. On 29 April 2003, Elan completed
        the sale of Elan Diagnostics. These businesses contributed $10.1 million to
        product revenue for 2003, representing revenues before they were divested
        (2002: $182.8 million). 
     

     
        On 2 December 2003, Elan announced the completion of the
        sale of the Pain Portfolio to aaiPharma. Revenue from the Pain Portfolio was
        $68.0 million for 2003 compared to $59.8 million for 2002. 
     

     
        On 9 December 2002, Elan announced the amendment of the
        terms of its development, licence and supply agreement with Ligand regarding
        Avinza. Elan received a cash payment of $100.0 million from Ligand in return
        for a reduction in the ongoing royalty rate from the previous level of 30% of
        net sales of Avinza in the United States and Canada to approximately 10%. In
        addition, Elan agreed to forego its option to negotiate a co-promotion
        agreement with Ligand for Avinza in the United States and Canada. Elan will
        continue to manufacture the product in its Gainesville facility. Net of the
        write-off of the related intangible assets, Elan recorded exceptional product
        revenue of $75.6 million on the closing of this transaction. 
     

     
        On 3 October 2002, Elan announced that it sold its rights
        to Actiq in twelve territories, principally in Europe, to Anesta Corp.
        (“Anesta”). At the date of disposal, Actiq was marketed by Elan in
        the United Kingdom, Ireland and Germany. Net of the write-off of the related
        intangible assets, Elan recorded exceptional product revenue of $40.3 million
        on the closing of this transaction. 
     

     
        On 23 August 2002, Elan announced a licensing agreement
        with Watson for exclusive marketing rights to the 30 mg and 60 mg dosage
        strengths of Elan’s extended-release nifedipine tablets in the United
        States. Elan received $45.0 million in cash from Watson. Elan will continue to
        manufacture the products in its Athlone facility. Net of the write-off of the
        related intangible assets, Elan recorded exceptional product revenue of $38.8
        million on the closing of this transaction. 
     

     
        On 12 February 2004, Elan announced the sale of its
        European sales and marketing business to Medeus. Separately, Elan completed the
        sale of certain rights to two products in the U.K. and Ireland for
        approximately $10 million during the first quarter of 2004. During 2003,
        revenue from the European business was $112.4 million (2002: $102.6 million).
        
     

     
        On 30 March 2004, Elan announced that it had agreed to
        sell its interests in North America and Europe for Zonegran to Eisai. The
        transaction is expected to close before the end of the second quarter of 2004.
        Zonegran revenue was $80.7 million for 2003 compared to $43.1 million for 2002,
        an increase of 87%. This increase was as a result of Elan’s promotional
        efforts as well as the increased interest in the product following the approval
        of the 25 mg and 50 mg strengths in late 2003.
     

     
        On 30 March 2004, Elan announced that it had agreed to
        sell its commercialisation rights in North America for Frova to Vernalis. The
        transaction is expected to close before the end of the second quarter of 2004.
        Frova, which was launched in the United States in May 2002 under a co-promotion
        agreement between Elan and UCB, generated revenue of $37.5 million for 2003
        compared to $11.2 million for 2002.
     

     

     
        36
     

     

     
     

     
     
        Product rationalisation revenue, which represents ongoing
        royalties from products divested during 2002 and 2001 under the 2001 product
        rationalisation programme, was $9.3 million for 2003 compared to $17.8 million
        for 2002. 
     

     
        Product sales of rationalised products, which represents
        revenue prior to rationalisation, was $32.0 million for 2002. As the product
        rationalisation programme initiated in 2001 was completed in 2002, Elan did not
        record any product sales of rationalised products in 2003. 
     

     
        (C) Co-promotion Fees 
     

     
        Product revenue from product co-promotion and marketing
        activities, which resulted from Elan’s risk-sharing arrangements with
        Pharma Marketing and Autoimmune, was $Nil for 2003 compared to $62.8 million
        for 2002. Elan will not receive any future revenue from either Pharma Marketing
        or Autoimmune. 
     

     
        Contract Revenue 
     

     
        Contract revenue decreased by 61% to $49.5 million for
        2003 from $128.5 million for 2002, primarily as no revenue was received from
        either Pharma Marketing or Autoimmune compared to $37.2 million for 2002, and
        reduced research revenue and milestones. Elan will not receive any future
        revenue from either Pharma Marketing or Autoimmune. Research revenue and
        milestones amounted to $49.5 million in 2003 compared to $84.2 million in 2002,
        reflecting a lower level of activity in 2003 coupled with the timing of the
        receipt of milestone payments. 
     

     
        Major
        Customers 
     

     
        Cardinal Health, Inc. (“Cardinal Health”),
        Amerisource Bergen Corporation (“Amerisource Bergen”) and McKesson
        Corporation (“McKesson”), all of which are drug wholesalers,
        accounted for approximately 20%, 16% and 16%, respectively, of Elan’s
        total revenue for 2003. Cardinal Health, Amerisource Bergen and McKesson
        accounted for approximately 13%, 13% and 12%, respectively, of Elan’s
        total revenue for 2002. No other customer accounted for more than 10% of total
        revenue for 2003 or 2002. 
     

     
        Cost of Sales 
     

     
        Cost of sales, after exceptional items, decreased by 28%
        to $349.5 million for 2003 from $483.1 million for 2002. The decrease was 18%
        before exceptional items of $6.9 million for 2003 and $66.1 million for 2002.
        Gross margin on total revenue, before exceptional items, was 55% for 2003
        compared to 64% for 2002. Gross margin on total revenue, after exceptional
        items, was 54% for 2003 compared to 64% for 2002. Gross margin on product
        revenue, before exceptional items, decreased to 52% for 2003 from 60% for 2002.
        Gross margin on product revenue, after exceptional items, decreased to 51% in
        2003 from 60% in 2002. The reduction in gross margin on product revenue
        reflects changes in the mix of product revenue, including the divestment of a
        number of products and businesses under the recovery plan and decreased
        revenues from risk-sharing arrangements, under-utilisation of capacity at
        Elan’s manufacturing facility in Athlone and the payment of royalties to
        Pharma Marketing. The reduction in gross margin on total revenue reflects
        changes in the mix of revenue, in particular the decrease in revenue from
        risk-sharing arrangements. 
     

     
        Selling, General and Administrative
        Expenses 
     

     
        Selling, general and administrative expenses, after
        exceptional items, decreased by 61% to $1,016.3 million for 2003 from $2,623.4
        million for 2002. The decrease was 44% before exceptional items of $546.0
        million for 2003 and $1,788.0 million for 2002, reflecting the implementation
        of the recovery plan and related cost reduction initiatives. 
     

     
        Research and Development Expenses 
     

     
        Research and development expenses, after exceptional
        items, decreased by 36% to $331.4 million for 2003 from $517.3 million for
        2002. The decrease was 24% before exceptional items of $23.8 million for 2003
        and $114.7 million for 2002, principally reflecting a refocus of research and
        development efforts, including increased spending on key programmes including
        Antegren, Prialt and the Alzheimer’s programmes. For additional
        information on our research and development programmes, please refer to pages 5
        to 11. 
     

     
        Exceptional Items
        
     

     
        Exceptional items are those items that in
        management’s judgement are material items which derive from events or
        transactions that fall within the ordinary activities of the Group and which
        individually or, if of a similar type, in aggregate, need to be disclosed by
        virtue of their size or incidence. 
     

     

     
        37
     

     

     
     

     
     
        FINANCIAL REVIEW 
     

     
        The principal items classified as exceptional items
        include exceptional revenues recorded on the disposal of products and gains or
        losses recorded on the disposal of businesses, tangible and intangible assets
        impairments, purchase of royalty rights, severance and relocation costs, losses
        from litigation or regulatory actions including shareholders litigation and SEC
        investigation, and investment gains, losses and impairments (including those
        related to investments in business ventures and business venture parents).
        These items have been treated consistently from period to period. Management
        believes that disclosure of exceptional items is meaningful because it provides
        additional information in relation to these material items. 
     

     
        2003
     

     
        In 2003, Elan incurred net exceptional charges of $317.1
        million. The exceptional items for 2003 mainly relate to the implementation of
        Elan’s recovery plan and investment impairments. On 31 July 2002, Elan
        announced a recovery plan to restructure its businesses, assets and balance
        sheet. Elan decided to focus on three core therapeutic areas. These are
        neurology, autoimmune diseases and severe pain. A key element of the recovery
        plan was the divestment of businesses and products. 
     

     
        The exceptional charges and revenue in 2003 mainly relate
        to the: 
     

     		
             
                •
             

          	
             
                Sale of businesses. The carrying value of these
                assets have been written down, where applicable, to their estimated recoverable
                amounts;
             

          

     		
             
                •
             

          	
             
                Discontinuance of businesses;
             

          

     		
             
                •
             

          	
             
                Rationalisation and restructuring expenses incurred
                from a reduction in the scope of Elan’s activities, a reduction in
                employee numbers and related write-downs in the carrying value of
                assets;
             

          

     		
             
                •
             

          	
             
                Simplification of Elan’s business such as the
                termination of the Pharma Marketing risk-sharing arrangement; and
             

          

     		
             
                •
             

          	
             
                Termination, restructuring or cessation of activity
                in all of Elan’s business ventures. 
             

          

     
        These exceptional costs have been included under the
        statutory format headings to which they relate analysed as follows: 
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                Cost
 of
                Sales
 (A)
 $m
             

          	
             
                 
             

          	
             
                Selling,
 General
                and
 Administrative
 (B)
 $m
             

          	
             
                 
             

          	
             
                Research
 and
 Development

                (C)
 $m
             

          	
             
                 
             

          	
             
                Other
 Ordinary
 Activities

                (D)
 $m
             

          	
             
                 
             

          	
             
                Net
 Interest
 (E)
 $m
             

          	
             
                 
             

          	
             
                Total
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Acquired intellectual property (“acquired
                IP”) and goodwill impairment:
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Europe
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                108.2
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                108.2
             

          	
             
                 
             

          
	
             
                Dura Pharmaceuticals Inc (“Dura”)
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                16.2
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                16.2
             

          	
             
                 
             

          
	
             
                Nanosystems LLC (“Nanosystems”)
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                11.7
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                11.7
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Total acquired IP and goodwill impairment
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                136.1
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                136.1
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Product impairments:
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Myobloc
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                37.1
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                37.1
             

          	
             
                 
             

          
	
             
                All others
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                9.2
             

          	
             
                 
             

          	
             
                7.1
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                16.3
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Total product impairments
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                46.3
             

          	
             
                 
             

          	
             
                7.1
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                53.4
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Purchase of Pharma Operating royalty rights
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                297.6
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                297.6
             

          	
             
                 
             

          
	
             
                Severance/relocation costs
             

          	
             
                 
             

          	
             
                4.1
             

          	
             
                 
             

          	
             
                25.1
             

          	
             
                 
             

          	
             
                8.2
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                37.4
             

          	
             
                 
             

          
	
             
                Tangible fixed asset write-downs
             

          	
             
                 
             

          	
             
                3.4
             

          	
             
                 
             

          	
             
                9.3
             

          	
             
                 
             

          	
             
                1.7
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                14.4
             

          	
             
                 
             

          
	
             
                Gain on disposal of businesses
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (293.3
             

          	
             
                )
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (293.3
             

          	
             
                )
             

          
	
             
                Waiver fee to EPIL II/III noteholders
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                16.8
             

          	
             
                 
             

          	
             
                16.8
             

          	
             
                 
             

          
	
             
                Investment impairments
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                120.4
             

          	
             
                 
             

          	
             
                120.4
             

          	
             
                 
             

          
	
             
                Net gain on financial assets
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (106.3
             

          	
             
                )
             

          	
             
                (106.3
             

          	
             
                )
             

          
	
             
                Profit on repurchase of LYONs
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (1.6
             

          	
             
                )
             

          	
             
                (1.6
             

          	
             
                )
             

          
	
             
                Other
             

          	
             
                 
             

          	
             
                (0.6
             

          	
             
                )
             

          	
             
                31.6
             

          	
             
                 
             

          	
             
                6.8
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                4.4
             

          	
             
                 
             

          	
             
                42.2
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Net exceptional charges
             

          	
             
                 
             

          	
             
                6.9
             

          	
             
                 
             

          	
             
                546.0
             

          	
             
                 
             

          	
             
                23.8
             

          	
             
                 
             

          	
             
                (293.3
             

          	
             
                )
             

          	
             
                33.7
             

          	
             
                 
             

          	
             
                317.1
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        38
     

     

     
     

      

     
        (A)   Cost of Sales
        
     

     
        Exceptional cost of sales include $3.4 million on the
        impairment of certain manufacturing fixed assets, severance/relocation costs of
        $4.1 million and other exceptional cost of sales of $(0.6) million. 
     

     
        (B)   Selling, General and
        Administrative 
     

     
        Exceptional selling, general and administrative expenses
        were $546.0 million. $182.4 million of the exceptional expenses relate to
        impairment charges arising on write-downs of intangible assets. $297.6 million
        relates to the purchase of royalty rights from Pharma Operating. For additional
        information on the purchase of royalty rights from Pharma Operating, please
        refer to pages 56 to 57. Other exceptional selling, general and administrative
        expenses were $66.0 million. These include tangible fixed asset write-downs of
        $9.3 million, severence/relocation costs of $25.1 million and similar costs
        arising from the restructuring of the Group as part of the recovery plan. They
        also include legal costs related to the SEC investigation, shareholder
        litigation and litigation provisions. 
     

     
        In February 2004, Elan completed the sale of its European
        sales and marketing business to Medeus. As a result, the related intangibles
        were written down to their net realisable value at 31 December 2003. This
        resulted in an impairment to goodwill of $108.2 million. The other goodwill
        impairment charge of $16.2 million related to Dura. Impairment charges to
        acquired IP arising from the acquisition of Nanosystems was $11.7 million.
        Impairment charges to patents and licences arising on write-downs of the
        product intangibles for Myobloc amounted to $37.1 million. Other impairments to patents and licences
        totalled $9.2 million. Each of these impairments arose due to changed
        expectations for the related products. 
     

     
        (C)   Research and Development
        
     

     
        Exceptional research and development expenses were $23.8
        million. These mainly relate to product impairments of $7.1 million,
        severance/relocation costs of $8.2 million and similar costs arising from the
        restructuring of the Group as part of the recovery plan. 
     

     
        (D)   Other Ordinary
        Activities 
     

     
        Elan recognised a gain of $293.3 million on the sale of
        certain businesses as part of the Group’s recovery plan. In June 2003,
        Elan completed the sale of its primary care franchise, comprising of Skelaxin
        and Sonata, to King. On completion, Elan received a net cash payment of $510.9
        million from King, representing the total consideration, before agreed price
        adjustments and expenses. The gain amounted to $284.8 million. In July 2003,
        Elan sold a transdermal technology business to Nitto Americas for a cash
        consideration of $45.0 million before expenses. The loss amounted to $30.3
        million. In December 2003, Elan completed the sale of the Pain Portfolio
        business to aaiPharma. The total consideration was $101.8 million, comprising a
        cash payment to Elan of $50.4 million and the assumption, by aaiPharma, of
        $51.4 million of Elan’s product payment obligations to Roxane. Elan
        recorded a net gain of $40.2 million on the transaction. Other businesses
        divested by Elan in 2003 were its operations in the Philippines and Taiwan, a
        Spanish primary care business, a U.K. drug delivery business and an Italian
        manufacturing business. The total net loss on these divestments amounted to
        $1.4 million. 
     

     
        (E)   Net Interest
        
     

     
        Exceptional net interest and other expense amounted to
        $33.7 million. 
     

     
        This includes a net gain of $1.6 million on the repurchase
        of $1,323.4 million in principal amount at maturity of LYONs. These LYONs,
        having an accreted value of $810.5 million at the date of purchase, were
        purchased at an aggregate cost of $803.4 million, resulting in the net gain of
        $1.6 million after related costs. For further information regarding the LYONs,
        please refer to Note 15 to the Consolidated Financial Statements. 
     

     
        During 2003 the Company recognised a $120.4 million charge
        in relation to investment impairments arising from Elan’s investment
        portfolio, primarily relating to investments in business ventures and business
        venture parents of $4.0 million and $106.0 million, respectively.
     

     
        During 2003 the Company recognised a net gain on financial
        assets of $106.3 million, primarily reflecting gains of $72.3 million on the
        disposal of Elan’s investment in Ligand. 
     

     
        On 10 November 2003, Elan announced that it had
        successfully completed a private offering of $460.0 million in aggregate
        principal amount of 6.5% Convertible Notes. In connection with this offering a
        waiver fee of $16.8 million was paid to the holders of the EPIL II Notes and
        EPIL III Notes. 
     

     

     
        39
     

     

     
     

     
     
        FINANCIAL REVIEW 
     

     
        2002
     

     
        In 2002, Elan incurred net exceptional charges of $2,949.4
        million. 
     

     
        The exceptional items for 2002 mainly relate to the
        implementation of Elan’s recovery plan, a significant decline during 2002
        in the financial markets for investments in emerging biotechnology, drug
        delivery and pharmaceutical companies, and the introduction of generic
        competitors to some of Elan’s products. On 31 July 2002, Elan announced a
        recovery plan to restructure its businesses, assets and balance sheet. Elan
        decided to focus on three core therapeutic areas. These are neurology,
        autoimmune diseases and severe pain. A key element of the recovery plan was the
        divestment of businesses and products. 
     

     
        The exceptional charges and revenue in 2002 mainly relate
        to the: 
     

     		
             
                •
             

          	
             
                Sale of businesses and products. The carrying value
                of these assets have been written down, where applicable, to their estimated
                recoverable amounts. Exceptional revenue arises from the proceeds received on
                the disposal of products;
             

          

     		
             
                •
             

          	
             
                Discontinuance of businesses or the decision not to
                exercise an option to acquire a product, such as Elan’s decision not to
                exercise its option to acquire certain dermatology products from
                GlaxoSmithKline, plc (“GSK”)
             

          

     		
             
                •
             

          	
             
                Rationalisation and restructuring expenses incurred
                from a reduction in the scope of Elan’s activities, a reduction in
                employee numbers and related write-downs in the carrying value of
                assets;
             

          

     		
             
                •
             

          	
             
                Simplification of Elan’s business such as the
                termination of the Autoimmune risk-sharing arrangement; and
             

          

     		
             
                •
             

          	
             
                Termination, restructuring or cessation of activity
                in Elan’s business ventures.
             

          

 

     
        40
     

     

     
     

     
     
        These exceptional revenues and costs have been included
        under the statutory format headings to which they relate analysed as
        follows:
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                Revenue
 (A)
 $m
             

          	
             
                 
             

          	
             
                Cost
 of Sales
 (B)
 $m
             

          	
             
                 
             

          	
             
                Selling,
 General and
 Administrative

                (C)
 $m
             

          	
             
                 
             

          	
             
                Research
 and
 Development

                (D)
 $m
             

          	
             
                 
             

          	
             
                Other
 Ordinary
 Activities

                (E)
 $m
             

          	
             
                 
             

          	
             
                Net
 Interest
 (F)
 $m
             

          	
             
                 
             

          	
             
                Total
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Product disposals and product
                rationalisations
             

          	
             
                 
             

          	
             
                (172.5
             

          	
             
                )
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (172.5
             

          	
             
                )
             

          
	
             
                Zanaflex inventory
                — generic competition
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                43.3
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                43.3
             

          	
             
                 
             

          
	
             
                Acquired IP and goodwill impairment:
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Dura
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                854.9
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                854.9
             

          	
             
                 
             

          
	
             
                Liposome
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                111.8
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                111.8
             

          	
             
                 
             

          
	
             
                Sano Corporation (“Sano”)
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                89.8
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                89.8
             

          	
             
                 
             

          
	
             
                Quadrant Healthcare, plc
                (“Quadrant”)
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                78.2
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                78.2
             

          	
             
                 
             

          
	
             
                Axogen Limited (“Axogen”)
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                28.4
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                28.4
             

          	
             
                 
             

          
	
             
                Others
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                19.1
             

          	
             
                 
             

          	
             
                10.6
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                29.7
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Total acquired IP and goodwill impairment
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                1,182.2
             

          	
             
                 
             

          	
             
                10.6
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                1,192.8
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Product impairments:        
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Pain Portfolio
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                86.3
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                86.3
             

          	
             
                 
             

          
	
             
                Myobloc
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                77.7
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                77.7
             

          	
             
                 
             

          
	
             
                Naprelan
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                35.7
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                35.7
             

          	
             
                 
             

          
	
             
                Myambutol
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                32.7
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                32.7
             

          	
             
                 
             

          
	
             
                Dermatology products
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                29.8
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                29.8
             

          	
             
                 
             

          
	
             
                Frova
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                29.4
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                29.4
             

          	
             
                 
             

          
	
             
                Delsys
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                45.7
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                45.7
             

          	
             
                 
             

          
	
             
                All others
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                8.0
             

          	
             
                 
             

          	
             
                62.9
             

          	
             
                 
             

          	
             
                13.6
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                84.5
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Total product impairments
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                8.0
             

          	
             
                 
             

          	
             
                354.5
             

          	
             
                 
             

          	
             
                59.3
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                421.8
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Purchase of Autoimmune royalty rights
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                121.0
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                121.0
             

          	
             
                 
             

          
	
             
                Severance/relocation costs
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                8.4
             

          	
             
                 
             

          	
             
                23.2
             

          	
             
                 
             

          	
             
                19.7
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                51.3
             

          	
             
                 
             

          
	
             
                Litigation provisions
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                19.0
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                19.0
             

          	
             
                 
             

          
	
             
                Tangible fixed asset write-downs
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                5.7
             

          	
             
                 
             

          	
             
                28.3
             

          	
             
                 
             

          	
             
                11.6
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                45.6
             

          	
             
                 
             

          
	
             
                Gain on disposal of businesses
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (77.9
             

          	
             
                )
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (77.9
             

          	
             
                )
             

          
	
             
                Loss on sale of securities/guarantee
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                217.0
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                217.0
             

          	
             
                 
             

          
	
             
                Investment impairments
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                1,045.9
             

          	
             
                 
             

          	
             
                1,045.9
             

          	
             
                 
             

          
	
             
                Net loss on financial assets
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                10.0
             

          	
             
                 
             

          	
             
                10.0
             

          	
             
                 
             

          
	
             
                Profit on redemption of LYONs
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (37.7
             

          	
             
                )
             

          	
             
                (37.7
             

          	
             
                )
             

          
	
             
                Other
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                0.7
             

          	
             
                 
             

          	
             
                59.8
             

          	
             
                 
             

          	
             
                13.5
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (4.2
             

          	
             
                )
             

          	
             
                69.8
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Net exceptional charges
             

          	
             
                 
             

          	
             
                (172.5
             

          	
             
                )
             

          	
             
                66.1
             

          	
             
                 
             

          	
             
                1,788.0
             

          	
             
                 
             

          	
             
                114.7
             

          	
             
                 
             

          	
             
                139.1
             

          	
             
                 
             

          	
             
                1,014.0
             

          	
             
                 
             

          	
             
                2,949.4
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        (A)   Revenue 
     

     
        Exceptional product revenue of $172.5 million for 2002
        includes $154.7 million from product disposals arising from Elan’s
        recovery plan, as well as $17.8 million relating to product rationalisations.
        For additional information on product rationalisations, please refer to pages
        50 to 53. 
     

     
        On 9 December 2002, Elan announced the amendment of the
        terms of its development, licence and supply agreement with Ligand regarding
        Avinza. Elan received a cash payment of $100.0 million from Ligand, in return
        for a reduction in the ongoing royalty rate from the previous level of 30% of
        net sales of Avinza in the United States and Canada to approximately 10%. In
        addition, Elan agreed to forego its option to negotiate a co-promotion
        agreement with Ligand for Avinza in the United States and Canada. Elan will
        continue to manufacture the product in its Gainesville facility. Net of the
        write-off of the related intangible assets, Elan recorded exceptional product
        revenue of $75.6 million on the closing of this transaction. 
     

     
        On 3 October 2002, Elan announced that it sold its rights
        to Actiq in twelve territories, principally in Europe, to Anesta. At the date
        of disposal, Actiq was marketed by Elan in the United Kingdom, Ireland and
        Germany. Net of the write-off of the related intangible assets, Elan recorded
        exceptional product revenue of $40.3 million on the closing of this
        transaction. 
     

     
        On 23 August 2002, Elan announced a licensing agreement
        with Watson for exclusive marketing rights to the 30 mg and 60 mg dosage
        strengths of Elan’s extended-release nifedipine tablets in the United
        States. Elan received $45.0 million in cash from Watson. Elan will 
     

     

     
        41
     

     

     
     

     
     
        FINANCIAL REVIEW 
     

     
        continue to manufacture the products in its Athlone
        facility. Net of the write-off of the related intangible assets, Elan recorded
        exceptional product revenue of $38.8 million on the closing of this
        transaction. 
     

     
        (B)   Cost of Sales
        
     

     
        Exceptional cost of sales were $66.1 million in 2002,
        including a charge of $43.3 million related to the write-off of Zanaflex inventories due to the impact of
        generic competition during 2002. Other exceptional cost of sales includes $8.0
        million on the write down of the intangible asset for Mysoline, following
        generic competition for this product, severance/relocation costs of $8.4
        million, $5.7 million on the impairment of tangible fixed assets and other
        exceptional cost of sales of $0.7 million. 
     

     
        (C)   Selling, General and
        Administrative 
     

     
        Exceptional selling, general and administrative expenses
        were $1,788.0 million. $1,536.7 million of the exceptional expenses relate to
        impairment charges arising on write-downs of intangible assets. Other
        exceptional selling, general and administrative expenses were $251.3 million.
        These include the purchase of royalty rights from Autoimmune, fixed asset
        write-downs and similar costs arising from the restructuring of the Group as
        part of the recovery plan. They also include legal costs related to the SEC
        investigation, shareholder litigation and litigation provisions. 
     

     
        Impairment charges to goodwill relating to the
        acquisitions of Dura, Liposome, Quadrant and Sano were $854.9 million, $111.8
        million, $78.2 million and $2.4 million, respectively. Impairment charges to
        acquired IP arising from the acquisitions of Sano and Axogen Limited
        (“Axogen”) were $87.4 million and $28.4 million, respectively. Other
        impairments to goodwill totalled $19.1 million. Impairment charges to patents
        and licences arising on write-downs of the product intangibles for the Pain
        Portfolio, Myobloc, Naprelan, Myambutol, dermatology products and Frova were $86.3 million, $77.7
        million, $35.7 million, $32.7 million, $29.8 million and $29.4 million,
        respectively. Other impairments to patents and licences totalled $62.9 million.
        
     

     
        Dura 
     

     
        Elan acquired Dura in November 2000 for $1,590.7 million.
        Dura was a specialty pharmaceutical company engaged in the marketing and sale
        of prescription products for the treatment of infectious diseases and
        respiratory conditions. The Dura acquisition added over 500 hospital and
        primary care sales representatives to Elan’s sales and marketing
        infrastructure and broadened Elan’s portfolio of marketed products. The
        purchase price was primarily allocated to goodwill and patents and licences. In
        2002, Elan wrote down goodwill relating to the acquisition of Dura by $854.9
        million. Elan acquired Dura in order to significantly expand its sales and
        marketing infrastructure. Elan’s recovery plan aimed to create a research
        and development based biopharmaceutical company focused in neurology,
        autoimmune diseases and severe pain. Therefore, Elan decided to significantly
        reduce its sales and marketing infrastructure. For example, during 2002, Elan
        decided to dispose of its primary care franchise and related infrastructure. As
        a result of such reductions in Elan’s sales and marketing capability, the
        carrying value of the Dura goodwill was impaired. 
     

     
        Liposome 
     

     
        Elan acquired Liposome in May 2000 for $731.8 million,
        which included a milestone payment of $54.0 million paid on the receipt of
        marketing and pricing approval for Myocet in certain countries of the EU.
        Liposome was a biotechnology company engaged in the development, manufacturing
        and marketing of therapeutic products to treat cancer and related diseases. The
        purchase price was primarily allocated to goodwill and patents and licences. In
        2002, under its recovery plan, Elan disposed of its U.S., Canadian and any
        Japanese rights to Abelcet, and certain related assets, and allocated $119.0
        million of goodwill to the sale of the Abelcet business based on the estimated
        relative fair value of the Abelcet rights disposed. In 2002, Elan wrote down
        the remaining goodwill arising from the acquisition of Liposome by $111.8
        million, as under its recovery plan Elan decided to close its oncology research
        and development business. The residual value for goodwill of $86.8 million was
        supported by European rights to Abelcet and Myocet. 
     

     
        Sano 
     

     
        Elan acquired Sano in February 1998 for $434.6 million.
        Sano was developing transdermal drug delivery products. The purchase price was
        primarily allocated to acquired IP. In 2002, Elan wrote down acquired IP and
        goodwill arising from the acquisition of Sano by $87.4 million and $2.4
        million, respectively, as under its recovery plan Elan decided to dispose of
        its transdermal business. This business was sold to Nitto Americas in July
        2003. 
     

     

     
        42
     

     

     
     

     
     
        Quadrant 
     

     
        Elan acquired Quadrant in December 2000 for $86.0 million.
        Quadrant was a drug delivery company with proprietary formulation technology
        applicable to pulmonary, oral and parenteral routes of administration. The
        purchase price was primarily allocated to goodwill. In 2002, Elan wrote down
        goodwill arising from the acquisition of Quadrant by $78.2 million to $Nil, as
        under its recovery plan Elan decided to dispose of or close the Quadrant
        business. This business was sold to a company managed by former employees of
        the business in July 2003. 
     

     
        Axogen 
     

     
        Elan acquired Axogen in December 1999 for $268.4 million.
        The purchase price was primarily allocated to patents and licences and acquired
        IP. In 2002, Elan wrote down acquired IP relating to Myobloc, arising from the acquisition of
        Axogen, by $28.4 million. Elan also wrote down $77.7 million in respect of
        other Myobloc intangible
        assets. The carrying value of Myobloc was written down due to lower than expected revenue from this product
        for 2002 and changed expectations for this product. 
     

     
        Other products 
     

     
        The intangible asset for the Pain Portfolio was written
        down due to supply difficulties since its acquisition in 2001, leading to
        diminished selling support from Elan as well as changed commercial expectations
        related to generic competition. Naprelan and Myambutol have been written
        down due to the impact of generic competition on these products in 2002 and
        reduced projected revenue and profitability from these products. Frova was
        written down to reflect reduced projected revenue and profitability from this
        product. In June 2002, Elan elected not to exercise its purchase option to
        acquire certain dermatology products from GSK. This resulted in rights to all
        products reverting to GSK at the end of 2002. As a result of this decision,
        Elan wrote down the related product intangible by $29.8 million to $Nil.
        
     

     
        Autoimmune 
     

     
        In July 2002, Elan announced the termination of all
        agreements relating to the risk-sharing arrangement with Autoimmune. The
        royalty obligations to Autoimmune were terminated. The total consideration for
        the royalty rights was $121.0 million which, after taking account of the
        redemption of Elan’s investment of $38.5 million in Autoimmune, resulted
        in a net cash cost of $82.5 million. Elan expensed $121.0 million as an
        exceptional selling, general and administration expense arising from the
        acquisition of Autoimmune. 
     

     
        Litigation 
     

     
        Elan recorded a provision during 2002 of $19.0 million
        relating to litigation with Schwarz Pharma, Inc. (“Schwarz”),
        Allergan, Inc. and Allergan Sales, LLC (collectively, “Allergan”) and
        shareholder derivative actions. For additional information on these
        litigations, please refer to Note 25 to the Consolidated Financial Statements.
        
     

     
        (D)   Research and Development
        
     

     
        Exceptional research and development expenses were $114.7
        million. These mainly relate to product and goodwill impairments of $59.3
        million and $10.6 million, respectively, together with fixed asset write-downs
        of $11.6 million and severance/relocation costs. 
     

     
        In September 2001, Elan acquired Delsys, for $50.0
        million. Delsys was formed in 1995 and was engaged in developing novel
        manufacturing technology. During 2002, Elan recorded an impairment charge for
        the intangible assets relating to Delsys of $45.7 million, as under its
        recovery plan, Elan decided to close Delsys. 
     

     
        (E)   Other Ordinary
        Activities 
     

     
        Elan recognised a gain of $77.9 million on the disposal of
        Athena Diagnostics and the Abelcet business. In November 2002, Elan completed
        the sale of its U.S., Canadian and any Japanese rights to Abelcet, and certain
        related assets, to Enzon. Elan received a net cash payment of $360.0 million
        from Enzon, representing the total consideration, after agreed price
        adjustments. The gain amounted to $12.7 million. In December 2002, Elan
        together with the other stockholders of Elan’s subsidiary, Athena
        Diagnostics, completed the sale of all of the outstanding stock of Athena
        Diagnostics to Behrman Capital and certain of its affiliated investment funds
        (“Behrman”). Elan realised net cash proceeds of $81.8 million and a
        net gain of $65.2 million. 
     

     
        In its 2002 Annual Report and Form 20-F, Elan restated its
        U.S. GAAP financial results as of and for the fiscal year ended 31 December
        2001 to consolidate EPIL III from its date of establishment on 15 March 2001.
        Under U.S. GAAP, EPIL III had been historically accounted 
     

     

     
        43
     

     

     
     

     
     
        FINANCIAL REVIEW 
     

     
        for by Elan as a qualifying special purpose entity and was
        not, therefore, consolidated. In addition, in its 2002 Annual Report and Form
        20-F, Elan adjusted its previously announced unaudited U.S. GAAP financial
        information as of and for the fiscal year ended 31 December 2002 to give effect
        to the consolidation of EPIL III and to consolidate Shelly Bay Holdings Ltd.
        (“Shelly Bay”), an entity established by Elan, from 29 June 2002
        through 30 September 2002. Shelly Bay acquired certain financial assets from
        EPIL III on 29 June 2002. Under Irish GAAP, EPIL III had been accounted for as
        a consolidated subsidiary since its date of establishment in accordance with
        the requirements of FRS 5, “Reporting the Substance of Transactions”
        (“FRS 5”). Therefore, the 2001 restatement did not affect Elan’s
        Irish GAAP financial information, including the Irish GAAP financial
        information contained in this Annual Report and Form 20-F. For additional
        information regarding the restatement and the adjustments, please refer to Note
        33 to the Consolidated Financial Statements. 
     

     
        In March 2001, Elan transferred a portfolio of equity and
        debt securities to EPIL III, a wholly owned subsidiary of Elan. EPIL III issued
        $160.0 million in aggregate principal amount of Series A Guaranteed Notes,
        $190.0 million in aggregate principal amount of Series B Guaranteed Notes and
        $200.0 million in aggregate principal amount of Series C Guaranteed Notes. The
        Series A Guaranteed Notes matured on 29 June 2002. To fund the repayment of the
        notes, on 29 June 2002 EPIL III transferred certain financial assets,
        consisting of certain of the securities included in the portfolio transferred
        to EPIL III, to Shelly Bay and Shelly Bay made a $148.0 million cash payment to
        EPIL III. EPIL III used the proceeds from the payment by Shelly Bay, together
        with existing cash of $12.0 million, to repay the Series A Guaranteed Notes.
        The assets transferred by EPIL III to Shelly Bay had a carrying value under
        Irish GAAP of $223.4 million. 
     

     
        The documents that established EPIL III required that EPIL
        III dispose of financial assets in order to repay the Series A Guaranteed Notes
        at maturity. The documents also mandated the order in which the assets were to
        be sold prior to the maturity date for the Series A Guaranteed Notes. However,
        due to a number of factors, including the inability of Elan and EPIL III to
        locate the list mandating the order of disposal of the financial assets, the
        disposal process was commenced and completed over the one-week period ending on
        29 June 2002. Although Elan, as servicing agent for EPIL III, contacted a
        number of third parties regarding their potential interest in purchasing
        financial assets from EPIL III, each of those parties indicated that they would
        not be able to complete a due diligence analysis of the issuers of the
        financial assets to be sold, or to receive all necessary internal approvals to
        complete the purchase, on a timely basis. 
     

     
        Therefore, in an effort to enable EPIL III to dispose of
        the financial assets, Elan determined that it would be necessary to provide
        non-recourse credit support to third parties who would agree to purchase
        financial assets from EPIL III. Credit support was offered to a number of
        potential purchasers of the financial assets. However, ultimately, only Shelly
        Bay possessed the ability to complete the transaction on a timely basis.
        
     

     
        Elan established Shelly Bay specifically for the purpose
        of acquiring financial assets from EPIL III. All of the capital stock of Shelly
        Bay was issued to its sole shareholder. Elan did not own any capital stock of
        Shelly Bay and did not have a representative on Shelly Bay’s board of
        directors. In addition, the sole shareholder of Shelly Bay had no previous
        contact with Elan. However, as further described below, Elan possessed all of
        the financial risk of the Shelly Bay transaction. Similar to all other
        potential purchasers contacted by Elan, the sole shareholder of Shelly Bay was
        unwilling to invest capital to acquire the financial assets until a due
        diligence analysis of the issuers of the financial assets had been completed.
        Therefore, the sole shareholder of Shelly Bay made no substantive capital
        investment in Shelly Bay and, although Shelly Bay possessed all of the
        potential financial benefits of the transaction, neither Shelly Bay nor its
        sole shareholder had any financial risk in the transaction. 
     

     
        Elan believed that any failure by EPIL III to dispose of
        financial assets prior to 29 June 2002 could potentially adversely impact the
        non-consolidated accounting status of EPIL III under U.S. GAAP and could result
        in defaults under Elan’s debt instruments. 
     

     
        Under the terms of the transaction, Shelly Bay acquired
        certain financial assets from EPIL III on 29 June 2002 and made a cash payment
        to EPIL III of $148.0 million. Shelly Bay financed the entire purchase price of
        the financial assets, together with the funds necessary to pay interest and
        other costs on the loan to its maturity date, through borrowings under a $153.0
        million non-recourse bank loan facility maturing on 30 September 2002. Elan
        provided a full and unconditional guarantee to the bank to support Shelly
        Bay’s obligation to repay the loan and provided $153.0 million in cash
        collateral to the bank to secure Elan’s obligations under its guarantee.
        Upon the closing of the transaction, Elan paid to Shelly Bay approximately $1
        million to reimburse Shelly Bay for the expenses expected to be incurred by it
        in connection with the transaction. In addition, Elan irrevocably waived all
        rights of recourse against Shelly Bay in the event that it failed to repay the
        bank loan at maturity. 
     

     
        The cash payment made by Shelly Bay in connection with its
        acquisition of the financial assets was based upon a valuation conducted by
        Elan. The valuation utilised customary, widely-accepted valuation methodologies
        and required that Elan make certain judgements and assumptions regarding the
        financial assets. Elan did not receive any independent verification of the
        valuation at the time of the transaction. In addition, EPIL III did not receive
        any bids for the financial assets to be disposed of. 
     

     

     
        44
     

     

     
     

     
     
        Upon the closing of the transaction, Shelly Bay’s
        assets consisted solely of the financial assets purchased from EPIL III. Under
        the terms of the transaction, Shelly Bay was required to complete a due
        diligence analysis of the issuers of the securities prior to 15 September 2002.
        Shelly Bay had the right to either elect, on or prior to 15 September 2002, to
        retain the financial assets on a long-term basis or to dispose of the financial
        assets prior to 30 September 2002. 
     

     
        In the event that Shelly Bay elected to retain the
        financial assets, it was required, within 15 days of the election, to obtain
        alternative financing in an amount equal to the value, as of 29 June 2002, of
        the assets being retained, as determined by an independent appraiser engaged by
        Shelly Bay. The net cash proceeds received by Shelly Bay from any alternative
        financing were required to be applied to repay amounts outstanding under Shelly
        Bay’s bank loan. 
     

     
        In the event that Shelly Bay elected to dispose of the
        financial assets prior to 30 September 2002, Shelly Bay was required to apply
        the net proceeds from the dispositions to repay amounts outstanding under its
        bank loan. The transaction agreements contained no limitation on the price at
        which any financial asset could be sold by Shelly Bay or the party to whom any
        financial asset could be sold. In addition, Elan agreed that it had no right to
        object to the disposition of any financial asset, the party to whom it was
        disposed or the price obtained for the disposition. 
     

     
        Given the non-recourse nature of the Shelly Bay bank loan,
        Elan possessed all of the financial risk of the transaction under its guarantee
        of the bank loan, and the cash collateral provided by Elan to secure the
        guarantee, in the event of any shortfall in the aggregate proceeds received by
        Shelly Bay from the refinancing or disposition of the financial assets.
        Although Shelly Bay possessed all of the potential financial benefits of the
        transaction, neither Shelly Bay nor its sole shareholder had any financial risk
        in the transaction. 
     

     
        As required by the terms of the transaction, Shelly Bay
        engaged an independent appraiser to value the financial assets as of 29 June
        2002. The appraisal, which was prepared in early September 2002, valued the
        financial assets at $8.2 million. 
     

     
        Shelly Bay did not elect, under the terms of the
        transaction, to retain any of the financial assets and obtain alternative
        financing in an amount equal to the independent appraiser’s valuation.
        Rather, by 30 September 2002, Shelly Bay had disposed of all of the financial
        assets for aggregate net proceeds of $9.3 million. A number of the financial
        assets were disposed of, for net proceeds of $1.8 million, to an affiliate of
        Shelly Bay. The remainder of the financial assets were sold to third parties
        and in open market transactions. As described above, the transaction agreements
        contained no limitation on the price at which any financial asset could be sold
        by Shelly Bay or the party to whom any financial asset could be sold, including
        to an affiliate of Shelly Bay. In addition, Elan agreed that it had no right to
        object to the disposition of any financial asset, the party to whom it was
        disposed or the price obtained for the disposition. 
     

     
        As a result of the disposition of the financial assets by
        Shelly Bay for aggregate net proceeds of $9.3 million, on 30 September 2002,
        Elan made a cash payment of $141.6 million to satisfy its obligation under its
        guarantee. Under the terms of the transaction agreements, Elan has no further
        obligation under the guarantee and has no recourse to Shelly Bay or to its sole
        shareholder arising from Elan’s payment under the guarantee. The loss on
        the sale of the securities was $217.0 million under Irish GAAP including the
        $141.6 million under the guarantee. 
     

     
        (F) Net Interest 
     

     
        Exceptional net interest and other expenses were $1,014.0
        million. 
     

     
        This includes a charge of $1,045.9 million relating to
        investments in Elan’s investment portfolio, including the investments held
        by EPIL II and EPIL III. The financial markets for emerging biotechnology, drug
        delivery and pharmaceutical companies declined significantly during 2002. The
        investment impairment charge mainly reflects this significant decline in the
        financial markets and also the impact of weak financial markets on the ability
        of emerging biotechnology, drug delivery and pharmaceutical companies to raise
        finance. The charge also includes impairments relating to investments in
        business ventures and business venture parents. The investment impairments
        comprise $215.4 million, $575.4 million and $255.1 million in relation to
        quoted investments, unquoted investments and loans, and securitised
        investments, respectively. In addition, during 2003 the Company recognised a
        net loss on financial assets of $10.0 million. 
     

     
        Offsetting these charges was a net gain of $37.7 million
        on the repurchase of $318.6 million in principal amount at maturity of LYONs.
        These LYONs, having an accreted value of $190.1 million at the date of
        purchase, were purchased at an aggregate cost of $149.8 million, resulting in
        the net gain of $37.7 million after related costs. For further information
        regarding the LYONs, please refer to Note 15 to the Consolidated Financial
        Statements. 
     

     

     
        45
     

     

     
     

     
     
        FINANCIAL REVIEW 
     

     
        Net Interest and Other Expenses 
     

     
        Net interest and other expense was $187.5 million for 2003
        compared to $1,170.7 million for 2002. 
     

     
        Interest payable and similar charges decreased by 74% to
        $331.7 million for 2003 from $1,297.1 million for 2002, primarily reflecting
        investment related charges of $120.4 million and debt interest charges of
        $124.1 million in 2003 compared with $1,045.9 million and $128.5 million,
        respectively, in 2002. The investment related charges are specific to
        individual investments, and were impacted adversely by the significant decline
        in biotechnology markets during 2002. Interest payable for 2003 includes $4.1
        million (2002: $Nil) on the 6.5% Convertible Notes, issued by Elan Capital
        Corp. Ltd (“ECC”), an indirect wholly owned subsidiary of Elan, in
        November 2003; $47.1 million (2002: $47.1 million) on the 7.25% senior notes
        due 2008 (the “7.25% Senior Notes”), issued by Athena Neurosciences
        Finance, LLC, (“Athena Finance”), an indirect wholly owned subsidiary
        of Elan, in February 2001; $29.9 million (2002: $37.2 million) on the EPIL III
        Notes issued in March 2001; and $43.0 million (2002: $43.0 million) on the EPIL
        II Notes issued in June 2000. Elan expensed the subsequent funding it provides
        directly to business ventures. This is expensed within the interest and other
        expense line. Elan expensed $3.0 million and $23.9 million for this subsequent
        funding in 2003 and 2002, respectively. 
     

     
        Income from financial assets increased by 14% to $144.2
        million for 2003 from $126.4 million for 2002. Interest and other income
        decreased to $32.1 million for 2003 from $86.3 million in 2002, reflecting
        lower cash balances and reduced investment income during 2003. Net gains on
        financial assets amounted to $106.3 million in 2003 primarily reflecting gains
        of $72.3 million on the disposal of Elan’s investment in Ligand. Income
        from financial assets for 2003 also included a gain of $1.6 million (2002:
        $37.7 million) on the repurchase of LYONs. Foreign exchange gains amounted to
        $4.2 million in 2003 and $2.4 million in 2002. 
     

     
        For additional information regarding net interest and
        other expense, please refer to Note 4 to the Consolidated Financial Statements.
        
     

     
        For additional information regarding indebtedness, please
        refer to Note 15 to the Consolidated Financial Statements and to “Debt
        Facilities” in this Financial Review. 
     

     
        Taxation 
     

     
        Tax on profit on ordinary activities decreased to a tax
        credit of $22.0 million for 2003 from a tax charge of $19.8 million for 2002.
        The tax credit for 2003 includes the utilisation of prior stock option tax
        deductions of $26.7 million offset in part by tax charges of $4.7 million. The
        tax charges reflected tax at standard rates in the jurisdictions in which Elan
        operates, income derived from Irish patents, which is exempt from tax, foreign
        withholding tax and the availability of tax losses. Elan’s Irish patent
        derived income was exempt from taxation pursuant to Irish legislation, which
        exempts from Irish taxation income derived from qualifying patents. Currently,
        there is no termination date in effect for such exemption. 
     

     
        For additional information regarding taxation, please
        refer to Note 7 to the Consolidated Financial Statements. 
     

     
        Discontinued Operations 
     

     
        Under Irish GAAP, a discontinued operation is classified
        as an operation of the business which is (i) sold or terminated and the sale or
        termination has been completed during the year or within three months following
        the year end, (ii) the former activities have ceased permanently, (iii) the
        operation had a material effect on the nature and focus of the business and
        (iv) its financial results are clearly distinguishable. 
     

     
        In the first quarter of 2004, Elan concluded its recovery
        plan with the sale of its European sales and marketing infrastructure. The
        results of this operation together with those of other business divestments and
        closures made during the recovery plan have been reported separately as
        discontinued operations for 2003 and for comparative years. Other divestments
        and closures include the sale of Elan’s diagnostic businesses, the return
        of the dermatology products to GSK, the Abelcet business, the sale of the
        primary care franchise to King, the sale of the Pain Portfolio to aaiPharma and
        the sale or closure of a number of drug delivery businesses including the sale
        of a transdermal technology business, the closure of Elan’s medipad
        business and Elan’s research facility in Princeton and the sale of a U.K.
        drug delivery business. 
     

     
        For additional information on discontinued operations,
        please refer to Note 6 to the Consolidated Financial Statements. 
     

     
        Retained Loss 
     

     
        Retained loss for the year, after exceptional items, was
        $815.4 million for 2003 compared to a retained loss of $3,615.1 million for
        2002. Before exceptional items, retained loss was $498.3 million for 2003
        compared to a retained loss of $665.7 million for 2002. Basic loss 
     

     

     
        46
     

     

     
     

     
     
        per share, after exceptional items, was $2.29 for 2003,
        compared to $10.34 per share for 2002. Basic loss per share, before exceptional
        items, was $1.40 for 2003 compared to $1.90 per share for 2002. Diluted loss
        per share, after exceptional items, was $2.29 for 2003, compared to $10.34 per
        share for 2002. Diluted loss per share, before exceptional items was $1.40 for
        2003 compared to $1.90 per share for 2002. 
     

     
        2002 Compared to 2001 
     

     
        The analysis of revenue has been restated to reflect
        product divestments in 2003. 
     

     
        Revenue 
     

     
        Total revenue decreased 23% to $1,333.0 million for 2002
        from $1,740.7 million for 2001. 
     

     
         
     

     	
             
                Product Revenue
             

          	
             
                 
             

          	
             
                2002
 $m
             

          	
             
                 
             

          	
             
                2001
 $m
             

          	
             
                 
             

          
	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                (A) Revenue from Retained Products(1)
                
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                U.S. Promoted Products
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Maxipime
             

          	
             
                 
             

          	
             
                79.2
             

          	
             
                 
             

          	
             
                86.3
             

          	
             
                 
             

          
	
             
                Azactam
             

          	
             
                 
             

          	
             
                33.0
             

          	
             
                 
             

          	
             
                46.4
             

          	
             
                 
             

          
	
             
                Myobloc
             

          	
             
                 
             

          	
             
                19.6
             

          	
             
                 
             

          	
             
                11.6
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                131.8
             

          	
             
                 
             

          	
             
                144.3
             

          	
             
                 
             

          
	
             
                U.S. Non-Promoted Products
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Zanaflex(2)
             

          	
             
                 
             

          	
             
                56.8
             

          	
             
                 
             

          	
             
                161.7
             

          	
             
                 
             

          
	
             
                Other
             

          	
             
                 
             

          	
             
                0.7
             

          	
             
                 
             

          	
             
                34.7
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                57.5
             

          	
             
                 
             

          	
             
                196.4
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Contract manufacturing and royalties
             

          	
             
                 
             

          	
             
                109.3
             

          	
             
                 
             

          	
             
                113.4
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Total Revenue from Retained Products
             

          	
             
                 
             

          	
             
                298.6
             

          	
             
                 
             

          	
             
                454.1
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                (B) Revenue from Divested Products(3)
                
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Skelaxin(4)
             

          	
             
                 
             

          	
             
                145.3
             

          	
             
                 
             

          	
             
                117.9
             

          	
             
                 
             

          
	
             
                Sonata(4)
             

          	
             
                 
             

          	
             
                92.5
             

          	
             
                 
             

          	
             
                2.3
             

          	
             
                 
             

          
	
             
                Abelcet(5)
             

          	
             
                 
             

          	
             
                64.6
             

          	
             
                 
             

          	
             
                72.0
             

          	
             
                 
             

          
	
             
                Dermatology
             

          	
             
                 
             

          	
             
                47.6
             

          	
             
                 
             

          	
             
                61.8
             

          	
             
                 
             

          
	
             
                Diagnostics
             

          	
             
                 
             

          	
             
                70.6
             

          	
             
                 
             

          	
             
                51.7
             

          	
             
                 
             

          
	
             
                Pain Portfolio(6)
             

          	
             
                 
             

          	
             
                59.8
             

          	
             
                 
             

          	
             
                15.4
             

          	
             
                 
             

          
	
             
                Avinza(7)
             

          	
             
                 
             

          	
             
                75.6
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Actiq/nifedipine(7)
             

          	
             
                 
             

          	
             
                79.1
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                European business
             

          	
             
                 
             

          	
             
                102.6
             

          	
             
                 
             

          	
             
                90.9
             

          	
             
                 
             

          
	
             
                Zonegran(8)
             

          	
             
                 
             

          	
             
                43.1
             

          	
             
                 
             

          	
             
                37.8
             

          	
             
                 
             

          
	
             
                Frova(8)(9)
             

          	
             
                 
             

          	
             
                11.2
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Other
             

          	
             
                 
             

          	
             
                1.3
             

          	
             
                 
             

          	
             
                12.3
             

          	
             
                 
             

          
	
             
                Product rationalisations(7)
             

          	
             
                 
             

          	
             
                17.8
             

          	
             
                 
             

          	
             
                231.4
             

          	
             
                 
             

          
	
             
                Product sales of rationalised products
             

          	
             
                 
             

          	
             
                32.0
             

          	
             
                 
             

          	
             
                101.7
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                843.1
             

          	
             
                 
             

          	
             
                795.2
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                (C) Co-promotion Fees
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Autoimmune
             

          	
             
                 
             

          	
             
                38.8
             

          	
             
                 
             

          	
             
                15.9
             

          	
             
                 
             

          
	
             
                Pharma Marketing
             

          	
             
                 
             

          	
             
                24.0
             

          	
             
                 
             

          	
             
                141.8
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                62.8
             

          	
             
                 
             

          	
             
                157.7
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Total Product Revenue
             

          	
             
                 
             

          	
             
                1,204.5
             

          	
             
                 
             

          	
             
                1,407.0
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Contract Revenue
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Licence fees
             

          	
             
                 
             

          	
             
                7.1
             

          	
             
                 
             

          	
             
                173.6
             

          	
             
                 
             

          
	
             
                Pharma Marketing / Autoimmune
             

          	
             
                 
             

          	
             
                37.2
             

          	
             
                 
             

          	
             
                58.7
             

          	
             
                 
             

          
	
             
                Research revenue and milestones
             

          	
             
                 
             

          	
             
                84.2
             

          	
             
                 
             

          	
             
                101.4
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Total Contract Revenue
             

          	
             
                 
             

          	
             
                128.5
             

          	
             
                 
             

          	
             
                333.7
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Total Revenue
             

          	
             
                 
             

          	
             
                1,333.0
             

          	
             
                 
             

          	
             
                1,740.7
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     		
             
                (1)
             

          	
             
                Products described as “Retained
                Products” include products or businesses not divested and not subject to
                divestment agreements. 
             

          

     		
             
                (2)
             

          	
             
                While Zanaflex was promoted during 2001 and part
                of 2002, it is shown here under “U.S. Non-promoted Products” as
                promotion ceased following the launch of generics during 2002. 
             

          

 

     
        47
     

     

     
     

     
     
        FINANCIAL REVIEW 
     

     		
             
                (3)
             

          	
             
                Products described as “Divested
                Products” include products or businesses divested since the beginning of
                2001, and products or businesses subject to divestment agreements. 
             

          

     		
             
                (4)
             

          	
             
                Sold to King in June 2003. 
             

          

     		
             
                (5)
             

          	
             
                Sold to Enzon in November 2002. 
             

          

     		
             
                (6)
             

          	
             
                Acquired from Roxane in September 2001. Sold to
                aaiPharma in December 2003. 
             

          

     		
             
                (7)
             

          	
             
                Exceptional product revenue. 
             

          

     		
             
                (8)
             

          	
             
                On 30 March 2004, Elan announced an agreement to
                divest this product. This divestment is expected to close before the end of the
                second quarter of 2004. 
             

          

     		
             
                (9)
             

          	
             
                Launched in the United States in May
                2002. 
             

          

     
        Product Revenue 
     

     
        Product revenue decreased by 14% to $1,204.5 million for
        2002 from $1,407.0 million for 2001. 
     

     
        (A) Revenue from Retained Products 
     

     
        Revenue from retained products was $298.6 million for 2002
        compared with $454.1 million for 2001. Combined revenue from Maxipime and Azactam was $112.2 million for 2002 compared
        to $132.7 million for 2001, a decrease of 15%. This decrease was due to supply
        issues during 2002, which have since been resolved, together with a change in
        Elan’s discounting strategy, which resulted in reduced wholesaler
        inventories. Myobloc product
        revenue increased 69% for 2002 to $19.6 million from $11.6 million for 2001 as
        a result of increased promotion. Generic competitor products to Zanaflex were launched in the United States
        during 2002. This resulted in a decrease in Zanaflex revenue to $56.8 million for 2002
        compared to $161.7 million for 2001. 
     

     
        (B) Revenue from Divested Products 
     

     
        On 30 January 2003, Elan announced that it had agreed to
        sell its primary care franchise, principally consisting of its U.S. and Puerto
        Rican rights to Skelaxin and Sonata, related inventory and related rights to
        enhanced formulations of these products, to King. On 17 March 2003, Elan
        commenced a lawsuit against King to compel King to complete its purchase of the
        primary care franchise. On 19 May 2003, Elan and King agreed to proceed with
        the transaction on amended terms and on 12 June 2003 the transaction was
        completed. Effective upon the closing of the transaction, all claims under the
        pending litigation were released and Elan and King dismissed the litigation
        with prejudice. During 2002, product revenue from Skelaxin and Sonata was
        $237.8 million (2001: $120.2 million). 
     

     
        During 2002, Elan divested its dermatology and Athena
        Diagnostics businesses and its U.S., Canadian and any Japanese rights to
        Abelcet. On 29 April 2003, Elan completed the sale of Elan Diagnostics. These
        businesses contributed $182.8 million to product revenue for 2002 (2001: $185.5
        million), representing revenues before they were divested. 
     

     
        On 2 December 2003, Elan announced the completion of the
        sale of the Pain Portfolio to aaiPharma. Revenue from the Pain Portfolio was
        $59.8 million for 2002 compared to $15.4 million for 2001. 
     

     
        On 9 December 2002, Elan announced the amendment of the
        terms of its development, licence and supply agreement with Ligand regarding
        Avinza. Elan received a cash payment of $100.0 million from Ligand in return
        for a reduction in the ongoing royalty rate from the previous level of 30% of
        net sales of Avinza in the United States and Canada to approximately 10%. In
        addition, Elan agreed to forego its option to negotiate a co-promotion
        agreement with Ligand for Avinza in the United States and Canada. Elan will
        continue to manufacture the product in its Gainesville facility. Net of the
        write-off of the related intangible assets, Elan recorded net revenue of $75.6
        million on the closing of this transaction. 
     

     
        On 3 October 2002, Elan announced that it sold its rights
        to Actiq in twelve territories, principally in Europe, to Anesta. At the date
        of disposal, Actiq was marketed by Elan in the United Kingdom, Ireland and
        Germany. Net of the write-off of the related intangible assets, Elan recorded
        revenue of $40.3 million on the closing of this transaction. 
     

     
        On 23 August 2002, Elan announced a licensing agreement
        with Watson for exclusive marketing rights to the 30 mg and 60 mg dosage
        strengths of Elan’s extended-release nifedipine tablets in the United
        States. Elan received $45.0 million in cash from Watson. Elan will continue to
        manufacture the products in its Athlone facility. Net of the write-off of the
        related intangible assets, Elan recorded revenue of $38.8 million on the
        closing of this transaction. 
     

     
        On 12 February 2004, Elan announced the sale of its
        European sales and marketing business to Medeus. Separately, Elan completed the
        sale of certain rights to two products in the U.K. and Ireland for
        approximately $10 million during the first quarter of 2004. During 2002,
        revenue from these European products was $102.6 million (2001: $90.9 million).
        
     

     

     
        48
     

     

     
     

     
     
        On 30 March 2004, Elan announced that it had agreed to
        sell its interests in North America and Europe for Zonegran to Eisai. The
        transaction is expected to close before the end of the second quarter of 2004.
        Zonogran revenue was $43.1 million for 2002 compared to $37.8 million for 2001,
        an increase of 14%. The percentage increase in prescription demand for this
        product in 2002 over 2001 was higher than the percentage increase in product
        revenue, due to a change in Elan’s discounting strategy, which resulted in
        reduced wholesaler inventories. 
     

     
        On 30 March 2004, Elan announced that it had agreed to
        sell its commercialisation rights in North America for Frova to Vernalis. The
        transaction is expected to close before the end of the second quarter of 2004.
        Frova, which was launched in the United States in May 2002 under a co-promotion
        agreement between Elan and UCB, generated revenue of $11.2 million for 2002.
        
     

     
        Product rationalisation revenue was $17.8 million for 2002
        compared to $231.4 million for 2001. For additional information on product
        rationalisations, please refer to pages 50 to 53. 
     

     
        Product sales of rationalised products, which represents
        revenue prior to rationalisation, decreased by 69% to $32.0 million for 2002
        from $101.7 million for 2001. 
     

     
        (C) Co-promotion Fees 
     

     
        Product revenue from product co-promotion and marketing
        activities, which resulted from Elan’s risk-sharing arrangements with
        Pharma Marketing and Autoimmune, decreased by 60% to $62.8 million for 2002
        from $157.7 million for 2001. Elan will not receive any future revenue from
        either Pharma Marketing or Autoimmune. 
     

     
        Contract Revenue 
     

     
        Contract revenue decreased by 61% to $128.5 million for
        2002 from $333.7 million for 2001, primarily as no licence fees were received
        from business ventures in 2002. Elan received up front licence fees of $7.1
        million in 2002 compared to $173.6 million for 2001. Contract revenue from
        Pharma Marketing and Autoimmune decreased by 37% to $37.2 million for 2002 from
        $58.7 million for 2001. Elan will not receive any future revenue from either
        Pharma Marketing or Autoimmune. Research revenue and milestones amounted to
        $84.2 million in 2002 compared to $101.4 million in 2001. 
     

     
        Major Customers 
     

     
        Cardinal Health, Amerisource Bergen and McKesson, all of
        which are drug wholesalers, accounted for approximately 13%, 13% and 12%,
        respectively, of Elan’s total revenue for 2002. Cardinal Health and Pharma
        Marketing accounted for approximately 14% and 11%, respectively, of Elan’s
        total revenue for 2001. No other customer accounted for more than 10% of total
        revenue for 2002 or 2001. 
     

     
        Cost of Sales 
     

     
        Cost of sales, after exceptional items, increased by 25%
        to $483.1 million for 2002 from $386.8 million for 2001. The increase was 15%
        before exceptional items of $66.1 million for 2002 and $22.8 million for 2001.
        Gross margin on total revenue, before exceptional items, was approximately 64%
        for 2002 and 76% for 2001. Gross margin on total revenue, after exceptional
        items, was 64% for 2002 and 78% for 2001. Gross margin on product revenue,
        before exceptional items, decreased to 60% for 2002 from 69% for 2001. Gross
        margin on product revenue, after exceptional items, decreased to 60% in 2002
        from 73% in 2001. The reduction in gross margin on product revenue reflects
        changes in the mix of product revenue, in particular the decrease in product
        revenue from risk-sharing arrangements and from Zanaflex. The reduction in gross margin on
        total revenue reflects changes in the mix of revenue, in particular the
        decrease in licence fees and in revenue from risk-sharing arrangements. 

     

     
        Selling, General and Administrative Expenses
        
     

     
        Selling, general and administrative expenses, after
        exceptional items, increased by 47% to $2,623.4 million for 2002 from $1,781.7
        million for 2001. The increase was 20% before exceptional items of $1,788.0
        million for 2002 and $1,084.2 million for 2001, principally reflecting
        increased sales and marketing costs arising from the inclusion of a full
        year’s sales and marketing costs for 2002 for Sonata (Elan assumed
        marketing responsibility for this product in December 2001) and the Pain
        Portfolio (Elan acquired these products in September 2001), together with the
        launch of Frova during 2002. 
     

     

     
        49
     

     

     
     

     
     
        FINANCIAL REVIEW 
     

     
        Research and Development Expenses 
     

     
        Research and development expenses, after exceptional
        items, increased by 29% to $517.3 million for 2002 from $401.9 million for
        2001. The increase was 25% before exceptional items of $114.7 million for 2002
        and $78.6 million for 2001, principally reflecting increased expenditure on
        Elan’s research and development projects, including Antegren. 
     

     
        Exceptional Items 
     

     
        Exceptional items are those items that in
        management’s judgement are material items which derive from events or
        transactions that fall within the ordinary activities of the Group and which
        individually or, if of a similar type, in aggregate, need to be disclosed by
        virtue of their size or incidence. 
     

     
        2002
     

     
        In 2002, Elan incurred net exceptional charges of $2,949.4
        million. For additional information on these exceptional charges, please refer
        to pages 40 to 45. 
     

     
        2001
     

     
        In 2001, Elan incurred net exceptional charges of $931.9
        million. These exceptional revenues and costs have been included under the
        statutory format headings to which they relate analysed as follows: 
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                Revenue
 (A)
 $m
             

          	
             
                 
             

          	
             
                Cost
 of
                Sales
 (B)
 $m
             

          	
             
                 
             

          	
             
                Selling,
 General
                and
 Administrative
 (C)
 $m
             

          	
             
                 
             

          	
             
                Research
 and
 Development

                (D)
 $m
             

          	
             
                 
             

          	
             
                Net
 Interest
 (E)
 $m
             

          	
             
                 
             

          	
             
                Total
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Product rationalisations
             

          	
             
                 
             

          	
             
                (231.4
             

          	
             
                )
             

          	
             
                15.6
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (215.8
             

          	
             
                )
             

          
	
             
                Rationalisation of research and development
                activities
             

          	
             
                 
             

          	
             
                (2.0
             

          	
             
                )
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                60.5
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                58.5
             

          	
             
                 
             

          
	
             
                Pharmaceutical division reorganisation costs
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                0.4
             

          	
             
                 
             

          	
             
                55.7
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                56.1
             

          	
             
                 
             

          
	
             
                Acquired IP and product impairment
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                1,009.8
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                1,009.8
             

          	
             
                 
             

          
	
             
                Investment impairments
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                24.1
             

          	
             
                 
             

          	
             
                24.1
             

          	
             
                 
             

          
	
             
                Net gain on financial assets
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (56.8
             

          	
             
                )
             

          	
             
                (56.8
             

          	
             
                )
             

          
	
             
                Asset write-downs and other
             

          	
             
                 
             

          	
             
                5.6
             

          	
             
                 
             

          	
             
                6.8
             

          	
             
                 
             

          	
             
                18.7
             

          	
             
                 
             

          	
             
                18.1
             

          	
             
                 
             

          	
             
                6.8
             

          	
             
                 
             

          	
             
                56.0
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Net exceptional charges
             

          	
             
                 
             

          	
             
                (227.8
             

          	
             
                )
             

          	
             
                22.8
             

          	
             
                 
             

          	
             
                1,084.2
             

          	
             
                 
             

          	
             
                78.6
             

          	
             
                 
             

          	
             
                (25.9
             

          	
             
                )
             

          	
             
                931.9
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        (A)   Revenue 
     

     
        Exceptional revenue in 2001 primarily relates to product
        rationalisation revenue of $231.4 million. 
     

     
        During 2001, Elan reorganised its sales force into five
        groups, consisting of primary care, hospital, neurology, specialty/dermatology
        and clinical sales consultants. Sales force activity was redirected to promote
        Zanaflex, Skelaxin, Abelcet,
        Azactam, Maxipime, Myobloc, Zonegran and Cutivate. Elan also
        commenced a product acquisition and marketing alliance strategy to access
        brands meeting certain commercial criteria established by Elan. Conversely,
        pursuant to its rationalisation programme, Elan rationalised certain of its
        products that did not meet its commercial criteria. This rationalisation
        programme generated product revenue and profits for Elan. The commercial
        criteria on which the promoted products were chosen, and against which product
        acquisitions or marketing alliances were evaluated, included potential future
        revenue from the product; whether the product was in a therapeutic area in
        which Elan marketed products or had pipeline products; whether the product was
        a niche product; and whether Elan’s drug delivery technologies could be
        utilised to enhance the value of the product. For example, Elan assumed
        responsibility for the U.S. marketing rights of Sonata in December 2001
        pursuant to its marketing alliance with Wyeth and acquired the Pain Portfolio
        from Roxane in September 2001. 
     

     
        In 2001, Elan rationalised Diastat, Entex, Furadantin,
        Midrin, Mysoline, Nasalide, Nasarel and Permax. These rationalisations were
        accomplished through outright sales or pursuant to distribution and royalty
        arrangements. The rationalised products did not fit with Elan’s commercial
        criteria. Some of these products would also have suffered over time from the
        withdrawal of promotional support by Elan. In certain cases, the products were
        also facing other challenges such as the potential for generic competition.
        
     

     

     
        50
     

     

     
     

     
     
        Revenue generated from product rationalisations is
        recorded as product revenue. Elan recorded net product revenue of $231.4
        million from product rationalisations in 2001. This is recorded as exceptional
        product revenue. The rationalised products generated revenue prior to
        rationalisation of $101.7 million for 2001. 
     

     
        The following table lists each product rationalised in
        2001, the company to which the product was rationalised and the net revenue
        recorded by Elan in 2001 from the rationalisation. Net income from product
        rationalisations in 2001 amounted to $215.8 million. 
     

     	
             
                Product Rationalised
             

          	
             
                 
             

          	
             
                Company
             

          	
             
                 
             

          	
             
                 
             

          	
             
                Net Revenue
 $m
             

          
	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
 
	
             
                (a) Diastat
             

          	
             
                 
             

          	
             
                Xcel
             

          	
             
                 
             

          	
             
                 
             

          	
             
                97.0 
             

          
	
             
                (a) Mysoline
             

          	
             
                 
             

          	
             
                Xcel
             

          	
             
                 
             

          	
             
                 
             

          	
             
                23.5 
             

          
	
             
                (b) Nasarel/Nasalide
             

          	
             
                 
             

          	
             
                IVAX Corporation (“IVAX”)
             

          	
             
                 
             

          	
             
                 
             

          	
             
                62.6 
             

          
	
             
                (c) Permax
             

          	
             
                 
             

          	
             
                Amarin Corporation, plc (“Amarin”)
             

          	
             
                 
             

          	
             
                 
             

          	
             
                10.7 
             

          
	
             
                (d) Entex
             

          	
             
                 
             

          	
             
                Andrx Corporation (“Andrx”)
             

          	
             
                 
             

          	
             
                 
             

          	
             
                12.8 
             

          
	
             
                (d) Midrin
             

          	
             
                 
             

          	
             
                Women First Healthcare, Inc.
                (“WFHC”)
             

          	
             
                 
             

          	
             
                 
             

          	
             
                13.6 
             

          
	
             
                (d) Furadantin
             

          	
             
                 
             

          	
             
                First Horizon Pharmaceutical Corporation
                (“First Horizon”)
             

          	
             
                 
             

          	
             
                 
             

          	
             
                11.2 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                231.4
             

          

 

     
        (a) Diastat/Mysoline 
     

     
        Xcel was formed in January 2001. Xcel is a specialty
        pharmaceutical company with an initial focus on neurology. Mr Cam Garner, Mr
        Michael Borer and Mr John Cook, founders of Xcel, were previously employed by
        Dura, a company Elan acquired in November 2000. Mr James Fares, a founder of
        Xcel, was previously employed by Elan. 
     

     
        Elan rationalised the product rights and related inventory
        of Diastat to Xcel on 31 March 2001. Elan subsequently rationalised the product
        rights and related inventory of Mysoline to Xcel. Both these products fall
        within Xcel’s focus on neurology. Diastat and Mysoline are products used
        for the treatment of epilepsy. Under the product agreements, Xcel acquired
        worldwide rights to Diastat and exclusive rights to Mysoline in the United
        States. Elan received aggregate cash consideration of $160.0 million for
        Diastat and Mysoline. Elan also had a royalty right of between 5% and 20% on
        net sales of Mysoline by Xcel. After reducing the carrying value of the related
        intangible assets, Elan recorded net revenue of $97.0 million and $23.5 million
        on the rationalisation of Diastat and Mysoline, respectively, in 2001. 
     

     
        On 30 March 2001, Xcel raised net proceeds of $69.6
        million from issuing convertible preferred stock. Elan purchased $15.0 million
        of this convertible preferred stock, representing approximately 16% of
        Xcel’s equity on a fully diluted basis. On this date, two venture capital
        funds and their affiliates purchased 54% of Xcel’s equity on a fully
        diluted basis. 
     

     
        On 31 March 2001, Elan provided a loan of $99.0 million to
        Xcel. Elan also provided a $10.0 million line of credit to Xcel, which was
        drawn down in June 2002. 
     

     
        Mr Erle Mast, who, at the time, was an Elan employee,
        became a member of Xcel’s board of directors in February 2002. 
     

     
        On 1 April 2003, Elan announced that it received $89.5
        million in cash from Xcel in exchange for all of Elan’s shareholding in,
        and loans to, Xcel. In addition, the royalty right on net sales of Mysoline was
        terminated. The net carrying value of the shares and loan notes was written
        down during 2002 by $34.5 million. 
     

     
        (b) Nasarel/Nasalide 
     

     
        IVAX is engaged in the research, development,
        manufacturing and marketing of branded and brand equivalent (generic)
        pharmaceuticals and veterinary products in the United States and international
        markets. In September 2001, Elan rationalised the product rights and related
        inventory of Nasarel and Nasalide to IVAX. Elan received cash consideration of
        approximately $120.0 million for Nasarel and Nasalide and retained a royalty
        right of between 5% and 10% on net sales of Nasarel and Nasalide by IVAX. After
        reducing the carrying value of the related intangible assets, Elan recorded net
        revenue of $62.6 million on the rationalisation of Nasarel and Nasalide in
        2001.
     

     

     
        51
     

     

     
     

     
     
        FINANCIAL REVIEW 
     

     
        (c) Permax 
     

     
        Amarin is a specialty pharmaceutical company focused on
        neurology and pain management. Mr Thomas Lynch, an employee of Elan and
        formerly its executive vice chairman, and Mr John Groom, a director of Elan,
        serve on Amarin’s board of directors. Mr Lynch is non-executive chairman
        of Amarin. 
     

     
        In May 2001, Elan and Amarin entered into a distribution
        and option agreement, whereby Amarin agreed to market and distribute Permax in
        the United States, and was granted an option to acquire rights to the product
        from Elan. Permax is used for the treatment of Parkinson’s disease and
        falls within Amarin’s focus on neurology. In September 2001, this
        agreement was amended, whereby Amarin was appointed the sole distributor of
        Permax in the United States until August 2002. Elan recorded consideration of
        $45.0 million under the terms of the amended distribution and option agreement
        and retained a royalty right of 3.5% on net sales of Permax by Amarin from 1
        January 2002 through the date on which Amarin exercised or terminated its
        option to acquire Permax. In 2001, Elan also recorded a net amount of $6.2
        million from Amarin for distribution fees and royalties on sales of Permax.
        After reducing the carrying value of the Permax intangible and equity
        accounting, Elan recorded net revenue from Amarin of $16.9 million in 2001
        which includes the distribution revenue. Amarin’s option to purchase
        Permax was exercisable between September 2001 and May 2002 for an exercise
        price of $37.5 million, payable $7.5 million on exercise of the option and $2.5
        million in quarterly instalments thereafter, and a royalty of between 7% and
        10% on future net sales of Permax by Amarin. On 11 March 2002, Amarin exercised
        its option to acquire Permax and paid Elan the first instalment of the exercise
        price of $7.5 million. Elan did not recognise the unpaid option exercise price,
        but rather intended to record such consideration as it was received due to
        uncertainties surrounding its ultimate collectibility. 
     

     
        In connection with the amended distribution and option
        agreement, Elan provided a loan of $45.0 million to Amarin. The loan bore
        interest at a rate equal to LIBOR plus a margin of 2%. Amarin repaid $2.5
        million of this loan in July 2002. In January 2003, $19.9 million of this loan,
        including interest of $2.4 million, was repaid by Amarin and the maturity of
        the remaining amount of the loan was amended to $10.0 million payable in
        September 2004 and $15.0 million payable in September 2005. 
     

     
        During 2001, Elan granted Amarin a purchase option to
        acquire Zelapar. Zelapar is a fast melt formulation of selegiline for the
        treatment of Parkinson’s disease. 
     

     
        In August 2003, Elan and Amarin agreed to amend certain
        terms of their agreements whereby Amarin had until 31 December 2003 to pay
        $30.0 million to Elan. If Amarin did so, all loans referred to above and
        outstanding deferred payments due in connection with the purchase of Permax
        would have been discharged in full, and Amarin would have been deemed to have
        exercised its option to acquire Zelapar. Elan would additionally receive a
        royalty of 12.5% of net sales of Zelapar by Amarin, and may have received a
        future revenue-contingent milestone payment of $10.0 million in ordinary shares
        of Amarin if annual sales of Zelapar exceeded $20.0 million. All quarterly
        payments due in connection with the purchase of Permax and all loan interest
        payments due were subject to a moratorium that expired on 31 December 2003.
        
     

     
        In December 2003, Elan agreed to further amendments of
        those terms, by increasing the amount Amarin could pay to discharge its
        indebtedness and acquire Zelapar, from $30.0 million to $31.5 million, and
        extending the time for doing so to 31 March 2004. Consequently, the times for
        exercise of the Zelapar option and the moratorium on payments due in connection
        with the purchase of Permax and all loan interest payments due were also
        extended to 31 March 2004. 
     

     
        Additionally, Elan agreed to a loan facility to Amarin of
        up to $6.0 million to finance Amarin’s cash requirements through 31 March
        2004 and repayable on 31 March 2004. Amarin drew down $4.0 million of this
        facility through February 2004. Amarin agreed to pay Elan a monthly fee for
        this facility. In February 2004, Amarin paid $0.3 million to Elan, representing
        the amount of this fee for January 2004. 
     

     
        Amarin repaid $11.1 million to Elan in December 2003. In
        February 2004, Elan and Amarin agreed to further amend their contractual
        arrangements subject to the sale by Amarin of certain of its U.S. assets,
        including its rights to Zelapar and Permax, to Valeant Pharmaceuticals
        International (“Valeant”). On 25 February 2004, Amarin’s sale of
        assets to Valeant closed and the amendments became effective. The amendments
        required, in full settlement of all previous liabilities owed by Amarin to Elan
        and as a deemed exercise of Amarin’s option to acquire Zelapar, the
        payment by Amarin of $17.2 million to Elan and the issuance of a $5.0 million
        five-year 8% loan note and warrants to purchase 500,000 ordinary shares in
        Amarin to Elan. Under the amendments, Elan is also entitled to receive a $1.0
        million milestone payment from Amarin upon the successful completion of certain
        Zelapar safety studies. Elan is also entitled to receive from Valeant a revenue
        contingent milestone on Zelapar of $10.0 million if annual sales of Zelapar
        exceed $20.0 million, and royalties on future net sales by Valeant of 12.5% for
        Zelapar and 10% for Permax. As a consequence of these amendments Amarin paid
        $17.2 million to Elan in February 2004.
     

     

     
        52
     

     

     
     

     
     
        At 31 December 2003, Elan held approximately 26% of the
        outstanding ordinary shares of Amarin. As described above, in February 2004
        Elan received warrants to purchase 500,000 ordinary shares in Amarin. As a
        result, Elan’s share ownership in Amarin is now approximately 28% on a
        fully diluted basis. 
     

     
        Under Irish GAAP Elan accounted for Amarin using the
        equity method, based on Elan’s fully diluted equity investment in Amarin
        in 2003 and 2002. Amarin is a related party to Elan. Elan recorded net revenue
        from Amarin of $0.3 million in 2003 (2002: $4.8 million; 2001: $16.9 million).
        Elan’s total investment in Amarin at 31 December 2003 amounted to $23.9
        million, consisting of loans, including interest, of $20.9 million and a net
        equity investment of $3.0 million. In addition, Elan had trading balances due
        from Amarin of $Nil at 31 December 2003 (2002: $13.7 million). As described
        above, Amarin paid a net $13.5 million to Elan during January/February 2004,
        and now owes Elan $5.0 million under a five-year loan note and a potential $1.0
        million milestone payment on Zelapar. Aside from the $5.0 million five-year
        loan note and the potential $1.0 million milestone payment on Zelapar, Amarin
        has no remaining debt obligations to Elan. 
     

     
        (d) Other Product Rationalisations 
     

     
        In June 2001, Elan rationalised the product rights and
        related inventory of Entex to Andrx. Andrx is a corporation that commercialises
        controlled-release oral pharmaceuticals using its proprietary drug delivery
        technologies. Elan received cash consideration of $14.7 million and retained a
        royalty of 10% on sales of Entex for 10 years from 2002. If annual sales of
        Entex exceed $10.0 million, Andrx will make additional royalty payments to Elan
        of 5% on sales in excess of $8.0 million. Elan recorded net revenue of $12.8
        million on the rationalisation of Entex in 2001. The royalties are subject to a
        cap of $0.8 million per annum if Andrx reformulates the product. 
     

     
        In June 2001, Elan rationalised the product rights and
        related inventory of Midrin to WFHC. WFHC is a specialty pharmaceutical company
        dedicated to improving the health and well-being of midlife women. Elan
        received cash consideration of $15.0 million and retained a royalty right of
        10% on net sales of Midrin by WFHC for 10 years from 2002. Elan recorded net
        revenue of $13.6 million on the rationalisation of Midrin in 2001. The maximum
        annual royalty receivable is $0.5 million from 2003. Elan provided a loan to
        WFHC in the form of an $11.0 million convertible promissory note. Elan will
        earn interest on the note at a rate of 7% per annum. The note matures in June
        2008. In addition, Elan purchased 400,000 shares of WFHC common stock for $4.0
        million. 
     

     
        In December 2001, Elan rationalised the product rights and
        related inventory of Furadantin to First Horizon for cash consideration of
        $16.0 million. First Horizon is a specialty pharmaceutical company that markets
        and sells brand name prescription products. After reducing the carrying value
        of the Furadantin intangible, Elan recorded net revenue of $11.2 million on the
        rationalisation of Furadantin in 2001. 
     

     
        (B)   Cost of Sales
        
     

     
        The exceptional cost of sales is primarily comprised of
        $15.6 million relating to product rationalisation revenue. 
     

     
        (C)   Selling, General and
        Administrative 
     

     
        Exceptional selling, general and administrative expenses
        were $1,084.2 million. $1,009.8 million of the exceptional charges relate to
        impairment charges arising on write-downs of intangible assets. Impairment
        charges to acquired IP arising from the acquisitions of Neurex and Sano were
        $500.0 million and $285.2 million, respectively. Impairment charges to patents
        and licences arising on write-downs of the product intangibles for
        Naprelan, Ceclor CD and Myambutol were $81.0 million,
        $94.2 million and $44.4 million, respectively. Other impairments to patents and
        licences amounted to $5.0 million. Other exceptional selling, general and
        administrative expenses were $74.4 million. These mainly relate to severance,
        integration, relocation and similar costs and asset write-downs arising from
        the integration of Elan’s U.S. biopharmaceuticals businesses. 
     

     
        Elan acquired Neurex Corporation (“Neurex”) in
        August 1998 for $810.0 million. Neurex was developing Prialt. The purchase
        price was primarily allocated to acquired IP. In 2001, Elan wrote down acquired
        IP arising from the acquisition of Neurex by $500.0 million. This write-down
        was due to delays in the product launch schedule and reduced revenue
        projections for Prialt.
     

     
        Elan acquired Sano in February 1998 for $434.6 million.
        Sano was developing transdermal drug delivery products. The purchase price was
        primarily allocated to acquired IP. In 2001, Elan wrote down acquired IP
        arising from the acquisition of Sano by $285.2 million. The write-down was due
        to reduced revenue projections from products under development and to
        Elan’s decision to focus its research and development efforts in other
        areas. 
     

     

     
        53
     

     

     
     

     
     
        FINANCIAL REVIEW 
     

     
        Ceclor CD and Myambutol were
        written down due to the impact of generic competition on these products during
        2001. Generic versions of each of these products were approved and launched in
        2001, which reduced projected revenues and profitability from these
        products. Revenue from Ceclor
        CD declined by $26.0 million in 2001, from $39.4
        million in 2000 to $13.4 million in 2001. Naprelan
        was written down due to lower than forecasted
        revenues in 2001 and reduced projected revenue and profitability from this
        product. The level of promotional support for a product can have a significant
        impact on the level of revenue generated from that product. Elan does not
        expect to provide any significant promotional support for Naprelan in the future and this has been
        reflected in the projections for this product. Revenue from Naprelan declined by $33.6 million in 2001,
        from $41.8 million in 2000 to $8.2 million in 2001. 
     

     
     

     
        (D)   Research and Development
        
     

     
        Exceptional research and development expenses were $78.6
        million in 2001. These mainly relate to severance, integration and similar
        costs and asset write-downs arising from the re-organisation, closure or
        scaling back of various drug delivery programmes and sites. Also included were
        costs of certain research programmes that Elan does not intend to complete.
        These were the estimated costs incurred pending closure or sale. 
     

     
        (E)   Net Interest
        
     

     
        Exceptional net interest and other expenses amounted to a
        net gain of $25.9 million in 2001. This mainly relates to net gains on
        financial assets of $56.8 million, offset by investment impairments of $24.1
        million and costs of $6.8 million associated with the redemption in March 2001
        of the 4.75% Exchangeable Notes (the “4.75% Exchangeable Notes”) of
        Athena Neurosciences, Inc., a wholly owned subsidiary of Elan (“Athena
        Neurosciences”). 
     

     
        Net Interest and Other Expense 
     

     
        Net interest and other expense was $1,170.7 million for
        2002 compared to $50.4 million for 2001. 
     

     
        Interest payable and similar charges increased by 384% to
        $1,297.1 million for 2002 from $268.2 million for 2001, primarily reflecting
        investment related charges of $1,045.9 million in 2002 compared with $24.1
        million in 2001. Interest payable for 2002 includes $47.1 million (2001: $40.3
        million) on the 7.25% Senior Notes, issued by Athena Finance in February 2001;
        $37.2 million (2001: $35.4 million) on the EPIL III Notes issued in March 2001;
        and $43.0 million (2001: $43.0 million) on the EPIL II Notes issued in June
        2000. Elan expenses the subsequent funding it provides directly to business
        ventures. This is expensed within the interest and other expense line. Elan
        expensed $23.9 million and $24.6 million for this subsequent funding, in 2002
        and 2001, respectively. 
     

     
        Income from financial assets decreased by 42% to $126.4
        million for 2002 from $217.8 million for 2001. Interest and other income
        decreased to $86.3 million for 2002 from $159.2 million in 2001, reflecting
        lower cash balances and reduced investment income during 2002. Net gains on
        financial assets were $Nil in 2002 compared to $56.8 million in 2001. Gains on
        financial assets in 2001 includes $31.5 million for the sale of approximately
        20% of Athena Diagnostics in December 2001. Income from financial assets for
        2002 also included a gain of $37.7 million on the repurchase of LYONs. Foreign
        exchange gains amounted to $2.4 million in 2002 and $1.8 million in 2001.
        
     

     
        For additional information regarding net interest and
        other expense, please refer to Note 4 to the Consolidated Financial Statements.
        
     

     
        For additional information regarding indebtedness, please
        refer to Note 15 to the Consolidated Financial Statements and to “Debt
        Facilities” in this Financial Review. 
     

     
        Taxation 
     

     
        Tax on profit on ordinary activities increased by 14% to
        $19.8 million for 2002 from $17.4 million for 2001. The tax charges reflected
        tax at standard rates in the jurisdictions in which Elan operates, income
        derived from Irish patents, which is exempt from tax, foreign withholding tax
        and the availability of tax losses. Elan’s Irish patent derived income was
        exempt from taxation pursuant to Irish legislation, which exempts from Irish
        taxation income derived from qualifying patents. Currently, there is no
        termination date in effect for such exemption. 
     

     
        For additional information regarding taxation, please
        refer to Note 7 to the Consolidated Financial Statements. 
     

     
        Retained Loss
     

     
        Retained loss for the year, after exceptional items, was
        $3,615.1 million for 2002 compared to a loss of $887.2 million for 2001. Before
        exceptional items, retained loss was $665.7 million for 2002 compared to a
        retained profit of $44.7 million for 2001. Basic loss per
     

     

     
        54
     

     

     
     

     
     
        share, after exceptional items, was $10.34 for 2002,
        compared to $2.64 for 2001. Basic loss per share, before exceptional items, was
        $1.90 for 2002 compared to basic earnings per share of $0.13 for 2001. Diluted
        loss per share, after exceptional items, was $10.34 for 2002, compared to $2.64
        for 2001. Diluted loss per share, before exceptional items, was $1.90 for 2002
        compared to diluted earnings of $0.12 per share for 2001. 
     

     
        Segmental Analysis 
     

     
        On 12 February 2004, Elan announced the formal completion
        of its recovery plan. The recovery plan had been announced on 31 July 2002 to
        restructure Elan’s businesses, assets and balance sheet in order to enable
        it to meet its financial commitments. For additional information on the
        recovery plan, please refer to pages 16 to 23. With the completion of the
        recovery plan, Elan will focus on three core therapeutic areas: neurology,
        autoimmune diseases and severe pain. During the course of the recovery plan,
        the Group was reorganised and two units were created: Core Elan and Elan
        Enterprises. 
     

     
        Core Elan is engaged in biopharmaceutical research and
        development activities, pharmaceutical commercial activities and pharmaceutical
        manufacturing activities. Biopharmaceutical research and development activities
        include the discovery and development of products in the therapeutic areas of
        neurology, autoimmune diseases and severe pain. Elan’s pharmaceutical
        commercial activities include the marketing of neurology/pain management
        products and hospital/specialty products. The Company’s initiatives in
        product development, optimisation and manufacturing are encompassed by Global
        Services & Operations, which is focused on providing technology platforms
        that address the drug delivery challenges of the pharmaceutical industry.
        
     

     
        With the completion of the recovery plan on 12 February
        2004, Elan announced the end of operations for its Elan Enterprises business
        unit. Elan Enterprises was mainly comprised of Elan’s drug delivery
        businesses and other assets such as business ventures and non-core
        pharmaceutical products. Drug delivery activities have historically included
        the development, licensing and marketing of drug delivery products,
        technologies and services to pharmaceutical industry clients on a worldwide
        basis. Elan Enterprises divested many of these businesses and assets. 
     

     
        The Group’s total revenue of $762.1 million (2002:
        $1,333.0 million) is comprised of revenue within Core Elan and Elan Enterprises
        of $626.8 million (2002: $951.2 million) and $135.3 million (2002: $381.8
        million), respectively. Elan’s operating loss of $935.1 million (2002:
        $2,290.8 million) primarily comprises operating losses incurred by Core Elan
        and Elan Enterprises of $902.7 million (2002: $2,156.4 million) and $27.1
        million (2002: $126.4 million), respectively. 
     

     
        Core Elan’s revenue decreased by 34% to $626.8
        million for 2003 from $951.2 million for 2002. The decrease in revenue from
        Skelaxin/Sonata, risk-sharing arrangements (Pharma Marketing/Autoimmune),
        Abelcet, Dermatology and Zanaflex was $129.4 million, $100.0 million,
        $63.5 million, $47.6 million and $61.9 million, respectively, for 2003 compared
        to 2002. The declines were due principally to the fact that these products were
        sold during 2002 or 2003, other than Zanaflex, which was as a result of generic
        competition, and the risk-sharing arrangements, which were terminated. Partly
        offsetting this was increased revenue for Maxipime, Zonegran and Frova of $29.9
        million, $37.6 million and $26.3 million, respectively, for 2003 compared to
        2002. Core Elan incurred an operating loss of $902.7 million for 2003, compared
        with an operating loss of $2,156.4 million for 2002, primarily due to
        exceptional charges in 2003 of $539.7 million compared to $1,659.2 million for
        2002. Exceptional charges in 2003 relate primarily to the purchase of royalty
        rights from Pharma Operating of $297.6 million and impairment charges to
        goodwill relating to the European business and Dura of $108.2 million and $16.2
        million, respectively, and, in 2002 relate primarily to the impairment of
        intangible assets arising from Elan’s recovery plan initiated during 2002.
        Core Elan’s operating loss before exceptional items decreased to $363.0
        million for 2003 from $497.2 million for 2002, primarily due to lower operating
        expenses reflecting the successful implementation of the recovery plan and
        related cost reduction initiatives, including reduced goodwill amortisation and
        patent and licence amortisation. This has been partly offset by lower revenue
        due to product and business disposals. 
     

     
        Elan Enterprises’ revenue decreased by 65% to $135.3
        million for 2003 from $381.8 million for 2002 mainly due to the reduction in
        revenue following product disposals and the disposal of the diagnostics
        businesses. Elan Enterprises incurred an operating loss of $27.1 million in
        2003, compared with an operating loss of $126.4 million in 2002, primarily due
        to exceptional charges in 2003 of $37.0 million compared to $137.1 million for
        2002. Exceptional charges in 2003 relate primarily to impairment charges to
        acquired IP arising from the acquisition of Nanosystems of $11.7 million and
        severance and restructuring costs of $19.3 million and in 2002 relate primarily
        to the impairment of intangible assets arising from Elan’s recovery plan
        initiated during 2002. Elan Enterprises’ operating profit before
        exceptional items decreased by 7% to $9.9 million for 2003 from $10.7 million
        for 2002. 
     

     
        For additional information regarding Elan’s
        reportable segments, please refer to Note 2 to the Consolidated Financial
        Statements.
     

     

     
        55
     

     

     
     

     
     
        FINANCIAL REVIEW
     

     
        Risk-Sharing Arrangements 
     

     
        Pharma Marketing 
     

     
        In June 2000, Elan disposed of royalty rights on certain
        products and development projects to Pharma Marketing. Pharma Marketing
        completed a private placement of its common shares to a group of institutional
        investors, resulting in gross proceeds of $275.0 million. Elan held no
        investment in Pharma Marketing and had no representative on its board of
        directors. Concurrent with the private placement, Pharma Marketing entered into
        a Program Agreement with Elan. The Program Agreement, which substantially
        regulated the relationship between Elan and Pharma Marketing, represented a
        risk-sharing arrangement between Elan and Pharma Marketing. Under the terms of
        the Program Agreement, Pharma Marketing acquired certain royalty rights to each
        of the following products for the designated indications (including any other
        product which contained the active ingredient included in such product for any
        other designation): (i) Frova, for the treatment of migraine; (ii)
        Myobloc, for the treatment
        of cervical dystonia; (iii) Prialt, for the treatment of acute pain and severe
        chronic pain; (iv) Zanaflex,
        for the treatment of spasticity and painful spasm; and (v) Zonegran, for the
        treatment of epilepsy. Pharma Marketing agreed to make payments to Elan in
        amounts equal to expenditures made by Elan in connection with the
        commercialisation and development of these products, subject to certain
        limitations. These payments were made on a quarterly basis based on the actual
        costs incurred by Elan. Elan did not receive a margin on these payments.
        
     

     
        Elan received no revenue from Pharma Marketing during
        2003. Elan’s revenue from Pharma Marketing was $31.3 million for 2002,
        consisting of $24.0 million for commercialisation expenditures, which has been
        recorded as product revenue, and $7.3 million for development expenditures,
        which has been recorded as contract revenue. Pursuant to the Program Agreement,
        Pharma Marketing utilised all of its available funding by mid-2002. Elan will
        not receive any future revenue from Pharma Marketing. Elan’s revenue from
        Pharma Marketing was $189.8 million for 2001, consisting of $141.8 million for
        commercialisation expenditures, and $48.0 million for development expenditures.
        In 2003, the royalty rate on net sales of all designated products was 27.71% on
        the first $122.9 million of net sales and 52.5% for net sales above $122.9
        million. In 2002, the royalty rate on net sales of all designated products was
        15.79% on the first $122.9 million of net sales and 3.51% for net sales above
        $122.9 million. In 2001, the royalty rate on net sales of Zanaflex was 8.44% on the first $38.0
        million of net sales and 1.88% for net sales of Zanaflex above $38.0 million. No royalties
        were payable on the other products in 2001. Elan paid aggregate royalties of
        $43.3 million for 2003 (2002: $24.1 million; 2001: $5.6 million). This was
        recorded as a cost of sales. 
     

     
        In December 2001, the Program Agreement was amended such
        that Elan re-acquired the royalty rights to Myobloc and disposed of royalty rights on
        Sonata to Pharma Marketing. The amendment was transacted at estimated fair
        value. The board of directors and shareholders of Pharma Marketing approved
        this amendment. The estimated difference in relative fair value between the
        royalty rights on Sonata and the royalty rights on Myobloc was $60.0 million. This amount was
        paid to Pharma Marketing by Elan in cash and was capitalised by Elan as an
        intangible asset. 
     

     
        Under the original agreements, Elan could have, at its
        option at any time prior to 30 June 2003, acquired the royalty rights by
        initiating an auction process. This date was extended to 3 January 2005 under
        the settlement with Pharma Marketing and Pharma Operating described below. In
        addition, the holders of Pharma Marketing common shares were entitled to
        initiate the auction process earlier upon the occurrence of certain events.
        Pursuant to the auction process, the parties were to negotiate in good faith to
        agree on a purchase price, subject to Elan’s right to re-acquire the
        royalty rights at a maximum purchase price. The maximum purchase price was
        approximately $413 million at 31 December 2002 and increased by approximately
        25% annually (less royalty payments). The purchase price was reduced under the
        settlement with Pharma Marketing and Pharma Operating described below. 
     

     
        On 17 January 2003, Elan announced that Pharma Operating
        had filed a lawsuit in the Supreme Court of the State of New York against Elan
        and certain of its subsidiaries in connection with the risk-sharing arrangement
        between the parties. The lawsuit sought, among other things, a court
        determination that Pharma Operating’s approval would be required in the
        event of a sale by Elan of its interest in Sonata to a third party. On 30
        January 2003, Elan, Pharma Operating and its parent Pharma Marketing, agreed to
        settle the lawsuit and, under the terms of the settlement agreement, Pharma
        Operating dismissed the litigation between the parties without prejudice.
        Pursuant to the settlement agreement, effective upon the sale of Sonata to King
        on 12 June 2003, (i) Elan paid Pharma Operating $196.4 million in cash
        (representing $225.0 million less royalty payments on all related products paid
        or due to Pharma Operating from 1 January 2003 through 12 June 2003) to acquire
        Pharma Operating’s royalty rights with respect to Sonata and Prialt and
        (ii) Elan’s maximum purchase price for the remaining products in the
        arrangement, Zonegran, Frova and Zanaflex, was reduced to $110.0 million,
        which increased at a rate of 15% per annum from 12 June 2003 (less royalty
        payments made for periods after 12 June 2003). The parties also agreed to
        extend Elan’s purchase option termination date to 3 January 2005 from the
        original termination date of 30 June 2003.
     

     

     
        56
     

     

     
     

     
     
        In connection with the settlement agreement, Elan agreed
        that it would cause certain subsidiaries in the United States, Ireland, the
        United Kingdom, Germany, France, Spain and Italy to pledge their accounts
        receivable from commercial sales of pharmaceutical products and services to
        Pharma Operating as collateral to secure Elan’s obligations in relation to
        royalty payments under the Pharma Marketing arrangement and the settlement
        agreement. Elan also agreed that, following the closing of a sale of Sonata, it
        would grant Pharma Operating additional collateral to the extent that the
        aggregate value of the collateral package, which was to be tested on a
        quarterly basis, was less than the maximum purchase price for the royalty
        rights on Zonegran, Frova and Zanaflex. On 6 March 2003, Elan Pharmaceuticals, Inc. (“EPI”) and
        Pharma Operating entered into a security agreement pursuant to which EPI
        granted Pharma Operating a first priority security interest in its accounts
        receivable from commercial sales of pharmaceutical products in the United
        States. On that same date, Elan and Pharma Operating agreed to the terms of the
        additional collateral mechanism. On 20 May 2003, Elan Pharma Limited
        (“EPL”) and Pharma Operating entered into a security agreement
        pursuant to which EPL granted Pharma Operating a security interest in its
        accounts receivable from commercial sales of pharmaceutical products and
        services in the United Kingdom. A similar agreement was entered into in
        relation to Ireland by Elan Pharma Limited (Ireland) on 10 June 2003. 
     

     
        In November 2003, Elan exercised its option to purchase
        the remaining royalty rights in respect of Zonegran, Frova and Zanaflex from Pharma Operating for $101.2
        million. As a result, all of Elan’s agreements with Pharma Marketing were
        terminated. During 2003, Elan expensed $297.6 million as an exceptional
        selling, general and administrative expense arising from the acquisition of
        royalty rights from Pharma Operating. 
     

     
        Autoimmune 
     

     
        In December 2001, Autoimmune, in an initial tranche,
        completed a private placement of its common shares to a group of institutional
        investors, resulting in gross proceeds to Autoimmune of $95.0 million. In the
        same initial tranche, Elan purchased non-voting preferred shares of
        Autoimmune’s subsidiary for an aggregate purchase price of $37.5 million.
        Elan had no representative on the board of directors of Autoimmune. The
        existing group of institutional investors and Elan also committed to a second
        investment tranche in the same amounts to be completed in April 2003, subject
        to certain conditions. Autoimmune entered into a Program Agreement with Elan.
        The Program Agreement, which substantially regulated the relationship between
        Elan and Autoimmune, represented a risk-sharing arrangement among the
        companies. Under the terms of the Program Agreement, Autoimmune acquired
        royalty rights to each of the following products and development projects for
        the designated indications: (i) Antegren, for the treatment of relapsing
        forms of MS, moderate-to-severe inflammatory bowel disease, including
        Crohn’s disease and ulcerative colitis, and moderate-to-severe rheumatoid
        arthritis; (ii) Maxipime,
        for the treatment of infection; (iii) Azactam, for the treatment of infection; and
        (iv) Abelcet, for the treatment of severe fungal infection. Autoimmune also
        acquired royalty rights on certain development projects, as well as any other
        product subsequently developed or acquired by Elan that had an indication
        substantially the same as Maxipime, Azactam or
        Abelcet and that would be in direct competition with Maxipime, Azactam or Abelcet. Autoimmune
        agreed to make payments to Elan in amounts equal to expenditures made by Elan
        in connection with the commercialisation and development of these products,
        subject to certain limitations. These payments were to be made on a quarterly
        basis based on actual costs incurred by Elan. Elan did not receive a margin on
        these payments. Elan’s revenue from Autoimmune was $68.7 million for 2002
        (2001: $26.6 million), consisting of $38.8 million (2001: $15.9 million) for
        commercialisation expenditures, which has been recorded as product revenue, and
        $29.9 million (2001: $10.7 million) for development expenditures, which has
        been recorded as contract revenue. Elan has received no revenue from Autoimmune
        since June 2002. Elan will not receive any future revenue from Autoimmune. No
        royalties were payable to Autoimmune by Elan in 2003, 2002 or 2001. 
     

     
        Under the original agreement, Elan could, at its option at
        any time prior to April 2005, acquire the royalty rights by initiating an
        auction process. In addition, the holders of the Autoimmune common shares could
        initiate the auction process earlier upon the occurrence of certain events. If
        the auction process had not been initiated prior to October 2004, it would have
        automatically commenced. Pursuant to the auction process, Elan and Autoimmune
        would have negotiated in good faith to agree on a purchase price, subject to
        Elan’s right to re-acquire the royalty rights at a maximum purchase price.
        This maximum purchase price increased at various rates, approximately 25%
        annually, subject to certain conditions. 
     

     
        In July 2002, Elan announced the termination of all
        agreements relating to the risk-sharing arrangement with Autoimmune. The
        royalty obligations to Autoimmune were terminated. The total consideration for
        the royalty rights was $121.0 million which, after taking account of the
        redemption of Elan’s investment of $38.5 million in Autoimmune, resulted
        in a net cash cost of $82.5 million. Elan expensed $121.0 million as an
        exceptional selling, general and administrative expense arising from the
        acquisition of royalty rights from Autoimmune. 
     

     

     
        57
     

     

     
     

     
     
        FINANCIAL REVIEW
     

     
        Capitalisation and Liquidity
     

     
        Elan had net debt of $1,146.9 million at 31 December 2003,
        consisting of outstanding debt of $1,974.9 million, less cash and liquid
        resources, excluding managed funds, of $828.0 million. For additional
        information regarding Elan’s net debt, please refer to Note 30c to the
        Consolidated Financial Statements. 
     

     
        Cash Flow
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                Year Ended 31 December
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                2003
 $m
             

          	
             
                    
             

          	
             
                2002
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Cash Flow from Operating Activities
             

          	
             
                 
             

          	
             
                (322.3
             

          	
             
                )
             

          	
             
                259.6
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Returns on Investments and Servicing of
                Finance
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Interest received
             

          	
             
                 
             

          	
             
                24.2
             

          	
             
                 
             

          	
             
                44.8
             

          	
             
                 
             

          
	
             
                Interest paid
             

          	
             
                 
             

          	
             
                (281.9
             

          	
             
                )
             

          	
             
                (176.5
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Cash outflow from returns on investments and
                servicing of finance
             

          	
             
                 
             

          	
             
                (257.7
             

          	
             
                )
             

          	
             
                (131.7
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Taxation
             

          	
             
                 
             

          	
             
                (8.9
             

          	
             
                )
             

          	
             
                (18.6
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Capital Expenditure and Financial
                Investment
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Additions to property, plant and equipment
             

          	
             
                 
             

          	
             
                (33.7
             

          	
             
                )
             

          	
             
                (170.2
             

          	
             
                )
             

          
	
             
                Receipts from disposal of property, plant and
                equipment
             

          	
             
                 
             

          	
             
                27.9
             

          	
             
                 
             

          	
             
                8.6
             

          	
             
                 
             

          
	
             
                Payments to acquire intangible assets
             

          	
             
                 
             

          	
             
                (144.8
             

          	
             
                )
             

          	
             
                (315.5
             

          	
             
                )
             

          
	
             
                Receipts from disposal of intangible assets
             

          	
             
                 
             

          	
             
                0.5
             

          	
             
                 
             

          	
             
                9.4
             

          	
             
                 
             

          
	
             
                Payments to acquire Pharma Marketing/Autoimmune
                product royalty rights
             

          	
             
                 
             

          	
             
                (297.6
             

          	
             
                )
             

          	
             
                (121.0
             

          	
             
                )
             

          
	
             
                Redemption of investment in Autoimmune
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                38.5
             

          	
             
                 
             

          
	
             
                Sale of EPIL III investments in connection with the
                repayment of EPIL III debt
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                148.0
             

          	
             
                 
             

          
	
             
                Payment under guarantee in connection with EPIL III
                sale of investments
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (141.6
             

          	
             
                )
             

          
	
             
                Payments to acquire financial current assets
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (1.0
             

          	
             
                )
             

          
	
             
                Sale and maturity of financial current assets

             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                83.9
             

          	
             
                 
             

          
	
             
                Payments to acquire financial fixed assets
             

          	
             
                 
             

          	
             
                (13.9
             

          	
             
                )
             

          	
             
                (191.2
             

          	
             
                )
             

          
	
             
                Receipts from disposal of financial fixed
                assets
             

          	
             
                 
             

          	
             
                329.3
             

          	
             
                 
             

          	
             
                36.6
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Cash outflow from capital expenditure and financial
                investment
             

          	
             
                 
             

          	
             
                (132.3
             

          	
             
                )
             

          	
             
                (615.5
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Acquisitions and Disposals
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Cash received on disposal of businesses
             

          	
             
                 
             

          	
             
                546.9
             

          	
             
                 
             

          	
             
                361.3
             

          	
             
                 
             

          
	
             
                Cash received on disposal of subsidiaries
             

          	
             
                 
             

          	
             
                46.1
             

          	
             
                 
             

          	
             
                81.8
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Cash inflow from acquisitions and disposals
             

          	
             
                 
             

          	
             
                593.0
             

          	
             
                 
             

          	
             
                443.1
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Cash outflow before use of liquid resources and
                financing
             

          	
             
                 
             

          	
             
                (128.2
             

          	
             
                )
             

          	
             
                (63.1
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Management of Liquid Resources
             

          	
             
                 
             

          	
             
                14.5
             

          	
             
                 
             

          	
             
                225.5
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Financing
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Proceeds from issue of share capital
             

          	
             
                 
             

          	
             
                167.9
             

          	
             
                 
             

          	
             
                5.7
             

          	
             
                 
             

          
	
             
                Issue of loan notes
             

          	
             
                 
             

          	
             
                460.0
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Repurchase of LYONs
             

          	
             
                 
             

          	
             
                (687.5
             

          	
             
                )
             

          	
             
                (126.9
             

          	
             
                )
             

          
	
             
                Repayment of EPIL III debt
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (160.0
             

          	
             
                )
             

          
	
             
                Repayment of loans
             

          	
             
                 
             

          	
             
                (83.2
             

          	
             
                )
             

          	
             
                (399.9
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Cash outflow from financing
             

          	
             
                 
             

          	
             
                (142.8
             

          	
             
                )
             

          	
             
                (681.1
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Net decrease in cash
             

          	
             
                 
             

          	
             
                (256.5
             

          	
             
                )
             

          	
             
                (518.7)
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        Cash outflows from operating activities amounted to $322.3
        million for 2003 compared to cash inflows of $259.6 million for 2002. The
        movement in cash flows from operating activities is principally due to cash
        flows in 2003 including an outflow from working capital of $102.4 million while
        2002 includes an inflow of $283.9 million. Cash outflows from working capital
        in 2003 primarily relate to a decrease in accruals as a result of business and
        product disposals and the completion of the recovery plan. Working capital cash
        inflows in 2002 mainly relate to a decrease in trade debtors during 2002,
        reflecting the impact of decreased revenue and the termination of the
     

     

     
        58
     

     

     
     

     
     
         Pharma Marketing and Autoimmune agreements. Also cash
        flow from operating activities for 2002 included $195.0 million from proceeds
        of the product disposal programme entered into as part of the recovery plan,
        consisting of $100.0 million received from Ligand in relation to Avinza, $45.0
        million received from Watson in relation to nifedipine, and $50.0 million
        received from Anesta in relation to Actiq. 
     

     
        Cash outflows from returns on investment and servicing of
        finance were $257.7 million for 2003 compared to $131.7 million for 2002. The
        2003 outflows consist primarily of interest payments of $115.9 million related
        to LYONs repurchases, $47.1 million on the 7.25% Senior Notes, $43.0 million on
        EPIL II Notes and $29.9 million on the EPIL III Notes. A payment of $16.1
        million for financing costs associated with the issuance of the 6.5%
        Convertible Notes was made, together with a waiver fee of $16.8 million to the
        holders of the EPIL II and EPIL III Notes in connection with the debt offering.
        These outflows were offset by interest receipts of $24.2 million in 2003, which
        principally comprises bank and investment interest income. 
     

     
        In 2002 interest payments included $47.1 million for the
        7.25% Senior Notes, $46.6 million on EPIL III Notes, $43.0 million on EPIL II
        Notes and a payment of $22.9 million related to LYONs repurchases. Interest
        receipts of $44.8 million related primarily to bank and investment interest
        income received. 
     

     
        Cash outflow from capital expenditure and financial
        investment amounted to $132.3 million for 2003 compared to $615.5 million in
        2002. This comprised net cash expended to acquire tangible and intangible fixed
        assets of $150.1 million (2002: $467.7 million), net cash received/(expended)
        in relation to the sale/(purchase) of financial assets of $315.4 million (2002:
        ($71.7) million) and payments of $297.6 million made to acquire product royalty
        rights from Pharma Operating. In 2002 a payment of $121.0 million was made to
        acquire product royalty rights held by Autoimmune and $38.5 million was
        received on disposal of an investment in Autoimmune. 
     

     
        Cash paid for acquisitions was $Nil in 2003 and 2002. Cash
        of $546.9 million was received in 2003, primarily from the disposal of the
        primary care franchise to King. Cash received from the disposal of subsidiaries
        in 2003 was $46.1 million. Cash of $361.3 million was received in 2002,
        primarily from the disposal of the Abelcet business. Proceeds of $81.8 million
        for the disposal of the remaining holding in Athena Diagnostics (approximately
        80%) was received in 2002. 
     

     
        Elan’s initial investment in business ventures and
        business venture parents, arising from the formation of business ventures, was
        $Nil in 2003 and 2002. Elan invested $7.1 million and $83.4 million in 2003 and
        2002, respectively, in business venture parents, apart from such initial
        investment. 
     

     
        During 2003, Elan had net cash ouflows from financing
        activities of $142.8 million, primarily reflecting the repurchase of LYONs of
        $687.5 million (a further $115.9 million payment related to this LYONs
        repurchase is included as interest paid within returns on investments and
        servicing of finance), repayment of loans of $83.2 million, offset by proceeds
        received of $460.0 million from the issuance of the 6.5% Convertible Notes, and
        $167.9 million from the issuance of share capital. 
     

     
        During 2002, Elan had cash outflows from financing
        activities of $681.1 million, primarily reflecting an outflow of $325.0 million
        for the repayment of borrowings under the revolving credit facility, a cash
        outflow of $160.0 million in connection with the maturity of the EPIL III
        Series A Guaranteed Notes, and repayment of the 3.5% convertible subordinated
        notes (“3.5% Convertible Notes”) in the amount of $62.6 million. In
        December 2002, Elan repurchased approximately 19% of the LYONs for $149.8
        million. This is included in the Consolidated Statement of Cash Flows as $126.9
        million within financing activities and $22.9 million within returns on
        investments and servicing of finance. 
     

     
        Cash, Liquid Resources and Financial
        Assets
     

     
        Cash and liquid resources amounted to $828.0 million at 31
        December 2003. This includes restricted cash of $21.1 million, consisting of
        the cash held by EPIL II and EPIL III. Elan also holds other financial assets
        of $494.5 million, consisting primarily of $197.9 million in unquoted
        investments and loans, $150.3 million in securitised investments, other
        marketable securities of $86.6 million and $35.8 million in quoted investments.
        
     

     
        Debt Facilities
     

     
        At 31 December 2003, Elan had the following amounts
        outstanding under borrowing facilities, which are unsecured and exchangeable or
        convertible into Ordinary Shares: 
     

     

     
        59
     

     

     
     

     
     
        FINANCIAL REVIEW 
     

     		
             
                •
             

          	
             
                6.5% Convertible Notes due 2008 - $460.0 million;
                and
             

          

     		
             
                •
             

          	
             
                LYONs due 2018 - $0.9 million (accreted value at 31
                December 2003); 
             

          

     
        At 31 December 2003, Elan had the following principal
        amounts outstanding under other borrowing facilities: 
     

     
         
     

     	
             
                • EPIL II Notes due 28 June 2004
             

          	
             
                —  $450.0 million;
             

          
	
             
                 
             

          	
             
                 
             

          
	
             
                • EPIL III Notes due 2005
             

          	
             
                —  $390.0 million; and
             

          
	
             
                 
             

          	
             
                 
             

          
	
             
                • 7.25% Senior Notes due 2008
             

          	
             
                —  $650.0 million.
             

          

 

     
        For additional information regarding Elan’s
        outstanding debt, please refer to Note 15 to the Consolidated Financial
        Statements.
     

     
        Product Acquisitions and Alliances
     

     
        At 31 December 2003, Elan included in creditors $30.6
        million relating to future payments and/or future potential payments on
        products. Of the $30.6 million, $19.4 million is owing at 31 December 2003 and
        $11.2 million is potentially payable, contingent on future events. Elan is a
        party to certain product acquisition or alliance agreements that contain staged
        or option payments which may be uncertain in amount, which may be paid at
        Elan’s discretion, such as upon the exercise of an option to acquire the
        product, or which must be paid upon the occurrence of future events, such as
        the attainment of pre-determined product revenue targets or other milestones.
        Elan has accrued $19.4 million within creditors (within one year), including
        $15.6 million for Maxipime/Azactam, and $11.2 million within creditors (after
        one year) for Frova. 
     

     
        At 31 December 2002, Elan included in creditors $482.2
        million relating to future payments and/or future potential payments on
        products. The reduction of $451.6 million from December 2002 to December 2003
        primarily reflects product payments made during the year of $212.4 million and
        product payment obligations assumed by King and aaiPharma of $218.8 million and
        $51.4 million, respectively. 
     

     
        For additional information regarding future payments and
        potential future payments on the acquisition of products, please refer to Note
        16 to the Consolidated Financial Statements. 
     

     
        Commitments and Contingencies
     

     
        At 31 December 2003, Elan had commitments to invest $3.8
        million in healthcare managed funds, compared to $3.2 million in 2002. 
     

     
        At 31 December 2003, the Company had deferred purchase
        arrangements for certain products, which amounted to $4.5 million (2002: $4.5
        million). These payments are dependent on various approvals and milestones
        being met. These deferred purchase arrangements were transferred to Medeus upon
        disposal of the European sales and marketing business in 2004. 
     

     
        For additional information regarding commitments and
        contingencies, including those related to Autoimmune, Pharma Marketing, lease
        commitments, capital expenditures, litigation and asset divestitures, please
        refer to Note 23, Note 24 and Note 25 to the Consolidated Financial Statements.
        
     

     
        Liquidity
     

     
        The following table sets out, at 31 December 2003, the
        main contractual and potential future payments due by period for debt
        repayments and contractual and potential product acquisition and alliance
        payments. These represent the major contractual and potential future payments
        that may be made by Elan. The table does not include items such as expected
        capital expenditures on plant and equipment or future investments in financial
        assets. 
     

     

     
        60
     

     

     
     

     
     
         
     

     	
             
                Contractual and
 Potential Future Payments
             

          	
             
                 
             

          	
             
                Total
 $m
             

          	
             
                 
             

          	
             
                Less than
 1
                Year
 $m
             

          	
             
                 
             

          	
             
                1-3
 Years
 $m
             

          	
             
                 
             

          	
             
                4-5
 Years
 $m
             

          	
             
                 
             

          	
             
                After 5
 Years
 $m
             

          	
             
                 
             

          
	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Contractual fixed future payments (composed of :
                $650.0 million relating to the 7.25% Senior Notes (2008); $460.0 million
                relating to 6.5% Convertible Notes (2008); $0.9 million relating to the LYONs
                (2008); remaining amounts are payments for product acquisitions and alliances
                of $19.4 million)
             

          	
             
                 
             

          	
             
                1,130.3
             

          	
             
                 
             

          	
             
                19.4
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                1,110.9
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Potential future payments (for product acquisitions
                and alliances)(1)
             

          	
             
                 
             

          	
             
                11.2
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                11.2
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Capital lease
                obligations(2)
             

          	
             
                 
             

          	
             
                85.4
             

          	
             
                 
             

          	
             
                10.3
             

          	
             
                 
             

          	
             
                21.3
             

          	
             
                 
             

          	
             
                7.7
             

          	
             
                 
             

          	
             
                46.1
             

          	
             
                 
             

          
	
             
                Securitised debt (EPIL II and EPIL III Notes)

             

          	
             
                 
             

          	
             
                840.0
             

          	
             
                 
             

          	
             
                450.0
             

          	
             
                 
             

          	
             
                390.0
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                2,066.9
             

          	
             
                 
             

          	
             
                479.7
             

          	
             
                 
             

          	
             
                422.5
             

          	
             
                 
             

          	
             
                1,118.6
             

          	
             
                 
             

          	
             
                46.1
             

          	
             
                 
             

          
	
             
                Operating lease
                obligations(1)
             

          	
             
                 
             

          	
             
                157.6
             

          	
             
                 
             

          	
             
                19.8
             

          	
             
                 
             

          	
             
                36.5
             

          	
             
                 
             

          	
             
                12.7
             

          	
             
                 
             

          	
             
                88.6
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Total
             

          	
             
                 
             

          	
             
                2,224.5
             

          	
             
                 
             

          	
             
                499.5
             

          	
             
                 
             

          	
             
                459.0
             

          	
             
                 
             

          	
             
                1,131.3
             

          	
             
                 
             

          	
             
                134.7
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     		
             
                (1)
             

          	
             
                Relates to Frova. Will be cancelled upon the
                closing of the sale of Frova to Vernalis. This transaction is expected to close
                before the end of the second quarter of 2004.
             

          

     		
             
                (2)
             

          	
             
                In accordance with SEC Release No. 34-47264
                “Disclosure in Management’s Discussion and Analysis about Off-Balance
                Sheet Arrangements and Aggregate Contractual Obligations,” which is
                effective for financial statements ending on or after 15 December 2003,
                operating and capital lease obligations have been included in the table of
                contractual and potential future payments at 31 December 2003. For additional
                information on operating and capital leases, please refer to Note 23 to the
                Consolidated Financial Statements.
             

          

     
        The two major rating agencies covering Elan’s debt
        rate Elan’s debt as sub-investment grade debt. None of Elan’s debt
        has a rating trigger that would accelerate the repayment date upon a change in
        rating. 
     

     
        Elan’s current debt ratings are as follows: 
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                Standard & Poor’s
 Rating
 Services
             

          	
             
                 
             

          	
             
                Moody’s 
 Investors
 Service
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                7.25% Senior Notes
             

          	
             
                 
             

          	
             
                B–
             

          	
             
                 
             

          	
             
                Caa2
             

          	
             
                 
             

          
	
             
                6.5% Convertible Notes
             

          	
             
                 
             

          	
             
                CCC
             

          	
             
                 
             

          	
             
                Ca
             

          	
             
                 
             

          
	
             
                LYONs
             

          	
             
                 
             

          	
             
                CCC
             

          	
             
                 
             

          	
             
                Ca
             

          	
             
                 
             

          
	
             
                EPIL II Notes
             

          	
             
                 
             

          	
             
                CCC
             

          	
             
                 
             

          	
             
                Ca
             

          	
             
                 
             

          
	
             
                EPIL III Notes
             

          	
             
                 
             

          	
             
                CCC
             

          	
             
                 
             

          	
             
                Caa2
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        The agreements governing certain of Elan’s
        outstanding indebtedness contain various restrictive covenants that restrict
        the Group’s ability to, among other things, incur additional indebtedness
        (including intercompany indebtedness), create liens and other encumbrances,
        enter into transactions with related parties, sell or otherwise dispose of
        assets and merge or consolidate with another entity. In addition, some of these
        agreements require Elan to maintain certain financial ratios. Elan does not
        currently, and does not expect in the foreseeable future to have the ability to
        incur any additional indebtedness under certain of these covenants, unless it
        receives a waiver from a majority of the holders of the applicable
        indebtedness. This inability to incur additional indebtedness (including
        intercompany indebtedness) has adversely affected Elan’s financial
        flexibility. As a result, Elan’s ability to meet its liquidity
        requirements and capital needs may be adversely impacted. These events may have
        a material adverse impact on Elan’s business, results of operations,
        liquidity and financial condition. For additional information on the
        shareholder litigation and SEC investigation, please refer to Note 25 to the
        Consolidated Financial Statements. 
     

     
        As a result of Elan’s failure to timely complete and
        file with the SEC Elan’s Annual Report on Form 20-F for its fiscal year
        ended 31 December 2002, on 30 June 2003, Elan defaulted under certain covenants
        contained in the agreements governing the EPIL II Notes and the Series B and
        Series C Guaranteed Notes issued by EPIL III. The covenants required that Elan
        provide to each of the holders of such notes Elan’s audited consolidated
        financial statements, together with an officer’s certificate relating
        thereto, on or prior to 29 June 2003.
     

     

     
        61
     

     

     
     

     
     
        FINANCIAL REVIEW 
     

     
        On 15 July 2003, Elan also defaulted under a covenant
        contained in the indenture governing the 7.25% Senior Notes that required Elan
        to file its 2002 Annual Report on Form 20-F with the SEC on or prior to 15 July
        2003. 
     

     
        Commencing on 29 July 2003, Elan received a series of
        separate agreements from a majority of the holders of the EPIL II Notes and the
        holders of the Series B and Series C Guaranteed Notes waiving compliance by
        Elan with the applicable covenants described above. The series of waivers was
        effective through 5 September 2003. With the completion and filing with the SEC
        of Elan’s 2002 Annual Report on Form 20-F, the defaults described above
        were cured in all respects. In the absence of the waivers, the defaults under
        the EPIL II Notes and the Series B and Series C Guaranteed Notes would have
        become events of default on 30 July 2003. In the absence of the completion and
        filing with the SEC of Elan’s 2002 Annual Report on Form 20-F, the default
        under the indenture governing the 7.25% Senior Notes would have become an event
        of default on 16 September 2003. 
     

     
        Elan believes that it has sufficient current cash, liquid
        resources and realisable assets and investments to meet its near-term liquidity
        requirements. Longer-term liquidity requirements will need to be met out of
        future operating cash flows, financial and other asset realisations and future
        financing. However, certain events, including material adverse legal
        judgements, fines, penalties or settlements arising from Elan’s pending
        litigation or governmental investigations, a material deterioration in
        Elan’s operating performance as a result of Elan’s inability to
        timely receive marketing approval for products under development or otherwise
        or the occurrence of other circumstances or events described under “Risk
        Factors”, could materially adversely affect its ability to meet its
        liquidity requirements. 
     

     
        The Company commits substantial resources to its research
        and development activities, including collaborations with third parties such as
        Biogen Idec for the development of Antegren. The Company expects to commit
        significant cash resources to the development and commercialisation of Antegren
        and to the other products in the Company’s development pipeline. The
        Company and Biogen Idec are conducting two, two-year Phase III trials
        evaluating Antegren in MS patients with relapsing-remitting forms of the
        disease. The Company and Biogen Idec have announced that they plan to file a
        BLA with the FDA and an application with the EMEA, in each case for approval to
        market Antegren as a treatment for MS. These plans and the receipt of necessary
        regulatory approvals could fail if unexpected data arises from the clinical
        trials or if other difficulties, delays or failures occur. In the event of the
        Company’s failure to successfully develop and commercialise Antegren, our
        business, financial condition, results of operations and prospects, including
        our ability to meet our liquidity requirements, could be materially adversely
        affected. 
     

     
        Elan continually evaluates its liquidity requirements,
        capital needs and availability of resources in view of, among other things, its
        alternative uses of capital, its debt service requirements, the cost of debt
        and equity capital and estimated future operating cash flow. As a result of
        this process, Elan has in the past and may in the future seek to raise
        additional capital, restructure or refinance its outstanding debt, repurchase
        Ordinary Shares or ADSs, repurchase its outstanding debt, consider the sale of
        interests in subsidiaries, marketable investment securities or other assets or
        the rationalisation of products, or take a combination of such steps or other
        steps to increase or manage its liquidity and capital resources. Any such
        actions or steps could be material. In the normal course of business, Elan may
        investigate, evaluate, discuss and engage in future company or product
        acquisitions, capital expenditures, investments and other business
        opportunities. In the event of any future acquisitions, capital expenditures,
        investments or other business opportunities, Elan may consider using available
        cash or raising additional capital, including the issuance of additional debt.
        
     

     
        Shareholders’ Funds
     

     
        Shareholders’ funds at 31 December 2003 decreased to
        $825.4 million from $1,460.0 million at 31 December 2002, a decrease of $634.6
        million. This decrease was comprised principally of $815.4 million in retained
        loss for the year offset in part by the net proceeds of $165.4 million
        resulting from the completion of a private offering of 35 million Ordinary
        Shares in November 2003.
     

     
        Capital Expenditures and Investment
     

     
        The decrease in intangible fixed assets to $1,252.4
        million at 31 December 2003 from $2,079.5 million at 31 December 2002 primarily
        reflects disposals of $495.2 million, impairments of $189.5 million and
        amortisation charges of $159.3 million. The decrease in tangible fixed assets
        to $372.2 million at 31 December 2003 from $459.3 million at 31 December 2002
        primarily reflects the disposal of and impairments to assets as part of
        Elan’s recovery plan, along with the depreciation charge for the year. The
        decrease in non-current financial fixed assets to $407.9 million at 31 December
        2003 from $734.6 million at 31 December 2002 primarily reflects impairment
        charges of $120.4 million and disposals/repayments of $250.1 million, offset by
        additions of $43.7 million. Elan’s capital expenditures during 2003
        amounted to $34.8 million. 
     

     

     
        62
     

     

     
     

     
     
        Elan believes that its current and planned manufacturing,
        research, product development and corporate facilities are adequate for its
        current and projected needs. Elan will use its resources to make such capital
        expenditures as are necessary from time to time and also to make investments in
        the purchase or licensing of products and technologies and in marketing and
        other alliances with third parties to support Elan’s long term strategic
        objectives. 
     

     
        Post Balance Sheet Events
     

     
        Sale of European business 
     

     
        On 12 February 2004, Elan announced the completion of the
        sale of its European sales and marketing business to Medeus, a new U.K.
        pharmaceutical company backed by Apax Partners Funds. Elan realised total
        consideration of approximately $120 million from this transaction (subject to
        adjustment for certain movements in indebtedness and working capital in the
        period to completion), which was previously announced on 23 December 2003.
        Approximately 180 employees of Elan’s European sales and marketing
        business have transferred their employment to Medeus. Separately, Elan
        completed the sale of certain rights to two products in the U.K. and Ireland
        for approximately $10 million during the first quarter of 2004. 
     

     
        Zonegran & Frova 
     

     
        On 30 March 2004, Elan announced an agreement with Eisai
        for the purchase of Elan’s interests in Zonegran in North America and
        Europe. On closing, Eisai will pay Elan consideration of up to $130.0 million
        for these interests, including inventory with an estimated value of
        approximately $26 million and the associated sales team of approximately 115
        employees. In addition, Elan may earn future deferred purchase payments of up
        to $110.0 million, primarily contingent on when generic zonisamide is
        introduced in the U.S., and including up to $25.0 million contingent on
        receiving marketing approval for Zonegran in Europe. Elan will also receive
        additional deferred purchase payments on net sales of Zonegran in North America
        and Europe if certain additional conditions are met. Elan will be required to
        pay $17.0 million to Dainippon on closing for the assignment of the Zonegran
        North American and European licence agreements to Eisai. Elan will continue to
        manufacture Zonegran in all three dosage strengths of 25 mg, 50 mg, and 100 mg
        capsules in Athlone, Ireland. The transaction is subject to regulatory
        approvals, third party consents and other customary conditions, and is expected
        to close before the end of the second quarter of 2004. 
     

     
        Also on 30 March 2004, Elan announced an agreement with
        Vernalis for the termination of the development and licence agreements between
        Elan and Vernalis regarding Frova. Vernalis agreed to purchase Elan’s
        commercialisation rights in North America for Frova. Vernalis will pay Elan a
        total of approximately $55 million for rights to Frova in North America,
        comprising $5.0 million on closing; $20.0 million and $25.0 million on 31
        December 2004 and 31 December 2005, respectively; and, no later than 31
        December 2004, Elan will receive a payment for its Frova inventory, estimated
        at approximately $5 million. Vernalis intends to seek additional equity funding
        over the next twelve months to assist with the payments to Elan. Elan’s
        co-promotion agreement with UCB will be terminated at closing, and Elan will
        pay UCB approximately $10 million as a result of the termination. The
        completion of the transaction is subject to the approval of Vernalis’
        shareholders, U.S. anti-trust clearance if required, third party consents and
        other customary conditions. The transaction is expected to close before the end
        of the second quarter of 2004. 
     

     
        U.S. GAAP 
     

     
        Elan’s financial statements have been prepared under
        Irish GAAP, which differs in certain significant respects from U.S. GAAP. The
        primary differences between Elan’s financial results under Irish and U.S.
        GAAP arise due to: 
     

     		
             
                •
             

          	
             
                The accounting for the acquisition of Dura using
                acquisition (purchase) accounting under Irish GAAP and using pooling of
                interests (merger) accounting under U.S. GAAP;
             

          

     		
             
                •
             

          	
             
                The implementation of SAB 104 under U.S. GAAP which
                results in differences in the accounting for revenue between Irish and U.S.
                GAAP. SAB 104 does not apply under Irish GAAP;
             

          

     		
             
                •
             

          	
             
                The expensing of acquired in-process research and
                development (“IPR&D”) costs under U.S. GAAP, which amounts were
                capitalised under Irish GAAP; and
             

          

     		
             
                •
             

          	
             
                The consolidation of Elan Pharmaceutical Investments
                Ltd. (“EPIL”) and EPIL II under Irish GAAP. Under U.S. GAAP, EPIL
                (prior to March 2001) and EPIL II have not been consolidated, as they are
                qualifying special purpose entities within the meaning of SFAS No. 125
                “Accounting for Transfers and Servicing of Financial Assets and
                Extinguishment of Liabilities” (“SFAS No. 125”), as
                grandfathered under 
             

          

 

     
        63
     

     

     
     

     
     
        FINANCIAL REVIEW 
     

     		
             
                 
             

          	
             
                SFAS No. 140 “Accounting for Transfers and
                Servicing of Financial Assets and Extinguishments of Liabilities”
                (“SFAS No. 140”). EPIL was a qualifying special purpose entity and
                was not consolidated under U.S. GAAP prior to March 2001. In March 2001, its
                qualifying status was terminated. 
             

          

     
        Net loss under Irish GAAP was $815.4 million for 2003
        compared to a net loss of $535.4 million for 2003 under U.S. GAAP. This
        difference of $280.0 million primarily reflects: 
     

     		
             
                •
             

          	
             
                Impairment charges of $112.8 million arising under
                Irish GAAP. These impairment charges did not arise under U.S. GAAP as such
                amounts were previously expensed as acquired IPR&D costs under U.S. GAAP in
                1998 and 2000; and
             

          

     		
             
                •
             

          	
             
                Revenue of $100.9 million being recognised under
                U.S. GAAP which was previously recognised under Irish GAAP. 
             

          

     
        Shareholders’ equity at 31 December 2003 amounted to
        $825.4 million under Irish GAAP compared to $599.1 million under U.S. GAAP,
        primarily reflecting the carrying value under Irish GAAP of intangible assets
        that were previously expensed as acquired IPR&D costs under U.S. GAAP, and
        the deferral of revenue under U.S. GAAP due to the implementation of SAB 104.
        
     

     
        For additional information regarding the material
        differences between Irish GAAP and U.S. GAAP, please refer to Note 33 to the
        Consolidated Financial Statements. 
     

     
        Restatement
     

     
        In its 2002 Annual Report and Form 20-F, Elan restated its
        U.S. GAAP financial results as of and for the fiscal year ended 31 December
        2001 to consolidate EPIL III from its date of establishment on 15 March 2001.
        Under U.S. GAAP, EPIL III had been historically accounted for by Elan as a
        qualifying special purpose entity and was not, therefore, consolidated. In
        addition, in its 2002 Annual Report and Form 20-F, Elan adjusted its previously
        announced unaudited U.S. GAAP financial information as of and for the fiscal
        year ended 31 December 2002 to give effect to the consolidation of EPIL III and
        to consolidate Shelly Bay, an entity established by Elan, from 29 June 2002
        through 30 September 2002. Shelly Bay acquired certain financial assets from
        EPIL III on 29 June 2002. Under Irish GAAP, EPIL III had been accounted for as
        a consolidated subsidiary since its date of establishment in accordance with
        the requirements of FRS 5. Therefore, the 2001 restatement did not affect
        Elan’s Irish GAAP financial information, including the Irish GAAP
        financial information contained in this Annual Report and Form 20-F. For
        additional information regarding the restatement and the adjustments, please
        refer to Note 33 to the Consolidated Financial Statements. 
     

     
        2003 Compared to 2002 (U.S. GAAP) 
     

     
        Total revenue for 2003 decreased by 34% to $746.0 million
        from $1,132.5 million for 2002. 
     

     
        Total revenue under U.S. GAAP was lower than under Irish
        GAAP by $16.1 million for 2003 and by $200.5 million for 2002. Product revenue
        under U.S. GAAP was $647.0 million for 2003 (2002: $781.8 million), compared to
        $712.6 million (2002: $1,204.5 million) under Irish GAAP. Contract revenue
        under U.S. GAAP was $99.0 million (2002: $350.7 million), compared to $49.5
        million (2002: $128.5 million) under Irish GAAP. 
     

     
        For 2003, the $65.6 million difference between product
        revenue under Irish GAAP and U.S. GAAP arose principally due to the
        reclassification out of product revenue under U.S. GAAP of revenues from
        discontinued operations of $114.8 million (2002: $322.6 million), offset by the
        release of deferred product revenue under U.S. GAAP of $44.5 million net of
        related intangible assets of $2.2 million related to Avinza, Actiq and
        nifedipine. This revenue was recognised under Irish GAAP in 2002 on disposal of
        the product rights related to these products while under U.S. GAAP Elan is
        recognising this revenue over the periods it is committed to provide services
        to the purchasers of the products. Elan provides these services at fair value.
        Elan recognised $37.6 million of product revenue under U.S. GAAP from disposal
        of these product rights in 2002, net of related intangible assets of $6.1
        million. Elan recognised $154.7 million of product revenue under Irish GAAP
        from the disposal of these product rights in 2002, net of related intangible
        assets of $38.9 million. The amounts of deferred revenue under U.S. GAAP for
        Avinza, Actiq and nifedipine are $71.7 million, $Nil and $31.5 million,
        respectively, at 31 December 2003. 
     

     
        Contract revenue was higher under U.S. GAAP than under
        Irish GAAP for both 2003 and 2002 due principally to the impact of SAB 104. The
        total difference in contract revenue between U.S. GAAP and Irish GAAP was $49.5
        million for 2003 (2002: $222.2 million). This primarily relates to the deferral
        and amortisation of up-front licence fees under U.S. GAAP, where such amounts
        were recognised upon 
     

     

     
        64
     

     

     
     

     
     
        receipt by Elan in prior periods under Irish GAAP. For
        2003, Elan recorded contract revenue related to the amortisation of up-front
        licence fees under U.S. GAAP of $49.5 million (2002: $234.7 million), compared
        to licence fees recorded under Irish GAAP of $Nil (2002: $7.1 million). 

     

     
        For additional information on the differences related to
        revenue recognition between Irish GAAP and U.S. GAAP, please refer to Note 33g
        to the Consolidated Financial Statements. 
     

     
        Other charges for 2003 were $316.3 million and principally
        comprised of investment and guarantee related charges of $136.5 million, net
        gains on divestment of businesses of $267.8 million and recovery plan and other
        significant charges of $449.2 million. The net gain on the divestment of
        businesses relates primarily to the gain of $264.4 million in relation to the
        divestment of the primary care franchise to King. Other charges of $449.2
        million includes $297.6 million in relation to the purchase of royalty rights,
        $67.7 million for the impairment of tangible and intangible assets and $16.8
        million for the EPIL II and EPIL III waiver fee. 
     

     
        Other charges of $2,168.9 million for 2002 were
        principally comprised of investment and guarantee related charges of $1,443.0
        million and recovery plan related and other charges of $763.6 million. Other
        charges of $763.6 million include $493.6 million for the impairment of tangible
        and intangible assets and $121.0 million in relation to the repurchase of
        royalty rights. 
     

     
        Net loss after other charges in 2003 was $535.4 million
        compared to net loss of $2,362.3 million in 2002. This decrease primarily
        reflects a decline in revenue and the impact of other charges. 
     

     
        2002 Compared to 2001 (U.S. GAAP) 
     

     
        Total revenue for 2002 decreased by 30% to $1,132.5
        million from $1,606.6 million for 2001. 
     

     
        Total revenue under U.S. GAAP was lower than under Irish
        GAAP by $200.5 million for 2002 and by $134.1 million for 2001. Product revenue
        under U.S. GAAP was $781.8 million for 2002 (2001: $1,185.3 million), compared
        to $1,204.5 million (2001: $1,407.0 million) under Irish GAAP. Contract revenue
        under U.S. GAAP was $350.7 million (2001: $421.3 million), compared to $128.5
        million (2001: $333.7 million) under Irish GAAP. 
     

     
        For 2002, the $422.7 million difference between product
        revenue under Irish GAAP and U.S. GAAP arose principally due to the
        reclassification out of product revenue under U.S. GAAP of revenues from
        discontinued operations of $322.6 million (2001: $255.9 million) and also the
        deferral under U.S. GAAP of $117.1 million of product revenue related to the
        disposals of certain rights related to Avinza, Actiq and nifedipine. Under U.S.
        GAAP Elan deferred and amortised this revenue as it committed to provide
        services to the purchasers. For example, Elan manufactures Avinza and
        nifedipine. Elan recognised $37.6 million of product revenue under U.S. GAAP
        from disposal of these product rights in 2002, net of related intangible assets
        of $6.1 million. Elan recognised $154.7 million of product revenue under Irish
        GAAP from the disposal of these product rights in 2002, net of related
        intangible assets of $38.9 million. The amounts of deferred revenue under U.S.
        GAAP for Avinza, Actiq and nifedipine were $96.7 million, $12.7 million and
        $40.5 million, respectively, at 31 December 2002. 
     

     
        Contract revenue was higher under U.S. GAAP than under
        Irish GAAP for both 2002 and 2001 due to the impact of SAB 104. The total
        difference in contract revenue between U.S. GAAP and Irish GAAP was $222.2
        million for 2002 (2001: $87.6 million). This primarily relates to the deferral
        and amortisation of up-front licence fees under U.S. GAAP, where such amounts
        were recognised upon receipt by Elan in prior periods under Irish GAAP. For
        2002, Elan recorded contract revenue related to the amortisation of up-front
        licence fees under U.S. GAAP of $234.7 million (2001: $287.2 million), compared
        to licence fees recorded under Irish GAAP of $7.1 million (2001: $173.6
        million). 
     

     
        For additional information on the differences related to
        revenue recognition between Irish GAAP and U.S. GAAP, please refer to Note 33g
        to the Consolidated Financial Statements. 
     

     
        Other charges of $2,168.9 million for 2002 were
        principally comprised of investment and guarantee related charges of $1,443.0
        million and recovery plan related and other charges of $763.6 million. Other
        charges of $763.6 million include $493.6 million for the impairment of tangible
        and intangible assets and $121.0 million in relation to the repurchase of
        royalty rights.
     

     
        Other charges of $347.8 million for 2001 were principally
        comprised of investment related charges of $24.5 million, asset write-downs of
        $210.4 million and rationalisation, integration and similar costs of $120.5
        million. Asset write-downs primarily related to Ceclor CD and Naprelan.
     

     

     
        65
     

     

     
     

     
     
        FINANCIAL REVIEW 
     

     
        Net loss after other charges in 2002 was $2,362.3 million
        compared to net income of $268.9 million in 2001. This decrease primarily
        reflects a decline in revenue and the impact of other charges. 
     

     
        Cash Flow (U.S. GAAP)
     

     
        In accordance with Irish GAAP, Elan complies with FRS No.
        1, “Cash Flow Statements” (“FRS 1”). Its objective and
        principles are similar to those set out in SFAS No. 95, “Statement of Cash
        Flows” (“SFAS No. 95”). The principal difference between the
        standards is in respect of classification. Under FRS 1, the Group has presented
        its cash flows for (a) operating activities; (b) returns on investments and
        servicing of finance; (c) taxation; (d) capital expenditure and financial
        investment; (e) acquisitions and disposals; and (f) financing activities. SFAS
        No. 95 requires only three categories of cash flow activity: (a) operating; (b)
        investing; and (c) financing. 
     

     
        Cash flows arising from taxation and returns on
        investments and servicing of finance under FRS 1 are included as operating
        activities under SFAS No. 95. In addition, under FRS 1, cash and liquid
        resources include short term borrowings repayable on demand. SFAS No. 95
        requires movements in such borrowings to be included in financing activities.
        
     

     
        For the purposes of cash flows under U.S. GAAP the Group
        considers all highly liquid deposits with an original maturity of three months
        or less to be cash equivalents. Under Irish GAAP, cash represents cash held at
        bank available on demand, offset by bank overdrafts. Liquid resources comprise
        bank fixed deposits with maturities of greater than one day. 
     

     
        Cash balances held by EPIL (prior to March 2001) and EPIL
        II have been included in cash and liquid resources under Irish GAAP as these
        entities have been consolidated under Irish GAAP. As the entities have not been
        consolidated subsidiaries under U.S. GAAP, their cash balances have not been
        included in cash and cash equivalents under U.S. GAAP. In 2003, under U.S.
        GAAP, there were marketable investments of $Nil (2002: $22.7 million) whose
        maturity was greater than three months. These were treated as liquid resources
        under Irish GAAP as they were readily convertible into cash and were traded in
        an active market. 
     

     
        2003
     

     
        Cash and cash equivalents decreased by $206.4 million. Net
        cash outflow from operating activities was $512.9 million. Included in cash
        flow from operating activities was an outflow of $227.9 million from changes in
        assets and liabilities. Cash outflows from working capital in 2003 primarily
        relate to a decrease in accruals as a result of the completion of the recovery
        plan, and a reduction in debt interest accruals mainly due to payment of
        accrued interest on LYONs. 
     

     
        Cash inflow from investing activities was $469.7 million.
        Proceeds of $546.9 million were received for business disposals, mainly
        relating to the primary care franchise. Proceeds from the sale of investments
        and marketable securities were $338.3 million and proceeds from tangible asset
        disposals amounted to $27.9 million. Proceeds of $46.1 million were received
        from the disposal of subsidiaries, mainly relating to Elan Transdermal
        Technologies (“ETT”). Offsetting these inflows were amounts of $144.8
        million for purchases of intangible assets, purchases of investments and
        marketable securities of $13.9 million and additions to tangible assets of
        $33.7 million. Cash outflows also included payments of $297.6 million made to
        acquire product royalty rights from Pharma Operating. 
     

     
        Financing cash outflows amounted to $175.7 million,
        primarily reflecting a cash outflow of $687.5 million on the repurchase of the
        LYONs (a further $115.9 million related to the LYONs repurchase is included as
        interest paid within operating activities); offset by inflows from the proceeds
        from the sale of share capital of $167.9 million and from the issuance of 6.5%
        Convertible Notes of $443.9 million (net of financing costs of $16.1 million).
        
     

     
        2002
     

     
        Cash and cash equivalents decreased by $585.5 million in
        2002. Net cash of $148.3 million was generated from operating activities.
        Included in cash flow from operating activities for 2002 was $195.0 million
        from proceeds of the product disposal programme entered into as part of the
        recovery plan, consisting of $100.0 million received from Ligand in relation to
        Avinza, $45.0 million received from Watson in relation to nifedipine, and $50.0
        million received from Anesta in relation to Actiq. 
     

     
        Cash outflows from investing activities were $63.1
        million. This amount included $315.5 million for purchases of intangible
        assets; purchases of investments and marketable investment securities of $200.8
        million and purchases of tangible assets of $170.2 million. Also included was a
        payment of $121.0 million to acquire the royalty rights held by Autoimmune.
        Cash inflows from the disposal of tangible and intangible assets were $8.6
        million and $9.4 million, respectively. Disposals of investments and marketable
        investment securities resulted in a cash inflow of $283.3 million including
        $38.5 million on the redemption of the Autoimmune investment and $9.3 million
        from the sale of EPIL III assets in connection with the repayment of EPIL III
        debt. Cash of $361.3 million was received in 2002 primarily 
     

     

     
        66
     

     

     
     

     
     
        from the disposal of the Abelcet business. Cash received
        for the disposal of the remaining holding in Athena Diagnostics (approximately
        80%) was $81.8 million; approximately 20% of Athena Diagnostics was disposed in
        2001 for $41.9 million. 
     

     
        Financing cash outflows amounted to $681.9 million,
        primarily reflecting an outflow of $325.0 million on the repayment of the
        Revolving Credit Facility, a cash outflow of $160.0 million in connection with
        the maturity of the EPIL III Series A Guaranteed Notes, and repayment of the
        3.5% Convertible Notes in the amount of $62.6 million. Financing cash outflows
        also included a cash outflow of $126.9 million on the repurchase of
        approximately 19% of the LYONs (a further $22.9 million related to this LYONs
        repurchase is included as interest paid within operating activities). Financing
        cash inflows of $148.0 million reflect the proceeds received in June 2002 by
        Shelly Bay from borrowings under a three month bank facility. The $148.0
        million was repaid in September 2002. 
     

     
        EPIL II 
     

     
        Under U.S. GAAP, EPIL II has not been consolidated as a
        subsidiary of Elan. Elan has provided a direct guarantee to the holders of the
        loan notes of EPIL II for the repayment of the loan notes and the payment of
        any unpaid interest. In the event that EPIL II does not meet its obligations to
        pay amounts due to the noteholders, the noteholders may call upon the Elan
        guarantee. 
     

     
        For additional information on the guarantee provided by
        Elan to the noteholders of EPIL II, please refer to Notes 15 and 33h to the
        Consolidated Financial Statements. 
     

     
        Inflation
     

     
        Inflation had no material impact on Elan’s operations
        during the year. 
     

     
        Treasury Policy
     

     
        Elan uses derivative financial instruments primarily to
        reduce exposures to market fluctuations in foreign exchange rates. Elan does
        not enter into derivative financial instruments for trading or speculative
        purposes. The treasury function operates within strict terms of reference which
        have been approved by Elan’s board of directors. 
     

     
        Exchange Risk
     

     
        Elan is a multinational business operating in many
        countries. The U.S. dollar is the primary currency in which Elan conducts its
        business. The U.S. dollar is used for planning and budgetary purposes and as
        the currency for financial reporting. Elan has revenues, costs, assets and
        liabilities denominated in currencies other than U.S. dollars. The Group
        manages its non-U.S. dollar foreign exchange risk through derivative financial
        instruments. 
     

     
        The U.S. dollar is the base currency against which all
        identified transactional foreign exchange exposures are managed and hedged. The
        principal risks to which Elan is exposed are movements in the exchange rates of
        the U.S. dollar against the Euro, Sterling, Swiss Franc and Japanese Yen. The
        main exposures are net costs in Euro arising from a manufacturing and research
        presence in Ireland and the sourcing of raw materials in European markets.
        
     

     
        During 2003, average exchange rates were U.S.$1.1322 =
        EUR1. Elan sells U.S. dollars to buy Euro for costs incurred in Euro. The
        recent strengthening of the Euro against the U.S. dollar will result in a
        higher reported cost related to Elan’s Euro cost base in 2004 compared to
        2003. 
     

     
        All derivative contracts entered into are in liquid
        markets with credit approved counterparties. At 31 December 2003, Elan had not
        entered into any forward foreign exchange contracts or foreign currency
        options. 
     

     
        For additional information regarding foreign exchange
        risk, please refer to Note 21 to the Consolidated Financial Statements. 

     

     
        Interest Rate Risk
     

     
        Elan’s liquid funds are invested primarily in U.S.
        dollars except for the working capital balances of subsidiaries operating
        outside of the United States. Interest rate risk is mainly confined to the
        variability of returns on investment funds as the majority of Elan’s debt
        is fixed rate. The Group’s exposure to interest rate risk is actively
        monitored and managed with an average duration of less than three months. By
        calculating an overall exposure to interest rate risk rather than a series of
        individual instrument cash flow exposures, the Company can more readily monitor
        and hedge these risks. Duration analysis recognises the time value of money and
        in particular, prevailing interest rates by discounting future cash flows.
        
     

     
        For additional information regarding interest rate risk,
        please refer to Note 21 to the Consolidated Financial Statements. 
     

     

     
        67
     

     

     
     

     
     
        FINANCIAL REVIEW 
     

     
        Credit Risk
     

     
        Elan’s treasury function transacts business with
        counterparties that are considered to be low investment risk. Credit limits are
        established commensurate with the credit rating of the financial institution
        that business is being transacted with. Elan does not believe that it has a
        significant exposure to any one financial counterparty. 
     

     
        Elan does not currently transact significant business in
        countries that are subject to major political and economic uncertainty. As a
        result, Elan is not materially exposed to any sovereign risk or payment
        difficulties. 
     

     
        Liquidity Risk
     

     
        For additional information regarding liquidity risk and
        for sensitivity analysis information, please refer to Note 21 to the
        Consolidated Financial Statements. 
     

     
        Equity Price Risk (U.S. GAAP) 
     

     
        Elan is exposed to equity price risks primarily on its
        available for sale securities which consist of equity investments in quoted
        companies. At 31 December 2003, available for sale securities had a fair value
        of $173.2 million and had a cost of $86.1 million. These investments are
        primarily in emerging pharmaceutical and biotechnology companies. A 10% adverse
        change in equity prices would result in an approximate $17 million decrease in
        the fair value of Elan’s available for sale equity securities. 
     

     
        International Financial Reporting Standards
     

     
        Under current European proposals, the Group will be
        required to adopt International Financial Reporting Standards
        (“IFRSs”) and International Accounting Standards (“IASs”)
        in the preparation of its Consolidated Financial Statements from 2005 onwards.
        The international standard setter, the International Accounting Standards Board
        (“IASB”), has undertaken an extensive exercise to develop new
        standards and improve existing ones. 
     

     
        In order to manage the transition of financial reporting
        from Irish GAAP to international accounting, the Company has completed initial
        assessments of the impact on its results and net assets. Some of the principal
        policy and disclosure changes required under IFRS are set out below. 
     

     
        Business combinations, intangible assets and
        goodwill 
     

     
        The more significant policy changes resulting from the
        transition to IFRS include: 
     

     		
             
                •
             

          	
             
                Replacement of goodwill amortisation with an annual
                impairment test; and
             

          

     		
             
                •
             

          	
             
                A broader definition of “intangible
                assets” to be recognised at acquisition. 
             

          

     
        Financial instruments 
     

     
        The adoption of IAS 32 and 39 (revised) will require all
        derivatives to be recognised on the balance sheet at fair value. Subsequent
        changes in fair values are either taken to equity, if the criteria for hedge
        accounting are met, or to the income statement. Previously, derivatives
        qualifying as hedges in accordance with Irish GAAP have been held off balance
        sheet and the fair value disclosed within a note to the financial statements.
        Any derivatives embedded within the terms of contractual commitments that are
        not considered closely related to the underlying host contract will also be
        separately identified and fair valued. 
     

     
        Deferred tax 
     

     
        Deferred tax is to be recognised at acquisition as part of
        the fair value exercise and will be provided on some balances previously
        excluded from provision under Irish rules such as revaluations and fair value
        adjustments. 
     

     
        Employee benefit schemes: post-retirement and share
        option remuneration
     

     
        IAS 19 requires companies to recognise the full deficit
        (or surplus) of defined benefit pension schemes on the balance sheet, but
        permits a choice whereby companies can choose to either defer actuarial gains
        or losses within a defined range (the corridor approach) or, as expected in any
        revised IAS, can recognise all actuarial gains or losses directly through
        equity. 
     

     
        Under IFRS, options granted by the Group to employees are
        to be fair valued at grant date using an option pricing model and charged
        through the income statement over the vesting period of the options. 
     

     

     
        68
     

     

     
     

     
     
        Presentation and disclosure of financial
        information
     

     
        The transition to an international accounting framework
        will give rise to an increase in certain disclosures to the financial
        statements. There will also be some presentational changes. For example, the
        existing international accounting framework has no direct equivalent of the
        Irish GAAP performance statement “statement of total recognised gains and
        losses”. Financial statements will disclose a detailed reconciliation of
        reserve movements for the current year, with comparatives.
     

     

     
        69
     

     

  
     
        DIRECTORS’ REPORT 
     

     
        Introduction 
     

     
        The directors submit their Annual Report, together with
        the audited financial statements of Elan, for the year ended 31 December 2003.
        
     

     
        Review of the Development of the Business 
     

     
        Elan is focused on the discovery, development,
        manufacturing, sale and marketing of novel therapeutic products in neurology,
        autoimmune diseases and severe pain. Elan’s shares trade on the New York,
        London and Irish Stock Exchanges. 
     

     
        Elan Corporation, plc is the parent company of a group of
        subsidiaries whose principal activities are described in the Operating and
        Financial Reviews on pages 4 to 69 of this report. 
     

     
        Information on legal proceedings pending against Elan is
        contained in Note 25 to the Consolidated Financial Statements. 
     

     
        Post Balance Sheet Events 
     

     
        For additional information on post balance sheet events,
        please refer to Note 29 to the Consolidated Financial Statements. 
     

     
        Research and Development 
     

     
        During the year ended 31 December 2003, Elan’s
        expenditure on research and development, including exceptional items, amounted
        to $331.4 million compared to $517.3 million, including exceptional items, for
        the year ended 31 December 2002. 
     

     
        Financial Results and Dividends 
     

     
        The results for the year are set out beginning on page 85
        of this Annual Report. The directors do not propose the payment of a dividend.
        
     

     
        Presentation of Financial Statements 
     

     
        This Annual Report and Form 20-F is a requirement for
        foreign companies with securities registered with the SEC. For the year ended
        31 December 2003, the Company has continued to prepare one Annual Report
        meeting the reporting requirements of the Company pursuant to Irish company
        law, the listing rules of the Irish Stock Exchange and the United Kingdom
        Listing Authority (the “Listing Rules”), and the rules and
        regulations of the SEC in the United States. 
     

     
        Health and Safety 
     

     
        The well being of the Company’s employees is
        safeguarded through the strict adherence to health and safety standards. The
        Safety, Health and Welfare at Work Act, 1989, imposes certain requirements on
        employers and the Company has taken the necessary action to ensure compliance
        with the Act, including the adoption of a safety statement. 
     

     
        Directors 
     

     
        Under the terms of the Company’s articles of
        association, one-third of the directors or, if their number is not a multiple
        of three, then the number nearest to one-third shall retire from office at each
        annual general meeting. The effect of this provision is that all of the
        Company's directors retire no less than every third year and, occasionally,
        after two years. In accordance with Elan’s Articles of Association, Mr
        Boushel, Mr McLaughlin, Dr Selkoe, Mr Thornburgh and Mr Groom hereby retire,
        and being eligible, offer themselves for re-election. 
     

     

     
        70
     

     

     
     

     
     
        Directors’ Interests 
     

     
        The beneficial interests of those persons who were
        directors and secretary of Elan at the year end, including their spouses and
        children under eighteen years of age, in the Ordinary Shares of the Company
        were as follows: 
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                Ordinary Shares; Par Value 5 Euro Cents Each
             

          	
             
                 
             

          	
             
                Options and Warrants to Purchase
 Ordinary Shares; Par Value 5 Euro Cents Each
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                At
 31 December 2003
             

          	
             
                 
             

          	
             
                At
 31 December 2002
             

          	
             
                 
             

          	
             
                At
 31 December 2003
             

          	
             
                 
             

          	
             
                At
 31 December 2002
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Garo H. Armen, PhD.
             

          	
             
                 
             

          	
             
                270,000
             

          	
             
                 
             

          	
             
                170,000
             

          	
             
                 
             

          	
             
                1,025,000
             

          	
             
                 
             

          	
             
                587,000
             

          	
             
                 
             

          
	
             
                Brendan E. Boushel
             

          	
             
                 
             

          	
             
                838,698
             

          	
             
                 
             

          	
             
                838,698
             

          	
             
                 
             

          	
             
                25,000
             

          	
             
                 
             

          	
             
                47,000
             

          	
             
                 
             

          
	
             
                Laurence G. Crowley
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                37,000
             

          	
             
                 
             

          	
             
                37,000
             

          	
             
                 
             

          
	
             
                William F. Daniel
             

          	
             
                 
             

          	
             
                50,000
             

          	
             
                 
             

          	
             
                15,000*
             

          	
             
                 
             

          	
             
                326,000
             

          	
             
                 
             

          	
             
                342,000
             

          	
             
                 
             

          
	
             
                Alan R. Gillespie, C.B.E. PhD.
             

          	
             
                 
             

          	
             
                120,000
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                37,000
             

          	
             
                 
             

          	
             
                37,000
             

          	
             
                 
             

          
	
             
                Ann Maynard Gray
             

          	
             
                 
             

          	
             
                3,500
             

          	
             
                 
             

          	
             
                3,500
             

          	
             
                 
             

          	
             
                5,000
             

          	
             
                 
             

          	
             
                5,000
             

          	
             
                 
             

          
	
             
                John Groom
             

          	
             
                 
             

          	
             
                510,000
             

          	
             
                 
             

          	
             
                510,000
             

          	
             
                 
             

          	
             
                316,720
             

          	
             
                 
             

          	
             
                343,720
             

          	
             
                 
             

          
	
             
                G. Kelly Martin
             

          	
             
                 
             

          	
             
                257,500
             

          	
             
                 
             

          	
             
                42,500*
             

          	
             
                 
             

          	
             
                2,000,000
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Kieran McGowan
             

          	
             
                 
             

          	
             
                1,200
             

          	
             
                 
             

          	
             
                1,200
             

          	
             
                 
             

          	
             
                15,000
             

          	
             
                 
             

          	
             
                15,000
             

          	
             
                 
             

          
	
             
                Kevin M. McIntyre, MD.
             

          	
             
                 
             

          	
             
                179,356
             

          	
             
                 
             

          	
             
                179,356
             

          	
             
                 
             

          	
             
                25,000
             

          	
             
                 
             

          	
             
                42,000
             

          	
             
                 
             

          
	
             
                Kyran McLaughlin
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                15,000
             

          	
             
                 
             

          	
             
                15,000
             

          	
             
                 
             

          
	
             
                Dennis J. Selkoe, MD.
             

          	
             
                 
             

          	
             
                163,175
             

          	
             
                 
             

          	
             
                163,175
             

          	
             
                 
             

          	
             
                108,648
             

          	
             
                 
             

          	
             
                108,648
             

          	
             
                 
             

          
	
             
                Richard L. Thornburgh
             

          	
             
                 
             

          	
             
                200
             

          	
             
                 
             

          	
             
                200
             

          	
             
                 
             

          	
             
                37,000
             

          	
             
                 
             

          	
             
                37,000
             

          	
             
                 
             

          
	
             
                Daniel P. Tully
             

          	
             
                 
             

          	
             
                177,548
             

          	
             
                 
             

          	
             
                137,548
             

          	
             
                 
             

          	
             
                15,000
             

          	
             
                 
             

          	
             
                15,000
             

          	
             
                 
             

          

 

     		
             
                *
             

          	
             
                At date of appointment to the board on 4 February
                2003
             

          

     
        The following changes in directors’ interests
        occurred between 31 December 2003 and 31 March 2004. On 10 March 2004, options
        to purchase ordinary shares were granted to the following directors: Mr Martin
        60,000 options; Dr Armen 50,000 options; Mr Boushel, Mr Crowley, Dr Gillespie,
        Ms Gray, Mr Groom, Mr McGowan, Dr McIntyre, Mr McLaughlin, Dr Selkoe, Mr
        Thornburgh and Mr Tully 40,000 options each and Mr Daniel 30,000 options.
        
     

     
        As more fully described in Note 20 to the Consolidated
        Financial Statements, Elan previously issued 1,250,000 Series B Warrants (the
        “Series B Warrants”) in connection with the Neuralab Limited
        (“Neuralab”) offering (the “Neuralab Offering”). These
        expired on 14 January 2003. Mr Boushel, Mr Daniel, Dr McIntyre and Mr Groom
        held a total of 21,500 Series B Warrants, exercisable for an aggregate of
        43,000 ADSs, which are included in the table above at 31 December 2002. All
        such Series B Warrants expired unexercised in January 2003. 
     

     

     
        71
     

     

     
     

     
     
        DIRECTORS’ REPORT 
     

     
        Directors’ Options 
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                At
 1 January
                2003
             

          	
             
                 
             

          	
             
                Granted
             

          	
             
                 
             

          	
             
                Expired
             

          	
             
                 
             

          	
             
                At
 31 December
                2003
             

          	
             
                 
             

          	
             
                Weighted Average 
 Subscription
 Price of

                Options 
 Outstanding
                At
 31 December 2003
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Garo H. Armen, PhD.
             

          	
             
                 
             

          	
             
                587,000
             

          	
             
                 
             

          	
             
                450,000
             

          	
             
                 
             

          	
             
                12,000
             

          	
             
                 
             

          	
             
                1,025,000
             

          	
             
                 
             

          	
             
                3.68
             

          	
             
                 
             

          
	
             
                Brendan E. Boushel
             

          	
             
                 
             

          	
             
                37,000
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                12,000
             

          	
             
                 
             

          	
             
                25,000
             

          	
             
                 
             

          	
             
                32.07
             

          	
             
                 
             

          
	
             
                Laurence G. Crowley
             

          	
             
                 
             

          	
             
                37,000
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                37,000
             

          	
             
                 
             

          	
             
                26.31
             

          	
             
                 
             

          
	
             
                William F. Daniel*
             

          	
             
                 
             

          	
             
                341,000
             

          	
             
                 
             

          	
             
                6,000
             

          	
             
                 
             

          	
             
                21,000
             

          	
             
                 
             

          	
             
                326,000
             

          	
             
                 
             

          	
             
                17.49
             

          	
             
                 
             

          
	
             
                Alan R. Gillespie, C.B.E. PhD
             

          	
             
                 
             

          	
             
                37,000
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                37,000
             

          	
             
                 
             

          	
             
                26.31
             

          	
             
                 
             

          
	
             
                Ann Maynard Gray
             

          	
             
                 
             

          	
             
                5,000
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                5,000
             

          	
             
                 
             

          	
             
                54.85
             

          	
             
                 
             

          
	
             
                John Groom
             

          	
             
                 
             

          	
             
                316,720
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                316,720
             

          	
             
                 
             

          	
             
                17.87
             

          	
             
                 
             

          
	
             
                G. Kelly Martin*
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                2,000,000
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                2,000,000
             

          	
             
                 
             

          	
             
                4.56
             

          	
             
                 
             

          
	
             
                Kieran McGowan
             

          	
             
                 
             

          	
             
                15,000
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                15,000
             

          	
             
                 
             

          	
             
                35.49
             

          	
             
                 
             

          
	
             
                Kevin M. McIntyre, MD.
             

          	
             
                 
             

          	
             
                37,000
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                12,000
             

          	
             
                 
             

          	
             
                25,000
             

          	
             
                 
             

          	
             
                32.07
             

          	
             
                 
             

          
	
             
                Kyran McLaughlin
             

          	
             
                 
             

          	
             
                15,000
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                15,000
             

          	
             
                 
             

          	
             
                35.49
             

          	
             
                 
             

          
	
             
                Dennis J. Selkoe, MD.
             

          	
             
                 
             

          	
             
                108,648
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                108,648
             

          	
             
                 
             

          	
             
                16.91
             

          	
             
                 
             

          
	
             
                Richard L. Thornburgh
             

          	
             
                 
             

          	
             
                37,000
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                37,000
             

          	
             
                 
             

          	
             
                26.31
             

          	
             
                 
             

          
	
             
                Daniel P. Tully
             

          	
             
                 
             

          	
             
                15,000
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                15,000
             

          	
             
                 
             

          	
             
                35.49
             

          	
             
                 
             

          

 

     		
             
                *
             

          	
             
                Appointed to the board on 4 February
                2003
             

          

     
        No options were exercised during the year ended 31
        December 2003. Options outstanding at 31 December 2003 are exercisable at
        various dates between January 2004 and November 2013. The closing market price
        at 31 December 2003, on the New York Stock Exchange (“NYSE”), of the
        Company’s ADSs was $6.89. During the year ended 31 December 2003, the
        closing market price ranged from $2.33 to $8.46 per ADS. 
     

     
        Directors’ Remuneration 
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                Year Ended 31 December
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Executive Directors:
             

          	
             
                 
             

          	
             
                2003
 Salary/Fees
                
 $
             

          	
             
                 
             

          	
             
                2003
 Annual
                
 Bonus
 $
             

          	
             
                 
             

          	
             
                2003
 Pension
  
             

          	
             
                 
             

          	
             
                2003
 Benefit
 In Kind

                $
             

          	
             
                 
             

          	
             
                2003
 Total
 $
             

          	
             
                 
             

          	
             
                2002
 Total
 $
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                G. Kelly Martin
             

          	
             
                 
             

          	
             
                702,854
             

          	
             
                 
             

          	
             
                800,000
             

          	
             
                 
             

          	
             
                6,000
             

          	
             
                 
             

          	
             
                71,686
             

          	
             
                 
             

          	
             
                1,580,540
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                William Daniel
             

          	
             
                 
             

          	
             
                266,666
             

          	
             
                 
             

          	
             
                150,000
             

          	
             
                 
             

          	
             
                29,767
             

          	
             
                 
             

          	
             
                17,758
             

          	
             
                 
             

          	
             
                464,191
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Donal Geaney(1)
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                1,214,684
             

          	
             
                 
             

          
	
             
                Thomas Lynch(1)
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                962,875
             

          	
             
                 
             

          
	
             
                Total
             

          	
             
                 
             

          	
             
                969,520
             

          	
             
                 
             

          	
             
                950,000
             

          	
             
                 
             

          	
             
                35,767
             

          	
             
                 
             

          	
             
                89,444
             

          	
             
                 
             

          	
             
                2,044,731
             

          	
             
                 
             

          	
             
                2,177,559
             

          	
             
                 
             

          
	
             
                Average number of executive directors
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                2
             

          	
             
                 
             

          	
             
                2
             

          	
             
                 
             

          

 

     		
             
                (1)
             

          	
             
                Mr Geaney received a total bonus of $1.0 million
                in respect of 2001, of which $360,000 was paid in 2001 and disclosed in the
                2001 Annual Report and Form 20-F and the balance of $640,000 was paid in 2002.
                Mr Lynch received a bonus of $500,000 in 2002 in respect of 2001. 
             

          

 

     
        72
     

     

     
     

     
     
        On 9 July 2002, Mr Geaney and Mr Lynch resigned as
        chairman and vice-chairman of the board, respectively, as well as from their
        respective positions as officers of Elan. Under the terms of the agreements
        signed on 9 July 2002, Mr Geaney and Mr Lynch will continue as employees of
        Elan as senior advisers to the chairman until 31 July 2004 at their then
        current base salaries and shall be entitled to continue to receive the pension
        and other benefits to which they were then entitled. They are not entitled to
        any future bonuses. The remuneration paid to them after 9 July 2002 is shown
        under payments to former directors below. 
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                Year Ended 31 December
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                2003
 Fees
 $
             

          	
             
                 
             

          	
             
                2003
 Annual
 Bonus
 $
             

          	
             
                 
             

          	
             
                2003
 Pension
 $
             

          	
             
                 
             

          	
             
                2003
 Benefit
 in Kind

                $
             

          	
             
                 
             

          	
             
                2003
 Total
 $
             

          	
             
                 
             

          	
             
                2002
 Total
 $
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Non-Executive Directors:
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Garo H. Armen, PhD.
             

          	
             
                 
             

          	
             
                240,000
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                240,000
             

          	
             
                 
             

          	
             
                62,500
             

          	
             
                 
             

          
	
             
                Brendan E. Boushel
             

          	
             
                 
             

          	
             
                40,000
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                40,000
             

          	
             
                 
             

          	
             
                50,000
             

          	
             
                 
             

          
	
             
                Laurence G. Crowley
             

          	
             
                 
             

          	
             
                65,000
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                65,000
             

          	
             
                 
             

          	
             
                65,000
             

          	
             
                 
             

          
	
             
                Alan R. Gillespie, C.B.E. PhD.
             

          	
             
                 
             

          	
             
                53,859
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                53,859
             

          	
             
                 
             

          	
             
                46,250
             

          	
             
                 
             

          
	
             
                Ann Maynard Gray
             

          	
             
                 
             

          	
             
                77,500
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                77,500
             

          	
             
                 
             

          	
             
                58,750
             

          	
             
                 
             

          
	
             
                John Groom
             

          	
             
                 
             

          	
             
                140,000
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                100,000
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                240,000
             

          	
             
                 
             

          	
             
                240,000
             

          	
             
                 
             

          
	
             
                Kieran McGowan
             

          	
             
                 
             

          	
             
                65,000
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                65,000
             

          	
             
                 
             

          	
             
                58,750
             

          	
             
                 
             

          
	
             
                Kevin M. McIntyre, MD.
             

          	
             
                 
             

          	
             
                60,000
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                60,000
             

          	
             
                 
             

          	
             
                70,000
             

          	
             
                 
             

          
	
             
                Kyran McLaughlin
             

          	
             
                 
             

          	
             
                85,000
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                85,000
             

          	
             
                 
             

          	
             
                68,750
             

          	
             
                 
             

          
	
             
                Dennis J. Selkoe, MD.
             

          	
             
                 
             

          	
             
                65,000
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                65,000
             

          	
             
                 
             

          	
             
                100,000
             

          	
             
                 
             

          
	
             
                Richard L. Thornburgh
             

          	
             
                 
             

          	
             
                60,000
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                60,000
             

          	
             
                 
             

          	
             
                56,250
             

          	
             
                 
             

          
	
             
                Daniel P. Tully
             

          	
             
                 
             

          	
             
                77,500
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                77,500
             

          	
             
                 
             

          	
             
                58,750
             

          	
             
                 
             

          
	
             
                Total
             

          	
             
                 
             

          	
             
                1,028,859
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                100,000
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                1,128,859
             

          	
             
                 
             

          	
             
                935,000
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Average number of non-executive directors
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                12
             

          	
             
                 
             

          	
             
                12
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        On 12 February 2002, Elan entered into a consultancy
        agreement with Mr Groom. On 1 April 2002, EPI entered into a consultancy
        agreement with Dr Selkoe. Dr Selkoe is also a party to a consultancy agreement
        with Athena Neurosciences. For additional information regarding these
        consultancy agreements, please refer to “Service Contracts” in this
        Directors’ Report. 
     

     
        Dr Selkoe received $25,000 and $50,000 from Elan in 2003
        and 2002, respectively, under consultancy agreements. Mr Groom received
        $200,000 in 2002 under a consultancy agreement. Effective 1 July 2003, the
        consultancy agreement was cancelled and the Company and Mr Groom entered into a
        pension agreement of $200,000 per annum payable until 16 May 2008. 
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                2003
 Total
                
 $
             

          	
             
                 
             

          	
             
                2002
 Total
                
 $
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Payments to Former Directors:
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                James Balog
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                20,000
             

          	
             
                 
             

          
	
             
                Donal Geaney (1)
             

          	
             
                 
             

          	
             
                1,122,082
             

          	
             
                 
             

          	
             
                554,684
             

          	
             
                 
             

          
	
             
                Thomas Lynch (1)
             

          	
             
                 
             

          	
             
                899,955
             

          	
             
                 
             

          	
             
                442,875
             

          	
             
                 
             

          
	
             
                Donald Panoz
             

          	
             
                 
             

          	
             
                160,000
             

          	
             
                 
             

          	
             
                160,000
             

          	
             
                 
             

          
	
             
                Nancy Panoz
             

          	
             
                 
             

          	
             
                25,000
             

          	
             
                 
             

          	
             
                25,000
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                2,207,037
             

          	
             
                 
             

          	
             
                1,202,559
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     		
             
                (1)
             

          	
             
                As explained above, Mr Geaney and Mr Lynch
                resigned as chairman and vice chairman on 9 July 2002. Their remuneration for
                2002 is split between amounts paid to them as executive directors (see page 72)
                and as former directors above. The total amounts paid to Mr Geaney and Mr Lynch
                in respect of 2002 were $1,769,368 and $1,405,750 respectively.
             

          

 

     
        73
     

     

     
     

     
     
        DIRECTORS’ REPORT 
     

     
        Board of Directors and Senior Management of the Company
        
     

     
        Directors 
     

     
        Garo H. Armen, PhD (51) was
        appointed a director of Elan in February 1994 and was appointed chairman of
        Elan in July 2002. He has been chairman and chief executive officer of
        Antigenics, Inc. (“Antigenics”) since its initial public offering in
        February 2000 and held the same positions in its predecessor, Antigenics, LLC
        since its formation in 1994. Previously, Dr Armen was with Dean Witter Reynolds
        as a senior vice president of research and with E.F. Hutton & Company as
        first vice president, research. 
     

     
        Brendan E. Boushel (73) was
        appointed a director of Elan in January 1980. From 1966 until his retirement in
        1994, Mr Boushel was a partner in the Irish law firm of T.T.L. Overend McCarron
        & Gibbons. Mr Boushel also holds a number of private company directorships.
        
     

     
        Laurence G. Crowley (67) was
        appointed a director of Elan in March 1996. He is governor (chairman) of the
        Bank of Ireland. He is presently chairman of PJ Carroll & Co. and is a
        director of a number of private companies. 
     

     
        William F. Daniel (1) (52)
        was appointed a director of Elan in February 2003. He has served as the
        Company’s secretary since December 2001, having joined Elan in March 1994
        as group financial controller. In July 1996, he was appointed group vice
        president, finance, group controller and principal accounting officer. From
        1990 to 1992, Mr Daniel was financial director of Xtravision, plc. 
     

     
        Alan R. Gillespie, C.B.E. PhD (53) was appointed a director of Elan in March 1996. He is chairman of
        Ulster Bank Limited. From November 1999 until November 2002, he was chief
        executive officer of CDC Group, plc and was previously a managing director of
        Goldman Sachs International. 
     

     
        Ann Maynard Gray (58) was
        appointed a director of Elan in February 2001. She was formerly president of
        Diversified Publishing Group of Capital Cities/ABC, Inc. Ms Gray is a director
        of Duke Energy Corporation and The Phoenix Companies, Inc., and is a trustee of
        J.P. Morgan Funds. 
     

     
        John Groom (65) was appointed
        a director of Elan in July 1996 and served as president and chief operating
        officer from then until his retirement in January 2001. Mr Groom was president,
        chief executive officer and director of Athena Neurosciences prior to its
        acquisition by Elan in 1996. Mr Groom serves on the boards of Neuronyx Inc.,
        Ligand, CV Therapeutics and Amarin. 
     

     
        Kieran McGowan (60) was
        appointed a director of Elan in December 1998. From 1990 until his retirement
        in December 1998, he was chief executive of IDA Ireland. He is chairman of the
        Governing Authority of University College Dublin and is a director of CRH, plc,
        Irish Life and Permanent, plc, United Drug, plc, Enterprise Ireland, An Post
        National Lottery Company Ltd., and a number of private companies. 
     

     
        Kevin M. McIntyre, MD (68)
        was appointed a director of Elan in February 1984. He is an associate clinical
        professor of medicine at Harvard Medical School and has served as a consultant
        to the National Academy of Sciences. 
     

     
        Kyran McLaughlin (59) was
        appointed a director of Elan in January 1998. Since 1985, he has been head of
        equities and corporate finance at Davy Stockbrokers, Ireland’s largest
        stockbroker firm. He is a director of Ryanair Holdings, plc and is a director
        of a number of private companies. 
     

     
        G. Kelly Martin(1) (45) was
        appointed a director of Elan in February 2003 following his appointment as
        president and chief executive officer. He was formerly president of the
        International Private Client Group and a member of the executive management and
        operating committee of Merrill Lynch & Co., Inc. He spent over 20 years at
        Merrill Lynch & Co., Inc. in a broad array of operating and executive
        responsibilities on a global basis. 
     

     
        Dennis J. Selkoe, MD (60) was
        appointed a director of Elan in July 1996, following Elan’s acquisition of
        Athena Neurosciences, where he served as a director since July 1995. Dr Selkoe
        was a founder of, and consultant to, Athena Neurosciences. Dr Selkoe, a
        neurologist, is a professor of neurology and neuroscience at Harvard Medical
        School. He also serves as co-director of the Center for Neurologic Disease at
        The Brigham and Women’s Hospital. 
     

     
        The Honorable Richard L. Thornburgh (71) was appointed a director of Elan in March 1996. He served as
        governor of Pennsylvania for two terms and as attorney general of the United
        States from 1988 to 1991. He is presently of counsel to the law firm of
        Kirkpatrick & Lockhart LLP in Washington, D.C. He was appointed lead
        independent director of the Company in May 2002. 
     

     

     
        74
     

     

     
     

     
     
        Daniel P. Tully (72) was
        appointed a director of Elan in February 1999. He is a chairman emeritus of
        Merrill Lynch & Co., Inc., where he served as chairman of the board from
        1993 to 1997, and was its chief executive officer from 1992 to 1996. He served
        as vice chairman of the NYSE from 1994 to 1995, vice chairman of the American
        Stock Exchange from 1984 to 1986 and chairman of the board of governors of the
        National Association of Securities Dealers from 1996 to 1997. 
     

     
        Officers serve at the discretion of the board of
        directors. Directors of Elan are compensated with fee payments and stock
        options (with additional payments where directors are members of board
        committees) and are reimbursed for travel expenses to and from board meetings.
        
     

     
        (1)        Member of executive management committee. 
     

     
        Senior Management 
     

     
        Paul Breen(1) (47)
        is executive vice president, global services and operations. He joined Elan in
        July 2001. Prior to joining Elan, he was vice president and joint managing
        director of Pfizer Pharmaceuticals Ireland. Prior thereto, he was vice
        president and managing director of Warner-Lambert Company’s Irish
        operations. 
     

     
        Nigel Clerkin (30) was
        appointed senior vice president, finance and group controller in January 2004,
        having previously held a number of financial and strategic planning positions
        since joining Elan in January 1998. He is also the Company’s principal
        accounting officer. Mr Clerkin is a chartered accountant and a graduate of
        Queen’s University Belfast. 
     

     
        Shane Cooke(1)
        (41) joined Elan as executive vice president and chief financial officer in
        July 2001. Prior to joining Elan, Mr Cooke was chief executive of Pembroke
        Capital Limited, an aviation leasing company, and prior to that held a number
        of senior positions in finance in the banking and aviation industries. Mr Cooke
        is a chartered accountant and a graduate of University College Dublin. 
     

     
        Jean Duvall (1) (42) was appointed executive vice president and general
        counsel in May 2003, having held a number of senior legal positions at Elan,
        most recently senior vice president, legal affairs of EPI. Prior to joining
        Athena Neurosciences in 1994, she held positions at Alza Corporation and at the
        law firm of Morgan and Finnegan. 
     

     
        Lars Ekman,(1)
        MD, PhD (54) was
        appointed executive vice president and president, global R&D and corporate
        strategy for Elan in June 2003. Previously, Dr Ekman held the position of
        president, research and development since joining the company in January 2001.
        Prior to joining Elan, he was evp, research and development at Schwarz Pharma
        AG since 1997. From 1984 to 1997, Dr Ekman was employed in a variety of senior
        scientific and clinical functions at Pharmacia (now Pfizer). Dr Ekman is a
        board certified surgeon with a PhD in experimental biology and has held several
        clinical and academic positions in both the United States and Europe. He
        obtained his PhD and MD from the University of Gothenburg, Sweden. 
     

     
        Arthur Falk, PhD (59) joined
        Elan as executive vice president, corporate compliance, in May 2001. Dr Falk
        has 30 years experience in analytical research, quality and compliance within
        the pharmaceutical industry. Prior to joining Elan, he was the vice president,
        corporate quality, safety and environmental affairs and managing compliance
        officer for the worldwide operations of the Warner-Lambert Company. 
     

     
        Jack Laflin (56) joined Elan
        as executive vice president, human resources, in January 2003. Mr Laflin was
        most recently vice president, human resources, at Invensys, plc based in
        London. Prior thereto, he held senior positions in Kulicke and Soffa
        Industries, Inc, ALG Group, Harris Corporation and with the General Electric
        Company. 
     

     
        Ivan Lieberburg, MD, PhD (54)
        is executive vice president and chief medical officer of Elan, where he has
        held a number of senior positions, most recently senior vice president of
        research. Prior to joining Athena Neurosciences in 1987, Dr Lieberburg held
        faculty positions at the Albert Einstein College of Medicine and Mt. Sinai
        School of Medicine in New York. 
     

     
        No director or officer has a family relationship with any
        other director or officer. 
     

     
        (1)        Member of executive management committee. 
     

     
        Compensation of Directors and Officers 
     

     
        For the year ended 31 December 2003, all executive
        officers and directors as a group (19 persons) received total compensation of
        $7.2 million. 
     

     

     
        75
     

     

     
     

     
     
        DIRECTORS’ REPORT 
     

     
        Elan reimburses officers and directors for their actual
        business-related expenses. For the year ended 31 December 2003, an aggregate of
        $0.3 million was set aside or accrued by Elan to provide pension, retirement
        and other similar benefits for directors and officers. Elan maintains certain
        health and medical benefit plans for its employees in which Elan’s
        officers participate along with other employees generally. 
     

     
        For additional information on pension benefits for Elan
        employees, please refer to Note 28 to the Consolidated Financial Statements,
        and to pages 174 to 176. 
     

     
        Transactions with Directors 
     

     
        There were no transactions with directors during the year
        ended 31 December 2003 other than as outlined in Note 27 to the Consolidated
        Financial Statements. 
     

     
        Significant Shareholdings 
     

     
        As of 31 December 2003, Capital Research and Management
        Company (“Capital Research”) owned 45,382,000 Elan ADSs representing
        approximately 11.7% of the issued share capital of the Company. Capital
        Research held approximately 11.6% and 9% of the share capital of the Company at
        31 December 2002 and 2001 respectively. Fidelity Management and Research
        Company (“Fidelity Management”) held approximately 5% of the issued
        share capital of the Company at 31 December 2001. At 31 March 2004, Fidelity
        Management had increased their shareholding to 31,486,620 ADSs representing
        approximately 8.1% of the issued share capital. Save for these interests, the
        Company is not aware of any person who, directly or indirectly, holds 3% or
        more of the issued share capital. Neither Capital Research nor Fidelity
        Management have voting rights different from other shareholders. 
     

     
        The following table sets forth certain information
        regarding the beneficial ownership of Ordinary Shares at 31 March 2004 by all
        directors and officers of Elan as a group (either directly or by virtue of
        ownership of Elan ADSs): 
     

     
         
     

     	
             
                Name of Owner or Identity of Group
             

          	
             
                 
             

          	
             
                No. of 
 Shares
             

          	
             
                 
             

          	
             
                Percent of
 Class(1)
             

          	
             
                 
             

          
	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                All directors and officers as a group (18
                persons)(2)
             

          	
             
                 
             

          	
             
                5.6 million
             

          	
             
                 
             

          	
             
                1.4
             

          	
             
                %
             

          

 

     		
             
                (1)
             

          	
             
                Based on 388.7 million Ordinary Shares
                outstanding on 31 March 2004 and 3.0 million Ordinary Shares issuable upon the
                exercise of currently exercisable options held by directors and officers as a
                group as of 31 March 2004. 
             

          

     		
             
                (2)
             

          	
             
                Includes 3.0 million Ordinary Shares issuable
                upon exercise of currently exercisable options held by directors and officers
                of Elan as a group as of 31 March 2004. 
             

          

     
        No options were exercised by executive officers during the
        year ended 31 December 2003. Options outstanding at 31 December 2003 are
        exercisable at various dates between January 2004 and November 2013. 
     

     
        There were no options exercised by executive officers to
        acquire Elan ADSs in the period from 31 December 2003 to 31 March 2004. 

     

     
        Elan, to its knowledge, is not directly or indirectly
        owned or controlled by another entity or by any government. Elan does not know
        of any arrangements, the operation of which might result in a change of control
        of Elan. 
     

     
        Statement of Directors’ Responsibilities
        
     

     
        The following statement, which should be read in
        conjunction with the Auditors’ Report set out on pages 83 and 84 of this
        Annual Report, is made with a view to distinguishing for shareholders the
        respective responsibilities of the directors and of the auditors in relation to
        the financial statements. 
     

     
        Irish company law requires the directors to ensure that
        financial statements are prepared for each financial year which give a true and
        fair view of the state of affairs of Elan Corporation, plc and of the Group and
        of the profit or loss for that year. 
     

     
        With regard to the financial statements on pages 85 to 178
        of this Annual Report, the directors have determined that it is appropriate
        that they continue to be prepared on a going concern basis and consider that in
        their preparation: 
     

     

     
        76
     

     

     
     

     
     		
             
                •
             

          	
             
                Suitable accounting policies have been selected and
                applied consistently;
             

          

     		
             
                •
             

          	
             
                Judgements and estimates that are reasonable and
                prudent have been made; and 
             

          

     		
             
                •
             

          	
             
                Applicable accounting standards have been
                followed.
             

          

     
        The directors have a responsibility for ensuring that
        proper books of account are kept which disclose with reasonable accuracy at any
        time the financial position of the Group and of Elan Corporation, plc and which
        enable them to ensure that the financial statements comply with the Companies
        Acts (the “Companies Acts”), 1963 to 2003, and all regulations to be
        construed as one with those Acts. They also have general responsibility for
        taking such steps as are reasonably open to them to safeguard the assets of the
        Group and to prevent and detect fraud and other irregularities. 
     

     
        Service Contracts 
     

     
        Save as set out below, there are no service contracts in
        existence between any of the directors and Elan. 
     

     		
             
                •
             

          	
             
                On 1 July 2003, Elan entered into a pension
                agreement with Mr Groom, a director of Elan, whereby Elan shall pay a pension
                of $200,000 per annum, monthly in arrears, until 16 May 2008 in respect of his
                former senior executive roles in Elan and in Athena Neurosciences, Inc.
             

          

     		
             
                •
             

          	
             
                On 7 January 2003, Elan and EPI entered into an
                agreement with Mr Martin such that Mr Martin was appointed president and chief
                executive officer of Elan effective 3 February 2003. Mr Martin’s annual
                salary under this agreement is $798,000. He is eligible for an annual bonus in
                a target amount equal to his salary depending on the achievement of established
                performance goals. Mr Martin was granted an initial option to purchase
                1,000,000 Ordinary Shares with an exercise price of $3.85 and vesting in three
                equal instalments on 31 December 2003, 31 December 2004 and 31 December 2005.
                In accordance with the terms of his contract, in October 2003, Mr Martin was
                granted an additional option to purchase 1,000,000 Ordinary Shares with an
                exercise price of $5.28, equal to the fair market value of the shares on the
                date of grant, vesting on the same basis and dates as the initial option grant.
                
             

          

     
        Commencing in 2004, Mr Martin will be considered for
        additional option grants during the term of the agreement consistent with
        Elan’s annual option grant practices. 
     

     
        The agreement continues until 31 December 2005 and can be
        extended for a further year on each anniversary of that date thereafter unless
        90 days notice is given by Elan or Mr Martin prior to the applicable
        anniversary date. In general, if Mr Martin’s employment is involuntarily
        terminated (other than for cause or disability) or Mr Martin leaves for good
        reason, Elan will continue to pay his salary and target bonus for the following
        two years and his outstanding options will immediately accelerate and remain
        outstanding for the following two years. If, during the first two years of the
        agreement, Elan undergoes a change in control and Mr Martin is involuntarily
        terminated, then Mr Martin will receive the benefits outlined in the preceding
        sentence and a lump sum payment in an amount equal to $5.0 million if the
        change of control occurs in the first year of the term, or $3.0 million if it
        occurs in the second year of the term. 
     

     
        Mr Martin is eligible to participate in the pension,
        medical, disability and life insurance plans applicable to senior executives in
        accordance with the terms of those plans. He may also receive financial
        planning and tax support and advice from the provider of his choice at a
        reasonable and customary annual cost. 
     

     		
             
                •
             

          	
             
                On 1 July 1986, Athena Neurosciences entered into a
                consultancy agreement with Dr Selkoe whereby Dr Selkoe agreed to provide
                certain consultancy services in the field of AD for a fee to be fixed annually,
                together with the reimbursement for all reasonable travel and other expenses
                incurred. The consultancy agreement renews automatically, unless notice of
                termination is provided 60 days prior to the anniversary date. No such notice
                has been provided.
             

          

     		
             
                •
             

          	
             
                On 1 April 2002, EPI entered into a consultancy
                agreement with Dr Selkoe whereby Dr Selkoe agreed to provide certain
                consultancy services, including services in the field of immunological
                approaches to the treatment of AD for a period of one year for a fee not to
                exceed $12,000. 
             

          

 

     
        Accounting Records 
     

     
        The directors believe that they have complied with Section
        202 of the Companies Act, 1990 with regard to books of account by employing
        financial personnel with appropriate expertise and by providing adequate
        resources to the financial function. The books of account of Elan Corporation,
        plc are maintained at its office in Monksland, Athlone, County Westmeath,
        Ireland. 
     

     
        77
     

     

     
     

     
     
        Directors’ Report 
     

     
        Political Donations 
     

     
        There were no political contributions which require
        disclosure under the Electoral Act, 1997. 
     

     
        Subsidiary Companies 
     

     
        For additional information regarding significant
        subsidiary and associated undertakings, please refer to Note 32 to the
        Consolidated Financial Statements. 
     

     
        Auditors 
     

     
        In accordance with Section 160(2) of the Companies Act,
        1963, the auditors, KPMG, Chartered Accountants, will continue in office.
        
     

     
        On behalf of the board, 23 April 2004 
     

     
         
     

     	
             
                Garo Armen,
                chairman
             

          	
             
                 
             

          	
             
                Kelly Martin, president
                and chief executive officer
             

          

 
 

     
        78
     

     

     
     

     
     
        CORPORATE GOVERNANCE 
     

     
        Policies 
     

     
        Elan is committed to the adoption and maintenance of the
        highest standards of corporate governance and compliance. The Company complies
        with the provisions of The Combined Code which was adopted by the London Stock
        Exchange in June 1998 and by the Irish Stock Exchange in December 1998. One of
        the requirements of The Combined Code is that listed companies make a statement
        in relation to how they have complied with this code. A revised Combined Code
        on Corporate Governance (the “Revised Code”) was issued in July 2003
        and compliance is required for annual reports commencing in November 2003. The
        Company is studying the Revised Code and believes it is in compliance with the
        Revised Code. 
     

     
        In May 2002, following a review with external legal
        counsel, the board of directors adopted a set of corporate governance
        guidelines (“the Guidelines”) and restructured the existing three
        board committees into four board committees, the executive committee, audit
        committee, compensation committee (now the leadership development and
        compensation committee), and nominating committee and adopted a written charter
        for each committee (collectively the “Committee Charters”). The
        Guidelines and the Committee Charters were revised and updated in November 2003
        to incorporate the requirements of the Sarbanes Oxley Act, 2002, the revised
        listing rules of the NYSE and certain measures agreed as part of the settlement
        of the derivative action (see Note 25 on pages 133 to 134). In addition, in
        November 2003 the Company adopted a code of conduct (the “Code of
        Conduct”) that applies to all employees of the Company, including its
        principal executive officer, principal financial officer and principal
        accounting officer. The Guidelines, the Committee Charters and the Code of
        Conduct are available on the Company’s website, www.elan.com, under
        "Governance". Any amendments to or waivers from the Code of Conduct will also
        be posted to the Company’s website. 
     

     
        The Board 
     

     
        The roles of chairman and chief executive officer are
        separated. Under the Company’s Corporate Governance Guidelines, it has
        committed that two-thirds of the board will be independent by 30 June 2004. The
        board currently includes 10 independent, non-executive directors who constitute
        in excess of two-thirds of the board. The Company decided to adopt a definition
        of independence based on the rules of the NYSE, the exchange on which the
        majority of the Company’s shares are traded. In addition, the board has
        appointed the Honorable Richard L. Thornburgh as lead independent director, in
        accordance with the provisions of The Combined Code and best corporate
        governance practice in the United States, the U.K. and Ireland. 
     

     
        The board regularly reviews its responsibilities and those
        of its committees and management. The board meets regularly throughout the
        year, and all of the directors have full and timely access to the information
        necessary to enable them to discharge their duties. The board has reserved
        certain matters to its exclusive jurisdiction, thereby maintaining control of
        the Company and its future direction. All directors are appointed by the board,
        as nominated by its nominating committee, and subsequently elected by the
        shareholders. Procedures are in place where directors and committees, in
        furtherance of their duties, may take independent professional advice, if
        necessary, at the Company’s expense. The board has delegated authority
        over certain areas of the Company’s activities to four standing
        committees, as more fully described below. The board held 19 meetings during
        2003. 
     

     
        Executive Committee 
     

     
        The executive committee exercises the authority of the
        board during the interval between board meetings, except to the extent that the
        board has delegated authority to another committee or to other persons, or has
        reserved authority to itself or as limited by Irish law. The members of the
        committee are Dr Armen, chairman, Mr Crowley, Ms Gray, Mr Martin, Mr McLaughlin
        and Mr Tully. The executive committee held 5 formal meetings during 2003.
        
     

     
        Audit Committee 
     

     
        The audit committee, composed entirely of non-executive
        directors, helps the board in its general oversight of the Company’s
        accounting and financial reporting practices, internal controls and audit
        functions, and is directly responsible for the appointment, compensation and
        
     

     

     
        79
     

     

     
     

     
     
        CORPORATE GOVERNANCE 
     

     
        oversight of the work of Elan’s independent auditors.
        The audit committee periodically reviews the effectiveness of the system of
        internal control. It monitors the adequacy of internal accounting practices,
        procedures and controls, and reviews all significant changes in accounting
        policies. The committee meets regularly with the internal and external auditors
        and addresses all issues raised and recommendations made by them. The members
        of the committee are Mr McLaughlin, chairman, Dr Gillespie and Mr McGowan. The
        audit committee held 10 formal meetings during 2003. 
     

     
        The Company’s board of directors does not have an
        “audit committee financial expert,” within the meaning of such phrase
        under applicable regulations of the SEC, serving on its audit committee. The
        board of directors believes that all members of its audit committee are
        financially literate, experienced in business matters, capable of analysing and
        evaluating the Company’s financial statements, understanding internal
        controls and procedures for financial reporting purposes and understanding
        audit committee functions. The board of directors expects to seek an
        appropriate individual to serve on the board of directors and the audit
        committee who will meet the requirements necessary to be an “audit
        committee financial expert.” 
     

     
        Consistent with SEC policies regarding auditor
        independence, the audit committee has responsibility for appointing, setting
        compensation and overseeing the work of the independent auditor. In recognition
        of this responsibility, the audit committee has established a policy to
        pre-approve all audit and permissible non-audit services provided by the
        independent auditor. Prior to engagement of the independent auditor for the
        next year’s audit, management will submit a list of services and related
        fees expected to be rendered during that year within each of four categories of
        services to the audit committee for approval: audit services; audit-related
        services; tax services; and other fees. 
     

     
        Prior to engagement, the audit committee pre-approves
        independent auditor services within each category. The fees are budgeted and
        the audit committee requires the independent auditor and management to report
        actual fees versus the budget periodically throughout the year by category of
        service. During the year, circumstances may arise when it may become necessary
        to engage the independent auditor for additional services not contemplated in
        the original pre-approval categories. In those instances, the audit committee
        requires specific pre-approval before engaging the independent auditor. 

     

     
        The audit committee may delegate pre-approval authority to
        one or more of its members. The member to whom such authority is delegated must
        report, for informational purposes only, any pre-approval decisions to the
        audit committee at its next scheduled meeting. 
     

     
        Leadership Development and Compensation Committee
        
     

     
        The leadership development and compensation committee (the
        “LDCC”), composed entirely of non-executive directors, reviews the
        compensation philosophy and policies of the Company with respect to executive
        compensation, fringe benefits and other compensation matters. The committee
        determines the compensation of the chief executive officer and other executive
        directors and reviews the compensation of the other members of the executive
        management. The committee also administers the Company’s share option
        plans. The members of the committee are Dr McIntyre, chairman, Mr Crowley, Ms
        Gray and Mr Tully. The LDCC committee held 9 formal meetings during 2003. For
        more information, see “Report of the Leadership Development and
        Compensation Committee”. 
     

     
        Nominating Committee 
     

     
        The nominating committee, composed entirely of
        non-executive directors, reviews on an ongoing basis the membership of the
        board of directors and of the board committees and the performance of the
        directors. It recommends new appointments to fill any vacancy that is
        anticipated or arises on the board of directors. It reviews and recommends
        changes in respect of the functions of the various committees of the board. The
        members of the committee are Mr Thornburgh, chairman, Ms Gray, Mr McGowan, Mr
        McLaughlin and Mr Tully. The nominating committee held 1 formal meeting during
        2003. 
     

     
        Relations with Shareholders 
     

     
        Elan communicates regularly with its shareholders
        throughout the year, including following the release of quarterly and annual
        results, and after major developments. Company general meetings and analyst
        briefings are webcast and are available on the Company’s website
        (www.elan.com). All shareholders are given adequate notice of the Annual
        General Meeting. 
     

     

     
        80
     

     

     
     

     
     
        Internal Control 
     

     
        The board of directors has overall responsibility for the
        Group’s system of internal control and for monitoring its effectiveness.
        Management is responsible for the planning and implementation of the system of
        internal control and ensuring that these controls apply throughout the Group.
        The system of internal control is designed to provide reasonable, but not
        absolute, assurance against material misstatement or loss. 
     

     
        The key procedures that have been established to provide
        effective internal control include: 
     

     		
             
                •
             

          	
             
                A clear focus on business objectives is set by the
                board having considered the risk profile of the Group through; 
             

          

     		
             
                •
             

          	
             
                A formalised risk reporting system. Significant
                business risks are addressed at each board meeting; 
             

          

     		
             
                •
             

          	
             
                A clearly defined organisational structure under the
                day to day direction of its chief executive officer. Defined lines of
                responsibility and delegation of authority have been established within which
                the Group’s activities can be planned, executed, controlled and monitored
                to achieve the strategic objectives which the board has adopted for Elan;
                
             

          

     		
             
                •
             

          	
             
                A comprehensive system for reporting financial
                results to the board. This includes a budgeting system with an annual budget
                approved by the board. The board compares actual results with budgeted results
                regularly. Management accounts are prepared on a timely basis. They include a
                profit and loss account, balance sheet, cash flow and capital expenditure
                report, together with an analysis of performance of key operating divisions and
                subsidiaries; 
             

          

     		
             
                •
             

          	
             
                A system of management and financial reporting,
                treasury management and project appraisal. Management is responsible for
                reporting to the board on its progress in achieving objectives. The system of
                reporting covers trading activities, operational issues, financial performance,
                working capital, cash flow and asset management. This reporting happens in a
                timely and regular manner. In this context, progress is monitored against
                annual budgets and longer term objectives; and 
             

          

     		
             
                •
             

          	
             
                The establishment of corporate compliance and
                internal audit departments which review key systems and controls. 
             

          

     
        The directors reviewed the Group’s system of internal
        control and also examined the full range of risks affecting the Group and the
        appropriateness of the internal control structures to manage and monitor these
        risks. This process involved a confirmation that appropriate systems of
        internal control were in place throughout the financial year and up to the date
        of signing of these financial statements. It also involved an assessment of the
        ongoing process for the identification, management and control of the
        individual risks and of the role of the various Group Risk Management Functions
        and the extent to which areas of significant challenges facing the Group are
        understood and are being addressed. No material unaddressed issues emerged from
        this assessment. The directors confirm that they have reviewed, in accordance
        with the Turnbull Guidance, the effectiveness of the Group’s systems of
        internal control for the year ended 31 December 2003. 
     

     
        Going Concern 
     

     
        The directors, having made inquiries, believe that Elan
        has adequate resources to continue in operational existence for the foreseeable
        future and that it is appropriate to continue to adopt the going concern basis
        in preparing the financial statements. 
     

     
        Disclosure Controls and Procedures 
     

     
        The Company has put in place disclosure controls and
        procedures (“Disclosure Controls”) which are designed to ensure that
        information required to be disclosed in the Company’s reports filed under
        the Securities Exchange Act of 1934, as amended (the “1934 Act”),
        such as its Annual Report on Form 20-F, is recorded, processed, summarised and
        reported within the time periods specified in the SEC rules and forms.
        Disclosure Controls are also designed to ensure that the information is
        accumulated and communicated to the Company’s management, including Mr
        Martin and Mr Cooke, as appropriate, to allow timely decisions regarding
        required disclosure. 
     

     
        Based upon their evaluation of the Company’s
        Disclosure Controls, Mr Martin and Mr Cooke have concluded that the
        Company’s Disclosure Controls are effective in alerting management,
        including Mr Martin and Mr Cooke, in a timely manner, to material information
        required to be disclosed in Elan’s reports filed with the Securities and
        Exchange Commission.
     

     
        Report of the Leadership Development and Compensation
        Committee 
     

     
        The terms of reference for the committee are to determine
        the compensation, terms and conditions of employment of the chief executive
        officer and other executive directors and to review the recommendations of the
        chief executive officer with respect to the 
     

     

     
        81
     

     

     
     

     
     
        CORPORATE GOVERNANCE 
     

     
        remuneration and terms and conditions of employment of the
        Company’s senior management. The committee also exercises all the powers
        of the board of directors to issue Ordinary Shares on the exercise of share
        options and to generally administer the Company’s share option plans.
        
     

     
        The chief executive officer attends meetings of the
        committee except when his own remuneration is being considered. 
     

     
        Each member of the committee is nominated to serve for a
        three year term subject to a maximum of two terms of continuous service.
        
     

     
        For additional information regarding directors’
        remuneration, shareholdings and share options, please refer to Note 5 to the
        Consolidated Financial Statements and “Directors’ Interests”,
        “Directors’ Options” and “Directors’
        Remuneration” in the Directors’ Report. 
     

     
        Remuneration Policy 
     

     
        The Company’s policy on executive directors’
        remuneration is to set remuneration levels which are appropriate for its senior
        executives having regard to their substantial responsibilities, their
        individual performance and the performance of the Company as a whole. It is the
        policy of the committee to set remuneration levels after a review of
        remuneration packages of executives in the pharmaceutical industry. During
        2003, the committee took external advice from independent benefit consultants
        on executive remuneration. In framing remuneration policy, consideration has
        been given to Section B of the Code of Best Practice of The Combined Code as
        issued by the London and Irish Stock Exchanges. 
     

     
        The typical elements of the remuneration package for
        executive directors include basic salary and benefits, annual cash incentive
        bonus, pensions and participation in share option plans. 
     

     
        It is the policy of the committee to grant options to
        management to encourage identification with shareholders’ interests and to
        link performance to the long term share price performance of the Company.
        
     

     
        Executive Directors’ Basic Salary
        
     

     
        The basic salaries of executive directors are reviewed
        annually having regard to personal performance, company performance and market
        practice. 
     

     
        Annual Cash Incentive Bonus 
     

     
        An annual cash incentive bonus, which is not pensionable,
        is paid on the recommendation of the committee to executive directors. Bonus
        determination is not based on specific financial or operational targets, but on
        individual and company performance. 
     

     
        Share Option Plans 
     

     
        It is the policy of the committee, in common with other
        companies operating in the pharmaceutical industry, to award share options to
        management and employees. The options generally vest between one and five
        years. These plans do not contain any performance conditions. 
     

     
        Directors’ Service Contracts 
     

     
        See Directors’ Report. 
     

     
        The compensation committee is pleased to submit this
        report to Elan’s shareholders on these matters. 
     

     
        Composition of Leadership Development and
        Compensation Committee 
     

     
        Leadership Development and Compensation Committee
        
     

     
         
     

     	
             
                Kevin M. McIntyre, Chairman
             

          	
             
                 
             

          	
             
                Ann Maynard Gray
             

          	
             
                 
             

          
	
             
                Laurence G. Crowley
             

          	
             
                 
             

          	
             
                Daniel P. Tully
             

          	
             
                 
             

          

 
 

     
        82
     

     

     
     

     
     
        INDEPENDENT AUDITORS’ REPORT 
     

     
        To the Members of Elan Corporation, plc 
     

     
        We have audited the financial statements on pages 85 to
        178. 
     

     
        Respective Responsibilities of Directors and Auditors
        in Relation to the Annual Report and Form 20-F 
     

     
        The directors are responsible for having the Annual Report
        and Form 20-F prepared. As described on pages 76 to 77, this includes
        responsibility for preparing the financial statements in accordance with
        applicable Irish Law and accounting standards; the directors have also
        presented additional information under U.S. requirements. Our responsibilities,
        as independent auditors, are established in Ireland by statute, the Auditing
        Practices Board, the Listing Rules of the Irish Stock Exchange and by our
        profession’s ethical guidance. 
     

     
        We report to you our opinion as to whether the financial
        statements give a true and fair view and are properly prepared in accordance
        with the Companies Acts. As also required by the Companies Acts, we state
        whether we have obtained all the information and explanations we require for
        our audit, whether the Company’s balance sheet agrees with the books of
        account and report to you our opinion as to whether: 
     

     		
             
                •
             

          	
             
                the Company has kept proper books of account;
                
             

          

     		
             
                •
             

          	
             
                the directors’ report is consistent with the
                financial statements; and 
             

          

     		
             
                •
             

          	
             
                at the balance sheet date, a financial situation
                existed that may require the Company to hold an extraordinary general meeting
                on the grounds that the net assets of the Company, as shown in the financial
                statements, are less than half of its share capital. 
             

          

     
        We also report to you if, in our opinion, information
        specified by law or by the Listing Rules regarding directors’ remuneration
        and transactions with the Group is not disclosed. 
     

     
        We review whether the statement on page 79 reflects the
        Company’s compliance with the seven provisions of The Combined Code
        specified for our review by the Irish Stock Exchange, and we report if it does
        not. We are not required to consider whether the board’s statements on
        internal control cover all risks and controls, or form an opinion on the
        effectiveness of the Group’s corporate governance procedures or its risk
        and control procedures. 
     

     
        We read the other information contained in the Annual
        Report and Form 20-F, including the corporate governance statement, and
        consider whether it is consistent with the audited financial statements. We
        consider the implications for our report if we become aware of any apparent
        misstatements or material inconsistencies with the financial statements.
        
     

     
        Basis of Audit Opinion 
     

     
        We conducted our audit in accordance with Auditing
        Standards issued by the Auditing Practices Board. An audit includes
        examination, on a test basis, of evidence relevant to the amounts and
        disclosures in the financial statements. It also includes an assessment of the
        significant estimates and judgements made by the directors in the preparation
        of the financial statements, and of whether the accounting policies are
        appropriate to the Group’s circumstances, consistently applied and
        adequately disclosed. 
     

     
        We planned and performed our audit so as to obtain all the
        information and explanations which we considered necessary in order to provide
        us with sufficient evidence to give reasonable assurance that the financial
        statements are free from material misstatement, whether caused by fraud or
        other irregularity or error. In forming our opinion, we also evaluated the
        overall adequacy of the presentation of information in the financial
        statements. 
     

     
        Fundamental Uncertainty 
     

     
        In forming our opinion, we considered the disclosures in
        note 25 to the financial statements relating to the Company and certain of its
        former and current officers and directors being named as defendants in a
        putative class action in the U.S. District Court for the Southern 
     

     

     
        83
     

     

     
     

     
     
        INDEPENDENT AUDITORS’ REPORT 
     

     
        District of New York, and the Company being the subject of
        an investigation by the SEC’s Division of Enforcement which commenced on
        or about 12 February 2002. Elan is unable to predict or determine the outcome
        of the class action or the SEC investigation or reasonably to estimate the
        amounts or range of loss, if any, with respect to the resolution of the class
        action or the SEC investigation. The possible outcome or resolution of the SEC
        investigation or the class action could require Elan to make substantial
        payments. Our opinion is not qualified in this respect. 
     

     
        Opinion 
     

     
        In our opinion, the financial statements give a true and
        fair view of the state of affairs of the Group and the Company as at 31
        December 2003 and of the loss of the Group for the year then ended, and have
        been properly prepared in accordance with the Companies Acts, 1963 to 2003, and
        all Regulations to be construed as one with those Acts. 
     

     
        Accounting principles generally accepted in Ireland vary
        in certain significant respects from accounting principles generally accepted
        in the United States. Information relating to the nature and effect of such
        differences is presented in Note 33 to the Consolidated Financial Statements.
        
     

     
        We have obtained all the information and explanations we
        considered necessary for the purposes of our audit. In our opinion, proper
        books of account have been kept by the Company. The balance sheet of the
        Company is in agreement with the books of account. 
     

     
        In our opinion, the information given in the
        Directors’ Report on pages 70 to 78 is consistent with the financial
        statements. 
     

     
        The net assets of the Company, as stated in the balance
        sheet on page 90 are more than half of the amount of its called-up share
        capital and, in our opinion, on that basis there did not exist at 31 December
        2003 a financial situation which, under Section 40(1) of the Companies
        (Amendment) Act, 1983, would require the convening of an extraordinary general
        meeting of the Company. 
     

     
        KPMG
Chartered
        Accountants
Registered Auditors
Dublin, Ireland
     

     
        23 April 2004 
     

     
        The above opinion is provided in compliance with Irish
        requirements. An opinion complying with auditing standards generally accepted
        in the United States will be included in the Annual Report on Form 20-F filed
        with the U.S. Securities and Exchange Commission. 
     

     

     
        84
     

     

     
     

     
     
        FINANCIAL STATEMENTS 
     

     
        Consolidated Profit and Loss Account 
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                Year Ended 31 December
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                  
             

          	
             
                Notes
             

          	
             
                  
             

          	
             
                2003
 $m
 Before
 Exceptional
 Items
             

          	
             
                  
             

          	
             
                2003
 $m
 Exceptional

                Items
             

          	
             
                  
             

          	
             
                2003
 $m
 Total
             

          	
             
                  
             

          	
             
                2002
 $m
 Before
 Exceptional
 Items
             

          	
             
                  
             

          	
             
                2002
 $m
 Exceptional

                Items
             

          	
             
                  
             

          	
             
                2002
 $m
 Total
             

          	
             
                  
             

          	
             
                2001
 $m
 Before
 Exceptional
 Items
             

          	
             
                  
             

          	
             
                2001
 $m
 Exceptional

                Items
             

          	
             
                  
             

          	
             
                2001
 $m
 Total
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Revenue—continuing operations
             

          	
             
                 
             

          	
             
                3
             

          	
             
                 
             

          	
             
                 
             

          	
             
                445.3
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                445.3
             

          	
             
                 
             

          	
             
                 
             

          	
             
                550.1
             

          	
             
                 
             

          	
             
                 
             

          	
             
                172.5
             

          	
             
                 
             

          	
             
                 
             

          	
             
                722.6
             

          	
             
                 
             

          	
             
                 
             

          	
             
                1,057.5
             

          	
             
                 
             

          	
             
                 
             

          	
             
                233.4
             

          	
             
                 
             

          	
             
                 
             

          	
             
                1,290.9
             

          	
             
                 
             

          
	
             
                Revenue—discontinued
             

          	
             
                 
             

          	
             
                6
             

          	
             
                 
             

          	
             
                 
             

          	
             
                316.8
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                316.8
             

          	
             
                 
             

          	
             
                 
             

          	
             
                610.4
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                610.4
             

          	
             
                 
             

          	
             
                 
             

          	
             
                455.4
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (5.6
             

          	
             
                )
             

          	
             
                 
             

          	
             
                449.8
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          
	
             
                Total revenue
             

          	
             
                 
             

          	
             
                2
             

          	
             
                 
             

          	
             
                 
             

          	
             
                762.1
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                762.1
             

          	
             
                 
             

          	
             
                 
             

          	
             
                1,160.5
             

          	
             
                 
             

          	
             
                 
             

          	
             
                172.5
             

          	
             
                 
             

          	
             
                 
             

          	
             
                1,333.0
             

          	
             
                 
             

          	
             
                 
             

          	
             
                1,512.9
             

          	
             
                 
             

          	
             
                 
             

          	
             
                227.8
             

          	
             
                 
             

          	
             
                 
             

          	
             
                1,740.7
             

          	
             
                 
             

          
	
             
                Cost of sales
             

          	
             
                 
             

          	
             
                3
             

          	
             
                 
             

          	
             
                 
             

          	
             
                342.6
             

          	
             
                 
             

          	
             
                 
             

          	
             
                6.9
             

          	
             
                 
             

          	
             
                 
             

          	
             
                349.5
             

          	
             
                 
             

          	
             
                 
             

          	
             
                417.0
             

          	
             
                 
             

          	
             
                 
             

          	
             
                66.1
             

          	
             
                 
             

          	
             
                 
             

          	
             
                483.1
             

          	
             
                 
             

          	
             
                 
             

          	
             
                364.0
             

          	
             
                 
             

          	
             
                 
             

          	
             
                22.8
             

          	
             
                 
             

          	
             
                 
             

          	
             
                386.8
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          
	
             
                Gross profit/(loss)
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                419.5
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (6.9
             

          	
             
                )
             

          	
             
                 
             

          	
             
                412.6
             

          	
             
                 
             

          	
             
                 
             

          	
             
                743.5
             

          	
             
                 
             

          	
             
                 
             

          	
             
                106.4
             

          	
             
                 
             

          	
             
                 
             

          	
             
                849.9
             

          	
             
                 
             

          	
             
                 
             

          	
             
                1,148.9
             

          	
             
                 
             

          	
             
                 
             

          	
             
                205.0
             

          	
             
                 
             

          	
             
                 
             

          	
             
                1,353.9
             

          	
             
                 
             

          
	
             
                Selling, general and administrative expenses
             

          	
             
                 
             

          	
             
                3
             

          	
             
                 
             

          	
             
                 
             

          	
             
                470.3
             

          	
             
                 
             

          	
             
                 
             

          	
             
                546.0
             

          	
             
                 
             

          	
             
                 
             

          	
             
                1,016.3
             

          	
             
                 
             

          	
             
                 
             

          	
             
                835.4
             

          	
             
                 
             

          	
             
                 
             

          	
             
                1,788.0
             

          	
             
                 
             

          	
             
                 
             

          	
             
                2,623.4
             

          	
             
                 
             

          	
             
                 
             

          	
             
                697.5
             

          	
             
                 
             

          	
             
                 
             

          	
             
                1,084.2
             

          	
             
                 
             

          	
             
                 
             

          	
             
                1,781.7
             

          	
             
                 
             

          
	
             
                Research and development expenses
             

          	
             
                 
             

          	
             
                3
             

          	
             
                 
             

          	
             
                 
             

          	
             
                307.6
             

          	
             
                 
             

          	
             
                 
             

          	
             
                23.8
             

          	
             
                 
             

          	
             
                 
             

          	
             
                331.4
             

          	
             
                 
             

          	
             
                 
             

          	
             
                402.6
             

          	
             
                 
             

          	
             
                 
             

          	
             
                114.7
             

          	
             
                 
             

          	
             
                 
             

          	
             
                517.3
             

          	
             
                 
             

          	
             
                 
             

          	
             
                323.3
             

          	
             
                 
             

          	
             
                 
             

          	
             
                78.6
             

          	
             
                 
             

          	
             
                 
             

          	
             
                401.9
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          
	
             
                Operating (loss)/profit—continuing
                operations
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (383.1
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (432.9
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (816.0
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (486.1
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (1,369.9
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (1,856.0
             

          	
             
                )
             

          	
             
                 
             

          	
             
                131.6
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (635.5
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (503.9
             

          	
             
                )
             

          
	
             
                Operating loss—acquisitions
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (3.3
             

          	
             
                )
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (3.3
             

          	
             
                )
             

          
	
             
                Operating profit/(loss)—discontinued
             

          	
             
                 
             

          	
             
                6
             

          	
             
                 
             

          	
             
                 
             

          	
             
                24.7
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (143.8
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (119.1
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (8.4
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (426.4
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (434.8
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (0.2
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (322.3
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (322.5
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          
	
             
                Operating (loss)/profit
             

          	
             
                 
             

          	
             
                2
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (358.4
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (576.7
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (935.1
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (494.5
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (1,796.3
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (2,290.8
             

          	
             
                )
             

          	
             
                 
             

          	
             
                128.1
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (957.8
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (829.7
             

          	
             
                )
             

          
	
             
                Share of (losses)/profits of associates
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (8.1
             

          	
             
                )
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (8.1
             

          	
             
                )
             

          	
             
                 
             

          	
             
                6.0
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                6.0
             

          	
             
                 
             

          	
             
                 
             

          	
             
                10.3
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                10.3
             

          	
             
                 
             

          
	
             
                Loss on sale of securities/guarantee
             

          	
             
                 
             

          	
             
                3
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (217.0
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (217.0
             

          	
             
                )
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Gain on disposal of businesses
             

          	
             
                 
             

          	
             
                3
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                293.3
             

          	
             
                 
             

          	
             
                 
             

          	
             
                293.3
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                77.9
             

          	
             
                 
             

          	
             
                 
             

          	
             
                77.9
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          
	
             
                (Loss)/profit on ordinary activities before interest
                and tax
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (366.5
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (283.4
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (649.9
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (488.5
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (1,935.4
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (2,423.9
             

          	
             
                )
             

          	
             
                 
             

          	
             
                138.4
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (957.8
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (819.4
             

          	
             
                )
             

          
	
             
                Net interest and other expense
             

          	
             
                 
             

          	
             
                3, 4
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (153.8
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (33.7
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (187.5
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (156.7
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (1,014.0
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (1,170.7
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (76.3
             

          	
             
                )
             

          	
             
                 
             

          	
             
                25.9
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (50.4
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          
	
             
                (Loss)/profit on ordinary activities before
                tax
             

          	
             
                 
             

          	
             
                5
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (520.3
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (317.1
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (837.4
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (645.2
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (2,949.4
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (3,594.6
             

          	
             
                )
             

          	
             
                 
             

          	
             
                62.1
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (931.9
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (869.8
             

          	
             
                )
             

          
	
             
                Tax on (loss)/profit on ordinary activities
             

          	
             
                 
             

          	
             
                7
             

          	
             
                 
             

          	
             
                 
             

          	
             
                22.0
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                22.0
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (19.8
             

          	
             
                )
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (19.8
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (17.4
             

          	
             
                )
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (17.4
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          
	
             
                (Loss)/profit on ordinary activities after
                tax
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (498.3
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (317.1
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (815.4
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (665.0
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (2,949.4
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (3,614.4
             

          	
             
                )
             

          	
             
                 
             

          	
             
                44.7
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (931.9
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (887.2
             

          	
             
                )
             

          
	
             
                Minority interest
             

          	
             
                 
             

          	
             
                19
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (0.7
             

          	
             
                )
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (0.7
             

          	
             
                )
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          
	
             
                Retained (loss)/profit for the year
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (498.3
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (317.1
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (815.4
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (665.7
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (2,949.4
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (3,615.1
             

          	
             
                )
             

          	
             
                 
             

          	
             
                44.7
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (931.9
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (887.2
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          
	
             
                Basic (loss)/earnings per Ordinary Share
             

          	
             
                 
             

          	
             
                8
             

          	
             
                 
             

          	
             
                $
             

          	
             
                (1.40
             

          	
             
                )
             

          	
             
                $
             

          	
             
                 (0.89
             

          	
             
                )
             

          	
             
                $
             

          	
             
                 (2.29
             

          	
             
                )
             

          	
             
                $
             

          	
             
                 (1.90
             

          	
             
                )
             

          	
             
                $
             

          	
             
                 (8.44
             

          	
             
                )
             

          	
             
                $
             

          	
             
                 (10.34
             

          	
             
                )
             

          	
             
                $
             

          	
             
                0.13
             

          	
             
                 
             

          	
             
                $
             

          	
             
                 (2.77
             

          	
             
                )
             

          	
             
                $
             

          	
             
                 (2.64
             

          	
             
                )
             

          
	
             
                Diluted (loss)/earnings per Ordinary Share
             

          	
             
                 
             

          	
             
                8
             

          	
             
                 
             

          	
             
                $
             

          	
             
                (1.40
             

          	
             
                )
             

          	
             
                $
             

          	
             
                 (0.89
             

          	
             
                )
             

          	
             
                $
             

          	
             
                 (2.29
             

          	
             
                )
             

          	
             
                $
             

          	
             
                 (1.90
             

          	
             
                )
             

          	
             
                $
             

          	
             
                 (8.44
             

          	
             
                )
             

          	
             
                $
             

          	
             
                 (10.34
             

          	
             
                )
             

          	
             
                $
             

          	
             
                0.12
             

          	
             
                 
             

          	
             
                $
             

          	
             
                 (2.77
             

          	
             
                )
             

          	
             
                $
             

          	
             
                 (2.64
             

          	
             
                )
             

          
	
             
                Weighted average number of Ordinary Shares
                outstanding (millions)
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                356.0
             

          	
             
                 
             

          	
             
                 
             

          	
             
                356.0
             

          	
             
                 
             

          	
             
                 
             

          	
             
                356.0
             

          	
             
                 
             

          	
             
                 
             

          	
             
                349.7
             

          	
             
                 
             

          	
             
                 
             

          	
             
                349.7
             

          	
             
                 
             

          	
             
                 
             

          	
             
                349.7
             

          	
             
                 
             

          	
             
                 
             

          	
             
                336.0
             

          	
             
                 
             

          	
             
                 
             

          	
             
                336.0
             

          	
             
                 
             

          	
             
                 
             

          	
             
                336.0
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          

 

     
        The accompanying notes are an integral part of these
        financial statements.
     

     
         
     

     	
             
                Garo Armen, chairman
             

          	
             
                G. Kelly Martin, president and chief executive officer
             

          

 
 

     
        85
     

     

     
     

     
     
        FINANCIAL STATEMENTS 
     

     
        Consolidated Balance Sheet 
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                Notes
             

          	
             
                          
             

          	
             
                At 31 December
 2003
 $m
             

          	
             
                    
             

          	
             
                At 31 December
 2002
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Fixed Assets
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Intangible assets
             

          	
             
                 
             

          	
             
                10
             

          	
             
                 
             

          	
             
                1,252.4
             

          	
             
                 
             

          	
             
                2,079.5
             

          	
             
                 
             

          
	
             
                Tangible assets
             

          	
             
                 
             

          	
             
                11
             

          	
             
                 
             

          	
             
                372.2
             

          	
             
                 
             

          	
             
                459.3
             

          	
             
                 
             

          
	
             
                Financial assets
             

          	
             
                 
             

          	
             
                12
             

          	
             
                 
             

          	
             
                407.9
             

          	
             
                 
             

          	
             
                734.6
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                2,032.5
             

          	
             
                 
             

          	
             
                3,273.4
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Current Assets
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Stocks
             

          	
             
                 
             

          	
             
                13
             

          	
             
                 
             

          	
             
                78.4
             

          	
             
                 
             

          	
             
                149.8
             

          	
             
                 
             

          
	
             
                Debtors
             

          	
             
                 
             

          	
             
                14
             

          	
             
                 
             

          	
             
                145.9
             

          	
             
                 
             

          	
             
                186.6
             

          	
             
                 
             

          
	
             
                Financial assets
             

          	
             
                 
             

          	
             
                12
             

          	
             
                 
             

          	
             
                86.6
             

          	
             
                 
             

          	
             
                74.8
             

          	
             
                 
             

          
	
             
                Cash and liquid resources
             

          	
             
                 
             

          	
             
                30
             

          	
             
                (c)/(i)
             

          	
             
                828.0
             

          	
             
                 
             

          	
             
                1,086.5
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                1,138.9
             

          	
             
                 
             

          	
             
                1,497.7
             

          	
             
                 
             

          
	
             
                Convertible debt and guaranteed notes (amounts
                falling due within one year)
             

          	
             
                 
             

          	
             
                15
             

          	
             
                 
             

          	
             
                (471.4
             

          	
             
                )
             

          	
             
                (796.3
             

          	
             
                )
             

          
	
             
                Creditors (amounts falling due within one
                year)
             

          	
             
                 
             

          	
             
                16
             

          	
             
                 
             

          	
             
                (365.5
             

          	
             
                )
             

          	
             
                (798.8
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (836.9
             

          	
             
                )
             

          	
             
                (1,595.1
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Net current assets/(liabilities)
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                302.0
             

          	
             
                 
             

          	
             
                (97.4
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Total assets less current liabilities
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                2,334.5
             

          	
             
                 
             

          	
             
                3,176.0
             

          	
             
                 
             

          
	
             
                Convertible debt and guaranteed notes (amounts
                falling due after one year)
             

          	
             
                 
             

          	
             
                15
             

          	
             
                 
             

          	
             
                (1,479.9
             

          	
             
                )
             

          	
             
                (1,480.4
             

          	
             
                )
             

          
	
             
                Creditors (amounts falling due after one
                year)
             

          	
             
                 
             

          	
             
                16
             

          	
             
                 
             

          	
             
                (29.2
             

          	
             
                )
             

          	
             
                (236.2
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Net assets
             

          	
             
                 
             

          	
             
                2
             

          	
             
                 
             

          	
             
                825.4
             

          	
             
                 
             

          	
             
                1,459.4
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Capital and Reserves
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Called-up share capital
             

          	
             
                 
             

          	
             
                17
             

          	
             
                 
             

          	
             
                22.0
             

          	
             
                 
             

          	
             
                19.9
             

          	
             
                 
             

          
	
             
                Share premium account
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                5,558.8
             

          	
             
                 
             

          	
             
                5,392.6
             

          	
             
                 
             

          
	
             
                Shares issuable
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                17.7
             

          	
             
                 
             

          	
             
                18.0
             

          	
             
                 
             

          
	
             
                Capital conversion reserve fund
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                0.1
             

          	
             
                 
             

          	
             
                0.1
             

          	
             
                 
             

          
	
             
                Equity adjustment from foreign currency
                translation
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (12.2
             

          	
             
                )
             

          	
             
                (25.0
             

          	
             
                )
             

          
	
             
                Profit and loss account
             

          	
             
                 
             

          	
             
                18
             

          	
             
                 
             

          	
             
                (4,761.0
             

          	
             
                )
             

          	
             
                (3,945.6
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Shareholders’ funds—equity
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                825.4
             

          	
             
                 
             

          	
             
                1,460.0
             

          	
             
                 
             

          
	
             
                Minority equity interests
             

          	
             
                 
             

          	
             
                19
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (0.6
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Capital employed
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                825.4
             

          	
             
                 
             

          	
             
                1,459.4
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        The accompanying notes are an integral part of these
        financial statements.
     

     
         
     

     	
             
                Garo Armen, chairman
             

          	
             
                G. Kelly Martin, president and chief executive officer
             

          

 
 

     
        86
     

     

     
     

     
     
        Consolidated Statement of Cash Flows 
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                Year Ended 31 December
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                Notes
             

          	
             
                     
             

          	
             
                2003
 $m
             

          	
             
                    
             

          	
             
                2002
 $m
             

          	
             
                    
             

          	
             
                2001
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Cash Flow from Operating Activities
             

          	
             
                 
             

          	
             
                30
             

          	
             
                (a)
             

          	
             
                (322.3
             

          	
             
                )
             

          	
             
                259.6
             

          	
             
                 
             

          	
             
                524.6
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Returns on Investments and Servicing of
                Finance
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Interest received
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                24.2
             

          	
             
                 
             

          	
             
                44.8
             

          	
             
                 
             

          	
             
                80.3
             

          	
             
                 
             

          
	
             
                Interest paid
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (281.9
             

          	
             
                )
             

          	
             
                (176.5
             

          	
             
                )
             

          	
             
                (138.4
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Cash outflow from returns on investments and
                servicing of finance
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (257.7
             

          	
             
                )
             

          	
             
                (131.7
             

          	
             
                )
             

          	
             
                (58.1
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Taxation
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (8.9
             

          	
             
                )
             

          	
             
                (18.6
             

          	
             
                )
             

          	
             
                (6.5
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Capital Expenditure and Financial
                Investment
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Additions to property, plant and equipment
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (33.7
             

          	
             
                )
             

          	
             
                (170.2
             

          	
             
                )
             

          	
             
                (120.8
             

          	
             
                )
             

          
	
             
                Receipts from disposal of property, plant and
                equipment
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                27.9
             

          	
             
                 
             

          	
             
                8.6
             

          	
             
                 
             

          	
             
                2.0
             

          	
             
                 
             

          
	
             
                Payments to acquire intangible assets
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (144.8
             

          	
             
                )
             

          	
             
                (315.5
             

          	
             
                )
             

          	
             
                (286.7
             

          	
             
                )
             

          
	
             
                Receipts from disposal of intangible assets
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                0.5
             

          	
             
                 
             

          	
             
                9.4
             

          	
             
                 
             

          	
             
                11.2
             

          	
             
                 
             

          
	
             
                Payments to acquire Pharma Marketing/Autoimmune
                product royalty rights
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (297.6
             

          	
             
                )
             

          	
             
                (121.0
             

          	
             
                )
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Redemption of investment in Autoimmune
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                38.5
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Sale of EPIL III investments in connection with the
                repayment of EPIL III debt
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                148.0
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Payment under guarantee in connection with EPIL III
                sale of investments
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (141.6
             

          	
             
                )
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Payments to acquire financial current assets
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (1.0
             

          	
             
                )
             

          	
             
                (148.2
             

          	
             
                )
             

          
	
             
                Sale and maturity of financial current assets

             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                83.9
             

          	
             
                 
             

          	
             
                143.3
             

          	
             
                 
             

          
	
             
                Payments to acquire financial fixed assets
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (13.9
             

          	
             
                )
             

          	
             
                (191.2
             

          	
             
                )
             

          	
             
                (624.3
             

          	
             
                )
             

          
	
             
                Receipts from disposal of financial fixed
                assets
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                329.3
             

          	
             
                 
             

          	
             
                36.6
             

          	
             
                 
             

          	
             
                76.2
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Cash outflow from capital expenditure and financial
                investment
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (132.3
             

          	
             
                )
             

          	
             
                (615.5
             

          	
             
                )
             

          	
             
                (947.3
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Acquisitions and Disposals
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Cash paid on acquisitions
             

          	
             
                 
             

          	
             
                30
             

          	
             
                (d)
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (9.5
             

          	
             
                )
             

          
	
             
                Cash received on disposal of businesses
             

          	
             
                 
             

          	
             
                30
             

          	
             
                (f)
             

          	
             
                546.9
             

          	
             
                 
             

          	
             
                361.3
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Cash received on disposal of subsidiaries
             

          	
             
                 
             

          	
             
                30
             

          	
             
                (g)
             

          	
             
                46.1
             

          	
             
                 
             

          	
             
                81.8
             

          	
             
                 
             

          	
             
                41.9
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Cash inflow from acquisitions and disposals
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                593.0
             

          	
             
                 
             

          	
             
                443.1
             

          	
             
                 
             

          	
             
                32.4
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Cash outflow before use of liquid resources and
                financing
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (128.2
             

          	
             
                )
             

          	
             
                (63.1
             

          	
             
                )
             

          	
             
                (454.9
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Management of Liquid Resources
             

          	
             
                 
             

          	
             
                30
             

          	
             
                (b)
             

          	
             
                14.5
             

          	
             
                 
             

          	
             
                225.5
             

          	
             
                 
             

          	
             
                106.8
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Financing
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Proceeds from issue of share capital
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                167.9
             

          	
             
                 
             

          	
             
                5.7
             

          	
             
                 
             

          	
             
                304.8
             

          	
             
                 
             

          
	
             
                Issue of loan notes
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                460.0
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                1,200.0
             

          	
             
                 
             

          
	
             
                Repurchase of LYONs
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (687.5
             

          	
             
                )
             

          	
             
                (126.9
             

          	
             
                )
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Repayment of EPIL III debt
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (160.0
             

          	
             
                )
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Repayment of loans
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (83.2
             

          	
             
                )
             

          	
             
                (399.9
             

          	
             
                )
             

          	
             
                (555.7
             

          	
             
                )
             

          
	
             
                Bank borrowing
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                342.8
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Cash (outflow)/inflow from financing
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (142.8
             

          	
             
                )
             

          	
             
                (681.1
             

          	
             
                )
             

          	
             
                1,291.9
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Net (decrease)/increase in cash
             

          	
             
                 
             

          	
             
                30
             

          	
             
                (c)
             

          	
             
                (256.5
             

          	
             
                )
             

          	
             
                (518.7
             

          	
             
                )
             

          	
             
                943.8
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        The accompanying notes are an integral part of these
        financial statements.
     

     

     
        87
     

     

     
     

     
     
        FINANCIAL STATEMENTS 
     

     
        Consolidated Statement of Cash Flows
        (continued)
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                Year Ended 31 December
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                Notes
             

          	
             
                 
             

          	
             
                2003
 $m
             

          	
             
                 
             

          	
             
                2002
 $m
             

          	
             
                 
             

          	
             
                2001
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Reconciliation of Net Cash Flow to Movement in
                Net Debt
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                (Decrease)/increase in cash for the period
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (256.5
             

          	
             
                )
             

          	
             
                (518.7
             

          	
             
                )
             

          	
             
                943.8
             

          	
             
                 
             

          
	
             
                Cash inflow from movement in liquid resources

             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (14.5
             

          	
             
                )
             

          	
             
                (225.5
             

          	
             
                )
             

          	
             
                (106.8
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (271.0
             

          	
             
                )
             

          	
             
                (744.2
             

          	
             
                )
             

          	
             
                837.0
             

          	
             
                 
             

          
	
             
                Other borrowing
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (347.4
             

          	
             
                )
             

          
	
             
                Repayment of loans
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                83.2
             

          	
             
                 
             

          	
             
                559.9
             

          	
             
                 
             

          	
             
                557.6
             

          	
             
                 
             

          
	
             
                Repurchase of LYONs
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                803.4
             

          	
             
                 
             

          	
             
                149.8
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Issue of loan notes
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (460.0
             

          	
             
                )
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (1,200.0
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Change in net debt resulting from cash flows
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                155.6
             

          	
             
                 
             

          	
             
                (34.5
             

          	
             
                )
             

          	
             
                (152.8
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Loans acquired with subsidiary undertaking
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (0.3
             

          	
             
                )
             

          
	
             
                Non-cash movement—translation
                differences
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                12.5
             

          	
             
                 
             

          	
             
                11.2
             

          	
             
                 
             

          	
             
                (1.4
             

          	
             
                )
             

          
	
             
                Non-cash movement—notes
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (18.0
             

          	
             
                )
             

          	
             
                8.1
             

          	
             
                 
             

          	
             
                269.6
             

          	
             
                 
             

          
	
             
                Non-cash movement—other
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (1.2
             

          	
             
                )
             

          	
             
                (29.8
             

          	
             
                )
             

          	
             
                1.1
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Decrease/(increase) in net debt
             

          	
             
                 
             

          	
             
                30
             

          	
             
                (c)
             

          	
             
                148.9
             

          	
             
                 
             

          	
             
                (45.0
             

          	
             
                )
             

          	
             
                116.2
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        The accompanying notes are an integral part of these
        financial statements. 
     

     

     
        88
     

     

     
     

     
     
        Consolidated Statement of Changes in Shareholders’
        Funds
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                Number 
 of
                Shares 
 m
             

          	
             
                 
             

          	
             
                Share
 Capital
 $m
             

          	
             
                 
             

          	
             
                Share 
 Premium
                
 $m
             

          	
             
                 
             

          	
             
                Shares
 Issuable
                
 $m
             

          	
             
                 
             

          	
             
                Capital 
 Conversion 
 $m
             

          	
             
                 
             

          	
             
                Profit
 and Loss
                
 Account 
 $m
             

          	
             
                 
             

          	
             
                Translation 
 Adjustment
 $m
             

          	
             
                 
             

          	
             
                Total 
 Amount
                
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Balance at 31 December 2000
             

          	
             
                 
             

          	
             
                322.5
             

          	
             
                 
             

          	
             
                18.7
             

          	
             
                 
             

          	
             
                4,750.9
             

          	
             
                 
             

          	
             
                25.9
             

          	
             
                 
             

          	
             
                0.1
             

          	
             
                 
             

          	
             
                556.7
             

          	
             
                 
             

          	
             
                (36.8
             

          	
             
                )
             

          	
             
                5,315.5
             

          	
             
                 
             

          
	
             
                Exercise of stock options and warrants
             

          	
             
                 
             

          	
             
                18.0
             

          	
             
                 
             

          	
             
                0.8
             

          	
             
                 
             

          	
             
                308.2
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                309.0
             

          	
             
                 
             

          
	
             
                Exchange of 4.75% Exchangeable Notes
             

          	
             
                 
             

          	
             
                9.1
             

          	
             
                 
             

          	
             
                0.4
             

          	
             
                 
             

          	
             
                324.2
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                324.6
             

          	
             
                 
             

          
	
             
                Stock issued as a result of acquisitions
             

          	
             
                 
             

          	
             
                0.2
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                7.3
             

          	
             
                 
             

          	
             
                (7.3
             

          	
             
                )
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Issue costs
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (4.3
             

          	
             
                )
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (4.3
             

          	
             
                )
             

          
	
             
                Equity adjustment from foreign currency
                translation
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (3.1
             

          	
             
                )
             

          	
             
                (3.1
             

          	
             
                )
             

          
	
             
                Retained loss
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (887.2
             

          	
             
                )
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (887.2
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Balance at 31 December 2001
             

          	
             
                 
             

          	
             
                349.8
             

          	
             
                 
             

          	
             
                19.9
             

          	
             
                 
             

          	
             
                5,386.3
             

          	
             
                 
             

          	
             
                18.6
             

          	
             
                 
             

          	
             
                0.1
             

          	
             
                 
             

          	
             
                (330.5
             

          	
             
                )
             

          	
             
                (39.9
             

          	
             
                )
             

          	
             
                5,054.5
             

          	
             
                 
             

          
	
             
                Exercise of stock options and warrants
             

          	
             
                 
             

          	
             
                0.6
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                7.7
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                7.7
             

          	
             
                 
             

          
	
             
                Stock issued as a result of acquisitions
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                0.6
             

          	
             
                 
             

          	
             
                (0.6
             

          	
             
                )
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Issue costs
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (2.0
             

          	
             
                )
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (2.0
             

          	
             
                )
             

          
	
             
                Equity adjustment from foreign currency
                translation
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                14.9
             

          	
             
                 
             

          	
             
                14.9
             

          	
             
                 
             

          
	
             
                Retained loss
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (3,615.1
             

          	
             
                )
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (3,615.1
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Balance at 31 December 2002
             

          	
             
                 
             

          	
             
                350.4
             

          	
             
                 
             

          	
             
                19.9
             

          	
             
                 
             

          	
             
                5,392.6
             

          	
             
                 
             

          	
             
                18.0
             

          	
             
                 
             

          	
             
                0.1
             

          	
             
                 
             

          	
             
                (3,945.6
             

          	
             
                )
             

          	
             
                (25.0
             

          	
             
                )
             

          	
             
                1,460.0
             

          	
             
                 
             

          
	
             
                Exercise of stock options and warrants
             

          	
             
                 
             

          	
             
                0.8
             

          	
             
                 
             

          	
             
                0.1
             

          	
             
                 
             

          	
             
                2.5
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                2.6
             

          	
             
                 
             

          
	
             
                Stock issued as a result of acquisitions
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                0.3
             

          	
             
                 
             

          	
             
                (0.3
             

          	
             
                )
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Stock issued as a result of private offering
             

          	
             
                 
             

          	
             
                35.0
             

          	
             
                 
             

          	
             
                2.0
             

          	
             
                 
             

          	
             
                171.2
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                173.2
             

          	
             
                 
             

          
	
             
                Issue costs
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (7.8
             

          	
             
                )
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (7.8
             

          	
             
                )
             

          
	
             
                Equity adjustment from foreign currency
                translation
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                12.8
             

          	
             
                 
             

          	
             
                12.8
             

          	
             
                 
             

          
	
             
                Retained loss
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (815.4
             

          	
             
                )
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (815.4
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Balance at 31 December 2003
             

          	
             
                 
             

          	
             
                386.2
             

          	
             
                 
             

          	
             
                22.0
             

          	
             
                 
             

          	
             
                5,558.8
             

          	
             
                 
             

          	
             
                17.7
             

          	
             
                 
             

          	
             
                0.1
             

          	
             
                 
             

          	
             
                (4,761.0
             

          	
             
                )
             

          	
             
                (12.2
             

          	
             
                )
             

          	
             
                825.4
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        Consolidated Statement of Total Recognised Gains and
        Losses 
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                Year Ended 31 December
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                2003
 $m
             

          	
             
                 
             

          	
             
                2002
 $m
             

          	
             
                 
             

          	
             
                2001
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Retained loss
             

          	
             
                 
             

          	
             
                (815.4
             

          	
             
                )
             

          	
             
                (3,615.1
             

          	
             
                )
             

          	
             
                (887.2
             

          	
             
                )
             

          
	
             
                Equity adjustment from foreign currency
                translation
             

          	
             
                 
             

          	
             
                12.8
             

          	
             
                 
             

          	
             
                14.9
             

          	
             
                 
             

          	
             
                (3.1
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Total recognised losses
             

          	
             
                 
             

          	
             
                (802.6
             

          	
             
                )
             

          	
             
                (3,600.2
             

          	
             
                )
             

          	
             
                (890.3
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        The accompanying notes are an integral part of these
        financial statements.
     

     

     
        89
     

     

     
     

     
     
        FINANCIAL STATEMENTS
     

     
        Company Balance Sheet
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                Notes
             

          	
             
                 
             

          	
             
                At 31 December
 2003
 $m
             

          	
             
                 
             

          	
             
                At 31 December
 2002
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Fixed Assets
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Intangible assets
             

          	
             
                 
             

          	
             
                31
             

          	
             
                 
             

          	
             
                76.1
             

          	
             
                 
             

          	
             
                88.8
             

          	
             
                 
             

          
	
             
                Tangible assets
             

          	
             
                 
             

          	
             
                31
             

          	
             
                 
             

          	
             
                14.4
             

          	
             
                 
             

          	
             
                17.7
             

          	
             
                 
             

          
	
             
                Financial assets
             

          	
             
                 
             

          	
             
                31
             

          	
             
                 
             

          	
             
                2,268.1
             

          	
             
                 
             

          	
             
                2,699.2
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                2,358.6
             

          	
             
                 
             

          	
             
                2,805.7
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Current Assets
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Debtors
             

          	
             
                 
             

          	
             
                31
             

          	
             
                 
             

          	
             
                9.9
             

          	
             
                 
             

          	
             
                19.4
             

          	
             
                 
             

          
	
             
                Cash and liquid resources
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                21.5
             

          	
             
                 
             

          	
             
                182.8
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	  	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                31.4
             

          	
             
                 
             

          	
             
                202.2
             

          	
             
                 
             

          
	
             
                Creditors (amounts falling due within one
                year)
             

          	
             
                 
             

          	
             
                31
             

          	
             
                 
             

          	
             
                (888.5
             

          	
             
                )
             

          	
             
                (1,536.4
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Net current liabilities
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (857.1
             

          	
             
                )
             

          	
             
                (1,334.2
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Total assets less current liabilities
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                1,501.5
             

          	
             
                 
             

          	
             
                1,471.5
             

          	
             
                 
             

          
	
             
                Creditors (amounts falling due after one
                year)
             

          	
             
                 
             

          	
             
                31
             

          	
             
                 
             

          	
             
                (13.5
             

          	
             
                )
             

          	
             
                (12.1
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Net assets
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                1,488.0
             

          	
             
                 
             

          	
             
                1,459.4
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Capital And Reserves
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Called-up share capital
             

          	
             
                 
             

          	
             
                17
             

          	
             
                 
             

          	
             
                22.0
             

          	
             
                 
             

          	
             
                19.9
             

          	
             
                 
             

          
	
             
                Share premium account
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                5,558.8
             

          	
             
                 
             

          	
             
                5,392.6
             

          	
             
                 
             

          
	
             
                Shares issuable
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                17.7
             

          	
             
                 
             

          	
             
                18.0
             

          	
             
                 
             

          
	
             
                Capital conversion reserve fund
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                0.1
             

          	
             
                 
             

          	
             
                0.1
             

          	
             
                 
             

          
	
             
                Profit and loss account
             

          	
             
                 
             

          	
             
                18
             

          	
             
                 
             

          	
             
                (4,110.6
             

          	
             
                )
             

          	
             
                (3,971.2
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Shareholders’ funds—equity
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                1,488.0
             

          	
             
                 
             

          	
             
                1,459.4
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        The accompanying notes are an integral part of these
        financial statements. 
     

     
         
     

     	
             
                Garo Armen, chairman
             

          	
             
                G. Kelly Martin, president and chief executive officer
             

          

 
 

     
        90
     

     

     
     

     
     
        NOTES RELATING TO FINANCIAL STATEMENTS 
     

     
        1   Significant Accounting
        Policies 
     

     
        The financial statements are prepared in U.S. dollars
        under the historical cost convention and in accordance with Irish GAAP and
        comply with the Financial Reporting Standards (“FRS”) of the
        Accounting Standards Board, as promulgated by the Institute of Chartered
        Accountants in Ireland. Where there are significant differences to U.S. GAAP,
        these have been described in Note 33 to the Consolidated Financial Statements.
        
     

     
        The following accounting policies have been applied
        consistently in dealing with items which are considered material in relation to
        the Company’s financial statements. 
     

     
        a   Basis of consolidation
        and presentation of financial information 
     

     
        The Consolidated Financial Statements include the accounts
        of Elan and all of its subsidiary undertakings and its share of profits or
        losses of associated undertakings. Associated undertakings are accounted for
        under the equity method of accounting. All significant intercompany profits,
        transactions and account balances have been eliminated. 
     

     
        The Company has made significant losses during the last
        three financial years. However, the directors, having made inquiries, believe
        that Elan has adequate resources to continue in operational existence for the
        foreseeable future and that it is appropriate to continue to adopt the going
        concern basis in preparing the financial statements. 
     

     
        b   Description of business
        
     

     
        Elan, an Irish public limited company, is a
        neuroscience-based biotechnology company headquartered in Dublin, Ireland that
        is focused on discovering, developing, manufacturing and marketing advanced
        therapies in neurology, autoimmune diseases and severe pain. 
     

     
        On 12 February 2004, Elan announced the formal completion
        of its recovery plan. The recovery plan had been announced on 31 July 2002 to
        restructure Elan’s businesses, assets and balance sheet in order to enable
        it to meet its financial commitments. With the completion of the recovery plan,
        Elan will focus on three core therapeutic areas: neurology, autoimmune diseases
        and severe pain. During the course of the recovery plan, the Group was
        reorganised and two units were created: Core Elan and Elan Enterprises. 

     

     
        Core Elan is engaged in biopharmaceutical research and
        development activities, pharmaceutical commercial activities and pharmaceutical
        manufacturing activities. Biopharmaceutical research and development activities
        include the discovery and development of products in the therapeutic areas of
        neurology, autoimmune diseases and severe pain. Elan’s pharmaceutical
        commercial activities include the marketing of neurology/pain management
        products and hospital/specialty products. The Company’s initiatives in
        product development, optimisation, and manufacturing are encompassed by Global
        Services & Operations, which is focused on providing technology platforms
        that address the drug delivery challenges of the pharmaceutical industry.
        
     

     
        With the completion of the recovery plan on 12 February
        2004, Elan announced the end of operations for its Elan Enterprises business
        unit. Elan Enterprises was mainly comprised of Elan’s drug delivery
        businesses and other assets such as business ventures and non-core
        pharmaceutical products. Drug delivery activities have historically included
        the development, licensing and marketing of drug delivery products,
        technologies and services to pharmaceutical industry clients on a worldwide
        basis. Elan Enterprises divested many of these businesses and assets. 
     

     
        Since 1996, Elan has pursued collaborations with
        biotechnology, drug delivery and pharmaceutical companies through a programme
        referred to as “the business venture programme”. Elan has not entered
        into any new business ventures under the business venture programme since
        mid-2001. All business ventures have been terminated, restructured or are now
        inactive. As a consequence, Elan does not expect to provide any additional
        financing to the business ventures and business venture parents. See Note 26 to
        the Consolidated Financial Statements for a summary of the investments made and
        licence fees received from the business venture arrangements. 
     

     

     
        91
     

     

     
     

     
     
        NOTES RELATING TO FINANCIAL STATEMENTS 
     

     
        Elan has in the past entered into risk-sharing
        arrangements. Please refer to Note 24 to the Consolidated Financial Statements
        for information on Elan’s risk-sharing arrangements. These arrangements
        have been terminated and Elan will not earn any revenues from these
        risk-sharing arrangements or upfront licence fees from business ventures in the
        future. 
     

     
        The composition of Elan’s revenue for 2003, 2002 and
        2001 is described below in Note 1c to the Consolidated Financial Statements.
        
     

     
        c   Revenue 
     

     
        Elan’s revenues are derived from a number of
        different sources and are classified within the categories of product revenue
        and contract revenue. Revenue is shown net of value added tax and other sales
        taxes, trade discounts and rebates. 
     

     
        Product revenue includes (i) the sale of products, (ii)
        royalties, (iii) the sales of product rights and related inventory (referred to
        as product disposals and product rationalisations), and (iv) product
        co-promotion, marketing and similar activities. 
     

     
        The sale of products consists of the sale of
        pharmaceutical drugs and diagnostic products primarily to wholesalers and
        physicians. Royalties arise when Elan receives a percentage of revenue on a
        product marketed by a third party. Revenue from the sale of product rights and
        related inventory consists of the proceeds from the disposal of products,
        inventory and intellectual property less the unamortised cost of the related
        intangible assets. Revenue from product co-promotion, marketing and similar
        activities consists of the reimbursement of commercialisation expenses from
        Elan’s risk-sharing arrangements. Elan had two risk-sharing arrangements
        which were with Pharma Marketing and Autoimmune. 
     

     
        Product revenue from the sale of products is recognised
        when title passes, net of applicable estimated discounts, sales returns,
        rebates and charge-backs. Other product revenues are recognised based on the
        terms of the applicable contract. Estimated sales returns, pursuant to rights
        of return granted to the Company’s customers, are reflected as a reduction
        of revenue in the same period that the related sales are recorded. The sales
        returns provisions are based on actual experience, although in certain
        situations, for example, a new product launch or at patent expiry, further
        judgement may be required. These amounts are included in other current
        liabilities (rebates) or deducted from trade debtors (other discounts).
        Additionally, revenue is also recorded net of provision, made at the time of
        sale for estimated cash discounts, rebates and charge-backs. The Company enters
        into contracts with certain managed care organisations to provide access to the
        Company’s products. Based on a managed care organisation’s market
        share performance and utilisation of the Company’s products, the
        organisation receives rebates from the Company. In addition, the Company is
        bound by certain laws and regulations to provide product at a discounted rate
        to Medicaid recipients. Medicaid rebates are paid to each state in the United
        States based on claims filed by pharmacies that provide the Company’s
        products to Medicaid recipients at the reduced rate. Charge-backs are amounts
        paid to reimburse wholesalers for sales to third parties at reduced prices
        based on contracts the Company negotiates. Cash discounts are provided to
        customers that pay their invoice within a certain time period. 
     

     
        Contract revenue includes (i) licence fees, (ii) research
        revenue and (iii) contract revenue from risk-sharing arrangements. Contract
        revenue arises from contracts to perform research and development services on
        behalf of clients and/or technology licensing and business ventures. Contract
        revenue is recognised when earned and non-refundable, and when Elan has no
        future obligation with respect to the revenue, in accordance with the terms
        prescribed in the applicable contract. 
     

     
        Licence fees are up-front or milestone payments for
        intellectual property and technology owned by Elan. Research revenue consists
        of payments or milestones arising from research and development activities
        performed by Elan on behalf of third parties. Contract revenue from
        risk-sharing arrangements consists of the reimbursement of research and
        development costs by Pharma Marketing and Autoimmune. 
     

     
        The composition of Elan’s revenue for 2003, 2002 and
        2001 was as follows:
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                2003
 $m
             

          	
             
                 
             

          	
             
                2002
 $m
             

          	
             
                 
             

          	
             
                2001
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Product revenue
             

          	
             
                 
             

          	
             
                712.6
             

          	
             
                  
             

          	
             
                1,204.5
             

          	
             
                  
             

          	
             
                1,407.0
             

          	
             
                 
             

          
	
             
                Contract revenue
             

          	
             
                 
             

          	
             
                49.5
             

          	
             
                 
             

          	
             
                128.5
             

          	
             
                 
             

          	
             
                333.7
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Total revenue
             

          	
             
                 
             

          	
             
                762.1
             

          	
             
                 
             

          	
             
                1,333.0
             

          	
             
                 
             

          	
             
                1,740.7
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 
 

     
        92
     

     

     
     

     
     
        Product revenue can be further analysed as follows:
        
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                2003
 $m
             

          	
             
                 
             

          	
             
                2002
 $m
             

          	
             
                 
             

          	
             
                2001
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Product Revenue
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Retained products
             

          	
             
                 
             

          	
             
                286.2
             

          	
             
                  
             

          	
             
                298.6
             

          	
             
                  
             

          	
             
                454.1
             

          	
             
                 
             

          
	
             
                Divested products
             

          	
             
                 
             

          	
             
                426.4
             

          	
             
                 
             

          	
             
                843.1
             

          	
             
                 
             

          	
             
                795.2
             

          	
             
                 
             

          
	
             
                Risk-sharing arrangements
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                62.8
             

          	
             
                 
             

          	
             
                157.7
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                712.6
             

          	
             
                 
             

          	
             
                1,204.5
             

          	
             
                 
             

          	
             
                1,407.0
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        Divested products includes products divested since the
        beginning of 2001, and products which are currently subject to divestment
        agreements. Retained products includes products that were not divested and that
        are not subject to divestment agreements. Included in divested product revenue
        for 2003, 2002 and 2001 were exceptional revenues of $Nil, $172.5 million and
        $231.4 million, respectively, arising from product disposals and
        rationalisations. These revenues represent the proceeds, net of the unamortised
        cost of the related intangible assets, arising from the disposal of products
        during 2002 and 2001. 
     

     
        Contract revenue can be further analysed as follows:
        
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                2003
 $m
             

          	
             
                 
             

          	
             
                2002
 $m
             

          	
             
                 
             

          	
             
                2001
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Contract Revenue
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Licence fees
             

          	
             
                 
             

          	
             
                —
             

          	
             
                  
             

          	
             
                7.1
             

          	
             
                  
             

          	
             
                173.6
             

          	
             
                 
             

          
	
             
                Risk-sharing arrangements
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                37.2
             

          	
             
                 
             

          	
             
                58.7
             

          	
             
                 
             

          
	
             
                Research revenues/milestones
             

          	
             
                 
             

          	
             
                49.5
             

          	
             
                 
             

          	
             
                84.2
             

          	
             
                 
             

          	
             
                101.4
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                49.5
             

          	
             
                 
             

          	
             
                128.5
             

          	
             
                 
             

          	
             
                333.7
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        Contract revenue from business venture arrangements,
        consisting of up-front licence fees and research revenue, was as
        follows:
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                2003
 $m
             

          	
             
                 
             

          	
             
                2002
 $m
             

          	
             
                 
             

          	
             
                2001
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Up-front licence fees
             

          	
             
                 
             

          	
             
                —
             

          	
             
                  
             

          	
             
                —
             

          	
             
                  
             

          	
             
                172.5
             

          	
             
                 
             

          
	
             
                Research revenue
             

          	
             
                 
             

          	
             
                3.7
             

          	
             
                 
             

          	
             
                13.4
             

          	
             
                 
             

          	
             
                15.0
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Total
             

          	
             
                 
             

          	
             
                3.7
             

          	
             
                 
             

          	
             
                13.4
             

          	
             
                 
             

          	
             
                187.5
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        Elan made initial investments in the business venture
        arrangements of $Nil, $Nil and $229.2 million for 2003, 2002 and 2001,
        respectively. Elan made subsequent investments in the business venture parents
        of $7.1 million, $83.4 million and $92.2 million for 2003, 2002 and 2001,
        respectively. In addition, Elan expensed $3.0 million, $23.9 million and $24.6
        million of subsequent funding to the business ventures in 2003, 2002 and 2001,
        respectively. 
     

     
        d   Exceptional items
        
     

     
        Exceptional items are those items that in
        management’s judgement are material items which derive from events or
        transactions that fall within the ordinary activities of the Group and which
        individually or, if of a similar type, in aggregate, need to be disclosed by
        virtue of their size or incidence. 
     

     
        The principal items classified as exceptional items
        include exceptional revenues recorded on the disposal of products and gains or
        losses recorded on the disposal of businesses, tangible and intangible asset
        impairments, purchase of royalty rights, severance and relocation costs, losses
        from litigation or regulatory actions including shareholders litigation and SEC
        investigation, and investment gains, losses and impairments (including those
        related to investments in business ventures and business venture parents).
        These items have been treated consistently from period to period. Management
        believes that disclosure of exceptional items is meaningful because it provides
        additional information in relation to these material items.
     

     

     
        93
     

     

     
     

     
     
        NOTES RELATING TO FINANCIAL STATEMENTS 
     

     
        e   Discontinued operations
        
     

     
        A discontinued operation is classified as an operation of
        the business which is (i) sold or terminated and the sale or termination has
        been completed during the year or within three months following the year end,
        (ii) the former activities have ceased permanently, (iii) the operation had a
        material effect on the nature and focus of the business and (iv) its financial
        results are clearly distinguishable. 
     

     
        f   Tangible fixed assets
        and impairment 
     

     
        Tangible fixed assets are stated at cost less accumulated
        depreciation. Depreciation of tangible fixed assets is computed using the
        straight-line method based on estimated useful lives at the following annual
        rates: 
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                %
             

          	
             
                 
             

          
	
             
                Buildings
             

          	
             
                 
             

          	
             
                2.5–6.6
             

          	
             
                 
             

          
	
             
                Leasehold improvements
             

          	
             
                 
             

          	
             
                Lease term
             

          	
             
                 
             

          
	
             
                Plant and equipment
             

          	
             
                 
             

          	
             
                5–50
             

          	
             
                 
             

          

 
 

     
        The average depreciation rate for buildings is 3% and for
        plant and equipment is 12%. 
     

     
        Where events or circumstances are present which indicate
        that the carrying amount of a tangible asset may not be recoverable, the
        Company estimates the net realisable value (estimated sales proceeds less costs
        to sell) or the value in use (present value of future cash flows) expected to
        result from use of the asset and its eventual divestment. The recoverable
        amount is the higher of net realisable value and value in use. Where the
        recoverable amount is less than the carrying amount of the asset, the Company
        recognises an impairment loss which is charged to the profit and loss account.
        Otherwise, no loss is recognised. 
     

     
        g   Intangible fixed assets
        and impairment 
     

     
        Patents, licences, acquired IP and goodwill are stated at
        the lower of cost or valuation. Patents and licences are amortised over their
        expected useful lives, which range between 2 years and 20 years. The average
        amortisation period for patents and licences is approximately 14 years.
        Goodwill arising on acquisitions since 1998 is capitalised and amortised to the
        profit and loss account over the period during which the benefits are expected
        to accrue, but in no case greater than 20 years. The average amortisation
        period for goodwill is 18 years. Prior to 1 January 1998, goodwill was
        written-off directly to consolidated reserves in the year of acquisition.
        Acquired IP arising on acquisitions is capitalised and amortised to the profit
        and loss account over its estimated useful economic life. The useful economic
        life commences upon generation of product revenue relating to the acquired IP.
        
     

     
        Where events or circumstances are present which indicate
        that the carrying amount of an intangible asset may not be recoverable, the
        Company estimates the net realisable value (estimated sales proceeds less costs
        to sell) or the value in use (present value of future cash flows) expected to
        result from use of the asset and its eventual divestment. The recoverable
        amount is the higher of net realisable value and value in use. Where the
        recoverable amount is less than the carrying amount of the asset, the Company
        recognises an impairment loss which is charged to the profit and loss account.
        Otherwise, no loss is recognised. 
     

     
        h   Stocks 
     

     
        Stocks are valued at the lower of cost or market value.
        Cost in the case of raw materials and supplies is calculated on a first-in,
        first-out basis and comprises the purchase price, including import duties,
        transport and handling costs and any other directly attributable costs, less
        trade discounts. Cost in the case of work-in-progress and finished goods
        comprises direct labour, material costs and attributable overheads. 
     

     
        i   Research and development
        
     

     
        Research and development expenditure is charged to the
        profit and loss account in the period in which it is incurred. 
     

     
        j   Taxation 

     

     
        Current tax, including Irish corporation tax and foreign
        taxes, is provided on the Group’s taxable profits, at amounts expected to
        be paid (or recovered) using the tax rates and laws that have been enacted or
        substantially enacted by the balance sheet date. Deferred taxation is
        recognised in full in respect of timing differences that have originated but
        not reversed at the balance sheet date. 
     

     

     
        94
     

     

     
     

     
     
        k   Foreign currencies and
        translation of subsidiary and associated undertakings
     

     
        Transactions in foreign currencies are recorded at the
        rate ruling at the date of the transaction. The resulting monetary assets and
        liabilities are translated into U.S. dollars at exchange rates prevailing at
        the balance sheet date. Profits and losses are dealt with in the profit and
        loss account and, where material, they are separately disclosed. 
     

     
        The assets and liabilities of subsidiary undertakings are
        translated using year-end rates and income is translated at average rates. The
        cumulative effect of exchange differences arising on consolidation of the net
        investment in overseas subsidiaries and associates are taken directly to
        reserves through the Consolidated Statement of Total Recognised Gains and
        Losses. 
     

     
        l   Derivative financial
        instruments 
     

     
        The Company enters into transactions in the normal course
        of business using a variety of financial instruments in order to hedge against
        exposures to fluctuating exchange and interest rates. 
     

     
        Derivative financial instruments are utilised to mitigate
        interest rate and currency exposures. Forward currency contracts and options
        and interest rate derivatives are marked to market at each balance sheet date
        and the resulting gains and losses are recognised in the profit and loss
        account. Gains and losses on derivative financial instruments which qualify as
        hedges are recognised in the profit and loss account when realised as an offset
        to the related income or expense. The carrying value of derivative financial
        instruments is generally reported within current assets or other current
        liabilities. 
     

     
        m   Financial asset
        investments and impairment 
     

     
        Financial asset investments, other than associated
        undertakings, are stated at cost less provision for impairment in value. The
        carrying values of financial assets are assessed for impairment using
        established financial methodologies, including quoted market prices for quoted
        equity securities. Unquoted equity investments and non-traded securities of
        public entities are assessed using methodologies including the Black-Scholes
        option-pricing model, the valuation achieved in the most recent private
        placement by an investee, an assessment of the impact of general private equity
        market conditions, and discounted projected future cash flow models. The
        factors affecting carrying values include both general financial market
        conditions for pharmaceutical and biotechnology companies and factors specific
        to a particular company. 
     

     
        Financial current asset investments held for trading
        purposes are stated at market value with interest and similar income taken to
        the profit and loss account on a receivable basis. Other financial current
        asset investments are accounted for on an amortised cost basis. 
     

     
        Investments in associated undertakings are accounted for
        under the equity method where the Company holds voting equity in the investee
        and exercises significant influence over the operating and financial policies
        of the investee. Significant influence may exist even if the Company owns less
        than 20% of the investee’s equity depending on the existence of factors
        such as representation on the board of directors, participation in policy
        making processes, material intercompany transactions, interchange of managerial
        personnel or technological dependency. Certain circumstances, such as majority
        ownership by another company, can offset the impact of such factors. The
        determination to use cost or equity accounting requires a significant degree of
        judgement on the facts and circumstances of a particular investment. Financial
        asset investments which are accounted for under the equity method are stated at
        cost, adjusted for the Company’s share of the earnings or losses of the
        investee after the date of investment, less any provision for impairment in
        value. 
     

     
        n   Financing costs
        
     

     
        Debt finance costs are allocated to financial reporting
        periods over the term of the related debt at a constant rate on the carrying
        amount. The carrying amount of debt includes related financing costs. 
     

     
        o   Pensions 

     

     
        The regular cost of providing benefits under defined
        benefit plans is charged to the profit and loss account over the service lives
        of the members of the schemes. The regular costs are determined in consultation
        with independent, external, qualified actuaries. Variations from regular costs,
        where they arise, are allocated to operating profit/(loss) over the expected
        remaining service lives of the members. 
     

     
        The costs of providing defined contribution benefit plans
        are expensed as incurred.
     

     

     
        95
     

     

     
     

     
     
        NOTES RELATING TO FINANCIAL STATEMENTS 
     

     
        p   Leasing 
     

     
        Tangible fixed assets, acquired under a lease which
        transfers substantially all of the risks and rewards of ownership to the
        Company, are capitalised as a fixed asset. Amounts payable under such leases
        (finance leases), net of finance charges, are shown as short or medium term
        borrowings as appropriate. Finance charges on finance leases are charged to the
        profit and loss account over the term of the lease to give a constant rate of
        charge in proportion to the capital balances outstanding. Rentals on operating
        leases are charged to the profit and loss account as incurred. 
     

     
        q         Stock
        compensation 
     

     
        Stock option compensation expense is the difference
        between the market value of shares at the date of the option grant and the
        amount of the consideration, if any, that participants may be required to pay
        for the shares. The intrinsic cost of awards to employees that take the form of
        shares or rights to shares are recognised over the period of the
        employee’s related performance. Where there are no performance criteria,
        the cost is recognised when the employee becomes unconditionally entitled to
        the shares. 
     

     
        r   Finance charges and
        product acquisition accruals 
     

     
        Deferred and contingent payments on product acquisitions
        are recognised in creditors on a time-discounted basis. The Company accrues
        such amounts where payment is probable. Such amounts include contingent
        payments based on future product revenues and future option payments that the
        Company may make to acquire such products. A related finance charge is included
        annually in the profit and loss account. 
     

     
        s   Risks and uncertainties
        
     

     
        The Company is subject to certain risks and uncertainties
        arising from a number of factors including competition, government regulation,
        litigation, liquidity and financing, continued successful licensing and
        marketing, third party reimbursement, pricing pressure, unpredictability of
        patent protection, the value of its investments and other assets,
        unpredictability of product approvals, tax reform and environmental
        liabilities. The Company makes a provision for these risks and uncertainties
        when it has a present obligation as a result of a past event in respect of
        which it is probable that a transfer of economic benefits will be required to
        settle the obligation, and a reliable estimate can be made of the amount, or
        the minimum amount, that will be required to settle the obligation. 
     

     
        t   Use of estimates
        
     

     
        The preparation of the Consolidated Financial Statements
        in conformity with Irish GAAP requires management to make estimates and
        assumptions that affect reported amounts and disclosures in these financial
        statements. Actual results could differ from those estimates. 
     

     
        2   Segment Information
        
     

     
        During 2003 Elan’s business was conducted through two
        business units, Core Elan and Elan Enterprises. With the completion of the
        recovery plan on 12 February 2004, Elan announced the end of operations for its
        Elan Enterprises business unit. 
     

     
        Core Elan is engaged in biopharmaceutical research and
        development activities, pharmaceutical commercial activities and pharmaceutical
        manufacturing activities. Elan Enterprises was mainly comprised of Elan’s
        drug delivery businesses and other assets such as business ventures and
        non-core pharmaceutical products. 
     

     

     
        96
     

     

     
     

     
     
        a   Revenue by geographical
        region was as follows:
     

     
         
     

     	
             
                 
             

          	
             
                    
             

          	
             
                2003
 $m
             

          	
             
                    
             

          	
             
                2002
 $m
             

          	
             
                    
             

          	
             
                2001
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Geographical origin:
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Ireland
             

          	
             
                 
             

          	
             
                118.2
             

          	
             
                 
             

          	
             
                422.7
             

          	
             
                 
             

          	
             
                673.0
             

          	
             
                 
             

          
	
             
                Rest of Europe
             

          	
             
                 
             

          	
             
                98.4
             

          	
             
                 
             

          	
             
                98.3
             

          	
             
                 
             

          	
             
                89.7
             

          	
             
                 
             

          
	
             
                United States
             

          	
             
                 
             

          	
             
                543.6
             

          	
             
                 
             

          	
             
                804.5
             

          	
             
                 
             

          	
             
                928.4
             

          	
             
                 
             

          
	
             
                Other
             

          	
             
                 
             

          	
             
                1.9
             

          	
             
                 
             

          	
             
                7.5
             

          	
             
                 
             

          	
             
                49.6
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                External revenue
             

          	
             
                 
             

          	
             
                762.1
             

          	
             
                 
             

          	
             
                1,333.0
             

          	
             
                 
             

          	
             
                1,740.7
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Distribution of export revenue from
                Ireland:
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                United States
             

          	
             
                 
             

          	
             
                38.0
             

          	
             
                 
             

          	
             
                215.2
             

          	
             
                 
             

          	
             
                256.6
             

          	
             
                 
             

          
	
             
                Other
             

          	
             
                 
             

          	
             
                56.7
             

          	
             
                 
             

          	
             
                192.4
             

          	
             
                 
             

          	
             
                411.8
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Export revenue from Ireland
             

          	
             
                 
             

          	
             
                94.7
             

          	
             
                 
             

          	
             
                407.6
             

          	
             
                 
             

          	
             
                668.4
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Export revenue from Ireland as a percentage of total
                external revenue
             

          	
             
                 
             

          	
             
                12
             

          	
             
                %
             

          	
             
                31
             

          	
             
                %
             

          	
             
                38
             

          	
             
                %
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        b   The distribution of
        operating (loss)/profit by geographical area was as follows:
     

     
         
     

     	
             
                 
             

          	
             
                    
             

          	
             
                2003
 $m
             

          	
             
                    
             

          	
             
                2002
 $m
             

          	
             
                    
             

          	
             
                2001
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Ireland
             

          	
             
                 
             

          	
             
                (678.9
             

          	
             
                )
             

          	
             
                (1,860.8
             

          	
             
                )
             

          	
             
                (636.2
             

          	
             
                )
             

          
	
             
                Rest of Europe
             

          	
             
                 
             

          	
             
                (36.1
             

          	
             
                )
             

          	
             
                (37.5
             

          	
             
                )
             

          	
             
                (29.7
             

          	
             
                )
             

          
	
             
                United States
             

          	
             
                 
             

          	
             
                (207.4
             

          	
             
                )
             

          	
             
                (368.4
             

          	
             
                )
             

          	
             
                (187.9
             

          	
             
                )
             

          
	
             
                Other
             

          	
             
                 
             

          	
             
                (7.4
             

          	
             
                )
             

          	
             
                (16.1
             

          	
             
                )
             

          	
             
                31.4
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                (929.8
             

          	
             
                )
             

          	
             
                (2,282.8
             

          	
             
                )
             

          	
             
                (822.4
             

          	
             
                )
             

          
	
             
                Corporate costs
             

          	
             
                 
             

          	
             
                (5.3
             

          	
             
                )
             

          	
             
                (8.0
             

          	
             
                )
             

          	
             
                (7.3
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Total operating (loss)/profit
             

          	
             
                 
             

          	
             
                (935.1
             

          	
             
                )
             

          	
             
                (2,290.8
             

          	
             
                )
             

          	
             
                (829.7
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 
 

     
        c   The distribution of
        consolidated net assets by geographical area was as follows:
     

     
         
     

     	
             
                 
             

          	
             
                    
             

          	
             
                At 31 December 2003
 $m
             

          	
             
                    
             

          	
             
                At 31 December 2002
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Ireland
             

          	
             
                 
             

          	
             
                1,107.9
             

          	
             
                 
             

          	
             
                1,671.8
             

          	
             
                 
             

          
	
             
                Rest of Europe
             

          	
             
                 
             

          	
             
                (13.1
             

          	
             
                )
             

          	
             
                102.0
             

          	
             
                 
             

          
	
             
                United States
             

          	
             
                 
             

          	
             
                39.4
             

          	
             
                 
             

          	
             
                242.3
             

          	
             
                 
             

          
	
             
                Bermuda
             

          	
             
                 
             

          	
             
                (315.3
             

          	
             
                )
             

          	
             
                (563.0
             

          	
             
                )
             

          
	
             
                Other
             

          	
             
                 
             

          	
             
                6.5
             

          	
             
                 
             

          	
             
                6.3
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Net assets
             

          	
             
                 
             

          	
             
                825.4
             

          	
             
                 
             

          	
             
                1,459.4
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        d   Major customers
     

     
        Cardinal Health, Amerisource Bergen and McKesson accounted
        for approximately 20%, 16% and 16%, respectively, of Elan’s total revenue
        for 2003. Cardinal Health, Amerisource Bergen and McKesson accounted for
        approximately 13%, 13% and 12%, respectively, of Elan’s total revenue for
        2002. Cardinal Health and Pharma Marketing accounted for approximately 14% and
        11%, respectively, of Elan’s total revenue in 2001. No other customer
        accounted for more than 10% of revenue in 2003, 2002 or 2001.
     

     

     
        97
     

     

     
     

     
     
        NOTES RELATING TO FINANCIAL STATEMENTS 
     

     
        e   Analysis by class of
        business 
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                Core Elan
             

          	
             
                 
             

          	
             
                Elan Enterprises
             

          	
             
                 
             

          	
             
                Total
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                  
             

          	
             
                2003
 $m
             

          	
             
                  
             

          	
             
                2002
 $m
             

          	
             
                  
             

          	
             
                2001
 $m
             

          	
             
                  
             

          	
             
                2003
 $m
             

          	
             
                   
             

          	
             
                2002
 $m
             

          	
             
                   
             

          	
             
                2001
 $m
             

          	
             
                  
             

          	
             
                2003
 $m
             

          	
             
                  
             

          	
             
                2002
 $m
             

          	
             
                   
             

          	
             
                2001
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Total sales
             

          	
             
                 
             

          	
             
                627.1
             

          	
             
                 
             

          	
             
                963.0
             

          	
             
                 
             

          	
             
                1,414.4
             

          	
             
                 
             

          	
             
                137.4
             

          	
             
                 
             

          	
             
                389.5
             

          	
             
                 
             

          	
             
                345.6
             

          	
             
                 
             

          	
             
                764.5
             

          	
             
                 
             

          	
             
                1,352.5
             

          	
             
                 
             

          	
             
                1,760.0
             

          	
             
                 
             

          
	
             
                Intersegment sales
             

          	
             
                 
             

          	
             
                (0.3
             

          	
             
                )
             

          	
             
                (11.8
             

          	
             
                )
             

          	
             
                (11.9
             

          	
             
                )
             

          	
             
                (2.1
             

          	
             
                )
             

          	
             
                (7.7
             

          	
             
                )
             

          	
             
                (7.4
             

          	
             
                )
             

          	
             
                (2.4
             

          	
             
                )
             

          	
             
                (19.5
             

          	
             
                )
             

          	
             
                (19.3
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Sales to third parties
             

          	
             
                 
             

          	
             
                626.8
             

          	
             
                 
             

          	
             
                951.2
             

          	
             
                 
             

          	
             
                1,402.5
             

          	
             
                 
             

          	
             
                135.3
             

          	
             
                 
             

          	
             
                381.8
             

          	
             
                 
             

          	
             
                338.2
             

          	
             
                 
             

          	
             
                762.1
             

          	
             
                 
             

          	
             
                1,333.0
             

          	
             
                 
             

          	
             
                1,740.7
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Operating loss
             

          	
             
                 
             

          	
             
                (906.1
             

          	
             
                )
             

          	
             
                (2,155.8
             

          	
             
                )
             

          	
             
                (667.5
             

          	
             
                )
             

          	
             
                (27.2
             

          	
             
                )
             

          	
             
                (126.6
             

          	
             
                )
             

          	
             
                (155.3
             

          	
             
                )
             

          	
             
                (933.3
             

          	
             
                )
             

          	
             
                (2,282.4
             

          	
             
                )
             

          	
             
                (822.8
             

          	
             
                )
             

          
	
             
                Intersegment loss/(profit)
             

          	
             
                 
             

          	
             
                3.4
             

          	
             
                 
             

          	
             
                (0.6
             

          	
             
                )
             

          	
             
                (0.1
             

          	
             
                )
             

          	
             
                0.1
             

          	
             
                 
             

          	
             
                0.2
             

          	
             
                 
             

          	
             
                0.5
             

          	
             
                 
             

          	
             
                3.5
             

          	
             
                 
             

          	
             
                (0.4
             

          	
             
                )
             

          	
             
                0.4
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                External operating loss
             

          	
             
                 
             

          	
             
                (902.7
             

          	
             
                )
             

          	
             
                (2,156.4
             

          	
             
                )
             

          	
             
                (667.6
             

          	
             
                )
             

          	
             
                (27.1
             

          	
             
                )
             

          	
             
                (126.4
             

          	
             
                )
             

          	
             
                (154.8
             

          	
             
                )
             

          	
             
                (929.8
             

          	
             
                )
             

          	
             
                (2,282.8
             

          	
             
                )
             

          	
             
                (822.4
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                External operating (loss)/profit before exceptional
                items
             

          	
             
                 
             

          	
             
                (363.0
             

          	
             
                )
             

          	
             
                (497.2
             

          	
             
                )
             

          	
             
                (29.6
             

          	
             
                )
             

          	
             
                9.9
             

          	
             
                 
             

          	
             
                10.7
             

          	
             
                 
             

          	
             
                163.7
             

          	
             
                 
             

          	
             
                (353.1
             

          	
             
                )
             

          	
             
                (486.5
             

          	
             
                )
             

          	
             
                134.1
             

          	
             
                 
             

          
	
             
                Depreciation and amortisation
             

          	
             
                 
             

          	
             
                182.1
             

          	
             
                 
             

          	
             
                267.1
             

          	
             
                 
             

          	
             
                217.3
             

          	
             
                 
             

          	
             
                25.8
             

          	
             
                 
             

          	
             
                50.5
             

          	
             
                 
             

          	
             
                49.8
             

          	
             
                 
             

          	
             
                207.9
             

          	
             
                 
             

          	
             
                317.6
             

          	
             
                 
             

          	
             
                267.1
             

          	
             
                 
             

          
	
             
                Net assets
             

          	
             
                 
             

          	
             
                1,172.9
             

          	
             
                 
             

          	
             
                1,309.8
             

          	
             
                 
             

          	
             
                3,343.0
             

          	
             
                 
             

          	
             
                240.6
             

          	
             
                 
             

          	
             
                314.7
             

          	
             
                 
             

          	
             
                721.3
             

          	
             
                 
             

          	
             
                1,413.5
             

          	
             
                 
             

          	
             
                1,624.5
             

          	
             
                 
             

          	
             
                4,064.3
             

          	
             
                 
             

          
	
             
                Capital expenditure (including acquisitions)
             

          	
             
                 
             

          	
             
                42.9
             

          	
             
                 
             

          	
             
                249.4
             

          	
             
                 
             

          	
             
                1,244.5
             

          	
             
                 
             

          	
             
                5.9
             

          	
             
                 
             

          	
             
                32.9
             

          	
             
                 
             

          	
             
                84.1
             

          	
             
                 
             

          	
             
                48.8
             

          	
             
                 
             

          	
             
                282.3
             

          	
             
                 
             

          	
             
                1,328.6
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        (i)   Reconciliation of operating loss
        
     

     
         
     

     	
             
                 
             

          	
             
                    
             

          	
             
                2003
 $m
             

          	
             
                    
             

          	
             
                2002
 $m
             

          	
             
                    
             

          	
             
                2001
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Segmental operating loss
             

          	
             
                 
             

          	
             
                (929.8
             

          	
             
                )
             

          	
             
                (2,282.8
             

          	
             
                )
             

          	
             
                (822.4
             

          	
             
                )
             

          
	
             
                Corporate costs
             

          	
             
                 
             

          	
             
                (5.3
             

          	
             
                )
             

          	
             
                (8.0
             

          	
             
                )
             

          	
             
                (7.3
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                (935.1
             

          	
             
                )
             

          	
             
                (2,290.8
             

          	
             
                )
             

          	
             
                (829.7
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        (ii)   Reconciliation of operating
        (loss)/profit before exceptional items 
     

     
         
     

     	
             
                 
             

          	
             
                    
             

          	
             
                2003
 $m
             

          	
             
                    
             

          	
             
                2002
 $m
             

          	
             
                    
             

          	
             
                2001
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Segmental operating (loss)/profit before exceptional
                items
             

          	
             
                 
             

          	
             
                (353.1
             

          	
             
                )
             

          	
             
                (486.5
             

          	
             
                )
             

          	
             
                134.1
             

          	
             
                 
             

          
	
             
                Corporate costs
             

          	
             
                 
             

          	
             
                (5.3
             

          	
             
                )
             

          	
             
                (8.0
             

          	
             
                )
             

          	
             
                (6.0
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                (358.4
             

          	
             
                )
             

          	
             
                (494.5
             

          	
             
                )
             

          	
             
                128.1
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        (iii)   Reconciliation of net assets
        
     

     
         
     

     	
             
                 
             

          	
             
                    
             

          	
             
                2003
 $m
             

          	
             
                    
             

          	
             
                2002
 $m
             

          	
             
                    
             

          	
             
                2001
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Segmental net assets
             

          	
             
                 
             

          	
             
                1,413.5
             

          	
             
                 
             

          	
             
                1,624.5
             

          	
             
                 
             

          	
             
                4,064.3
             

          	
             
                 
             

          
	
             
                Corporate net assets
             

          	
             
                 
             

          	
             
                354.4
             

          	
             
                 
             

          	
             
                671.3
             

          	
             
                 
             

          	
             
                1,238.6
             

          	
             
                 
             

          
	
             
                Interest bearing assets
             

          	
             
                 
             

          	
             
                1,032.6
             

          	
             
                 
             

          	
             
                1,479.4
             

          	
             
                 
             

          	
             
                2,846.7
             

          	
             
                 
             

          
	
             
                Interest bearing liabilities
             

          	
             
                 
             

          	
             
                (1,975.1
             

          	
             
                )
             

          	
             
                (2,315.8
             

          	
             
                )
             

          	
             
                (3,089.9
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                825.4
             

          	
             
                 
             

          	
             
                1,459.4
             

          	
             
                 
             

          	
             
                5,059.7
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 
 

     
        98
     

     

     
     

     
     
        (iv)   Reconciliation of depreciation and
        amortisation 
     

     
         
     

     	
             
                 
             

          	
             
                   
             

          	
             
                2003
 $m
             

          	
             
                    
             

          	
             
                2002
 $m
             

          	
             
                    
             

          	
             
                2001
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Segmental depreciation and amortisation
             

          	
             
                 
             

          	
             
                207.9
             

          	
             
                 
             

          	
             
                317.6
             

          	
             
                 
             

          	
             
                267.1
             

          	
             
                 
             

          
	
             
                Corporate depreciation and amortisation
             

          	
             
                 
             

          	
             
                2.4
             

          	
             
                 
             

          	
             
                2.7
             

          	
             
                 
             

          	
             
                3.3
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                210.3
             

          	
             
                 
             

          	
             
                320.3
             

          	
             
                 
             

          	
             
                270.4
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        (v)   Reconciliation of capital expenditure
        
     

     
         
     

     	
             
                 
             

          	
             
                    
             

          	
             
                2003
 $m
             

          	
             
                    
             

          	
             
                2002
 $m
             

          	
             
                    
             

          	
             
                2001
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Segmental capital expenditure
             

          	
             
                 
             

          	
             
                48.8
             

          	
             
                 
             

          	
             
                282.3
             

          	
             
                 
             

          	
             
                1,328.6
             

          	
             
                 
             

          
	
             
                Corporate capital expenditure
             

          	
             
                 
             

          	
             
                0.3
             

          	
             
                 
             

          	
             
                1.9
             

          	
             
                 
             

          	
             
                1.8
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                49.1
             

          	
             
                 
             

          	
             
                284.2
             

          	
             
                 
             

          	
             
                1,330.4
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        3   Exceptional
        Items
     

     
        Exceptional items are those items that in
        management’s judgement are material items which derive from events or
        transactions that fall within the ordinary activities of the Group and which
        individually or, if of a similar type, in aggregate, need to be disclosed by
        virtue of their size or incidence. 
     

     
        The principal items classified as exceptional items
        include exceptional revenues recorded on the disposal of products and gains or
        losses recorded on the disposal of businesses, tangible and intangible asset
        impairments, purchase of royalty rights, severance and relocation costs, losses
        from litigation or regulatory actions including shareholders litigation and SEC
        investigation, and investment gains, losses and impairments (including those
        related to investments in business ventures and business venture parents).
        These items have been treated consistently from period to period. Management
        believes that disclosure of exceptional items is meaningful because it provides
        additional information in relation to these material items. 
     

     
        The exceptional revenues and costs incurred in 2003, 2002
        and 2001 are included in the profit and loss account under the following
        statutory headings:
     

     
         
     

     	
             
                 
             

          	
             
                    
             

          	
             
                2003
 $m
             

          	
             
                    
             

          	
             
                2002
 $m
             

          	
             
                    
             

          	
             
                2001
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Revenue
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (172.5
             

          	
             
                )
             

          	
             
                (227.8
             

          	
             
                )
             

          
	
             
                Cost of sales
             

          	
             
                 
             

          	
             
                6.9
             

          	
             
                 
             

          	
             
                66.1
             

          	
             
                 
             

          	
             
                22.8
             

          	
             
                 
             

          
	
             
                Selling, general and administrative expenses
             

          	
             
                 
             

          	
             
                546.0
             

          	
             
                 
             

          	
             
                1,788.0
             

          	
             
                 
             

          	
             
                1,084.2
             

          	
             
                 
             

          
	
             
                Research and development expenses
             

          	
             
                 
             

          	
             
                23.8
             

          	
             
                 
             

          	
             
                114.7
             

          	
             
                 
             

          	
             
                78.6
             

          	
             
                 
             

          
	
             
                Other ordinary activities
             

          	
             
                 
             

          	
             
                (293.3
             

          	
             
                )
             

          	
             
                139.1
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Net interest and other expense
             

          	
             
                 
             

          	
             
                33.7
             

          	
             
                 
             

          	
             
                1,014.0
             

          	
             
                 
             

          	
             
                (25.9
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Net exceptional charges
             

          	
             
                 
             

          	
             
                317.1
             

          	
             
                 
             

          	
             
                2,949.4
             

          	
             
                 
             

          	
             
                931.9
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        2003
     

     
        In 2003, Elan incurred net exceptional charges of $317.1
        million. 
     

     
        The exceptional items for 2003 mainly relate to the
        implementation of Elan’s recovery plan and investment impairments. On 31
        July 2002, Elan announced a recovery plan to restructure its businesses, assets
        and balance sheet. Elan decided to focus on three core therapeutic areas. These
        are neurology, autoimmune diseases and severe pain. A key element of the
        recovery plan was the divestment of businesses and products. 
     

     
        The exceptional charges and revenue in 2003 mainly relate
        to the: 
     

     		
             
                •
             

          	
             
                Sale of businesses. The carrying value of these
                assets have been written down, where applicable, to their estimated recoverable
                amounts;
             

          

 

     
        99
     

     

     
     

     
     
        NOTES RELATING TO FINANCIAL STATEMENTS 
     

     		
             
                •
             

          	
             
                Discontinuance of businesses;
             

          

     		
             
                •
             

          	
             
                Rationalisation and restructuring expenses incurred
                from a reduction in the scope of Elan’s activities, a reduction in
                employee numbers and related write-downs in the carrying value of
                assets;
             

          

     		
             
                •
             

          	
             
                Simplification of Elan’s business such as the
                termination of the Pharma Marketing risk-sharing arrangement; and
             

          

     		
             
                •
             

          	
             
                Termination, restructuring or cessation of activity
                in all of Elan’s business ventures. 
             

          

     
        These exceptional costs have been included under the
        statutory format headings to which they relate analysed as follows: 
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                Cost
 of
                Sales
 (A)
 $m
             

          	
             
                 
             

          	
             
                Selling,
 General
                and
 Administrative
 (B)
 $m
             

          	
             
                 
             

          	
             
                Research
 and
 Development

                (C)
 $m
             

          	
             
                 
             

          	
             
                Other
 Ordinary
 Activities

                (D)
 $m
             

          	
             
                 
             

          	
             
                Net
 Interest
 (E)
 $m
             

          	
             
                 
             

          	
             
                Total
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Acquired IP and goodwill impairment:
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Europe
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                108.2
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                108.2
             

          	
             
                 
             

          
	
             
                Dura
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                16.2
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                16.2
             

          	
             
                 
             

          
	
             
                Nanosystems
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                11.7
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                11.7
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Total acquired IP and goodwill impairment
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                136.1
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                136.1
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Product impairments:
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Myobloc
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                37.1
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                37.1
             

          	
             
                 
             

          
	
             
                All others
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                9.2
             

          	
             
                 
             

          	
             
                7.1
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                16.3
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Total product impairments
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                46.3
             

          	
             
                 
             

          	
             
                7.1
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                53.4
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Purchase of Pharma Operating royalty rights
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                297.6
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                297.6
             

          	
             
                 
             

          
	
             
                Severance/relocation costs
             

          	
             
                 
             

          	
             
                4.1
             

          	
             
                 
             

          	
             
                25.1
             

          	
             
                 
             

          	
             
                8.2
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                37.4
             

          	
             
                 
             

          
	
             
                Tangible fixed asset write-downs
             

          	
             
                 
             

          	
             
                3.4
             

          	
             
                 
             

          	
             
                9.3
             

          	
             
                 
             

          	
             
                1.7
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                14.4
             

          	
             
                 
             

          
	
             
                Gain on disposal of businesses
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (293.3
             

          	
             
                )
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (293.3
             

          	
             
                )
             

          
	
             
                Waiver fee to EPIL II/III noteholders
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                16.8
             

          	
             
                 
             

          	
             
                16.8
             

          	
             
                 
             

          
	
             
                Investment impairments
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                120.4
             

          	
             
                 
             

          	
             
                120.4
             

          	
             
                 
             

          
	
             
                Net gain on financial assets
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (106.3
             

          	
             
                )
             

          	
             
                (106.3
             

          	
             
                )
             

          
	
             
                Profit on repurchase of LYONs
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (1.6
             

          	
             
                )
             

          	
             
                (1.6
             

          	
             
                )
             

          
	
             
                Other
             

          	
             
                 
             

          	
             
                (0.6
             

          	
             
                )
             

          	
             
                31.6
             

          	
             
                 
             

          	
             
                6.8
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                4.4
             

          	
             
                 
             

          	
             
                42.2
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Net exceptional charges
             

          	
             
                 
             

          	
             
                6.9
             

          	
             
                 
             

          	
             
                546.0
             

          	
             
                 
             

          	
             
                23.8
             

          	
             
                 
             

          	
             
                (293.3
             

          	
             
                )
             

          	
             
                33.7
             

          	
             
                 
             

          	
             
                317.1
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        (A)   Cost of
        Sales
     

     
        Exceptional cost of sales include $3.4 million on the
        impairment of certain manufacturing fixed assets, severance/relocation costs of
        $4.1 million and other exceptional cost of sales of $(0.6) million. 
     

     
        (B)   Selling, General and
        Administrative 
     

     
        Exceptional selling, general and administrative expenses
        were $546.0 million. $182.4 million of the exceptional expenses relate to
        impairment charges arising on write-downs of intangible assets. $297.6 million
        relates to the purchase of royalty rights from Pharma Operating. For additional
        information on the purchase of royalty rights from Pharma Operating, please
        refer to Note 24 to the Consolidated Financial Statements. Other exceptional
        selling, general and administrative expenses were $66.0 million. These include
        tangible fixed asset write-downs of $9.3 million, severence/relocation costs of
        $25.1 million and similar costs arising from the restructuring of the Group as
        part of the recovery plan. They also include legal costs related to the SEC
        investigation, shareholder litigation and litigation provisions. 
     

     
        In February 2004, Elan completed the sale of its European
        sales and marketing business to Medeus. As a result, the related intangibles
        were written down to their net realisable value at 31 December 2003. This
        resulted in an impairment to goodwill of $108.2 million. The other goodwill
        impairment charge of $16.2 million related to Dura. Impairment charges to
        acquired IP arising from the acquisition of Nanosystems was $11.7 million.
        Impairment charges to patents and licences arising on write-downs of the
        product intangibles for 
     

     

     
        100
     

     

     
     

     
     
        Myobloc amounted to $37.1
        million. Other impairments to patents and licences totalled $9.2 million. Each
        of these impairments arose due to changed expectations for the related
        products. 
     

     
        (C)   Research and Development
        
     

     
        Exceptional research and development expenses were $23.8
        million. These mainly relate to product impairments of $7.1 million,
        severance/relocation costs of $8.2 million and similar costs arising from the
        restructuring of the Group as a part of the recovery plan. 
     

     
        (D)   Other Ordinary
        Activities 
     

     
        Elan recognised a gain of $293.3 million on the sale of
        certain businesses as part of the Group’s recovery plan. In June 2003,
        Elan completed the sale of its primary care franchise, comprising of Skelaxin
        and Sonata, to King. On completion, Elan received a net cash payment of $510.9
        million from King, representing the total consideration, before agreed price
        adjustments and expenses. The gain amounted to $284.8 million. In July 2003,
        Elan sold a transdermal technology business to Nitto Americas for a cash
        consideration of $45.0 million before expenses. The loss amounted to $30.3
        million. In December 2003, Elan completed the sale of the Pain Portfolio
        business to aaiPharma. The total consideration was $101.8 million, comprising a
        cash payment to Elan of $50.4 million and the assumption, by aaiPharma, of
        $51.4 million of Elan’s product payment obligations to Roxane. Elan
        recorded a net gain of $40.2 million on the transaction. Other businesses
        divested by Elan in 2003 were its operations in the Philippines and Taiwan, a
        Spanish primary care business, a U.K. drug delivery business and an Italian
        manufacturing business. The total net loss on these divestments amounted to
        $1.4 million. 
     

     
        (E)   Net Interest
        
     

     
        Exceptional net interest and other expense amounted to
        $33.7 million. 
     

     
        This includes a net gain of $1.6 million on the repurchase
        of $1,323.4 million in principal amount at maturity of LYONs. These LYONs,
        having an accreted value of $810.5 million at the date of purchase, were
        purchased at an aggregate cost of $803.4 million, resulting in the net gain of
        $1.6 million after related costs. For further information regarding the LYONs,
        please refer to Note 15 to the Consolidated Financial Statements. 
     

     
        During 2003 the Company recognised a $120.4 million charge
        in relation to investment impairments arising from Elan’s investment
        portfolio, primarily relating to investments in business ventures and business
        venture parents of $4.0 million and $106.0 million, respectively. 
     

     
        During 2003 the Company recognised a net gain on financial
        assets of $106.3 million, primarily reflecting gains of $72.3 million on the
        disposal of Elan’s investment in Ligand. 
     

     
        On 10 November 2003, Elan announced that it had
        successfully completed a private offering of $460.0 million in aggregate
        principal amount of 6.5% Convertible Notes. In connection with this offering, a
        waiver fee of $16.8 million was paid to the holders of the EPIL II and EPIL III
        Notes. 
     

     
        2002
     

     
        In 2002, Elan incurred net exceptional charges of $2,949.4
        million. 
     

     
        The exceptional items for 2002 mainly relate to the
        implementation of Elan’s recovery plan, a significant decline during 2002
        in the financial markets for investments in emerging biotechnology, drug
        delivery and pharmaceutical companies, and the introduction of generic
        competitors to some of Elan’s products. On 31 July 2002, Elan announced a
        recovery plan to restructure its businesses, assets and balance sheet. Elan
        decided to focus on three core therapeutic areas. These are neurology,
        autoimmune diseases and severe pain. A key element of the recovery plan was the
        divestment of businesses and products. 
     

     
        The exceptional charges and revenue in 2002 mainly relate
        to the: 
     

     		
             
                •
             

          	
             
                Sale of businesses and products. The carrying value
                of these assets have been written down, where applicable, to their estimated
                recoverable amounts. Exceptional revenue arises from the proceeds received on
                the disposal of products; 
             

          

     		
             
                •
             

          	
             
                Discontinuance of businesses or the decision not to
                exercise an option to acquire a product, such as Elan’s decision not to
                exercise its option to acquire certain dermatology products from GSK; 
             

          

 

     
        101
     

     

     
     

     
     
        NOTES RELATING TO FINANCIAL STATEMENTS 
     

     		
             
                •
             

          	
             
                Rationalisation and restructuring expenses incurred
                from a reduction in the scope of Elan’s activities, a reduction in
                employee numbers and related write-downs in the carrying value of
                assets;
             

          

     		
             
                •
             

          	
             
                Simplification of Elan’s business such as the
                termination of the Autoimmune risk-sharing arrangement; and
             

          

     		
             
                •
             

          	
             
                Termination, restructuring or cessation of activity
                in Elan’s business ventures. 
             

          

     
        These exceptional revenues and costs have been included
        under the statutory format headings to which they relate analysed as follows:
        
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                Revenue
 (A)
 $m
             

          	
             
                 
             

          	
             
                Cost
 of
                Sales
 (B)
 $m
             

          	
             
                 
             

          	
             
                Selling,
 General
                and
 Administrative
 (C)
 $m
             

          	
             
                 
             

          	
             
                Research
 and
 Development

                (D)
 $m
             

          	
             
                 
             

          	
             
                Other
 Ordinary
 Activities

                (E)
 $m
             

          	
             
                 
             

          	
             
                Net
 Interest
 (F)
 $m
             

          	
             
                 
             

          	
             
                Total
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Product disposals and product
                rationalisations
             

          	
             
                 
             

          	
             
                (172.5
             

          	
             
                )
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (172.5
             

          	
             
                )
             

          
	
             
                Zanaflex
                inventory-generic competition
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                43.3
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                43.3
             

          	
             
                 
             

          
	
             
                Acquired IP and goodwill impairment:
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Dura
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                854.9
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                854.9
             

          	
             
                 
             

          
	
             
                Liposome
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                111.8
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                111.8
             

          	
             
                 
             

          
	
             
                Sano
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                89.8
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                89.8
             

          	
             
                 
             

          
	
             
                Quadrant
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                78.2
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                78.2
             

          	
             
                 
             

          
	
             
                Axogen
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                28.4
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                28.4
             

          	
             
                 
             

          
	
             
                Others
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                19.1
             

          	
             
                 
             

          	
             
                10.6
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                29.7
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Total acquired IP and goodwill impairment
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                1,182.2
             

          	
             
                 
             

          	
             
                10.6
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                1,192.8
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Product impairments:
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Pain Portfolio
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                86.3
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                86.3
             

          	
             
                 
             

          
	
             
                Myobloc
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                77.7
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                77.7
             

          	
             
                 
             

          
	
             
                Naprelan
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                35.7
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                35.7
             

          	
             
                 
             

          
	
             
                Myambutol
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                32.7
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                32.7
             

          	
             
                 
             

          
	
             
                Dermatology products
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                29.8
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                29.8
             

          	
             
                 
             

          
	
             
                Frova
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                29.4
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                29.4
             

          	
             
                 
             

          
	
             
                Delsys
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                45.7
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                45.7
             

          	
             
                 
             

          
	
             
                All others
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                8.0
             

          	
             
                 
             

          	
             
                62.9
             

          	
             
                 
             

          	
             
                13.6
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                84.5
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Total product impairments
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                8.0
             

          	
             
                 
             

          	
             
                354.5
             

          	
             
                 
             

          	
             
                59.3
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                421.8
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Purchase of Autoimmune royalty rights
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                121.0
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                121.0
             

          	
             
                 
             

          
	
             
                Severance/relocation costs
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                8.4
             

          	
             
                 
             

          	
             
                23.2
             

          	
             
                 
             

          	
             
                19.7
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                51.3
             

          	
             
                 
             

          
	
             
                Litigation provisions
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                19.0
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                19.0
             

          	
             
                 
             

          
	
             
                Tangible fixed asset write-downs
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                5.7
             

          	
             
                 
             

          	
             
                28.3
             

          	
             
                 
             

          	
             
                11.6
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                45.6
             

          	
             
                 
             

          
	
             
                Gain on disposal of businesses
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (77.9
             

          	
             
                )
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (77.9
             

          	
             
                )
             

          
	
             
                Loss on sale of securities/guarantee
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                217.0
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                217.0
             

          	
             
                 
             

          
	
             
                Investment impairments
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                1,045.9
             

          	
             
                 
             

          	
             
                1,045.9
             

          	
             
                 
             

          
	
             
                Net loss on financial assets
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                10.0
             

          	
             
                 
             

          	
             
                10.0
             

          	
             
                 
             

          
	
             
                Profit on redemption of LYONs
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (37.7
             

          	
             
                )
             

          	
             
                (37.7
             

          	
             
                )
             

          
	
             
                Other
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                0.7
             

          	
             
                 
             

          	
             
                59.8
             

          	
             
                 
             

          	
             
                13.5
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (4.2
             

          	
             
                )
             

          	
             
                69.8
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Net exceptional charges
             

          	
             
                 
             

          	
             
                (172.5
             

          	
             
                )
             

          	
             
                66.1
             

          	
             
                 
             

          	
             
                1,788.0
             

          	
             
                 
             

          	
             
                114.7
             

          	
             
                 
             

          	
             
                139.1
             

          	
             
                 
             

          	
             
                1,014.0
             

          	
             
                 
             

          	
             
                2,949.4
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        (A)   Revenue 
     

     
        Exceptional product revenue of $172.5 million for 2002
        includes $154.7 million from product disposals arising from Elan’s
        recovery plan, as well as $17.8 million relating to product rationalisations.
        
     

     
        On 9 December 2002, Elan announced the amendment of the
        terms of its development, licence and supply agreement with Ligand regarding
        Avinza. Elan received a cash payment of $100.0 million from Ligand, in return
        for a reduction in the ongoing royalty rate from the previous level of 30% of
        net sales of Avinza in the United States and Canada to approximately 10%. In
        addition, Elan agreed to forego its option to negotiate a co-promotion
        agreement with Ligand for Avinza in the United States and Canada. Elan will
        continue to manufacture the product in its Gainesville facility. Net of the
        write-off of the related intangible assets, Elan recorded exceptional product
        revenue of $75.6 million on the closing of this transaction. 
     

     

     
        102
     

     

     
     

     
     
        On 3 October 2002, Elan announced that it sold its rights
        to Actiq in twelve territories, principally in Europe, to Anesta. At the date
        of disposal, Actiq was marketed by Elan in the United Kingdom, Ireland and
        Germany. Net of the write-off of the related intangible assets, Elan recorded
        exceptional product revenue of $40.3 million on the closing of this
        transaction. 
     

     
        On 23 August 2002, Elan announced a licensing agreement
        with Watson for exclusive marketing rights to the 30 mg and 60 mg dosage
        strengths of Elan’s extended-release nifedipine tablets in the United
        States. Elan received $45.0 million in cash from Watson. Elan will continue to
        manufacture the products in its Athlone facility. Net of the write-off of the
        related intangible assets, Elan recorded exceptional product revenue of $38.8
        million on the closing of this transaction. 
     

     
        (B)   Cost of Sales
        
     

     
        Exceptional cost of sales were $66.1 million in 2002,
        including a charge of $43.3 million related to the write-off of Zanaflex inventories due to the impact of
        generic competition during 2002. Other exceptional cost of sales includes $8.0
        million on the write down of the intangible asset for Mysoline, following
        generic competition for this product, severance/relocation costs of $8.4
        million, $5.7 million on the impairment of tangible fixed assets, and other
        exceptional cost of sales of $0.7 million. 
     

     
        (C)   Selling, General and
        Administrative 
     

     
        Exceptional selling, general and administrative expenses
        were $1,788.0 million. $1,536.7 million of the exceptional expenses relate to
        impairment charges arising on write-downs of intangible assets. Other
        exceptional selling, general and administrative expenses were $251.3 million.
        These include the purchase of royalty rights from Autoimmune, fixed asset
        write-downs and similar costs arising from the restructuring of the Group as
        part of the recovery plan. They also include legal costs related to the SEC
        investigation, shareholder litigation and litigation provisions. 
     

     
        Impairment charges to goodwill relating to the
        acquisitions of Dura, Liposome, Quadrant and Sano were $854.9 million, $111.8
        million, $78.2 million and $2.4 million, respectively. Impairment charges to
        acquired IP arising from the acquisitions of Sano and Axogen were $87.4 million
        and $28.4 million, respectively. Other impairments to goodwill totalled $19.1
        million. Impairment charges to patents and licences arising on write-downs of
        the product intangibles for the Pain Portfolio, Myobloc, Naprelan, Myambutol, dermatology products
        and Frova were $86.3 million, $77.7 million, $35.7 million, $32.7 million,
        $29.8 million and $29.4 million, respectively. Other impairments to patents and
        licences totalled $62.9 million. 
     

     
        Dura
     

     
        Elan acquired Dura in November 2000 for $1,590.7 million.
        Dura was a specialty pharmaceutical company engaged in the marketing and sale
        of prescription products for the treatment of infectious diseases and
        respiratory conditions. The Dura acquisition added over 500 hospital and
        primary care sales representatives to Elan’s sales and marketing
        infrastructure and broadened Elan’s portfolio of marketed products. The
        purchase price was primarily allocated to goodwill and patents and licences. In
        2002, Elan wrote down goodwill relating to the acquisition of Dura by $854.9
        million. Elan acquired Dura in order to significantly expand its sales and
        marketing infrastructure. Elan’s recovery plan aimed to create a research
        and development based biopharmaceutical company focused on neurology,
        autoimmune diseases and severe pain. Therefore, Elan decided to significantly
        reduce its sales and marketing infrastructure. For example, during 2002, Elan
        decided to dispose of its primary care franchise and related infrastructure. As
        a result of such reductions in Elan’s sales and marketing capability, the
        carrying value of the Dura goodwill was impaired. 
     

     
        Liposome 
     

     
        Elan acquired Liposome in May 2000 for $731.8 million,
        which included a milestone payment of $54.0 million paid on the receipt of
        marketing and pricing approval for Myocet in certain countries of the EU.
        Liposome was a biotechnology company engaged in the development, manufacturing
        and marketing of therapeutic products to treat cancer and related diseases. The
        purchase price was primarily allocated to goodwill and patents and licences. In
        2002, under its recovery plan, Elan disposed of its U.S., Canadian and any
        Japanese rights to Abelcet, and certain related assets, and allocated $119.0
        million of goodwill to the sale of the Abelcet business based on the estimated
        relative fair value of the Abelcet rights disposed. In 2002, Elan wrote down
        the remaining goodwill arising from the acquisition of Liposome by $111.8
        million, as under its recovery plan Elan decided to close its oncology research
        and development business. The residual value for goodwill of $86.8 million was
        supported by European rights to Abelcet and Myocet. 
     

     

     
        103
     

     

     
     

     
     
        NOTES RELATING TO FINANCIAL STATEMENTS 
     

     
        Sano 
     

     
        Elan acquired Sano in February 1998 for $434.6 million.
        Sano was developing transdermal drug delivery products. The purchase price was
        primarily allocated to acquired IP. In 2002, Elan wrote down acquired IP and
        goodwill arising from the acquisition of Sano by $87.4 million and $2.4
        million, respectively, as under its recovery plan Elan decided to dispose of
        its transdermal business. This business was sold to Nitto Americas in July
        2003. 
     

     
        Quadrant 
     

     
        Elan acquired Quadrant in December 2000 for $86.0 million.
        Quadrant was a drug delivery company with proprietary formulation technology
        applicable to pulmonary, oral and parenteral routes of administration. The
        purchase price was primarily allocated to goodwill. In 2002, Elan wrote down
        goodwill arising from the acquisition of Quadrant by $78.2 million to $Nil, as
        under its recovery plan Elan decided to dispose of or close the Quadrant
        business. This business was sold to a company managed by former employees of
        the business in July 2003. 
     

     
        Axogen 
     

     
        Elan acquired Axogen in December 1999 for $268.4 million.
        The purchase price was primarily allocated to patents and licences and acquired
        IP. In 2002, Elan wrote down acquired IP relating to Myobloc, arising from the
        acquisition of Axogen, by $28.4 million. Elan also wrote down $77.7 million in
        respect of other Myobloc intangible assets. The carrying value of Myobloc was
        written down due to lower than expected revenue from this product for 2002 and
        changed expectations for this product. 
     

     
        Other products 
     

     
        The intangible asset for the Pain Portfolio was written
        down due to supply difficulties since its acquisition in 2001, leading to
        diminished selling support from Elan as well as changed commercial expectations
        related to generic competition. Naprelan and Myambutol have been written down
        due to the impact of generic competition on these products in 2002 and reduced
        projected revenue and profitability from these products. Frova was written down
        to reflect reduced projected revenue and profitability from this product. In
        June 2002, Elan elected not to exercise its purchase option to acquire certain
        dermatology products from GSK. This resulted in rights to all products
        reverting to GSK at the end of 2002. As a result of this decision, Elan wrote
        down the related product intangible by $29.8 million to $Nil. 
     

     
        Autoimmune 
     

     
        In July 2002, Elan announced the termination of all
        agreements relating to the risk-sharing arrangement with Autoimmune. The
        royalty obligations to Autoimmune were terminated. The total consideration for
        the royalty rights was $121.0 million which, after taking account of the
        redemption of Elan’s investment of $38.5 million in Autoimmune, resulted
        in a net cash cost of $82.5 million. Elan expensed $121.0 million as an
        exceptional selling, general and administration expense arising from the
        acquisition of Autoimmune. 
     

     
        Litigation 
     

     
        Elan recorded a provision during 2002 of $19.0 million
        relating to litigation with Schwarz, Allergan and shareholder derivative
        actions. For additional information on these litigations, please refer to Note
        25 to the Consolidated Financial Statements. 
     

     
        (D)   Research and Development
        
     

     
        Exceptional research and development expenses were $114.7
        million. These mainly relate to product and goodwill impairments of $59.3
        million and $10.6 million, respectively, together with fixed asset write-downs
        of $11.6 million and severance/relocation costs. 
     

     
        In September 2001, Elan acquired Delsys, for $50.0
        million. Delsys was formed in 1995 and was engaged in developing novel
        manufacturing technology. During 2002, Elan recorded an impairment charge for
        the intangible assets relating to Delsys of $45.7 million, as under its
        recovery plan, Elan decided to close Delsys. 
     

     
        (E)   Other Ordinary
        Activities 
     

     
        Elan recognised a gain of $77.9 million on the disposal of
        Athena Diagnostics and the Abelcet business. In November 2002, Elan completed
        the sale of its U.S., Canadian and any Japanese rights to Abelcet, and certain
        related assets, to Enzon. Elan received a net 
     

     

     
        104
     

     

     
     

     
     
        cash payment of $360.0 million from Enzon, representing
        the total consideration, after agreed price adjustments. The gain amounted to
        $12.7 million. In December 2002, Elan together with the other stockholders of
        Elan’s subsidiary, Athena Diagnostics, completed the sale of all of the
        outstanding stock of Athena Diagnostics to Behrman. Elan realised net cash
        proceeds of $81.8 million and a net gain of $65.2 million. 
     

     
        In its 2002 Annual Report and Form 20-F, Elan restated its
        U.S. GAAP financial results as of and for the fiscal year ended 31 December
        2001 to consolidate EPIL III from its date of establishment on 15 March 2001.
        Under U.S. GAAP, EPIL III had been historically accounted for by Elan as a
        qualifying special purpose entity and was not, therefore, consolidated. In
        addition, in its 2002 Annual Report and Form 20-F, Elan adjusted its previously
        announced unaudited U.S. GAAP financial information as of and for the fiscal
        year ended 31 December 2002 to give effect to the consolidation of EPIL III and
        to consolidate Shelly Bay, an entity established by Elan, from 29 June 2002
        through 30 September 2002. Shelly Bay acquired certain financial assets from
        EPIL III on 29 June 2002. Under Irish GAAP, EPIL III had been accounted for as
        a consolidated subsidiary since its date of establishment in accordance with
        the requirements of FRS 5. Therefore, the 2001 restatement did not affect
        Elan’s Irish GAAP financial information, including the Irish GAAP
        financial information contained in this Annual Report and Form 20-F. For
        additional information regarding the restatement and the adjustments, please
        refer to Note 33 to the Consolidated Financial Statements. 
     

     
        In March 2001, Elan transferred a portfolio of equity and
        debt securities to EPIL III, a wholly owned subsidiary of Elan. EPIL III issued
        $160.0 million in aggregate principal amount of Series A Guaranteed Notes,
        $190.0 million in aggregate principal amount of Series B Guaranteed Notes and
        $200.0 million in aggregate principal amount of Series C Guaranteed Notes. The
        Series A Guaranteed Notes matured on 29 June 2002. To fund the repayment of the
        notes, on 29 June 2002 EPIL III transferred certain financial assets,
        consisting of certain of the securities included in the portfolio transferred
        to EPIL III, to Shelly Bay and Shelly Bay made a $148.0 million cash payment to
        EPIL III. EPIL III used the proceeds from the payment by Shelly Bay, together
        with existing cash of $12.0 million, to repay the Series A Guaranteed Notes.
        The assets transferred by EPIL III to Shelly Bay had a carrying value under
        Irish GAAP of $223.4 million. 
     

     
        The documents that established EPIL III required that EPIL
        III dispose of financial assets in order to repay the Series A Guaranteed Notes
        at maturity. The documents also mandated the order in which the assets were to
        be sold prior to the maturity date for the Series A Guaranteed Notes. However,
        due to a number of factors, including the inability of Elan and EPIL III to
        locate the list mandating the order of disposal of the financial assets, the
        disposal process was commenced and completed over the one-week period ending on
        29 June 2002. Although Elan, as servicing agent for EPIL III, contacted a
        number of third parties regarding their potential interest in purchasing
        financial assets from EPIL III, each of those parties indicated that they would
        not be able to complete a due diligence analysis of the issuers of the
        financial assets to be sold, or to receive all necessary internal approvals to
        complete the purchase, on a timely basis. 
     

     
        Therefore, in an effort to enable EPIL III to dispose of
        the financial assets, Elan determined that it would be necessary to provide
        non-recourse credit support to third parties who would agree to purchase
        financial assets from EPIL III. Credit support was offered to a number of
        potential purchasers of the financial assets. However, ultimately, only Shelly
        Bay possessed the ability to complete the transaction on a timely basis.
        
     

     
        Elan established Shelly Bay specifically for the purpose
        of acquiring financial assets from EPIL III. All of the capital stock of Shelly
        Bay was issued to its sole shareholder. Elan did not own any capital stock of
        Shelly Bay and did not have a representative on Shelly Bay’s board of
        directors. In addition, the sole shareholder of Shelly Bay had no previous
        contact with Elan. However, as further described below, Elan possessed all of
        the financial risk of the Shelly Bay transaction. Similar to all other
        potential purchasers contacted by Elan, the sole shareholder of Shelly Bay was
        unwilling to invest capital to acquire the financial assets until a due
        diligence analysis of the issuers of the financial assets had been completed.
        Therefore, the sole shareholder of Shelly Bay made no substantive capital
        investment in Shelly Bay and, although Shelly Bay possessed all of the
        potential financial benefits of the transaction, neither Shelly Bay nor its
        sole shareholder had any financial risk in the transaction. 
     

     
        Elan believed that any failure by EPIL III to dispose of
        financial assets prior to 29 June 2002 could potentially adversely impact the
        non-consolidated accounting status of EPIL III under U.S. GAAP and could result
        in defaults under Elan’s debt instruments. 
     

     
        Under the terms of the transaction, Shelly Bay acquired
        certain financial assets from EPIL III on 29 June 2002 and made a cash payment
        to EPIL III of $148.0 million. Shelly Bay financed the entire purchase price of
        the financial assets, together with the funds necessary to pay interest and
        other costs on the loan to its maturity date, through borrowings under a $153.0
        million non-recourse bank loan facility maturing on 30 September 2002. Elan
        provided a full and unconditional guarantee to the bank to support Shelly
        Bay’s obligation to repay the loan and provided $153.0 million in cash
        collateral to the bank to secure Elan’s obligations under its guarantee.
        Upon the closing of the transaction, Elan paid to Shelly Bay approximately $1
        million to reimburse Shelly Bay for the expenses expected to be incurred by it
        in connection with the transaction. In addition, Elan irrevocably waived all
        rights of recourse against Shelly Bay in the event that it failed to repay the
        bank loan at maturity. 
     

     

     
        105
     

     

     
     

     
     
        NOTES RELATING TO FINANCIAL STATEMENTS 
     

     
        The cash payment made by Shelly Bay in connection with its
        acquisition of the financial assets was based upon a valuation conducted by
        Elan. The valuation utilised customary, widely-accepted valuation methodologies
        and required that Elan make certain judgements and assumptions regarding the
        financial assets. Elan did not receive any independent verification of the
        valuation at the time of the transaction. In addition, EPIL III did not receive
        any bids for the financial assets to be disposed of. 
     

     
        Upon the closing of the transaction, Shelly Bay’s
        assets consisted solely of the financial assets purchased from EPIL III. Under
        the terms of the transaction, Shelly Bay was required to complete a due
        diligence analysis of the issuers of the securities prior to 15 September 2002.
        Shelly Bay had the right to either elect, on or prior to 15 September 2002, to
        retain the financial assets on a long-term basis or to dispose of the financial
        assets prior to 30 September 2002. 
     

     
        In the event that Shelly Bay elected to retain the
        financial assets, it was required, within 15 days of the election, to obtain
        alternative financing in an amount equal to the value, as of 29 June 2002, of
        the assets being retained, as determined by an independent appraiser engaged by
        Shelly Bay. The net cash proceeds received by Shelly Bay from any alternative
        financing were required to be applied to repay amounts outstanding under Shelly
        Bay’s bank loan. 
     

     
        In the event that Shelly Bay elected to dispose of the
        financial assets prior to 30 September 2002, Shelly Bay was required to apply
        the net proceeds from the dispositions to repay amounts outstanding under its
        bank loan. The transaction agreements contained no limitation on the price at
        which any financial asset could be sold by Shelly Bay or the party to whom any
        financial asset could be sold. In addition, Elan agreed that it had no right to
        object to the disposition of any financial asset, the party to whom it was
        disposed or the price obtained for the disposition. 
     

     
        Given the non-recourse nature of the Shelly Bay bank loan,
        Elan possessed all of the financial risk of the transaction under its guarantee
        of the bank loan, and the cash collateral provided by Elan to secure the
        guarantee, in the event of any shortfall in the aggregate proceeds received by
        Shelly Bay from the refinancing or disposition of the financial assets.
        Although Shelly Bay possessed all of the potential financial benefits of the
        transaction, neither Shelly Bay nor its sole shareholder had any financial risk
        in the transaction. 
     

     
        As required by the terms of the transaction, Shelly Bay
        engaged an independent appraiser to value the financial assets as of 29 June
        2002. The appraisal, which was prepared in early September 2002, valued the
        financial assets at $8.2 million. 
     

     
        Shelly Bay did not elect, under the terms of the
        transaction, to retain any of the financial assets and obtain alternative
        financing in an amount equal to the independent appraiser’s valuation.
        Rather, by 30 September 2002, Shelly Bay had disposed of all of the financial
        assets for aggregate net proceeds of $9.3 million. A number of the financial
        assets were disposed of, for net proceeds of $1.8 million, to an affiliate of
        Shelly Bay. The remainder of the financial assets were sold to third parties
        and in open market transactions. As described above, the transaction agreements
        contained no limitation on the price at which any financial asset could be sold
        by Shelly Bay or the party to whom any financial asset could be sold, including
        to an affiliate of Shelly Bay. In addition, Elan agreed that it had no right to
        object to the disposition of any financial asset, the party to whom it was
        disposed or the price obtained for the disposition. 
     

     
        As a result of the disposition of the financial assets by
        Shelly Bay for aggregate net proceeds of $9.3 million, on 30 September 2002,
        Elan made a cash payment of $141.6 million to satisfy its obligation under its
        guarantee. Under the terms of the transaction agreements, Elan has no further
        obligation under the guarantee and has no recourse to Shelly Bay or to its sole
        shareholder arising from Elan’s payment under the guarantee. The loss on
        the sale of the securities was $217.0 million under Irish GAAP including the
        $141.6 million under the guarantee. 
     

     
        (F)   Net Interest
        
     

     
        Exceptional net interest and other expenses were $1,014.0
        million. 
     

     
        This includes a charge of $1,045.9 million relating to
        investments in Elan’s investment portfolio, including the investments held
        by EPIL II and EPIL III. The financial markets for emerging biotechnology, drug
        delivery and pharmaceutical companies declined significantly during 2002. The
        investment impairment charge mainly reflects this significant decline in the
        financial markets and also the impact of weak financial markets on the ability
        of emerging biotechnology, drug delivery and pharmaceutical companies to raise
        finance. The charge also includes impairments relating to investments in
        business ventures and business venture parents. The investment impairments
        comprise $215.4 million, $575.4 million and $255.1 million in relation to
        quoted investments, unquoted investments and loans, and securitised
        investments, respectively. In addition, during 2003 the Company recognised a
        net loss on financial assets of $10.0 million. 
     

     

     
        106
     

     

     
     

     
     
        Offsetting these charges was a net gain of $37.7 million
        on the repurchase of $318.6 million in principal amount at maturity of LYONs.
        These LYONs, having an accreted value of $190.1 million at the date of
        purchase, were purchased at an aggregate cost of $149.8 million, resulting in
        the net gain of $37.7 million after related costs. For further information
        regarding the LYONs, please refer to Note 15 to the Consolidated Financial
        Statements. 
     

     
        2001
     

     
        In 2001, Elan incurred net exceptional charges of $931.9
        million. These exceptional revenues and costs have been included under the
        statutory format headings to which they relate analysed as follows: 
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                Revenue 
 (A)
 $m
             

          	
             
                 
             

          	
             
                Cost
 of
                Sales
 (B)
 $m
             

          	
             
                 
             

          	
             
                Selling,
 General
                and
 Administrative
 (C)
 $m
             

          	
             
                 
             

          	
             
                Research
 and
 Development

                (D)
 $m
             

          	
             
                 
             

          	
             
                Net
 Interest
 (E)
 $m
             

          	
             
                 
             

          	
             
                Total
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Product rationalisations
             

          	
             
                 
             

          	
             
                (231.4
             

          	
             
                )
             

          	
             
                15.6
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (215.8
             

          	
             
                )
             

          
	
             
                Rationalisation of research and development
                activities
             

          	
             
                 
             

          	
             
                (2.0
             

          	
             
                )
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                60.5
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                58.5
             

          	
             
                 
             

          
	
             
                Pharmaceutical division reorganisation costs
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                0.4
             

          	
             
                 
             

          	
             
                55.7
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                56.1
             

          	
             
                 
             

          
	
             
                Acquired IP and product impairment
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                1,009.8
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                1,009.8
             

          	
             
                 
             

          
	
             
                Investment impairments
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                24.1
             

          	
             
                 
             

          	
             
                24.1
             

          	
             
                 
             

          
	
             
                Net gain on financial assets
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (56.8
             

          	
             
                )
             

          	
             
                (56.8
             

          	
             
                )
             

          
	
             
                Asset write-downs and other
             

          	
             
                 
             

          	
             
                5.6
             

          	
             
                 
             

          	
             
                6.8
             

          	
             
                 
             

          	
             
                18.7
             

          	
             
                 
             

          	
             
                18.1
             

          	
             
                 
             

          	
             
                6.8
             

          	
             
                 
             

          	
             
                56.0
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Net exceptional charges
             

          	
             
                 
             

          	
             
                (227.8
             

          	
             
                )
             

          	
             
                22.8
             

          	
             
                 
             

          	
             
                1,084.2
             

          	
             
                 
             

          	
             
                78.6
             

          	
             
                 
             

          	
             
                (25.9
             

          	
             
                )
             

          	
             
                931.9
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        (A)   Revenue
     

     
        Exceptional revenue in 2001 primarily relates to product
        rationalisation revenue of $231.4 million. 
     

     
        (B)   Cost of Sales
        
     

     
        The exceptional cost of sales is primarily comprised of
        $15.6 million relating to product rationalisation revenue. 
     

     
        (C)   Selling, General and
        Administrative 
     

     
        Exceptional selling, general and administrative expenses
        were $1,084.2 million. $1,009.8 million of the exceptional charges relate to
        impairment charges arising on write-downs of intangible assets. Impairment
        charges to acquired IP arising from the acquisitions of Neurex and Sano were
        $500.0 million and $285.2 million, respectively. Impairment charges to patents
        and licences arising on write-downs of the product intangibles for Naprelan,
        Ceclor CD and Myambutol were $81.0 million, $94.2 million and $44.4 million,
        respectively. Other impairments to patents and licences amounted to $5.0
        million. Other exceptional selling, general and administrative expenses were
        $74.4 million. These mainly relate to severance, integration, relocation and
        similar costs and asset write-downs arising from the integration of Elan’s
        U.S. biopharmaceuticals businesses. 
     

     
        Elan acquired Neurex in August 1998 for $810.0 million.
        Neurex was developing Prialt. The purchase price was primarily allocated to acquired IP. In 2001,
        Elan wrote down acquired IP arising from the acquisition of Neurex by $500.0
        million. This write-down was due to delays in the product launch schedule and
        reduced revenue projections for Prialt. 
     

     
        Elan acquired Sano in February 1998 for $434.6 million.
        Sano was developing transdermal drug delivery products. The purchase price was
        primarily allocated to acquired IP. In 2001, Elan wrote down acquired IP
        arising from the acquisition of Sano by $285.2 million. The write-down was due
        to reduced revenue projections from products under development and to
        Elan’s decision to focus its research and development efforts in other
        areas. 
     

     
        Ceclor CD and Myambutol were
        written down due to the impact of generic competition on these products during
        2001. Generic versions of each of these products were approved and launched in
        2001, which reduced projected revenues and profitability from these 
     

     

     
        107
     

     

     
     

     
     
        NOTES RELATING TO FINANCIAL STATEMENTS 
     

     
        products. Revenue from Ceclor CD
        declined by $26.0 million in 2001, from $39.4 million
        in 2000 to $13.4 million in 2001. Naprelan was written down due to lower than
        forecasted revenues in 2001 and reduced projected revenue and profitability
        from this product. The level of promotional support for a product can have a
        significant impact on the level of revenue generated from that product. Elan
        does not expect to provide any significant promotional support for
        Naprelan in the future and
        this has been reflected in the projections for this product. Revenue from
        Naprelan declined by $33.6
        million in 2001, from $41.8 million in 2000 to $8.2 million in 2001. 
     

     
        (D)   Research and Development
        
     

     
        Exceptional research and development expenses were $78.6
        million in 2001. These mainly relate to severance, integration and similar
        costs and asset write-downs arising from the re-organisation, closure or
        scaling back of various drug delivery programmes and sites. Also included were
        costs of certain research programmes that Elan does not intend to complete.
        These were the estimated costs incurred pending closure or sale. 
     

     
        (E)   Net Interest
        
     

     
        Exceptional net interest and other expenses amounted to a
        net gain of $25.9 million in 2001. This mainly relates to net gains on
        financial assets of $56.8 million, offset by investment impairments of $24.1
        million and costs of $6.8 million associated with the redemption in March 2001
        of the 4.75% Exchangeable Notes of Athena Neurosciences. 
     

     
        4   Net Interest and Other
        Expense
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                2003
 $m
             

          	
             
                 
             

          	
             
                2002
 $m
             

          	
             
                 
             

          	
             
                2001
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Income from financial assets:
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Interest and other income
             

          	
             
                 
             

          	
             
                32.1
             

          	
             
                 
             

          	
             
                86.3
             

          	
             
                 
             

          	
             
                159.2
             

          	
             
                 
             

          
	
             
                Net gain on financial assets(1)
             

          	
             
                 
             

          	
             
                106.3
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                56.8
             

          	
             
                 
             

          
	
             
                Gain on repurchase of LYONs(1)
             

          	
             
                 
             

          	
             
                1.6
             

          	
             
                 
             

          	
             
                37.7
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Foreign exchange gains
             

          	
             
                 
             

          	
             
                4.2
             

          	
             
                 
             

          	
             
                2.4
             

          	
             
                 
             

          	
             
                1.8
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                144.2
             

          	
             
                 
             

          	
             
                126.4
             

          	
             
                 
             

          	
             
                217.8
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Interest payable and similar charges:
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Bank charges and interest on loans repayable within
                five years
             

          	
             
                 
             

          	
             
                1.4
             

          	
             
                 
             

          	
             
                6.1
             

          	
             
                 
             

          	
             
                5.7
             

          	
             
                 
             

          
	
             
                Interest capitalized
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (3.0
             

          	
             
                )
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Foreign exchange losses
             

          	
             
                 
             

          	
             
                11.7
             

          	
             
                 
             

          	
             
                6.4
             

          	
             
                 
             

          	
             
                0.3
             

          	
             
                 
             

          
	
             
                Original issue discount on LYONs
             

          	
             
                 
             

          	
             
                19.1
             

          	
             
                 
             

          	
             
                31.0
             

          	
             
                 
             

          	
             
                30.2
             

          	
             
                 
             

          
	
             
                Interest on 7.25% Senior Notes
             

          	
             
                 
             

          	
             
                47.1
             

          	
             
                 
             

          	
             
                47.1
             

          	
             
                 
             

          	
             
                40.3
             

          	
             
                 
             

          
	
             
                Interest on EPIL III Notes
             

          	
             
                 
             

          	
             
                29.9
             

          	
             
                 
             

          	
             
                37.2
             

          	
             
                 
             

          	
             
                35.4
             

          	
             
                 
             

          
	
             
                Interest on EPIL II Notes
             

          	
             
                 
             

          	
             
                43.0
             

          	
             
                 
             

          	
             
                43.0
             

          	
             
                 
             

          	
             
                43.0
             

          	
             
                 
             

          
	
             
                Interest on 6.5% Convertible Notes
             

          	
             
                 
             

          	
             
                4.1
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Interest on other guaranteed and exchangeable
                notes
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                1.2
             

          	
             
                 
             

          	
             
                6.4
             

          	
             
                 
             

          
	
             
                Amortisation of financing costs
             

          	
             
                 
             

          	
             
                14.5
             

          	
             
                 
             

          	
             
                11.6
             

          	
             
                 
             

          	
             
                14.5
             

          	
             
                 
             

          
	
             
                Financing charges
             

          	
             
                 
             

          	
             
                10.7
             

          	
             
                 
             

          	
             
                24.7
             

          	
             
                 
             

          	
             
                22.8
             

          	
             
                 
             

          
	
             
                Net loss on financial assets(1)
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                10.0
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Investment impairments(1)
             

          	
             
                 
             

          	
             
                120.4
             

          	
             
                 
             

          	
             
                1,045.9
             

          	
             
                 
             

          	
             
                24.1
             

          	
             
                 
             

          
	
             
                Share of funding of business ventures
             

          	
             
                 
             

          	
             
                3.0
             

          	
             
                 
             

          	
             
                23.9
             

          	
             
                 
             

          	
             
                24.6
             

          	
             
                 
             

          
	
             
                Waiver fee to EPIL II/III
                noteholders(1)
             

          	
             
                 
             

          	
             
                16.8
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Other financial charges
             

          	
             
                 
             

          	
             
                10.0
             

          	
             
                 
             

          	
             
                12.0
             

          	
             
                 
             

          	
             
                20.9
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                331.7
             

          	
             
                 
             

          	
             
                1,297.1
             

          	
             
                 
             

          	
             
                268.2
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Net interest and other expense
             

          	
             
                 
             

          	
             
                (187.5
             

          	
             
                )
             

          	
             
                (1,170.7
             

          	
             
                )
             

          	
             
                (50.4
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

     		
             
                (1)
             

          	
             
                For additional information on exceptional items,
                please refer to Note 3 to the Consolidated Financial Statements 
             

          

 

     
        108
     

     

     
     

     
     
        5   (Loss)/Profit on Ordinary
        Activities Before Taxation 
     

     
        The (loss)/profit on ordinary activities before taxation
        has been arrived at after charging/(crediting) the following items: 
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                2003
 $m
             

          	
             
                 
             

          	
             
                2002
 $m
             

          	
             
                 
             

          	
             
                2001
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Auditors’ remuneration:
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Audit fees(1)
             

          	
             
                 
             

          	
             
                5.3
             

          	
             
                 
             

          	
             
                2.5
             

          	
             
                 
             

          	
             
                3.1
             

          	
             
                 
             

          
	
             
                Audit related fees(2)
             

          	
             
                 
             

          	
             
                1.2
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Audit and audit related fees
             

          	
             
                 
             

          	
             
                6.5
             

          	
             
                 
             

          	
             
                2.5
             

          	
             
                 
             

          	
             
                3.1
             

          	
             
                 
             

          
	
             
                Tax fees(3)
             

          	
             
                 
             

          	
             
                0.1
             

          	
             
                 
             

          	
             
                0.1
             

          	
             
                 
             

          	
             
                0.1
             

          	
             
                 
             

          
	
             
                All other fees(4)
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                0.2
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Total fees
             

          	
             
                 
             

          	
             
                6.6
             

          	
             
                 
             

          	
             
                2.6
             

          	
             
                 
             

          	
             
                3.4
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Directors’ emoluments:
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Fees
             

          	
             
                 
             

          	
             
                1.0
             

          	
             
                 
             

          	
             
                1.0
             

          	
             
                 
             

          	
             
                0.7
             

          	
             
                 
             

          
	
             
                Other emoluments and benefits in kind
             

          	
             
                 
             

          	
             
                2.0
             

          	
             
                 
             

          	
             
                2.0
             

          	
             
                 
             

          	
             
                5.3
             

          	
             
                 
             

          
	
             
                Pension contributions
             

          	
             
                 
             

          	
             
                0.1
             

          	
             
                 
             

          	
             
                0.1
             

          	
             
                 
             

          	
             
                0.2
             

          	
             
                 
             

          
	
             
                Payments to retired directors
             

          	
             
                 
             

          	
             
                2.2
             

          	
             
                 
             

          	
             
                1.2
             

          	
             
                 
             

          	
             
                0.2
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                5.3
             

          	
             
                 
             

          	
             
                4.3
             

          	
             
                 
             

          	
             
                6.4
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Amortisation of intangible assets
             

          	
             
                 
             

          	
             
                159.3
             

          	
             
                 
             

          	
             
                264.5
             

          	
             
                 
             

          	
             
                215.2
             

          	
             
                 
             

          
	
             
                Depreciation of tangible assets
             

          	
             
                 
             

          	
             
                51.0
             

          	
             
                 
             

          	
             
                55.8
             

          	
             
                 
             

          	
             
                55.2
             

          	
             
                 
             

          
	
             
                Loss/(profit) on disposal of fixed assets
             

          	
             
                 
             

          	
             
                1.0
             

          	
             
                 
             

          	
             
                14.4
             

          	
             
                 
             

          	
             
                (0.1
             

          	
             
                )
             

          
	
             
                Loss on sale of securities by EPIL
                III/guarantee
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                217.0
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Operating lease rentals:
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Premises
             

          	
             
                 
             

          	
             
                19.1
             

          	
             
                 
             

          	
             
                20.9
             

          	
             
                 
             

          	
             
                17.6
             

          	
             
                 
             

          
	
             
                Plant and equipment
             

          	
             
                 
             

          	
             
                2.1
             

          	
             
                 
             

          	
             
                8.0
             

          	
             
                 
             

          	
             
                9.3
             

          	
             
                 
             

          
	
             
                Grants amortised
             

          	
             
                 
             

          	
             
                (0.1
             

          	
             
                )
             

          	
             
                (0.1
             

          	
             
                )
             

          	
             
                (0.2
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     		
             
                (1)
             

          	
             
                Audit services include audit work performed on
                the Consolidated Financial Statements, as well as work that generally only the
                independent auditor can reasonably be expected to provide, including comfort
                letters, statutory audits, and discussions surrounding the proper application
                of financial accounting and/or reporting standards. 
             

          

     		
             
                (2)
             

          	
             
                Audit related services are for assurance and
                related services that are traditionally performed by the independent auditor,
                including due diligence related to mergers and acquisitions, employee benefit
                plan audits, and special procedures required to meet certain regulatory
                requirements. 
             

          

     		
             
                (3)
             

          	
             
                Tax services include all services, except those
                services specifically related to the audit of the financial statements,
                performed by the independent auditor’s tax personnel, including tax
                analysis; supporting other tax-related regulatory requirements; and tax
                compliance and reporting. 
             

          

     		
             
                (4)
             

          	
             
                Other fees are those associated with services not
                captured in the other categories. 
             

          

     
        For additional information regarding directors’
        shareholdings, share options and compensation, please refer to
        “Directors” Interests’, “Directors” Options’ and
        “Directors” Remuneration’ in the Directors’ Report. 

     

     

     
        109
     

     

     
     

     
     
        NOTES RELATING TO FINANCIAL STATEMENTS 
     

     
        6   Discontinued Operations
        
     

     
        In the first quarter of 2004, Elan concluded its recovery
        plan with the sale of its European sales and marketing infrastructure. The
        results of this operation together with those of other business divestments and
        closures made during the recovery plan have been reported separately as
        discontinued operations for 2003 and for comparative years. Other divestments
        and closures include the sale of Elan’s diagnostic businesses, the return
        of the dermatology products to GSK, the Abelcet business, the sale of the
        primary care franchise to King, the sale of the Pain Portfolio to aaiPharma and
        the sale or closure of a number of drug delivery businesses including the sale
        of a transdermal technology business, the closure of Elan’s medipad
        business and Elan’s research facility in Princeton and the sale of a U.K.
        drug delivery business. The results of discontinued operations are shown after
        exceptional items. For additional information on exceptional items, please
        refer to Note 3 to the Consolidated Financial Statements. The gains/(losses) on
        disposal of businesses are classified as exceptional items under other ordinary
        activities. 
     

     
         
     

     	
             
                2003
             

          	
             
                  
             

          	
             
                Revenue
 $m
             

          	
             
                  
             

          	
             
                Cost of
 sales
 $m
             

          	
             
                  
             

          	
             
                Selling,
 general
                and
 administration
 $m
             

          	
             
                  
             

          	
             
                Research and
 development
 $m
             

          	
             
                  
             

          	
             
                Operating
 profit/(loss)
 after

                exceptional
 items(1)
 $m
             

          	
             
                  
             

          	
             
                Gain/(loss)
 on
                disposal of
 businesses(1)
 $m
             

          	
             
                  
             

          
	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Europe
             

          	
             
                 
             

          	
             
                112.4
             

          	
             
                 
             

          	
             
                (62.4
             

          	
             
                )
             

          	
             
                (170.2
             

          	
             
                )
             

          	
             
                (14.0
             

          	
             
                )
             

          	
             
                (134.2
             

          	
             
                )
             

          	
             
                2.4
             

          	
             
                 
             

          
	
             
                Diagnostics
             

          	
             
                 
             

          	
             
                9.0
             

          	
             
                 
             

          	
             
                (4.9
             

          	
             
                )
             

          	
             
                (3.1
             

          	
             
                )
             

          	
             
                (0.5
             

          	
             
                )
             

          	
             
                0.5
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Dermatology
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (2.7
             

          	
             
                )
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (2.7
             

          	
             
                )
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Abelcet
             

          	
             
                 
             

          	
             
                1.1
             

          	
             
                 
             

          	
             
                (1.6
             

          	
             
                )
             

          	
             
                1.2
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                0.7
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Primary Care
             

          	
             
                 
             

          	
             
                108.4
             

          	
             
                 
             

          	
             
                (18.1
             

          	
             
                )
             

          	
             
                (62.7
             

          	
             
                )
             

          	
             
                (0.9
             

          	
             
                )
             

          	
             
                26.7
             

          	
             
                 
             

          	
             
                284.8
             

          	
             
                 
             

          
	
             
                Pain Portfolio
             

          	
             
                 
             

          	
             
                68.0
             

          	
             
                 
             

          	
             
                (17.0
             

          	
             
                )
             

          	
             
                (15.0
             

          	
             
                )
             

          	
             
                (0.3
             

          	
             
                )
             

          	
             
                35.7
             

          	
             
                 
             

          	
             
                40.2
             

          	
             
                 
             

          
	
             
                Drug Delivery
             

          	
             
                 
             

          	
             
                17.9
             

          	
             
                 
             

          	
             
                (17.5
             

          	
             
                )
             

          	
             
                (10.5
             

          	
             
                )
             

          	
             
                (35.7
             

          	
             
                )
             

          	
             
                (45.8
             

          	
             
                )
             

          	
             
                (34.1
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Total discontinued
             

          	
             
                  
             

          	
             
                316.8
             

          	
             
                  
             

          	
             
                (121.5
             

          	
             
                )  
             

          	
             
                (263.0
             

          	
             
                )  
             

          	
             
                (51.4
             

          	
             
                )  
             

          	
             
                (119.1
             

          	
             
                )  
             

          	
             
                293.3
             

          	
             
                  
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
         
     

     	
             
                2002
             

          	
             
                  
             

          	
             
                Revenue
 $m
             

          	
             
                  
             

          	
             
                Cost of
 sales
 $m
             

          	
             
                  
             

          	
             
                Selling,
 general
                and
 administration
 $m
             

          	
             
                  
             

          	
             
                Research and
 development
 $m
             

          	
             
                  
             

          	
             
                Operating
 profit/(loss)
 after

                exceptional
 items(1)
 $m
             

          	
             
                  
             

          	
             
                Gain/(loss)
 on
                disposal of
 businesses(1)
 $m
             

          	
             
                  
             

          
	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Europe
             

          	
             
                 
             

          	
             
                102.6
             

          	
             
                 
             

          	
             
                (64.8
             

          	
             
                )
             

          	
             
                (80.8
             

          	
             
                )
             

          	
             
                (16.0
             

          	
             
                )
             

          	
             
                (59.0
             

          	
             
                )
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Diagnostics
             

          	
             
                 
             

          	
             
                70.6
             

          	
             
                 
             

          	
             
                (29.4
             

          	
             
                )
             

          	
             
                (37.2
             

          	
             
                )
             

          	
             
                (3.4
             

          	
             
                )
             

          	
             
                0.6
             

          	
             
                 
             

          	
             
                65.2
             

          	
             
                 
             

          
	
             
                Dermatology
             

          	
             
                 
             

          	
             
                47.6
             

          	
             
                 
             

          	
             
                (24.9
             

          	
             
                )
             

          	
             
                (85.6
             

          	
             
                )
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (62.9
             

          	
             
                )
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Abelcet
             

          	
             
                 
             

          	
             
                64.6
             

          	
             
                 
             

          	
             
                (23.7
             

          	
             
                )
             

          	
             
                (41.2
             

          	
             
                )
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (0.3
             

          	
             
                )
             

          	
             
                12.7
             

          	
             
                 
             

          
	
             
                Primary Care
             

          	
             
                 
             

          	
             
                237.8
             

          	
             
                 
             

          	
             
                (39.6
             

          	
             
                )
             

          	
             
                (136.7
             

          	
             
                )
             

          	
             
                (0.5
             

          	
             
                )
             

          	
             
                61.0
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Pain Portfolio
             

          	
             
                 
             

          	
             
                59.8
             

          	
             
                 
             

          	
             
                (19.4
             

          	
             
                )
             

          	
             
                (103.1
             

          	
             
                )
             

          	
             
                (0.2
             

          	
             
                )
             

          	
             
                (62.9
             

          	
             
                )
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Drug Delivery
             

          	
             
                 
             

          	
             
                27.4
             

          	
             
                 
             

          	
             
                (25.4
             

          	
             
                )
             

          	
             
                (182.6
             

          	
             
                )
             

          	
             
                (130.7
             

          	
             
                )
             

          	
             
                (311.3
             

          	
             
                )
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Total discontinued
             

          	
             
                 
             

          	
             
                610.4
             

          	
             
                 
             

          	
             
                (227.2
             

          	
             
                )
             

          	
             
                (667.2
             

          	
             
                )
             

          	
             
                (150.8
             

          	
             
                )
             

          	
             
                (434.8
             

          	
             
                )
             

          	
             
                77.9
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 
 

     
        110
     

     

     
     

     
     
         
     

     	
             
                2001
             

          	
             
                  
             

          	
             
                Revenue
 $m
             

          	
             
                  
             

          	
             
                Cost of
 sales
 $m
             

          	
             
                  
             

          	
             
                Selling,
 general
                and
 administration
 $m
             

          	
             
                  
             

          	
             
                Research and
 development
 $m
             

          	
             
                  
             

          	
             
                Operating
 profit/(loss)
 after

                exceptional
 items(1)
 $m
             

          	
             
                  
             

          	
             
                Gain/(loss)
 on
                disposal of
 businesses(1)
 $m
             

          	
             
                  
             

          
	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Europe
             

          	
             
                 
             

          	
             
                90.9
             

          	
             
                 
             

          	
             
                (49.3
             

          	
             
                )
             

          	
             
                (50.4
             

          	
             
                )
             

          	
             
                (9.0
             

          	
             
                )
             

          	
             
                (17.8
             

          	
             
                )
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Diagnostics
             

          	
             
                 
             

          	
             
                51.7
             

          	
             
                 
             

          	
             
                (32.7
             

          	
             
                )
             

          	
             
                (26.9
             

          	
             
                )
             

          	
             
                (2.9
             

          	
             
                )
             

          	
             
                (10.8
             

          	
             
                )
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Dermatology
             

          	
             
                 
             

          	
             
                61.8
             

          	
             
                 
             

          	
             
                (28.5
             

          	
             
                )
             

          	
             
                (41.3
             

          	
             
                )
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (8.0
             

          	
             
                )
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Abelcet
             

          	
             
                 
             

          	
             
                72.0
             

          	
             
                 
             

          	
             
                (14.3
             

          	
             
                )
             

          	
             
                (55.3
             

          	
             
                )
             

          	
             
                —
             

          	
             
                 
             

          	
             
                2.4
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Primary Care
             

          	
             
                 
             

          	
             
                120.2
             

          	
             
                 
             

          	
             
                (20.9
             

          	
             
                )
             

          	
             
                (45.9
             

          	
             
                )
             

          	
             
                0.2
             

          	
             
                 
             

          	
             
                53.6
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Pain Portfolio
             

          	
             
                 
             

          	
             
                15.4
             

          	
             
                 
             

          	
             
                (4.7
             

          	
             
                )
             

          	
             
                (2.5
             

          	
             
                )
             

          	
             
                —
             

          	
             
                 
             

          	
             
                8.2
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Drug Delivery
             

          	
             
                 
             

          	
             
                37.8
             

          	
             
                 
             

          	
             
                (14.4
             

          	
             
                )
             

          	
             
                (306.0
             

          	
             
                )
             

          	
             
                (67.5
             

          	
             
                )
             

          	
             
                (350.1
             

          	
             
                )
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Total discontinued
             

          	
             
                 
             

          	
             
                449.8
             

          	
             
                 
             

          	
             
                (164.8
             

          	
             
                )
             

          	
             
                (528.3
             

          	
             
                )
             

          	
             
                (79.2
             

          	
             
                )
             

          	
             
                (322.5
             

          	
             
                )
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     		
             
                (1)
             

          	
             
                For additional information on exceptional items,
                please refer to Note 3 to the Consolidated Financial Statements. 
             

          

     
        7   Tax on (Loss)/Profit on
        Ordinary Activities 
     

     
        The components of the current tax (credit)/expense for the
        years ended 31 December were as follows: 
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                2003
 $m
             

          	
             
                 
             

          	
             
                2002
 $m
             

          	
             
                 
             

          	
             
                2001
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Irish corporation tax
             

          	
             
                 
             

          	
             
                9.7
             

          	
             
                 
             

          	
             
                2.3
             

          	
             
                 
             

          	
             
                1.5
             

          	
             
                 
             

          
	
             
                Foreign taxes
             

          	
             
                 
             

          	
             
                (31.7
             

          	
             
                )
             

          	
             
                17.5
             

          	
             
                 
             

          	
             
                15.9
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                (22.0
             

          	
             
                )
             

          	
             
                19.8
             

          	
             
                 
             

          	
             
                17.4
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        Current tax, including Irish corporation tax and foreign
        taxes, is provided on the Group’s taxable profits, at amounts expected to
        be paid (or recovered) using the tax rates and laws that have been enacted or
        substantially enacted by the balance sheet date. In each of the three years
        ended 31 December 2003, 31 December 2002 and 31 December 2001, substantially
        all of Elan’s income in Ireland was exempt from taxation by virtue of
        relief granted on income derived from patents or due to tax losses incurred.
        The tax credit of $22.0 million for 2003 reflected tax at standard rates in the
        jurisdictions in which Elan operates, income derived from Irish patents, which
        is exempt from tax, foreign withholding tax and the availability of tax losses.
        
     

     
        Reflecting the exempt nature of Irish income and the
        availability of tax losses in Ireland and foreign operations, there was no
        deferred tax expense for the above years. 
     

     
        Irish and overseas taxation have been provided at current
        rates on the profits earned for the periods covered by the Consolidated
        Financial Statements. 
     

     
        A reconciliation of the expected tax expense (computed by
        applying the standard Irish tax rate to (losses)/profits before tax) to the
        actual tax expense is as follows: 
     

     

     
        111
     

     

     
     

     
     
        NOTES RELATING TO FINANCIAL STATEMENTS 
     

     
         
     

     	
             
                 
             

          	
             
                   
             

          	
             
                2003
 $m
             

          	
             
                   
             

          	
             
                2002
 $m
             

          	
             
                   
             

          	
             
                2001
 $m
             

          	
             
                   
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Taxes at the Irish standard rate of 12.5% in 2003,
                16% in 2002 and 20% in 2001
             

          	
             
                 
             

          	
             
                (104.7
             

          	
             
                )
             

          	
             
                (575.2
             

          	
             
                )
             

          	
             
                (174.0
             

          	
             
                )
             

          
	
             
                Irish income at reduced rates
             

          	
             
                 
             

          	
             
                (6.9
             

          	
             
                )
             

          	
             
                (18.4
             

          	
             
                )
             

          	
             
                (33.7
             

          	
             
                )
             

          
	
             
                Foreign income at rates other than the Irish
                standard rate
             

          	
             
                 
             

          	
             
                (82.6
             

          	
             
                )
             

          	
             
                (10.7
             

          	
             
                )
             

          	
             
                (138.7
             

          	
             
                )
             

          
	
             
                Losses creating no tax benefit
             

          	
             
                 
             

          	
             
                170.3
             

          	
             
                 
             

          	
             
                620.8
             

          	
             
                 
             

          	
             
                363.2
             

          	
             
                 
             

          
	
             
                Share of investments accounted for under the equity
                method including elimination of revenue
             

          	
             
                 
             

          	
             
                1.5
             

          	
             
                 
             

          	
             
                2.8
             

          	
             
                 
             

          	
             
                2.6
             

          	
             
                 
             

          
	
             
                Other
             

          	
             
                 
             

          	
             
                0.4
             

          	
             
                 
             

          	
             
                0.5
             

          	
             
                 
             

          	
             
                (2.0
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Actual (credit)/provision for income taxes
             

          	
             
                 
             

          	
             
                (22.0
             

          	
             
                )
             

          	
             
                19.8
             

          	
             
                 
             

          	
             
                17.4
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        The distribution of (loss)/profit on ordinary activities
        before taxes by geographical area was as follows:
     

     
         
     

     	
             
                 
             

          	
             
                   
             

          	
             
                2003
 $m
             

          	
             
                   
             

          	
             
                2002
 $m
             

          	
             
                   
             

          	
             
                2001
 $m
             

          	
             
                   
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                (Loss)/profit on ordinary activities before
                taxes:
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Ireland
             

          	
             
                 
             

          	
             
                (734.7
             

          	
             
                )
             

          	
             
                (1,961.9
             

          	
             
                )
             

          	
             
                (691.6
             

          	
             
                )
             

          
	
             
                Foreign
             

          	
             
                 
             

          	
             
                (102.7
             

          	
             
                )
             

          	
             
                (1,632.7
             

          	
             
                )
             

          	
             
                (178.2
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                (837.4
             

          	
             
                )
             

          	
             
                (3,594.6
             

          	
             
                )
             

          	
             
                (869.8
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        Deferred taxation
     

     
         
     

     	
             
                 
             

          	
             
                   
             

          	
             
                At 31 December
 2003
 $m
             

          	
             
                   
             

          	
             
                At 31 December
 2002
 $m
             

          	
             
                   
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Deferred taxation liabilities:
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Fixed assets
             

          	
             
                 
             

          	
             
                (45.8
             

          	
             
                )
             

          	
             
                (14.9
             

          	
             
                )
             

          
	
             
                Intangible assets on acquisition
             

          	
             
                 
             

          	
             
                (52.6
             

          	
             
                )
             

          	
             
                (150.1
             

          	
             
                )
             

          
	
             
                Deferred interest
             

          	
             
                 
             

          	
             
                (2.9
             

          	
             
                )
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                (101.3
             

          	
             
                )
             

          	
             
                (165.0
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Deferred taxation assets:
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Net operating losses
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                2.1
             

          	
             
                 
             

          
	
             
                Reserves/provisions, deferred interest &
                capitalised items
             

          	
             
                 
             

          	
             
                101.3
             

          	
             
                 
             

          	
             
                162.9
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                101.3
             

          	
             
                 
             

          	
             
                165.0
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Deferred tax asset/(liability)
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        Under Irish GAAP the Company applies FRS 19 “Deferred
        Tax.” 
     

     
        Except as outlined below, deferred taxation is recognised
        in respect of all timing differences that have originated but not reversed at
        the balance sheet date. No taxes have been provided for the unremitted and
        untaxed earnings of the Group companies overseas as these are, in the main,
        considered permanently employed in the business of these companies. Cumulative
        unremitted earnings of overseas subsidiaries and related undertakings totalled
        approximately $1,046.8 million at 31 December 2003. Deferred tax assets are
        recognised to the extent that, on the basis of available evidence, it is
        regarded as more likely than not that there will be suitable taxable profits
        from which the future reversal of the underlying timing differences can be
        deducted. The calculation of the deferred taxation asset or liability is based
        on the taxation rates that are expected to apply in the periods in which the
        timing differences are expected to reverse based on tax rates and laws that
        have been enacted or substantially enacted at the balance sheet date. 
     

     

     
        112
     

     

     
     

     
     
        Tax balances 
     

     
         
     

     	
             
                 
             

          	
             
                   
             

          	
             
                At 31 December
 2003
 $m
             

          	
             
                   
             

          	
             
                At 31 December
 2002
 $m
             

          	
             
                   
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Taxation and social security creditors
                comprise:
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Corporation tax
             

          	
             
                 
             

          	
             
                24.2
             

          	
             
                 
             

          	
             
                54.9
             

          	
             
                 
             

          
	
             
                Value added tax
             

          	
             
                 
             

          	
             
                1.6
             

          	
             
                 
             

          	
             
                (0.3
             

          	
             
                )
             

          
	
             
                Payroll taxes
             

          	
             
                 
             

          	
             
                3.6
             

          	
             
                 
             

          	
             
                5.4
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                29.4
             

          	
             
                 
             

          	
             
                60.0
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        8   Earnings Per Share
        
     

     
        Basic earnings per share is computed by dividing the net
        profit or loss for the period available to ordinary shareholders by the sum of
        the weighted average number of Ordinary Shares in issue and ranking for
        dividends during the period. Diluted earnings per share is computed by dividing
        the net profit or loss for the period by the weighted average number of
        Ordinary Shares in issue, adjusted for the effect of all dilutive potential
        Ordinary Shares that were outstanding during the period:
     

     
        The following table sets forth the computation for basic
        and diluted earnings per share (“EPS”): 
     

     
         
     

     	
             
                Before exceptional items

             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                   
             

          	
             
                2003
             

          	
             
                   
             

          	
             
                2002
             

          	
             
                   
             

          	
             
                2001
             

          	
             
                   
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Numerator (amounts in $m):
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Numerator for basic and diluted EPS—retained
                (loss)/profit
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (498.3
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (665.7
             

          	
             
                )
             

          	
             
                 
             

          	
             
                44.7
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          
	
             
                Denominator (amounts in millions):
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Denominator for basic EPS—weighted average
                shares
             

          	
             
                 
             

          	
             
                 
             

          	
             
                356.0
             

          	
             
                 
             

          	
             
                 
             

          	
             
                349.7
             

          	
             
                 
             

          	
             
                 
             

          	
             
                336.0
             

          	
             
                 
             

          
	
             
                Effect of dilutive securities—options and
                warrants
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                23.3
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          
	
             
                Denominator for diluted EPS—weighted average
                shares
             

          	
             
                 
             

          	
             
                 
             

          	
             
                356.0
             

          	
             
                 
             

          	
             
                 
             

          	
             
                349.7
             

          	
             
                 
             

          	
             
                 
             

          	
             
                359.3
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          
	
             
                Basic EPS
             

          	
             
                 
             

          	
             
                $
             

          	
             
                (1.40
             

          	
             
                )
             

          	
             
                $
             

          	
             
                (1.90
             

          	
             
                )
             

          	
             
                $
             

          	
             
                0.13
             

          	
             
                 
             

          
	
             
                Diluted EPS
             

          	
             
                 
             

          	
             
                $
             

          	
             
                (1.40
             

          	
             
                )
             

          	
             
                $
             

          	
             
                (1.90
             

          	
             
                )
             

          	
             
                $
             

          	
             
                0.12
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          

 
 

     
        113
     

     

     
     

     
     
        NOTES RELATING TO FINANCIAL STATEMENTS
     

     
         
     

     	
             
                Exceptional items
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                   
             

          	
             
                2003
             

          	
             
                   
             

          	
             
                2002
             

          	
             
                   
             

          	
             
                2001
             

          	
             
                   
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Numerator (amounts in $m):
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Numerator for basic and diluted EPS—retained
                loss
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (317.1
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (2,949.4
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (931.9
             

          	
             
                )
             

          
	
             
                Denominator (amounts in millions):
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Denominator for basic EPS—weighted average
                shares
             

          	
             
                 
             

          	
             
                 
             

          	
             
                356.0
             

          	
             
                 
             

          	
             
                 
             

          	
             
                349.7
             

          	
             
                 
             

          	
             
                 
             

          	
             
                336.0
             

          	
             
                 
             

          
	
             
                Effect of dilutive securities—options and
                warrants
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          
	
             
                Denominator for diluted EPS—weighted average
                shares
             

          	
             
                 
             

          	
             
                 
             

          	
             
                356.0
             

          	
             
                 
             

          	
             
                 
             

          	
             
                349.7
             

          	
             
                 
             

          	
             
                 
             

          	
             
                336.0
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          
	
             
                Basic EPS
             

          	
             
                 
             

          	
             
                $
             

          	
             
                (0.89
             

          	
             
                )
             

          	
             
                $
             

          	
             
                (8.44
             

          	
             
                )
             

          	
             
                $
             

          	
             
                (2.77
             

          	
             
                )
             

          
	
             
                Diluted EPS
             

          	
             
                 
             

          	
             
                $
             

          	
             
                (0.89
             

          	
             
                )
             

          	
             
                $
             

          	
             
                (8.44
             

          	
             
                )
             

          	
             
                $
             

          	
             
                (2.77
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Total
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                2003
             

          	
             
                 
             

          	
             
                 
             

          	
             
                2002
             

          	
             
                 
             

          	
             
                 
             

          	
             
                2001
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          
	
             
                Numerator (amounts in $m):
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Numerator for basic and diluted EPS—retained
                loss
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (815.4
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (3,615.1
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (887.2
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          
	
             
                Denominator (amounts in millions):
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Denominator for basic EPS—weighted average
                shares
             

          	
             
                 
             

          	
             
                 
             

          	
             
                356.0
             

          	
             
                 
             

          	
             
                 
             

          	
             
                349.7
             

          	
             
                 
             

          	
             
                 
             

          	
             
                336.0
             

          	
             
                 
             

          
	
             
                Effect of dilutive securities—options and
                warrants
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          
	
             
                Denominator for diluted EPS—weighted average
                shares
             

          	
             
                 
             

          	
             
                 
             

          	
             
                356.0
             

          	
             
                 
             

          	
             
                 
             

          	
             
                349.7
             

          	
             
                 
             

          	
             
                 
             

          	
             
                336.0
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          
	
             
                Basic EPS
             

          	
             
                 
             

          	
             
                $
             

          	
             
                (2.29
             

          	
             
                )
             

          	
             
                $
             

          	
             
                (10.34
             

          	
             
                )
             

          	
             
                $
             

          	
             
                (2.64
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          
	
             
                Diluted EPS
             

          	
             
                 
             

          	
             
                $
             

          	
             
                (2.29
             

          	
             
                )
             

          	
             
                $
             

          	
             
                (10.34
             

          	
             
                )
             

          	
             
                $
             

          	
             
                (2.64
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          

 

     
        9    Staff Numbers and Costs
        
     

     
        The average number of persons employed by the Company
        during 2003 was 2,688, analysed over the following categories: 
     

     
         
     

     	
             
                 
             

          	
             
                   
             

          	
             
                2003
             

          	
             
                   
             

          	
             
                2002
             

          	
             
                   
             

          	
             
                2001
             

          	
             
                   
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Research and development
             

          	
             
                 
             

          	
             
                625
             

          	
             
                 
             

          	
             
                1,016
             

          	
             
                 
             

          	
             
                1,125
             

          	
             
                 
             

          
	
             
                Manufacturing
             

          	
             
                 
             

          	
             
                755
             

          	
             
                 
             

          	
             
                1,079
             

          	
             
                 
             

          	
             
                1,012
             

          	
             
                 
             

          
	
             
                Sales
             

          	
             
                 
             

          	
             
                761
             

          	
             
                 
             

          	
             
                1,592
             

          	
             
                 
             

          	
             
                1,651
             

          	
             
                 
             

          
	
             
                Administration
             

          	
             
                 
             

          	
             
                547
             

          	
             
                 
             

          	
             
                690
             

          	
             
                 
             

          	
             
                740
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                2,688
             

          	
             
                 
             

          	
             
                4,377
             

          	
             
                 
             

          	
             
                4,528
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        At 31 December 2003, Elan had total worldwide employees of
        2,159. 
     

     
        The aggregate payroll costs of employees were as follows:
        
     

     
         
     

     	
             
                 
             

          	
             
                   
             

          	
             
                2003
 $m
             

          	
             
                   
             

          	
             
                2002
 $m
             

          	
             
                   
             

          	
             
                2001
 $m
             

          	
             
                   
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Wages and salaries
             

          	
             
                 
             

          	
             
                239.4
             

          	
             
                 
             

          	
             
                377.4
             

          	
             
                 
             

          	
             
                335.6
             

          	
             
                 
             

          
	
             
                Social security costs
             

          	
             
                 
             

          	
             
                29.0
             

          	
             
                 
             

          	
             
                43.8
             

          	
             
                 
             

          	
             
                34.4
             

          	
             
                 
             

          
	
             
                Pension costs
             

          	
             
                 
             

          	
             
                13.5
             

          	
             
                 
             

          	
             
                12.1
             

          	
             
                 
             

          	
             
                12.7
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                281.9
             

          	
             
                 
             

          	
             
                433.3
             

          	
             
                 
             

          	
             
                382.7
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 
 

     
        114
     

     

     
     

     
     
        10    Fixed
        Assets—Intangible Assets 
     

     
          
     

     	
             
                 
             

          	
             
                    
             

          	
             
                Patents &
 Licences
 $m
             

          	
             
                    
             

          	
             
                Goodwill
 $m
             

          	
             
                    
             

          	
             
                Acquired
 Intellectual
 Property

                $m
             

          	
             
                    
             

          	
             
                Total
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Cost:
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                At 1 January 2003
             

          	
             
                 
             

          	
             
                1,655.6
             

          	
             
                 
             

          	
             
                606.8
             

          	
             
                 
             

          	
             
                427.8
             

          	
             
                 
             

          	
             
                2,690.2
             

          	
             
                 
             

          
	
             
                Additions
             

          	
             
                 
             

          	
             
                14.3
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                14.3
             

          	
             
                 
             

          
	
             
                Disposals
             

          	
             
                 
             

          	
             
                (524.7
             

          	
             
                )
             

          	
             
                (116.9
             

          	
             
                )
             

          	
             
                (29.1
             

          	
             
                )
             

          	
             
                (670.7
             

          	
             
                )
             

          
	
             
                Impairments
             

          	
             
                 
             

          	
             
                (53.4
             

          	
             
                )
             

          	
             
                (124.4
             

          	
             
                )
             

          	
             
                (11.7
             

          	
             
                )
             

          	
             
                (189.5
             

          	
             
                )
             

          
	
             
                Translation adjustment
             

          	
             
                 
             

          	
             
                0.3
             

          	
             
                 
             

          	
             
                2.7
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                3.0
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                At 31 December 2003
             

          	
             
                 
             

          	
             
                1,092.1
             

          	
             
                 
             

          	
             
                368.2
             

          	
             
                 
             

          	
             
                387.0
             

          	
             
                 
             

          	
             
                1,847.3
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Accumulated amortisation:
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                At 1 January 2003
             

          	
             
                 
             

          	
             
                350.4
             

          	
             
                 
             

          	
             
                242.2
             

          	
             
                 
             

          	
             
                18.1
             

          	
             
                 
             

          	
             
                610.7
             

          	
             
                 
             

          
	
             
                Amortised in year
             

          	
             
                 
             

          	
             
                123.9
             

          	
             
                 
             

          	
             
                29.5
             

          	
             
                 
             

          	
             
                5.9
             

          	
             
                 
             

          	
             
                159.3
             

          	
             
                 
             

          
	
             
                Disposals
             

          	
             
                 
             

          	
             
                (123.9
             

          	
             
                )
             

          	
             
                (47.1
             

          	
             
                )
             

          	
             
                (4.5
             

          	
             
                )
             

          	
             
                (175.5
             

          	
             
                )
             

          
	
             
                Translation adjustment
             

          	
             
                 
             

          	
             
                0.1
             

          	
             
                 
             

          	
             
                0.3
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                0.4
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                At 31 December 2003
             

          	
             
                 
             

          	
             
                350.5
             

          	
             
                 
             

          	
             
                224.9
             

          	
             
                 
             

          	
             
                19.5
             

          	
             
                 
             

          	
             
                594.9
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Net book value: 31 December 2003
             

          	
             
                 
             

          	
             
                741.6
             

          	
             
                 
             

          	
             
                143.3
             

          	
             
                 
             

          	
             
                367.5
             

          	
             
                 
             

          	
             
                1,252.4
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Net book value: 31 December 2002
             

          	
             
                 
             

          	
             
                1,305.2
             

          	
             
                 
             

          	
             
                364.6
             

          	
             
                 
             

          	
             
                409.7
             

          	
             
                 
             

          	
             
                2,079.5
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        At 31 December 2003, the main components of the carrying
        value of patents and licences were $295.3 million for Maxipime/Azactam, $105.5 million for the AD
        intellectual property and $89.2 million for Prialt.
     

     
        At 31 December 2003, the main components of the carrying
        value of goodwill were $86.0 million for Dura and $45.2 million for
        Nanosystems. 
     

     
        At 31 December 2003, the carrying values of acquired IP
        relating to the acquisitions of Neurex, NanoSystems and Axogen were $286.9
        million, $35.3 million and $45.3 million, respectively. 
     

     
        Disposals of intangible fixed assets during 2003 primarily
        relate to Skelaxin and Sonata intangibles of $386.5 million sold as part of the
        sale of the primary care franchise to King, and the intangible asset of $54.7
        million for the Pain Portfolio sold to aai Pharma. 
     

     
        Elan acquires companies engaged in research and
        development activities as it expects that the intellectual property created
        through the acquired companies’ research and development processes may
        result in a future earnings stream. Acquired IP represents that portion of the
        purchase price that Elan attributes to the value of the research and
        development activity undertaken by the acquired research and development
        company prior to acquisition. It is not a payment for research and development
        but rather for the value created through previous research and development.
        
     

     
        Acquired IP is capitalised as an intangible asset and is
        amortised over its useful economic life. The useful economic life is the period
        over which Elan expects to derive economic benefits. Acquired IP rights of
        $286.9 million (relating to Neurex) were not amortised in 2003, as the useful
        economic life of those rights had not commenced. Elan expects to file an
        amendment to its NDA for Prialt in the second quarter of 2004. Upon commencement of its useful
        economic life, acquired IP will be amortised on a straight-line basis over the
        period that economic benefits are expected to accrue, which is not expected to
        exceed 20 years. In the case of each acquisition, the useful economic life of
        acquired IP commences upon the generation of product revenue from that acquired
        IP. Pharmaceutical products cannot be marketed until the successful completion
        of research and development and the receipt of regulatory approval to market.
        Under U.S. GAAP, the corresponding amounts were expensed immediately upon
        acquisition as IPR&D costs. 
     

     
        In accordance with the requirements of FRS 11,
        “Impairment of Fixed Assets and Goodwill” (“FRS 11”), Elan
        conducts an impairment review of acquired IP rights at least annually, prior to
        the commencement of amortisation, to assess whether its carrying value is
        supported. 
     

     
        For additional information on the impairments of
        intangible fixed assets, please refer to Note 3 to the Consolidated Financial
        Statements. 
     

     

     
        115
     

     

     
     

     
     
        NOTES RELATING TO FINANCIAL STATEMENTS 
     

     
        11   Fixed Assets—Tangible
        Assets 
     

     
         
     

     	
             
                 
             

          	
             
                    
             

          	
             
                Land &
 Buildings
 $m
             

          	
             
                    
             

          	
             
                Plant &
 Equipment
 $m
             

          	
             
                    
             

          	
             
                Total
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Cost:
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                At 1 January 2003
             

          	
             
                 
             

          	
             
                250.5
             

          	
             
                 
             

          	
             
                396.7
             

          	
             
                 
             

          	
             
                647.2
             

          	
             
                 
             

          
	
             
                Additions
             

          	
             
                 
             

          	
             
                10.1
             

          	
             
                 
             

          	
             
                24.7
             

          	
             
                 
             

          	
             
                34.8
             

          	
             
                 
             

          
	
             
                Disposals
             

          	
             
                 
             

          	
             
                (35.1
             

          	
             
                )
             

          	
             
                (72.9
             

          	
             
                )
             

          	
             
                (108.0
             

          	
             
                )
             

          
	
             
                Impairments
             

          	
             
                 
             

          	
             
                (9.2
             

          	
             
                )
             

          	
             
                (5.2
             

          	
             
                )
             

          	
             
                (14.4
             

          	
             
                )
             

          
	
             
                Transfers
             

          	
             
                 
             

          	
             
                37.6
             

          	
             
                 
             

          	
             
                (37.6
             

          	
             
                )
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Translation adjustment
             

          	
             
                 
             

          	
             
                0.7
             

          	
             
                 
             

          	
             
                2.6
             

          	
             
                 
             

          	
             
                3.3
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                At 31 December 2003
             

          	
             
                 
             

          	
             
                254.6
             

          	
             
                 
             

          	
             
                308.3
             

          	
             
                 
             

          	
             
                562.9
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Accumulated depreciation:
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                At 1 January 2003
             

          	
             
                 
             

          	
             
                33.6
             

          	
             
                 
             

          	
             
                154.3
             

          	
             
                 
             

          	
             
                187.9
             

          	
             
                 
             

          
	
             
                Charged in year
             

          	
             
                 
             

          	
             
                8.3
             

          	
             
                 
             

          	
             
                42.7
             

          	
             
                 
             

          	
             
                51.0
             

          	
             
                 
             

          
	
             
                Disposals
             

          	
             
                 
             

          	
             
                (13.5
             

          	
             
                )
             

          	
             
                (36.9
             

          	
             
                )
             

          	
             
                (50.4
             

          	
             
                )
             

          
	
             
                Transfers
             

          	
             
                 
             

          	
             
                10.5
             

          	
             
                 
             

          	
             
                (10.5
             

          	
             
                )
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Translation adjustment
             

          	
             
                 
             

          	
             
                0.3
             

          	
             
                 
             

          	
             
                1.9
             

          	
             
                 
             

          	
             
                2.2
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                At 31 December 2003
             

          	
             
                 
             

          	
             
                39.2
             

          	
             
                 
             

          	
             
                151.5
             

          	
             
                 
             

          	
             
                190.7
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Net book value: 31 December 2003
             

          	
             
                 
             

          	
             
                215.4
             

          	
             
                 
             

          	
             
                156.8
             

          	
             
                 
             

          	
             
                372.2
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Net book value: 31 December 2002
             

          	
             
                 
             

          	
             
                216.9
             

          	
             
                 
             

          	
             
                242.4
             

          	
             
                 
             

          	
             
                459.3
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        Tangible fixed assets disposals during 2003 include fixed
        assets sold with a transdermal technologies business, sale of the corporate
        aircraft and disposal of fixed assets relating to the primary care franchise of
        $18.9 million, $17.3 million and $16.6 million, respectively. 
     

     
        Included in the carrying value of tangible fixed assets is
        $220.8 million (2002: $222.7 million) relating to Elan’s manufacturing
        facility in Athlone, Ireland. 
     

     
        The net book value of tangible assets held under finance
        leasing arrangements at 31 December 2003 amounted to $53.2 million (2002: $54.2
        million) and related depreciation for the period amounted to $11.4 million
        (2002: $13.9 million). 
     

     
        Fixed asset additions include interest capitalised of $Nil
        (2002: $3.0 million). Interest is capitalised on assets being constructed for
        their intended use at an average rate of 6.5% per annum. 
     

     
        For additional information on the impairments of tangible
        fixed assets, please refer to Note 3 to the Consolidated Financial Statements.
        
     

     
        12   Fixed Assets—Financial
        Assets 
     

     
         
     

     	
             
                 
             

          	
             
                    
             

          	
             
                At 31 December
 2003
 $m
             

          	
             
                    
             

          	
             
                At 31 December
 2002
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Investments in and loans to associates
             

          	
             
                 
             

          	
             
                23.9
             

          	
             
                 
             

          	
             
                63.2
             

          	
             
                 
             

          
	
             
                Quoted investments
             

          	
             
                 
             

          	
             
                35.8
             

          	
             
                 
             

          	
             
                96.4
             

          	
             
                 
             

          
	
             
                Unquoted investments and loans
             

          	
             
                 
             

          	
             
                197.9
             

          	
             
                 
             

          	
             
                368.8
             

          	
             
                 
             

          
	
             
                Securitised investments
             

          	
             
                 
             

          	
             
                150.3
             

          	
             
                 
             

          	
             
                206.2
             

          	
             
                 
             

          
	
             
                Other marketable securities
             

          	
             
                 
             

          	
             
                86.6
             

          	
             
                 
             

          	
             
                74.8
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Total
             

          	
             
                 
             

          	
             
                494.5
             

          	
             
                 
             

          	
             
                809.4
             

          	
             
                 
             

          
	
             
                Less current financial assets
             

          	
             
                 
             

          	
             
                (86.6
             

          	
             
                )
             

          	
             
                (74.8
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Fixed assets—financial assets
             

          	
             
                 
             

          	
             
                407.9
             

          	
             
                 
             

          	
             
                734.6
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 
 

     
        116
     

     

     
     

     
     
        a   Movements on non-current
        financial assets for the year were as follows: 
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                Investments in
 and Loans to
 Associates
 $m
             

          	
             
                 
             

          	
             
                Quoted
 Investments
 $m
             

          	
             
                 
             

          	
             
                Unquoted
 Investments
 and Loans

                $m
             

          	
             
                 
             

          	
             
                Securitised
 Investments
 $m
             

          	
             
                 
             

          	
             
                Total
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                At 1 January 2003
             

          	
             
                 
             

          	
             
                63.2
             

          	
             
                 
             

          	
             
                96.4
             

          	
             
                 
             

          	
             
                368.8
             

          	
             
                 
             

          	
             
                206.2
             

          	
             
                 
             

          	
             
                734.6
             

          	
             
                 
             

          
	
             
                Additions
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                21.4
             

          	
             
                 
             

          	
             
                22.3
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                43.7
             

          	
             
                 
             

          
	
             
                Disposals/repayments
             

          	
             
                 
             

          	
             
                (31.3
             

          	
             
                )
             

          	
             
                (79.3
             

          	
             
                )
             

          	
             
                (131.7
             

          	
             
                )
             

          	
             
                (7.8
             

          	
             
                )
             

          	
             
                (250.1
             

          	
             
                )
             

          
	
             
                Share of losses of associates
             

          	
             
                 
             

          	
             
                (8.8
             

          	
             
                )
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (8.8
             

          	
             
                )
             

          
	
             
                Impairment
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (2.7
             

          	
             
                )
             

          	
             
                (68.2
             

          	
             
                )
             

          	
             
                (49.5
             

          	
             
                )
             

          	
             
                (120.4
             

          	
             
                )
             

          
	
             
                Interest income
             

          	
             
                 
             

          	
             
                0.8
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                6.7
             

          	
             
                 
             

          	
             
                1.4
             

          	
             
                 
             

          	
             
                8.9
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                At 31 December 2003
             

          	
             
                 
             

          	
             
                23.9
             

          	
             
                 
             

          	
             
                35.8
             

          	
             
                 
             

          	
             
                197.9
             

          	
             
                 
             

          	
             
                150.3
             

          	
             
                 
             

          	
             
                407.9
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        Quoted investments at 31 December 2003 carried at a cost
        of $35.8 million (2002: $96.4 million) had a market value at that date of $70.1
        million (2002: $100.0 million). 
     

     
        b   Associates
     

     
        Net revenues from associates amounted to $0.3 million
        (2002: $4.8 million; 2001: $16.9 million) from Amarin (see Note 27
        “Related Parties”) and $0.5 million (2002: $0.9 million; 2001: $2.6
        million) from other associates during 2003. These other associates are
        subsidiaries of unrelated companies. The revenues from associates that are
        subsidiaries of unrelated companies arose under licence agreements whereby Elan
        has licensed rights to drug delivery technologies, products and
        development-stage pharmaceutical compounds to these associates in return for
        licence fees, future milestone payments and royalties on sales. In certain
        cases, Elan may provide contract research and development services billable on
        a cost-plus basis in line with normal commercial terms and Elan may provide
        additional funding to associates. At 31 December 2003, trading balances owed to
        the Company from associates amounted to $Nil (2002: $18.1 million) of which
        $Nil (2002: $13.7 million) relates to Amarin and balances owed by the Company
        amounted to $Nil (2002: $1.0 million). 
     

     
        Elan’s total investment in Amarin at 31 December 2003
        amounted to $23.9 million, consisting of loans, including interest, of $20.9
        million and a net equity investment of $3.0 million. 
     

     
        For additional information on Amarin, including in
        relation to the 2003 and 2004 amendments, please refer to Note 27 to the
        Consolidated Financial Statements. 
     

     
        c   Significant
        additions
     

     
        Total additions to quoted and unquoted investments made in
        2003 were $43.7 million, primarily relating to the conversion of convertible
        investments in business venture parents to preferred/common stock investments
        for $32.5 million. 
     

     
        d   Significant
        disposals
     

     
        Total disposals of quoted and unquoted investments in 2003
        amounted to $211.0 million, primarily relating to the disposal of Elan’s
        investments in Xcel and Ligand which had carrying values of $89.5 million and
        $65.7 million, respectively. 
     

     
        e   Investment
        impairments
     

     
        During 2003 the Company recognised a $120.4 million charge
        in relation to investment impairments arising from Elan’s investment
        portfolio, primarily relating to investments in business ventures and business
        venture parents of $4.0 million and $106.0 million, respectively. 
     

     
        f   Securitised
        investments
     

     
        The securitised investments at 31 December 2003 with a
        carrying value of $150.3 million, had a fair value at that date of $237.0
        million. These investments are held as security against the EPIL II Notes and
        the EPIL III Notes in an aggregate principal amount of $840.0 million, issued
        in securitisation transactions. For additional information regarding these
        notes, please refer to Note 15 to the Consolidated Financial Statements.
        
     

     

     
        117
     

     

     
     

     
     
        NOTES RELATING TO FINANCIAL STATEMENTS 
     

     
        13   Stocks 
     

     
         
     

     	
             
                 
             

          	
             
                    
             

          	
             
                At 31 December
 2003
 $m
             

          	
             
                    
             

          	
             
                At 31 December
 2002
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Raw materials
             

          	
             
                 
             

          	
             
                17.1
             

          	
             
                 
             

          	
             
                40.9
             

          	
             
                 
             

          
	
             
                Work-in-process
             

          	
             
                 
             

          	
             
                21.3
             

          	
             
                 
             

          	
             
                28.0
             

          	
             
                 
             

          
	
             
                Finished goods
             

          	
             
                 
             

          	
             
                40.0
             

          	
             
                 
             

          	
             
                80.9
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                78.4
             

          	
             
                 
             

          	
             
                149.8
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        The decrease in stocks during 2003 primarily reflects the
        divestment of businesses and products under the recovery plan. The replacement
        cost of stock does not differ materially from its carrying value. 
     

     
        14   Debtors 
     

     
         
     

     	
             
                 
             

          	
             
                    
             

          	
             
                At 31 December
 2003
 $m
             

          	
             
                    
             

          	
             
                At 31 December
 2002
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Trade debtors
             

          	
             
                 
             

          	
             
                88.6
             

          	
             
                 
             

          	
             
                148.4
             

          	
             
                 
             

          
	
             
                Less amounts provided for doubtful debts
             

          	
             
                 
             

          	
             
                (11.6
             

          	
             
                )
             

          	
             
                (23.1
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                77.0
             

          	
             
                 
             

          	
             
                125.3
             

          	
             
                 
             

          
	
             
                Other debtors
             

          	
             
                 
             

          	
             
                50.9
             

          	
             
                 
             

          	
             
                39.2
             

          	
             
                 
             

          
	
             
                Prepayments
             

          	
             
                 
             

          	
             
                18.0
             

          	
             
                 
             

          	
             
                22.1
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                145.9
             

          	
             
                 
             

          	
             
                186.6
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        Included in debtors is an amount of $11.8 million (2002:
        $10.8 million) due after one year.
     

     
         
     

     	
             
                 
             

          	
             
                    
             

          	
             
                2003
 $m
             

          	
             
                    
             

          	
             
                2002
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Provision for doubtful debts:
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Balance at 1 January
             

          	
             
                 
             

          	
             
                23.1
             

          	
             
                 
             

          	
             
                15.0
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Profit and loss account charge
             

          	
             
                 
             

          	
             
                6.9
             

          	
             
                 
             

          	
             
                20.8
             

          	
             
                 
             

          
	
             
                Amounts utilised
             

          	
             
                 
             

          	
             
                (18.4
             

          	
             
                )
             

          	
             
                (12.7
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Balance at 31 December
             

          	
             
                 
             

          	
             
                11.6
             

          	
             
                 
             

          	
             
                23.1
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        The decrease in trade debtors during 2003 primarily
        reflects the impact of the divestment of businesses and products under the
        recovery plan. 
     

     

     
        118
     

     

     
     

     
     
        15   Convertible Debt and
        Guaranteed Notes
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                Repayment
 Dates
             

          	
             
                    
             

          	
             
                At 31 December
 2003
 $m
             

          	
             
                    
             

          	
             
                At 31 December
 2002
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Due within one year
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                EPIL II Notes
             

          	
             
                 
             

          	
             
                2004
             

          	
             
                 
             

          	
             
                450.0
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                3.25% LYONs
             

          	
             
                 
             

          	
             
                2003
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                682.0
             

          	
             
                 
             

          
	
             
                Interest accrued
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                21.4
             

          	
             
                 
             

          	
             
                114.3
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Debt due within one year
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                471.4
             

          	
             
                 
             

          	
             
                796.3
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Due after one year
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                EPIL III Notes
             

          	
             
                 
             

          	
             
                2005
             

          	
             
                 
             

          	
             
                389.5
             

          	
             
                 
             

          	
             
                387.5
             

          	
             
                 
             

          
	
             
                EPIL II Notes
             

          	
             
                 
             

          	
             
                2004
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                449.0
             

          	
             
                 
             

          
	
             
                7.25% Senior Notes
             

          	
             
                 
             

          	
             
                2008
             

          	
             
                 
             

          	
             
                645.1
             

          	
             
                 
             

          	
             
                643.9
             

          	
             
                 
             

          
	
             
                6.5% Convertible Notes
             

          	
             
                 
             

          	
             
                2008
             

          	
             
                 
             

          	
             
                444.4
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                3.25% LYONs
             

          	
             
                 
             

          	
             
                2008
             

          	
             
                 
             

          	
             
                0.9
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Debt due after more than one year
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                1,479.9
             

          	
             
                 
             

          	
             
                1,480.4
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        EPIL II Notes
     

     
        In June 2000, the Company transferred a portfolio of
        equity and debt securities to a special purpose entity, EPIL II, a wholly owned
        subsidiary of the Company. On 28 June 2000, EPIL II issued $450.0 million in
        aggregate principal amount of the EPIL II Notes, in a private placement to a
        group of financial institutions. The EPIL II Notes mature on 28 June 2004. EPIL
        II paid cash of $340.0 million to the Company for the portfolio of investments
        transferred to it. Other than a payment of $0.8 million (2002: $0.8 million;
        2001: $0.8 million) for administration services, there were no cash flows
        between EPIL II and the Company in 2003, 2002 or 2001. The investments and cash
        in EPIL II are held as security against the EPIL II Notes. These assets are not
        available for distribution outside EPIL II. The investments and cash had a fair
        value of $105.8 million, and a carrying value of $77.1 million, at 31 December
        2003. The EPIL II Notes are guaranteed on a subordinated basis by Elan and,
        consequently, in accordance with the provisions of FRS 5, the EPIL II Notes and
        the investments are both included separately in the Company’s consolidated
        balance sheet. The EPIL II Notes bear interest at the rate of 9.56% per annum,
        payable in cash. Issue costs associated with the financing amounted to $5.9
        million.
     

     
        Interest charged in 2003 amounted to $43.0 million (2002:
        $43.0 million; 2001: $43.0 million). The liability outstanding at 31 December
        2003, net of financing costs, was $450.0 million (2002: $449.0 million) with
        interest accrued of $0.4 million (2002: $0.4 million).
     

     
        3.25% LYONs
     

     
        In December 1998 EFC issued, in a private placement and at
        a substantial discount, LYONs due 2018 in the principal amount of $1,643.5
        million at maturity. The issue price of the LYONs was $524.78 per $1,000
        principal amount at maturity and the gross proceeds to the Company amounted to
        $862.5 million. The expenses associated with the transaction amounted to $23.1
        million. The LYONs are exchangeable at any time at the option of the holder
        into 13.75 Elan ADSs per each $1,000 principal amount at maturity. The
        securities are redeemable for cash at any time, at the option of the Company,
        on or after 14 December 2003. Holders of the LYONs may require Elan to purchase
        all or any portion of their LYONs on 14 December 2003, 14 December 2008 and 14
        December 2013 at a purchase price equal to the issue price plus all accrued
        original issue discount up to the purchase date. Elan may, at its option, elect
        to pay the purchase price for the LYONs in cash, by the delivery of ADSs, at
        then existing market prices, or any combination of cash and ADSs. Elan’s
        right to pay the purchase price for the LYONs by delivering ADSs is subject to
        certain conditions, including the registration of the ADSs to be delivered
        under the Securities Act of 1933 and the listing of those ADSs on the
        NYSE.
     

     
        In December 2002, Elan repurchased $318.6 million in
        principal amount at maturity of LYONs (representing approximately 19% of the
        originally issued LYONs) in separate privately negotiated purchases. These
        LYONs, having an accreted value of $190.1 million at the dates of acquisition,
        were purchased at an aggregate cost of $149.8 million, resulting in a net gain
        of $37.7 million after related costs at the dates of acquisition. This was a
        discount of approximately 24% to the accreted value of such LYONs at 14
        December 2003 of $196.5 million.
     

     

     
        119
     

     

     
     

     
     
        NOTES RELATING TO FINANCIAL STATEMENTS
     

     
        Through 3 June 2003, Elan repurchased an additional $523.7
        million in principal amount at maturity of the LYONs (representing
        approximately 32% of the originally issued LYONs) in separate privately
        negotiated purchases. The aggregate cost was $310.3 million. This was a
        discount of approximately 4% to the accreted value of such LYONs at 14 December
        2003 of $322.9 million.
     

     
        On 14 November 2003, Elan announced that holders of the
        remaining outstanding LYONs had the right to surrender their LYONs for purchase
        during the period that began then and ended on 15 December 2003. Pursuant to
        the indenture under which the LYONs were issued in December 1998, each holder
        of LYONs had the right to require Elan to purchase, until 5:00 p.m., New York
        time, on 15 December 2003, such holder’s LYONs at a price equal to $616.57
        per $1,000 principal amount at maturity of the LYONs.
     

     
        Under the terms of the LYONs, Elan had the option to pay
        for the LYONs in cash, in ADSs, representing Ordinary Shares, of Elan, or in
        any combination of cash and ADSs. Elan elected to pay for the LYONs in cash.
        The aggregate principal amount due at maturity for all outstanding LYONs was
        approximately $801.3 million.
     

     
        On 16 December 2003, Elan announced that LYONs with an
        aggregate principal amount at maturity of approximately $799.7 million were
        validly surrendered for repurchase and not withdrawn, and Elan had repurchased
        all such LYONs. Approximately $1.6 million in aggregate principal amount at
        maturity of LYONs remain outstanding following the completion of the
        repurchase. The aggregate purchase price for all LYONs validly surrendered for
        repurchase and not withdrawn was approximately $493.1 million. The accreted
        value of the remaining LYONs was $0.9 million at 31 December 2003.
     

     
        The original issue discount charged to income in the year
        to 31 December 2003 amounted to $19.1 million (2002: $31.0 million, 2001: $30.2
        million). At 31 December 2003, the liability represented a price of $616.57 per
        $1,000 principal amount at maturity.
     

     
        The liability outstanding at 31 December 2003, net of
        financing costs of $Nil (2002: $13.3 million), was $0.9 million (2002: $682.0
        million) with interest accrued of $Nil (2002: $97.0 million). Inclusive of
        financing costs, the accreted value of the LYONs at 31 December 2003 was $0.9
        million (2002: $792.3 million).
     

     
        EPIL III Notes
     

     
        In March 2001, the Company transferred a portfolio of
        equity and debt securities to a special purpose entity, EPIL III, a wholly
        owned subsidiary of the Company. EPIL III issued $200.0 million in aggregate
        principal amount of the Series C Guaranteed Notes in a private placement to a
        group of financial institutions. In addition, EPIL III issued $160.0 million in
        aggregate principal amount of the Series A Guaranteed Notes and $190.0 million
        of the Series B Guaranteed Notes, in exchange for all outstanding 8.43%
        Guaranteed Notes issued in June 1999 by EPIL. The Series A Guaranteed Notes
        were, and the Series B Guaranteed Notes and Series C Guaranteed Notes are,
        fully and unconditionally guaranteed on a subordinated basis by Elan. The
        Series A Guaranteed Notes bore interest at the rate of 8.43% per annum. The
        Series B Guaranteed Notes bore interest at the rate of 8.43% per annum through
        June 2002 and 7.72% per annum thereafter. The Series C Guaranteed Notes bear
        interest at the rate of 7.62% per annum.
     

     
        In 2001, EPIL III paid cash of $106.0 million to the
        Company and also exchanged the EPIL III Series A and Series B Guaranteed Notes
        for all outstanding 8.43% Guaranteed Notes as consideration for the portfolio
        of investments transferred to it. Other than these payments and a payment of
        $0.8 million (2002: $0.8 million, 2001: $0.6 million) for administration
        services, there were no other cash flows between EPIL III and the Company in
        2003, 2002 or 2001. The remaining investments and cash in EPIL III are held as
        security against the EPIL III Series B Guaranteed Notes and the Series C
        Guaranteed Notes. These assets are not available for distribution outside EPIL
        III. The investments and cash had a fair value of $152.3 million, and a
        carrying value of $94.3 million, at 31 December 2003. The Series B Guaranteed
        Notes and the Series C Guaranteed Notes are guaranteed on a subordinated basis
        by Elan and, consequently, in accordance with the provisions of FRS 5, the
        Series B Guaranteed Notes and the Series C Guaranteed Notes, investments and
        cash are included separately in the Company’s consolidated balance sheet.
        Issue costs associated with the financing of the EPIL III Notes amounted to
        $6.1 million.
     

     
        In June 2002, EPIL III disposed of securitised investments
        in order to repay the $160.0 million in the aggregate principal amount of its
        Series A Guaranteed Notes which matured on 29 June 2002.
     

     
        For additional information relating to the disposal of
        financial assets by EPIL III, please refer to Note 3 and Note 33 to the
        Consolidated Financial Statements.
     

     
        Interest charged on the EPIL III notes in 2003 amounted to
        $29.9 million (2002: $37.2 million, 2001: $35.4 million). The liability
        outstanding at 31 December 2003, net of financing costs, was $389.5 million
        (2002: $387.5 million) with interest accrued of $0.2 million (2002: $0.2
        million).
     

     

     
        120
     

     

     
     

     
     
        7.25% Senior Notes
     

     
        In February 2001, Athena Finance, an indirect wholly owned
        subsidiary of Elan, issued $650.0 million in aggregate principal amount of
        7.25% Senior Notes due 2008 at a discount of $2.5 million. The 7.25% Senior
        Notes are senior, unsecured obligations of Athena Finance and are fully and
        unconditionally guaranteed on a senior unsecured basis by Elan. Issue costs
        associated with the financing amounted to $8.3 million.
     

     
        Interest is paid in cash semi-annually. Interest charged
        in the year ending 31 December 2003 amounted to $47.1 million (2002: $47.1
        million, 2001: $40.3 million). The liability outstanding at 31 December 2003,
        net of financing costs, was $645.1 million (2002: $643.9 million) with interest
        accrued of $16.7 million (2002: $16.7 million, 2001: $16.7 million).
     

     
        On 14 January 2002, Elan entered into an interest rate
        swap to convert its fixed rate interest obligations for $100.0 million of the
        7.25% Senior Notes to variable rate interest obligations. The swap had a fair
        value gain of $8.5 million at 31 December 2003 (2002: $8.1 million).
     

     
        6.5% Convertible Notes
     

     
        In November 2003, Elan announced that it had completed the
        offering and sale of $460.0 million in aggregate principal amount of 6.5%
        Convertible Notes issued by ECC, an indirect wholly-owned subsidiary of Elan,
        and guaranteed by Elan. The 6.5% Convertible Notes mature on 10 November
        2008.
     

     
        Holders of the 6.5% Convertible Notes have the right to
        convert the notes into fully-paid ADSs at a conversion price of $7.42 at any
        time up to 10 November 2008 or seven trading days preceding the date of
        redemption if the notes are called for redemption.
     

     
        Elan may, at any time after 1 December 2006, redeem all or
        part of the 6.5% Convertible Notes then outstanding at par, with interest
        accrued to the redemption date provided that, within a period of 30 consecutive
        trading days ending five trading days prior to the date on which the relevant
        notice of redemption is published, the official closing price per share of the
        ADSs on the NYSE for 20 trading days shall have been at least 150% of the
        conversion price deemed to be in effect on each of such trading days.
     

     
        Interest is paid in cash semi-annually. Interest charged
        in the year ending 31 December 2003 amounted to $4.1 million (2002: $Nil, 2001:
        $Nil). The liability outstanding at 31 December 2003, net of financing costs,
        was $444.4 million (2002: $Nil) with interest accrued of $4.1 million (2002:
        $Nil).
     

     
        Covenants
     

     
        The agreements governing certain of Elan’s
        outstanding indebtedness contain various restrictive covenants that restrict
        the Group’s ability to, among other things, incur additional indebtedness
        (including intercompany indebtedness), create liens and other encumbrances,
        enter into transactions with related parties, sell or otherwise dispose of
        assets and merge or consolidate with another entity. In addition, some of these
        agreements require Elan to maintain certain financial ratios. Elan does not
        currently, and does not expect in the foreseeable future, to have the ability
        to incur any additional indebtedness under certain of these covenants, unless
        it receives a waiver from the holders of a majority of the applicable
        indebtedness.
     

     
        As a result of Elan’s failure to timely complete and
        file with the SEC Elan’s Annual Report on Form 20-F for its fiscal year
        ended 31 December 2002, on 30 June 2003, Elan defaulted under certain covenants
        contained in the agreements governing the EPIL II Notes and the Series B and
        Series C Guaranteed Notes issued by EPIL III. The covenants required that Elan
        provide to each of the holders of such notes Elan’s audited consolidated
        financial statements, together with an officer’s certificate relating
        thereto, on or prior to 29 June 2003. On 15 July 2003, Elan also defaulted
        under a covenant contained in the indenture governing the 7.25% Senior Notes
        that required Elan to file its 2002 Annual Report on Form 20-F with the SEC on
        or prior to 15 July 2003.
     

     
        Commencing on 29 July 2003, Elan received a series of
        separate agreements from a majority of the holders of the EPIL II Notes and the
        holders of the Series B and Series C Guaranteed Notes waiving compliance by
        Elan with the applicable covenants described above. The series of waivers was
        effective through 5 September 2003. With the completion and filing with the SEC
        of Elan’s 2002 Annual Report on Form 20-F, the defaults described above
        were cured in all respects. In the absence of the waivers, the defaults under
        the EPIL II Notes and the Series B and Series C Guaranteed Notes would have
        become events of default on 30 July 2003. In the absence of the completion
        and
     

     

     
        121
     

     

     
     

     
     
        NOTES RELATING TO FINANCIAL STATEMENTS
     

     
        filing with the SEC of Elan’s 2002 Annual Report on
        Form 20-F, the default under the indenture governing the 7.25% Senior Notes
        would have become an event of default on 16 September 2003.
     

     
        16   Creditors
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                At 31 December
 2003
 $m
             

          	
             
                    
             

          	
             
                At 31 December
 2002
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Amounts falling due within one year:
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Trade creditors
             

          	
             
                 
             

          	
             
                32.7
             

          	
             
                 
             

          	
             
                59.0
             

          	
             
                 
             

          
	
             
                Accrued liabilities
             

          	
             
                 
             

          	
             
                258.4
             

          	
             
                 
             

          	
             
                371.7
             

          	
             
                 
             

          
	
             
                Product acquisitions and alliances
             

          	
             
                 
             

          	
             
                19.4
             

          	
             
                 
             

          	
             
                277.6
             

          	
             
                 
             

          
	
             
                Other creditors
             

          	
             
                 
             

          	
             
                25.6
             

          	
             
                 
             

          	
             
                30.5
             

          	
             
                 
             

          
	
             
                Taxation and social security (Note 7)
             

          	
             
                 
             

          	
             
                29.4
             

          	
             
                 
             

          	
             
                60.0
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                365.5
             

          	
             
                 
             

          	
             
                798.8
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Amounts falling due after one year:
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Product acquisitions and alliances
             

          	
             
                 
             

          	
             
                11.2
             

          	
             
                 
             

          	
             
                204.6
             

          	
             
                 
             

          
	
             
                Other creditors
             

          	
             
                 
             

          	
             
                18.0
             

          	
             
                 
             

          	
             
                31.6
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                29.2
             

          	
             
                 
             

          	
             
                236.2
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        Product acquisitions and alliances
     

     
        At 31 December 2003, Elan included in creditors $30.6
        million relating to future payments and/or future potential payments on
        products. Of the $30.6 million, $19.4 million was owing at 31 December 2003 and
        $11.2 million was potentially payable, contingent on future events. Elan is a
        party to certain product acquisition or alliance agreements that contain staged
        or option payments which may be uncertain in amount, which may be paid at
        Elan’s discretion, such as upon the exercise of an option to acquire the
        product, or which must be paid upon the occurrence of future events, such as
        the attainment of pre-determined product revenue targets or other milestones.
        Elan has accrued $19.4 million within creditors (within one year), including
        $15.6 million for Maxipime/Azactam and $11.2 million within creditors (after
        one year) for Frova.
     

     
        At 31 December 2002, Elan included in creditors $482.2
        million relating to future payments and/or future potential payments on
        products. The reduction of $451.6 million from December 2002 to December 2003
        primarily reflects product payments made during the year of $212.4 million and
        product payment obligations assumed by King and aaiPharma of $218.8 million and
        $51.4 million, respectively.
     

     

     
        122
     

     

     
     

     
     
        The balance outstanding at 31 December was as
        follows:
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                2003
 $m
             

          	
             
                    
             

          	
             
                2002
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Within one year:
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Maxipime/Azactam
             

          	
             
                 
             

          	
             
                15.6
             

          	
             
                 
             

          	
             
                130.7
             

          	
             
                 
             

          
	
             
                Sonata
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                114.7
             

          	
             
                 
             

          
	
             
                Pain Portfolio
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                28.3
             

          	
             
                 
             

          
	
             
                Other
             

          	
             
                 
             

          	
             
                3.8
             

          	
             
                 
             

          	
             
                3.9
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                19.4
             

          	
             
                 
             

          	
             
                277.6
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                After one year:
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Sonata
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                146.0
             

          	
             
                 
             

          
	
             
                Pain Portfolio
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                49.1
             

          	
             
                 
             

          
	
             
                Frova
             

          	
             
                 
             

          	
             
                11.2
             

          	
             
                 
             

          	
             
                6.1
             

          	
             
                 
             

          
	
             
                Other
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                3.4
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                11.2
             

          	
             
                 
             

          	
             
                204.6
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        17   Share Capital
     

     
         
     

     	
             
                Authorised Share Capital

             

          	
             
                 
             

          	
             
                No. of Ordinary Shares
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                At 31 December 2003 and 2002:
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Ordinary Shares (par value 5 Euro cents)
             

          	
             
                 
             

          	
             
                600,000,000
             

          	
             
                 
             

          
	
             
                Executive Shares (par value 1.25 Euro)(the
                “Executive Shares”)
             

          	
             
                 
             

          	
             
                1,000
             

          	
             
                 
             

          
	
             
                “B” Executive Shares (par value 5 Euro
                cents)(the “B” Executive Shares”)
             

          	
             
                 
             

          	
             
                25,000
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                At 31 December 2003
             

          	
             
                    
             

          	
             
                At 31 December2002
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Issued and Fully Paid Share
                Capital
             

          	
             
                 
             

          	
             
                Number
             

          	
             
                    
             

          	
             
                $000s
             

          	
             
                    
             

          	
             
                Number
             

          	
             
                    
             

          	
             
                $000s
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Ordinary Shares
             

          	
             
                 
             

          	
             
                386,182,274
             

          	
             
                 
             

          	
             
                22,015
             

          	
             
                 
             

          	
             
                350,408,863
             

          	
             
                 
             

          	
             
                19,939
             

          	
             
                 
             

          
	
             
                Executive Shares
             

          	
             
                 
             

          	
             
                1,000
             

          	
             
                 
             

          	
             
                2
             

          	
             
                 
             

          	
             
                1,000
             

          	
             
                 
             

          	
             
                2
             

          	
             
                 
             

          
	
             
                “B” Executive Shares
             

          	
             
                 
             

          	
             
                21,375
             

          	
             
                 
             

          	
             
                2
             

          	
             
                 
             

          	
             
                21,375
             

          	
             
                 
             

          	
             
                2
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        On 5 November 2003, Elan announced that it had
        successfully completed a private offering of 35 million Ordinary Shares at a
        price of $4.95 per share.
     

     
        The Executive Shares do not confer on the holders thereof
        the right to receive notice of, attend or vote at any meetings of the Company,
        or the right to be paid a dividend out of the profits of the Company, except
        for such dividends as the directors may from time to time determine.
     

     
        The “B” Executive Shares confer on the holders
        thereof the same voting rights as are enjoyed by the holders of Ordinary
        Shares. The “B” Executive Shares do not confer on the holders thereof
        the right to be paid a dividend out of the profits of the Company except for
        such dividends as the directors may from time to time determine.
     

     
        Shares issuable at 31 December 2003 of $1.3 million relate
        to shares of Athena Neurosciences, Sano, Neurex, Liposome and Dura common stock
        remaining to be converted into Ordinary Shares pursuant to the acquisition of
        these companies and warrants over 1,500,000 Ordinary Shares valued at $16.4
        million issued to Eastman Kodak Company on the acquisition of NanoSystems by
        Elan.
     

     

     
        123
     

     

     
     

     
     
        NOTES RELATING TO FINANCIAL STATEMENTS 
     

     
        18   Profit and Loss
        Account
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                At 31 December
 2003
 $m
             

          	
             
                 
             

          	
             
                At 31 December
 2002
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Holding company
             

          	
             
                 
             

          	
             
                (4,110.6
             

          	
             
                )
             

          	
             
                (3,971.2
             

          	
             
                )
             

          
	
             
                Subsidiary and associated undertakings
             

          	
             
                 
             

          	
             
                (76.1
             

          	
             
                )
             

          	
             
                599.9
             

          	
             
                 
             

          
	
             
                Goodwill written-off
             

          	
             
                 
             

          	
             
                (574.3
             

          	
             
                )
             

          	
             
                (574.3
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                (4,761.0
             

          	
             
                )
             

          	
             
                (3,945.6
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        Elan has availed of the Companies (Amendment) Act 1986
        exemption from the requirement to present its separate non-consolidated profit
        and loss account. Of the consolidated net loss after tax, a loss of $139.4
        million (2002: $5,723.3 million) is dealt with in the profit and loss account
        of the Company. 
     

     
        19   Minority Interest
        
     

     
        The minority interest at 31 December 2002 related to the
        minority interest in Elan Pharma Taiwan and Elan Pharmaceutical Corporation,
        Philippines. These subsidiaries were sold during 2003. 
     

     
        20   Share Options and Warrants
        
     

     
        Share options have been granted to directors, employees,
        consultants and certain other parties. Options are granted at the price equal
        to the market value at the date of grant and will expire on a date not later
        than ten years after their grant. Options generally vest between one and five
        years from the date of grant. There were 48,737,057 options outstanding under
        these arrangements at 31 December 2003. 
     

     
        Under the terms of the 1986 and 1989 Elan employee stock
        option plans, options to purchase 44,400 Ordinary Shares were outstanding at 31
        December 2003. No options were available for grant under these plans at 31
        December 2003. Under the terms of the 1996 Elan stock option plans, options to
        purchase 9,290,558 Ordinary Shares were outstanding at 31 December 2003.
        Options to purchase a further 4,342,004 shares were available for grant at 31
        December 2003. Under the terms of the 1998 Elan employee stock option plan,
        options over 4,841,957 Ordinary Shares were outstanding at 31 December 2003. No
        options were available for grant under this plan at 31 December 2003. Under the
        terms of the 1999 Elan employee stock option plan, options over 33,758,641
        Ordinary Shares were outstanding at 31 December 2003. Options to purchase a
        further 2,802,142 shares were available for grant at 31 December 2003. 
     

     
        As a result of the acquisition of Athena Neurosciences on
        1 July 1996, options and warrants granted by Athena Neurosciences prior to the
        acquisition date vested and were converted into options and warrants to acquire
        6,346,424 Ordinary Shares. As a result of the acquisition of Sano on 27
        February 1998, options granted by Sano were converted into a total of 2,216,850
        options to acquire Ordinary Shares. As a result of the acquisition of Neurex on
        14 August 1998, options and warrants granted by Neurex were converted into a
        total of 3,011,702 options to acquire Ordinary Shares. As a result of the
        acquisition of Liposome on 12 May 2000, options and warrants granted by
        Liposome were converted into a total of 1,875,260 options to acquire Ordinary
        Shares. As a result of the acquisition of Dura on 9 November 2000, options and
        warrants granted by Dura vested and were converted into options and warrants to
        acquire 5,513,457 Ordinary Shares. At 31 December 2003, 563,332 of the options
        arising from the acquisitions of Athena Neurosciences, Sano, Neurex, Liposome
        and Dura were outstanding. 
     

     
        From January 1998, Elan was a party to a development and
        licence agreement (the “Neuralab Development Contract”) and a
        services agreement with Neuralab, to identify therapeutic compounds for use in
        the treatment of AD. In January 1998, a private placement of 1,250,000 units
        was completed. In connection with the Neuralab offering, Elan issued 1,250,000
        warrants. The warrants were exercisable at $65.01 for two Ordinary Shares until
        14 January 2003. 
     

     
        Arising from the acquisition by Elan of all the assets and
        liabilities of NanoSystems, Elan granted 750,000 warrants to purchase 1,500,000
        Ordinary Shares. The warrants are exercisable at $45.00 per share from 1
        February 1999 to 1 October 2006. 
     

     

     
        124
     

     

     
     

     
     
        The share options and warrants outstanding and exercisable
        are summarised as follows:
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                Options
             

          	
             
                 
             

          	
             
                Warrants
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                Shares
             

          	
             
                 
             

          	
             
                WAEP* ($)
             

          	
             
                 
             

          	
             
                Shares
             

          	
             
                 
             

          	
             
                WAEP* ($)
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Outstanding at 31 December 2000
             

          	
             
                 
             

          	
             
                43,651,900
             

          	
             
                 
             

          	
             
                29.77
             

          	
             
                 
             

          	
             
                16,349,266
             

          	
             
                 
             

          	
             
                26.95
             

          	
             
                 
             

          
	
             
                Exercised
             

          	
             
                 
             

          	
             
                (7,886,459
             

          	
             
                )
             

          	
             
                28.83
             

          	
             
                 
             

          	
             
                (10,227,644
             

          	
             
                )
             

          	
             
                19.20
             

          	
             
                 
             

          
	
             
                Granted
             

          	
             
                 
             

          	
             
                8,686,283
             

          	
             
                 
             

          	
             
                53.20
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Expired
             

          	
             
                 
             

          	
             
                (3,537,813
             

          	
             
                )
             

          	
             
                39.74
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Outstanding at 31 December 2001
             

          	
             
                 
             

          	
             
                40,913,911
             

          	
             
                 
             

          	
             
                34.06
             

          	
             
                 
             

          	
             
                6,121,622
             

          	
             
                 
             

          	
             
                39.89
             

          	
             
                 
             

          
	
             
                Exercised
             

          	
             
                 
             

          	
             
                (544,124
             

          	
             
                )
             

          	
             
                17.59
             

          	
             
                 
             

          	
             
                (7,432
             

          	
             
                )
             

          	
             
                28.01
             

          	
             
                 
             

          
	
             
                Granted
             

          	
             
                 
             

          	
             
                21,905,272
             

          	
             
                 
             

          	
             
                5.46
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Expired
             

          	
             
                 
             

          	
             
                (9,253,816
             

          	
             
                )
             

          	
             
                34.89
             

          	
             
                 
             

          	
             
                (1,045,246
             

          	
             
                )
             

          	
             
                46.05
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Outstanding at 31 December 2002
             

          	
             
                 
             

          	
             
                53,021,243
             

          	
             
                 
             

          	
             
                22.28
             

          	
             
                 
             

          	
             
                5,068,944
             

          	
             
                 
             

          	
             
                38.64
             

          	
             
                 
             

          
	
             
                Exercised
             

          	
             
                 
             

          	
             
                (764,944
             

          	
             
                )
             

          	
             
                2.39
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Granted
             

          	
             
                 
             

          	
             
                5,956,098
             

          	
             
                 
             

          	
             
                4.47
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Expired
             

          	
             
                 
             

          	
             
                (8,912,008
             

          	
             
                )
             

          	
             
                24.54
             

          	
             
                 
             

          	
             
                (2,494,498
             

          	
             
                )
             

          	
             
                32.51
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Outstanding at 31 December 2003
             

          	
             
                 
             

          	
             
                49,300,389
             

          	
             
                 
             

          	
             
                20.03
             

          	
             
                 
             

          	
             
                2,574,446
             

          	
             
                 
             

          	
             
                39.20
             

          	
             
                 
             

          
	
             
                Exercisable at 31 December 2003
             

          	
             
                 
             

          	
             
                32,060,013
             

          	
             
                 
             

          	
             
                24.11
             

          	
             
                 
             

          	
             
                2,574,446
             

          	
             
                 
             

          	
             
                39.20
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

     		
             
                *
             

          	
             
                Weighted average exercise price
             

          

     
        At 31 December 2003, the range of exercise prices and
        weighted average remaining contractual life of outstanding and exercisable
        options were as follows: 
     

     
         
     

     	
             
                Number
 Outstanding
             

          	
             
                 
             

          	
             
                WAEP ($)
             

          	
             
                 
             

          	Range ($)	
             
                 
             

          	
             
                Weighted Average
 Remaining Contractual
 Life (years)
             

          	
             
                 
             

          	
             
                Number
 Exercisable
             

          	
             
                 
             

          	
             
                WAEP ($)
             

          	
             
                 
             

          
	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                19,625,820
             

          	
             
                 
             

          	
             
                2.78
             

          	
             
                 
             

          	
             
                $1.93–$10.00
             

          	
             
                 
             

          	
             
                6.9
             

          	
             
                 
             

          	
             
                7,717,935
             

          	
             
                 
             

          	
             
                2.15
             

          	
             
                 
             

          
	
             
                11,151,496
             

          	
             
                 
             

          	
             
                17.08
             

          	
             
                 
             

          	
             
                $10.01–$25.00
             

          	
             
                 
             

          	
             
                3.9
             

          	
             
                 
             

          	
             
                8,974,149
             

          	
             
                 
             

          	
             
                17.82
             

          	
             
                 
             

          
	
             
                11,380,436
             

          	
             
                 
             

          	
             
                32.35
             

          	
             
                 
             

          	
             
                $25.01–$40.00
             

          	
             
                 
             

          	
             
                3.2
             

          	
             
                 
             

          	
             
                10,289,788
             

          	
             
                 
             

          	
             
                32.31
             

          	
             
                 
             

          
	
             
                7,142,637
             

          	
             
                 
             

          	
             
                52.39
             

          	
             
                 
             

          	
             
                $40.01–$58.60
             

          	
             
                 
             

          	
             
                4.6
             

          	
             
                 
             

          	
             
                5,078,141
             

          	
             
                 
             

          	
             
                51.98
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                49,300,389
             

          	
             
                 
             

          	
             
                20.03
             

          	
             
                 
             

          	
             
                $1.93–$58.60
             

          	
             
                 
             

          	
             
                5.0
             

          	
             
                 
             

          	
             
                32,060,013
             

          	
             
                 
             

          	
             
                24.11
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        21   Financial Instruments
        
     

     
        The Company uses derivative financial instruments to
        reduce exposure to market risk resulting from fluctuations in foreign exchange
        rates and interest rates. The Company does not enter into derivative financial
        instruments for trading or speculative purposes. 
     

     
        Derivative instruments are contractual agreements whose
        value reflects price movements in an underlying asset or liability. The Company
        uses derivatives, where appropriate, to generate the desired effective profile
        of currency and interest rate risk. 
     

     
        The main risks arising from the use of financial
        instruments are market rate risk and liquidity risk. Market rate risk is
        defined as the exposure of Elan to adverse movements in interest and foreign
        exchange risks. The Company only enters into contracts with parties that have
        at least an “A” or equivalent credit rating. The counterparties to
        these contracts are major financial institutions. Management believes that the
        risk of any net loss is remote and would not be material to the Company.
        
     

     
        Short term debtors and creditors have been excluded from
        all numerical disclosures below, excluding the currency rate risk analysis. As
        explained in Note 1 to the Consolidated Financial Statements, the financial
        statements are prepared in U.S. dollars and, therefore, the Company is exposed
        to foreign exchange risks related to costs incurred and revenues earned in
        currencies other than U.S. dollars. 
     

     

     
        125
     

     

  
     
        NOTES RELATING TO FINANCIAL STATEMENTS 
     

     
        a   Interest rate risk
        
     

     
        The interest rate risk profile of Elan’s financial
        liabilities was as follows: 
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                At 31 December 2003
             

          	
             
                 
             

          	
             
                At 31 December 2002
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Principal Currency
             

          	
             
                 
             

          	
             
                Fixed
 $m
             

          	
             
                 
             

          	
             
                Floating
 $m
             

          	
             
                 
             

          	
             
                No Interest
 $m
             

          	
             
                 
             

          	
             
                Total
 $m
             

          	
             
                 
             

          	
             
                Fixed
 $m
             

          	
             
                 
             

          	
             
                Floating
 $m
             

          	
             
                 
             

          	
             
                No Interest
 $m
             

          	
             
                 
             

          	
             
                Total
 $m
             

          	
             
                 
             

          
	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                U.S. Dollars
             

          	
             
                 
             

          	
             
                21.8
             

          	
             
                 
             

          	
             
                1.9
             

          	
             
                 
             

          	
             
                11.9
             

          	
             
                 
             

          	
             
                35.6
             

          	
             
                 
             

          	
             
                34.4
             

          	
             
                 
             

          	
             
                4.7
             

          	
             
                 
             

          	
             
                204.7
             

          	
             
                 
             

          	
             
                243.8
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        The following fixed-rate liabilities are not included in
        the above table: 
     

     
        EPIL II Notes due 2004—the liability outstanding on
        these notes at 31 December 2003 was $450.4 million (2002: $449.4 million)
        including interest accrued. 
     

     
        EPIL III Notes due 2005—the liability outstanding on
        these notes at 31 December 2003 was $389.7 million (2002: $387.7 million)
        including interest accrued. 
     

     
        3.25% Zero Coupon Subordinated Exchangeable Notes due 2018
        (LYONs)—the liability outstanding on these notes at 31 December 2003 was
        $0.9 million (2002: $779.0 million) including interest accrued. 
     

     
        7.25% Senior Notes due 2008—the liability outstanding
        on these notes at 31 December 2003 was $661.8 million (2002: $660.6 million)
        including interest accrued. 
     

     
        6.5% Convertible Notes due 2008—the liability
        outstanding at 31 December 2003 was $448.5 million (2002: $Nil) including
        interest accrued. 
     

     
        For additional information regarding the above debt,
        please refer to Note 15 to the Consolidated Financial Statements.
     

     
        All fixed-rate liabilities have a weighted average
        interest rate of 7.7% (2002: 6.4%), maturing between 2004 and 2008. The
        weighted average life of the fixed rate debt is 2.9 years (2002: 2.5 years).
        
     

     
        The weighted average period until maturity for financial
        liabilities on which no interest is paid is Nil (2002: 2.5 years). 
     

     
        Variable interest rates on liabilities were generally
        based on the appropriate LIBOR. 
     

     
        The interest rate risk profile of Elan’s financial
        assets was as follows: 
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                At 31 December 2003
             

          	
             
                 
             

          	
             
                At 31 December 2002
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                Fixed
 $m
             

          	
             
                 
             

          	
             
                Floating
 $m
             

          	
             
                 
             

          	
             
                No Interest
 $m
             

          	
             
                 
             

          	
             
                Total
 $m
             

          	
             
                 
             

          	
             
                Fixed
 $m
             

          	
             
                 
             

          	
             
                Floating
 $m
             

          	
             
                 
             

          	
             
                No Interest
 $m
             

          	
             
                 
             

          	
             
                Total
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Investments(1)
             

          	
             
                 
             

          	
             
                204.6
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                266.0
             

          	
             
                 
             

          	
             
                470.6
             

          	
             
                
             

          	
             
                392.9
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                353.3
             

          	
             
                 
             

          	
             
                746.2
             

          	
             
                 
             

          
	
             
                Cash and liquid resources
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                828.0
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                828.0
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                1,086.5
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                1,086.5
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     		
             
                (1)
             

          	
             
                Excludes investments in and loans to
                associates.
             

          

     
        Fixed interest rates on investments have a weighted
        average interest rate of 8.4% (2002: 7.6%), maturing between 2004 and 2006. The
        weighted average life of the fixed interest rate investments is 0.1 years
        (2002: 0.2 years). 
     

     
        Cash and liquid resources include restricted cash, held by
        EPIL II and EPIL III, in an amount of $21.1 million. 
     

     
        Variable interest rates on cash and liquid resources are
        generally based on the appropriate Euro Interbank Offered Rate, London
        Interbank Bid Rate or bank rates dependent on principal amounts on deposit.
        
     

     

     
        126
     

     

     
     

     
     
        b   Currency rate risk
        
     

     
        The Group has exposure to various reporting currencies due
        to the international nature of its operation. 
     

     
        The table below shows Elan’s currency exposure. Such
        exposure comprises the monetary assets and monetary liabilities of Elan that
        are not denominated in the operating currency of the operating unit involved.
        At 31 December 2003 and 2002, respectively, these exposures were as follows:
        
     

     
         
     

     	
             
                Net Foreign Currency
             

          	
             
                 
             

          	
             
                Functional Currency of Group Operation
             

          	
             
                 
             

          
	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Monetary (Liabilities)/Assets
             

          	
             
                 
             

          	
             
                At 31 December 2003
             

          	
             
                 
             

          	
             
                At 31 December 2002
             

          	
             
                 
             

          
	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                In U.S. $m
             

          	
             
                 
             

          	
             
                Swiss Francs
             

          	
             
                 
             

          	
             
                U.S. Dollar
             

          	
             
                 
             

          	
             
                Total
             

          	
             
                 
             

          	
             
                Swiss Francs
             

          	
             
                 
             

          	
             
                U.S. Dollar
             

          	
             
                 
             

          	
             
                Total
             

          	
             
                 
             

          
	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
 	
             
 	
             
 	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Sterling
             

          	
             
                 
             

          	
             
                (0.1
             

          	
             
                )
             

          	
             
                1.0
             

          	
             
                 
             

          	
             
                0.9
             

          	
             
                 
             

          	
             
                (0.1
             

          	
             
                )
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (0.1
             

          	
             
                )
             

          
	
             
                Euro
             

          	
             
                 
             

          	
             
                (0.2
             

          	
             
                )
             

          	
             
                (20.5
             

          	
             
                )
             

          	
             
                (20.7
             

          	
             
                )
             

          	
             
                (1.0
             

          	
             
                )
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (1.0
             

          	
             
                )
             

          
	
             
                Swiss Franc
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (0.2
             

          	
             
                )
             

          	
             
                (0.2
             

          	
             
                )
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (1.7
             

          	
             
                )
             

          	
             
                (1.7
             

          	
             
                )
             

          
	
             
                Israeli Shekel
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                0.1
             

          	
             
                 
             

          	
             
                0.1
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                0.2
             

          	
             
                 
             

          	
             
                0.2
             

          	
             
                 
             

          
	
             
                Taiwan Dollar
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (0.3
             

          	
             
                )
             

          	
             
                (0.3
             

          	
             
                )
             

          
	
             
                Canadian Dollar
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                0.4
             

          	
             
                 
             

          	
             
                0.4
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                1.2
             

          	
             
                 
             

          	
             
                1.2
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Total
             

          	
             
                 
             

          	
             
                (0.3
             

          	
             
                )
             

          	
             
                (19.2
             

          	
             
                )
             

          	
             
                (19.5
             

          	
             
                )
             

          	
             
                (1.1
             

          	
             
                )
             

          	
             
                (0.6
             

          	
             
                )
             

          	
             
                (1.7
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

     
        The amounts shown in the table above take into account the
        effect of forward contracts and other derivatives entered into to manage these
        currency exposures. 
     

     
        c   Fair values
        
     

     
        Fair value is the amount at which a financial instrument
        could be exchanged in an arm’s-length transaction between informed and
        willing parties, other than in a forced or liquidation sale. 
     

     
        The following methods and assumptions were used to
        estimate the fair value of each material class of financial instrument: 

     

     
        Financial assets—the fair values of financial assets
        have been estimated for quoted equity securities utilising quoted market
        prices, for debt securities by methods including utilising current market
        interest rates for loans with similar risk and duration profile and for
        material unquoted equity investments generally by the most recent private
        financing prices, discounted projected future cash flows and option valuation
        models. The fair values of marketable securities, including interest rate
        futures, have been estimated based on quotes obtained from brokers for these
        and similar instruments. 
     

     
        Cash and liquid resources—carrying amount
        approximates fair value due to the short term nature of these instruments.
        
     

     
        3.25% Zero Coupon Subordinated Exchangeable Notes (LYONs),
        6.5% Convertible Notes and 7.25% Senior Notes—the fair values have been
        assessed based on the quoted market price. 
     

     
        EPIL II Notes and EPIL III Notes—the fair values have
        been assumed to be the carrying values. 
     

     
        The carrying value of financial instruments below have
        been stated before financing costs and include accrued interest. 
     

     

     
        127
     

     

     
     

     
     
        NOTES RELATING TO FINANCIAL STATEMENTS 
     

     
        The fair value of financial instruments was as follows:
        
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                At 31 December 2003
             

          	
             
                   
             

          	
             
                At 31 December 2002
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Financial Instruments
             

          	
             
                 
             

          	
             
                Carrying
 Value
                
 $m
             

          	
             
                   
             

          	
             
                Fair 
 Value
                
 $m
             

          	
             
                   
             

          	
             
                Carrying
 Value
                
 $m
             

          	
             
                   
             

          	
             
                Fair 
 Value
                
 $m
             

          	
             
                 
             

          
	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
 	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Financial assets(1)
             

          	
             
                 
             

          	
             
                470.6
             

          	
             
                
             

          	
             
                665.1
             

          	
             
                
             

          	
             
                746.2
             

          	
             
                 
             

          	
             
                795.0
             

          	
             
                 
             

          
	
             
                Cash and liquid resources
             

          	
             
                 
             

          	
             
                828.0
             

          	
             
                 
             

          	
             
                828.0
             

          	
             
                 
             

          	
             
                1,086.5
             

          	
             
                 
             

          	
             
                1,086.5
             

          	
             
                 
             

          
	
             
                6.5% Convertible Notes(2)
             

          	
             
                 
             

          	
             
                (464.2
             

          	
             
                )
             

          	
             
                (594.1
             

          	
             
                )
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                EPIL II Notes(2)
             

          	
             
                 
             

          	
             
                (450.4
             

          	
             
                )
             

          	
             
                (450.4
             

          	
             
                )
             

          	
             
                (450.4
             

          	
             
                )
             

          	
             
                (450.4
             

          	
             
                )
             

          
	
             
                EPIL III Notes(2)
             

          	
             
                 
             

          	
             
                (390.2
             

          	
             
                )
             

          	
             
                (390.2
             

          	
             
                )
             

          	
             
                (390.2
             

          	
             
                )
             

          	
             
                (390.2
             

          	
             
                )
             

          
	
             
                3.25% Zero Coupon Subordinated Exchangeable Notes
                (LYONs)(2)
             

          	
             
                 
             

          	
             
                (0.9
             

          	
             
                )
             

          	
             
                (0.9
             

          	
             
                )
             

          	
             
                (792.3
             

          	
             
                )
             

          	
             
                (636.0
             

          	
             
                )
             

          
	
             
                7.25% Senior Notes(2)
             

          	
             
                 
             

          	
             
                (666.7
             

          	
             
                )
             

          	
             
                (600.4
             

          	
             
                )
             

          	
             
                (666.7
             

          	
             
                )
             

          	
             
                (371.0
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     		
             
                (1)
             

          	
             
                Excludes investments in and loans to associates.
                
             

          

     		
             
                (2)
             

          	
             
                Before financing costs. 
             

          

     
        d   Liquidity risk
        
     

     
        The objective of liquidity management is to ensure the
        availability of sufficient funds to meet Elan’s requirements and to repay
        maturing debt. 
     

     
        The maturity profile of Elan’s financial liabilities
        was as follows: 
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                At 31 December
 2003
 $m
             

          	
             
                   
             

          	
             
                At 31 December
 2002
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                In one year or less, or on demand
             

          	
             
                 
             

          	
             
                7.0
             

          	
             
                   
             

          	
             
                7.6
             

          	
             
                 
             

          
	
             
                In more than one year but not more than two
                years
             

          	
             
                 
             

          	
             
                17.7
             

          	
             
                 
             

          	
             
                111.7
             

          	
             
                 
             

          
	
             
                In more than two years but not more than five
                years
             

          	
             
                 
             

          	
             
                8.9
             

          	
             
                 
             

          	
             
                113.5
             

          	
             
                 
             

          
	
             
                In more than five years
             

          	
             
                 
             

          	
             
                2.0
             

          	
             
                 
             

          	
             
                11.0
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                35.6
             

          	
             
                 
             

          	
             
                243.8
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        The above table excludes the maturity of the EPIL II
        Notes, the EPIL III Notes, the 7.25% Senior Notes, the 6.5% Convertible Notes
        and the 3.25% Zero Coupon Subordinated Exchangeable Notes (LYONs) which mature
        in 2004, 2005, 2008, 2008 and 2018, respectively. 
     

     
        For additional information on liquidity, please refer to
        the Financial Review. 
     

     
        e   Derivative instruments
        
     

     
        Under Elan’s accounting policy, foreign currency
        options and forward exchange contracts are valued at fair value. Consequently,
        changes in fair value attributable to movements in exchange rates are
        recognised in the profit and loss account. 
     

     
        At 31 December 2003, Elan had not entered into forward
        foreign exchange contracts or foreign currency options. 
     

     
        At 31 December 2002, Elan had entered into a number of
        forward foreign exchange contracts and foreign currency options at various
        rates of exchange in the normal course of business. The nominal value of
        forward foreign exchange contracts to sell Japanese Yen for U.S. dollars at
        that date was $7.9 million and these contracts had a fair value loss of $0.4
        million. These contracts all expired on various dates up to and including
        September 2003. 
     

     
        The nominal value of forward foreign exchange contracts to
        sell U.S. dollars for Euro at 31 December 2003 was $Nil (2002: $39.8 million)
        and these contracts had a fair value of $Nil (2002: $5.0 million gain). These
        contracts all expired on various dates up to and including October 2003.
        
     

     

     
        128
     

     

     
     

     
     
        The nominal value of forward foreign exchange contracts to
        sell U.S. dollars for Sterling at 31 December 2003 was $Nil (2002: $4.6
        million) and these contracts had a fair value of $Nil (2002: $0.2 million
        gain). These contracts all expired by June 2003. 
     

     
        The nominal value of currency options to sell U.S. dollars
        for Euro at 31 December 2003 amounted to $Nil (2002: $24.0 million) and these
        options had a fair value of $Nil (2002: $3.0 million gain). These options
        expired on various dates up to and including December 2003. 
     

     
        In February 2001, Elan raised $650.0 million of 7.25%
        Senior Notes due 2008. On 14 January 2002, Elan entered into an interest rate
        swap to convert its fixed rate interest obligations for $100.0 million of the
        7.25% Senior Notes to variable rate interest obligations. The swap had a fair
        value gain of $8.5 million at 31 December 2003 (2002: $8.1 million gain).
        
     

     
        f   Sensitivity analysis
        
     

     
        A sensitivity analysis of the market value of Elan’s
        financial instruments to hypothetical changes in applicable market rates at 31
        December 2003 indicated that their effect would not be material. The range
        scenario included was based on Elan’s expectation of what would be
        reasonable on a 12 month time frame and involved a 10% movement in foreign
        exchange rates and a 1% movement in interest rates. The effect of such an
        adverse movement in rates would be a decrease in income of approximately $8
        million. 
     

     
        Elan is exposed to equity price risks primarily on equity
        investments in quoted companies. At 31 December 2003, quoted securities had a
        fair value of $204.2 million and had a cost of $102.2 million. These
        investments are primarily in emerging pharmaceutical and biotechnology
        companies. A 10% adverse change in equity prices would result in an approximate
        $20 million decrease in the fair value of these quoted securities. 
     

     
        22   Acquisitions and Disposals
        of Subsidiary Undertakings 
     

     
        Details of the disposal of subsidiary undertakings are
        given below: 
     

     
         
     

     	
             
                2003
             

          	
             
                 
             

          	
             
                Net Cash
 Proceeds
 $m
             

          	
             
                    
             

          	
             
                Net Assets
 Disposed
 $m
             

          	
             
                    
             

          	
             
                Net
 Loss
 $m
             

          	
             
                 
             

          
	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                ETT
             

          	
             
                 
             

          	
             
                44.7
             

          	
             
                    
             

          	
             
                75.0
             

          	
             
                    
             

          	
             
                (30.3
             

          	
             
                )
             

          
	
             
                Other
             

          	
             
                 
             

          	
             
                1.4
             

          	
             
                 
             

          	
             
                3.8
             

          	
             
                 
             

          	
             
                (2.4
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        On 3 July 2003, Elan sold ETT to Nitto Americas. Other
        subsidiary undertakings sold includes Elan Drug Delivery Ltd, sold on 10 July
        2003; Elan Pharma Taiwan sold on 24 March 2003 and Elan Pharmaceutical
        Corporation, Philippines sold in January 2003. 
     

     
         
     

     	
             
                2002
             

          	
             
                 
             

          	
             
                Net Cash
 Proceeds
 $m
             

          	
             
                    
             

          	
             
                Net Assets
 Disposed
 $m
             

          	
             
                    
             

          	
             
                Net
 Gain
 $m
             

          	
             
                 
             

          
	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Athena Diagnostics
             

          	
             
                 
             

          	
             
                81.8
             

          	
             
                    
             

          	
             
                16.6
             

          	
             
                    
             

          	
             
                65.2
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        On 19 December 2001, Elan sold approximately 20% of Athena
        Diagnostics for cash in a private placement, resulting in $41.9 million of
        gross proceeds to Elan, before accrued costs. On 31 December 2002, Elan
        together with the other stockholders of Elan’s subsidiary, Athena
        Diagnostics, completed the sale of all of the outstanding stock of Athena
        Diagnostics to Behrman. Elan realised net cash proceeds of $81.8 million and a
        net gain of $65.2 million after adjusting for net assets sold. 
     

     
        Details of the acquisition of a subsidiary undertaking are
        given below: 
     

     
        2001
     

     
        Delsys 
     

     
        In September 2001, Elan acquired Delsys. The total
        consideration amounted to $50.0 million. This included cash paid together with
        the cost of Elan’s existing investment in the Company. Net liabilities
        assumed amounted to $1.2 million. Delsys was formed in 1995 and was 
     

     

     
        129
     

     

     
     

     
     
        NOTES RELATING TO FINANCIAL STATEMENTS 
     

     
        engaged in developing novel manufacturing technology. The
        purchase of Delsys was accounted for as an acquisition. At the date of
        acquisition, the fair value adjustment related to technologies of Delsys, which
        are separable from the business, was $51.2 million. During 2002, Elan recorded
        an impairment charge of $45.7 million as under its recovery plan Elan decided
        to close Delsys. 
     

     
        23   Commitments and
        Contingencies 
     

     
        The Company and its subsidiaries occupy certain facilities
        under lease arrangements and lease certain equipment. Future minimum rental
        commitments for operating leases with non-cancellable terms in excess of one
        year are as follows: 
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                Minimum Rental Payments
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                Premises
 $m
             

          	
             
                   
             

          	
             
                Other
 $m
             

          	
             
                   
             

          	
             
                Total 
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                2004
             

          	
             
                 
             

          	
             
                19.1
             

          	
             
                 
             

          	
             
                0.7
             

          	
             
                 
             

          	
             
                19.8
             

          	
             
                 
             

          
	
             
                2005
             

          	
             
                 
             

          	
             
                17.6
             

          	
             
                 
             

          	
             
                0.7
             

          	
             
                 
             

          	
             
                18.3
             

          	
             
                 
             

          
	
             
                2006
             

          	
             
                 
             

          	
             
                18.0
             

          	
             
                 
             

          	
             
                0.2
             

          	
             
                 
             

          	
             
                18.2
             

          	
             
                 
             

          
	
             
                2007
             

          	
             
                 
             

          	
             
                12.7
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                12.7
             

          	
             
                 
             

          
	
             
                2008
             

          	
             
                 
             

          	
             
                14.5
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                14.5
             

          	
             
                 
             

          
	
             
                Later years
             

          	
             
                 
             

          	
             
                74.1
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                74.1
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                156.0
             

          	
             
                 
             

          	
             
                1.6
             

          	
             
                 
             

          	
             
                157.6
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        As of 31 December 2003, the Company had commitments under
        finance leases as follows:
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                2003
 $m
             

          	
             
                   
             

          	
             
                2002
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Within one year
             

          	
             
                 
             

          	
             
                14.9
             

          	
             
                 
             

          	
             
                14.6
             

          	
             
                 
             

          
	
             
                In more than one year, but not more than five
                years
             

          	
             
                 
             

          	
             
                39.8
             

          	
             
                 
             

          	
             
                40.3
             

          	
             
                 
             

          
	
             
                After five years
             

          	
             
                 
             

          	
             
                62.1
             

          	
             
                 
             

          	
             
                62.1
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Total gross payments
             

          	
             
                 
             

          	
             
                116.8
             

          	
             
                 
             

          	
             
                117.0
             

          	
             
                 
             

          
	
             
                Less: finance charges included above
             

          	
             
                 
             

          	
             
                (31.4
             

          	
             
                )
             

          	
             
                (30.0
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                85.4
             

          	
             
                 
             

          	
             
                87.0
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        As of 31 December 2003, the following capital commitments
        for the purchase of property, plant and equipment had been authorised by the
        directors: 
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                At 31 December 
 2003
 $m
             

          	
             
                   
             

          	
             
                At 31 December 
 2002
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Contracted for
             

          	
             
                 
             

          	
             
                8.8
             

          	
             
                 
             

          	
             
                30.4
             

          	
             
                 
             

          
	
             
                Not-contracted for
             

          	
             
                 
             

          	
             
                4.2
             

          	
             
                 
             

          	
             
                6.5
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                13.0
             

          	
             
                 
             

          	
             
                36.9
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        In prior years, Elan disposed of plant and equipment and
        subsequently leased the plant and equipment back and also entered into an
        arrangement with a third party bank, the substance of which allows the Company
        to require a net settlement of its obligations under the leases. The related
        assets and liabilities of these previous sale and leaseback transactions have
        been offset in the financial statements in the amount of $63.8 million at 31
        December 2003 (2002: $56.2 million). 
     

     
        At 31 December 2003, Elan had commitments to invest $3.8
        million (2002: $3.2 million) in healthcare managed funds. 
     

     
        At 31 December 2003, the Company had deferred purchase
        arrangements for certain products, which amounted to $4.5 million (2002: $4.5
        million). These payments were dependent on various approvals and milestones
        being met. These deferred purchase arrangements were transferred to Medeus upon
        disposal of the European sales and marketing business in 2004. 
     

     

     
        130
     

     

     
     

     
     
        Elan, in disposing of assets or businesses, often provides
        customary representations, warranties and indemnities (if any) to cover various
        risks. Elan does not have the ability to estimate the potential liability from
        such indemnities because they relate to unknown conditions. However, Elan has
        no reason to believe that these uncertainties would have a material adverse
        effect on the Group’s financial condition or results of operations.
        
     

     
        24   Risk-sharing arrangements
        
     

     
        Pharma Marketing 
     

     
        In June 2000, Elan disposed of royalty rights on certain
        products and development projects to Pharma Marketing. Pharma Marketing
        completed a private placement of its common shares to a group of institutional
        investors, resulting in gross proceeds of $275.0 million. Elan holds no
        investment in Pharma Marketing and has no representative on its board of
        directors. Concurrent with the private placement, Pharma Marketing entered into
        a Program Agreement with Elan. The Program Agreement, which substantially
        regulated the relationship between Elan and Pharma Marketing, represents a
        risk-sharing arrangement between Elan and Pharma Marketing. Under the terms of
        the Program Agreement, Pharma Marketing acquired certain royalty rights to each
        of the following products for the designated indications (including any other
        product which contains the active ingredient included in such product for any
        other designation): (i) Frova, for the treatment of migraine; (ii)
        Myobloc, for the treatment
        of cervical dystonia; (iii) Prialt, for the treatment of acute pain and severe chronic pain; (iv)
        Zanaflex, for the treatment
        of spasticity and painful spasm; and (v) Zonegran, for the treatment of
        epilepsy. Pharma Marketing agreed to make payments to Elan in amounts equal to
        expenditures made by Elan in connection with the commercialisation and
        development of these products, subject to certain limitations. These payments
        were made on a quarterly basis based on the actual costs incurred by Elan. Elan
        did not receive a margin on these payments. 
     

     
        Elan received no revenue from Pharma Marketing during
        2003. Elan’s revenue from Pharma Marketing was $31.3 million for 2002,
        consisting of $24.0 million for commercialisation expenditures, which has been
        recorded as product revenue, and $7.3 million for development expenditures,
        which has been recorded as contract revenue. Pursuant to the Program Agreement,
        Pharma Marketing utilised all of its available funding by mid-2002. Elan will
        not receive any future revenue from Pharma Marketing. Elan’s revenue from
        Pharma Marketing was $189.8 million for 2001, consisting of $141.8 million for
        commercialisation expenditures, and $48.0 million for development expenditures.
        In 2003, the royalty rate on net sales of all designated products was 27.71% on
        the first $122.9 million of net sales and 52.5% for net sales above $122.9
        million. In 2002, the royalty rate on net sales of all designated products was
        15.79% on the first $122.9 million of net sales and 3.51% for net sales above
        $122.9 million. In 2001, the royalty rate on net sales of Zanaflex was 8.44% on the first $38.0
        million of net sales and 1.88% for net sales of Zanaflex above $38.0 million. No royalties
        were payable on the other products in 2001. Elan paid aggregate royalties of
        $43.3 million for 2003 (2002: $24.1 million; 2001: $5.6 million). This was
        recorded as a cost of sale. 
     

     
        In December 2001, the Program Agreement was amended such
        that Elan re-acquired the royalty rights to Myobloc and disposed of royalty rights on
        Sonata to Pharma Marketing. The amendment was transacted at estimated fair
        value. The board of directors and shareholders of Pharma Marketing approved
        this amendment. The estimated difference in relative fair value between the
        royalty rights on Sonata and the royalty rights on Myobloc was $60.0 million. This amount was
        paid to Pharma Marketing by Elan in cash and was capitalised by Elan as an
        intangible asset. 
     

     
        Under the original agreements, Elan could have, at its
        option at any time prior to 30 June 2003, acquired the royalty rights by
        initiating an auction process. This date was extended to 3 January 2005 under
        the settlement with Pharma Marketing and Pharma Operating described below. In
        addition, the holders of Pharma Marketing common shares were entitled to
        initiate the auction process earlier upon the occurrence of certain events.
        Pursuant to the auction process, the parties were to negotiate in good faith to
        agree on a purchase price, subject to Elan’s right to re-acquire the
        royalty rights at a maximum purchase price. The maximum purchase price was
        approximately $413 million at 31 December 2002 and increased by approximately
        25% annually (less royalty payments). The purchase price was reduced under the
        settlement with Pharma Marketing and Pharma Operating described below. 
     

     
        On 17 January 2003, Elan announced that Pharma Operating
        had filed a lawsuit in the Supreme Court of the State of New York against Elan
        and certain of its subsidiaries in connection with the risk-sharing arrangement
        between the parties. The lawsuit sought, among other things, a court
        determination that Pharma Operating’s approval would be required in the
        event of a sale by Elan of its interest in Sonata to a third party. On 30
        January 2003, Elan, Pharma Operating and its parent, Pharma Marketing agreed to
        settle the lawsuit and, under the terms of the settlement agreement, Pharma
        Operating dismissed the litigation between the parties without prejudice.
        Pursuant to the settlement agreement, effective upon the sale of Sonata to King
        on 12 June 2003, (i) Elan paid Pharma Operating $196.4 million in cash
        (representing $225.0 million less royalty payments on all related products paid
        or due to Pharma Operating from 1 January 2003 
     

     

     
        131
     

     

     
     

     
     
        NOTES RELATING TO FINANCIAL STATEMENTS 
     

     
        through 12 June 2003) to acquire Pharma Operating’s
        royalty rights with respect to Sonata and Prialt and (ii) Elan’s maximum purchase
        price for the remaining products in the arrangement, Zonegran, Frova and
        Zanaflex, was reduced to
        $110.0 million, which increased at a rate of 15% per annum from 12 June 2003
        (less royalty payments made for periods after 12 June 2003). The parties also
        agreed to extend Elan’s purchase option termination date to 3 January 2005
        from the original termination date of 30 June 2003. 
     

     
        In connection with the settlement agreement, Elan agreed
        that it would cause certain subsidiaries in the United States, Ireland, the
        United Kingdom, Germany, France, Spain and Italy to pledge their accounts
        receivable from commercial sales of pharmaceutical products and services to
        Pharma Operating as collateral to secure Elan’s obligations in relation to
        royalty payments under the Pharma Marketing arrangement and the settlement
        agreement. Elan also agreed that, following the closing of a sale of Sonata, it
        would grant Pharma Operating additional collateral to the extent that the
        aggregate value of the collateral package, which was to be tested on a
        quarterly basis, was less than the maximum purchase price for the royalty
        rights on Zonegran, Frova and Zanaflex. On 6 March 2003, EPI and Pharma Operating entered into a security
        agreement pursuant to which EPI granted Pharma Operating a first priority
        security interest in its accounts receivable from commercial sales of
        pharmaceutical products in the United States. On that same date, Elan and
        Pharma Operating agreed to the terms of the additional collateral mechanism. On
        20 May 2003, EPL and Pharma Operating entered into a security agreement
        pursuant to which EPL granted Pharma Operating a security interest in its
        accounts receivable from commercial sales of pharmaceutical products and
        services in the United Kingdom. A similar agreement was entered into in
        relation to Ireland by Elan Pharma Limited (Ireland) on 10 June 2003. 
     

     
        In November 2003, Elan exercised its option to purchase
        the remaining royalty rights in respect of Zonegran, Frova and Zanaflex from Pharma Operating for $101.2
        million. As a result, all of Elan’s agreements with Pharma Marketing were
        terminated. During 2003, Elan expensed $297.6 million as an exceptional
        selling, general and administrative expense arising from the acquisition of
        royalty rights from Pharma Operating. 
     

     
        Autoimmune 
     

     
        In December 2001, Autoimmune, in an initial tranche,
        completed a private placement of its common shares to a group of institutional
        investors, resulting in gross proceeds to Autoimmune of $95.0 million. In the
        same initial tranche, Elan purchased non-voting preferred shares of
        Autoimmune’s subsidiary for an aggregate purchase price of $37.5 million.
        Elan had no representative on the board of directors of Autoimmune. The
        existing group of institutional investors and Elan also committed to a second
        investment tranche in the same amounts to be completed in April 2003, subject
        to certain conditions. Autoimmune entered into a Program Agreement with Elan.
        The Program Agreement, which substantially regulated the relationship between
        Elan and Autoimmune, represented a risk-sharing arrangement among the
        companies. Under the terms of the Program Agreement, Autoimmune acquired
        royalty rights to each of the following products and development projects for
        the designated indications: (i) Antegren, for the treatment of relapsing
        forms of MS, moderate-to-severe inflammatory bowel disease, including
        Crohn’s disease and ulcerative colitis, and moderate-to-severe rheumatoid
        arthritis; (ii) Maxipime,
        for the treatment of infection; (iii) Azactam, for the treatment of infection; and
        (iv) Abelcet, for the treatment of severe fungal infection. Autoimmune also
        acquired royalty rights on certain development projects, as well as any other
        product subsequently developed or acquired by Elan that had an indication
        substantially the same as Maxipime, Azactam, or
        Abelcet and that would be in direct competition with Maxipime, Azactam or Abelcet. Autoimmune agreed to
        make payments to Elan in amounts equal to expenditures made by Elan in
        connection with the commercialisation and development of these products,
        subject to certain limitations. These payments were to be made on a quarterly
        basis based on actual costs incurred by Elan. Elan did not receive a margin on
        these payments. Elan’s revenue from Autoimmune was $68.7 million for 2002
        (2001: $26.6 million), consisting of $38.8 million (2001: $15.9 million) for
        commercialisation expenditures, which has been recorded as product revenue, and
        $29.9 million (2001: $10.7 million) for development expenditures, which has
        been recorded as contract revenue. Elan has received no revenue from Autoimmune
        since June 2002. Elan will not receive any future revenue from Autoimmune. No
        royalties were payable to Autoimmune by Elan in 2003, 2002 or 2001. 
     

     
        Under the original agreement, Elan could, at its option at
        any time prior to April 2005, acquire the royalty rights by initiating an
        auction process. In addition, the holders of the Autoimmune common shares could
        initiate the auction process earlier upon the occurrence of certain events. If
        the auction process had not been initiated prior to October 2004, it would have
        automatically commenced. Pursuant to the auction process, Elan and Autoimmune
        would have negotiated in good faith to agree on a purchase price, subject to
        Elan’s right to re-acquire the royalty rights at a maximum purchase price.
        This maximum purchase price increased at various rates, approximately 25%
        annually, subject to certain conditions. 
     

     
        In July 2002, Elan announced the termination of all
        agreements relating to the risk-sharing arrangement with Autoimmune. The
        royalty obligations to Autoimmune were terminated. The total consideration for
        the royalty rights was $121.0 million which, after taking 
     

     

     
        132
     

     

     
     

     
     
        account of the redemption of Elan’s investment of
        $38.5 million in Autoimmune, resulted in a net cash cost of $82.5 million. Elan
        expensed $121.0 million as an exceptional selling, general and administrative
        expense arising from the acquisition of royalty rights from Autoimmune. 

     

     
        25   Litigation 
     

     
        Elan is involved in various legal and administrative
        proceedings, relating to securities matters/SEC investigation, patent matters,
        antitrust matters and other matters. The most significant of these matters are
        described below. 
     

     
        Elan recorded a provision during 2003 of $11.1 million
        relating to the litigation with Allergan and BioPort Corporation
        (“BioPort”) described below. With the exception of the litigations
        with Allergan and BioPort, Elan does not believe that it is feasible to predict
        or determine the outcomes of the pending actions, investigations and
        proceedings and any possible effect on the Group’s business or to
        reasonably estimate the amounts of minimum losses or potential range of losses,
        if any, with respect to the pending actions, investigations and proceedings.
        The costs and other effects of pending or future litigation, governmental
        investigations, legal and administrative cases and proceedings, settlements,
        judgements and claims, and changes in those matters (including the matters
        described below) and developments or assertions by or against the Group
        relating to intellectual property, could have a material adverse effect on the
        Group’s business, financial condition, results of operations and
        liquidity. 
     

     
        Securities matters/SEC investigation 

     

     
        Commencing in January 1999, several class actions were
        filed in the U.S. District Court for the Southern District of California
        against Dura, one of Elan’s subsidiaries, and various then current or
        former officers of Dura. The actions, which allege violations of the U.S.
        federal securities laws, were consolidated and purport to seek damages on
        behalf of a class of shareholders who purchased Dura common stock during a
        defined period. In July 2000, the court issued an order granting the
        defendants’ motion to dismiss the complaint without prejudice on the basis
        that it failed to state an actionable claim. In November 2001, the court
        granted Dura’s motion to dismiss with prejudice and judgement was entered
        in Dura’s favour. In December 2001, plaintiffs filed an appeal of the
        judgement with the Ninth Circuit Court of Appeals. Oral argument was held on 4
        February 2003. On 5 August 2003, the Ninth Circuit issued its opinion,
        reversing the lower court’s prior dismissal. A timely petition for
        rehearing en banc was filed, but was denied by the Ninth Circuit on 29
        September 2003. Thereafter, Elan petitioned the U.S. Supreme Court for a writ
        of certiorari. On 5 March 2004, the U.S. Supreme Court reviewed Elan’s
        petition and asked the U.S. Solicitor General’s office to submit a brief
        on whether the case should be accepted for review. If the matter is accepted
        for review, it will be heard in the term commencing in October 2004. If the
        writ is denied, then the Elan parties will return to District Court and begin
        the pleading process in the underlying action. 
     

     
        The Company and certain of its former and current officers
        and directors are named as defendants in a putative class action in the U.S.
        District Court for the Southern District of New York, which consolidated
        several class actions filed in early 2002 (the “Class Action”). The
        amended and consolidated complaint filed 24 January 2003 in the action (the
        “Complaint”) alleges claims under the U.S. federal securities laws,
        specifically, Sections 11, 12(a)(2) and 15 of the Securities Act of 1933, as
        amended (the “1933 Act”), and Sections 10(b), 14(a) and 20(a) of the
        1934 Act, and Rule 10b-5 promulgated thereunder. The Complaint alleges claims
        on behalf of classes of persons and entities who purchased securities of the
        Company during periods of time commencing on 7 February 2000 and ending on 1
        July 2002. The Complaint also alleges claims on behalf of two sub-classes that
        consist of persons and entities who held stock in Dura and Liposome and
        exchanged such stock for ADSs in Elan pursuant to those companies’ mergers
        with the Company in 2000. In addition to the Company, defendants named in the
        Complaint include Donal J. Geaney, Thomas G. Lynch, Shane M. Cooke, William F.
        Daniel, KPMG LLP and KPMG, Chartered Accountants. The Complaint alleges that
        the Company’s financial statements were not in accordance with generally
        accepted accounting principles, and that the defendants disseminated materially
        false and misleading information concerning the Company’s business and
        financial results, with respect to the Company’s investments in certain
        business ventures and business venture parents and the licence fees and
        research revenues received from the business ventures; the accounting for
        proceeds from the Company’s sale of certain product lines and disclosure
        concerning those sales; the accounting for certain risk-sharing arrangements
        that the Company entered into and disclosure concerning those arrangements; the
        accounting for certain qualified special purpose entities and disclosure
        concerning those entities; the disclosure of compensation of certain officers
        of the Company; and certain alleged related party transactions. The Complaint
        seeks compensatory damages and other relief that the court may deem just and
        proper. Elan and the individual defendants moved to dismiss the Complaint on 25
        March 2003. The motions to dismiss have been fully briefed, however, the court
        has not issued its decision. 
     

     
        The Company was a nominal defendant in two derivative
        actions filed against certain of its former and current directors and certain
        of its former and current officers on or about 14 March 2002 and 20 March 2002
        in the Superior Court of the State of California, County of 
     

     

     
        133
     

     

     
     

     
     
        NOTES RELATING TO FINANCIAL STATEMENTS 
     

     
        San Diego. The two actions were consolidated, and the
        plaintiffs filed a consolidated complaint. The complaint contained allegations
        similar to those set forth in the foregoing actions, but alleged, among other
        things, that the defendant officers and directors breached their duties to the
        Company by causing the Company to undertake the actions alleged in the
        complaint. Among other relief, the action sought damages against the defendant
        officers and directors on behalf of the Company. The individual defendants
        filed motions to dismiss on the grounds of lack of personal jurisdiction, and
        all of the defendants filed a motion to dismiss on the grounds of
        forum non conveniens, or
        inconvenient forum. In October 2003, the Company settled this matter and the
        lawsuit was dismissed. Pursuant to the terms of the parties’ settlement,
        the Company agreed to adopt certain corporate governance provisions and to pay
        plaintiffs’ attorneys fees in the amount of $527,495. 
     

     
        The Company is the subject of an investigation by the
        SEC’s Division of Enforcement commenced on or about 12 February 2002,
        which the Company believes relates primarily to the issues described in the
        immediately preceding two paragraphs. Elan is unable to predict or determine
        the outcome of the Class Action or the SEC investigation or to reasonably
        estimate the amounts or range of loss, if any, with respect to the resolution
        of the Class Action or the SEC investigation. Elan is also unable to predict or
        determine the impact, if any, that the 2001 U.S. GAAP restatement may have on
        the outcome of the Class Action. In addition, the timing and final resolution
        of the Class Action and SEC investigation is uncertain. The Company continues
        to believe that it has prepared its financial statements in accordance with
        applicable GAAP (subject to the restatement relating to EPIL III under U.S.
        GAAP, described on pages 150 to 154). The findings and outcome of the SEC
        investigation may adversely affect the course of the Class Action. The possible
        outcome or resolution of the SEC investigation or the Class Action could
        require Elan to make substantial payments. 
     

     
        Patent matters 
     

     
        In October 1998, Elan filed a patent infringement action
        in the U.S. District Court for the Southern District of Florida against Andrx
        alleging that, by its submission of an ANDA for a generic version of
        Naprelan, which submission
        included a paragraph IV certification, Andrx infringed Elan’s U.S. Patent
        No. 5,637,320 (the “320 patent”). In March 2002, the court issued a
        decision finding the 320 patent invalid and dismissed the action. The court did
        not consider the issue of infringement. In March 2003, the court denied
        Elan’s motion for reconsideration and confirmed its previous finding of
        invalidity. Elan filed a notice of appeal with the U.S. Court of Appeals for
        the Federal Circuit (“CAFC”) and all parties fully briefed the issues
        on appeal. On 3 March 2004, the CAFC heard oral argument on the appeal and took
        the matter under submission. The parties are currently awaiting the CAFC’s
        decision. 
     

     
        In November 2002, Allergan filed a complaint against Elan
        in the U.S. District Court for the District of Delaware. The complaint alleges
        that Elan wilfully infringed U.S. Patent No. 6,290,961 by virtue of its
        manufacture, sale and offer for sale of its Myobloc product. Allergan is seeking
        injunctive relief and unspecified damages. In February 2003 Elan filed an
        answer and counterclaim, denying allegations of infringement, asserting that
        the patent is invalid and unenforceable and alleging antitrust violations
        against Allergan. In February 2003, Allergan filed its reply to Elan’s
        counterclaim. The parties subsequently settled this matter in February 2004 and
        have dismissed the litigation. The settlement agreement, which is made
        effective as of 1 January 2003, grants Elan an exclusive licence to U.S. Patent
        No. 6,290,961 and any related patents. 
     

     
        Eon submitted to the FDA an ANDA for a generic equivalent
        of Elan’s 400 mg Skelaxin product. The application included a paragraph IV
        certification pertaining to U.S. patent No. 6,407,128 (the “128
        patent”). Eon provided notice to Elan of its paragraph IV certification in
        November 2002, and Elan filed a patent infringement suit against Eon in the
        U.S. District Court for the Eastern District of New York on 2 January 2003. Eon
        filed its answer and counterclaim on 23 January 2003 and then filed an amended
        answer and counterclaim on 19 February 2003. Elan filed its reply to the
        counterclaim on 7 March 2003. Discovery is in its early stages and no trial
        date has been set. Corepharma LLC (“Corepharma”) also has submitted
        to the FDA an ANDA for a generic equivalent of Elan’s 400 mg Skelaxin
        product, including a paragraph IV certification pertaining to the 128 patent.
        Corepharma provided notice to Elan of its paragraph IV certification in January
        2003, and Elan filed a patent infringement suit against Corepharma in the U.S.
        District Court for the District of New Jersey on 7 March 2003. In May 2003,
        Elan and Corepharma agreed to transfer the Corepharma litigation to the U.S.
        District Court for the Eastern District of New York for consolidation with the
        Eon litigation. Elan and King are cooperating in the prosecution of these
        actions, and are working together to substitute King as a plaintiff to the two
        actions. 
     

     
        Antitrust matters 
     

     
        In March 2001, Andrx filed a complaint against Elan in the
        U.S. District Court for the Southern District of Florida alleging that Elan
        engaged in anti-competitive activities in an effort to prevent or delay the
        entry of a generic alternative to Naprelan. Elan filed a motion to dismiss the
        complaint and for judgement on the pleadings. In April 2003, the court granted
        Elan’s motion and dismissed Andrx’s 
     

     

     
        134
     

     

     
     

     
     
        complaint with prejudice and without leave to amend. In
        June 2003, the court reaffirmed its April decision, denying Andrx’s motion
        for reconsideration and for leave to amend its complaint. On 14 July 2003,
        Andrx filed a notice of appeal. All parties have filed their briefs in
        connection with the appeal. Either the court will decide the matter without
        oral argument, or it will notify the parties of a hearing date sometime in the
        future. In September 2003, the 11th Circuit conducted a mediation of this
        dispute in accordance with its local rules, but the matter was not resolved.
        Accordingly, all parties are currently awaiting action from the 11th Circuit on
        Andrx’s appeal. 
     

     
        Three putative class actions have been filed in the U.S.
        District Court for the Eastern District of Pennsylvania against Elan and Skye
        Pharma, Inc. by indirect purchasers of Naprelan. In September 2002, the cases were
        consolidated and in October 2002, a consolidated amended class action complaint
        was filed. The consolidated complaint alleges that Elan violated the antitrust
        laws by engaging in sham patent litigation and entering into an unlawful
        settlement agreement in an effort to prevent or delay the entry of a generic
        alternative to Naprelan. The
        damages claimed are unspecified. Elan has not yet answered or otherwise
        responded to the amended complaint. Other than preliminary document production,
        the litigation has been stayed and the case placed on the court’s suspense
        docket pending the outcome of further proceedings in the pending Andrx patent
        infringement litigation described above. On 4 August 2003 plaintiffs filed a
        motion to remove the litigation from the court’s suspension docket.
        However, the court subsequently denied plaintiffs’ motion. 
     

     
        In June 2002, Elan entered into a settlement with the FTC
        resolving the FTC’s investigation of a licensing arrangement between Elan
        and Biovail relating to nifedipine, the generic version of the hypertension
        drug Adalat CC. The settlement is reflected in a consent order which, by its
        terms, does not constitute an admission by Elan that any law has been violated,
        and does not provide for monetary fines or penalties. Elan continues to satisfy
        all of the terms of the consent order. 
     

     
        In June 2001, Elan received a letter from the FTC stating
        that the FTC was conducting a non-public investigation to determine
        “whether Brightstone Pharma, Inc., Elan Corporation or others may have
        engaged in an effort to restrain trade by entering into an agreement which may
        restrict the ability of Brightstone or others to market a bioequivalent or
        generic version of Naprelan”. In October 2001, counsel for Elan met informally with FTC
        Staff to discuss the matter. No further communication from the FTC was received
        until December 2002, when Elan was served with a subpoena duces tecum from the
        FTC for the production of documents related to Naprelan. Elan has voluntarily provided
        documents and witness testimony in response to the subpoena and continues to
        cooperate with the FTC relating to this investigation. 
     

     
        Elan is aware that ten actions have been filed in the U.S.
        District Courts on various dates between July 2002 and July 2003 (seven in the
        District of Columbia and three in the Southern District of New York) claiming
        that Elan (and others) have violated federal and state antitrust laws based on
        the licensing arrangement with Biovail relating to nifedipine described in the
        immediately preceding paragraph. The complaints seek various forms of remedy,
        including declaratory judgement, damages (including treble and/or punitive
        damages where allowed), disgorgement and injunctive relief. The actions have
        been brought by putative classes of direct purchasers, individual direct
        purchasers, and putative classes of indirect purchasers. On 29 May 2003, the
        Multidistrict Panel granted Elan’s and Biovail’s motion to coordinate
        and consolidate for pre-trial proceedings all pending cases in the District of
        Columbia. Since consolidation of the matters, the court has held several case
        management conferences to coordinate the early stages of the case. The
        plaintiffs in the action filed amended complaints on or about 15 October 2003
        in accordance with a scheduling order issued by the Court. Elan and codefendant
        Biovail responded by filing an omnibus motion to dismiss in response to the
        amended complaints. Co-defendant Teva filed a joinder in support of Elan’s
        and Biovail’s motion. To date, the court has not scheduled a hearing on
        the motion to dismiss. Meanwhile, the parties in the litigation have begun
        preliminary discovery. 
     

     
        On 13 March 2003, Elan received notification from the FTC
        that the FTC’s Bureau of Competition was conducting an investigation to
        determine whether Elan, King or any other person was engaging in unfair methods
        of competition in violation of Section 5 of the Federal Trade Commission Act,
        including, among other things, by preventing or slowing generic competition to
        Skelaxin. The FTC’s stated focus of the investigation was Elan’s
        listing in the Orange Book of at least one patent for Skelaxin, and other
        actions with regard to the FDA regulatory process. On 8 May 2003, Elan received
        notification from the FTC that it had discontinued that portion of its
        investigation concerning whether Elan wrongfully listed its patent for Skelaxin
        in the Orange Book. 
     

     
        Other matters 
     

     
        On 27 June 2002, BioPort filed suit against Elan in the
        Superior Court of the State of California alleging breach of certain
        collaboration and supply agreements relating to the development, manufacture
        and supply of botulinum toxin. In addition to claims for breach of contract,
        BioPort asserted claims for intentional interference with contractual relations
        (as to Elan), unfair business practices, and unjust enrichment. The complaint
        sought a five percent royalty on net sales of Myobloc, payments allegedly owned under the
        collaboration agreement, a declaration that BioPort has an ownership interest
        in Myobloc, and other relief
        including punitive damages. On 17 March 2003, the court sustained Elan’s
        demurrer to BioPort’s claim for unfair business practices. On 1 April
        2003, Elan filed an answer to 
     

     

     
        135
     

     

     
     

     
     
        NOTES RELATING TO FINANCIAL STATEMENTS 
     

     
        BioPort’s complaint, including a general denial of
        the complaint and affirmative defences. Elan also filed a cross-complaint
        against BioPort, seeking declaratory relief and damages for breach of contract.
        On 19 May 2003, BioPort filed a demurrer to Elan’s cross-complaint. On 20
        May 2003, Elan filed a motion to strike BioPort’s demurrer. On 30 May
        2003, BioPort and Elan both filed motions for summary adjudication. On 5 June
        2003, the parties participated in a court ordered mediation, and have since
        engaged in settlement discussions. To date, however, the parties have not been
        able to settle this matter and are proceeding with the underlying litigation.
        The court subsequently lifted the litigation stay and scheduled a trial date of
        4 October 2004. Meanwhile, the parties have recommenced their discovery
        pre-trial preparation efforts. 
     

     
        On 11 December 2003, two of Elan’s subsidiaries, EPI
        and Neuralab, commenced AAA arbitration proceedings against Pfizer and
        Pharmacia and Upjohn Company (“Pharmacia”) in connection with certain
        alleged breaches relating to an Exclusive Mutual Beta Secretase Inhibitors
        Research, Development and Marketing Collaboration Agreement, dated 28 July
        2000, originally between Pharmacia and Neuralab. As a result of these breaches,
        the Company believes it holds an exclusive worldwide licence of, among other
        things, all of Pfizer’s and Pharmacia’s interest in regulatory
        approvals, patents, and know-how relating to the subject matter of the
        parties’ collaboration. In response to the commencement of Elan’s
        arbitration proceeding, on 23 December 2003, Pfizer and Pharmacia asked the New
        York State Supreme Court to stay Elan’s arbitration proceedings. On 23
        December 2003, the court issued a temporary restraining order staying the AAA
        arbitration proceedings and scheduling a subsequent hearing in January 2004.
        The court subsequently held a final hearing on Pfizer’s and
        Pharmacia’s application and entered an order staying the AAA arbitration
        proceedings. On 29 January 2004, Elan filed a notice of appeal of the
        court’s order staying arbitration. On 30 January 2004, Pfizer and
        Pharmacia sent Elan a notice of breach contending, among other things, that
        Pfizer and Pharmacia hold an exclusive worldwide licence of all of Elan’s
        and Neuralab’s interest in regulatory approvals, patents, and know-how
        relating to the subject matter of the parties’ collaboration. Elan’s
        appeal has been briefed by all parties. Oral argument on the appeal is
        currently scheduled to be heard on 14 April 2004. If Elan’s appeal is
        granted, this matter may return to AAA arbitration. If not, the parties are
        likely to commence court proceedings to resolve their disputes regarding the
        issues raised in Elan’s arbitration materials. While Elan believes that it
        holds the exclusive worldwide licence to the intellectual property developed in
        connection with the Pfizer collaboration, Pfizer disputes this. There can be no
        assurance that the arbitral tribunal or court will ultimately accept
        Elan’s position. 
     

     
        26   Business Ventures
        
     

     
        Since 1996, Elan has pursued collaborations with
        biotechnology, drug delivery and pharmaceutical companies in order to leverage
        Elan’s drug delivery technologies and its proprietary neurological and
        oncology research, and to access complementary or synergistic research and
        development programmes in Elan’s areas of expertise. Elan has historically
        referred to this programme in a number of ways, including as a joint venture
        programme, a business venture programme, and a strategic licensing programme.
        For the purposes of these Consolidated Financial Statements, this programme
        will be referred to as the “business venture programme”. Elan has not
        entered into any new business ventures under the business venture programme
        since mid-2001. 
     

     
        In 2002, as part of the recovery plan, Elan completed a
        review of its business venture portfolio to conserve cash and reflect the
        reduced scope of Elan’s activities. As a result, Elan decided to
        restructure or terminate substantially all of its business ventures with the
        aim of substantially reducing or eliminating future cash outlays by Elan. The
        restructuring process and any terms agreed have been the result of negotiations
        between Elan and the respective business venture parents. As such, the agreed
        terms arising from the restructuring process vary between different business
        venture relationships. Typically, as part of the termination of a business
        venture, the technologies contributed by the business venture parent and Elan
        are returned, the technology developed in the business venture is transferred
        to the business venture parent and/or Elan, and Elan transfers its interest in
        the business venture to the business venture parent in exchange for a
        continuing interest in the product or technology previously in the business
        venture, such as a royalty. There were approximately 55 business ventures in
        place prior to the announcement of the recovery plan on 31 July 2002. All
        business ventures have been terminated, restructured or are now inactive. As a
        consequence, Elan does not expect to provide any additional financing to the
        business ventures and business venture parents. 
     

     
        As all business ventures have been terminated,
        restructured or are now inactive, the description of the business venture
        programme below is described in the past tense. 
     

     
        The business venture programme generally involved
        licensing drug delivery technologies and know-how, or pharmaceutical research
        and development assets, to a newly formed subsidiary (“the business
        venture”) of an emerging biotechnology; drug delivery or pharmaceutical
        company (“the business venture parent”) and the establishment of a
        joint development collaboration. 
     

     
        Contemporaneously with the licensing and collaborative
        transaction, Elan typically made an investment in the business venture.
        Investments in business ventures were in various forms. Prior to mid 1999,
        those investments were generally in the form of voting 
     

     

     
        136
     

     

     
     

     
     
        common stock. Subsequently, these investments were in the
        form of non-voting preferred stock convertible into common stock after a period
        of two years. Elan typically held an initial fully diluted equity interest of
        19.9% in the business venture. Elan also typically made a contemporaneous
        investment in the business venture parent in the form of common equity and
        convertible/exchangeable preferred stock and/or convertible/exchangeable debt.
        The convertible/exchangeable securities in the business venture parent were
        generally convertible, at Elan’s option, into common equity of the
        business venture parent or exchangeable for up to 30.1% of the common equity in
        the business venture, potentially bringing Elan’s fully diluted equity
        interest in the business venture up to 50%. In many transactions, if Elan chose
        to exchange the convertible/exchangeable securities in the business venture
        parent into common equity of the business venture, then it would be required to
        pay the business venture parent an amount equal to 30.1% of the cumulative
        operating funding of the business venture to the date of exchange such that
        Elan and the business venture parent would have shared equally (on a cumulative
        basis) in such funding. Elan sold certain of its investments in the business
        ventures and the business venture parents to EPIL II in June 2000 and to EPIL
        III in March 2001. EPIL II and EPIL III are securitisation entities and the
        investments are held by EPIL II and EPIL III as security for outstanding
        indebtedness issued by the entities. For additional information regarding these
        special purpose entities, please refer to Notes 15 and 33 to the Consolidated
        Financial Statements. 
     

     
        The business venture generally conducted research and
        development activities using its technologies and proprietary know-how in an
        agreed research field. Elan’s partner, the business venture parent,
        principally managed the business venture. The technologies and proprietary
        know-how of the business venture were in-licensed by the business venture from
        Elan and the business venture parent. On formation, a number of contracts were
        entered into to govern the in-licensing of intellectual property assets to the
        business venture from Elan and the business venture parent. 
     

     
        Development of products and technologies for
        pharmaceutical applications involves risk. The nature of pharmaceutical
        development, with stringent regulatory constraints and guidelines designed to
        protect the health and safety of patients and those working with the products,
        means that development activities are costly and time consuming. Elan’s
        portfolio of business ventures allowed it to diversify the risks associated
        with product development. Individual development programmes within the business
        ventures had varying degrees of success and failure. Elan and the business
        venture parent would typically work together using commercially reasonable
        efforts and their combined technical, regulatory and clinical expertise to
        increase the likelihood of success of the business ventures. This could lead to
        changes in the direction of a development programme, adding or substituting
        technologies or products and redirection of clinical programmes as deemed
        necessary. 
     

     
        The business venture, the business venture parent and Elan
        continually reviewed the progress of the research and development activities in
        the business venture. As part of this review, the parties could decide that it
        was not commercially or technically practical to continue to support the
        business venture. 
     

     
        Elan received and recorded initial revenue from the
        business ventures set out in the table on page 139 of $Nil, $Nil and $172.5
        million for 2003, 2002 and 2001, respectively. Elan’s initial investments
        in the business ventures and the business venture parents were $Nil, $Nil and
        $229.2 million for 2003, 2002 and 2001, respectively. 
     

     
        The business ventures typically had the following
        operational structure. The board of directors of a business venture was
        generally comprised of a majority of directors from the business venture parent
        and one director nominated by Elan. For a quorum, the presence of the Elan
        nominated director was required. The business plan required the approval of the
        board of directors of the business venture, including the Elan nominated
        director. This approval was subject to the directors’ fiduciary duty to
        the business venture. The contracts of establishment provided for subsequent
        reviews, either annually or more frequently, of the business plan and required
        the continuing approval by the Elan nominated director. The business ventures
        also typically had a management committee and/or research and development
        committee. These committees generally provided for equal representation by Elan
        and the business venture parent. The committees had responsibility for day to
        day activities of the business venture and for the implementation of the
        business plan. At their inception, the business ventures typically had no funds
        after payment of the initial fee to Elan. The operating funding of the business
        venture was provided by the business venture parent and Elan, subject to the
        approval of both parties. Funding was generally utilised to pay for research
        and development activities. Typically, such subsequent financial support was
        provided in proportion to the respective fully diluted ownership of the
        business venture by the business venture parent and Elan (typically 80.1% and
        19.9%, respectively). Elan expensed the subsequent funding it provided directly
        to the business venture. This was expensed within the interest and other
        expense line. Elan expensed $3.0 million, $23.9 million and $24.6 million of
        subsequent business venture funding in 2003, 2002 and 2001, respectively. If
        both Elan and the business venture parent agreed to provide subsequent
        financial support to the business venture through their ongoing approval of a
        business plan, then, if requested by the business venture parent, Elan was
        required to make additional investments in the business venture parent,
        typically in the form of convertible debt, in an amount equal to the business
        venture parent’s proportion of such subsequent financial support, the
        proceeds of which the business venture parent was required to use to fund its
        
     

     

     
        137
     

     

     
     

     
     
        NOTES RELATING TO FINANCIAL STATEMENTS 
     

     
        proportion of the subsequent support of the business
        venture. This amount was recorded by Elan as a financial asset. Elan provided
        additional financing of $7.1 million, $83.4 million and $92.2 million to
        business venture parents in 2003, 2002 and 2001, respectively. All business
        ventures have been terminated, restructured or are now inactive. As a
        consequence, Elan does not expect to provide any additional financing to the
        business ventures and business venture parents. 
     

     
        The business ventures incurred research and development
        expenditures of approximately $17 million, $125 million and $125 million in
        2003, 2002 and 2001, respectively. While the business ventures and the business
        venture parents were generally responsible for ongoing research and development
        activities, they could request that Elan conduct research and development on
        their behalf. If Elan undertook such work, the work was typically charged to
        the business venture at pre-determined rates, which were set to recover
        Elan’s costs plus a mark-up. Elan received research revenue from the
        business ventures of $3.7 million, $13.4 million and $15.0 million in 2003,
        2002 and 2001, respectively. Elan does not expect to receive any future
        research revenues from the business ventures. 
     

     
        Investments in the business ventures and the business
        venture parents were made at fair value. The fair value of investments was
        typically initially determined by Elan using established financial
        methodologies, including quoted market prices for quoted equity securities.
        Unquoted equity investments and non-traded securities of public entities were
        assessed using methodologies including the Black-Scholes option-pricing model,
        the valuation achieved in the most recent private placement by an investee, an
        assessment of the impact of general private equity market conditions, and
        discounted projected future cash flow models. 
     

     
        Subsequent to Elan’s investment in a business venture
        and business venture parent, the fair values of the investments have been
        typically determined periodically, but not less frequently than yearly, by an
        independent financial institution using methodologies similar to those
        described above. 
     

     
        The table on page 139 sets forth certain information
        regarding the 12 business ventures that were formed in 2001. No new business
        ventures were formed in 2003 or 2002. Of all of the business ventures formed
        since the commencement of the business venture programme in 1996, approximately
        55 were still in place prior to the announcement of the recovery plan on 31
        July 2002. All business ventures have been terminated, restructured or are now
        inactive. As a consequence, Elan does not expect to provide any additional
        financing to the business ventures and business venture parents. 
     

     
        Elan recognised exceptional charges in its profit and loss
        account for 2003 to reflect impairments to the Group’s investment
        portfolio, including investments held by EPIL II and EPIL III. This includes
        impairment charges relating to investments in business ventures and business
        venture parent companies of $4.0 million (2002: $114.4 million; 2001: $13.4
        million) and $106.0 million (2002: $880.0 million; 2001: $Nil), respectively.
        For additional information on exceptional charges, please refer to Note 3 to
        the Consolidated Financial Statements. 
     

     

     
        138
     

     

     
     

     
     
        Business Ventures—2001
     

     
         
     

     	
             
                Business Venture Parent
             

          	
             
                 
             

          	
             
                Aggregate Initial
 Amount Invested
 (in both business
 venture and business
 venture parent)
             

          	
             
                 
             

          	
             
                Field of Research and Development
             

          	
             
                 
             

          	
             
                Initial Fee
 Received
 by Elan
             

          	
             
                 
             

          
	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Allergy Therapeutics Ltd.
             

          	
             
                 
             

          	
             
                $20.7 million
             

          	
             
                 
             

          	
             
                Development of anti-histamine formulations
             

          	
             
                 
             

          	
             
                $15.0 million
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Applied Genetics
 Incorporated Dermatics
             

          	
             
                 
             

          	
             
                $19.0 million
             

          	
             
                 
             

          	
             
                Topical treatments of skin disease including skin
                cancer
 (DimericineTM—liposomal T4N5)
             

          	
             
                 
             

          	
             
                $15.0 million
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Beyond Genomics, Inc.
             

          	
             
                 
             

          	
             
                $15.0 million
             

          	
             
                 
             

          	
             
                Research into Alzheimer’s disease and/or mild
                cognitive impairment
             

          	
             
                 
             

          	
             
                $10.0 million
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                CeNeS Limited
             

          	
             
                 
             

          	
             
                $21.0 million
             

          	
             
                 
             

          	
             
                Treatment of pain
 (morphine-6-glucuronide)
             

          	
             
                 
             

          	
             
                $15.0 million
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                ChemGenex
 Therapeutics,
                Inc.
             

          	
             
                 
             

          	
             
                $20.0 million
             

          	
             
                 
             

          	
             
                Treatment of cancer
             

          	
             
                 
             

          	
             
                $15.0 million
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Cogent Neuroscience, Inc.
             

          	
             
                 
             

          	
             
                $17.5 million
             

          	
             
                 
             

          	
             
                Treatment of CNS diseases
             

          	
             
                 
             

          	
             
                $12.5 million
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Curis, Inc.
             

          	
             
                 
             

          	
             
                $19.0 million
             

          	
             
                 
             

          	
             
                Treatment of neurological disorders
             

          	
             
                 
             

          	
             
                $15.0 million
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                eNOS Pharmaceuticals, Inc.
             

          	
             
                 
             

          	
             
                $17.0 million
             

          	
             
                 
             

          	
             
                Treatment of neurological and cardiovascular
                diseases in non-hypercholesterolemic humans(EN-110)
             

          	
             
                 
             

          	
             
                $15.0 million
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                GlycoGenesys, Inc.
             

          	
             
                 
             

          	
             
                $20.0 million
             

          	
             
                 
             

          	
             
                Treatment of cancer (GCS-100, formerly known as
                GBC-590)
             

          	
             
                 
             

          	
             
                $15.0 million
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Inex Pharmaceuticals Corporation
             

          	
             
                 
             

          	
             
                $20.0 million
             

          	
             
                 
             

          	
             
                Treatment of cancer (VSLITM)
             

          	
             
                 
             

          	
             
                $15.0 million
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Lipocine Inc.
             

          	
             
                 
             

          	
             
                $20.0 million
             

          	
             
                 
             

          	
             
                Oral hormone replacement therapy combination
                product
             

          	
             
                 
             

          	
             
                $15.0 million
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Nobex Corporation
             

          	
             
                 
             

          	
             
                $20.0 million
             

          	
             
                 
             

          	
             
                Treatment of post-menopausal osteoporosis or
                Paget’s disease (OratoninTM)
             

          	
             
                 
             

          	
             
                $15.0 million
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Total
             

          	
             
                 
             

          	
             
                $229.2 million
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                $172.5 million
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        27   Related Parties
     

     
        Antigenics
     

     
        At 31 December 2003, the Company had invested a total of
        $14.9 million (2002: $14.9 million) in Antigenics, a biotechnology company
        whose chairman, Dr Garo Armen, is also the chairman of Elan. Elan’s
        investments in Antigenics, consisting of common stock holdings, were made in
        1998 ($2.5 million), 1999 ($10.4 million) and 2002 ($2.0 million). At 31
        December 2003, Elan’s shareholding represented approximately 2.8% of
        Antigenics’ outstanding share capital. At 31 December 2003, this
        investment had a carrying value of $11.0 million and a fair value of $12.5
        million. In February and March 2004, Elan disposed of its total shareholding of
        1,098,937 common stock in Antigenics for $11.4 million. 
     

     
        Following the appointment of Dr Armen as chairman on 9
        July 2002, the Company signed a memorandum of understanding between itself and
        Antigenics in respect of costs incurred by either company in respect of work
        done for the other. The agreement provided that
     

     

     
        139
     

     

     
     

     
     
        NOTES RELATING TO FINANCIAL STATEMENTS 
     

     
        no profit margin should be charged on such costs. In 2003,
        the amount of such charges from Antigenics was $162,242 and the amount of such
        charges to Antigenics was $170,734 (2002: $44,888 charges from Antigenics to
        the Company). 
     

     
        In addition, on 28 February 2003, a settlement was signed
        between Antigenics, Neuralab and EPI regarding a dispute that arose in respect
        of a supply agreement entered into on 23 November 1999 between Antigenics, then
        known as Aquila Biopharmaceuticals, Inc., Neuralab and EPI. Under the terms of
        the settlement, Elan paid Antigenics $333,594 and received an agreed amount of
        an adjuvant.
     

     
        Dr Selkoe
     

     
        Dr Selkoe, a director of Elan, received $25,000 and
        $50,000 from Elan in 2003 and 2002, respectively, under consultancy agreements
        with the Group. 
     

     
        Mr Groom
     

     
        Mr Groom, a director of Elan, received $100,000 and
        $200,000 in 2003 and 2002, respectively, under a consultancy agreement with the
        Group. Effective 1 July 2003, the consultancy agreement was cancelled and the
        Company and Mr. Groom entered into a pension agreement of $200,000 per
        annum payable until 16 May 2008. Mr. Groom received $100,000 under this
        pension agreement in 2003. 
     

     
        Amarin
     

     
        Amarin is a specialty pharmaceutical company focused on
        neurology and pain management. Mr Thomas Lynch, an employee of Elan and
        formerly its executive vice chairman, and Mr John Groom, a director of Elan,
        serve on Amarin’s board of directors. Mr Lynch is non-executive chairman
        of Amarin. 
     

     
        In May 2001, Elan and Amarin entered into a distribution
        and option agreement, whereby Amarin agreed to market and distribute Permax in
        the United States, and was granted an option to acquire rights to the product
        from Elan. Permax is used for the treatment of Parkinson’s disease and
        falls within Amarin’s focus on neurology. In September 2001, this
        agreement was amended, whereby Amarin was appointed the sole distributor of
        Permax in the United States until August 2002. Elan recorded consideration of
        $45.0 million under the terms of the amended distribution and option agreement
        and retained a royalty right of 3.5% on net sales of Permax by Amarin from 1
        January 2002 through the date on which Amarin exercised or terminated its
        option to acquire Permax. In 2001, Elan also recorded a net amount of $6.2
        million from Amarin for distribution fees and royalties on sales of Permax.
        After reducing the carrying value of the Permax intangible and equity
        accounting, Elan recorded net revenue from Amarin of $16.9 million in 2001
        which includes the distribution revenue. Amarin’s option to purchase
        Permax was exercisable between September 2001 and May 2002 for an exercise
        price of $37.5 million, payable $7.5 million on exercise of the option and $2.5
        million in quarterly instalments thereafter, and a royalty of between 7% and
        10% on future net sales of Permax by Amarin. On 11 March 2002, Amarin exercised
        its option to acquire Permax and paid Elan the first instalment of the exercise
        price of $7.5 million. Elan did not recognise the unpaid option exercise price,
        but rather intended to record such consideration as it was received due to
        uncertainties surrounding its ultimate collectibility. 
     

     
        In connection with the amended distribution and option
        agreement, Elan provided a loan of $45.0 million to Amarin. The loan bore
        interest at a rate equal to LIBOR plus a margin of 2%. Amarin repaid $2.5
        million of this loan in July 2002. In January 2003, $19.9 million of this loan,
        including interest of $2.4 million, was repaid by Amarin and the maturity of
        the remaining amount of the loan was amended to $10.0 million payable in
        September 2004 and $15.0 million payable in September 2005. 
     

     
        During 2001, Elan granted Amarin a purchase option to
        acquire Zelapar. Zelapar is a fast melt formulation of selegiline for the
        treatment of Parkinson’s disease. 
     

     
        In August 2003, Elan and Amarin agreed to amend certain
        terms of their agreements whereby Amarin had until 31 December 2003 to pay
        $30.0 million to Elan. If Amarin did so, all loans referred to above and
        outstanding deferred payments due in connection with the purchase of Permax
        would be discharged in full, and Amarin would be deemed to have exercised its
        option to acquire Zelapar. Elan would additionally receive a royalty of 12.5%
        of net sales of Zelapar by Amarin, and may have received a future
        revenue-contingent milestone payment of $10.0 million in ordinary shares of
        Amarin if annual sales of Zelapar exceeded $20.0 million. All quarterly
        payments due in connection with the purchase of Permax and all loan interest
        payments due were subject to a moratorium that expired on 31 December 2003.
        
     

     
        In December 2003, Elan agreed further amendments of those
        terms, by increasing the amount Amarin could pay to discharge its indebtedness
        and acquire Zelapar, from $30.0 million to $31.5 million, and extending the
        time for doing so to 31 March 2004. 
     

     

     
        140
     

     

     
     

     
     
        Consequently, the time for exercise of the Zelapar option
        and the moratorium on payments due in connection with the purchase of Permax
        and all loan interest payments due were also extended to 31 March 2004. 

     

     
        Additionally, Elan agreed to a loan facility to Amarin of
        up to $6.0 million to finance Amarin’s cash requirements through 31 March
        2004 and repayable on 31 March 2004. Amarin drew down $4.0 million of this
        facility through February 2004. Amarin agreed to pay Elan a monthly fee for
        this facility. In February 2004, Amarin paid $0.3 million to Elan, representing
        the amount of this fee for January 2004. 
     

     
        Amarin repaid $11.1 million to Elan in December 2003. In
        February 2004, Elan and Amarin agreed to further amend their contractual
        arrangements subject to the sale by Amarin of certain of its U.S. assets,
        including its rights to Zelapar and Permax, to Valeant. On 25 February 2004,
        Amarin’s sale of assets to Valeant closed and the amendments became
        effective. The amendments required, in full settlement of all previous
        liabilities owed by Amarin to Elan and as a deemed exercise of Amarin’s
        option to acquire Zelapar, the payment by Amarin of $17.2 million to Elan and
        the issuance of a $5.0 million five-year 8% loan note and warrants to purchase
        500,000 ordinary shares in Amarin to Elan. Under the amendments, Elan is also
        entitled to receive a $1.0 million milestone payment from Amarin upon the
        successful completion of certain Zelapar safety studies. Elan is also entitled
        to receive from Valeant a revenue contingent milestone on Zelapar of $10.0
        million if annual sales of Zelapar exceed $20.0 million, and royalties on
        future net sales by Valeant of 12.5% for Zelapar and 10% for Permax. As a
        consequence of these amendments Amarin paid $17.2 million to Elan in February
        2004. 
     

     
        At 31 December 2003, Elan held approximately 26% of the
        outstanding ordinary shares of Amarin. As described above, in February 2004
        Elan received warrants to purchase 500,000 ordinary shares in Amarin. As a
        result, Elan’s share ownership in Amarin is now approximately 28% on a
        fully diluted basis. 
     

     
        Under Irish GAAP Elan accounted for Amarin using the
        equity method, based on Elan’s fully diluted equity investment in Amarin
        in 2003 and 2002. Amarin is a related party to Elan. Elan recorded net revenue
        from Amarin of $0.3 million in 2003 (2002: $4.8 million; 2001: $16.9 million).
        Elan’s total investment in Amarin at 31 December 2003 amounted to $23.9
        million, consisting of loans, including interest, of $20.9 million and a net
        equity investment of $3.0 million. In addition, Elan had trading balances due
        from Amarin of $Nil at 31 December 2003 (2002: $13.7 million). As described
        above, Amarin paid a net $13.5 million to Elan during January/February 2004,
        and now owes Elan $5.0 million under a five-year loan note and a potential $1.0
        million milestone payment on Zelapar. Aside from the $5.0 million five-year
        loan note and the potential $1.0 million milestone payment on Zelapar, Amarin
        has no remaining debt obligations to Elan. 
     

     
        28   Pension Plans 
     

     
        The Company has continued to account for pensions in
        accordance with SSAP No. 24, “Accounting for Pensions” (“SSAP
        24”), and the disclosures given in (a) are those required by that
        standard. FRS 17 “Retirement Benefits” (“FRS 17”) will not
        be mandatory for the Company until the year ended 31 December 2005. Prior to
        this, phased transitional disclosures are required by FRS 17 and, to the extent
        they are not given in (a), are set out below in (b). 
     

     
        (a)   SSAP 24
        disclosures
     

     
         
     

     	
             
                Pension Costs
             

          	
             
                 
             

          	
             
                2003
 $m
             

          	
             
                 
             

          	
             
                2002
 $m
             

          	
             
                 
             

          	
             
                2001
 $m
             

          	
             
                 
             

          
	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Pension cost of defined benefit schemes
             

          	
             
                 
             

          	
             
                4.3
             

          	
             
                 
             

          	
             
                3.3
             

          	
             
                 
             

          	
             
                2.8
             

          	
             
                 
             

          
	
             
                Pension cost of defined contribution schemes
             

          	
             
                 
             

          	
             
                9.2
             

          	
             
                 
             

          	
             
                8.8
             

          	
             
                 
             

          	
             
                9.9
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                13.5
             

          	
             
                 
             

          	
             
                12.1
             

          	
             
                 
             

          	
             
                12.7
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        (i) Defined benefit schemes 
     

     
        The Company funds the pension entitlements of certain
        employees through defined benefit plans. Two plans are operated for Irish
        employees. In general, on retirement, a member is entitled to a pension
        calculated at 1/60th of final pensionable salary for each year of pensionable
        service, subject to a maximum of 40 years. These plans are funded externally
        and the related pension costs and liabilities are assessed in accordance with
        the advice of a professionally qualified actuary. The investments of the plans
        at 31 December 2003 consisted of units held in independently administered
        funds. The most recent actuarial valuations of the plans were carried out in
        April 2002 using the projected unit credit method and the valuation reports are
        not available for public inspection. 
     

     

     
        141
     

     

     
     

     
     
        NOTES RELATING TO FINANCIAL STATEMENTS 
     

     
        The principal actuarial assumption used was that the rate
        of real investment returns will exceed the rate of salary inflation by 2%.
        
     

     
        The actuarial report showed that at 1 April 2002, the
        market value of the assets of the schemes was $19.4 million and the actuarial
        value of the assets represented 106% of the benefits accrued to members for the
        two plans. 
     

     
        These schemes are fully funded on a discontinuance
        basis.
     

     
        (ii) Defined contribution schemes 
     

     
        In addition, Elan operates a number of defined
        contribution pension plans, primarily for employees outside of Ireland. The
        costs of these plans are charged to the profit and loss account in the period
        in which incurred. 
     

     
        (iii) Balance sheet amounts 
     

     
        At the year ended 31 December 2003, there was a pension
        contribution due included in accruals of $2.3 million (2002: $0.5 million) and
        a pension prepayment of $0.3 million (2002: $0.2 million). 
     

     
        (b)   FRS 17 retirement
        benefits
     

     
        The valuations of the defined benefit schemes used for the
        purpose of FRS 17 disclosures have been based on the most recent actuarial
        valuations as identified above. These have been updated by the actuary to take
        account of the requirements of FRS 17 in order to assess the liabilities at
        each balance sheet date. Scheme assets are stated at their market value at each
        balance sheet date. The contribution rate, inclusive of the members
        contributions, for the Employee Benefit Plan is 17.4% of pensionable salaries.
        The contribution rate, inclusive of the members contributions, for the Pension
        and Life Assurance Plan is 31.0% of pensionable salaries. 
     

     
        The financial assumptions used to calculate the retirement
        benefit liability under FRS 17 were as follows: 
     

     
         
     

     	
             
                Valuation method
             

          	
             
                 
             

          	
             
                31 December 2003
 Projected unit
             

          	
             
                 
             

          	
             
                31 December 2002
 Projected unit
             

          	
             
                 
             

          
	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Discount rate
             

          	
             
                 
             

          	
             
                5.2
             

          	
             
                %
             

          	
             
                 
             

          	
             
                5.5
             

          	
             
                %
             

          	
             
                 
             

          
	
             
                Inflation rate
             

          	
             
                 
             

          	
             
                2.5
             

          	
             
                %
             

          	
             
                 
             

          	
             
                3.0
             

          	
             
                %
             

          	
             
                 
             

          
	
             
                Increase to pensions in payment
             

          	
             
                 
             

          	
             
                5.0
             

          	
             
                %(1)
             

          	
             
                 
             

          	
             
                5.0
             

          	
             
                %(1)
             

          	
             
                 
             

          
	
             
                Future salary increases
             

          	
             
                 
             

          	
             
                4.0
             

          	
             
                %
             

          	
             
                 
             

          	
             
                3.5
             

          	
             
                %
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
                 
             

          

 

     		
             
                (1)
             

          	
             
                5% per annum limited to CPI increases assumed to
                be 2.5% for 2003 (2002: 3%). 
             

          

 

     
        142
     

     

     
     

     
     
        The market values of the assets in the pension schemes and
        the expected rates of return were:
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                Long term
 rate of
 return
 expected at
 31 December
 2003
             

          	
             
                   
             

          	
             
                Value at 
 31 December
 2003
 $m
             

          	
             
                   
             

          	
             
                Long term
 rate of
 return
 expected at
 31 December
 2002
             

          	
             
                   
             

          	
             
                Value at 
 31 December
 2002
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Equities
             

          	
             
                 
             

          	
             
                7.5
             

          	
             
                %
             

          	
             
                25.7
             

          	
             
                 
             

          	
             
                6.5
             

          	
             
                %
             

          	
             
                14.1
             

          	
             
                 
             

          
	
             
                Bonds
             

          	
             
                 
             

          	
             
                4.5
             

          	
             
                %
             

          	
             
                5.8
             

          	
             
                 
             

          	
             
                5.0
             

          	
             
                %
             

          	
             
                4.3
             

          	
             
                 
             

          
	
             
                Property
             

          	
             
                 
             

          	
             
                6.5
             

          	
             
                %
             

          	
             
                2.4
             

          	
             
                 
             

          	
             
                6.5
             

          	
             
                %
             

          	
             
                1.6
             

          	
             
                 
             

          
	
             
                Cash
             

          	
             
                 
             

          	
             
                2.5
             

          	
             
                %
             

          	
             
                0.6
             

          	
             
                 
             

          	
             
                2.5
             

          	
             
                %
             

          	
             
                1.0
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Total market value of pension plans assets
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                34.5
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                21.0
             

          	
             
                 
             

          
	
             
                Present value of funded pension liabilities
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (37.6
             

          	
             
                )
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (27.4
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Net deficit in funded pension plans
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (3.1
             

          	
             
                )
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (6.4
             

          	
             
                )
             

          
	
             
                Related deferred tax asset
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                0.4
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                1.3
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Net pension deficit
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (2.7
             

          	
             
                )
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (5.1
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Analysed as:
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Pension & Life Assurance
                Plan
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Net pension assets
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                8.5
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                3.8
             

          	
             
                 
             

          
	
             
                Net pension liabilities
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (9.4
             

          	
             
                )
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (7.7
             

          	
             
                )
             

          
	
             
                Related deferred tax asset
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                0.1
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                0.8
             

          	
             
                 
             

          
	
             
                Employee Benefit Plan
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Net pension assets
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                26.0
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                17.2
             

          	
             
                 
             

          
	
             
                Net pension liabilities
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (28.2
             

          	
             
                )
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (19.7
             

          	
             
                )
             

          
	
             
                Related deferred tax asset
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                0.3
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                0.5
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (2.7
             

          	
             
                )
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (5.1
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        Movement in deficit during the year. 
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                31 December
 2003
 $m
             

          	
             
                    
             

          	
             
                31 December
 2002
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Deficit at 1 January
             

          	
             
                 
             

          	
             
                (5.1
             

          	
             
                )   
             

          	
             
                (0.6
             

          	
             
                )
             

          
	
             
                Service cost
             

          	
             
                 
             

          	
             
                (2.1
             

          	
             
                )
             

          	
             
                (1.8
             

          	
             
                )
             

          
	
             
                Company contributions paid
             

          	
             
                 
             

          	
             
                3.9
             

          	
             
                 
             

          	
             
                2.2
             

          	
             
                 
             

          
	
             
                Other finance income (expected net return)
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                0.1
             

          	
             
                 
             

          
	
             
                Actuarial gain/(loss)
             

          	
             
                 
             

          	
             
                2.3
             

          	
             
                 
             

          	
             
                (5.5
             

          	
             
                )
             

          
	
             
                Foreign exchange rate charges
             

          	
             
                 
             

          	
             
                (0.6
             

          	
             
                )
             

          	
             
                (0.7
             

          	
             
                )
             

          
	
             
                Related deferred tax asset
             

          	
             
                 
             

          	
             
                (1.1
             

          	
             
                )
             

          	
             
                1.2
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Deficit at 31 December
             

          	
             
                 
             

          	
             
                (2.7
             

          	
             
                )
             

          	
             
                (5.1
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 
 

     
        143
     

     

     
     

     
     
        NOTES RELATING TO FINANCIAL STATEMENTS 
     

     
        Had FRS 17 been reflected in the primary financial
        statements, the following are the amounts that would have been included in the
        Consolidated Profit and Loss Account and the Consolidated Statement of Total
        Recognised Gains and Losses: 
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                Year ended
 31 December
 2003
 $m
             

          	
             
                    
             

          	
             
                Year ended
 31 December
 2002
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Included in payroll costs:
             

          	
             
                 
             

          	
             
                 
             

          	
             
                    
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Current service costs
             

          	
             
                 
             

          	
             
                2.1
             

          	
             
                 
             

          	
             
                1.8
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Net operating profit charge
             

          	
             
                 
             

          	
             
                2.1
             

          	
             
                 
             

          	
             
                1.8
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Included in finance costs/(income):
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Interest cost
             

          	
             
                 
             

          	
             
                1.6
             

          	
             
                 
             

          	
             
                1.2
             

          	
             
                 
             

          
	
             
                Expected return on assets
             

          	
             
                 
             

          	
             
                (1.6
             

          	
             
                )
             

          	
             
                (1.3
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Net finance income
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (0.1
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Included in statement of total recognised gains
                and losses:
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Difference between expected and actual return on
                assets
             

          	
             
                 
             

          	
             
                (1.7
             

          	
             
                )
             

          	
             
                6.4
             

          	
             
                 
             

          
	
             
                Experience gains and losses on plan’s
                liabilities
             

          	
             
                 
             

          	
             
                (3.1
             

          	
             
                )
             

          	
             
                (2.6
             

          	
             
                )
             

          
	
             
                Effect of changes in actuarial assumptions
             

          	
             
                 
             

          	
             
                2.5
             

          	
             
                 
             

          	
             
                1.7
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Net (gain)/loss in Consolidated Statement of Total
                Recognised Gains and Losses
             

          	
             
                 
             

          	
             
                (2.3
             

          	
             
                )
             

          	
             
                5.5
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        History of actuarial gains and losses 
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                Year ended
 31 December
 2003
 $m
             

          	
             
                    
             

          	
             
                Year ended
 31 December
 2002
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Difference between expected and actual return on
                assets
             

          	
             
                 
             

          	
             
                (1.7
             

          	
             
                )    
             

          	
             
                6.4
             

          	
             
                 
             

          
	
             
                Expressed as a percentage of plan’s
                assets
             

          	
             
                 
             

          	
             
                (4.9
             

          	
             
                %)
             

          	
             
                30.4
             

          	
             
                %
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Experience gains and losses on scheme
                liabilities
             

          	
             
                 
             

          	
             
                (3.1
             

          	
             
                )
             

          	
             
                (2.6
             

          	
             
                )
             

          
	
             
                Expressed as a percentage of plan’s
                liabilities
             

          	
             
                 
             

          	
             
                8.2
             

          	
             
                %
             

          	
             
                9.4
             

          	
             
                %
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Total actuarial (gains)/losses
             

          	
             
                 
             

          	
             
                (2.3
             

          	
             
                )
             

          	
             
                5.5
             

          	
             
                 
             

          
	
             
                Expressed as a percentage of plan’s
                liabilities
             

          	
             
                 
             

          	
             
                (6.1
             

          	
             
                %)
             

          	
             
                20.1
             

          	
             
                %
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

     
         
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                31 December
 2003
 $m
             

          	
             
                    
             

          	
             
                31 December
 2002
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Net assets
             

          	
             
                 
             

          	
             
                 
             

          	
             
                    
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Group’s net assets per Consolidated Balance
                Sheet
             

          	
             
                 
             

          	
             
                825.4
             

          	
             
                 
             

          	
             
                1,459.4
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Pension & Life Assurance Plan
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Net pension assets
             

          	
             
                 
             

          	
             
                8.5
             

          	
             
                 
             

          	
             
                3.8
             

          	
             
                 
             

          
	
             
                Net pension liabilities
             

          	
             
                 
             

          	
             
                (9.4
             

          	
             
                )
             

          	
             
                (7.7
             

          	
             
                )
             

          
	
             
                Related deferred tax asset
             

          	
             
                 
             

          	
             
                0.1
             

          	
             
                 
             

          	
             
                0.8
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                (0.8
             

          	
             
                )
             

          	
             
                (3.1
             

          	
             
                )
             

          
	
             
                Employee Benefit Plan
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Net pension assets
             

          	
             
                 
             

          	
             
                26.0
             

          	
             
                 
             

          	
             
                17.2
             

          	
             
                 
             

          
	
             
                Net pension liabilities
             

          	
             
                 
             

          	
             
                (28.2
             

          	
             
                )
             

          	
             
                (19.7
             

          	
             
                )
             

          
	
             
                Related deferred tax asset
             

          	
             
                 
             

          	
             
                0.3
             

          	
             
                 
             

          	
             
                0.5
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                (1.9
             

          	
             
                )
             

          	
             
                (2.0
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Net assets including pension assets and
                liabilities
             

          	
             
                 
             

          	
             
                822.7
             

          	
             
                 
             

          	
             
                1,454.3
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Reserves
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Profit and loss reserve excluding pension assets and
                liabilities
             

          	
             
                 
             

          	
             
                (4,761.0
             

          	
             
                )
             

          	
             
                (3,945.6
             

          	
             
                )
             

          
	
             
                Pension reserve
             

          	
             
                 
             

          	
             
                (2.7
             

          	
             
                )
             

          	
             
                (5.1
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Profit and loss reserve
             

          	
             
                 
             

          	
             
                (4,763.7
             

          	
             
                )
             

          	
             
                (3,950.7
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 
 

     
        144
     

     

     
     

     
     
        29    Post Balance Sheet Events
        
     

     
        Sale of European business 
     

     
        On 12 February 2004, Elan announced the completion of the
        sale of its European sales and marketing business to Medeus, a new U.K.
        pharmaceutical company backed by Apax Partners Funds. Elan realised total
        consideration of approximately $120 million from this transaction (subject to
        adjustment for certain movements in indebtedness and working capital in the
        period to completion), which was previously announced on 23 December 2003.
        Approximately 180 employees of Elan’s European sales and marketing
        business have tranferred their employment to Medeus. Separately, Elan completed
        the sale of certain rights to two products in the U.K. and Ireland for
        approximately $10 million during the first quarter of 2004. 
     

     
        Zonegran & Frova 
     

     
        On 30 March 2004, Elan announced an agreement with Eisai
        for the purchase of Elan’s interests in Zonegran in North America and
        Europe. On closing, Eisai will pay Elan consideration of up to $130.0 million
        for these interests, including inventory, with an estimated value of
        approximately $26 million and the associated sales team of approximately 115
        employees. In addition, Elan may earn future deferred purchase payments of up
        to $110.0 million, primarily contingent on when generic zonisamide is
        introduced in the U.S., and including up to $25.0 million contingent on
        receiving marketing approval for Zonegran in Europe. Elan will also receive
        additional deferred purchase payments on net sales of Zonegran in North America
        and Europe if certain additional conditions are met. Elan will be required to
        pay $17.0 million to Dainippon on closing for the assignment of the Zonegran
        North American and European licence agreements to Eisai. Elan will continue to
        manufacture Zonegran in all three dosage strengths of 25 mg, 50 mg, and 100 mg
        capsules in Athlone, Ireland. The transaction is subject to regulatory
        approvals, third party consents and other customary conditions, and is expected
        to close before the end of the second quarter of 2004. 
     

     
        Also on 30 March 2004, Elan announced an agreement with
        Vernalis for the termination of the development and licence agreements between
        Elan and Vernalis regarding Frova. Vernalis agreed to purchase Elan’s
        commercialisation rights in North America for Frova. Vernalis will pay Elan a
        total of approximately $55 million for rights to Frova in North America,
        comprising $5.0 million on closing; $20.0 million and $25.0 million on 31
        December 2004 and 31 December 2005, respectively; and, no later than 31
        December 2004, Elan will receive a payment for its Frova inventory, estimated
        at approximately $5 million. Vernalis intends to seek additional equity funding
        over the next twelve months to assist with the payments to Elan. Elan’s
        co-promotion agreement with UCB will be terminated at closing, and Elan will
        pay UCB approximately $10 million as a result of the termination. The
        completion of the transaction is subject to the approval of Vernalis’
        shareholders, U.S. anti-trust clearance if required, third party consents and
        other customary conditions. The transaction is expected to close before the end
        of the second quarter of 2004. 
     

     
        30    Consolidated Cash Flow
        Statement 
     

     
        a   Reconciliation of
        operating loss to operating cash flows 
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                2003
 $m
             

          	
             
                   
             

          	
             
                2002
 $m
             

          	
             
                   
             

          	
             
                2001
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Operating loss
             

          	
             
                 
             

          	
             
                (935.1
             

          	
             
                )  
             

          	
             
                (2,290.8
             

          	
             
                )  
             

          	
             
                (829.7
             

          	
             
                )
             

          
	
             
                Depreciation and amortisation
             

          	
             
                 
             

          	
             
                210.3
             

          	
             
                 
             

          	
             
                320.3
             

          	
             
                 
             

          	
             
                270.4
             

          	
             
                 
             

          
	
             
                Impairment of intangibles
             

          	
             
                 
             

          	
             
                189.5
             

          	
             
                 
             

          	
             
                1,614.6
             

          	
             
                 
             

          	
             
                1,009.8
             

          	
             
                 
             

          
	
             
                Disposal of intangibles
             

          	
             
                 
             

          	
             
                1.8
             

          	
             
                 
             

          	
             
                65.0
             

          	
             
                 
             

          	
             
                127.9
             

          	
             
                 
             

          
	
             
                Disposal and write-down of tangible fixed
                assets
             

          	
             
                 
             

          	
             
                15.6
             

          	
             
                 
             

          	
             
                46.1
             

          	
             
                 
             

          	
             
                17.8
             

          	
             
                 
             

          
	
             
                Purchase of product royalty rights from Pharma
                Marketing/Autoimmune
             

          	
             
                 
             

          	
             
                297.6
             

          	
             
                 
             

          	
             
                121.0
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Other
             

          	
             
                 
             

          	
             
                0.4
             

          	
             
                 
             

          	
             
                99.5
             

          	
             
                 
             

          	
             
                58.0
             

          	
             
                 
             

          
	
             
                Decrease in debtors
             

          	
             
                 
             

          	
             
                29.9
             

          	
             
                 
             

          	
             
                209.9
             

          	
             
                 
             

          	
             
                23.2
             

          	
             
                 
             

          
	
             
                Decrease/(increase) in stocks
             

          	
             
                 
             

          	
             
                9.9
             

          	
             
                 
             

          	
             
                (13.0
             

          	
             
                )
             

          	
             
                (37.6
             

          	
             
                )
             

          
	
             
                (Decrease)/increase in creditors
             

          	
             
                 
             

          	
             
                (142.2
             

          	
             
                )
             

          	
             
                87.0
             

          	
             
                 
             

          	
             
                (115.2
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Net cash (outflow)/inflow from operating
                activities
             

          	
             
                 
             

          	
             
                (322.3
             

          	
             
                )
             

          	
             
                259.6
             

          	
             
                 
             

          	
             
                524.6
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        145
     

     

     
     

     
     
        NOTES RELATING TO FINANCIAL STATEMENTS 
     

     
        b   Management of liquid
        resources 
     

     
        The management of liquid resources comprises the movement
        in short term deposits, commercial paper and repurchase agreements, excluding
        those repayable on demand. 
     

     
        c   Analysis of net debt
        
     

     
         
     

     	
             
                 
             

          	
             
                    
             

          	
             
                At 1 January
 2003
 $m
             

          	
             
                    
             

          	
             
                Cash
 Flow
 $m
             

          	
             
                    
             

          	
             
                Other
 Movements
 $m
             

          	
             
                    
             

          	
             
                Exchange Rate
 Movements
 $m
             

          	
             
                    
             

          	
             
                At 31 December
 2003
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Cash
             

          	
             
                 
             

          	
             
                1,071.9
             

          	
             
                 
             

          	
             
                (256.5
             

          	
             
                )
             

          	
             
                —
             

          	
             
                 
             

          	
             
                12.5
             

          	
             
                 
             

          	
             
                827.9
             

          	
             
                 
             

          
	
             
                Liquid resources
             

          	
             
                 
             

          	
             
                14.6
             

          	
             
                 
             

          	
             
                (14.5
             

          	
             
                )
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                0.1
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Cash and liquid resources
             

          	
             
                 
             

          	
             
                1,086.5
             

          	
             
                 
             

          	
             
                (271.0
             

          	
             
                )
             

          	
             
                —
             

          	
             
                 
             

          	
             
                12.5
             

          	
             
                 
             

          	
             
                828.0
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                3.25% Zero Coupon Subordinated Exchangeable Notes
                (LYONs)
             

          	
             
                 
             

          	
             
                (779.0
             

          	
             
                )
             

          	
             
                803.4
             

          	
             
                (1)
             

          	
             
                (25.3
             

          	
             
                )
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (0.9
             

          	
             
                )
             

          
	
             
                Guaranteed and Exchangeable Notes
             

          	
             
                 
             

          	
             
                (1,497.7
             

          	
             
                )
             

          	
             
                (460.0
             

          	
             
                )
             

          	
             
                7.3
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (1,950.4
             

          	
             
                )
             

          
	
             
                Other debt
             

          	
             
                 
             

          	
             
                (105.6
             

          	
             
                )
             

          	
             
                83.2
             

          	
             
                 
             

          	
             
                (1.2
             

          	
             
                )
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (23.6
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Debt
             

          	
             
                 
             

          	
             
                (2,382.3
             

          	
             
                )
             

          	
             
                426.6
             

          	
             
                 
             

          	
             
                (19.2
             

          	
             
                )
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (1,974.9
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Net debt
             

          	
             
                 
             

          	
             
                (1,295.8
             

          	
             
                )
             

          	
             
                155.6
             

          	
             
                 
             

          	
             
                (19.2
             

          	
             
                )
             

          	
             
                12.5
             

          	
             
                 
             

          	
             
                (1,146.9
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     		
             
                (1)
             

          	
             
                Includes interest paid of $115.9 million.
                
             

          

     
        d   Net outflow of cash and
        cash equivalents in respect of the purchases of subsidiary undertakings
        
     

     
         
     

     	
             
                 
             

          	
             
                    
             

          	
             
                2003
 $m
             

          	
             
                    
             

          	
             
                2002
 $m
             

          	
             
                    
             

          	
             
                2001
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Cash consideration paid
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                10.0
             

          	
             
                 
             

          
	
             
                Cash of acquired subsidiaries
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (0.5
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Net cash outflow
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                9.5
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        e   Effect of acquired
        companies on cash flow 
     

     
        There were no company acquisitions during 2003 or 2002.
        Cash flows in 2001 included cash outflows from operating activities of $5.1
        million which relate to companies acquired during that year. 
     

     
        f   Cash received on
        disposal of businesses 
     

     
        Cash of $546.9 million received in 2003 principally
        comprises net receipts of $484.7 million from the sale of the primary care
        franchise to King, $50.1 million on disposal of the Pain Portfolio and proceeds
        from other business disposals of $12.1 million. Cash of $361.3 million was
        received in 2002 primarily from the disposal of the Abelcet business. Proceeds
        of $46.1 million were received from the disposal of subsidiaries, mainly
        relating to ETT. 
     

     

     
        146
     

     

     
     

     
     
        g   Net inflow of cash and
        cash equivalents in respect of the disposal of subsidiary
        undertakings
     

     
         
     

     	
             
                 
             

          	
             
                    
             

          	
             
                2003
 Total
 $m
             

          	
             
                   
             

          	
             
                2002
 Total
 $m
             

          	
             
                   
             

          	
             
                2001
 Total
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Cash consideration received
             

          	
             
                 
             

          	
             
                47.1
             

          	
             
                 
             

          	
             
                87.6
             

          	
             
                 
             

          	
             
                41.9
             

          	
             
                 
             

          
	
             
                Cash of disposed subsidiaries
             

          	
             
                 
             

          	
             
                (1.0
             

          	
             
                )
             

          	
             
                (5.8
             

          	
             
                )
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Net cash inflow
             

          	
             
                 
             

          	
             
                46.1
             

          	
             
                 
             

          	
             
                81.8
             

          	
             
                 
             

          	
             
                41.9
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        h   Effect of disposed
        companies on cash flow 
     

     
        Cash flows in 2003 included cash outflows from operating
        activities of $4.2 million and repayments of loans of $5.2 million, which
        relate to companies disposed of during 2003. 
     

     
        i   Restricted cash
        
     

     
        Cash and liquid resources include restricted cash held by
        EPIL II and EPIL III in an amount of $21.1 million. 
     

     
        31   Company Balance Sheet
        
     

     
        Fixed assets—intangible assets 
     

     
         
     

     	
             
                 
             

          	
             
                    
             

          	
             
                Patents &
 Licences
 $m
             

          	
             
                    
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Cost:
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                At 1 January 2003
             

          	
             
                 
             

          	
             
                185.0
             

          	
             
                 
             

          
	
             
                Additions
             

          	
             
                 
             

          	
             
                0.8
             

          	
             
                 
             

          
	
             
                Impairment
             

          	
             
                 
             

          	
             
                (4.3
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                At 31 December 2003
             

          	
             
                 
             

          	
             
                181.5
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Accumulated amortisation:
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                At 1 January 2003
             

          	
             
                 
             

          	
             
                96.2
             

          	
             
                 
             

          
	
             
                Amortised in year
             

          	
             
                 
             

          	
             
                9.2
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                At 31 December 2003
             

          	
             
                 
             

          	
             
                105.4
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Net book value: 31 December 2003
             

          	
             
                 
             

          	
             
                76.1
             

          	
             
                 
             

          
	
             
                Net book value: 31 December 2002
             

          	
             
                 
             

          	
             
                88.8
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        Fixed assets—tangible assets 
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                Land &
 Buildings
 $m
             

          	
             
                    
             

          	
             
                Equipment
 $m
             

          	
             
                    
             

          	
             
                Total
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Net book value
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                At 1 January 2003
             

          	
             
                 
             

          	
             
                11.0
             

          	
             
                 
             

          	
             
                6.7
             

          	
             
                 
             

          	
             
                17.7
             

          	
             
                 
             

          
	
             
                Movements
             

          	
             
                 
             

          	
             
                (0.8
             

          	
             
                )
             

          	
             
                (2.5
             

          	
             
                )
             

          	
             
                (3.3
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                At 31 December 2003
             

          	
             
                 
             

          	
             
                10.2
             

          	
             
                 
             

          	
             
                4.2
             

          	
             
                 
             

          	
             
                14.4
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        The net book value of tangible assets held under finance
        lease arrangements at 31 December 2003 amounted to $3.5 million (2002: $5.1
        million) and related depreciation for the year amounted to $1.6 million (2002:
        $3.1 million). 
     

     

     
        147
     

     

     
     

     
     
        NOTES RELATING TO FINANCIAL STATEMENTS 
     

     
        Fixed assets—financial assets 
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                At 31 December
 2003
 $m
             

          	
             
                    
             

          	
             
                At 31 December
 2002
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Investments in subsidiary undertakings
             

          	
             
                 
             

          	
             
                246.0
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Loans to subsidiary undertakings
             

          	
             
                 
             

          	
             
                2,022.1
             

          	
             
                 
             

          	
             
                2,699.2
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                2,268.1
             

          	
             
                 
             

          	
             
                2,699.2
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                Investments in
 Subsidiaries
 $m
             

          	
             
                   
             

          	
             
                Loans to
 Subsidiaries
 $m
             

          	
             
                   
             

          	
             
                Total
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Cost
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                At 1 January 2003
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                2,699.2
             

          	
             
                 
             

          	
             
                2,699.2
             

          	
             
                 
             

          
	
             
                Movements
             

          	
             
                 
             

          	
             
                246.0
             

          	
             
                 
             

          	
             
                (677.1
             

          	
             
                )
             

          	
             
                (431.1
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                At 31 December 2003
             

          	
             
                 
             

          	
             
                246.0
             

          	
             
                 
             

          	
             
                2,022.1
             

          	
             
                 
             

          	
             
                2,268.1
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        Debtors 
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                At 31 December
 2003
 $m
             

          	
             
                    
             

          	
             
                At 31 December
 2002
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Trade debtors
             

          	
             
                 
             

          	
             
                9.1
             

          	
             
                 
             

          	
             
                11.8
             

          	
             
                 
             

          
	
             
                Amounts owed by group undertakings
             

          	
             
                 
             

          	
             
                0.5
             

          	
             
                 
             

          	
             
                1.3
             

          	
             
                 
             

          
	
             
                Other debtors
             

          	
             
                 
             

          	
             
                0.3
             

          	
             
                 
             

          	
             
                6.3
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                9.9
             

          	
             
                 
             

          	
             
                19.4
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        Creditors (amounts falling due within one year)
        
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                At 31 December
 2003
 $m
             

          	
             
                    
             

          	
             
                At 31 December
 2002
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Trade creditors
             

          	
             
                 
             

          	
             
                1.3
             

          	
             
                 
             

          	
             
                1.5
             

          	
             
                 
             

          
	
             
                Other creditors
             

          	
             
                 
             

          	
             
                0.2
             

          	
             
                 
             

          	
             
                0.3
             

          	
             
                 
             

          
	
             
                Due to group undertakings
             

          	
             
                 
             

          	
             
                880.9
             

          	
             
                 
             

          	
             
                1,518.3
             

          	
             
                 
             

          
	
             
                Accrued expenses
             

          	
             
                 
             

          	
             
                5.0
             

          	
             
                 
             

          	
             
                15.4
             

          	
             
                 
             

          
	
             
                Lease obligation
             

          	
             
                 
             

          	
             
                1.1
             

          	
             
                 
             

          	
             
                0.9
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                888.5
             

          	
             
                 
             

          	
             
                1,536.4
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        For additional information regarding guarantees, please
        refer to Note 15 to the Consolidated Financial Statements. 
     

     

     
        148
     

     

     
     

     
     
        Creditors (amounts falling due after one year)
        
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                At 31 December
 2003
 $m
             

          	
             
                 
             

          	
             
                At 31 December
 2002
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Finance lease obligations (net of finance
                charges):
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Payable within two to five years
             

          	
             
                 
             

          	
             
                4.5
             

          	
             
                 
             

          	
             
                4.0
             

          	
             
                 
             

          
	
             
                Payable after five years
             

          	
             
                 
             

          	
             
                9.0
             

          	
             
                 
             

          	
             
                8.1
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                13.5
             

          	
             
                 
             

          	
             
                12.1
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        32   Subsidiary and Associated
        Undertakings                                                                                                                   

     

     
        At 31 December 2003, Elan had the following principal
        subsidiary and associated undertakings: 
     

     
         
     

     	
             
                Company
             

          	
             
                 
             

          	
             
                Nature of Business
             

          	
             
                 
             

          	
             
                Group
 Share
                %
             

          	
             
                 
             

          	
             
                Registered Office &
 Country of Incorporation &
 Operation
             

          	
             
                 
             

          
	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Elan International Services Ltd  
             

          	
             
                 
             

          	
             
                Financial services company
             

          	
             
                 
             

          	
             
                100
             

          	
             
                 
             

          	
             
                Clarendon House, 2 Church St Hamilton,
                Bermuda
             

          	
             
                 
             

          
	
             
                Elan Management Ltd.     
             

          	
             
                 
             

          	
             
                Provision of management services
             

          	
             
                 
             

          	
             
                100
             

          	
             
                 
             

          	
             
                Lincoln House, Lincoln Place Dublin 2,
                Ireland
             

          	
             
                 
             

          
	
             
                Elan Pharmaceuticals, Inc.          
             

          	
             
                 
             

          	
             
                Research and development and sale of pharmaceutical
                products
             

          	
             
                 
             

          	
             
                100
             

          	
             
                 
             

          	
             
                800 Gateway Blvd South San Francisco, CA, United
                States
             

          	
             
                 
             

          
	
             
                Athena Neurosciences, Inc.         
             

          	
             
                 
             

          	
             
                Holding company
             

          	
             
                 
             

          	
             
                100
             

          	
             
                 
             

          	
             
                800 Gateway Blvd South San Francisco, CA, United
                States
             

          	
             
                 
             

          
	
             
                Elan Pharma International Ltd    
             

          	
             
                 
             

          	
             
                Research and development, sale and distribution of
                pharmaceutical products and financial services
             

          	
             
                 
             

          	
             
                100
             

          	
             
                 
             

          	
             
                WIL House, Shannon Business Park Co. Clare,
                Ireland
             

          	
             
                 
             

          
	
             
                Elan Pharma Ltd     
             

          	
             
                 
             

          	
             
                Manufacture of pharmaceutical products
             

          	
             
                 
             

          	
             
                100
             

          	
             
                 
             

          	
             
                Monksland, Athlone Co. Westmeath, Ireland
             

          	
             
                 
             

          
	
             
                Elan Finance Corporation Ltd    
             

          	
             
                 
             

          	
             
                Financial services company
             

          	
             
                 
             

          	
             
                100
             

          	
             
                 
             

          	
             
                Clarendon House, 2 Church St Hamilton,
                Bermuda
             

          	
             
                 
             

          
	
             
                Elan Pharmaceutical Investments II, Ltd
             

          	
             
                 
             

          	
             
                Investment holding company
             

          	
             
                 
             

          	
             
                100
             

          	
             
                 
             

          	
             
                Clarendon House, 2 Church St Hamilton,
                Bermuda
             

          	
             
                 
             

          
	
             
                Elan Pharmaceutical Investments III, Ltd          
             

          	
             
                 
             

          	
             
                Investment holding company
             

          	
             
                 
             

          	
             
                100
             

          	
             
                 
             

          	
             
                Clarendon House, 2 Church St Hamilton,
                Bermuda
             

          	
             
                 
             

          
	
             
                Elan Holdings Ltd  
             

          	
             
                 
             

          	
             
                Holding company
             

          	
             
                 
             

          	
             
                100
             

          	
             
                 
             

          	
             
                Monksland, Athlone Co. Westmeath, Ireland
             

          	
             
                 
             

          
	
             
                Elan Holdings Inc. 
             

          	
             
                 
             

          	
             
                Manufacture, marketing and distribution of
                pharmaceutical and medical device products
             

          	
             
                 
             

          	
             
                100
             

          	
             
                 
             

          	
             
                1300 Gould Drive Gainesville, GA, United
                States
             

          	
             
                 
             

          
	
             
                Elan Drug Delivery, Inc.  
             

          	
             
                 
             

          	
             
                Research and development
             

          	
             
                 
             

          	
             
                100
             

          	
             
                 
             

          	
             
                3000 Horizon Drive King of Prussia, PA, United
                States
             

          	
             
                 
             

          
	
             
                Monksland Holdings BV 
             

          	
             
                 
             

          	
             
                Financial services company
             

          	
             
                 
             

          	
             
                100
             

          	
             
                 
             

          	
             
                Amsteldijte 166 6th Floor 1079 LH Amsterdam The
                Netherlands
             

          	
             
                 
             

          
	
             
                Elan Capital Corporation Ltd      
             

          	
             
                 
             

          	
             
                Financial services company
             

          	
             
                 
             

          	
             
                100
             

          	
             
                 
             

          	
             
                Clarendon House, 2 Church St Hamilton,
                Bermuda
             

          	
             
                 
             

          
	
             
                Amarin Corporation plc(1)
             

          	
             
                 
             

          	
             
                Specialty pharmaceutical company
             

          	
             
                 
             

          	
             
                26
             

          	
             
                 
             

          	
             
                7 Curzon Street, London W1J 5HG, United
                Kingdom
             

          	
             
                 
             

          

 

     		
             
                (1)
             

          	
             
                Associate
             

          

 

     
        149
     

     

     
     

     
     
        NOTES RELATING TO FINANCIAL STATEMENTS 
     

     
        Information regarding all other subsidiaries will be filed
        with the Company’s next annual return as provided for by Section 16[3](a)
        of the Companies (Amendment) Act, 1986. 
     

     
        33   U.S. GAAP Information
        
     

     
        Restatement 
     

     
        In its 2002 Annual Report and Form 20-F, Elan restated its
        U.S. GAAP financial results as of and for the fiscal year ended 31 December
        2001 to consolidate EPIL III from its date of establishment on 15 March 2001.
        Under U.S. GAAP, EPIL III had been historically accounted for by Elan as a
        qualifying special purpose entity and was not, therefore, consolidated. 

     

     
        In addition, in its 2002 Annual Report and Form 20-F, Elan
        adjusted its previously announced unaudited U.S. GAAP financial information as
        of and for the fiscal year ended 31 December 2002 to give effect to the
        consolidation of EPIL III and to consolidate Shelly Bay, an entity established
        by Elan, from 29 June 2002 through 30 September 2002. Shelly Bay acquired
        certain financial assets from EPIL III on 29 June 2002. The 2001 restatement
        and the adjustments to the 2002 U.S. GAAP financial information are described
        below. 
     

     
        Under Irish GAAP, EPIL III had been accounted for as a
        consolidated subsidiary since its date of establishment in accordance with the
        requirements of FRS 5. Therefore, the 2001 restatement did not affect
        Elan’s Irish GAAP financial information, including the Irish GAAP
        financial information contained in this Annual Report and Form 20-F. 
     

     
        Background 
     

     
        In March 2001, Elan transferred a portfolio of equity and
        debt securities to EPIL III, a wholly owned subsidiary of Elan. EPIL III issued
        $160.0 million in aggregate principal amount of Series A Guaranteed Notes,
        $190.0 million in aggregate principal amount of Series B Guaranteed Notes and
        $200.0 million in aggregate principal amount of Series C Guaranteed Notes. The
        Series A Guaranteed Notes matured on 29 June 2002. To fund the repayment of the
        notes, on 29 June 2002 EPIL III transferred certain financial assets,
        consisting of certain of the securities included in the portfolio transferred
        to EPIL III, to Shelly Bay and Shelly Bay made a $148.0 million cash payment to
        EPIL III. EPIL III used the proceeds from the payment by Shelly Bay, together
        with existing cash of $12.0 million, to repay the Series A Guaranteed Notes.
        
     

     
        The documents that established EPIL III required that EPIL
        III dispose of financial assets in order to repay the Series A Guaranteed Notes
        at maturity. The documents also mandated the order in which the assets were to
        be sold prior to the maturity date for the Series A Guaranteed Notes. However,
        due to a number of factors, including the inability of Elan and EPIL III to
        locate the list mandating the order of disposal of the financial assets, the
        disposal process was commenced and completed over the one-week period ending on
        29 June 2002. Although Elan, as servicing agent for EPIL III, contacted a
        number of third parties regarding their potential interest in purchasing
        financial assets from EPIL III, each of those parties indicated that they would
        not be able to complete a due diligence analysis of the issuers of the
        financial assets to be sold, or to receive all necessary internal approvals to
        complete the purchase, on a timely basis. 
     

     
        Therefore, in an effort to enable EPIL III to dispose of
        the financial assets, Elan determined that it would be necessary to provide
        non-recourse credit support to third parties who would agree to purchase
        financial assets from EPIL III. Credit support was offered to a number of
        potential purchasers of the financial assets. However, ultimately, only Shelly
        Bay possessed the ability to complete the transaction on a timely basis.
        
     

     
        Elan established Shelly Bay specifically for the purpose
        of acquiring financial assets from EPIL III. All of the capital stock of Shelly
        Bay was issued to its sole shareholder. Elan did not own any capital stock of
        Shelly Bay and did not have a representative on Shelly Bay’s board of
        directors. In addition, the sole shareholder of Shelly Bay had no previous
        contact with Elan. However, as further described below, Elan possessed all of
        the financial risk of the Shelly Bay transaction. Similar to all other
        potential purchasers contacted by Elan, the sole shareholder of Shelly Bay was
        unwilling to invest capital to acquire the financial assets until a due
        diligence analysis of the issuers of the financial assets had been completed.
        Therefore, the sole shareholder of Shelly Bay made no substantive capital
        investment in Shelly Bay and, although Shelly Bay possessed all of the
        potential financial benefits of the transaction, neither Shelly Bay nor its
        sole shareholder had any financial risk in the transaction. 
     

     
        Elan believed that any failure by EPIL III to dispose of
        financial assets prior to 29 June 2002 could potentially adversely impact the
        non-consolidated accounting status of EPIL III under U.S. GAAP and could result
        in defaults under Elan’s debt instruments. 
     

     

     
        150
     

     

     
     

     
     
        Transaction structure 
     

     
        Under the terms of the transaction, Shelly Bay acquired
        certain financial assets from EPIL III on 29 June 2002 and made a cash payment
        to EPIL III of $148.0 million. Shelly Bay financed the entire purchase price of
        the financial assets, together with the funds necessary to pay interest and
        other costs on the loan to its maturity date, through borrowings under a $153.0
        million non-recourse bank loan facility maturing on 30 September 2002. Elan
        provided a full and unconditional guarantee to the bank to support Shelly
        Bay’s obligation to repay the loan and provided $153.0 million in cash
        collateral to the bank to secure Elan’s obligations under its guarantee.
        Upon the closing of the transaction, Elan paid to Shelly Bay approximately $1
        million to reimburse Shelly Bay for the expenses expected to be incurred by it
        in connection with the transaction. In addition, Elan irrevocably waived all
        rights of recourse against Shelly Bay in the event that it failed to repay the
        bank loan at maturity. 
     

     
        The cash payment made by Shelly Bay in connection with its
        acquisition of the financial assets was based upon a valuation conducted by
        Elan. The valuation utilised customary, widely-accepted valuation methodologies
        and required that Elan make certain judgements and assumptions regarding the
        financial assets. Elan did not receive any independent verification of the
        valuation at the time of the transaction. In addition, EPIL III did not receive
        any bids for the financial assets to be disposed of. 
     

     
        Upon the closing of the transaction, Shelly Bay’s
        assets consisted solely of the financial assets purchased from EPIL III. Under
        the terms of the transaction, Shelly Bay was required to complete a due
        diligence analysis of the issuers of the securities prior to 15 September 2002.
        Shelly Bay had the right to either elect, on or prior to 15 September 2002, to
        retain the financial assets on a long-term basis or to dispose of the financial
        assets prior to 30 September 2002. 
     

     
        In the event that Shelly Bay elected to retain the
        financial assets, it was required, within 15 days of the election, to obtain
        alternative financing in an amount equal to the value, as of 29 June 2002, of
        the assets being retained, as determined by an independent appraiser engaged by
        Shelly Bay. The net cash proceeds received by Shelly Bay from any alternative
        financing were required to be applied to repay amounts outstanding under Shelly
        Bay’s bank loan. 
     

     
        In the event that Shelly Bay elected to dispose of the
        financial assets prior to 30 September 2002, Shelly Bay was required to apply
        the net proceeds from the dispositions to repay amounts outstanding under its
        bank loan. The transaction agreements contained no limitation on the price at
        which any financial asset could be sold by Shelly Bay or the party to whom any
        financial asset could be sold. In addition, Elan agreed that it had no right to
        object to the disposition of any financial asset, the party to whom it was
        disposed of or the price obtained for the disposition. 
     

     
        Given the non-recourse nature of the Shelly Bay bank loan,
        Elan possessed all of the financial risk of the transaction under its guarantee
        of the bank loan, and the cash collateral provided by Elan to secure the
        guarantee, in the event of any shortfall in the aggregate proceeds received by
        Shelly Bay from the refinancing or disposition of the financial assets.
        Although Shelly Bay possessed all of the potential financial benefits of the
        transaction, neither Shelly Bay nor its sole shareholder had any financial risk
        in the transaction. 
     

     
        As required by the terms of the transaction, Shelly Bay
        engaged an independent appraiser to value the financial assets as of 29 June
        2002. The appraisal, which was prepared in early September 2002, valued the
        financial assets at $8.2 million. 
     

     
        Shelly Bay did not elect, under the terms of the
        transaction, to retain any of the financial assets and obtain alternative
        financing in an amount equal to the independent appraiser’s valuation.
        Rather, by 30 September 2002, Shelly Bay had disposed of all of the financial
        assets for aggregate net proceeds of $9.3 million. A number of the financial
        assets were disposed of, for net proceeds of $1.8 million, to an affiliate of
        Shelly Bay. The remainder of the financial assets were sold to third parties
        and in open market transactions. As described above, the transaction agreements
        contained no limitation on the price at which any financial asset could be sold
        by Shelly Bay or the party to whom any financial asset could be sold, including
        to an affiliate of Shelly Bay. In addition, Elan agreed that it had no right to
        object to the disposition of any financial asset, the party to whom it was
        disposed of or the price obtained for the disposition. 
     

     
        As a result of the disposition of the financial assets by
        Shelly Bay for aggregate net proceeds of $9.3 million, on 30 September 2002,
        Elan made a cash payment of $141.6 million to satisfy its obligation under its
        guarantee. Under the terms of the transaction agreements, Elan has no further
        obligation under the guarantee and has no recourse to Shelly Bay or to its sole
        shareholder arising from Elan’s payment under the guarantee. 
     

     
        Restatement of previously reported U.S. GAAP financial
        results 
     

     
        In its 2002 Annual Report and Form 20-F, Elan restated its
        U.S. GAAP financial results to consolidate EPIL III from its date of
        establishment on 15 March 2001. The manner in which the Shelly Bay transaction
        was completed, including Elan’s facilitation of the transaction, which
        
     

     

     
        151
     

     

     
     

     
     
        NOTES RELATING TO FINANCIAL STATEMENTS 
     

     
        resulted in an intercompany transfer of financial assets
        by EPIL III to Shelly Bay at a price above fair value, demonstrated that Elan
        possessed the ability to control EPIL III. This ability to control EPIL III was
        inconsistent with SFAS No. 125 and EITF Topic D-66 “Effects of a
        Special-Purpose Entity’s Powers to Sell, Exchange, Repledge, or Distribute
        Financial Assets under SFAS Statement No. 125”. 
     

     
        Adjustment of previously announced unaudited U.S. GAAP
        financial information for 2002 
     

     
        In its 2002 Annual Report and Form 20-F, Elan also
        adjusted its previously announced unaudited U.S. GAAP financial information for
        2002 to give effect to the consolidation of EPIL III and to consolidate Shelly
        Bay from 29 June 2002 through 30 September 2002 under EITF D-14
        “Transactions Involving Special Purpose Entities” (“D-14”).
        Elan established Shelly Bay. The sole shareholder of Shelly Bay did not make a
        substantive capital investment in Shelly Bay and neither Shelly Bay nor its
        sole shareholder possessed any financial risk in the transaction. Elan
        possessed the financial risk associated with the Shelly Bay transaction until
        30 September 2002. Under D-14, these factors required that Elan consolidate
        Shelly Bay from 29 June 2002 through 30 September 2002. 
     

     
        The following tables present the effects of consolidating
        EPIL III on Elan’s previously reported U.S. GAAP net (loss)/income,
        shareholders’ equity, total assets, total liabilities and cash flows for
        2001 and the effects of consolidating EPIL III and Shelly Bay on Elan’s
        previously announced unaudited U.S. GAAP financial information for 2002:
        
     

     
        Net (loss)/income: 
     

     
         
     

     	
             
                 
             

          	
             
                    
             

          	
             
                2002(1)
 (unaudited)
 $m
             

          	
             
                    
             

          	
             
                2001(2)
 (restated)
 $m
             

          	
             
                    
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Prior to restatement
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (2,432.5
             

          	
             
                )
             

          	
             
                 
             

          	
             
                342.8
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          
	
             
                Changes in:
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Net interest and other expense
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (25.5
             

          	
             
                )(3)
             

          	
             
                 
             

          	
             
                (62.0
             

          	
             
                )(4)
             

          
	
             
                Impairment of investments
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (151.9
             

          	
             
                )(5)
             

          	
             
                 
             

          	
             
                (11.9
             

          	
             
                )(5)
             

          
	
             
                Charge arising from EPIL III guarantee
             

          	
             
                 
             

          	
             
                 
             

          	
             
                247.6 
             

          	
             
                (6)
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          
	
             
                Difference in net (loss)/income
             

          	
             
                 
             

          	
             
                 
             

          	
             
                70.2
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (73.9
             

          	
             
                )
             

          
	
             
                As restated
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (2,362.3
             

          	
             
                )
             

          	
             
                 
             

          	
             
                268.9
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          
	
             
                Basic (loss)/earnings per Ordinary Share under U.S.
                GAAP, prior to restatement
             

          	
             
                 
             

          	
             
                $
             

          	
             
                (6.96
             

          	
             
                )
             

          	
             
                $
             

          	
             
                1.02
             

          	
             
                 
             

          
	
             
                Basic (loss)/earnings per Ordinary Share under U.S.
                GAAP, as restated
             

          	
             
                 
             

          	
             
                $
             

          	
             
                (6.75
             

          	
             
                )
             

          	
             
                $
             

          	
             
                0.80
             

          	
             
                 
             

          
	
             
                Diluted (loss)/earnings per Ordinary Share under
                U.S. GAAP, prior to restatement
             

          	
             
                 
             

          	
             
                $
             

          	
             
                (6.96
             

          	
             
                )
             

          	
             
                $
             

          	
             
                0.95
             

          	
             
                 
             

          
	
             
                Diluted (loss)/earnings per Ordinary Share under
                U.S. GAAP, as restated
             

          	
             
                 
             

          	
             
                $
             

          	
             
                (6.75
             

          	
             
                )
             

          	
             
                $
             

          	
             
                0.75
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          

 

     
        Shareholders’ equity: 
     

     
         
     

     	
             
                 
             

          	
             
                    
             

          	
             
                At 31 December
 2002(1)
 (unaudited)
 $m
             

          	
             
                    
             

          	
             
                At 31 December
 2001(2)
 (restated)
 $m
             

          	
             
                    
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Prior to restatement
             

          	
             
                 
             

          	
             
                828.7
             

          	
             
                 
             

          	
             
                3,283.9
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Changes in:
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Retained earnings and other reserves
             

          	
             
                 
             

          	
             
                (1.8
             

          	
             
                )(7)
             

          	
             
                (85.0
             

          	
             
                )(8)
             

          
	
             
                As restated
             

          	
             
                 
             

          	
             
                826.9
             

          	
             
                 
             

          	
             
                3,198.9
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 
 

     
        152
     

     

     
     

     
     
        Total assets: 
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                At 31 December
 2002(1)
 (unaudited)
 $m
             

          	
             
                 
             

          	
             
                At 31 December
 2001(2)
 (restated)
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Prior to restatement
             

          	
             
                 
             

          	
             
                3,874.7
             

          	
             
                 
             

          	
             
                6,363.7
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Changes in:
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Cash and cash equivalents
             

          	
             
                 
             

          	
             
                8.9
             

          	
             
                 
             

          	
             
                26.9
             

          	
             
                 
             

          
	
             
                Marketable investment securities
             

          	
             
                 
             

          	
             
                79.2
             

          	
             
                 
             

          	
             
                144.9
             

          	
             
                 
             

          
	
             
                Accounts receivable and prepayments
             

          	
             
                 
             

          	
             
                5.2
             

          	
             
                 
             

          	
             
                (0.3
             

          	
             
                )
             

          
	
             
                Intangible assets
             

          	
             
                 
             

          	
             
                2.5
             

          	
             
                (9)
             

          	
             
                4.5
             

          	
             
                (9)
             

          
	
             
                Investments and marketable investment
                securities
             

          	
             
                 
             

          	
             
                45.0
             

          	
             
                 
             

          	
             
                288.6
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Increase in total assets
             

          	
             
                 
             

          	
             
                140.8
             

          	
             
                 
             

          	
             
                464.6
             

          	
             
                 
             

          
	
             
                As restated
             

          	
             
                 
             

          	
             
                4,015.5
             

          	
             
                 
             

          	
             
                6,828.3
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        Total liabilities: 
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                At 31 December
 2002(1)
 (unaudited)
 $m
             

          	
             
                 
             

          	
             
                At 31 December
 2001(2)
 (restated)
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Prior to restatement
             

          	
             
                 
             

          	
             
                3,046.0
             

          	
             
                 
             

          	
             
                3,079.8
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Changes in:
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Long term and convertible debt
             

          	
             
                 
             

          	
             
                390.2
             

          	
             
                 
             

          	
             
                549.6
             

          	
             
                 
             

          
	
             
                Other liabilities
             

          	
             
                 
             

          	
             
                (247.6
             

          	
             
                )(6)
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Increase in total liabilities
             

          	
             
                 
             

          	
             
                142.6
             

          	
             
                 
             

          	
             
                549.6
             

          	
             
                 
             

          
	
             
                As restated
             

          	
             
                 
             

          	
             
                3,188.6
             

          	
             
                 
             

          	
             
                3,629.4
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        Cash flows from operating activities: 
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                2002(1)
 (unaudited)
 $m
             

          	
             
                 
             

          	
             
                2001(2)
 (restated)
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Prior to restatement
             

          	
             
                 
             

          	
             
                197.2
             

          	
             
                 
             

          	
             
                542.6
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Restatement adjustments

             

          	
             
                 
             

          	
             
                (48.9
             

          	
             
                )(10)
             

          	
             
                (18.9
             

          	
             
                )(11)
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                As restated
             

          	
             
                 
             

          	
             
                148.3
             

          	
             
                 
             

          	
             
                523.7
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        Cash flows from investing activities: 
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                2002(1)
 (unaudited)
 $m
             

          	
             
                 
             

          	
             
                2001(2)
 (restated)
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Prior to restatement
             

          	
             
                 
             

          	
             
                (244.2
             

          	
             
                )
             

          	
             
                (849.7
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Restatement adjustments
             

          	
             
                 
             

          	
             
                181.1
             

          	
             
                (12)
             

          	
             
                (504.2
             

          	
             
                )(13)
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                As restated
             

          	
             
                 
             

          	
             
                (63.1
             

          	
             
                )
             

          	
             
                (1,353.9
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 
 

     
        153
     

     

     
     

     
     
        NOTES RELATING TO FINANCIAL STATEMENTS 
     

     
        Cash flows from financing activities: 
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                2002(1)
 (unaudited)
 $m
             

          	
             
                 
             

          	
             
                2001(2)
 (restated)
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Prior to restatement
             

          	
             
                 
             

          	
             
                (531.7
             

          	
             
                )
             

          	
             
                1,077.8
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Restatement adjustments
             

          	
             
                 
             

          	
             
                (150.2)
             

          	
             
                )(14)
             

          	
             
                550.0
             

          	
             
                (15)
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                As restated
             

          	
             
                 
             

          	
             
                (681.9
             

          	
             
                )
             

          	
             
                1,627.8
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     		
             
                (1)
             

          	
             
                Reflects the impact of consolidating EPIL III for
                2002, and of consolidating Shelly Bay from 29 June 2002 through 30 September
                2002, on Elan’s U.S. GAAP unaudited financial results for fiscal year
                ended 31 December 2002. 
             

          

     		
             
                (2)
             

          	
             
                Reflects the impact of consolidating EPIL III
                from 15 March 2001, the date of its establishment, on Elan’s U.S. GAAP
                financial results for 2001, which were contained in Elan’s Annual Report
                and Form 20-F for 2001. 
             

          

     		
             
                (3)
             

          	
             
                Primarily reflects interest expense on the EPIL
                III notes of $37.2 million, less interest income on the financial assets held
                by EPIL III of $9.4 million. 
             

          

     		
             
                (4)
             

          	
             
                Primarily reflects the reversal of a previously
                recorded gain arising on the sale of investments by Elan to EPIL III of $40.5
                million and interest expense on the EPIL III notes of $35.4 million, less
                interest income on the financial assets held by EPIL III of $15.8 million.
                
             

          

     		
             
                (5)
             

          	
             
                Reflects impairment charges on financial assets
                held by EPIL III. 
             

          

     		
             
                (6)
             

          	
             
                Represents the reversal of a previously recorded
                provision for the guarantee issued by Elan to the noteholders of EPIL III.
                
             

          

     		
             
                (7)
             

          	
             
                Represents the cumulative impact of the
                difference in net loss on retained earnings of $(3.7) million, together with a
                mark to market adjustment on common stock held by EPIL III of $1.9 million.
                
             

          

     		
             
                (8)
             

          	
             
                Represents the impact of the difference in net
                income on retained earnings of $(73.9) million, together with a mark to market
                adjustment on common stock held by EPIL III of $(11.1) million. 
             

          

     		
             
                (9)
             

          	
             
                Reflects transaction costs related to the
                issuance of the EPIL III notes. 
             

          

     		
             
                (10)
             

          	
             
                Primarily reflects interest paid on the EPIL III
                notes of $46.6 million.
             

          

     		
             
                (11)
             

          	
             
                Primarily reflects interest paid on the EPIL III
                notes of $25.9 million and an inflow of $6.0 million from the reclassification
                of the transaction costs to cash flows from investing activities.
             

          

     		
             
                (12)
             

          	
             
                Reflects the reclassification of the payment
                under the guarantee related to Shelly Bay of $141.6 million, the maturity of
                cash placed in short-term money market instruments of $30.2 million and the
                proceeds of the sale of investments by Shelly Bay of $9.3 million.
             

          

     		
             
                (13)
             

          	
             
                Primarily reflects the reversal of previously
                recorded investing cash inflows of $454.3 million from the sale of investments
                by Elan to EPIL III and the placing of cash of $43.9 million in short-term
                money market instruments. 
             

          

     		
             
                (14)
             

          	
             
                Primarily reflects the repayment of EPIL
                III’s Series A Guaranteed Notes in June 2002 of $160.0 million.
                
             

          

     		
             
                (15)
             

          	
             
                Reflects a financing cash inflow of $550.0
                million from the issuance of the EPIL III Notes. 
             

          

     
        Differences Between Irish and U.S. Accounting
        Principles 
     

     
        The financial statements of Elan have been prepared in
        accordance with Irish GAAP, which differ in certain significant respects from
        U.S. GAAP. The presentation of information also differs. For example,
        exceptional items are separately disclosed within their statutory
        classifications under Irish GAAP, while U.S. GAAP does not use or define the
        term “exceptional items” and therefore does not provide for the
        characterisation of items as exceptional. U.S. GAAP income statement data,
        comprehensive income statement data, balance sheet data and cash flow data have
        been provided on pages 169 to 171. These reflect the 2001 restatement described
        above for EPIL III. The material differences as they apply to Elan’s
        financial statements are as follows: 
     

     
        a   Discontinued operations
        
     

     
        Under Irish GAAP, a discontinued operation is classified
        as an operation of the business which is (i) sold or terminated and the sale or
        termination has been completed during the year or within three months following
        the year end, (ii) the former activities have ceased permanently, (iii) the
        operation had a material effect on the nature and focus of the business and
        (iv) its financial results are clearly distinguishable. For information on
        products and businesses which have been treated as discontinued operations
        under Irish GAAP, please refer to Note 6 to the Consolidated Financial
        Statements. Under U.S. GAAP, a discontinued operation is a component of an
        entity whose operations and cashflows have been or will be eliminated from the
        ongoing operations of the entity and the entity will not have any significant
        continuing involvement in the operations of the component after its disposal.
        For information on the products and businesses which have been treated as
        discontinued operations under U.S. GAAP, please refer to page 172. As the
        criteria for the determination of discontinued operations are different under
        Irish GAAP and U.S. GAAP, the products and businesses treated as discontinued
        operations differ under each. All of the operations that have been treated as
        discontinued operations under U.S. GAAP have also been treated as discontinued
        operations under Irish GAAP. However, the primary care franchise, the European
        sales and marketing business, and certain drug delivery operations have been
        treated as discontinued operations under Irish GAAP, but as continuing
        operations under U.S. GAAP, because Elan believes that it has significant
        continuing involvement in the operation of these 
     

     

     
        154
     

     

     
     

     
     
        businesses, for example through ongoing supply
        arrangements or formulation activities. Further, the presentation of
        discontinued operations differs between Irish GAAP and U.S. GAAP. Under Irish
        GAAP, the results of discontinued operations remain within the profit and loss
        account captions to which they relate, but additional disclosures are given
        both on the face of the profit and loss account and within Note 6 to the
        Consolidated Financial Statements. Under U.S. GAAP, the results of discontinued
        operations are shown as a separate component of income before extraordinary
        items and the cumulative effect of accounting changes (if applicable). There
        are no reconciling differences to net (loss)/income or shareholders’
        equity between Irish GAAP and U.S. GAAP related to discontinued operations.
        
     

     
        b   Business combinations
        
     

     
        1. Dura: On 9 November 2000, Elan completed a merger with Dura. At the time
        of this merger, Irish and U.S. GAAP had different criteria for establishing the
        method of accounting required for business combinations. 
     

     		
             
                •
             

          	
             
                Under U.S. GAAP, the merger with Dura required the
                application of the pooling of interests method of accounting. The assets and
                liabilities of Dura and Elan were combined and carried forward to the merged
                enterprise at their pre-combination recorded amounts. Therefore, under U.S.
                GAAP, the assets and liabilities of Dura were recorded at their historical
                carrying amounts and no goodwill arose from the merger of Dura and Elan. The
                income statements of Dura and Elan for 2000 and prior years were combined and
                reported as income statements of the merged enterprise. The costs of the
                transaction were expensed.
             

          

     		
             
                •
             

          	
             
                Under Irish GAAP, the acquisition of Dura by Elan
                was accounted for using acquisition accounting. The cost of the investment in
                Dura was calculated based on the fair value of the shares issued, together with
                the related transaction costs. The assets and liabilities of Dura were recorded
                based on their fair values at the date of acquisition. The difference between
                the cost of the investment and the fair value of the assets and liabilities of
                Dura was recorded as goodwill. Until 1 October 2002, this goodwill was being
                amortised over twenty years. This estimated useful life was reduced to 10 years
                effective 1 October 2002. With effect from July 2003, the cashflow method of
                amortisation has been applied as it better reflects the expected use of the
                asset. Pre-acquisition results for both companies were not combined. The profit
                and loss accounts have been consolidated for the post-acquisition period only.
                
             

          

     
        The differences in accounting for the Dura transaction
        between Irish and U.S. GAAP resulted in the following reconciling items:
        
     

     		
             
                •
             

          	
             
                A goodwill amortisation expense arose under Irish
                GAAP. The goodwill amortisation expense for 2003, 2002 and 2001 was $20.5
                million, $68.9 million and $55.2 million, respectively. Accumulated goodwill
                amortisation at 31 December 2003 amounted to $154.2 million (included within
                amortisation of intangible assets of $249.7 million). No goodwill amortisation
                expense arose under U.S. GAAP, as no additional goodwill was recognised in
                connection with the acqusition under U.S. GAAP;
             

          

     		
             
                •
             

          	
             
                In accordance with FRS 11, Elan performed an
                impairment review at 31 December 2003 of the goodwill arising from the
                acquisition of Dura under Irish GAAP. As a result of this review, Elan recorded
                an impairment charge of $16.2 million for 2003 (2002: $854.9 million), reducing
                the carrying value of the Dura goodwill to $86.0 million (net of accumulated
                goodwill amortisation of $154.2 million) at 31 December 2003. Under U.S. GAAP,
                no goodwill arose from the merger of Dura and Elan;
             

          

     		
             
                •
             

          	
             
                The exclusion of pre-acquisition profits and losses
                under Irish GAAP compared to the combination of historic income statements
                under U.S. GAAP resulted in a reconciling item of $0.4 million between Irish
                and U.S. GAAP net income/(loss) for 2001, being losses on managed funds
                recorded by Dura in 2001 which related to pre-acquisition balances;
             

          

     		
             
                •
             

          	
             
                Goodwill and the fair value adjustment to licences
                and patents arising under Irish GAAP, on the acquisition of Dura, resulted in a
                reconciling difference to shareholders’ equity of $293.5 million at 31
                December 2003 (2002: $309.7 million). In addition, the accumulated Irish GAAP
                goodwill amortisation expense at 31 December 2003 of $154.2 million (2002:
                $133.7 million) (included within amortisation of intangible assets of $249.7
                million) does not arise under U.S. GAAP. 
             

          

     
        2. Other business
        combinations: Under Irish and U.S. GAAP, all of
        Elan’s acquisitions, except for Dura, were accounted for using acquisition
        (purchase) accounting. 
     

     
        Under acquisition accounting, Irish and U.S. GAAP require
        the fair value of the purchase consideration to be allocated to the net assets
        acquired based on their fair values on the date of acquisition. The difference
        between the fair value of the purchase consideration and the fair value of the
        net assets acquired is recorded as goodwill. Under U.S. GAAP, the fair value of
        equity securities issued to effect a purchase business combination is
        determined based on the market price of the equity securities over a reasonable
        period of time before and after the proposed transaction is announced. Under
        Irish GAAP, the fair value of shares issued is determined based on the market
        price of these shares at the acquisition date. There were no material
        differences between the fair value of shares issued by Elan to effect purchase
        business combinations under Irish and U.S. GAAP for the periods presented.
        
     

     

     
        155
     

     

     
     

     
     
        NOTES RELATING TO FINANCIAL STATEMENTS 
     

     
        Under U.S. GAAP, the fair values of acquired IPR&D
        assets were expensed immediately in the income statement. The amounts were
        capitalised and treated as either goodwill or acquired IP under Irish GAAP.
        IPR&D expenses were $Nil for 2003, 2002 and 2001. The difference in
        shareholders’ equity between Irish and U.S. GAAP, arising from the
        expensing of IPR&D, under U.S. GAAP, was $2,121.1 million at 31 December
        2003 (2002: $2,121.1 million). Under Irish GAAP, Elan has subsequently
        recognised impairment charges to such goodwill and acquired IP. To the extent
        that these amounts were previously expensed as IPR&D, under U.S. GAAP, such
        impairment charges have resulted in reconciling differences between Irish and
        U.S. GAAP net income/(loss). These impairment charges were $112.8 million,
        $249.6 million and $785.2 million for 2003, 2002 and 2001, respectively. This
        resulted in a difference in shareholders’ equity between Irish and U.S.
        GAAP of $1,149.4 million at 31 December 2003 (2002: $1,036.6 million). For
        additional information regarding intangible assets, please refer to Notes 3 and
        10 to the Consolidated Financial Statements. 
     

     
        Under Irish GAAP, prior to 31 December 1998, goodwill
        arising on acquisitions was immediately written-off to shareholders’
        equity. Since 1998, in accordance with FRS 10, “Goodwill and Intangible
        Assets”, goodwill is no longer written-off immediately to
        shareholders’ equity but is capitalised and amortised over its useful
        life. The difference in shareholders’ equity between Irish and U.S. GAAP,
        arising from goodwill previously written-off immediately against reserves, was
        $574.3 million at 31 December 2003 (2002: $574.3 million). 
     

     
        Under U.S. GAAP, Elan adopted SFAS No. 142, “Goodwill
        and Other Intangible Assets” (“SFAS No. 142”), effective 1
        January 2002. Prior to this date, intangible assets, including goodwill, were
        amortised over their estimated useful lives. SFAS No. 142 requires that
        goodwill and other intangible assets with indefinite lives no longer be
        amortised but instead be tested for impairment at least annually. The
        difference in net loss between Irish and U.S. GAAP, arising from the
        amortisation of intangible assets (mainly goodwill and acquired IP) in 2003 was
        $40.7 million, of which $20.5 million related to Dura. 
     

     
        The following table discloses U.S. GAAP reported net
        (loss)/income, basic (loss)/earnings per share and diluted (loss)/earnings per
        share for 2003 and 2002, and what these amounts would have been for 2001 if
        goodwill was not amortised for 2001: 
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                2003
             

          	
             
                 
             

          	
             
                2002
             

          	
             
                 
             

          	
             
                2001
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                ($m except for per share amounts)
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Net (loss)/income
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (535.4
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (2,362.3
             

          	
             
                )
             

          	
             
                 
             

          	
             
                268.9
             

          	
             
                 
             

          
	
             
                Add back: Goodwill amortisation
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                30.0
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          
	
             
                Adjusted net (loss)/income
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (535.4
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (2,362.3
             

          	
             
                )
             

          	
             
                 
             

          	
             
                298.9
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          
	
             
                Basic (loss)/earnings per share
             

          	
             
                 
             

          	
             
                $
             

          	
             
                (1.50
             

          	
             
                )
             

          	
             
                $
             

          	
             
                (6.75
             

          	
             
                )
             

          	
             
                $
             

          	
             
                0.80
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          
	
             
                Impact of goodwill amortisation
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                $
             

          	
             
                0.09
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          
	
             
                Adjusted (loss)/earnings per share
             

          	
             
                 
             

          	
             
                $
             

          	
             
                (1.50
             

          	
             
                )
             

          	
             
                $
             

          	
             
                (6.75
             

          	
             
                )
             

          	
             
                $
             

          	
             
                0.89
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          
	
             
                Diluted (loss)/earnings per share
             

          	
             
                 
             

          	
             
                $
             

          	
             
                (1.50
             

          	
             
                )
             

          	
             
                $
             

          	
             
                (6.75
             

          	
             
                )
             

          	
             
                $
             

          	
             
                0.75
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          
	
             
                Impact of goodwill amortisation
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                $
             

          	
             
                0.08
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          
	
             
                Adjusted (loss)/earnings per share
             

          	
             
                 
             

          	
             
                $
             

          	
             
                (1.50
             

          	
             
                )
             

          	
             
                $
             

          	
             
                (6.75
             

          	
             
                )
             

          	
             
                $
             

          	
             
                0.83
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          

 

     
        There are differences between Irish and U.S. GAAP in the
        manner by which the carrying value of goodwill is allocated for purposes of
        calculating the profit or loss upon a disposal of a business. Under Irish GAAP,
        the carrying value of goodwill is based on relative fair values on the date of
        acquisition. Under U.S. GAAP, SFAS No. 142 requires that the allocation be
        determined based on the relative fair value of the business being disposed of
        to the fair value of that component of the reporting unit being retained. This
        is based on relative fair values on the date of disposal. 
     

     
        During 2003, Elan sold a number of businesses. In June
        2003, Elan sold its primary care franchise which had been acquired through the
        acquisition of Carnrick and the Sonata product intangible. The primary care
        franchise formed part of the Core Elan reporting unit. Under Irish GAAP,
        goodwill and acquired IP of $45.2 million was expensed in connection with the
        sale. Under U.S. GAAP, goodwill of $34.4 million was expensed, resulting in a
        reconciling difference of $10.8 million between Irish and U.S. GAAP net gain
        for 2003. 
     

     
        In July 2003, Elan sold its subsidiary ETT, a separate
        reporting unit. Under Irish GAAP, goodwill and acquired IP of $28.5 million was
        expensed in connection with the sale. Under U.S. GAAP, goodwill of $3.5 million
        was expensed resulting in a reconciling difference of $25.0 million between
        Irish and U.S. GAAP net loss for 2003. 
     

     

     
        156
     

     

     
     

     
     
        In December 2003, Elan divested the Pain Portfolio which
        had been acquired from Roxane in September 2001. The Pain Portfolio business
        formed part of the Core Elan reporting unit. Under U.S. GAAP, SFAS No. 142
        required a goodwill charge of $3.5 million, based on the relative fair value of
        the business being disposed of compared to the fair value of those being
        retained. Under Irish GAAP no goodwill arose on the acquisition of the Pain
        Portfolio resulting in a reconciling difference of $3.5 million. 
     

     
        During 2002, Elan divested Abelcet which had been acquired
        through the acquisition of Liposome. Abelcet formed part of the Core Elan
        reporting unit. Under Irish GAAP, goodwill of $119.0 million was expensed in
        connection with the sale of the Abelcet business, while under U.S. GAAP,
        goodwill of $19.0 million was expensed in connection with the sale. This
        resulted in a reconciling difference of $100.0 million between Irish and U.S.
        GAAP net loss for 2002. 
     

     
        c   Impairment of intangible
        assets 
     

     
        Under Irish GAAP, FRS 11 requires that intangible assets
        be reviewed for impairment if there is an indication that a reduction in value
        may have occurred. As described in Notes 3 and 10 to the Consolidated Financial
        Statements, Elan recorded impairment charges to intangible assets of $173.3
        million in 2003. These amounts are in addition to the charge of $16.2 million
        also recorded in 2003, for the impairment to the carrying value of the goodwill
        arising from the acquisition of Dura. Under U.S. GAAP, $60.5 million of the
        $173.3 million was expensed in 2003. Hence there was a reconciling difference
        of $112.8 million between Irish and U.S. GAAP net loss. Under U.S. GAAP, $11.7
        million was expensed as IPR&D prior to 2003. 
     

     
        The total impairment charges to goodwill and acquired IP
        were $337.9 million under Irish GAAP for 2002. Under U.S. GAAP, $88.3 million
        of this amount was also expensed in 2002. Under U.S. GAAP, the remaining $249.6
        million of the $337.9 million was expensed as IPR&D prior to 2002. Hence
        this amount was a reconciling difference between Irish and U.S. GAAP net
        income/(loss) for 2002. 
     

     
        The total impairment charges to acquired IP were $785.2
        million under Irish GAAP for 2001. Under U.S. GAAP, all of this amount was
        expensed as IPR&D prior to 2001. Hence this amount was a reconciling
        difference between Irish and U.S. GAAP net income/(loss) for 2001. 
     

     
        d   Impairment of other
        intangible assets 
     

     
        Under U.S. GAAP, in accordance with SFAS No. 144
        “Accounting for the Impairment or Disposal of Long-Lived Assets”
        (“SFAS No. 144”) and pre-2002 (under SFAS No. 121 “Accounting
        for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
        Disposed Of”), intangibles are assessed for impairment based on
        undiscounted cash flows. If the estimated future non-discounted cash flows
        indicate that an impairment had arisen, the amount of the impairment was then
        measured using projected future discounted cash flows. Under Irish GAAP, the
        carrying value of an intangible asset is compared to its discounted cash flows
        for purposes of assessing whether an impairment has arisen. 
     

     
        In 2001, Elan recorded an impairment charge of $44.4
        million on Myambutol under Irish GAAP, as the estimated future discounted cash
        flows were less than the carrying value for this intangible. Under U.S. GAAP,
        no impairment charge arose in 2001 as the estimated future undiscounted cash
        flows were greater than the carrying value for this intangible. 
     

     
        In 2002, Elan recorded an impairment charge of $44.4
        million on Myambutol under U.S. GAAP, as the projected future cash flows had
        decreased such that the estimated future undiscounted cash flows were less than
        the carrying value for this intangible asset. As discussed above, Elan had
        recorded an equivalent impairment charge in 2001 under Irish GAAP. 
     

     
        e   Accounting for
        derivatives 
     

     
        Under Irish GAAP, Elan marks free-standing derivative
        instruments to market at each balance sheet date and the resulting gains and
        losses are recognised in the profit and loss account. The carrying values of
        derivative financial instruments are generally reported within current assets
        or other current liabilities. 
     

     
        Under U.S. GAAP, SFAS No. 133 “Accounting for
        Derivative Instruments and Hedging Activities” (“SFAS No. 133”)
        became effective in 2001. SFAS No. 133 requires that derivatives be recognised
        as either assets or liabilities and measured at fair value. Changes in the fair
        value of derivatives are recorded each period in current earnings or other
        comprehensive income, depending on whether the derivative is designated as part
        of a hedge transaction and, if it is, the type of hedge transaction. 
     

     
        The definition of a derivative instrument is significantly
        broader under U.S. GAAP than under Irish GAAP. This gives rise to a reconciling
        difference, as certain financial assets and liabilities are accounted for as
        derivative instruments under U.S. GAAP and are not accounted 
     

     

     
        157
     

     

     
     

     
     
        NOTES RELATING TO FINANCIAL STATEMENTS 
     

     
        for as derivative instruments under Irish GAAP. The
        adoption of SFAS No. 133 in 2001 had a cumulative after tax income impact under
        U.S. GAAP of $7.8 million relating to embedded derivatives and free-standing
        warrants. The fair value of these derivative instruments at 31 December 2003
        was $44.1 million (2002: $34.9 million). 
     

     
        The difference in net loss between Irish and U.S. GAAP
        arising from the accounting for derivatives amounted to $26.9 million, $(4.4)
        million and $3.8 million for 2003, 2002 and 2001, respectively, resulting in a
        reconciling difference to shareholders’ equity of $34.1 million (2002:
        $7.2 million). 
     

     
        In 2003, Elan exercised its option to convert certain
        financial instruments into common shares of the same companies and a gain of
        $13.4 million was recognised in the profit and loss account representing the
        excess in value of the equity financial instrument received over the carrying
        value of the convertible instruments. The instruments do not qualify as SFAS
        No. 133 derivative instruments and hence no gain falls to be recognised in the
        income statement under U.S. GAAP. 
     

     
        In 2002 and 2001, Elan exercised its option to convert
        debt in Ligand into common shares of Ligand. Under Irish GAAP, gains of $10.1
        million and $17.7 million were recognised for 2002 and 2001 in the profit and
        loss account representing the excess in the value of the equity financial
        instrument received over the carrying value of the convertible debt. Since 1
        January 2001, under U.S. GAAP, Elan has accounted for the convertible debt in
        Ligand in accordance with the requirements of SFAS No. 133, as the conversion
        option constituted an embedded derivative. As such, changes in fair value of
        $3.2 million and $20.7 million were recorded as income during 2002 and 2001,
        respectively. The cumulative catch up adjustment for the implementation of SFAS
        No. 133, recorded at 1 January 2001, included a cumulative gain of $3.9 million
        with respect to Ligand convertible debt. 
     

     
        f   Acquired product rights
        and finance charges 
     

     
        Under Irish GAAP, contingent and potential acquisition
        payments which are likely to be made in the future are recognised as creditors.
        Such contingent payments on product acquisitions and alliances are capitalised
        and recorded as creditors on a time discounted basis. A corresponding finance
        charge is recorded annually in the profit and loss account. Under U.S. GAAP,
        such payments are not recognised in the financial statements until the related
        contingencies are resolved. This resulted in a difference between Irish GAAP
        and U.S. GAAP net loss of $7.4 million, $19.2 million and $34.6 million for
        2003, 2002 and 2001, respectively, consisting of finance and amortisation
        charges. The difference in shareholders’ equity between Irish and U.S.
        GAAP was $61.2 million at 31 December 2003 (2002: $53.8 million). 
     

     
        Under Irish GAAP, Elan had recognised contingent and
        potential acquisition payments relating to the Sonata product intangible which
        were likely to be made. In June 2003, Elan disposed of the Sonata product
        intangible as part of the sale of the primary care franchise to King. King
        assumed Elan’s future liabilities under this agreement. Elan therefore
        de-recognised the net capitalised product intangible and accrued contingent and
        potential acquisition payments of $31.2 million in 2003 which were no longer
        due. 
     

     
        g   Revenue recognition
        
     

     
        Contract revenue, including research revenues and licence
        fees, arises from contracts related to research and development activities on
        behalf of clients and/or technology licensing and business ventures. Under
        Irish GAAP, non-refundable up-front licence fee revenue is recognised when
        earned and when the licensor has no future legal obligation pursuant to the
        licence fee. Refundable licence fees are treated as deferred revenue until such
        time as they are no longer refundable. 
     

     
        Elan sometimes enters into contractual arrangements which
        include multiple elements such as the sale of a product and related research
        and development or manufacturing arrangements. In accordance with the
        provisions included in Application Note G of FRS 5, Elan accounts for each
        individual component of the transaction separately, where each component
        represents a separable good or service and Elan is capable of determining a
        reliable fair value for each such component. 
     

     
        Under U.S. GAAP, the accounting treatment adopted by Elan
        for non-refundable up-front licence fees was similar to Irish GAAP prior to
        2000. In December 1999, the SEC issued SAB 101, which was adopted by the
        Company in 2000. In December 2003, the SEC issued SAB 104 which updates the
        guidance in SAB 101. SAB 104 provides guidance on revenue recognition and
        related disclosures in financial statements. In contrast to Irish GAAP, SAB 104
        generally requires deferral and amortisation of up-front licence fees where
        there is a continuing involvement with the licensed asset through the provision
        of research and development services, manufacturing services or other similar
        activities. SAB 104 also applies to up-front fees other than licence fees. Elan
        adopted SAB 101 in 2000. 
     

     
        Following the adoption of SAB 101, as updated by SAB 104,
        under U.S. GAAP, Elan defers and amortises up-front licence fees to the income
        statement over the “performance period”. The performance period is
        the period over which Elan expects to provide services to 
     

     

     
        158
     

     

     
     

     
     
        the licencee. It is determined by the provisions of, and
        by the facts and circumstances of, the relevant contract. Generally, milestone
        payments have been treated similarly under both Irish GAAP and U.S. GAAP. They
        have been recognised when earned and non-refundable, and when Elan has no
        future legal obligation pursuant to the milestone payment. However, the actual
        accounting for milestones depends on the facts and circumstances of each
        contract. Elan applies the substantive milestone method in accounting for
        milestone payments under U.S. GAAP. This method requires that substantive
        effort must have been applied to achieve the milestone prior to revenue
        recognition. If substantive effort has been applied, the milestone is
        recognised as revenue, subject to it being earned, non-refundable and not
        subject to future legal obligation. This requires an examination of the facts
        and circumstances of each contract. Substantive effort may be demonstrated by
        various factors, including the risks associated with achieving the milestone,
        the period of time over which effort was expended to achieve the milestone, the
        economic basis for the milestone payment and licensing arrangement and the
        costs and staffing to achieve the milestone. It is expected that the
        substantive milestone method will be appropriate for most contracts. If Elan
        determines the substantive milestone method is not appropriate, Elan will apply
        the performance method to the relevant contract under U.S. GAAP. This method
        recognises as revenue the percentage of cumulative non-refundable cash payments
        earned under the contract, based on the percentage of costs incurred to date
        compared to the total costs expected under the contract. This is subject to the
        milestone being earned, non-refundable and not subject to future legal
        obligation. 
     

     
        Elan implemented SAB 101 in the fourth quarter of 2000.
        For the year ended 31 December 2000, Elan recorded a non-cash charge of $344.0
        million under U.S. GAAP for the cumulative effect of this accounting change
        relating to revenue recognised in periods up to 31 December 1999. The
        difference in shareholders’ equity between Irish and U.S. GAAP, arising
        from the application of SAB 104 under U.S. GAAP, was $153.4 million at 31
        December 2003 (2002: $254.3 million). 
     

     
        Deferred revenue at 31 December 2003 consists principally
        of amounts arising from the disposal of product rights to Avinza and nifedipine
        in 2002. These arrangements are described in more detail below. 
     

     
        The performance period was typically between two and three
        years for non-refundable up-front licence fees received by Elan from business
        ventures pursuant to Elan’s business venture programme. The performance
        period was determined by the facts and circumstances and could have been
        shorter or longer in duration than the typical two to three year period. Under
        U.S. GAAP, Elan recognised $35.2 million, $203.8 million and $255.0 million in
        licence fee revenue from business ventures in 2003, 2002 and 2001,
        respectively. There are no remaining unamortised licence fees from the business
        ventures at 31 December 2003. 
     

     
        Total contract revenue recognised under Irish GAAP was
        $49.5 million, $128.5 million and $333.7 million in 2003, 2002 and 2001,
        respectively. Under U.S. GAAP, Elan recognised $99.0 million, $350.7 million
        and $421.3 million of contract revenue in 2003, 2002 and 2001, respectively,
        comprising amortised licence fee revenue of $49.5 million, $234.7 million and
        $287.2 million, respectively. Of these amounts, $10.1 million, $45.2 million
        and $88.6 million of the revenue in 2003, 2002 and 2001, respectively, were
        included as part of the SAB 104 cumulative adjustment. 
     

     
        Under Irish GAAP, revenue from the sale of product rights
        and related inventory is recognised when earned and non-refundable. The same
        accounting is generally applicable under U.S. GAAP. However, in certain
        circumstances, such as when Elan manufactures the product, subsequent to the
        sale deferral and amortisation of such revenue may be appropriate. Elan
        deferred and amortised the revenue received on the disposal of certain
        products, principally Avinza, Actiq and nifedipine during 2002. Elan
        manufactures Avinza and nifedipine. The amounts of deferred revenue under U.S.
        GAAP for Avinza, Actiq and nifedipine are $71.7 million, $Nil and $31.5
        million, respectively, at 31 December 2003. Elan recognised $44.5 million of
        product revenue under U.S. GAAP and $7.6 million of amortisation from these
        products in 2003 (2002: $37.6 million). The deferred revenue on Actiq was fully
        amortised in the first quarter of 2003. Elan continues to manufacture Avinza
        and nifedipine and is amortising these deferred revenue balances over 4 and 5
        years, respectively. Under Irish GAAP, Elan recognised $154.7 million of
        product revenue from these product disposals in 2002 as the manufacturing
        services provided under each contract represented a separable component for
        which Elan was able to establish a reliable fair value. 
     

     
        Total revenue under U.S. GAAP was lower than Irish GAAP by
        $16.1 million, $200.5 million and $134.1 million for 2003, 2002 and 2001,
        respectively. 
     

     
        This difference in revenue mainly arose due to: 
     

     		
             
                •
             

          	
             
                $(114.8) million, $(322.6) million and $(255.9)
                million for 2003, 2002 and 2001, respectively, relating to the reclassification
                of revenue within discontinued operations under U.S. GAAP as one line item
                below net income before tax;
             

          

     		
             
                •
             

          	
             
                $100.9 million, $61.8 million and $98.6 million for
                2003, 2002 and 2001, respectively, relates to the application of SAB 104 under
                U.S. GAAP. SAB 104 does not apply under Irish GAAP; 
             

          

 

     
        159
     

     

     
     

     
     
        NOTES RELATING TO FINANCIAL STATEMENTS 
     

     		
             
                •
             

          	
             
                $Nil, $1.6 million and $19.7 million for 2003, 2002
                and 2001, respectively, relates to the differences in the application of the
                equity method of accounting between Irish and U.S. GAAP; and
             

          

     		
             
                •
             

          	
             
                $(2.2) million, $58.7 million and $Nil for 2003,
                2002 and 2001, respectively, relates to differences in the carrying value of
                divested intangibles assets. The revenue recorded on the divestment of products
                is based on the consideration received less the carrying value of the
                intangible asset. 
             

          

     
        The following table shows these reconciling differences in
        revenue between Irish and U.S. GAAP. 
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                2003
 $m
             

          	
             
                 
             

          	
             
                2002
 $m
             

          	
             
                 
             

          	
             
                2001
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Irish GAAP revenue
             

          	
             
                 
             

          	
             
                762.1
             

          	
             
                 
             

          	
             
                1,333.0
             

          	
             
                 
             

          	
             
                1,740.7
             

          	
             
                 
             

          
	
             
                Difference
             

          	
             
                 
             

          	
             
                (16.1
             

          	
             
                )
             

          	
             
                (200.5
             

          	
             
                )
             

          	
             
                (134.1
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                U.S. GAAP revenue
             

          	
             
                 
             

          	
             
                746.0
             

          	
             
                 
             

          	
             
                1,132.5
             

          	
             
                 
             

          	
             
                1,606.6
             

          	
             
                 
             

          
	
             
                Difference analysed as:
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Product revenue
             

          	
             
                 
             

          	
             
                (65.6
             

          	
             
                )
             

          	
             
                (422.7
             

          	
             
                )
             

          	
             
                (221.7
             

          	
             
                )
             

          
	
             
                Contract revenue
             

          	
             
                 
             

          	
             
                49.5
             

          	
             
                 
             

          	
             
                222.2
             

          	
             
                 
             

          	
             
                87.6
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Total Difference
             

          	
             
                 
             

          	
             
                (16.1
             

          	
             
                )
             

          	
             
                (200.5
             

          	
             
                )
             

          	
             
                (134.1
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Main Composition of Difference
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Impact of discontinued operations under U.S.
                GAAP
             

          	
             
                 
             

          	
             
                (114.8
             

          	
             
                )
             

          	
             
                (322.6
             

          	
             
                )
             

          	
             
                (255.9
             

          	
             
                )
             

          
	
             
                Impact of SAB 104 on revenue
             

          	
             
                 
             

          	
             
                100.9
             

          	
             
                 
             

          	
             
                61.8
             

          	
             
                 
             

          	
             
                98.6
             

          	
             
                 
             

          
	
             
                Impact of equity accounting on revenue
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                1.6
             

          	
             
                 
             

          	
             
                19.7
             

          	
             
                 
             

          
	
             
                Impact of intangibles on revenue
             

          	
             
                 
             

          	
             
                (2.2
             

          	
             
                )
             

          	
             
                58.7
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        h   Non-consolidated
        subsidiaries (EPIL / EPIL II) 
     

     
        Under Irish GAAP, EPIL and EPIL II have been consolidated
        as subsidiaries of Elan. Elan owns 100% of the equity in the companies. The
        individual investments held by EPIL and EPIL II have remained on Elan’s
        balance sheet and the related loan notes of each of the companies have been
        included as a liability. Elan expensed the related interest charge in the
        profit and loss account. 
     

     
        Under U.S. GAAP, EPIL II has not been consolidated as a
        subsidiary of Elan. EPIL has been consolidated as a subsidiary of Elan under
        U.S. GAAP from March 2001 when control of EPIL reverted to Elan. Prior to this
        date, it was not consolidated. EPIL (prior to March 2001) and EPIL II qualify
        as special purpose entities within the meaning of SFAS No. 125, as
        grandfathered under SFAS No. 140, as Elan has effected a true legal sale of the
        investments and has not retained control over such assets. Accordingly, the
        transfer of investments to EPIL (prior to March 2001) and EPIL II was treated
        as a sale of the assets at fair value under U.S. GAAP and the related loan
        notes have not been included as a liability. Elan has not expensed the related
        interest charge in the income statement. 
     

     
        EPIL’s qualifying special purpose entity status was
        established in June 1999. EPIL issued $350.0 million of loan notes with a
        maturity date of June 2002. EPIL II’s qualifying special purpose entity
        status was established in June 2000. EPIL II issued $450.0 million of loan
        notes with a maturity date of June 2004. In March 2001, pursuant to an exchange
        offer and consent solicitation, EPIL III offered to exchange its Series A
        Guaranteed Notes and Series B Guaranteed Notes for all the loan notes
        previously issued by EPIL in June 1999. The consent solicitation requested
        consents from the holders of EPIL’s loan notes to amend the agreements
        under which these notes were issued. These amendments removed restrictions on
        EPIL, including those relating to entering into transactions with affiliates,
        merging, changing its business, amending its charter documents, selling assets
        or making investments. The acceptance of the exchange offer and consent
        solicitation by all of EPIL’s note holders caused control of EPIL to
        revert to Elan. Effectively upon closing of the exchange offer and consent
        solicitation, EPIL’s qualifying status terminated and EPIL was
        consolidated by Elan under U.S. GAAP. 
     

     
        Elan holds a retained interest in EPIL II through its
        ownership of the retained beneficial interest (100% of the common stock). The
        retained beneficial interest entitles Elan to any residual proceeds in EPIL II
        after repayment of the EPIL II Notes. Pursuant to the Stock Pledge Agreement,
        Elan has pledged the common stock in EPIL II to the noteholders of EPIL II. The
        holders of the loan notes have control of key voting rights, such as the right
        to approve the appointment of directors of EPIL II and the right to approve
        amendments to the Memorandum of Association and By-Laws of EPIL II. The board
        of directors of EPIL II is independent of Elan and is comprised of a majority
        of independent directors and one director appointed by Elan. EPIL II may
        dispose of financial assets upon maturity of its loan notes. Upon the maturity
        of the loan notes due 2004, if there are more than sufficient financial assets
        to repay the loan notes, the 
     

     

     
        160
     

     

     
     

     
     
        organisational documents of EPIL II do not contain
        provisions concerning the selection of financial assets, or the amount of
        financial assets, to be disposed of. In this situation, any decision as to
        which assets to dispose of would be made by the board of directors of EPIL II.
        When the loan notes of EPIL II are repaid, the Stock Pledge Agreement
        terminates and Elan is entitled to the residual proceeds, if any, through
        ownership of the common stock in EPIL II. Elan does not have a call option or
        similar unilateral legal right over the transferred investments. Elan has
        provided a direct guarantee to the holders of the loan notes of EPIL II for the
        repayment of the loan notes and the payment of any unpaid interest. In the
        event that EPIL II does not meet its obligations to pay amounts due to the
        noteholders, the noteholders may call upon the Elan guarantee. 
     

     
        Elan’s accounting policy is to allocate the previous
        carrying amount of the financial assets transferred, between the financial
        assets transferred and the retained interest based on their relative fair
        values on the date of transfer. The fair value of a retained interest, both for
        initial and subsequent measurement, is calculated as the fair value of the
        qualifying special purpose entity’s assets less the fair value of its
        liabilities. For disclosure purposes, the fair value of the assets of EPIL II
        is estimated using established financial methodologies, including quoted market
        prices, where available, and takes into account the time value of money. The
        fair value of investments in private entities and non-traded securities of
        public entities is typically measured by valuation methodologies such as
        option-pricing models and valuations achieved in recent private placements by
        the investee. The key assumptions used in measuring the fair value of
        Elan’s retained interest in EPIL II are common stock prices for
        equity-based assets and the discount rate used for debt-based assets. The fair
        value of the liabilities of EPIL II is measured as the total amount outstanding
        under its loan notes, including accrued but unpaid interest (if any), and takes
        into account the time value of money. The fair value of the guarantee was
        measured as de minimis on the transfer date. The guarantee has subsequently
        been accounted for, under U.S. GAAP, as a loss contingency in accordance with
        the requirements of SFAS No. 5, “Accounting for Contingencies”. This
        requires that Elan record a charge under the guarantee if it is probable that a
        payment will be made under the guarantee to the EPIL II noteholders. 
     

     
        Elan’s retained interest in EPIL II had a fair value
        of $Nil on the transfer date. Elan is carrying the common stock of EPIL II at
        cost, as it does not qualify as a debt security or a debt-like security as
        defined in SFAS No. 115 “Accounting for Certain Investments in Debt and
        Equity Securities” (“SFAS No. 115”). 
     

     
        On 31 December 2003, the estimated fair value of
        Elan’s retained interest in EPIL II was $Nil. Elan has guaranteed the debt
        of EPIL II, to the extent that the investments held by it are insufficient to
        repay the debt when it falls due in 2004. At 31 December 2003, Elan had
        recorded a provision of $344.5 million under U.S. GAAP in respect of this
        guarantee. After providing for the estimated investment shortfalls, the
        carrying values and cash position of EPIL II at 31 December 2003 were as
        follows: 
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Investments in public companies
             

          	
             
                 
             

          	
             
                76.3
             

          	
             
                 
             

          
	
             
                Investments in private companies
             

          	
             
                 
             

          	
             
                9.0
             

          	
             
                 
             

          
	
             
                Cash
             

          	
             
                 
             

          	
             
                20.5
             

          	
             
                 
             

          
	
             
                Accrued interest and expenses
             

          	
             
                 
             

          	
             
                (0.3
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Total assets
             

          	
             
                 
             

          	
             
                105.5
             

          	
             
                 
             

          
	
             
                Provision for guarantees
             

          	
             
                 
             

          	
             
                344.5
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Total guaranteed indebtedness
             

          	
             
                 
             

          	
             
                450.0
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        An adverse change of 10% (20%) in the common stock prices
        used to estimate the fair value of equity-based assets held by EPIL II would
        result in a decline of $5.9 million ($11.6 million) in the estimated fair value
        of the investment portfolio of EPIL II. An adverse change of 10% (20%) in the
        annual discount rate used to estimate the fair value of debt-based assets held
        by EPIL II would result in a decline of $0.7 million ($1.4 million) in the
        estimated fair value of the investment portfolio of EPIL II. 
     

     
        The sensitivities outlined above regarding the fair value
        of Elan’s retained interest in EPIL II are hypothetical and should be used
        with caution. As the figures indicate, changes in fair value based on a 10%
        variation in an assumption generally cannot be extrapolated because the
        relationship of the change in assumption to the change in fair value may not be
        linear. Also, in the sensitivities outlined above, the effect of a variation in
        a particular assumption on the fair value of the retained interest is
        calculated without changing any other assumption. In reality, changes in one
        factor may result in changes in another, which may magnify or counteract the
        sensitivities. For example, increases in market interest rates may result in
        declines in market common stock prices. 
     

     
        Elan provides services such as bookkeeping and
        administration, monitoring, administering compliance with applicable laws and
        regulations and custodian service to EPIL II. Such services are for the benefit
        of EPIL II. All compensation paid to Elan represents an 
     

     

     
        161
     

     

     
     

     
     
        NOTES RELATING TO FINANCIAL STATEMENTS 
     

     
        arms-length price for those services. In 2003, Elan
        received a fee of $Nil (2002: $Nil, 2001: $0.2 million) and $0.8 million (2002:
        $0.8 million, 2001: $0.8 million) for providing these services to EPIL and EPIL
        II, respectively. 
     

     
        The differences between U.S. and Irish GAAP due to EPIL
        and EPIL II are as follows: 
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                Net (loss)/income
             

          	
             
                 
             

          	
             
                Shareholders’ equity
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                2003
 $m
             

          	
             
                 
             

          	
             
                2002
 $m
             

          	
             
                 
             

          	
             
                2001
 $m
             

          	
             
                 
             

          	
             
                At 31 December 
 2003
 $m
             

          	
             
                 
             

          	
             
                At 31 December 
 2002
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Impact of:
             

          	
             
                    
             

          	
             
                 
             

          	
             
                    
             

          	
             
                 
             

          	
             
                    
             

          	
             
                 
             

          	
             
                    
             

          	
             
                 
             

          	
             
                    
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                EPIL
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (78.9
             

          	
             
                )
             

          	
             
                49.8
             

          	
             
                 
             

          	
             
                (19.1
             

          	
             
                )
             

          	
             
                (19.1
             

          	
             
                )
             

          
	
             
                EPIL II
             

          	
             
                 
             

          	
             
                21.4
             

          	
             
                 
             

          	
             
                (75.9
             

          	
             
                )
             

          	
             
                41.1
             

          	
             
                 
             

          	
             
                26.6
             

          	
             
                 
             

          	
             
                5.2
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                21.4
             

          	
             
                 
             

          	
             
                (154.8
             

          	
             
                )
             

          	
             
                90.9
             

          	
             
                 
             

          	
             
                7.5
             

          	
             
                 
             

          	
             
                (13.9
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        These net reconciling differences between Irish and U.S.
        GAAP arose mainly due to profits on disposals, interest charges and impairment
        charges. 
     

     
        There was no gain or loss to Elan arising from the
        disposal of investments to EPIL in 1999. Under U.S. GAAP, there was a gain of
        $39.2 million to Elan arising from the disposal of investments to EPIL II in
        June 2000. No gain or loss was recognised upon the termination of EPIL’s
        qualifying special purpose entity status in March 2001. Under Irish GAAP, as
        these entities are consolidated subsidiaries, such gains are not included in
        Elan’s profit and loss account. 
     

     
        Under Irish GAAP, the interest charges recorded for the
        EPIL and EPIL II loan notes were $43.0 million, $43.0 million and $49.1 million
        for 2003, 2002 and 2001, respectively. Under U.S. GAAP, such charges are not
        recorded in Elan’s income statement. 
     

     
        The remaining reconciling differences arise due to
        operating expenses/(income) recorded under Irish GAAP but not under U.S. GAAP
        of $1.1 million, $(5.3) million and $(9.4) million in 2003, 2002 and 2001,
        respectively, and the impact of different cost bases for the investments held
        by EPIL/EPIL II under Irish GAAP compared to U.S. GAAP, resulting in
        reconciling differences of $(22.7) million, $(192.5) million and $51.2 million
        in 2003, 2002 and 2001, respectively. 
     

     
        i   Associate accounting
        
     

     
        The difference between Irish and U.S. GAAP net
        (loss)/income arising from differences in the application of the equity method
        of accounting, was $Nil, $(3.8) million and $13.0 million for 2003, 2002 and
        2001, respectively. 
     

     
        Most of the difference arises on the accounting for
        Elan’s investment in Amarin. Under U.S. GAAP, Elan’s investment in
        Amarin was accounted for using the equity method in 2002 based on the
        percentage of voting equity shares held by the Group. Under Irish GAAP, the
        investment was accounted for using the equity method in 2002 based on the
        percentage of stock held on a fully diluted basis, including non-voting
        convertible preference shares. This resulted in a reconciling item to the net
        (loss)/income of $(3.8) million between U.S. and Irish GAAP in 2002 (2001:
        $11.0 million). During 2003 Elan only held equity investments in Amarin,
        therefore, Elan’s investment in Amarin was accounted for similarly under
        both U.S. GAAP and Irish GAAP. 
     

     
        Under U.S. GAAP, certain investments of Elan were
        accounted for under the equity method of accounting and treated as associates.
        Under Irish GAAP, these investments were accounted for under the cost method.
        These investments were written-off under Irish GAAP in 2001 resulting in a
        reconciling item to the net (loss)/income of $Nil (2002: $Nil, 2001: $2.0
        million) due to the different cost basis of the investments. 
     

     
        j   Stock option
        compensation 
     

     
        Elan grants options to employees under its stock option
        plans. These options are granted at fixed exercise prices equal to the market
        value on the date of grant. Under Irish GAAP, no compensation cost has been
        accrued for options awarded to employees as the exercise price has been set
        equal to the market value on the date of grant. 
     

     

     
        162
     

     

     
     

     
     
        Under U.S. GAAP, Elan applies Accounting Principles Board
        Opinion No. 25, “Accounting for Stock Issues to Employees” (“APB
        25”). In accordance with APB 25, no compensation cost was initially
        recognised for stock options granted, as they have been granted to employees at
        market value and at a fixed exercise price. In accordance with Financial
        Accounting Standards Board (“FASB”) Financial Interpretation No. 44
        (FIN No. 44), “Accounting for Certain Transactions Involving Stock
        Compensation”, a compensation expense has been recognised under U.S. GAAP
        where the original terms of a stock option award were modified. Such
        modifications result in the fair value of the options being recognised as a
        compensation expense over any remaining service period. Elan recognised a
        compensation expense of $1.1 million, $0.1 million and $0.2 million in 2003,
        2002 and 2001, respectively, arising from modifications. The modifications
        included option acceleration upon severance of employees and a change of status
        from employees to non-employees. Under Irish GAAP, no compensation expense
        arose as a result of such modifications. 
     

     
        Under Irish GAAP, no compensation expense arises as a
        result of grants to non-employees. Under U.S. GAAP, options granted to
        non-employees have been valued at fair value and the related compensation
        expense is being amortised over the service period. Elan recognised a
        compensation expense of $Nil, $Nil and $0.3 million in 2003, 2002 and 2001,
        respectively, arising from options granted to non-employees. 
     

     
        k   Pensions 

     

     
        The main differences between Irish and U.S. GAAP in
        accounting for pension costs are: 
     

     		
             
                •
             

          	
             
                Under Irish GAAP, plan assets are valued on the
                basis of a discounted present value of expected future income. U.S. GAAP
                requires that plan assets are valued by reference to their market value.

             

          

     		
             
                •
             

          	
             
                Under Irish GAAP, pension costs in connection with
                defined benefit plans are assessed in accordance with the advice of independent
                actuaries using assumptions and methods which produce the actuaries’ best
                estimates of the cost of providing the relevant pension benefits. U.S. GAAP
                requires the use of the projected unit credit method and the matching of the
                projected benefit obligation against the fair value of the plan’s assets,
                as adjusted to reflect any unrecognised obligations or assets.
             

          

     		
             
                •
             

          	
             
                Under Irish GAAP, the measurement of plan assets and
                obligations may be based on the most recent actuarial valuation. Under U.S.
                GAAP, calculations must be made as of the date of the financial statements or a
                date not more than three months prior to that date.
             

          

     		
             
                •
             

          	
             
                Under Irish GAAP, pension credits are not recognised
                in the financial statements unless a refund of, or reduction in, contributions
                is likely. Under U.S. GAAP, a negative pension cost may arise where a
                significant unrecognised net asset or gain exists at the time of
                implementation. This is required to be amortised on a straight-line basis over
                the average remaining service period of employees. 
             

          

     
        The reconciling difference for net (loss)/income between
        Irish and U.S. GAAP was $3.2 million, $2.2 million and $1.2 million for 2003,
        2002 and 2001, respectively. The reconciling difference to shareholders’
        equity includes prepaid pension assets of $11.1 million. In 2002 a $9.8 million
        shortfall between the unfunded accumulated benefit obligation and the
        unrecognised prior service cost and prepaid benefit cost existed which was part
        of the shareholders’ equity reconciling difference. No such shortfall
        occurred as at 31 December, 2003 and the $9.8 million shortfall was reversed.
        
     

     
        Under Irish GAAP, Elan has accounted for pensions in
        accordance with SSAP 24. A new accounting standard, FRS 17, was issued in 2001
        dealing with retirement benefits. This is not mandatory until 2005. Prior to
        this, phased transitional disclosures are required, which are detailed in Note
        28 to the Consolidated Financial Statements. The standard introduces changes to
        the accounting for defined benefit schemes, the basic requirements of which
        are: pension scheme assets are measured using fair values; pension scheme
        liabilities are measured using a projected unit method and discounted at the
        current rate of return on a high quality corporate bond; and full actuarial
        valuations should be obtained at intervals not exceeding three years. There is
        also a requirement that these valuations be updated at each balance sheet date.
        
     

     
        l   Financial fixed assets
        
     

     
        Under Irish GAAP, non-current financial fixed assets are
        recorded at cost less provision for permanent impairment in value. Under U.S.
        GAAP, in accordance with SFAS No. 115 certain financial fixed assets were
        classified as available for sale and reported at fair value and the unrealised
        gains and losses were excluded from earnings and reported as a separate
        component of comprehensive income (net of tax). The difference in
        shareholders’ equity between Irish and U.S. GAAP, arising from differences
        in the accounting treatment for financial fixed assets, was $97.0 million at 31
        December 2003 (2002: $21.0 million). 
     

     

     
        163
     

     

     
     

     
     
        NOTES RELATING TO FINANCIAL STATEMENTS 
     

     
        m   Taxation 

     

     
        Under Irish GAAP, Elan recognised a current year tax
        credit in the income statement of $22.0 million as more fully explained in Note
        7 to the Consolidated Financial Statements. Under U.S. GAAP, Elan recognised a
        current year tax charge in the income statement of $4.7 million, including a
        $0.8 million tax charge in discontinued operations. The Company has adjusted
        its net operating losses to reflect the amounts expected to be realised on a
        probable basis. As a result of this adjustment the Company has credited
        additional paid in capital with $26.7 million to reflect the utilisation of
        stock option deductions, whereas under Irish GAAP the entire credit is recorded
        within the profit and loss account. This resulted in a reconciling difference
        to net loss of $26.7 million for 2003. 
     

     
        n   Consolidated cash flow
        data 
     

     
        In accordance with Irish GAAP, Elan complies with FRS No.
        1, “Cash Flow Statements” (“FRS 1”). Its objective and
        principles are similar to those set out in SFAS No. 95, “Statement of Cash
        Flows” (“SFAS No. 95”). The principal difference between the
        standards is in respect of classification. Under FRS 1, the Group has presented
        its cash flows for (a) operating activities; (b) returns on investments and
        servicing of finance; (c) taxation; (d) capital expenditure and financial
        investment; (e) acquisitions and disposals; and (f) financing activities. SFAS
        No. 95 requires only three categories of cash flow activity, (a) operating; (b)
        investing; and (c) financing. 
     

     
        Cash flows arising from taxation and returns on
        investments and servicing of finance under FRS 1 are included as operating
        activities under SFAS No. 95. In addition, under FRS 1, cash and liquid
        resources include short term borrowings repayable on demand. SFAS No. 95
        requires movements in such borrowings to be included in financing activities.
        
     

     
        For the purposes of cash flows under U.S. GAAP, the Group
        considers all highly liquid deposits with an original maturity of three months
        or less to be cash equivalents. Under Irish GAAP, cash represents cash held at
        bank available on demand, offset by bank overdrafts. Liquid resources comprise
        bank fixed deposits with maturities of greater than one day. 
     

     
        The reconciling difference between Irish GAAP cash and
        liquid resources and U.S. GAAP cash and cash equivalents is included on page
        172. Cash balances held by EPIL (prior to March 2001) and EPIL II have been
        included in cash and liquid resources under Irish GAAP as these entities have
        been consolidated under Irish GAAP. As the entities have not been consolidated
        subsidiaries under U.S. GAAP, their cash balances have not been included in
        cash and cash equivalents under U.S. GAAP. In 2003, under U.S. GAAP, there were
        marketable investments of $Nil (2002: $22.7 million) whose maturity was greater
        than three months. These were treated as liquid resources under Irish GAAP as
        they were readily convertible into cash and were traded in an active market.
        
     

     
        o   Guarantees
        
     

     
        In November 2002, the FASB issued FASB Interpretation No.
        45 “Guarantor’s Accounting and Disclosure Requirements for
        Guarantees, Including Indirect Guarantees of Indebtedness of Others”
        (“FIN 45”). This interpretation addresses the disclosure to be made
        by a guarantor in its financial statements about its obligation under
        guarantees. FIN 45 also requires the guarantor to recognise a liability for the
        non-contingent component of the guarantee, that is the obligation to stand
        ready to perform in the event that specified triggering events or conditions
        occur. The initial measurement of this liability is the fair value of the
        guarantee at inception. The disclosure requirements in this interpretation are
        effective for financial statements of interim and annual periods ending after
        15 December 2002. The recognition and measurement provisions are applicable on
        a prospective basis to guarantees issued or modified after 31 December 2002,
        irrespective of the guarantor’s fiscal year-end. The Group has adopted the
        disclosure requirements of FIN 45 and has applied the recognition and
        measurement provisions for all guarantees entered into or modified after 31
        December 2002. In accordance with FIN 45, the following table provides the
        undiscounted amount of maximum potential future payments for each major group
        of guarantee:
     

     

     
        164
     

     

     
     

     
     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                At 31 December
 2003
 $m
             

          	
             
                 
             

          	
             
                At 31 December
 2002
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Parent company guarantees relating to product
                acquisitions and alliances
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Sonata
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                294.9
             

          	
             
                 
             

          
	
             
                Pain Portfolio
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                90.0
             

          	
             
                 
             

          
	
             
                Parent company guarantees relating to debt
                facilities
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                LYONs
             

          	
             
                 
             

          	
             
                1.6
             

          	
             
                 
             

          	
             
                1,324.9
             

          	
             
                 
             

          
	
             
                EPIL II Notes
             

          	
             
                 
             

          	
             
                450.0
             

          	
             
                 
             

          	
             
                450.0
             

          	
             
                 
             

          
	
             
                EPIL III Notes
             

          	
             
                 
             

          	
             
                390.0
             

          	
             
                 
             

          	
             
                390.0
             

          	
             
                 
             

          
	
             
                7.25% Senior Notes
             

          	
             
                 
             

          	
             
                650.0
             

          	
             
                 
             

          	
             
                650.0
             

          	
             
                 
             

          
	
             
                6.5% Convertible Notes
             

          	
             
                 
             

          	
             
                460.0
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                1,951.6
             

          	
             
                 
             

          	
             
                3,199.8
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        Under its strategic alliance with Wyeth, Elan assumed
        responsibility for the U.S. marketing of Sonata and had the option to acquire
        the U.S. product rights to Sonata. Elan Corporation, plc had guaranteed all of
        its subsidiary’s commitments under the agreements with Wyeth. At 31
        December 2002, the estimated potential payment due in connection with Sonata
        was $294.9 million, of which $63.7 million was recorded as a liability under
        U.S. GAAP. The remaining balance of $231.2 million represented the undiscounted
        amount of potential future payments in respect of Elan’s parent company
        guarantee under the Wyeth agreements. As part of the disposal of Elan’s
        primary care franchise, the product payments related to Sonata were assumed by
        King. 
     

     
        In September 2001, Elan acquired the Pain Portfolio from
        Roxane. Elan Corporation, plc has guaranteed all of its subsidiary’s
        commitments under the agreements with Roxane. At 31 December 2002, the
        potential payment due in connection with the Pain Portfolio was $90.0 million,
        of which $77.4 million was recorded as a liability under U.S. GAAP. The
        remaining balance of $12.6 million represents the undiscounted amount of
        potential future payments in respect of Elan’s parent company guarantee
        under the Roxane agreements. As part of the disposal of Elan’s Pain
        Portfolio, the related product payments were assumed by aaiPharma. 
     

     
        For additional information regarding Elan’s future
        payments and potential future payments relating to product acquisitions and
        alliances, please refer to Note 16 to the Consolidated Financial Statements.
        
     

     
        Elan Corporation, plc has provided subordinated guarantees
        to the holders of the LYONs for the repayment of the loan notes. In the event
        that Elan Finance does not meet its obligations to pay amounts due to the
        noteholders, the noteholders may call upon the Elan Corporation, plc
        guarantees. 
     

     
        Elan Corporation, plc has provided guarantees to the
        holders of the EPIL II Notes and the EPIL III Notes for the repayment of the
        loan notes and the payment of any unpaid interest. In the event that EPIL II or
        EPIL III do not meet their obligations to pay amounts due to the noteholders,
        the noteholders may call upon the Elan Corporation, plc guarantees. 
     

     
        Elan Corporation, plc has provided guarantees to the
        holders of the 7.25% Senior Notes for the repayment of the loan notes and the
        payment of any unpaid interest. In the event that Athena Finance does not meet
        its obligations to pay amounts due to the noteholders, the noteholders may call
        upon the Elan Corporation, plc guarantees. 
     

     
        Elan Corporation, plc has provided guarantees to the
        holders of the 6.5% Convertible Notes for the repayment of the loan notes and
        the payment of any unpaid interest. In the event that ECC does not meet its
        obligations to pay amounts due to the noteholders, the noteholders may call
        upon the Elan Corporation, plc guarantees. 
     

     
        For additional information regarding Elan’s
        outstanding debt, please refer to Note 15 to the Consolidated Financial
        Statements. 
     

     
        p   New accounting standards
        (U.S. GAAP) 
     

     
        Adopted 
     

     
        In June 2001, the FASB issued SFAS No. 143,
        “Accounting for Asset Retirement Obligations” (“SFAS No.
        143”). SFAS No. 143 addresses financial accounting and reporting for
        obligations associated with the retirement of long-lived tangible assets and
        the associated asset 
     

     

     
        165
     

     

     
     

     
     
        NOTES RELATING TO FINANCIAL STATEMENTS 
     

     
        retirement costs. The Statement requires that the fair
        value of liabilities for asset retirement obligations be recorded in the period
        in which they are incurred if a reasonable estimate of fair value can be made.
        The associated asset retirement costs are capitalised as part of the carrying
        amount of the long-lived asset. This statement is effective for financial
        statements issued for fiscal years beginning after 15 June 2002. Elan adopted
        SFAS No. 143 effective 1 January 2003. The adoption of SFAS No. 143 has not had
        a material impact on the Company’s Consolidated Financial Statements.
        
     

     
        In April 2002, the FASB issued SFAS No. 145,
        “Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB
        Statement No. 13, and Technical Corrections” (“SFAS No. 145”).
        SFAS No. 145 provides for the rescission of several previously issued
        accounting standards, new accounting guidance for the accounting for certain
        lease modifications and various technical corrections that are not substantive
        in nature to existing pronouncements. SFAS No. 145 was adopted beginning 1
        January 2003, except for the provisions relating to the amendment of SFAS No.
        13, which were adopted for transactions occurring subsequent to 15 May 2002.
        SFAS No. 145 has not had a material impact on the Company’s Consolidated
        Financial Statements. 
     

     
        In June 2002, the FASB issued SFAS No. 146
        “Accounting for the Costs Associated with Exit or Disposal
        Activities” (“SFAS No. 146”), which nullifies EITF Issue 94-3,
        Liability Recognition for Certain Employee Termination Benefits and Other Costs
        to Exit an Activity (Including Certain Costs Incurred in a Restructuring). SFAS
        No. 146 requires that a liability for costs associated with exit or disposal
        activities first be recognised when the liability is irrevocably incurred
        rather than at the date of management’s commitment to an exit or disposal
        plan. In addition, SFAS No. 146 stipulates that the liability be measured at
        fair value and adjusted for changes in estimated cash flows. Elan adopted SFAS
        No. 146 effective 1 January 2003. The adoption of SFAS No. 146 has not had a
        material impact on the Company’s Consolidated Financial Statements.
        
     

     
        In December 2002, the FASB issued SFAS No. 148,
        “Accounting for Stock Based Compensation—Transition and
        Disclosure—an Amendment of SFAS Statement No. 123” (“SFAS No.
        148”). SFAS No. 148 provides alternative methods of transition for a
        voluntary change to the fair value based method of accounting for stock-based
        employee compensation. In addition, this statement amends the disclosure
        requirements of SFAS No. 123 to require prominent disclosures in both annual
        and interim financial statements about the method of accounting for stock-based
        employee compensation and the effect of the method used on reported results.
        The transition provisions of SFAS No. 148 are effective for fiscal years ending
        after 15 December 2002. The enhanced disclosure requirements are effective for
        periods beginning after 15 December 2002 and are included on page 177 to the
        Consolidated Financial Statements. The Company has elected to continue to apply
        APB 25 in the determination of compensation expense under U.S. GAAP. 
     

     
        In December 2003, the FASB issued Interpretation No. 46,
        revised—Consolidation of Variable Interest Entities, an Interpretation of
        ARB No. 51 (“FIN 46R”). FIN 46R addresses the consolidation of
        variable interest entities (“VIEs”), which include entities that have
        one or more of the following characteristics: (1) The equity investment at risk
        is not sufficient to permit the entity to finance its activities without
        additional subordinated financial support; (2) The equity investors lack
        essential characteristics of a controlling financial interest (as defined by
        FIN 46R); and (3) The equity investors have voting rights that are not
        proportionate to their economic interests, and the activities of the entity
        involve or are conducted on behalf of an investor with a disproportionally
        small voting interest. In addition, FIN 46R provides for certain scope
        exceptions to its application. Adoption of this Interpretation is required in
        financial statements that have interests in VIEs or potential VIEs, commonly
        referred to as special-purpose entities, for periods ending after 15 December
        2003. Application for all other types of entities is required in financial
        statements for periods ending after 15 March 2004. The adoption of FIN 46R has
        not had a material impact on the Company’s Consolidated Financial
        Statements. 
     

     
        In April 2003, the FASB issued SFAS Statement No. 149,
        “Amendment of Statement 133 on Derivative Instruments and Hedging
        Activities” (“SFAS No. 149”), which amends SFAS Statement No.
        133, to address (1) decisions reached by the Derivatives Implementation Group,
        (2) developments in other FASB projects that address financial instruments, and
        (3) implementation issues related to the definition of a derivative. SFAS No.
        149 has multiple effective date provisions depending on the nature of the
        amendment to SFAS No. 133. SFAS No. 149 did not have a material impact on the
        Company’s Consolidated Financial Statements. 
     

     
        In May 2003, the FASB issued SFAS No. 150,
        “Accounting for Certain Financial Instruments with Characteristics of both
        Liabilities and Equity”. SFAS No. 150 establishes standards for how an
        issuer classifies and measures certain financial instruments with
        characteristics of both liabilities and equity. It requires that an issuer
        classify a financial instrument that is within its scope as a liability (or an
        asset in some circumstances). Many of those instruments were previously
        classified as equity. SFAS No. 150 is effective for financial instruments
        entered into or modified after 31 May 2003, and otherwise is effective at the
        beginning of the first interim period beginning after 15 June 2003, except for
        certain mandatorily redeemable financial instruments. It is to be implemented
        by reporting the cumulative effect of a change in an accounting principle for
        financial instruments created before the issuance date of SFAS No. 150 and
        still existing at the beginning of the interim period of adoption. Restatement
        is not permitted. SFAS No. 150 did not have a material impact on the
        Company’s Consolidated Financial Statements.
     

     

     
        166
     

     

     
     

     
     
        In December 2003, the FASB issued SFAS Statement No. 132
        (revised), “Employers’ Disclosures about Pensions and Other
        Postretirement Benefits” (“SFAS No. 132 (revised)”). SFAS No.
        132 (revised) will revise employers’ disclosures about pension plans and
        other postretirement benefit plans. It does not change the measurement or
        recognition of those plans. SFAS No. 132 (revised) will retain and revise the
        disclosure requirements contained in the original SFAS No. 132. It also
        requires additional disclosures about the assets, obligations, cash flows, and
        net periodic benefit cost of defined benefit pension plans and other
        postretirement benefit plans. The Statement generally is effective for fiscal
        years ending after December 15, 2003. SFAS No. 132 did not have a material
        impact on the Company’s Consolidated Financial Statements. 
     

     
        q   Financial statement
        format 
     

     
        The following is a summary of the material adjustments to
        net income and shareholders’ equity which would be required had the
        financial statements been prepared in accordance with U.S. GAAP: 
     

     
        (i)   Net (loss)/income
        
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                2003
 $m
             

          	
             
                 
             

          	
             
                2002
 $m
             

          	
             
                 
             

          	
             
                2001
 (restated)
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Net loss as stated under Irish GAAP
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (815.4
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (3,615.1
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (887.2
             

          	
             
                )
             

          
	
             
                Adjustments to conform to U.S. GAAP:
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Pooling of interests accounting/acquisition
                accounting for Dura
             

          	
             
                 
             

          	
             
                (b)
             

          	
             
                (1)
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Goodwill amortisation
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                20.5
             

          	
             
                 
             

          	
             
                 
             

          	
             
                68.9
             

          	
             
                 
             

          	
             
                 
             

          	
             
                55.2
             

          	
             
                 
             

          
	
             
                Goodwill impairment
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                16.2
             

          	
             
                 
             

          	
             
                 
             

          	
             
                854.9
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Pre-acquisition results of Dura
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (0.4
             

          	
             
                )
             

          
	
             
                Purchase accounting
             

          	
             
                 
             

          	
             
                (b)
             

          	
             
                (2)
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Impairment of intangible assets
             

          	
             
                 
             

          	
             
                (c
             

          	
             
                )
             

          	
             
                 
             

          	
             
                112.8
             

          	
             
                 
             

          	
             
                 
             

          	
             
                249.6
             

          	
             
                 
             

          	
             
                 
             

          	
             
                785.2
             

          	
             
                 
             

          
	
             
                Amortisation of intangible assets
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                20.2
             

          	
             
                 
             

          	
             
                 
             

          	
             
                45.0
             

          	
             
                 
             

          	
             
                 
             

          	
             
                22.3
             

          	
             
                 
             

          
	
             
                Pain Portfolio (goodwill)
             

          	
             
                 
             

          	
             
                (b)
             

          	
             
                (2)
             

          	
             
                 
             

          	
             
                (3.5
             

          	
             
                )
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Abelcet business (goodwill)
             

          	
             
                 
             

          	
             
                (b)
             

          	
             
                (2)
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                100.0
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Primary care franchise acquired IP
             

          	
             
                 
             

          	
             
                (b)
             

          	
             
                (2)
             

          	
             
                 
             

          	
             
                10.8
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                ETT acquired IP
             

          	
             
                 
             

          	
             
                (b)
             

          	
             
                (2)
             

          	
             
                 
             

          	
             
                25.0
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Impairment of Myambutol
             

          	
             
                 
             

          	
             
                (d
             

          	
             
                )
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (44.4
             

          	
             
                )
             

          	
             
                 
             

          	
             
                44.4
             

          	
             
                 
             

          
	
             
                Accounting for derivatives
             

          	
             
                 
             

          	
             
                (e
             

          	
             
                )
             

          	
             
                 
             

          	
             
                26.9
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (4.4
             

          	
             
                )
             

          	
             
                 
             

          	
             
                3.8
             

          	
             
                 
             

          
	
             
                Gain on conversion
             

          	
             
                 
             

          	
             
                (e
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (13.4
             

          	
             
                )
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Amortisation of acquired product rights and finance
                charges
             

          	
             
                 
             

          	
             
                (f
             

          	
             
                )
             

          	
             
                 
             

          	
             
                7.4
             

          	
             
                 
             

          	
             
                 
             

          	
             
                19.2
             

          	
             
                 
             

          	
             
                 
             

          	
             
                34.6
             

          	
             
                 
             

          
	
             
                Reversal of Sonata acquired product rights and
                finance charges on disposal
             

          	
             
                 
             

          	
             
                (f
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (31.2
             

          	
             
                )
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Revenue recognition—impact of SAB 104
             

          	
             
                 
             

          	
             
                (g
             

          	
             
                )
             

          	
             
                 
             

          	
             
                100.9
             

          	
             
                 
             

          	
             
                 
             

          	
             
                61.8
             

          	
             
                 
             

          	
             
                 
             

          	
             
                98.6
             

          	
             
                 
             

          
	
             
                Revenue recognition—write-off of related
                intangibles
             

          	
             
                 
             

          	
             
                (g
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (2.2
             

          	
             
                )
             

          	
             
                 
             

          	
             
                58.7
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Amortisation of nifedipine/Avinza intangible
             

          	
             
                 
             

          	
             
                (g
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (7.6
             

          	
             
                )
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Non-consolidated subsidiaries
             

          	
             
                 
             

          	
             
                (h
             

          	
             
                )
             

          	
             
                 
             

          	
             
                21.4
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (154.8
             

          	
             
                )
             

          	
             
                 
             

          	
             
                90.9
             

          	
             
                 
             

          
	
             
                Associate accounting
             

          	
             
                 
             

          	
             
                (i
             

          	
             
                )
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (3.8
             

          	
             
                )
             

          	
             
                 
             

          	
             
                13.0
             

          	
             
                 
             

          
	
             
                Stock option compensation expenses
             

          	
             
                 
             

          	
             
                (j
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (1.1
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (0.1
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (0.5
             

          	
             
                )
             

          
	
             
                Pensions and other
             

          	
             
                 
             

          	
             
                (k
             

          	
             
                )
             

          	
             
                 
             

          	
             
                3.6
             

          	
             
                 
             

          	
             
                 
             

          	
             
                2.2
             

          	
             
                 
             

          	
             
                 
             

          	
             
                1.2
             

          	
             
                 
             

          
	
             
                APIC tax adjustment
             

          	
             
                 
             

          	
             
                (m
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (26.7
             

          	
             
                )
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          
	
             
                Net (loss)/income from continuing operations
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (565.0
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (2,390.9
             

          	
             
                )
             

          	
             
                 
             

          	
             
                265.8
             

          	
             
                 
             

          
	
             
                Net income/(loss) from discontinued
                operations
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                29.6
             

          	
             
                 
             

          	
             
                 
             

          	
             
                28.6
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (4.7
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          
	
             
                Net (loss)/income before cumulative effect of
                accounting change as stated under U.S. GAAP
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (535.4
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (2,362.3
             

          	
             
                )
             

          	
             
                 
             

          	
             
                261.1
             

          	
             
                 
             

          
	
             
                Cumulative effect of accounting change (net of
                tax)
             

          	
             
                 
             

          	
             
                (e
             

          	
             
                )
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                7.8
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          
	
             
                Net (loss)/income as stated under U.S. GAAP
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (535.4
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (2,362.3
             

          	
             
                )
             

          	
             
                 
             

          	
             
                268.9
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          
	
             
                Basic (loss)/earnings per Ordinary Share from
                continuing operations
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                $
             

          	
             
                (1.59
             

          	
             
                )
             

          	
             
                $
             

          	
             
                (6.83
             

          	
             
                )
             

          	
             
                $
             

          	
             
                0.79
             

          	
             
                 
             

          
	
             
                Basic (loss)/earnings per Ordinary Share from
                discontinued operations
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                $
             

          	
             
                0.09
             

          	
             
                 
             

          	
             
                $
             

          	
             
                0.08
             

          	
             
                 
             

          	
             
                $
             

          	
             
                (0.01
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          

 
 

     
        167
     

     

     
     

     
     
        NOTES RELATING TO FINANCIAL STATEMENTS 
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                2003
 $m
             

          	
             
                 
             

          	
             
                2002
 $m
             

          	
             
                 
             

          	
             
                2001
 (restated)
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Basic (loss)/earnings per Ordinary Share under U.S.
                GAAP before cumulative effect of accounting change
             

          	
             
                 
             

          	
             
                $
             

          	
             
                (1.50
             

          	
             
                )
             

          	
             
                $
             

          	
             
                (6.75
             

          	
             
                )
             

          	
             
                $
             

          	
             
                0.78
             

          	
             
                 
             

          
	
             
                Cumulative effect of accounting change
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                $
             

          	
             
                0.02
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          
	
             
                Basic (loss)/earnings per Ordinary Share under U.S.
                GAAP
             

          	
             
                 
             

          	
             
                $
             

          	
             
                (1.50
             

          	
             
                )
             

          	
             
                $
             

          	
             
                (6.75
             

          	
             
                )
             

          	
             
                $
             

          	
             
                0.80
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          
	
             
                Diluted (loss)/earnings per Ordinary Share from
                continuing operations
             

          	
             
                 
             

          	
             
                $
             

          	
             
                (1.59
             

          	
             
                )
             

          	
             
                $
             

          	
             
                (6.83
             

          	
             
                )
             

          	
             
                $
             

          	
             
                0.74
             

          	
             
                 
             

          
	
             
                Diluted (loss)/earnings per Ordinary Share from
                discontinued operations
             

          	
             
                 
             

          	
             
                $
             

          	
             
                0.09
             

          	
             
                 
             

          	
             
                $
             

          	
             
                0.08
             

          	
             
                 
             

          	
             
                $
             

          	
             
                (0.01
             

          	
             
                )
             

          
	
             
                Diluted (loss)/earnings per Ordinary Share under
                U.S. GAAP before cumulative effect of accounting change
             

          	
             
                 
             

          	
             
                $
             

          	
             
                (1.50
             

          	
             
                )
             

          	
             
                $
             

          	
             
                (6.75
             

          	
             
                )
             

          	
             
                $
             

          	
             
                0.73
             

          	
             
                 
             

          
	
             
                Cumulative effect of accounting change
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                $
             

          	
             
                0.02
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          
	
             
                Diluted (loss)/earnings per Ordinary Share under
                U.S. GAAP
             

          	
             
                 
             

          	
             
                $
             

          	
             
                (1.50
             

          	
             
                )
             

          	
             
                $
             

          	
             
                (6.75
             

          	
             
                )
             

          	
             
                $
             

          	
             
                0.75
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          

 

     
        (ii)   Shareholders’ Equity
        
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                At 31 December
 2003
 $m
             

          	
             
                 
             

          	
             
                At 31 December
 2002
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Shareholders’ equity as stated under Irish
                GAAP
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                825.4
             

          	
             
                 
             

          	
             
                1,460.0
             

          	
             
                 
             

          
	
             
                Adjustments to conform to U.S. GAAP:
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Pooling of interests accounting/acquisition
                accounting for Dura
             

          	
             
                 
             

          	
             
                (b)(1)
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Elimination of goodwill and licence and patents
                arising on acquisition of Dura
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (293.5
             

          	
             
                )
             

          	
             
                (309.7
             

          	
             
                )
             

          
	
             
                Purchase accounting
             

          	
             
                 
             

          	
             
                (b)(1)(2) 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Amortisation of intangible assets
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                249.7
             

          	
             
                 
             

          	
             
                209.0
             

          	
             
                 
             

          
	
             
                Goodwill written-off
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                574.3
             

          	
             
                 
             

          	
             
                574.3
             

          	
             
                 
             

          
	
             
                Acquired IPR&D
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (2,121.1
             

          	
             
                )
             

          	
             
                (2,121.1
             

          	
             
                )
             

          
	
             
                Impairment of intangible assets
             

          	
             
                 
             

          	
             
                (b)(2)/(c)  
             

          	
             
                 
             

          	
             
                1,149.4
             

          	
             
                 
             

          	
             
                1,036.6
             

          	
             
                 
             

          
	
             
                Pain Portfolio (goodwill)
             

          	
             
                 
             

          	
             
                (b)(2)
             

          	
             
                 
             

          	
             
                (3.5
             

          	
             
                )
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Primary care franchise acquired IP
             

          	
             
                 
             

          	
             
                (b)(2)
             

          	
             
                 
             

          	
             
                10.8
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                ETT acquired IP
             

          	
             
                 
             

          	
             
                (b)(2)
             

          	
             
                 
             

          	
             
                25.0
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Abelcet business (goodwill)
             

          	
             
                 
             

          	
             
                (b)(2)
             

          	
             
                 
             

          	
             
                100.0
             

          	
             
                 
             

          	
             
                100.0
             

          	
             
                 
             

          
	
             
                Accounting for derivatives
             

          	
             
                 
             

          	
             
                (e)
             

          	
             
                 
             

          	
             
                34.1
             

          	
             
                 
             

          	
             
                7.2
             

          	
             
                 
             

          
	
             
                Amortisation of acquired products and finance
                charges
             

          	
             
                 
             

          	
             
                (f)
             

          	
             
                 
             

          	
             
                61.2
             

          	
             
                 
             

          	
             
                53.8
             

          	
             
                 
             

          
	
             
                Reversal of Sonata acquired product rights and
                finance charges on disposal
             

          	
             
                 
             

          	
             
                (f)
             

          	
             
                 
             

          	
             
                (31.2
             

          	
             
                )
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Revenue recognition including cumulative effect of
                accounting change
             

          	
             
                 
             

          	
             
                (g)
             

          	
             
                 
             

          	
             
                (153.4
             

          	
             
                )
             

          	
             
                (254.3
             

          	
             
                )
             

          
	
             
                Revenue recognition—write-off of related
                intangibles
             

          	
             
                 
             

          	
             
                (g)
             

          	
             
                 
             

          	
             
                56.5
             

          	
             
                 
             

          	
             
                58.7
             

          	
             
                 
             

          
	
             
                Amortisation of nifedipine/Avinza intangible
             

          	
             
                 
             

          	
             
                (g)
             

          	
             
                 
             

          	
             
                (7.6
             

          	
             
                )
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Non-consolidated subsidiaries
             

          	
             
                 
             

          	
             
                (h)
             

          	
             
                 
             

          	
             
                7.5
             

          	
             
                 
             

          	
             
                (13.9
             

          	
             
                )
             

          
	
             
                Associate accounting
             

          	
             
                 
             

          	
             
                (i)
             

          	
             
                 
             

          	
             
                7.2
             

          	
             
                 
             

          	
             
                7.2
             

          	
             
                 
             

          
	
             
                Pensions and other
             

          	
             
                 
             

          	
             
                (k)
             

          	
             
                 
             

          	
             
                11.3
             

          	
             
                 
             

          	
             
                (1.9
             

          	
             
                )
             

          
	
             
                Financial fixed assets
             

          	
             
                 
             

          	
             
                (l)
             

          	
             
                 
             

          	
             
                97.0
             

          	
             
                 
             

          	
             
                21.0
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Shareholders’ equity as stated under U.S.
                GAAP
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                599.1
             

          	
             
                 
             

          	
             
                826.9
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        U.S. GAAP Condensed Financial Data 
     

     
        Due to the differences between Irish and U.S. GAAP, and in
        particular the accounting of the merger of Dura and Elan as a pooling of
        interests under U.S. GAAP, the following condensed financial data is presented
        on pages 169 to 171. 
     

     
        Additionally, under Irish GAAP, exceptional items are
        those items that in management’s judgement are material items which derive
        from events or transactions that fall within the ordinary activities of the
        Group and which individually or, if of a similar type, in aggregate, need
        
     

     

     
        168
     

     

     
     

     
     
        to be disclosed by virtue of their size or incidence.
        Under U.S. GAAP, there is no concept similar to exceptional items, and such
        items would be included in income from continuing operations or discontinued
        operations. Accordingly, items classified as “exceptional” in the
        Company’s consolidated profit and loss account under Irish GAAP have been
        reflected in their appropriate line items under U.S. GAAP under either
        continuing or discontinued operations in the U.S. GAAP condensed financial data
        that follows. Cash flows relating to product rationalisations are included in
        operating cash flows. 
     

     
        U.S. GAAP Income Statement Data 
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                2003
 $m
             

          	
             
                 
             

          	
             
                2002
 $m
             

          	
             
                 
             

          	
             
                2001
 (restated)
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Revenue
             

          	
             
                 
             

          	
             
                746.0
             

          	
             
                 
             

          	
             
                1,132.5
             

          	
             
                 
             

          	
             
                1,606.6
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Costs and expenses:
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Cost of sales
             

          	
             
                 
             

          	
             
                297.5
             

          	
             
                 
             

          	
             
                292.4
             

          	
             
                 
             

          	
             
                266.9
             

          	
             
                 
             

          
	
             
                Selling, general and administrative expenses
             

          	
             
                 
             

          	
             
                403.8
             

          	
             
                 
             

          	
             
                575.7
             

          	
             
                 
             

          	
             
                476.6
             

          	
             
                 
             

          
	
             
                Research and development expenses
             

          	
             
                 
             

          	
             
                289.2
             

          	
             
                 
             

          	
             
                368.3
             

          	
             
                 
             

          	
             
                290.4
             

          	
             
                 
             

          
	
             
                Gain on sale of businesses
             

          	
             
                 
             

          	
             
                (267.8
             

          	
             
                )
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Gain on repurchase of LYONs
             

          	
             
                 
             

          	
             
                (1.6
             

          	
             
                )
             

          	
             
                (37.7
             

          	
             
                )
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Other charges, primarily relating to the write-down
                of tangible and intangible assets, acquisition of in-process research and
                development, merger costs, rationalisation and similar costs
             

          	
             
                 
             

          	
             
                449.2
             

          	
             
                 
             

          	
             
                763.6
             

          	
             
                 
             

          	
             
                323.3
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Total operating expenses
             

          	
             
                 
             

          	
             
                1,170.3
             

          	
             
                 
             

          	
             
                1,962.3
             

          	
             
                 
             

          	
             
                1,357.2
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Operating (loss)/income
             

          	
             
                 
             

          	
             
                (424.3
             

          	
             
                )
             

          	
             
                (829.8
             

          	
             
                )
             

          	
             
                249.4
             

          	
             
                 
             

          
	
             
                Net interest expense
             

          	
             
                 
             

          	
             
                (95.0
             

          	
             
                )
             

          	
             
                (68.3
             

          	
             
                )
             

          	
             
                (9.3
             

          	
             
                )
             

          
	
             
                Business venture funding
             

          	
             
                 
             

          	
             
                (3.0
             

          	
             
                )
             

          	
             
                (23.9
             

          	
             
                )
             

          	
             
                (24.6
             

          	
             
                )
             

          
	
             
                Investment gains
             

          	
             
                 
             

          	
             
                132.9
             

          	
             
                 
             

          	
             
                24.9
             

          	
             
                 
             

          	
             
                106.2
             

          	
             
                 
             

          
	
             
                Impairment of investments
             

          	
             
                 
             

          	
             
                (87.5
             

          	
             
                )
             

          	
             
                (1,006.0
             

          	
             
                )
             

          	
             
                (24.5
             

          	
             
                )
             

          
	
             
                Loss on sale of investments by EPIL III/Shelly Bay
                transaction
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (141.6
             

          	
             
                )
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Charge arising from guarantee to EPIL II
                noteholders
             

          	
             
                 
             

          	
             
                (49.0
             

          	
             
                )
             

          	
             
                (295.4
             

          	
             
                )
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Investment losses and other
             

          	
             
                 
             

          	
             
                (35.2
             

          	
             
                )
             

          	
             
                (42.8
             

          	
             
                )
             

          	
             
                (14.7
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                (Loss)/income from continuing operations before
                provision for income taxes
             

          	
             
                 
             

          	
             
                (561.1
             

          	
             
                )
             

          	
             
                (2,382.9
             

          	
             
                )
             

          	
             
                282.5
             

          	
             
                 
             

          
	
             
                Provision for income taxes
             

          	
             
                 
             

          	
             
                (3.9
             

          	
             
                )
             

          	
             
                (8.0
             

          	
             
                )
             

          	
             
                (16.7
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Net (loss)/income from continuing operations
             

          	
             
                 
             

          	
             
                (565.0
             

          	
             
                )
             

          	
             
                (2,390.9
             

          	
             
                )
             

          	
             
                265.8
             

          	
             
                 
             

          
	
             
                Net income/(loss) from discontinued operations (net
                of tax)
             

          	
             
                 
             

          	
             
                29.6
             

          	
             
                 
             

          	
             
                28.6
             

          	
             
                 
             

          	
             
                (4.7
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Net (loss)/income before cumulative effect of
                accounting change
             

          	
             
                 
             

          	
             
                (535.4
             

          	
             
                )
             

          	
             
                (2,362.3
             

          	
             
                )
             

          	
             
                261.1
             

          	
             
                 
             

          
	
             
                Cumulative effect of accounting change (net of
                tax)
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                7.8
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Net (loss)/income after cumulative effect of
                accounting change
             

          	
             
                 
             

          	
             
                (535.4
             

          	
             
                )
             

          	
             
                (2,362.3
             

          	
             
                )
             

          	
             
                268.9
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 
 

     
        169
     

     

     
     

     
     
        NOTES RELATING TO FINANCIAL STATEMENTS 
     

     
        U.S. GAAP Comprehensive Income Statement Data
        
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                2003
 $m
             

          	
             
                 
             

          	
             
                2002
 $m
             

          	
             
                 
             

          	
             
                2001
 (restated)
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Net (loss)/income
             

          	
             
                 
             

          	
             
                (535.4
             

          	
             
                )
             

          	
             
                (2,362.3
             

          	
             
                )
             

          	
             
                268.9
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Other comprehensive income/(loss):
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Foreign currency translation adjustment (net of $Nil
                tax)
             

          	
             
                 
             

          	
             
                12.4
             

          	
             
                 
             

          	
             
                14.9
             

          	
             
                 
             

          	
             
                (3.3
             

          	
             
                )
             

          
	
             
                Unrealised gains on securities (net of $Nil
                tax)
             

          	
             
                 
             

          	
             
                90.9
             

          	
             
                 
             

          	
             
                9.4
             

          	
             
                 
             

          	
             
                43.1
             

          	
             
                 
             

          
	
             
                Reclassification adjustment for gains included in
                net income (net of $Nil tax)
             

          	
             
                 
             

          	
             
                (1.3
             

          	
             
                )
             

          	
             
                (30.1
             

          	
             
                )
             

          	
             
                (16.4
             

          	
             
                )
             

          
	
             
                Minimum pension liability adjustment (net of $Nil
                tax)
             

          	
             
                 
             

          	
             
                9.8
             

          	
             
                 
             

          	
             
                (9.8
             

          	
             
                )
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Other comprehensive income/(loss) (net of $Nil
                tax)
             

          	
             
                 
             

          	
             
                111.8
             

          	
             
                 
             

          	
             
                (15.6
             

          	
             
                )
             

          	
             
                23.4
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Comprehensive (loss)/income
             

          	
             
                 
             

          	
             
                (423.6
             

          	
             
                )
             

          	
             
                (2,377.9
             

          	
             
                )
             

          	
             
                292.3
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        U.S. GAAP Balance Sheet Data 
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                At 31 December
 2003
 $m
             

          	
             
                 
             

          	
             
                At 31 December
 2002
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Current Assets
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Cash and cash equivalents
             

          	
             
                 
             

          	
             
                807.5
             

          	
             
                 
             

          	
             
                1,013.9
             

          	
             
                 
             

          
	
             
                Marketable investment securities
             

          	
             
                 
             

          	
             
                349.4
             

          	
             
                 
             

          	
             
                450.6
             

          	
             
                 
             

          
	
             
                Accounts receivable and prepayments
             

          	
             
                 
             

          	
             
                158.5
             

          	
             
                 
             

          	
             
                166.9
             

          	
             
                 
             

          
	
             
                Inventories
             

          	
             
                 
             

          	
             
                69.5
             

          	
             
                 
             

          	
             
                132.5
             

          	
             
                 
             

          
	
             
                Held for sale assets
             

          	
             
                 
             

          	
             
                135.2
             

          	
             
                 
             

          	
             
                148.4
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Total current assets
             

          	
             
                 
             

          	
             
                1,520.1
             

          	
             
                 
             

          	
             
                1,912.3
             

          	
             
                 
             

          
	
             
                Property, plant and equipment
             

          	
             
                 
             

          	
             
                369.1
             

          	
             
                 
             

          	
             
                451.2
             

          	
             
                 
             

          
	
             
                Intangible assets
             

          	
             
                 
             

          	
             
                928.9
             

          	
             
                 
             

          	
             
                1,338.8
             

          	
             
                 
             

          
	
             
                Investments and marketable investment
                securities
             

          	
             
                 
             

          	
             
                192.9
             

          	
             
                 
             

          	
             
                313.2
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Total assets
             

          	
             
                 
             

          	
             
                3,011.0
             

          	
             
                 
             

          	
             
                4,015.5
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Liabilities and Shareholders’
                Equity
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Current liabilities
             

          	
             
                 
             

          	
             
                707.9
             

          	
             
                 
             

          	
             
                1,485.4
             

          	
             
                 
             

          
	
             
                Other liabilities
             

          	
             
                 
             

          	
             
                20.4
             

          	
             
                 
             

          	
             
                373.6
             

          	
             
                 
             

          
	
             
                Held for sale liabilities
             

          	
             
                 
             

          	
             
                27.9
             

          	
             
                 
             

          	
             
                25.6
             

          	
             
                 
             

          
	
             
                Deferred revenue
             

          	
             
                 
             

          	
             
                154.8
             

          	
             
                 
             

          	
             
                258.2
             

          	
             
                 
             

          
	
             
                Long term and convertible debt
             

          	
             
                 
             

          	
             
                1,500.9
             

          	
             
                 
             

          	
             
                1,046.3
             

          	
             
                 
             

          
	
             
                Minority interest
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (0.5
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                2,411.9
             

          	
             
                 
             

          	
             
                3,188.6
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Shareholders’ Equity
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Share capital
             

          	
             
                 
             

          	
             
                22.0
             

          	
             
                 
             

          	
             
                19.9
             

          	
             
                 
             

          
	
             
                Additional paid-in capital
             

          	
             
                 
             

          	
             
                4,734.1
             

          	
             
                 
             

          	
             
                4,540.4
             

          	
             
                 
             

          
	
             
                Retained earnings and other reserves
             

          	
             
                 
             

          	
             
                (4,157.0
             

          	
             
                )
             

          	
             
                (3,733.4
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Shareholders’ equity
             

          	
             
                 
             

          	
             
                599.1
             

          	
             
                 
             

          	
             
                826.9
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Total liabilities and shareholders’
                equity
             

          	
             
                 
             

          	
             
                3,011.0
             

          	
             
                 
             

          	
             
                4,015.5
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        In accordance with SFAS No. 144, Elan has recorded as held
        for sale the assets and liabilities related to its former European sales and
        marketing business, and Elan Pharma S.A., a manufacturing and research and
        development business based in Switzerland. Both of these divestments closed
        during the first quarter 2004. Held for sale assets included property, plant
        and equipment of $3.1 million (2002: $8.1 million). 
     

     

     
        170
     

     

     
     

     
     
        U.S. GAAP Cash Flow Data 
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                Year Ended 31 December
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                2003
 $m
             

          	
             
                 
             

          	
             
                2002
 $m
             

          	
             
                 
             

          	
             
                2001
 (restated)
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Cash flows from operating activities:
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Net (loss)/income
             

          	
             
                 
             

          	
             
                (535.4
             

          	
             
                )  
             

          	
             
                (2,362.3
             

          	
             
                )
             

          	
             
                268.9
             

          	
             
                 
             

          
	
             
                Adjustments to reconcile net (loss)/income to net
                cash provided by operating activities:
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                SFAS No. 133 accounting for derivatives
             

          	
             
                 
             

          	
             
                (18.7
             

          	
             
                )
             

          	
             
                10.7
             

          	
             
                 
             

          	
             
                (34.6
             

          	
             
                )
             

          
	
             
                Amortisation of deferred revenue
             

          	
             
                 
             

          	
             
                (99.0
             

          	
             
                )
             

          	
             
                (62.8
             

          	
             
                )
             

          	
             
                (98.6
             

          	
             
                )
             

          
	
             
                Depreciation and amortisation
             

          	
             
                 
             

          	
             
                187.7
             

          	
             
                 
             

          	
             
                206.3
             

          	
             
                 
             

          	
             
                179.1
             

          	
             
                 
             

          
	
             
                Interest expense on loan notes
             

          	
             
                 
             

          	
             
                21.2
             

          	
             
                 
             

          	
             
                115.3
             

          	
             
                 
             

          	
             
                82.3
             

          	
             
                 
             

          
	
             
                Gain on sale of marketable investment
                securities
             

          	
             
                 
             

          	
             
                (68.7
             

          	
             
                )
             

          	
             
                (1.8
             

          	
             
                )
             

          	
             
                (48.5
             

          	
             
                )
             

          
	
             
                Impairment of investments
             

          	
             
                 
             

          	
             
                87.5
             

          	
             
                 
             

          	
             
                1,006.0
             

          	
             
                 
             

          	
             
                24.5
             

          	
             
                 
             

          
	
             
                Provision against EPIL II guarantee
             

          	
             
                 
             

          	
             
                49.0
             

          	
             
                 
             

          	
             
                295.4
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Disposals/write-down of other assets
             

          	
             
                 
             

          	
             
                72.2
             

          	
             
                 
             

          	
             
                660.2
             

          	
             
                 
             

          	
             
                321.8
             

          	
             
                 
             

          
	
             
                Purchase of product royalty rights from Pharma
                Marketing/Autoimmune
             

          	
             
                 
             

          	
             
                297.6
             

          	
             
                 
             

          	
             
                121.0
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Gain on sale of businesses
             

          	
             
                 
             

          	
             
                (294.6
             

          	
             
                )
             

          	
             
                (176.4
             

          	
             
                )
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Gain on repurchase of LYONs
             

          	
             
                 
             

          	
             
                (1.6
             

          	
             
                )
             

          	
             
                (37.7
             

          	
             
                )
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Loss on sale of investments by EPIL III/Shelly Bay
                transaction
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                141.6
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Waiver fee to EPIL II/III noteholders
             

          	
             
                 
             

          	
             
                16.8
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Other
             

          	
             
                 
             

          	
             
                1.0
             

          	
             
                 
             

          	
             
                84.9
             

          	
             
                 
             

          	
             
                (6.8
             

          	
             
                )
             

          
	
             
                Net changes in assets and liabilities:
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Decrease in receivables
             

          	
             
                 
             

          	
             
                27.2
             

          	
             
                 
             

          	
             
                210.1
             

          	
             
                 
             

          	
             
                23.1
             

          	
             
                 
             

          
	
             
                Decrease/(Increase) in inventories
             

          	
             
                 
             

          	
             
                9.9
             

          	
             
                 
             

          	
             
                (13.0
             

          	
             
                )
             

          	
             
                (37.6
             

          	
             
                )
             

          
	
             
                Decrease in accounts payable and accruals
             

          	
             
                 
             

          	
             
                (265.0
             

          	
             
                )
             

          	
             
                (49.2
             

          	
             
                )
             

          	
             
                (149.9
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Net cash (used in)/provided by operating
                activities
             

          	
             
                 
             

          	
             
                (512.9
             

          	
             
                )
             

          	
             
                148.3
             

          	
             
                 
             

          	
             
                523.7
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Cash flows from investing activities:
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Proceeds from disposal of property, plant and
                equipment
             

          	
             
                 
             

          	
             
                27.9
             

          	
             
                 
             

          	
             
                8.6
             

          	
             
                 
             

          	
             
                2.0
             

          	
             
                 
             

          
	
             
                Purchase of property, plant and equipment
             

          	
             
                 
             

          	
             
                (33.7
             

          	
             
                )
             

          	
             
                (170.2
             

          	
             
                )
             

          	
             
                (120.8
             

          	
             
                )
             

          
	
             
                Purchase of investments
             

          	
             
                 
             

          	
             
                (11.8
             

          	
             
                )
             

          	
             
                (117.1
             

          	
             
                )
             

          	
             
                (640.7
             

          	
             
                )
             

          
	
             
                Proceeds from disposal of investments
             

          	
             
                 
             

          	
             
                70.6
             

          	
             
                 
             

          	
             
                12.9
             

          	
             
                 
             

          	
             
                21.9
             

          	
             
                 
             

          
	
             
                Purchase of marketable investment securities
             

          	
             
                 
             

          	
             
                (2.1
             

          	
             
                )
             

          	
             
                (83.7
             

          	
             
                )
             

          	
             
                (568.1
             

          	
             
                )
             

          
	
             
                Sale and maturity of marketable investment
                securities
             

          	
             
                 
             

          	
             
                267.7
             

          	
             
                 
             

          	
             
                222.6
             

          	
             
                 
             

          	
             
                194.9
             

          	
             
                 
             

          
	
             
                Purchase of intangible assets
             

          	
             
                 
             

          	
             
                (144.8
             

          	
             
                )
             

          	
             
                (315.5
             

          	
             
                )
             

          	
             
                (286.7
             

          	
             
                )
             

          
	
             
                Proceeds from disposal of intangible assets
             

          	
             
                 
             

          	
             
                0.5
             

          	
             
                 
             

          	
             
                9.4
             

          	
             
                 
             

          	
             
                11.2
             

          	
             
                 
             

          
	
             
                Proceeds of business disposals
             

          	
             
                 
             

          	
             
                546.9
             

          	
             
                 
             

          	
             
                361.3
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Purchase of product royalty rights from Pharma
                Marketing/Autoimmune
             

          	
             
                 
             

          	
             
                (297.6
             

          	
             
                )
             

          	
             
                (121.0
             

          	
             
                )
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Redemption of investment in Autoimmune
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                38.5
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Sale of EPIL III assets in connection with the
                repayment of EPIL III debt
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                9.3
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Disposal of subsidiaries
             

          	
             
                 
             

          	
             
                46.1
             

          	
             
                 
             

          	
             
                81.8
             

          	
             
                 
             

          	
             
                41.9
             

          	
             
                 
             

          
	
             
                Acquisition of subsidiaries primarily represented
                by:
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Goodwill and other intangible assets arising on
                acquisitions
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (9.5
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Net cash provided by/(used in) investing
                activities
             

          	
             
                 
             

          	
             
                469.7
             

          	
             
                 
             

          	
             
                (63.1 
             

          	
             
                )  
             

          	
             
                (1,353.9
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Cash flows from financing activities:
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Proceeds from sale of share capital
             

          	
             
                 
             

          	
             
                167.9
             

          	
             
                 
             

          	
             
                5.7
             

          	
             
                 
             

          	
             
                304.8
             

          	
             
                 
             

          
	
             
                Repayment of EPIL III debt
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (160.0
             

          	
             
                )
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Repayment of loans
             

          	
             
                 
             

          	
             
                (770.7
             

          	
             
                )
             

          	
             
                (527.6
             

          	
             
                )
             

          	
             
                (205.5
             

          	
             
                )
             

          
	
             
                Issue of loan notes
             

          	
             
                 
             

          	
             
                443.9
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                1,185.7
             

          	
             
                 
             

          
	
             
                Bank loans
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                342.8
             

          	
             
                 
             

          
	
             
                Waiver fee to EPIL II/III noteholders
             

          	
             
                 
             

          	
             
                (16.8
             

          	
             
                )
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Shelly Bay bank loan
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                148.0
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Repayment of Shelly Bay bank loan
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (148.0
             

          	
             
                )
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Net cash (used in)/provided by financing
                activities
             

          	
             
                 
             

          	
             
                (175.7
             

          	
             
                )
             

          	
             
                (681.9
             

          	
             
                )
             

          	
             
                1,627.8
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Effect of exchange rate changes on cash
             

          	
             
                 
             

          	
             
                12.5
             

          	
             
                 
             

          	
             
                11.2
             

          	
             
                 
             

          	
             
                (0.7
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Net (decrease)/increase in cash and cash
                equivalents
             

          	
             
                 
             

          	
             
                (206.4
             

          	
             
                )
             

          	
             
                (585.5
             

          	
             
                )
             

          	
             
                796.9
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Cash and cash equivalents at beginning of
                year
             

          	
             
                 
             

          	
             
                1,013.9
             

          	
             
                 
             

          	
             
                1,599.4
             

          	
             
                 
             

          	
             
                802.5
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Cash and cash equivalents at end of year
             

          	
             
                 
             

          	
             
                807.5
             

          	
             
                 
             

          	
             
                1,013.9
             

          	
             
                 
             

          	
             
                1,599.4
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 
 

     
        171
     

     

     
     

     
     
        NOTES RELATING TO FINANCIAL STATEMENTS 
     

     
        Discontinued Operations 
     

     
        In accordance with SFAS No. 144, the results and gains or
        losses arising from discontinued operations are aggregated for U.S. GAAP
        presentation and included within one line in the income statement “Net
        income/(loss) from discontinued operations.” A discontinued operation is a
        component of an entity whose operations and cashflows have been or will be
        eliminated from the ongoing operations of the entity and the entity will not
        have any significant continuing involvement in the operations of the component
        after its disposal. 
     

     
        During 2003, Elan has recorded the results and gains or
        losses on the divestment of its discontinued operations including ETT, Athena
        Diagnostics, Elan Diagnostics, a manufacturing business in Italy, the Pain
        Portfolio, Actiq, the dermatology portfolio of products and Abelcet U.S./Canada
        within discontinued operations in the income statement. 
     

     
        During the course of the recovery plan, Elan sold a number
        of other assets and businesses (principally the primary care franchise and the
        European sales and marketing business) which in accordance with SFAS No. 144
        are not included in discontinued operations. Elan believes that it has a
        significant continuing involvement in the operations of these businesses, for
        example through ongoing supply arrangements or formulation activities. 
     

     
        An analysis of the effect on the results of discontinued
        operations is set out below together with prior period comparatives. 
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                2003
 $m
             

          	
             
                 
             

          	
             
                2002
 $m
             

          	
             
                 
             

          	
             
                2001
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Revenue
             

          	
             
                 
             

          	
             
                114.8
             

          	
             
                 
             

          	
             
                322.6
             

          	
             
                 
             

          	
             
                255.9
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Costs and expenses:
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Cost of sales
             

          	
             
                 
             

          	
             
                45.0
             

          	
             
                 
             

          	
             
                124.6
             

          	
             
                 
             

          	
             
                112.6
             

          	
             
                 
             

          
	
             
                Selling, general and administrative expenses
             

          	
             
                 
             

          	
             
                33.6
             

          	
             
                 
             

          	
             
                138.4
             

          	
             
                 
             

          	
             
                126.9
             

          	
             
                 
             

          
	
             
                Research and development expenses
             

          	
             
                 
             

          	
             
                11.9
             

          	
             
                 
             

          	
             
                28.9
             

          	
             
                 
             

          	
             
                30.8
             

          	
             
                 
             

          
	
             
                Gain on disposal of businesses
             

          	
             
                 
             

          	
             
                (22.9
             

          	
             
                )  
             

          	
             
                (177.9
             

          	
             
                )
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Recovery plan and other significant charges
             

          	
             
                 
             

          	
             
                14.3
             

          	
             
                 
             

          	
             
                162.3
             

          	
             
                 
             

          	
             
                27.1
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Total operating expenses
             

          	
             
                 
             

          	
             
                81.9
             

          	
             
                 
             

          	
             
                276.3
             

          	
             
                 
             

          	
             
                297.4
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Operating income/(loss)
             

          	
             
                 
             

          	
             
                32.9
             

          	
             
                 
             

          	
             
                46.3
             

          	
             
                 
             

          	
             
                (41.5
             

          	
             
                )
             

          
	
             
                Net interest and other (loss)/income
             

          	
             
                 
             

          	
             
                (2.5
             

          	
             
                )
             

          	
             
                (5.9
             

          	
             
                )
             

          	
             
                37.5
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Income/(loss) from discontinued operations before
                tax
             

          	
             
                 
             

          	
             
                30.4
             

          	
             
                 
             

          	
             
                40.4
             

          	
             
                 
             

          	
             
                (4.0
             

          	
             
                )
             

          
	
             
                Provision for income taxes
             

          	
             
                 
             

          	
             
                (0.8
             

          	
             
                )
             

          	
             
                (11.8
             

          	
             
                )
             

          	
             
                (0.7
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Income/(loss) from discontinued operations
             

          	
             
                 
             

          	
             
                29.6
             

          	
             
                 
             

          	
             
                28.6
             

          	
             
                 
             

          	
             
                (4.7
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        Cash Balances 
     

     
        Reconciliation between Irish GAAP and U.S. GAAP
        
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                At 31 December
 2003
 $m
             

          	
             
                 
             

          	
             
                At 31 December
 2002
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Cash and liquid resources (Irish GAAP)
             

          	
             
                 
             

          	
             
                828.0
             

          	
             
                 
             

          	
             
                1,086.5
             

          	
             
                 
             

          
	
             
                Non-consolidated subsidiaries cash balances
             

          	
             
                 
             

          	
             
                (20.5
             

          	
             
                )
             

          	
             
                (49.9
             

          	
             
                )
             

          
	
             
                Marketable investments
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (22.7
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Cash and cash equivalents (U.S. GAAP)
             

          	
             
                 
             

          	
             
                807.5
             

          	
             
                 
             

          	
             
                1,013.9
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 
 

     
        172
     

     

     
     

     
     
        Marketable Investment Securities (U.S. GAAP)
        
     

     
        For the purposes of U.S. GAAP, the following information
        on marketable investment securities is presented in accordance with the
        requirements of SFAS No. 115. 
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                At 31 December
 2003
 $m
             

          	
             
                 
             

          	
             
                At 31 December
 2002
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Trading Securities
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Equity
             

          	
             
                 
             

          	
             
                86.6
             

          	
             
                 
             

          	
             
                74.8
             

          	
             
                 
             

          
	
             
                Debt
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                23.5
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                86.6
             

          	
             
                 
             

          	
             
                98.3
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        Trading securities 
     

     
        The unrealised gains included in earnings for 2003, 2002
        and 2001 were $11.8 million, $0.8 million and $7.7 million, respectively. The
        unrealised losses included in earnings for 2003, 2002 and 2001 were $Nil, $12.5
        million and $2.7 million, respectively. 
     

     
           
     

     	
             
                Available for sale securities
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
 	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Equity
             

          	
             
                 
             

          	
             
                173.2
             

          	
             
                 
             

          	
             
                165.2
             

          	
             
                 
             

          
	
             
                Debt
             

          	
             
                 
             

          	
             
                89.6
             

          	
             
                 
             

          	
             
                187.1
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                262.8
             

          	
             
                 
             

          	
             
                352.3
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Total marketable investment securities (current and
                non-current)
             

          	
             
                 
             

          	
             
                349.4
             

          	
             
                 
             

          	
             
                450.6
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        The cash inflows arising from the sale and maturity of
        marketable investment securities were $267.7 million, $222.6 million and $194.9
        million in 2003, 2002 and 2001, respectively. The cash outflows arising from
        the purchase of marketable investment securities were $2.1 million, $83.7
        million and $568.1 million in 2003, 2002 and 2001, respectively. 
     

     
        Available for sale 
     

     
        Available for sale securities at 31 December 2003 and 2002
        are analysed as follows: 
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                Cost
 $m
             

          	
             
                 
             

          	
             
                Unrealised
 Gains
 $m
             

          	
             
                 
             

          	
             
                Unrealised
 Losses
 $m
             

          	
             
                 
             

          	
             
                Fair 
 Value
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                At 31 December 2003
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Equity securities
             

          	
             
                 
             

          	
             
                86.1
             

          	
             
                 
             

          	
             
                87.2
             

          	
             
                 
             

          	
             
                (0.1
             

          	
             
                )
             

          	
             
                173.2
             

          	
             
                 
             

          
	
             
                Debt securities
             

          	
             
                 
             

          	
             
                75.4
             

          	
             
                 
             

          	
             
                14.2
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                89.6
             

          	
             
                 
             

          
	
             
                At 31 December 2002
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Equity securities
             

          	
             
                 
             

          	
             
                159.8
             

          	
             
                 
             

          	
             
                5.4
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                165.2
             

          	
             
                 
             

          
	
             
                Debt securities
             

          	
             
                 
             

          	
             
                180.9
             

          	
             
                 
             

          	
             
                6.4
             

          	
             
                 
             

          	
             
                (0.2
             

          	
             
                )  
             

          	
             
                187.1
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        Available for sale securities consist of equity and debt
        securities. The net unrealised holding gains on available for sale equity
        securities at 31 December 2003, 31 December 2002 and 31 December 2001 were
        $87.1 million, $5.4 million and $12.1 million, respectively. The net unrealised
        holding gains on available for sale debt securities at 31 December 2003, 31
        December 2002 and 31 December 2001 were $14.2 million, $6.2 million and $29.6
        million, respectively. The cash inflows arising from sales of available for
        sale securities during 2003, 2002 and 2001 were $244.1 million, $18.3 million
        and $51.6 million, respectively. The cash outflows arising from purchases of
        available for sale securities during 2003, 2002 and 2001 were $2.1 million,
        $73.6 million and $260.5 million, respectively. 
     

     
        Based on fair value, the maturity of debt securities
        classified as available for sale at 31 December 2003 was $Nil within one year,
        $89.6 million within one to five years and $Nil between five and ten years.
        Based on fair value, the maturity of debt securities classified as available
        for sale at 31 December 2002 was $1.7 million within one year, $93.7 million
        within one to five years and $91.7 million between five and ten years. Based on
        cost, the maturity of debt securities classified as available for sale at 31
        December 2003 was $Nil within one year, $75.4 million within one to five years
        and $Nil between five and ten years. Based on cost, the maturity of debt
        securities classified as available for sale at 31 December 2002 was $1.7
        million within one year, $87.5 million within one to five years and $91.7
        million between five and ten years. 
     

     

     
        173
     

     

     
     

     
     
        NOTES RELATING TO FINANCIAL STATEMENTS 
     

     
        The gross realised gains on available for sale securities
        for 2003, 2002 and 2001 were $74.1 million, $11.8 million and $53.1 million,
        respectively. The gross realised losses on available for sale securities in
        2003, 2002 and 2001 were $0.3 million, $32.6 million and $2.2 million,
        respectively. Realised gains and losses are determined on a cost basis. 

     

     
        Elan has accounted for available for sale debt securities
        at fair value in 2003 and 2002. The fair value of these debt securities was
        estimated at $89.6 million and $187.1 million as of 31 December 2003 and 31
        December 2002, respectively. The cost of these debt securities was $75.4
        million and $180.9 million as of 31 December 2003 and 31 December 2002,
        respectively. These debt securities have been disclosed in this note in
        accordance with the disclosure requirements of SFAS No. 115. 
     

     
        Elan has accounted for certain free-standing warrants and
        embedded derivatives in accordance with SFAS No. 133 in 2003 and 2002. This
        resulted in a cumulative catch up adjustment of $7.8 million at 1 January 2001.
        The income effect of derivative fair value movements for 2003 was $26.9 million
        (2002: $(4.4) million; 2001: $3.8 million). Included in the 2003 impairment
        charge relating to investments held by Elan of $87.5 million (2002: $1,006.0
        million; 2001: $24.5 million) was $Nil (2002: $31.6 million; 2001: $Nil) in
        relation to the impairment of SFAS No. 133 derivative instruments. These
        derivatives had a fair value of $44.1 million and $34.9 million at 31 December
        2003 and 31 December 2002, respectively. 
     

     
        The unrealised losses on available for sale securities at
        31 December 2003 are analysed as follows: 
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                Less than 12 months
             

          	
             
                 
             

          	
             
                12 months or longer
             

          	
             
                 
             

          	
             
                Total
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Description of Securities
             

          	
             
                 
             

          	
             
                Fair Value 
 $m
             

          	
             
                 
             

          	
             
                Unrealised
 Losses
 $m
             

          	
             
                 
             

          	
             
                Fair Value
 $m
             

          	
             
                 
             

          	
             
                Unrealised
 Losses
 $m
             

          	
             
                 
             

          	
             
                Fair Value 
 $m
             

          	
             
                 
             

          	
             
                Unrealised
 Losses
 $m
             

          	
             
                 
             

          
	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Equity Securities
             

          	
             
                 
             

          	
             
                0.4
             

          	
             
                 
             

          	
             
                (0.1
             

          	
             
                )
             

          	
             
                0.8
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                1.2
             

          	
             
                 
             

          	
             
                (0.1
             

          	
             
                )
             

          
	
             
                Debt Securities
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Total
             

          	
             
                 
             

          	
             
                0.4
             

          	
             
                 
             

          	
             
                (0.1
             

          	
             
                )
             

          	
             
                0.8
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                1.2
             

          	
             
                 
             

          	
             
                (0.1
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        The unrealised losses on available for sale equity
        securities at 31 December 2003 was $0.1 million (2002: $Nil). This loss related
        to two equity security investments of which $0.1 million was incurred within
        twelve months and $Nil was incurred in greater than twelve months. 
     

     
        The unrealised losses on available for sale debt
        securities at 31 December 2003 was $Nil (2002: $0.2 million). 
     

     
        Held to maturity 
     

     
        The fair value of held to maturity securities at 31
        December 2003 was $Nil (2002: $Nil). 
     

     
        The amortised cost of fixed income securities which
        matured during 2003 was $Nil. As part of its recovery plan, Elan liquidated the
        remainder of its held to maturity securities during 2002. In 2002, the
        amortised cost of the liquidated securities was $39.9 million and a gain of
        $0.7 million was realised on liquidation of these securities. The cash inflows
        arising from maturities of held to maturity securities during 2003, 2002 and
        2001 were $Nil, $18.3 million and $87.0 million, respectively. The cash inflows
        arising from disposals of held to maturity securities during 2003, 2002 and
        2001 were $Nil, $39.5 million and $Nil respectively. The cash outflows arising
        from purchases of held to maturity securities during 2003, 2002 and 2001 were
        $Nil, $Nil and $73.5 million, respectively. 
     

     
        Pension and Post-Retirement Benefits (U.S. GAAP)
        
     

     
        For the purposes of U.S. GAAP, the pension costs of the
        major Irish retirement plans have been presented in the following tables in
        accordance with the requirements of SFAS No. 132 “Employees’
        Disclosures about Pensions and Other Postretirement Benefits”. The Company
        funds the pension entitlements of certain employees through defined benefit
        plans. Two plans are operated for Irish employees. In general, on retirement, a
        member is entitled to a pension calculated at 1/60th of final
        pensionable salary for each year of pensionable service, subject to a maximum
        of 40 years. These plans are managed externally and the related pension costs
        and liabilities are assessed in accordance with the advice of a professionally
        qualified actuary. The investments of the plans at 31 December 2003 consisted
        of units held in independently administered funds. The measurement date used
        for the plans is 31 December. 
     

     

     
        174
     

     

     
     

     
     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                At 31 December
                
 2003
 $m
             

          	
             
                 
             

          	
             
                At 31 December
                
 2002
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Change in benefit obligation:
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Benefit obligation at beginning of year
             

          	
             
                 
             

          	
             
                27.4
             

          	
             
                 
             

          	
             
                19.7
             

          	
             
                 
             

          
	
             
                Service cost
             

          	
             
                 
             

          	
             
                2.1
             

          	
             
                 
             

          	
             
                1.8
             

          	
             
                 
             

          
	
             
                Interest cost
             

          	
             
                 
             

          	
             
                1.6
             

          	
             
                 
             

          	
             
                1.2
             

          	
             
                 
             

          
	
             
                Plan participants’ contributions
             

          	
             
                 
             

          	
             
                1.4
             

          	
             
                 
             

          	
             
                1.6
             

          	
             
                 
             

          
	
             
                Actuarial loss
             

          	
             
                 
             

          	
             
                (0.6
             

          	
             
                )
             

          	
             
                (0.8
             

          	
             
                )
             

          
	
             
                Benefits paid
             

          	
             
                 
             

          	
             
                (0.3
             

          	
             
                )
             

          	
             
                (0.1
             

          	
             
                )
             

          
	
             
                Foreign currency exchange rate changes
             

          	
             
                 
             

          	
             
                6.0
             

          	
             
                 
             

          	
             
                4.0
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Benefit obligation at end of year
             

          	
             
                 
             

          	
             
                37.6
             

          	
             
                 
             

          	
             
                27.4
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                At 31 December
 2003
 $m
             

          	
             
                 
             

          	
             
                At 31 December
                
 2002
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Change in plan assets:
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Fair value of plan assets at beginning of
                year
             

          	
             
                 
             

          	
             
                21.0
             

          	
             
                 
             

          	
             
                19.0
             

          	
             
                 
             

          
	
             
                Actual return on plan assets
             

          	
             
                 
             

          	
             
                3.3
             

          	
             
                 
             

          	
             
                (5.0
             

          	
             
                )
             

          
	
             
                Employer contribution
             

          	
             
                 
             

          	
             
                3.9
             

          	
             
                 
             

          	
             
                2.2
             

          	
             
                 
             

          
	
             
                Plan participants’ contributions
             

          	
             
                 
             

          	
             
                1.4
             

          	
             
                 
             

          	
             
                1.6
             

          	
             
                 
             

          
	
             
                Benefits paid
             

          	
             
                 
             

          	
             
                (0.3
             

          	
             
                )
             

          	
             
                (0.1
             

          	
             
                )
             

          
	
             
                Foreign currency exchange rate changes
             

          	
             
                 
             

          	
             
                5.2
             

          	
             
                 
             

          	
             
                3.3
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Fair value of plan assets at end of year
             

          	
             
                 
             

          	
             
                34.5
             

          	
             
                 
             

          	
             
                21.0
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Funded status
             

          	
             
                 
             

          	
             
                (3.1
             

          	
             
                )
             

          	
             
                (6.4
             

          	
             
                )
             

          
	
             
                Unrecognised net actuarial gain
             

          	
             
                 
             

          	
             
                13.1
             

          	
             
                 
             

          	
             
                12.9
             

          	
             
                 
             

          
	
             
                Unamortised prior service cost
             

          	
             
                 
             

          	
             
                1.1
             

          	
             
                 
             

          	
             
                1.0
             

          	
             
                 
             

          
	
             
                Additional liability recognised
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                0.4
             

          	
             
                 
             

          
	
             
                Minimum pension liability adjustment
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                (9.8
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Prepaid benefit cost/(pension liability)
             

          	
             
                 
             

          	
             
                11.1
             

          	
             
                 
             

          	
             
                (1.9
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        The net periodic pension cost was comprised of the
        following: 
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                2003
 $m
             

          	
             
                 
             

          	
             
                2002
 $m
             

          	
             
                 
             

          	
             
                2001
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Service cost
             

          	
             
                 
             

          	
             
                2.1
             

          	
             
                 
             

          	
             
                1.8
             

          	
             
                 
             

          	
             
                1.2
             

          	
             
                 
             

          
	
             
                Interest cost
             

          	
             
                 
             

          	
             
                1.6
             

          	
             
                 
             

          	
             
                1.2
             

          	
             
                 
             

          	
             
                0.9
             

          	
             
                 
             

          
	
             
                Expected return on plan assets
             

          	
             
                 
             

          	
             
                (2.1
             

          	
             
                )
             

          	
             
                (1.9
             

          	
             
                )
             

          	
             
                (1.6
             

          	
             
                )
             

          
	
             
                Amortisation of net loss
             

          	
             
                 
             

          	
             
                0.6
             

          	
             
                 
             

          	
             
                0.3
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Amortisation of prior service cost
             

          	
             
                 
             

          	
             
                0.1
             

          	
             
                 
             

          	
             
                0.1
             

          	
             
                 
             

          	
             
                0.1
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Net periodic pension cost
             

          	
             
                 
             

          	
             
                2.3
             

          	
             
                 
             

          	
             
                1.5
             

          	
             
                 
             

          	
             
                0.6
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        Weighted average assumptions used to determine net
        periodic pension cost 
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                At 31 December
 2003
             

          	
             
                 
             

          	
             
                At 31 December
 2002
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Discount rate
             

          	
             
                 
             

          	
             
                5.2
             

          	
             
                %
             

          	
             
                5.5
             

          	
             
                %
             

          
	
             
                Expected return on plan assets
             

          	
             
                 
             

          	
             
                9.0
             

          	
             
                %
             

          	
             
                9.0
             

          	
             
                %
             

          
	
             
                Rate of compensation increase
             

          	
             
                 
             

          	
             
                4.0
             

          	
             
                %
             

          	
             
                3.5
             

          	
             
                %
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 
 

     
        175
     

     

     
     

     
     
        NOTES RELATING TO FINANCIAL STATEMENTS 
     

     
        The expected long-term rate of return on assets of 9.0%
        was calculated based on the assumptions of the following returns for each asset
        class: 
     

     
         
     

     	
             
                Equities
             

          	
             
                 
             

          	
             
                7.5%
             

          	
             
                 
             

          
	
             
                Property
             

          	
             
                 
             

          	
             
                6.5%
             

          	
             
                 
             

          
	
             
                Government Bonds
             

          	
             
                 
             

          	
             
                4.5%
             

          	
             
                 
             

          
	
             
                Cash
             

          	
             
                 
             

          	
             
                2.5%
             

          	
             
                 
             

          

 

     
        The fixed interest yield at 31 December 2003 was 4.5%
        hence the assumed return on bonds is 4.5%. The return for the other asset
        classes are set by reference to the fixed interest yield plus a risk premium.
        For equities the risk premium is 3% and for property the premium is 2%. 

     

     
        Weighted average assumptions used to determine benefit
        obligation 
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                At 31 December
 2003
             

          	
             
                 
             

          	
             
                At 31 December
 2002
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Discount rate
             

          	
             
                 
             

          	
             
                5.2
             

          	
             
                %
             

          	
             
                5.5
             

          	
             
                %
             

          
	
             
                Rate of compensation increase
             

          	
             
                 
             

          	
             
                4.0
             

          	
             
                %
             

          	
             
                3.5
             

          	
             
                %
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        The weighted average asset allocations at 31 December 2003
        and 31 December 2002 by asset category are as follows:
     

     
         
     

     	
             
                Asset Category
             

          	
             
                 
             

          	
             
                At 31 December
 2003
             

          	
             
                 
             

          	
             
                At 31 December
 2002
             

          	
             
                 
             

          
	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Equity
             

          	
             
                 
             

          	
             
                74.5
             

          	
             
                %
             

          	
             
                67.0
             

          	
             
                %
             

          
	
             
                Bonds
             

          	
             
                 
             

          	
             
                16.8
             

          	
             
                %
             

          	
             
                20.6
             

          	
             
                %
             

          
	
             
                Property
             

          	
             
                 
             

          	
             
                6.9
             

          	
             
                %
             

          	
             
                7.8
             

          	
             
                %
             

          
	
             
                Cash / other
             

          	
             
                 
             

          	
             
                1.8
             

          	
             
                %
             

          	
             
                4.6
             

          	
             
                %
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                100.0
             

          	
             
                %
             

          	
             
                100.0
             

          	
             
                %
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        At 31 December 2003 the Elan pension scheme assets were
        invested in two pension managed unit trusts. The key objective of the Elan
        pension trusts is to achieve long term capital growth. The unit trusts seek to
        achieve this objective by investing primarily in a range of Eurozone and
        international equities, bonds, property and cash. 
     

     
        The investment mix is biased towards equities, with a
        diversified domestic and international portfolio of shares listed and traded on
        recognised Exchanges. 
     

     
        The long-term asset allocation ranges of the trusts are as
        follows: 
     

     
         
     

     	
             
                Equities
             

          	
             
                 
             

          	
             
                55% – 85%
             

          	
             
                 
             

          
	
             
                Bonds
             

          	
             
                 
             

          	
             
                8% – 40%
             

          	
             
                 
             

          
	
             
                Property
             

          	
             
                 
             

          	
             
                0% – 10%
             

          	
             
                 
             

          
	
             
                Cash
             

          	
             
                 
             

          	
             
                0% – 15%
             

          	
             
                 
             

          

 

     
        The accumulated benefit obligation for all defined benefit
        pension plans was $31.3 million at 31 December 2003 (2002: $24.1 million).
        
     

     
        Elan recognised a $9.8 million charge to Other
        Comprehensive Income in 2002 in respect of the shortfall between the unfunded
        accumulated benefit obligation less the unrecognised prior service cost and the
        prepaid benefit cost. This was reversed in 2003 as the shortfall no longer
        existed at 31 December, 2003. 
     

     
        Elan expects to contribute $3.0 million to its pension
        plan in 2004. 
     

     
        In addition, Elan operates a number of defined
        contribution pension plans, primarily for employees outside of Ireland. The
        costs of these plans are charged to the income statement in the period they are
        incurred. The pension cost for these plans was $9.2 million, $8.8 million and
        $9.9 million for 2003, 2002 and 2001, respectively. 
     

     

     
        176
     

     

     
     

     
     
        Compensation Cost (U.S. GAAP) 
     

     
        Elan grants options to employees under the Group’s
        stock option plans. These options are granted at fixed exercise prices equal to
        the market value on the date of grant. 
     

     
        The Company applies APB 25 in accounting for its stock
        option plans and, accordingly under U.S. GAAP, no compensation expense is
        recognised when stock options are initially granted to employees, as the
        exercise price is equal to the market price on the date of grant. If the
        Company determined compensation cost based on the fair value at the grant date
        for its stock options under SFAS No. 123, the effect on net income under U.S.
        GAAP would be as shown below. 
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                2003
 $m
             

          	
             
                 
             

          	
             
                2002
 $m
             

          	
             
                 
             

          	
             
                2001
 (restated)
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Net (loss)/income under U.S. GAAP as reported

             

          	
             
                 
             

          	
             
                 
             

          	
             
                (535.4
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (2,362.3
             

          	
             
                )
             

          	
             
                 
             

          	
             
                268.9
             

          	
             
                 
             

          
	
             
                Add: Stock-based compensation expense included in
                reported net income
             

          	
             
                 
             

          	
             
                 
             

          	
             
                1.1
             

          	
             
                 
             

          	
             
                 
             

          	
             
                0.1
             

          	
             
                 
             

          	
             
                 
             

          	
             
                0.5
             

          	
             
                 
             

          
	
             
                Deduct: Total stock-based employee compensation
                expense determined under fair value based method for all awards
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (75.2
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (127.5
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (157.0
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          
	
             
                Pro-forma net (loss)/income
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (609.5
             

          	
             
                )
             

          	
             
                 
             

          	
             
                (2,489.7
             

          	
             
                )
             

          	
             
                 
             

          	
             
                112.4
             

          	
             
                 
             

          
	
             
                Basic (loss)/earnings per Ordinary Share
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                As reported
             

          	
             
                 
             

          	
             
                $
             

          	
             
                (1.50
             

          	
             
                )
             

          	
             
                $
             

          	
             
                (6.75
             

          	
             
                )
             

          	
             
                $
             

          	
             
                0.80
             

          	
             
                 
             

          
	
             
                Pro-forma
             

          	
             
                 
             

          	
             
                $
             

          	
             
                (1.71
             

          	
             
                )
             

          	
             
                $
             

          	
             
                (7.12
             

          	
             
                )
             

          	
             
                $
             

          	
             
                0.33
             

          	
             
                 
             

          
	
             
                Diluted (loss)/earnings per Ordinary Share
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                As reported
             

          	
             
                 
             

          	
             
                $
             

          	
             
                (1.50
             

          	
             
                )
             

          	
             
                $
             

          	
             
                (6.75
             

          	
             
                )
             

          	
             
                $
             

          	
             
                0.75
             

          	
             
                 
             

          
	
             
                Pro-forma
             

          	
             
                 
             

          	
             
                $
             

          	
             
                (1.71
             

          	
             
                )
             

          	
             
                $
             

          	
             
                (7.12
             

          	
             
                )
             

          	
             
                $
             

          	
             
                0.31
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          

 

     
        The weighted average fair value of the individual options
        granted during the years ended 31 December 2003, 2002 and 2001 is estimated as
        $3.50, $4.11 and $21.47, respectively, on the date of grant. The fair value of
        options granted was estimated using the Black-Scholes option-pricing model with
        the following weighted average assumptions: 
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                2003
             

          	
             
                 
             

          	
             
                2002
             

          	
             
                 
             

          	
             
                2001
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Risk-free interest rate
             

          	
             
                 
             

          	
             
                1.02
             

          	
             
                %
             

          	
             
                1.62
             

          	
             
                %
             

          	
             
                3.47
             

          	
             
                %
             

          
	
             
                Volatility
             

          	
             
                 
             

          	
             
                99.32
             

          	
             
                %
             

          	
             
                91.00
             

          	
             
                %
             

          	
             
                46.99
             

          	
             
                %
             

          
	
             
                Dividend yield
             

          	
             
                 
             

          	
             
                Nil
             

          	
             
                 
             

          	
             
                Nil
             

          	
             
                 
             

          	
             
                Nil
             

          	
             
                 
             

          
	
             
                Expected life (years)
             

          	
             
                 
             

          	
             
                6.7
             

          	
             
                 
             

          	
             
                5.9
             

          	
             
                 
             

          	
             
                4.1
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        Deferred Taxation (U.S. GAAP) 
     

     
        The deferred taxation provision under U.S. GAAP is
        calculated in accordance with the requirements of SFAS No. 109 “Accounting
        for Income Taxes” (“SFAS No. 109”). 
     

     
        The full potential amounts of deferred taxation and
        amounts accounted for in the Group balance sheet comprised the following
        deferred tax assets and liabilities: 
     

     

     
        177
     

     

     
     

     
     
        NOTES RELATING TO FINANCIAL STATEMENTS 
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                At 31 December
 2003
 $m
             

          	
             
                 
             

          	
             
                At 31 December
 2002
 $m
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Deferred taxation liabilities:
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Fixed assets
             

          	
             
                 
             

          	
             
                (45.8
             

          	
             
                )
             

          	
             
                (14.9
             

          	
             
                )
             

          
	
             
                Intangible asset on acquisition
             

          	
             
                 
             

          	
             
                (52.6
             

          	
             
                )
             

          	
             
                (150.1
             

          	
             
                )
             

          
	
             
                Deferred interest
             

          	
             
                 
             

          	
             
                (2.9
             

          	
             
                )
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                (101.3
             

          	
             
                )
             

          	
             
                (165.0
             

          	
             
                )
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Deferred taxation assets
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Net operating losses
             

          	
             
                 
             

          	
             
                200.1
             

          	
             
                 
             

          	
             
                264.7
             

          	
             
                 
             

          
	
             
                Tax credits
             

          	
             
                 
             

          	
             
                83.9
             

          	
             
                 
             

          	
             
                70.8
             

          	
             
                 
             

          
	
             
                Deferred interest
             

          	
             
                 
             

          	
             
                92.2
             

          	
             
                 
             

          	
             
                41.0
             

          	
             
                 
             

          
	
             
                Capitalised items
             

          	
             
                 
             

          	
             
                128.6
             

          	
             
                 
             

          	
             
                112.5
             

          	
             
                 
             

          
	
             
                Reserves/provisions
             

          	
             
                 
             

          	
             
                70.3
             

          	
             
                 
             

          	
             
                98.4
             

          	
             
                 
             

          
	
             
                Other
             

          	
             
                 
             

          	
             
                2.6
             

          	
             
                 
             

          	
             
                9.2
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                577.7
             

          	
             
                 
             

          	
             
                596.6
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Valuation allowance
             

          	
             
                 
             

          	
             
                476.4
             

          	
             
                 
             

          	
             
                431.6
             

          	
             
                 
             

          
	
             
                Deferred tax asset/(liability)
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        Under U.S. GAAP, Elan applies SFAS No. 109 which requires
        the asset and liability method of accounting for income taxes. Under this
        method, deferred tax assets and liabilities are recognised for the future tax
        consequences attributable to differences between the financial statement
        carrying amounts of existing assets and liabilities and their respective tax
        bases and operating loss and tax credit carryforwards. Deferred tax assets and
        liabilities are measured using enacted tax rates expected to apply to taxable
        income in the years in which those temporary differences are expected to be
        recovered or settled. The effect on deferred tax assets and liabilities of a
        change in tax rates is recognised in income in the period that includes the
        enactment date. A valuation allowance has been established in respect of those
        deferred tax assets where it is more likely than not that some portion will not
        be realised in the future. The valuation allowance recorded against the
        deferred tax assets as of 31 December 2003 was $476.4 million. The net change
        in the valuation allowance for 2003 was an increase of $44.8 million (2002:
        increase of $29.6 million; 2001: increase of $129.8 million). Approximately
        $96.3 million of the valuation allowance at 31 December 2003 is expected to be
        applied directly to contributed capital under U.S. GAAP when deferred tax
        assets associated with certain stock option exercises are recognised. The
        Company has adjusted its net operating losses to reflect the amounts expected
        to be realised on a probable basis. As a result of this adjustment, the Company
        has credited additional paid in capital by $26.7 million to reflect the
        utilisation of stock option deductions. 
     

     
        At 31 December 2003 certain U.S. subsidiaries had net
        operating loss carryovers for federal income tax purposes of approximately
        $227.0 million and for state income tax purposes of approximately $39.0
        million. The federal net operating losses will expire in 2023 and the state net
        operating losses, from 2006 to 2022, to the extent they are not utilised. In
        addition, at 31 December 2003, certain U.S. subsidiaries had federal research
        and orphan drug credit carryovers of $58.0 million which will expire from 2019
        through 2022 and state credit carryovers of $25.9 million, mostly research
        credits, of which $23.0 million can be carried to subsequent tax years
        indefinitely, and $2.9 million will expire from 2004 to 2008 to the extent they
        are not utilised. The Company may have had “changes in ownership” as
        described in the U.S. Internal Revenue Code Section 382. Consequently,
        utilisation of federal and state net operating losses and credits may be
        subject to certain annual limitations. 
     

     
        At 31 December 2003 certain non-U.S. subsidiaries of Elan
        had net operating loss carryovers for income tax purposes of $1,067.0 million.
        Approximately $1 billion of these losses arose in Ireland and can be carried
        forward indefinitely but are limited to the same trade/trades. The remaining
        loss carryovers have arisen in a number of different tax jurisdictions and as
        such are subject to various local restrictions. These remaining loss carryovers
        are also subject to varying expiration dates beginning in 2004, with
        approximately $15 million of the remaining losses carrying forward
        indefinitely. 
     

     
        No taxes have been provided for the unremitted and untaxed
        earnings of the Group’s overseas subsidiaries as these are, in the main,
        considered permanently employed in the business of these companies. Cumulative
        unremitted earnings of overseas subsidiaries and related undertakings totalled
        approximately $1,046.8 million at 31 December 2003. Unremitted earnings may be
        liable to overseas taxes and/or Irish taxation if they were to be distributed
        as dividends. It is impracticable to determine at this time the potential
        amount of additional tax due upon remittance of earnings. 
     

     
        34   Approval of Financial
        Statements 
     

     
        These financial statements were approved by the directors
        on 23 April 2004. 
     

     

     
        178
     

     

     
     

     
     
        SELECTED FINANCIAL DATA 
     

     
        Selected Financial Data
     

     
        The selected financial data set forth below as of and for
        the years ended 31 December 2003, 2002, 2001, 2000 and 1999 have been derived
        from Elan’s audited Consolidated Financial Statements. The selected
        financial data should be read in conjunction with the Consolidated Financial
        Statements of the Company and the Notes thereto, which are included elsewhere
        in this Annual Report and Form 20-F. 
     

     
        Group Financial Record—Irish GAAP(1)
        
     

     
         
     

     	
             
                 
             

          	
             
                  
             

          	
             
                Year Ended
 31 December
 2003
             

          	
             
                    
             

          	
             
                Year Ended
 31 December
 2002
             

          	
             
                    
             

          	
             
                Year Ended
 31 December
 2001
             

          	
             
                     
             

          	
             
                Year Ended
 31 December
 2000
             

          	
             
                    
             

          	
             
                Year Ended
 31 December
 1999
             

          	
             
                    
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                ($m, except per share data)
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Profit and Loss Account Data:
             

          	
             
                  
             

          	
             
                 
             

          	
             
                 
             

          	
             
                      
             

          	
             
                 
             

          	
             
                 
             

          	
             
                     
             

          	
             
                 
             

          	
             
                 
             

          	
             
                      
             

          	
             
                 
             

          	
             
                 
             

          	
             
                    
             

          	
             
                 
             

          	
             
                 
             

          	
             
                    
             

          
	
             
                Total revenue
             

          	
             
                 
             

          	
             
                 
             

          	
             
                762.1
             

          	
             
                 
             

          	
             
                 
             

          	
             
                1,333.0
             

          	
             
                 
             

          	
             
                 
             

          	
             
                1,740.7
             

          	
             
                 
             

          	
             
                 
             

          	
             
                1,302.0
             

          	
             
                 
             

          	
             
                 
             

          	
             
                1,007.8
             

          	
             
                 
             

          
	
             
                Operating (loss)/profit
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (935.1
             

          	
             
                )(2)
             

          	
             
                 
             

          	
             
                (2,290.8
             

          	
             
                )(3)
             

          	
             
                 
             

          	
             
                (829.7
             

          	
             
                )(4)
             

          	
             
                 
             

          	
             
                296.3
             

          	
             
                (5)
             

          	
             
                 
             

          	
             
                309.5
             

          	
             
                 
             

          
	
             
                Retained (loss)/profit
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (815.4
             

          	
             
                )(6)
             

          	
             
                 
             

          	
             
                (3,615.1
             

          	
             
                )(7)
             

          	
             
                 
             

          	
             
                (887.2
             

          	
             
                )(8)
             

          	
             
                 
             

          	
             
                342.1
             

          	
             
                (9)
             

          	
             
                 
             

          	
             
                335.9
             

          	
             
                 
             

          
	
             
                Basic (loss)/earnings per Ordinary
                Share(10)
             

          	
             
                 
             

          	
             
                $
             

          	
             
                (2.29
             

          	
             
                )(6)
             

          	
             
                $
             

          	
             
                (10.34
             

          	
             
                )(7)
             

          	
             
                $
             

          	
             
                (2.64
             

          	
             
                )(8)
             

          	
             
                $
             

          	
             
                1.19
             

          	
             
                (9)
             

          	
             
                $
             

          	
             
                1.26
             

          	
             
                 
             

          
	
             
                Diluted (loss)/earnings per Ordinary
                Share(10)
             

          	
             
                 
             

          	
             
                $
             

          	
             
                (2.29
             

          	
             
                )(6)
             

          	
             
                $
             

          	
             
                (10.34
             

          	
             
                )(7)
             

          	
             
                $
             

          	
             
                (2.64
             

          	
             
                )(8)
             

          	
             
                $
             

          	
             
                1.10
             

          	
             
                (9)
             

          	
             
                $
             

          	
             
                1.19
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          

 

     
         
     

     	
             
                 
             

          	
             
                  
             

          	
             
                At
 31 December
 2003
             

          	
             
                  
             

          	
             
                At
 31 December
 2002
             

          	
             
                  
             

          	
             
                At
 31 December
 2001
             

          	
             
                  
             

          	
             
                At
 31 December
 2000
             

          	
             
                  
             

          	
             
                At
 31 December
 1999
             

          	
             
                  
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                ($m, except share data)
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Balance Sheet Data:
             

          	
             
                  
             

          	
             
                 
             

          	
             
                  
             

          	
             
                 
             

          	
             
                  
             

          	
             
                 
             

          	
             
                  
             

          	
             
                 
             

          	
             
                  
             

          	
             
                 
             

          	
             
                  
             

          
	
             
                Working capital
             

          	
             
                 
             

          	
             
                302.0
             

          	
             
                 
             

          	
             
                (97.4
             

          	
             
                )
             

          	
             
                1,223.5
             

          	
             
                 
             

          	
             
                940.7
             

          	
             
                 
             

          	
             
                753.7
             

          	
             
                 
             

          
	
             
                Total assets
             

          	
             
                 
             

          	
             
                3,171.4
             

          	
             
                 
             

          	
             
                4,771.1
             

          	
             
                 
             

          	
             
                9,439.6
             

          	
             
                 
             

          	
             
                8,096.8
             

          	
             
                 
             

          	
             
                4,674.2
             

          	
             
                 
             

          
	
             
                Long term liabilities
             

          	
             
                 
             

          	
             
                1,509.1
             

          	
             
                 
             

          	
             
                1,716.6
             

          	
             
                 
             

          	
             
                3,048.2
             

          	
             
                 
             

          	
             
                2,157.6
             

          	
             
                 
             

          	
             
                1,550.9
             

          	
             
                 
             

          
	
             
                Total shareholders’ equity
             

          	
             
                 
             

          	
             
                825.4
             

          	
             
                 
             

          	
             
                1,460.0
             

          	
             
                 
             

          	
             
                5,054.5
             

          	
             
                 
             

          	
             
                5,315.5
             

          	
             
                 
             

          	
             
                2,687.6
             

          	
             
                 
             

          
	
             
                Number of shares outstanding
             

          	
             
                 
             

          	
             
                386.2
             

          	
             
                 
             

          	
             
                350.4
             

          	
             
                 
             

          	
             
                349.8
             

          	
             
                 
             

          	
             
                322.5
             

          	
             
                 
             

          	
             
                269.1
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     		
             
                1.
             

          	
             
                For information on discontinued operations under
                Irish GAAP, please refer to Note 6 to the Consolidated Financial
                Statements.
             

          

     		
             
                2.
             

          	
             
                After exceptional items of $576.7 million
                primarily relating to the purchase of royalty rights from Pharma Operating, a
                write-down of goodwill and product intangibles, asset write-downs,
                severance/relocation and similar costs. 
             

          

     		
             
                3.
             

          	
             
                After exceptional items of $1,796.3 million
                primarily relating to a write-down of goodwill and product intangibles,
                acquired intellectual property, asset write-downs, severance, rationalisation,
                integration and similar costs, product rationalisations and
                disposals.
             

          

     		
             
                4.
             

          	
             
                After exceptional items of $957.8 million
                primarily relating to a write-down of acquired intellectual property, asset
                write-downs, severance, rationalisation, integration and similar costs and
                product rationalisations. 
             

          

     		
             
                5.
             

          	
             
                After exceptional items of $79.3 million
                primarily relating to severance, rationalisation, integration and similar
                costs, a product withdrawal and asset write-downs. 
             

          

     		
             
                6.
             

          	
             
                After exceptional items of $317.1 million
                primarily relating to the purchase of royalty rights from Pharma Operating,
                business disposals, write-down of goodwill and product intangibles, investment
                write-downs, asset write-downs, severance/relocation and similar
                costs.
             

          

     		
             
                7.
             

          	
             
                After exceptional items of $2,949.4 million
                primarily relating to a write-down of goodwill and product intangibles,
                acquired intellectual property, asset write-downs, business disposals,
                investment write-downs, severance, rationalisation, integration and similar
                costs and product rationalisations and disposals. 
             

          

     		
             
                8.
             

          	
             
                After exceptional items of $931.9 million
                primarily relating to a write-down of acquired intellectual property, asset
                write-downs, investment write-downs, severance, rationalisation, integration
                and similar costs and product rationalisations. 
             

          

     		
             
                9.
             

          	
             
                After exceptional items of $113.6 million
                primarily relating to severance and rationalisation costs, a product withdrawal
                and asset write-downs.
             

          

     		
             
                10.
             

          	
             
                Earnings per share is based on the weighted
                average number of outstanding Ordinary Shares and the effect of potential
                dilutive securities including options, warrants and convertible
                securities. 
             

          

 

     
        179
     

     

     
     

     
     
        SELECTED FINANCIAL DATA 
     

     
        Group Financial Record—U.S. GAAP 
     

     
         
     

     	
             
                 
             

          	
             
                  
             

          	
             
                Year Ended
 31 December
 2003
             

          	
             
                   
             

          	
             
                Year Ended
 31 December
 2002
             

          	
             
                   
             

          	
             
                Year Ended
 31 December
 2001
             

          	
             
                   
             

          	
             
                Year Ended
 31 December
 2000
             

          	
             
                    
             

          	
             
                Year Ended
 31 December
 1999
             

          	
             
                   
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                ($m, except per share data)
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Income Statement Data:
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Total revenue
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                746.0
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                1,132.5
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                1,606.6
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                1,329.7
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                1,234.0
             

          	
             
                 
             

          
	
             
                Operating (loss)/income
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (424.3
             

          	
             
                )(1)
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (829.8
             

          	
             
                )(2)
             

          	
             
                 
             

          	
             
                 
             

          	
             
                249.4
             

          	
             
                (3)
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (54.8
             

          	
             
                )(4)
             

          	
             
                 
             

          	
             
                 
             

          	
             
                277.1
             

          	
             
                (5)
             

          
	
             
                Net (loss)/income from continuing operations
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (565.0
             

          	
             
                )
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (2,390.9
             

          	
             
                )
             

          	
             
                 
             

          	
             
                 
             

          	
             
                265.8
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                72.7
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                308.8
             

          	
             
                 
             

          
	
             
                Net income/(loss) from discontinued
                operations
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                29.6
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                28.6
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (4.7
             

          	
             
                )
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (23.2
             

          	
             
                )
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (5.4
             

          	
             
                )
             

          
	
             
                Cumulative effect of accounting change
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                7.8
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (344.0
             

          	
             
                )
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Net (loss)/income
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (535.4
             

          	
             
                )(6)
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (2,362.3
             

          	
             
                )(7)
             

          	
             
                 
             

          	
             
                 
             

          	
             
                268.9
             

          	
             
                (8)
             

          	
             
                 
             

          	
             
                 
             

          	
             
                (294.5
             

          	
             
                )(9)
             

          	
             
                 
             

          	
             
                 
             

          	
             
                303.4
             

          	
             
                (5)
             

          
	
             
                Basic (loss)/earnings per Ordinary
                Share(11)
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                from continuing operations
             

          	
             
                 
             

          	
             
                 
             

          	
             
                $
             

          	
             
                (1.59
             

          	
             
                )
             

          	
             
                 
             

          	
             
                $
             

          	
             
                (6.83
             

          	
             
                )
             

          	
             
                 
             

          	
             
                $
             

          	
             
                0.79
             

          	
             
                 
             

          	
             
                 
             

          	
             
                $
             

          	
             
                0.23
             

          	
             
                 
             

          	
             
                 
             

          	
             
                $
             

          	
             
                1.04
             

          	
             
                 
             

          
	
             
                from discontinued operations
             

          	
             
                 
             

          	
             
                 
             

          	
             
                $
             

          	
             
                0.09
             

          	
             
                 
             

          	
             
                 
             

          	
             
                $
             

          	
             
                0.08
             

          	
             
                 
             

          	
             
                 
             

          	
             
                $
             

          	
             
                (0.01
             

          	
             
                )
             

          	
             
                 
             

          	
             
                $
             

          	
             
                (0.07
             

          	
             
                )
             

          	
             
                 
             

          	
             
                $
             

          	
             
                (0.02
             

          	
             
                )
             

          
	
             
                from cumulative effect of accounting change
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                 
             

          	
             
                $
             

          	
             
                0.02
             

          	
             
                 
             

          	
             
                 
             

          	
             
                $
             

          	
             
                (1.10
             

          	
             
                )
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                Total basic (loss)/earnings per Ordinary
                Share
             

          	
             
                 
             

          	
             
                 
             

          	
             
                $
             

          	
             
                (1.50
             

          	
             
                )
             

          	
             
                 
             

          	
             
                $
             

          	
             
                (6.75
             

          	
             
                )
             

          	
             
                 
             

          	
             
                $
             

          	
             
                0.80
             

          	
             
                (10)
             

          	
             
                 
             

          	
             
                $
             

          	
             
                (0.94
             

          	
             
                )(10)
             

          	
             
                 
             

          	
             
                $
             

          	
             
                1.02
             

          	
             
                 
             

          
	
             
                Diluted (loss)/earnings per Ordinary
                Share(11)
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                from continuing operations
             

          	
             
                 
             

          	
             
                 
             

          	
             
                $
             

          	
             
                (1.59
             

          	
             
                )
             

          	
             
                 
             

          	
             
                $
             

          	
             
                (6.83
             

          	
             
                )
             

          	
             
                 
             

          	
             
                $
             

          	
             
                0.74
             

          	
             
                 
             

          	
             
                 
             

          	
             
                $
             

          	
             
                0.21
             

          	
             
                 
             

          	
             
                 
             

          	
             
                $
             

          	
             
                0.99
             

          	
             
                 
             

          
	
             
                from discontinued operations
             

          	
             
                 
             

          	
             
                 
             

          	
             
                $
             

          	
             
                0.09
             

          	
             
                 
             

          	
             
                 
             

          	
             
                $
             

          	
             
                0.08
             

          	
             
                 
             

          	
             
                 
             

          	
             
                $
             

          	
             
                (0.01
             

          	
             
                )
             

          	
             
                 
             

          	
             
                $
             

          	
             
                (0.07
             

          	
             
                )
             

          	
             
                 
             

          	
             
                $
             

          	
             
                (0.02
             

          	
             
                )
             

          
	
             
                from cumulative effect of accounting change
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                  
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                  
             

          	
             
                 
             

          	
             
                $
             

          	
             
                0.02
             

          	
             
                  
             

          	
             
                 
             

          	
             
                $
             

          	
             
                (1.10
             

          	
             
                )  
             

          	
             
                 
             

          	
             
                 
             

          	
             
                —
             

          	
             
                  
             

          
	
             
                Total diluted (loss)/earnings per Ordinary
                Share
             

          	
             
                 
             

          	
             
                 
             

          	
             
                $
             

          	
             
                (1.50
             

          	
             
                )
             

          	
             
                 
             

          	
             
                $
             

          	
             
                (6.75
             

          	
             
                )
             

          	
             
                 
             

          	
             
                $
             

          	
             
                0.75
             

          	
             
                (10)
             

          	
             
                 
             

          	
             
                $
             

          	
             
                (0.94
             

          	
             
                )(10)
             

          	
             
                 
             

          	
             
                $
             

          	
             
                0.97
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          
																							

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                At
 31 December
 2003
             

          	
             
                 
             

          	
             
                At
 31 December
 2002
             

          	
             
                 
             

          	
             
                At
 31 December
 2001
             

          	
             
                 
             

          	
             
                At
 31 December
 2000
             

          	
             
                 
             

          	
             
                At
 31 December
 1999
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                ($m, except per share data)
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Balance Sheet Data:
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Cash, cash equivalents and marketable investment
                securities
             

          	
             
                 
             

          	
             
                 
             

          	
             
                1,156.9
             

          	
             
                 
             

          	
             
                 
             

          	
             
                1,464.5
             

          	
             
                 
             

          	
             
                 
             

          	
             
                2,542.7
             

          	
             
                 
             

          	
             
                 
             

          	
             
                1,250.1
             

          	
             
                 
             

          	
             
                 
             

          	
             
                1,285.6
             

          	
             
                 
             

          
	
             
                Total assets
             

          	
             
                 
             

          	
             
                 
             

          	
             
                3,011.0
             

          	
             
                 
             

          	
             
                 
             

          	
             
                4,015.5
             

          	
             
                 
             

          	
             
                 
             

          	
             
                6,828.3
             

          	
             
                 
             

          	
             
                 
             

          	
             
                4,653.0
             

          	
             
                 
             

          	
             
                 
             

          	
             
                3,871.7
             

          	
             
                 
             

          
	
             
                Long term liabilities
             

          	
             
                 
             

          	
             
                 
             

          	
             
                1,500.9
             

          	
             
                 
             

          	
             
                 
             

          	
             
                1,046.3
             

          	
             
                 
             

          	
             
                 
             

          	
             
                2,227.4
             

          	
             
                 
             

          	
             
                 
             

          	
             
                1,375.6
             

          	
             
                 
             

          	
             
                 
             

          	
             
                1,586.0
             

          	
             
                 
             

          
	
             
                Total shareholders’ equity
             

          	
             
                 
             

          	
             
                 
             

          	
             
                599.1
             

          	
             
                 
             

          	
             
                 
             

          	
             
                826.9
             

          	
             
                 
             

          	
             
                 
             

          	
             
                3,198.9
             

          	
             
                 
             

          	
             
                 
             

          	
             
                2,276.9
             

          	
             
                 
             

          	
             
                 
             

          	
             
                1,751.1
             

          	
             
                 
             

          
	
             
                Number of shares outstanding
             

          	
             
                 
             

          	
             
                 
             

          	
             
                386.2
             

          	
             
                 
             

          	
             
                 
             

          	
             
                350.4
             

          	
             
                 
             

          	
             
                 
             

          	
             
                349.8
             

          	
             
                 
             

          	
             
                 
             

          	
             
                322.5
             

          	
             
                 
             

          	
             
                 
             

          	
             
                298.8
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          	
             
 	
             
 	
             
                 
             

          

 

     		
             
                1.
             

          	
             
                After other charges of $449.2 million primarily
                relating to asset write-down costs, severence, rationalisation, integration and
                similar costs. After $269.4 million gain on sale of businesses and repurchase
                of debt.
             

          

     		
             
                2.
             

          	
             
                After other charges of $763.6 million primarily
                relating to asset write-down costs, severance, rationalisation, integration and
                similar costs. After $37.7 million gain on repurchase of debt.
             

          

     		
             
                3.
             

          	
             
                After other charges of $323.3 million primarily
                relating to asset write-down costs, severance, rationalisation, integration and
                similar costs.
             

          

     		
             
                4.
             

          	
             
                After other charges of $431.6 million primarily
                relating to the acquisition of IPR&D, merger costs, rationalisation,
                integration and similar costs.
             

          

     		
             
                5.
             

          	
             
                After other charges of $88.6 million primarily
                relating to the acquisition of IPR&D. 
             

          

     		
             
                6.
             

          	
             
                After other charges of $449.2 million, after
                $269.4 million gain on sale of businesses and repurchase of debt; and after
                charges primarily relating to investments and guarantees issued to the
                noteholders of EPIL II of $136.5 million. 
             

          

     		
             
                7.
             

          	
             
                After other charges of $763.6 million; after
                $37.7 million gain on repurchase of debt; and after charges primarily relating
                to investments and the guarantee issued to the noteholders of EPIL II of
                $1,443.0 million.
             

          

     		
             
                8
             

          	
             
                 After other charges of $323.3 million primarily
                relating to asset write-down costs, severance, rationalisation, integration and
                similar costs; after charges relating to impairment of investments of $24.5
                million; and after $7.8 million relating to the cumulative catch up adjustment
                for the implementation of SFAS No. 133. 
             

          

     		
             
                9.
             

          	
             
                After other charges of $431.6 million primarily
                relating to the acquisition of IPR&D, merger costs, rationalisation,
                integration and similar costs and after $344.0 million relating to the
                cumulative adjustment for the implementation of SAB 104. 
             

          

     		
             
                10.
             

          	
             
                Basic and diluted earnings/(loss) per share for
                2001 would have been $0.89 and $0.83, respectively, if goodwill was not
                amortised for that year. Basic and diluted (loss) per share for 2000 would have
                been $(0.88) if goodwill was not amortised for that year. This disclosure is
                provided as SFAS No. 142, which has been adopted for 2002 onwards, no longer
                requires the amortisation of goodwill. 
             

          

     		
             
                11.
             

          	
             
                Earnings per share is based on the weighted
                average number of outstanding Ordinary Shares and the effect of potential
                dilutive securities including options, warrants and convertible securities.
                
             

          

 

     
        180
     

     

     
     

     
     
        SHAREHOLDERS’ INFORMATION 
     

     
        Elan has not paid cash dividends on its Ordinary Shares in
        the past. The declaration of any cash dividends will be at the recommendation
        of Elan’s board of directors. The recommendations of Elan’s board of
        directors will depend upon the earnings, capital requirements and financial
        condition of Elan and other relevant factors. Although Elan does not anticipate
        that it will pay any cash dividends on its Ordinary Shares in the foreseeable
        future, Elan expects that its board of directors will review Elan’s
        dividend policy on a regular basis. Dividends may be paid on Elan’s
        Executive Shares and “B” Executive Shares at a time when no dividends
        are being paid on the Ordinary Shares. For additional information regarding the
        Executive Shares and “B” Executive Shares, please refer to Note 17 to
        the Consolidated Financial Statements. 
     

     
        Nature of Trading Market 
     

     
        The principal trading markets for Elan’s Ordinary
        Shares are the Irish Stock Exchange and the London Stock Exchange. Elan’s
        ADSs, each representing one Ordinary Share and evidenced by one American
        Depositary Receipt (“ADR”), are traded on the NYSE under the symbol
        “ELN”. The ADR depositary is The Bank of New York. 
     

     
        The following table sets forth the high and low sales
        prices of the Ordinary Shares during the periods indicated, based upon
        mid-market prices at close of business on the Irish Stock Exchange and the high
        and low sales prices of the ADSs, as reported in published financial sources.
        
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                €0.05
 Ordinary Shares
             

          	
             
                 
             

          	
             
                American
 Depository Shares(1)
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                High
             

          	
             
                 
             

          	
             
                Low
             

          	
             
                 
             

          	
             
                High
             

          	
             
                 
             

          	
             
                Low
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                Year Ended 31 December
             

          	
             
                 
             

          	
             
                (€)
             

          	
             
                 
             

          	
             
                ($)
             

          	
             
                 
             

          
	
             
                1999
             

          	
             
                 
             

          	
             
                40.00
             

          	
             
                 
             

          	
             
                22.35
             

          	
             
                 
             

          	
             
                43.63
             

          	
             
                 
             

          	
             
                21.25
             

          	
             
                 
             

          
	
             
                2000
             

          	
             
                 
             

          	
             
                66.75
             

          	
             
                 
             

          	
             
                26.35
             

          	
             
                 
             

          	
             
                60.13
             

          	
             
                 
             

          	
             
                26.00
             

          	
             
                 
             

          
	
             
                2001
             

          	
             
                 
             

          	
             
                73.80
             

          	
             
                 
             

          	
             
                44.60
             

          	
             
                 
             

          	
             
                65.00
             

          	
             
                 
             

          	
             
                39.35
             

          	
             
                 
             

          
	
             
                2002
             

          	
             
                 
             

          	
             
                50.27
             

          	
             
                 
             

          	
             
                1.23
             

          	
             
                 
             

          	
             
                45.18
             

          	
             
                 
             

          	
             
                1.03
             

          	
             
                 
             

          
	
             
                2003
             

          	
             
                 
             

          	
             
                7.25
             

          	
             
                 
             

          	
             
                2.33
             

          	
             
                 
             

          	
             
                9.02
             

          	
             
                 
             

          	
             
                2.25
             

          	
             
                 
             

          
	
             
                Calendar Year
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                2002
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Quarter 1
             

          	
             
                 
             

          	
             
                50.27
             

          	
             
                 
             

          	
             
                14.50
             

          	
             
                 
             

          	
             
                45.18
             

          	
             
                 
             

          	
             
                12.01
             

          	
             
                 
             

          
	
             
                Quarter 2
             

          	
             
                 
             

          	
             
                15.80
             

          	
             
                 
             

          	
             
                5.85
             

          	
             
                 
             

          	
             
                13.97
             

          	
             
                 
             

          	
             
                5.30
             

          	
             
                 
             

          
	
             
                Quarter 3
             

          	
             
                 
             

          	
             
                5.00
             

          	
             
                 
             

          	
             
                1.55
             

          	
             
                 
             

          	
             
                5.65
             

          	
             
                 
             

          	
             
                1.31
             

          	
             
                 
             

          
	
             
                Quarter 4
             

          	
             
                 
             

          	
             
                2.95
             

          	
             
                 
             

          	
             
                1.23
             

          	
             
                 
             

          	
             
                3.09
             

          	
             
                 
             

          	
             
                1.03
             

          	
             
                 
             

          
	
             
                2003
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                Quarter 1
             

          	
             
                 
             

          	
             
                4.40
             

          	
             
                 
             

          	
             
                2.33
             

          	
             
                 
             

          	
             
                4.98
             

          	
             
                 
             

          	
             
                2.25
             

          	
             
                 
             

          
	
             
                Quarter 2
             

          	
             
                 
             

          	
             
                7.25
             

          	
             
                 
             

          	
             
                2.60
             

          	
             
                 
             

          	
             
                9.02
             

          	
             
                 
             

          	
             
                2.70
             

          	
             
                 
             

          
	
             
                Quarter 3
             

          	
             
                 
             

          	
             
                5.60
             

          	
             
                 
             

          	
             
                3.88
             

          	
             
                 
             

          	
             
                6.46
             

          	
             
                 
             

          	
             
                4.05
             

          	
             
                 
             

          
	
             
                October
             

          	
             
                 
             

          	
             
                4.95
             

          	
             
                 
             

          	
             
                4.25
             

          	
             
                 
             

          	
             
                5.97
             

          	
             
                 
             

          	
             
                4.72
             

          	
             
                 
             

          
	
             
                November
             

          	
             
                 
             

          	
             
                4.71
             

          	
             
                 
             

          	
             
                4.21
             

          	
             
                 
             

          	
             
                5.64
             

          	
             
                 
             

          	
             
                4.85
             

          	
             
                 
             

          
	
             
                December
             

          	
             
                 
             

          	
             
                5.55
             

          	
             
                 
             

          	
             
                4.45
             

          	
             
                 
             

          	
             
                7.07
             

          	
             
                 
             

          	
             
                5.46
             

          	
             
                 
             

          
	
             
                Month Ended
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                January 2004
             

          	
             
                 
             

          	
             
                7.20
             

          	
             
                 
             

          	
             
                5.40
             

          	
             
                 
             

          	
             
                9.15
             

          	
             
                 
             

          	
             
                6.88
             

          	
             
                 
             

          
	
             
                February 2004
             

          	
             
                 
             

          	
             
                11.35
             

          	
             
                 
             

          	
             
                6.40
             

          	
             
                 
             

          	
             
                14.66
             

          	
             
                 
             

          	
             
                7.90
             

          	
             
                 
             

          
	
             
                March 2004
             

          	
             
                 
             

          	
             
                16.70
             

          	
             
                 
             

          	
             
                11.90
             

          	
             
                 
             

          	
             
                21.02
             

          	
             
                 
             

          	
             
                14.12
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     		
             
                (1)
             

          	
             
                An American Depository Share represents one
                Ordinary Share, par value 5 Euro cents. 
             

          

 

     
        181
     

     

     
     

     
     
        SHAREHOLDERS’ INFORMATION 
     

     
        A total of 388,695,832 Ordinary Shares of Elan were issued
        and outstanding at 31 March 2004, of which 4,847 Ordinary Shares were held by
        holders of record in the United States, excluding shares held in the form of
        ADRs. 342,621,984 Ordinary Shares were represented by Elan ADSs, evidenced by
        ADRs, issued by The Bank of New York, as depositary, pursuant to a deposit
        agreement. At 31 March 2004, the number of holders of record of Ordinary Shares
        was 7,874, which includes 11 holders of record in the United States, and the
        number of registered holders of ADRs in the United States was 4,817. Because
        certain of these Ordinary Shares and ADRs were held by brokers or other
        nominees, the number of holders of record or registered holders in the United
        States is not representative of the number of beneficial holders or of the
        residence of beneficial holders. 
     

     
        American Depositary Warrant Shares (“ADWSs”)
        representing warrants to purchase Elan ADSs, were traded on the NYSE under the
        symbol “ELNWSA” (“A-Series Warrants”). These warrants
        expired on 31 December 2001. The ADWSs representing A-Series Warrants were
        evidenced by American Depositary Warrant Receipts issued by The Bank of New
        York, as depositary, under a deposit agreement. Each A-Series Warrant was
        exercisable for two Elan ADSs at an exercise price of $37.54. 
     

     
        A second series of ADWSs, representing warrants to
        purchase Elan ADSs, traded on the NYSE under the symbol “ELNWSB”
        (“B-Series Warrants”). These warrants expired on 14 January 2003. The
        ADWSs representing B-Series Warrants were evidenced by American Depositary
        Warrant Receipts issued by The Bank of New York, as depositary, under a deposit
        agreement. Each B-Series Warrant was exercisable for two Elan ADSs at an
        exercise price of $65.01. 
     

     
        The following table sets forth the high and low sales
        prices per ADWS representing both A-Series Warrants and B-Series Warrants on
        the NYSE Composite Tape for the periods indicated as reported in published
        financial sources. 
     

     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                A-Series Warrants
             

          	
             
                 
             

          	
             
                B-Series Warrants
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                High
 $
             

          	
             
                 
             

          	
             
                Low
 $

             

          	
             
                 
             

          	
             
                High
 $
             

          	
             
                 
             

          	
             
                Low
 $

             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                2001   – Quarter 1
             

          	
             
                 
             

          	
             
                78.50
             

          	
             
                 
             

          	
             
                51.38
             

          	
             
                 
             

          	
             
                60.00
             

          	
             
                 
             

          	
             
                37.56
             

          	
             
                 
             

          
	
             
                – Quarter 2
             

          	
             
                 
             

          	
             
                92.50
             

          	
             
                 
             

          	
             
                61.24
             

          	
             
                 
             

          	
             
                68.40
             

          	
             
                 
             

          	
             
                45.00
             

          	
             
                 
             

          
	
             
                – Quarter 3
             

          	
             
                 
             

          	
             
                87.50
             

          	
             
                 
             

          	
             
                48.30
             

          	
             
                 
             

          	
             
                63.19
             

          	
             
                 
             

          	
             
                34.00
             

          	
             
                 
             

          
	
             
                – Quarter 4
             

          	
             
                 
             

          	
             
                63.55
             

          	
             
                 
             

          	
             
                42.50
             

          	
             
                 
             

          	
             
                47.50
             

          	
             
                 
             

          	
             
                29.50
             

          	
             
                 
             

          
	
             
                2002   – Quarter 1
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                34.20
             

          	
             
                 
             

          	
             
                1.20
             

          	
             
                 
             

          
	
             
                – Quarter 2
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                1.80
             

          	
             
                 
             

          	
             
                0.25
             

          	
             
                 
             

          
	
             
                – Quarter 3
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                0.40
             

          	
             
                 
             

          	
             
                0.01
             

          	
             
                 
             

          
	
             
                – Quarter 4
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                0.20
             

          	
             
                 
             

          	
             
                0.03
             

          	
             
                 
             

          
	
             
                2003   – January
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                0.03
             

          	
             
                 
             

          	
             
                0.01
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

 

     
        In connection with the acquisition of Dura, Elan acquired
        two additional series of warrants to purchase Elan ADSs, trading on Nasdaq
        under the symbols “ELANZ” (“Z-Series Warrants”), formerly
        traded under the symbol “DURAZ”, and “ELANW”
        (“W-Series Warrants”), formerly traded under the symbol
        “DURAW”. Each Z-Series Warrant is exercisable for 0.1276 of an Elan
        ADS at an exercise price of $26.72 per Elan ADS. The Z-Series warrants expire
        on 31 August 2005. Each W-Series Warrant was exercisable for 0.1679 of an Elan
        ADS at an exercise price of $81.67 per Elan ADS. The W-Series Warrants expired
        on 31 December 2002. 
     

     
        In connection with the acquisition of Liposome, Elan
        issued Contingent Value Rights (“CVRs”). The CVRs began trading on 15
        May 2000. CVRs traded on the Nasdaq under the symbol “LCVRZ”. The
        CVRs were delisted from the Nasdaq on 25 September 2002 for failure to comply
        with the minimum market value of publicly traded units requirement of the
        Nasdaq Marketplace Rules. The CVRs expired on the termination of the Contingent
        Value Rights Agreement on 31 March 2003. 
     

     
        The table on the following page sets forth the high and
        low sales prices for Z-Series Warrants, W-Series Warrants and for CVRs for the
        periods indicated as reported in published financial sources. 
     

     

     
        182
     

     

     
     

     
     
         
     

     	
             
                 
             

          	
             
                 
             

          	
             
                Z-SERIES
             

          	
             
                 
             

          	
             
                W-SERIES
             

          	
             
                 
             

          	
             
                CVRs
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                HIGH
 $
             

          	
             
                 
             

          	
             
                LOW
 $

             

          	
             
                 
             

          	
             
                HIGH
 $
             

          	
             
                 
             

          	
             
                LOW
 $

             

          	
             
                 
             

          	
             
                HIGH
 $
             

          	
             
                 
             

          	
             
                LOW
 $

             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          
	
             
                2002   – Quarter 1
             

          	
             
                 
             

          	
             
                3.60
             

          	
             
                 
             

          	
             
                0.35
             

          	
             
                 
             

          	
             
                0.22
             

          	
             
                 
             

          	
             
                0.01
             

          	
             
                 
             

          	
             
                0.14
             

          	
             
                 
             

          	
             
                0.02
             

          	
             
                 
             

          
	
             
                – Quarter 2
             

          	
             
                 
             

          	
             
                0.64
             

          	
             
                 
             

          	
             
                0.25
             

          	
             
                 
             

          	
             
                0.05
             

          	
             
                 
             

          	
             
                0.01
             

          	
             
                 
             

          	
             
                0.07
             

          	
             
                 
             

          	
             
                0.01
             

          	
             
                 
             

          
	
             
                – Quarter 3
             

          	
             
                 
             

          	
             
                0.49
             

          	
             
                 
             

          	
             
                0.01
             

          	
             
                 
             

          	
             
                0.04
             

          	
             
                 
             

          	
             
                0.01
             

          	
             
                 
             

          	
             
                0.02
             

          	
             
                 
             

          	
             
                0.01
             

          	
             
                 
             

          
	
             
                – Quarter 4
             

          	
             
                 
             

          	
             
                0.24
             

          	
             
                 
             

          	
             
                0.03
             

          	
             
                 
             

          	
             
                0.12
             

          	
             
                 
             

          	
             
                0.01
             

          	
             
                 
             

          	
             
                0.01
             

          	
             
                 
             

          	
             
                0.0007
             

          	
             
                 
             

          
	
             
                2003   – Quarter 1
             

          	
             
                 
             

          	
             
                0.70
             

          	
             
                 
             

          	
             
                0.10
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                0.005
             

          	
             
                 
             

          	
             
                0.0001
             

          	
             
                 
             

          
	
             
                – Quarter 2
             

          	
             
                 
             

          	
             
                0.42
             

          	
             
                 
             

          	
             
                0.10
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                – Quarter 3
             

          	
             
                 
             

          	
             
                0.23
             

          	
             
                 
             

          	
             
                0.10
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                – October
             

          	
             
                 
             

          	
             
                0.25
             

          	
             
                 
             

          	
             
                0.10
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                – November
             

          	
             
                 
             

          	
             
                0.32
             

          	
             
                 
             

          	
             
                0.08
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                – December
             

          	
             
                 
             

          	
             
                0.32
             

          	
             
                 
             

          	
             
                0.15
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                2004   – January
             

          	
             
                 
             

          	
             
                0.27
             

          	
             
                 
             

          	
             
                0.17
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                – February
             

          	
             
                 
             

          	
             
                1.09
             

          	
             
                 
             

          	
             
                0.20
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                – March
             

          	
             
                 
             

          	
             
                2.38
             

          	
             
                 
             

          	
             
                0.55
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          	
             
                —
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          	
             
 	
             
                 
             

          

     
        Exchange Controls and Other Limitations Affecting
        Security Holders
     

     
        Irish exchange control regulations ceased to apply from
        and after 31 December 1992. Except as indicated below, there are no
        restrictions on non-residents of Ireland dealing in domestic securities, which
        includes shares or depositary receipts of Irish companies such as Elan. Except
        as indicated below, dividends and redemption proceeds also continue to be
        freely transferable to non-resident holders of such securities. The Financial
        Transfers Act, 1992 gives power to the Minister for Finance of Ireland to make
        provision for the restriction of financial transfers between Ireland and other
        countries and persons. Financial transfers are broadly defined and include all
        transfers which would be movements of capital or payments within the meaning of
        the treaties governing the member states of the EU. The acquisition or disposal
        of ADSs or ADRs representing shares issued by an Irish incorporated company and
        associated payments falls within this definition. In addition, dividends or
        payments on redemption or purchase of shares and payments on a liquidation of
        an Irish incorporated company would fall within this definition. At present the
        Financial Transfers Act, 1992 prohibits financial transfers involving Iraq, the
        Federal Republic of Yugoslavia, the Republic of Serbia, Zimbabwe, the Taliban
        of Afghanistan, Osama bin Laden and Al-Qaeda, Burma/Myanmar, Slobodan
        Milosevic, and countries that harbour certain terrorist groups, without the
        prior permission of the Central Bank of Ireland. 
     

     
        Any transfer of, or payment in respect of, an ADS
        involving the government of any country which is currently the subject of
        United Nations sanctions, any person or body controlled by any of the
        foregoing, or by any person acting on behalf of the foregoing, may be subject
        to restrictions pursuant to such sanctions as implemented into Irish law. The
        following countries and persons are currently the subject of such sanctions:
        Federal Republic of Yugoslavia, Republic of Serbia, Iraq, Liberia,
        Burma/Myanmar, Zimbabwe, the Taliban of Afghanistan, Osama bin Laden and
        Al-Qaeda and Slobodan Milosevic. Elan does not anticipate that orders under the
        Financial Transfers Act, 1992, or United Nations sanctions implemented into
        Irish law will have a material effect on its business. 
     

     
        Irish Taxation 
     

     
        The following is a general description of Irish taxation
        inclusive of certain Irish tax consequences to U.S. Holders (as defined below)
        of the purchase, ownership and disposition of Elan ADSs or Ordinary Shares. As
        used herein, references to the Ordinary Shares include Elan ADSs representing
        such Ordinary Shares, unless the tax treatment of the Elan ADSs and Ordinary
        Shares has been specifically differentiated. This description is for general
        information purposes only and does not purport to be a comprehensive
        description of all the Irish tax considerations that may be relevant in a U.S.
        Holder’s decision to purchase, hold or dispose of Ordinary Shares. It is
        based on the various Irish Taxation Acts, all as in effect on 31 March 2004 and
        all of which are subject to change (possibly on a retroactive basis). The Irish
        tax treatment of a U.S. Holder of Ordinary Shares may vary depending upon such
        holder’s particular situation, and holders or prospective purchasers of
        Ordinary Shares are advised to consult their own tax advisors as to the Irish
        or other tax consequences of the purchase, ownership and disposition of
        Ordinary Shares. 
     

     
        For the purposes of this tax description, a “U.S.
        Holder” is a holder of Ordinary Shares that is: (i) a citizen or resident
        of the United States; (ii) a corporation or partnership created or organised in
        or under the laws of the United States or of any political subdivision thereof;
        
     

     

     
        183
     

     

     
     

     
     
        SHAREHOLDERS’ INFORMATION 
     

     
        (iii) an estate, the income of which is subject to U.S.
        federal income taxation regardless of its source; or (iv) a trust, if a U.S.
        court is able to exercise primary supervision over the administration of such
        trust and one or more U.S. persons have the authority to control all
        substantial decisions of such trust. 
     

     
        Taxation of corporate income 
     

     
        Elan is a public limited company incorporated, and
        resident for tax purposes, in Ireland. Under current Irish legislation, a
        company is regarded as resident for tax purposes in Ireland if it is centrally
        managed and controlled in Ireland, or, in certain circumstances, if it is
        incorporated in Ireland. The Taxes Consolidation Act, 1997, provides that a
        company which is resident in Ireland and which is not resident elsewhere shall
        be entitled to have any income from a qualifying patent disregarded for
        taxation purposes. The legislation does not provide a termination date for this
        relief. A qualifying patent means a patent in relation to which the research,
        planning, processing, experimenting, testing, devising, designing, developing
        or similar activities leading to the invention which is the subject of the
        patent were carried out in Ireland. Income from a qualifying patent means any
        royalty or other sum paid in respect of the use of the invention to which the
        qualifying patent relates, including any sum paid for the grant of a licence to
        exercise rights under such patent, where that royalty or other sum is paid, for
        the purpose of activities which would be regarded under Irish law as the
        manufacture of goods (to the extent that the payment does not exceed an
        arms-length rate), or by a person who is not connected with Elan. Accordingly,
        Elan’s income from such qualifying patents is disregarded for taxation
        purposes in Ireland. Any Irish manufacturing income of Elan and its
        subsidiaries is taxable at the rate of 10% in Ireland until 31 December 2010.
        Income arising from qualifying activities in Elan’s Shannon-certified
        subsidiary is taxable at the rate of 10% in Ireland until 31 December 2005.
        From 1 January 2006, it is anticipated, based on Irish legislation currently
        enacted, that such income will be taxable at a rate of 12.5%. Any trading
        income of Elan which does not qualify for the patent exemption or the 10% rate
        of tax is taxable at the Irish corporation tax rate of 12.5% in respect of
        trading income for the years 2003 et seq. Non-trading income is taxable at 25%.
        
     

     
        Taxation of capital gains and dividends
        
     

     
        A person who is neither resident nor ordinarily resident
        in Ireland and who does not carry on a trade in Ireland through a branch or
        agency will not be subject to Irish capital gains tax on the disposal of
        Ordinary Shares. Unless exempted, all dividends paid by Elan other than
        dividends paid out of exempt patent income, will be subject to Irish
        withholding tax at the standard rate of income tax in force at the time the
        dividend is paid, currently 20%. An individual shareholder resident in a
        country with which Ireland has a double tax treaty, which includes the United
        States, or in a member state of the EU, other than Ireland (together, a
        “Relevant Territory”), will be exempt from withholding tax provided
        he or she makes the requisite declaration. 
     

     
        Corporate shareholders who: (i) are ultimately controlled
        by residents of a Relevant Territory; (ii) are resident in a Relevant Territory
        and are not controlled by Irish residents; (iii) have the principal class of
        their shares, or of a 75% parent, traded on a stock exchange in a Relevant
        Territory; or (iv) are wholly owned by two or more companies, each of whose
        principal class of shares is substantially and regularly traded on one or more
        recognised stock exchanges in a Relevant Territory or Territories, will be
        exempt from withholding tax on the production of the appropriate certificates
        and declarations. 
     

     
        Holders of Elan ADSs will be exempt from withholding tax
        if they are beneficially entitled to the dividend and their address on the
        register of depositary shares maintained by the depositary is in the United
        States, provided that the depositary has been authorised by the Irish Revenue
        Commissioners as a qualifying intermediary and provided the appropriate
        declaration is made by the holders of the ADSs. Where such withholding is made,
        it will satisfy the liability to Irish tax of the shareholder except in certain
        circumstances where an individual shareholder may have an additional liability.
        A charge to Irish social security taxes and other levies can arise for
        individuals. However, under the Social Welfare Agreement between Ireland and
        the United States, an individual who is liable for U.S. social security
        contributions can normally claim exemption from these taxes and levies. 

     

     
        Irish capital acquisitions tax 
     

     
        A gift or inheritance of Ordinary Shares will be and, in
        the case of Elan warrants or ADWSs representing such Elan warrants, may be,
        within the charge to Irish capital acquisitions tax, notwithstanding that the
        person from whom the gift or inheritance is received is domiciled or resident
        outside Ireland. Capital acquisitions tax is charged at the rate of 20% above a
        tax free threshold. This tax free threshold is determined by the relationship
        between the donor and the successor or donee. It is also affected by the amount
        of the current benefit and previous benefits taken since 5 December 1991 from
        persons within the same capital acquisitions tax relationship category. Gifts
        and inheritances between spouses are not subject to capital acquisitions tax.
        
     

     
        The Estate Tax Convention between Ireland and the United
        States generally provides for Irish capital acquisitions tax paid on
        inheritances in Ireland to be credited against tax payable in the United States
        and for tax paid in the United States to be credited against tax payable
        
     

     

     
        184
     

     

     
     

     
     
        in Ireland, based on priority rules set forth in the
        Estate Tax Convention, in a case where Elan warrants, Elan ADWSs, Elan ADSs or
        Ordinary Shares are subject to both Irish capital acquisitions tax with respect
        to inheritance and U.S. Federal estate tax. The Estate Tax Convention does not
        apply to Irish capital acquisitions tax paid on gifts. 
     

     
        Irish stamp duty 
     

     
        Under current Irish law, no stamp duty, currently at the
        rate and on the amount referred to below, will be payable by U.S. Holders on
        the issue of Elan ADSs, Ordinary Shares or Elan ADWSs. Under current Irish law,
        no stamp duty will be payable on the acquisition of Elan ADWSs or Elan ADSs by
        persons purchasing such Elan ADWSs or Elan ADSs or any subsequent transfer of
        an Elan ADWS or Elan ADS. A transfer of Ordinary Shares, whether on sale, in
        contemplation of a sale or by way of gift will attract duty at the rate of 1%
        on the consideration given or, where the purchase price is inadequate or
        unascertainable, on the market value of the shares. Similarly, any such
        transfer of a warrant may attract duty at the rate of 1%. Transfers of Ordinary
        Shares which are not liable to duty at the rate of 1% are exempt unless the
        transfer is by way of security, in which event there is a potential maximum
        charge of Euro 630. The person accountable for payment of stamp duty is the
        transferee or, in the case of a transfer by way of gift or for a consideration
        less than the market value, all parties to the transfer. Stamp duty is normally
        payable within 30 days after the date of execution of the transfer. Late or
        inadequate payment of stamp duty will result in a liability to pay interest
        penalties and fines. 
     

     

     
        185
     

     

     
     

     
     
        RISK FACTORS 
     

     
        Risk Factors 
     

     
        You should carefully consider all of the information set
        forth in this Annual Report and Form 20-F, including the following risk
        factors, before investing in our securities. The risks described below are not
        the only ones we face. Additional risks not currently known to us or that we
        presently deem immaterial may also impair our business operations. We could be
        materially adversely affected by any of these risks. This Annual Report and
        Form 20-F also contains forward-looking statements that involve risks and
        uncertainties. Any forward-looking statements are not guarantees of future
        performance and actual results; developments and business decisions may differ
        materially from those contemplated by such forward-looking statements as a
        result of certain risks and uncertainties, including those described below. For
        additional information, please refer to “Cautionary Factors That May
        Affect Future Results”. 
     

     
        We and certain of our current and former officers and
        directors have been named as defendants in a putative class action and we are
        the subject of an SEC investigation; an adverse outcome or resolution in the
        action or the investigation could result in substantial payments by us and
        could have a material adverse effect on us. 
     

     
        Elan and certain of its current and former officers and
        directors are named as defendants in a putative class action in the U.S.
        District Court for the Southern District of New York, which consolidated
        several class actions that were filed in early 2002. The amended and
        consolidated complaint filed on 24 January 2003 in the action, or the
        Complaint, alleges claims under the U.S. federal securities laws, including
        that our financial statements were not in accordance with generally accepted
        accounting principles and that the defendants disseminated materially false and
        misleading information concerning our business and financial results, our
        investments in certain business ventures and business venture parents, and the
        licence fees and research revenues received by us from the business ventures;
        the accounting for proceeds from our sale of certain product lines and
        disclosure concerning those sales; the accounting for certain risk-sharing
        arrangements that we entered into and disclosure concerning those arrangements;
        the accounting for certain qualifying special purpose entities and disclosure
        concerning those entities; the disclosure of compensation of certain of our
        officers; and certain alleged related party transactions. The Complaint seeks
        compensatory damages and other relief that the court may deem proper. We are
        also the subject of an ongoing investigation by the SEC’s Division of
        Enforcement commenced on or about 12 February 2002, which we believe relates
        primarily to the issues raised in the actions described above. We are unable to
        predict or determine the outcome of the action or the investigation or
        reasonably estimate the amount or range of loss, if any, with respect to the
        resolution of the actions or the investigation. In addition, the timing and
        final resolution of the action and the investigation is uncertain. The Company
        continues to believe that it has prepared its financial statements in
        accordance with applicable GAAP, (subject to the 2001 restatement relating of
        EPIL III under U.S. GAAP, described on pages 150 to 154). The findings and
        outcome of the investigation may adversely affect the course of the action. The
        possible outcome or resolution of these proceedings could require us to make
        substantial payments. Any amendment or restatement of our previously filed
        financial statements, any substantial payment required to be made by us in
        connection with the resolution of the investigation and any adverse
        determination in the actions could have a material adverse effect on us.
        Further, we are unable to predict or determine the impact, if any, that the
        2001 restatement may have on the outcome of the shareholder litigation. 

     

     
        We are generally obliged to indemnify our current and
        former officers and directors who are also named as defendants in the action,
        to the extent permitted by Irish law. 
     

     
        Please refer to Note 25 to the Consolidated Financial
        Statements for further information on the SEC investigation and these
        actions.
     

     

     
        186
     

     

     
     

     
     
        Our future success is dependent upon the continued
        acceptance of our existing products and upon the successful development and
        commercialisation of additional products, including Antegren. 
     

     
        Our future success will depend upon the continued
        acceptance of our existing products and, to a larger extent, upon the
        successful development and commercialisation of additional products, including
        Antegren. We commit
        substantial resources to our research and development activities, including
        collaborations with third parties such as Biogen Idec for the development of
        Antegren. We expect to
        commit significant cash resources to the development and the commercialisation
        of Antegren and to the other
        products in our development pipeline. We cannot assure you that these
        investments will result in a proportional increase in revenues or income.
        
     

     
        In the pharmaceutical industry, the research and
        development process is lengthy and involves a high degree of risk and
        uncertainty. This process is conducted in various stages and, during each
        stage, there is a substantial risk that products in our research and
        development pipeline, including Antegren, Prialt and product candidates from our AD
        research programmes, will experience difficulties, delays or failures. For
        example, in 2002, Wyeth and Elan suspended all clinical dosing with AN-1792, an
        experimental immunotherapeutic under development for the treatment of AD which
        was in a Phase IIa clinical study. On 1 March 2002, the companies decided not
        to resume further dosing of AN-1792. A number of factors could affect our
        ability to successfully develop and commercialise products, including our
        ability to: 
     

     		
             
                •
             

          	
             
                obtain and protect necessary intellectual property
                for new technologies, products and processes; 
             

          

     		
             
                •
             

          	
             
                establish sufficient safety and efficacy of new
                drugs or biologics; 
             

          

     		
             
                •
             

          	
             
                recruit patients in clinical trials;
             

          

     		
             
                •
             

          	
             
                complete clinical trials on a timely basis;
             

          

     		
             
                •
             

          	
             
                observe applicable regulatory requirements; 
             

          

     		
             
                •
             

          	
             
                receive and maintain required regulatory
                approvals;
             

          

     		
             
                •
             

          	
             
                obtain competitive/favourable reimbursement coverage
                for developed products on a timely basis; 
             

          

     		
             
                •
             

          	
             
                manufacture sufficient commercial quantities of
                products at reasonable costs; 
             

          

     		
             
                •
             

          	
             
                effectively market developed products; and 
             

          

     		
             
                •
             

          	
             
                compete successfully against alternative products or
                therapies. 
             

          

     
        Even if we obtain positive results from preclinical or
        clinical trials, we may not achieve the same success in future trials. Earlier
        stage trials are generally based on a limited number of patients and may, upon
        review, be revised or negated by authorities or by later stage clinical
        results. Historically, the results from preclinical testing and early clinical
        trials have often not been predictive of results obtained in later clinical
        trials. A number of new drugs and biologics have shown promising results in
        initial clinical trials, but subsequently failed to establish sufficient safety
        and effectiveness data to obtain necessary regulatory approvals. Data obtained
        from preclinical and clinical activities are subject to varying
        interpretations, which may delay, limit or prevent regulatory approval.
        Clinical trials may not demonstrate statistically sufficient safety and
        effectiveness to obtain the requisite regulatory approvals for product
        candidates. 
     

     
        Elan and Biogen Idec are conducting two, two-year Phase
        III trials evaluating Antegren in MS patients with relapsing-remitting forms of the disease. We have
        announced that we plan to file applications with the FDA and European
        regulatory agencies, in each case for approval to market Antegren as a treatment for MS. Our plans to
        submit the applications and to obtain regulatory approvals could fail if
        unexpected data arises from the clinical trials or if other difficulties,
        delays or failures occur. In the event of our failure to successfully develop
        and commercialise Antegren,
        we could be materially adversely affected. 
     

     
        Restrictive covenants in our debt instruments restrict
        or prohibit our ability to engage in or enter into a variety of transactions,
        which could adversely affect us. 
     

     
        The agreements governing some of our outstanding
        indebtedness contain various restrictive covenants that limit our financial and
        operating flexibility. In particular, these agreements restrict our ability to,
        among other things: 
     

     		
             
                •
             

          	
             
                incur additional indebtedness (including
                intercompany indebtedness);
             

          

     		
             
                •
             

          	
             
                create liens and other encumbrances; 
             

          

     		
             
                •
             

          	
             
                enter into transactions with related parties;

             

          

     		
             
                •
             

          	
             
                sell or otherwise dispose of assets and merge or
                consolidate with another entity; 
             

          

     		
             
                •
             

          	
             
                amend, modify or supplement our existing debt
                instruments;
             

          

     		
             
                •
             

          	
             
                retire indebtedness prior to its scheduled final
                maturity; and 
             

          

     		
             
                •
             

          	
             
                pay dividends or redeem, purchase or otherwise
                acquire any of our outstanding capital stock. 
             

          

 

     
        187
     

     

     
     

     
     
        RISK FACTORS 
     

     
        We do not currently have the ability to incur any
        additional indebtedness (including intercompany indebtedness) under some of
        these agreements, which has adversely affected our financial flexibility. In
        addition, some of these agreements require us to maintain certain financial
        ratios. These covenants and ratios could have an adverse effect on us by
        limiting our operating flexibility and our ability to fund our operations. The
        breach of any of these covenants and ratios would result in a default under the
        applicable agreement which could result in the indebtedness under the agreement
        becoming immediately due and payable. Any such acceleration would result in a
        default under our other indebtedness subject to cross-acceleration provisions.
        If this were to occur, we might not be able to pay our debts or obtain
        sufficient funds to refinance them on reasonable terms or at all. 
     

     
        We have substantial future cash needs and potential
        cash needs and we may not be successful in generating or otherwise obtaining
        the funds necessary to meet those needs. 
     

     
        At 31 December 2003, we had approximately $2,214 million
        of contractual future cash payments and approximately $11 million of potential
        future cash payments, excluding expected capital expenditures on plant and
        equipment, and future investments in financial assets such as investments in
        business ventures. At such date, we had cash and liquid resources of
        approximately $828 million. We estimate that we have sufficient cash, liquid
        resources and realisable assets and investments to meet our near-term liquidity
        requirements. In making this estimate, we have not assumed any material
        payments in connection with our pending litigations during that period. Any
        material adverse legal judgements, fines, penalties or settlements arising from
        our pending litigations or investigations could require us to obtain additional
        funds. Although we expect to incur an operating loss for fiscal 2004, in making
        our liquidity estimates, we have also assumed a certain level of operating
        performance. Our future operating performance will be affected by general
        economic, financial, competitive, legislative, regulatory and business
        conditions and other factors, many of which are beyond our control. If our
        future operating performance is less than anticipated, including as a result of
        our failure to timely obtain marketing approval for Antegren, we could be required to obtain
        additional funds. If our estimates are incorrect or are not consistent with
        actual future developments, and we are required to obtain additional funds, we
        may not be able to obtain those funds on commercially reasonable terms, or at
        all, which would have a material adverse effect on us. 
     

     
        Our industry and the markets for our products are
        highly competitive. 
     

     
        The pharmaceutical industry is highly competitive. Our
        principal pharmaceutical competitors consist of major international companies,
        many of which are larger and have greater financial resources, technical staff,
        manufacturing, research and development and marketing capabilities than Elan.
        Other competitors consist of smaller research companies and generic drug
        manufacturers. 
     

     
        A drug may be subject to competition from alternative
        therapies during the period of patent protection or regulatory exclusivity and,
        thereafter, it may be subject to further competition from generic products. The
        price of pharmaceutical products typically declines as competition increases.
        
     

     
        Generic competitors may also challenge existing patent
        protection or regulatory exclusivity. Generic competitors do not have to bear
        the same level of research and development and other expenses associated with
        bringing a new branded product to market. As a result, they can charge much
        less for a competing version of our product. Managed care organisations
        typically favour generics over brand name drugs, and governments encourage, or
        under some circumstances mandate, the use of generic products, thereby reducing
        the sales of branded products that are no longer patent protected. Governmental
        and other pressures toward the dispensing of generic products may rapidly and
        significantly reduce, or slow the growth in, the sales and profitability of any
        of our products not protected by patents or regulatory exclusivity and may
        adversely affect our future results and financial condition. For example,
        generic forms of Zanaflex
        were launched in the second quarter of 2002. As a result, product revenue from
        Zanaflex declined from $53.7
        million in the first quarter of 2002 to $0.8 million in the first quarter of
        2003. Product returns for Zanaflex during 2003 exceeded the Company’s best estimate of returns at
        31 December 2002, resulting in net negative revenues of $(5.1) million for
        2003. The launch of competitor products, including generic versions of
        Elan’s products, may materially adversely affect us. 
     

     
        Our competitive position depends, in part, upon our
        continuing ability to discover, acquire and develop innovative, cost-effective
        new products, as well as new indications and product improvements protected by
        patents and other intellectual property rights. We also compete on the basis of
        price and product differentiation and through our sales and marketing
        organisation that provides information to medical professionals and launches
        new products. If we fail to maintain our competitive position, we may be
        materially adversely affected. 
     

     

     
        188
     

     

     
     

     
     
        If we are unable to secure or enforce patent rights,
        trade secrets or other intellectual property, we could be materially adversely
        affected. 
     

     
        Because of the significant time and expense involved in
        developing new products and obtaining regulatory approvals, it is very
        important to obtain patent and intellectual property protection for new
        technologies, products and processes. Our success depends in large part on our
        continued ability to obtain patents for our products and technologies, maintain
        patent protection for both acquired and developed products, preserve our trade
        secrets, obtain and preserve other intellectual property such as trademarks and
        copyrights, and operate without infringing the proprietary rights of third
        parties. 
     

     
        The degree of patent protection that will be afforded to
        technologies, products and processes, including ours, in the United States and
        in other markets is dependent upon the scope of protection decided upon by
        patent offices, courts and legislatures in these countries. There is no
        certainty that our existing patents or, if obtained, future patents, will
        provide us substantial protection or commercial benefit. In addition, there is
        no assurance that our patent applications or patent applications licensed from
        third parties will ultimately be granted or that those patents that have been
        issued or are issued in the future will prevail in any court challenge. Our
        competitors may also develop products, including generic products, similar to
        ours using methods and technologies that are beyond the scope of our patent
        protection, which could adversely affect the sales of our products. 
     

     
        Our two primary retained products, Maxipime and Azactam, are covered by U.S. basic patents
        which expire in 2007 and 2005, respectively. Two formulation U.S. patents
        covering Maxipime expire in
        2008. Elan’s basic U.S. patent for its development drug, Antegren, which covers the humanised
        antibody and it its use to treat MS, expires in 2015. Additional U.S. patents
        covering the use of Antegren
        to treat irritable bowel disease and to inhibit brain inflammation expire in
        2012 and 2017, respectively. In the event that Antegren is approved by the FDA, one of the
        patents would qualify for a patent term extension of up to 5 years. 
     

     
        Although we believe that we make reasonable efforts to
        protect our intellectual property rights and to ensure that our proprietary
        technology does not infringe the rights of other parties, we cannot ascertain
        the existence of all potentially conflicting claims. Therefore, there is a risk
        that third parties may make claims of infringement against our products or
        technologies. In addition, third parties may be able to obtain patents that
        prevent the sale of our products or require us to obtain a licence and pay
        significant fees or royalties in order to continue selling our products.
        
     

     
        There has been, and we expect there to continue to be,
        significant litigation in the industry regarding patents and other intellectual
        property rights. Litigation and other proceedings concerning patents and other
        intellectual property rights may be protracted, expensive and distracting to
        our management. Our competitors may sue us as a means of delaying the
        introduction of our products. Any litigation, including any interference
        proceedings to determine priority of inventions, oppositions to patents or
        litigation against our licensors may be costly and time consuming and could
        adversely affect us. In addition, litigation may be necessary in some instances
        to determine the validity, scope and/or noninfringement of patent rights
        claimed by third parties to be pertinent to the manufacture, use or sale of our
        products. The outcome of this litigation could adversely affect the validity
        and scope of our patents or other intellectual property rights and hinder or
        delay the marketing and sale of our products. 
     

     
        If we are unable to secure or enforce patent rights,
        trademarks, trade secrets or other intellectual property, our business,
        financial condition and results of operations could be materially adversely
        affected. 
     

     
        If we experience significant delays in the manufacture
        of our products or in the supply of raw materials for our products, sales of
        our products could be materially adversely affected. 
     

     
        Our retained products, Maxipime and Azactam, are currently manufactured by third
        parties. In addition, in the event that Antegren is approved by the FDA for the
        treatment of MS, Antegren
        will be manufactured by Biogen Idec. Our dependence upon third parties for the
        manufacture of our products may result in unforeseen delays or other problems
        beyond our control. For example, if our third party manufacturers are not in
        compliance with cGMP or other applicable regulatory requirements, the supply of
        our products could be materially adversely affected. If we are unable to retain
        or obtain replacements for our third party manufacturers or if we experience
        delays or difficulties with our third party manufacturers in producing our
        products, sales of these products could be materially adversely affected. In
        this event, we may be unable to enter into alternative manufacturing
        arrangements on commercially reasonable terms, if at all. 
     

     
        We require supplies of raw materials for the manufacture
        of our products. Currently, we do not have dual sourcing of our required raw
        materials. Our inability to obtain sufficient quantities of required raw
        materials could materially adversely affect the supply of our products. 

     

     
        If any of these events occur, we could be materially
        adversely affected. 
     

     

     
        189
     

     

     
     

     
     
        RISK FACTORS 
     

     
        Buying patterns of wholesalers and distributors may
        cause fluctuations in our quarterly results, which may adversely affect our
        profitability. 
     

     
        Our product revenue may vary from quarter to quarter due,
        in part, to the variance in buying patterns by wholesalers and distributors,
        which represent a substantial portion of our sales. In the event that
        wholesalers and distributors determine, for any reason, to limit purchases of
        our products, sales of those products would be adversely affected. For example,
        wholesalers and distributors may order products in larger than normal
        quantities prior to anticipated price increases for those products. This excess
        purchasing in any quarter could cause sales of those products to be lower than
        expected in subsequent quarters. 
     

     
        We are subject to pricing pressures and uncertainties
        regarding healthcare reimbursement and reform. 
     

     
        In the U.S., many pharmaceutical products and biologics
        are subject to increasing pricing pressures, including pressures arising from
        recent Medicare reform. Our ability to commercialise products successfully
        depends, in part, upon the extent to which health care providers are reimbursed
        by third party payors, such as governmental agencies, including the Centers for
        Medicare and Medicaid Services, or CMS, private health insurers and other
        organisations, such as health maintenance organisations, or HMOs, for the cost
        of such products and related treatments. In addition, if current or any future
        level of Medicare reimbursement for our products is not viewed favourably by
        health care providers, then they may not prescribe our products. Third party
        payors are increasingly challenging the pricing of pharmaceutical products by,
        among other things, limiting the pharmaceutical products that are on their
        formulary list. As a result, competition among pharmaceutical companies to
        place their products on these formulary lists has reduced product prices. If
        reasonable reimbursement for our products is unavailable or if significant
        downward pricing pressures in the industry occurs, we could be materially
        adversely affected. 
     

     
        Recent reforms in Medicare added a prescription drug
        reimbursement beginning in 2006 for all Medicare beneficiaries. In the
        meantime, a temporary drug discount card programme is being established for
        Medicare beneficiaries. The U.S. federal government, through its purchasing
        power under these programmes, is likely to demand discounts from pharmaceutical
        and biotechnology companies that may implicitly create price controls on
        prescription drugs. In addition, Managed Care Organisations, or MCOs, HMOs,
        Preferred Provider Organisations, or PPOs, institutions and other government
        agencies continue to seek price discounts. MCOs, HMOs and PPOs and private
        health plans will administer the Medicare drug benefit, leading to managed care
        and private health plans influencing prescription decisions for a larger
        segment of the population. In addition, certain states have proposed and
        certain other states have adopted various programmes to control prices for
        their seniors’ and low income drug programmes, including price or patient
        reimbursement constraints, restrictions on access to certain products,
        importation from other countries, such as Canada, and bulk purchasing of drugs.
        
     

     
        We encounter similar regulatory and legislative issues in
        most other countries. In the European Union and some other international
        markets, the government provides health care at low direct cost to consumers
        and regulates pharmaceutical prices or patient reimbursement levels to control
        costs for the government-sponsored health care system. This price regulation
        may lead to inconsistent prices and some third-party trade in our products from
        markets with lower prices. Such trade exploiting price differences between
        countries could undermine our sales in markets with higher prices. 
     

     
        We are subject to extensive government regulation,
        which may adversely affect our ability to bring new products to market and may
        affect our ability to manufacture and market our existing products. 

     

     
        The pharmaceutical industry is subject to significant
        regulation by state, local, national and international governmental regulatory
        authorities. In the United States, the FDA regulates the design, development,
        preclinical and clinical testing, manufacturing, labelling, storing,
        distribution, import, export, recordkeeping, reporting, marketing and promotion
        of our pharmaceutical products, which include drugs, biologics and medical
        devices. Failure to comply with regulatory requirements at any stage during the
        regulatory process could result in, among other things, delays in the approval
        of applications or supplements to approved applications, refusal of a
        regulatory authority to review pending market approval applications or
        supplements to approved applications, warning letters, fines, import and/or
        export restrictions, product recalls or seizures, injunctions, total or partial
        suspension of production, civil penalties, withdrawals of previously approved
        marketing applications or licences, recommendations by the FDA or other
        regulatory authorities against governmental contracts, and criminal
        prosecutions. 
     

     
        We must obtain and maintain approval for our products from
        regulatory authorities before such products may be sold in a particular
        jurisdiction. Currently, we are researching, developing and pursuing approval
        for a number of products from a number of regulatory 
     

     

     
        190
     

     

     
     

     
     
        authorities, including Prialt and Antegren in the United States and the
        European Union. The submission of an application to a regulatory authority with
        respect to a product does not guarantee that approval to market the product
        will be granted. Each authority generally imposes its own requirements and may
        delay or refuse to grant approval, even though a product has been approved in
        another country. In our principal markets, including the United States, the
        approval process for a new product is complex, lengthy, expensive and subject
        to unanticipated delays. We cannot be sure when or whether approvals from
        regulatory authorities will be received or that the terms of any approval will
        not impose significant limitations that could negatively impact upon the
        potential profitability of the approved product. Even after a product is
        approved, it may be subject to regulatory action based on newly discovered
        facts about the safety and efficacy of the product, on any activities which
        regulatory authorities consider to be improper or on changes in regulatory
        policy. Regulatory action may have a material adverse effect on the marketing
        of a product, require changes in the product’s labelling or even lead to
        the withdrawal of the regulatory marketing approval of the product. 
     

     
        All facilities and manufacturing techniques used for the
        manufacture of products and devices for clinical use or for sale in the United
        States must be operated in conformity with current good manufacturing
        practices, or cGMPs, the FDA’s regulations governing the production of
        pharmaceutical products. There are comparable regulations in other countries.
        Any finding by the FDA or other regulatory authority that we are not in
        substantial compliance with cGMP regulations or that we or our employees have
        engaged in activities in violation of these regulations could interfere with
        the continued manufacture and distribution of the affected products, up to the
        entire output of such products, and, in some cases, might also require the
        recall of previously distributed products. Any such finding by the FDA or other
        regulatory agency could also affect our ability to obtain new approvals until
        such issues are resolved. The FDA and other regulatory authorities conduct
        scheduled periodic regulatory inspections of our facilities to ensure
        compliance with cGMP regulations. Any determination by the FDA or other
        regulatory authority that we, or one of our suppliers, are not in substantial
        compliance with these regulations or are otherwise engaged in improper or
        illegal activities could have a material adverse effect on us. 
     

     
        In May 2001, Elan’s wholly owned subsidiary, Elan
        Holdings, and Donal J. Geaney, then chairman and chief executive officer of
        Elan, William C. Clark, then president operations, and two then employees of
        Elan Holdings, Hal Herring and Cheryl Schuster, entered into a consent decree
        of permanent injunction with the U.S. Attorney for the Northern District of
        Georgia, on behalf of the FDA, relating to alleged violations of cGMP at
        Elan’s Gainesville facility. The facility manufactured and continues to
        manufacture, verapamil hydrochloride controlled-release tablets for the
        treatment of high blood pressure. The consent decree does not represent an
        admission by Elan Holdings or the officers or employees named above of any of
        the allegations set forth in the decree. Under the terms of the consent decree,
        which will continue in effect until at least May 2006, Elan Holdings is
        permanently enjoined from violating cGMP regulations. In addition, Elan
        Holdings is required to engage an independent expert, subject to FDA approval,
        to conduct inspections of the facility at least annually through May 2004 in
        order to ensure the facility’s compliance with cGMP. The first of these
        inspections was completed and reported upon by the independent expert to the
        FDA on 3 September 2002. A corrective action plan was prepared and sent to the
        FDA in response to this inspection. A second independent consultant audit
        occurred in May 2003 and was reported upon by the independent expert to the FDA
        on 14 August 2003. In response to the inspection, a corrective action plan was
        prepared and sent to the FDA. During the term of the consent decree, Elan
        expects that the facility will be subject to increased FDA inspections and,
        under the terms of the consent decree, Elan will be required to reimburse the
        FDA for its costs related to these inspections. 
     

     
        Our business exposes us to risks of environmental
        liabilities. 
     

     
        We use hazardous materials, chemicals and toxic compounds
        in our product development programmes and manufacturing processes which could
        expose us to risks of accidental contamination, events of non-compliance with
        environmental laws, regulatory enforcement and claims related to personal
        injury and property damage. If an accident occurred or if we were to discover
        contamination caused by prior operations, we could be liable for cleanup
        obligations, damages or fines, which could have an adverse effect on us.
        
     

     
        The environmental laws of many jurisdictions impose actual
        and potential obligations on us to remediate contaminated sites. These
        obligations may relate to sites that we currently own, sites that we formerly
        owned or operated or sites where waste from our operations was disposed. These
        environmental remediation obligations could significantly reduce our operating
        results. In particular, our accruals for these obligations could prove to be
        insufficient if the assumptions underlying the accruals prove incorrect or if
        we are held responsible for additional contamination. 
     

     
        Stricter environmental, safety and health laws and
        enforcement policies could result in substantial costs and liabilities to us,
        and could subject our handling, manufacture, use, reuse or disposal of
        substances or pollutants to more rigorous scrutiny than is currently the case.
        Consequently, compliance with these laws could result in significant capital
        expenditures, as well as other costs and liabilities, which could materially
        adversely affect us. 
     

     

     
        191
     

     

     
     

     
     
        RISK FACTORS 
     

     
        If we fail to comply with our reporting and payment
        obligations under the medicaid rebate programme or other governmental pricing
        programmes, we could be subject to additional reimbursements, penalties,
        sanctions and fines which could have a material adverse effect on our business.
        
     

     
        We participate in the U.S. Federal Medicaid rebate
        programme established by the U.S. Omnibus Budget Reconciliation Act of 1990, as
        well as several state supplemental rebate programmes. Under the Medicaid rebate
        programme, we pay a rebate to each state Medicaid programme for our products
        that are reimbursed by those programmes. The amount of the rebate for each unit
        of product is set by law as a minimum 15.1% of the average manufacturer price,
        or AMP, of that product, or if it is greater, the difference between AMP and
        the best price available from us to any customer. The rebate amount also
        includes an inflation adjustment, if necessary. 
     

     
        As a manufacturer currently of single source, innovator
        multiple source and non-innovator multiple source products, rebate calculations
        vary among products and programmes. The calculations are complex and, in
        certain respects, subject to interpretation by us, governmental or regulatory
        agencies and the courts. The Medicaid rebate amount is computed each quarter
        based on our submission to the Centers for Medicare and Medicaid Services at
        the U.S. Department of Health and Human Services of our current AMP and best
        price for each of our products. The terms of our participation in the programme
        impose an obligation to correct the prices reported in previous quarters, as
        may be necessary. Any such corrections could result in an overage or underage
        in our rebate liability for past quarters, depending on the direction of the
        correction. In addition to retroactive rebates (and interest, if any), if we
        were found to have knowingly submitted false information to the government, the
        statute provides for civil monetary penalties in the amount of $100,000 per
        item of false information. Governmental agencies may also make changes in
        programme interpretations, requirements or conditions of participation, some of
        which may have implications for amounts previously estimated or paid. Based
        upon our past practice and experience, to the extent that we were required to
        correct prices reported in previous quarters, we would not expect such
        corrections to have a material adverse affect on us. 
     

     
        U.S. Federal law requires that any company that
        participates in the Medicaid rebate programme extends comparable discounts to
        qualified purchasers under the Public Health Services, or PHS, pharmaceutical
        pricing programme. The PHS pricing programme extends discounts comparable to
        the Medicaid rebates to a variety of community health clinics and other
        entities that receive health services grants from the PHS, as well as hospitals
        that serve a disproportionate share of poor patients. 
     

     
        We are subject to continuing potential product
        liability, which could harm our business. 
     

     
        Risks relating to product liability claims are inherent in
        the development manufacturing and marketing of our products. Any person who is
        injured as a result of using one of our products may have a product liability
        claim against us. Since we distribute and sell our products to a wide number of
        end users, the risk of such claims could be material. Product liability claims
        could also be brought by persons who took part in clinical trials involving our
        products. 
     

     
        We currently maintain product liability insurance in the
        amount of $200 million in aggregate claims, including $25 million of
        self-insured retention. However, the level and breadth of any insurance
        coverage may not be sufficient to cover fully all, or at all, potential claims.
        
     

     
        We may not be able to maintain product liability coverage
        on acceptable terms if our claims experience results in higher rates, or if
        product liability insurance otherwise becomes costlier because of general
        economic, market or industry conditions. If sales of our products increase
        materially, or if we add significant products to our portfolio, we will require
        increased coverage and may not be able to secure such coverage at reasonable
        rates. 
     

     
        Our stock price is volatile, which could result in
        substantial losses for investors purchasing shares. 
     

     
        The market prices for our shares and for securities of
        other companies engaged primarily in biotechnology and pharmaceutical
        development, manufacture and distribution are highly volatile. The market price
        of our shares likely will continue to fluctuate due to a variety of factors,
        including: 
     

     		
             
                •
             

          	
             
                material public announcements by us;
             

          

     		
             
                •
             

          	
             
                the timing of new product launches by us and others;
                
             

          

     		
             
                •
             

          	
             
                events related to our marketed products and those of
                our current and future competitors; 
             

          

     		
             
                •
             

          	
             
                regulatory issues affecting us; 
             

          

 

     
        192
     

     

     
     

     
     		
             
                •
             

          	
             
                availability and level of third party reimbursement;
                
             

          

     		
             
                •
             

          	
             
                developments relating to patents and other
                intellectual property rights;
             

          

     		
             
                •
             

          	
             
                results of clinical trials with respect to our
                products under development and those of our competitors; 
             

          

     		
             
                •
             

          	
             
                political developments and proposed legislation
                affecting the pharmaceutical industry;
             

          

     		
             
                •
             

          	
             
                economic and other external factors; 
             

          

     		
             
                •
             

          	
             
                hedge and/or arbitrage activities by holders of our
                6.5% Convertible Notes; 
             

          

     		
             
                •
             

          	
             
                period-to-period fluctuations in our financial
                results or results which do not meet or exceed analyst expectations; and
                
             

          

     		
             
                •
             

          	
             
                market trends relating to or affecting stock prices
                across our industry, whether or not related to results or news regarding us or
                our competitors. 
             

          

     
        Certain provisions of agreements to which we are a
        party may discourage or prevent a third party from acquiring us and could
        prevent shareholders from receiving a premium for their shares. 
     

     
        We are a party to agreements which contain provisions that
        may discourage a takeover attempt that might be viewed as beneficial to
        shareholders who wish to receive a premium for their shares from a potential
        bidder. For example: 
     

     		
             
                •
             

          	
             
                our collaboration agreement with Biogen Idec
                provides Biogen Idec with an option to buy the rights to Antegren in the event that we undergo a
                change of control, which may limit our attractiveness to potential
                acquirers;
             

          

     		
             
                •
             

          	
             
                until June 20, 2010, Biogen Idec and its affiliates
                are, subject to limited exception, restricted from, among other things seeking
                to acquire or acquiring control of us; and 
             

          

     		
             
                •
             

          	
             
                under the terms of the indenture governing our 6.5%
                Convertible Notes any acquirer would be required to repurchase the 6.5%
                Convertible Notes for cash in connection with a change of control occurring on
                or after March 16, 2006. 
             

          

 

     
        193
     

     

     
     

     
     
        MEMORANDUM AND ARTICLES OF ASSOCIATION 
     

     
        Objects 
     

     
        The Company’s objects, which are detailed in its
        Memorandum of Association include, but are not limited to, manufacturing,
        buying, selling and distributing pharmaceutical products. The Company’s
        registered number is 30356. 
     

     
        Directors 
     

     
        Subject to certain limited exceptions, directors may not
        vote on matters in which they have a material interest. In the absence of an
        independent quorum, the directors may not vote compensation to themselves or
        any member of the board of directors. Directors are entitled to remuneration as
        shall, from time to time, be voted to them by ordinary resolution of the
        shareholders and to be paid such expenses as may be incurred by them in the
        course of the performance of their duties as directors. Directors who take on
        additional committee assignments or otherwise perform additional services for
        the Company, outside the scope of their ordinary duties as directors, shall be
        entitled to receive such additional remuneration as the board may determine.
        The directors may exercise all of the powers of the Company to borrow money.
        These powers may be amended by special resolution of the shareholders.
        One-third of the board shall retire at each Annual General Meeting. A director
        is not required to retire at any set age and may offer themselves for
        re-election at any meeting where they are deemed to have retired by rotation.
        There is no requirement for a director to hold shares. 
     

     
        Meetings 
     

     
        The Annual General Meeting shall be held in such place and
        at such time as shall be determined by the board, but no more than 15 months
        shall pass between the dates of consecutive Annual General Meetings. Directors
        may call Extraordinary General Meetings at any time. Extraordinary General
        Meetings may also be requisitioned by the members in accordance with the
        Company’s Articles of Association and Irish company law. Notice of an
        Annual General Meeting (or any special resolution) must be given at least 21
        clear days prior to the scheduled date and, in the case of any other general
        meeting, with not less than 14 clear days notice. 
     

     
        Rights, Preferences and Dividends Attaching to Shares
        
     

     
        All unclaimed dividends may be invested or otherwise made
        use of by the directors for the benefit of the Company until claimed. All of
        the shareholders entitled to attend and vote at the Annual General Meeting are
        likewise entitled to vote on the re-election of directors. The Company is
        permitted under its Memorandum and Articles of Association to issue redeemable
        shares on such terms and in such manner as the shareholders may determine by
        special resolution. The liability of the shareholders to further capital calls
        is limited to the amounts remaining unpaid on shares. 
     

     
        Actions Necessary to Change the Rights of Shareholders
        
     

     
        The rights attaching to the different classes of shares
        may be varied by special resolution passed at a class meeting of that class of
        shareholders. The additional issuance of further shares ranking pari passu
        with, or subordinate to, an existing class shall not, unless specified by the
        Articles or the conditions of issue of that class of shares, be deemed to be a
        variation of the special rights attaching to that class of shares. 
     

     
        Limitations on the Right to Own Shares 
     

     
        There are no limitations on the right to own shares in the
        Memorandum and Articles of Association. However, there are some restrictions on
        financial transfers between Ireland and other specified countries, more
        particularly described in the section on “Exchange Controls and Other
        Limitations Affecting Security Holders” on page 183. 
     

     

     
        194
     

     

     
     

     
     
        Other Provisions of the Memorandum and Articles of
        Association 
     

     
        There are no provisions in the Memorandum and Articles of
        Association: 
     

     		
             
                •
             

          	
             
                Delaying or prohibiting a change in control of the
                Company that operate only with respect to a merger, acquisition or corporate
                restructuring; 
             

          

     		
             
                •
             

          	
             
                Discriminating against any existing or prospective
                holder of shares as a result of such shareholder owning a substantial number of
                shares; or
             

          

     		
             
                •
             

          	
             
                Governing changes in capital, where such provisions
                are more stringent than those required by law. 
             

          

     
        The Company incorporates by reference all other
        information concerning its Memorandum and Articles of Association from the
        section entitled “Description of Ordinary Shares” in the Registration
        Statement on Form F-3 (No. 333-1313001) of the Company and Athena Finance filed
        with the SEC on 6 February 2001. 
     

     
        Documents on Display 
     

     
        The Company is subject to the reporting requirements of
        the Exchange Act. In accordance with these requirements, the Company files
        Annual Reports on Form 20-F with, and furnishes Reports of Foreign Issuer on
        Form 6-K to, the SEC. These materials, including the Company’s Annual
        Report on Form 20-F for the fiscal year ended 31 December 2003 and the exhibits
        thereto, may be inspected and copied at the SEC’s Public Reference Room at
        450 Fifth Street, N.W., Washington D.C. 20549 and at the SEC’s regional
        offices at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511,
        and 233 Broadway, New York, New York 10274. Copies of the materials may be
        obtained from the Public Reference Room of the SEC at 450 Fifth Street, N.W.,
        Washington, D.C. at prescribed rates. The public may obtain information on the
        operation of the SEC’s Public Reference Room by calling the SEC in the
        United States at 1-800-SEC-0330. As a foreign private issuer, all documents
        which were filed or submitted after 4 November 2002 on the SEC’s EDGAR
        system are available for retrieval on the website maintained by the SEC at
        http://www.sec.gov. These filings and submissions are also available from
        commercial document retrieval services. 
     

     
        Copies of the Company’s Memorandum and Articles of
        Association may be obtained at no cost by writing or telephoning the Company at
        its principal executive offices. The Company’s Memorandum and Articles of
        Association are filed with the SEC as Exhibit 4.1 of the Company’s
        Registration Statement on Form F-3, Registration No. 333-100252, filed with the
        SEC on 1 October 2002. You may also inspect or obtain a copy of the
        Company’s Memorandum and Articles of Association using the procedures
        prescribed above. 
     

     

     
        195
     

     

     
     

     
     
        DIRECTORS, SENIOR MANAGEMENT AND OTHER
        INFORMATION
     

     
        Board of Directors
     

     
        Garo H. Armen, PhD
     

     
        Brendan E. Boushel
     

     
        Laurence G. Crowley
     

     
        William F. Daniel
     

     
        Alan R. Gillespie, C.B.E. PhD
     

     
        Ann Maynard Gray
     

     
        John Groom
     

     
        Kelly Martin
     

     
        Kieran McGowan
     

     
        Kevin M. McIntyre, MD
     

     
        Kyran McLaughlin
     

     
        Dennis J. Selkoe, MD
     

     
        The Honorable Richard L. Thornburgh
     

     
        Daniel P. Tully
     

     
        Senior Management
     

     
        Kelly Martin(1)
President and chief executive officer
     

     
        Paul Breen
Executive
        vice president, global services and operations
     

     
        Nigel Clerkin
Senior
        vice president, finance and group controller
     

     
        Shane Cooke(1)
Executive vice president and chief financial officer
     

     
        William F. Daniel(1)
Executive vice president and company secretary
     

     
        Jean Duvall(1)
Executive vice president and general counsel
     

     
        Lars Ekman, MD, PhD
Executive vice president and president, global R&D and corporate
        strategy
     

     
        Arthur Falk, PhD
Executive vice president, corporate compliance
     

     
        Jack Laflin
Executive
        vice president, global core services
     

     
        Ivan Lieberburg, MD, PhD
Executive vice president and chief medical officer
     

     
        (1) member of executive management
        committee
     

     

     
        196
     

     

     
     

     
     
        TRADEMARKS 
     

     
        The following trademarks appearing in this publication are
        owned by or licensed to Elan:
     

     		
             
                •
             

          	
             
                AntegrenTM (natalizumab)
             

          

     		
             
                •
             

          	
             
                AzactamTM (aztreonam) injectable
             

          

     		
             
                •
             

          	
             
                CeclorTM CD (cefaclor
                extended-release) tablets
             

          

     		
             
                •
             

          	
             
                MaxipimeTM (cefepime
                hydrochloride) injectable
             

          

     		
             
                •
             

          	
             
                MEDIPADTM device
             

          

     		
             
                •
             

          	
             
                MyoblocTM /Neurobloc (botulinum toxin type B) injectable
                solution
             

          

     		
             
                •
             

          	
             
                NanoCrystalTM technology
             

          

     		
             
                •
             

          	
             
                NaprelanTM (naproxen
                sodium controlled-release) tablets
             

          

     		
             
                •
             

          	
             
                PrialtTM (ziconotide) solution
             

          

     		
             
                •
             

          	
             
                ZanaflexTM (tizanidine
                hydrochloride) tablets
             

          

     
        Third party marks appearing in this publication
        are:
     

     		
             
                •
             

          	
             
                AbelcetTM (amphotericin
                B lipid complex) injectable
             

          

     		
             
                •
             

          	
             
                ActiqTM (oral
                transmucosal fentany citrate) lozenges
             

          

     		
             
                •
             

          	
             
                AdalatTMCC (nifedipine) tablets
             

          

     		
             
                •
             

          	
             
                AvinzaTM (morphine
                sulfate extended-release) capsules
             

          

     		
             
                •
             

          	
             
                DiastatTM (diazepam) rectal gel
             

          

     		
             
                •
             

          	
             
                EntexTM (phenylpropanolamine hydrochloride)
                capsules
             

          

     		
             
                •
             

          	
             
                FrovaTM (frovatriptan
                succinate) tablets
             

          

     		
             
                •
             

          	
             
                FuradantinTM (nitrofurantoin) suspension
             

          

     		
             
                •
             

          	
             
                LYONsTM (Liquid Yield
                Option Notes)
             

          

     		
             
                •
             

          	
             
                MidrinTM capsules
             

          

     		
             
                •
             

          	
             
                MyambutolTM (ethambutal
                hydrochloride) tablets
             

          

     		
             
                •
             

          	
             
                MyocetTM (Liposome
                encapsulated doxorubicin citrate complex)
                injectable
             

          

     		
             
                •
             

          	
             
                MysolineTM (primidone) tablets
             

          

     		
             
                •
             

          	
             
                NasalideTM (flunisolide) solution
             

          

     		
             
                •
             

          	
             
                NasarelTM (flunisolide) solution
             

          

     		
             
                •
             

          	
             
                OramorphTM SR (morphine
                sulfate sustained-release) tablets
             

          

     		
             
                •
             

          	
             
                PermaxTM (pergolide
                mesylate)
             

          

     		
             
                •
             

          	
             
                Ritalin LATM (methylphenidate)
             

          

     		
             
                •
             

          	
             
                RoxicodoneTM (oxycodone
                hydrochloride) tablets
             

          

     		
             
                •
             

          	
             
                SkelaxinTM (metaxalone) tablets
             

          

     		
             
                •
             

          	
             
                SonataTM (zaleplon) capsules
             

          

     		
             
                •
             

          	
             
                ZelaparTM (selegiline)
             

          

     		
             
                •
             

          	
             
                ZonegranTM (zonisamide) capsules
             

          

 

     
        197
     

     

     
     

     
     
        SHAREHOLDER SERVICES
     

     
        Elan’s ADSs are listed on the NYSE (Symbol ELN). The
        Ordinary Shares of the Company are listed on the Official Lists of the London
        and Irish Stock Exchanges. 
     

     
        Depositary for ADSs
Bank
        of New York
101 Barclay Street
New York, NY 10011
Tel:
        888-269-2377
Tel: 610-312-5315
Fax: 212-815-3050
     

     
        Registrar for Ordinary Shares
Computershare Services (Ireland) Ltd
Heron
        House
Sandyford Industrial Estate
Dublin
        18
Tel: 353-1-216-3100
Fax:
        353-1-216-3151
     

     
        Duplicate Mailings
     

     
        When several shareholders live at the same address, they
        may receive more copies of quarterly and annual reports than they need. The
        excess can be eliminated by writing to: 
     

     
        Investor Relations
Elan
        Corporation, plc
Lincoln House
Lincoln Place
Dublin 2, Ireland
     

     
        Investor Relations
     

     
        Security analysts and investment professionals should
        direct their enquiries to: 
     

     
        Emer Reynolds
Vice President,
        Investor Relations
Tel: 353-1-709-4080
       00800
        28352600
Fax: 353-1-709-4018
Email: emer.reynolds@elan.com
     

     
        Media Relations
     

     
        Contact person:
Anita
        Kawatra
Vice President, Global Media
        Relations
Tel: 212-407-5740
Fax: 212-755-1043
Email:
        anita.kawatra@elan.com
     

     
        Internet Website
     

     
        Information on Elan is available online via the Internet
        at Elan’s website, http://www.elan.com. Information on Elan’s website
        does not constitute part of this Annual Report and Form 20-F. 
     

     

     
        198
     

     

     
     

     
     
        CROSS REFERENCE TO FORM 20-F
     

     
        This Annual Report is prepared under Irish GAAP. A
        reconciliation from Irish GAAP to U.S. GAAP financial results is provided on
        pages 154 to 178 in accordance with SEC requirements. Information required by
        Form 20-F is cross-referenced to this document below. Only information in this
        document actually cross-referenced to Form 20-F shall be deemed to comprise
        part of the Form 20-F and filed with the SEC for all purposes. 
     

     
         
     

     	
             
                Item
             

          	
             
                Pages
             

          
	
             
                3
             

          	
             
                 
             

          	
             
                Key information
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                A. Selected financial data
             

          	
             
                179-180
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                D. Risk factors
             

          	
             
                186-193
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                4
             

          	
             
                 
             

          	
             
                Information on the Company
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                A. History and development of the Company
             

          	
             
                4, 16-23, 62-63, 116, 129-130, 145
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                B. Business overview
             

          	
             
                4-30, 55, 96-99
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                C. Organisational structure
             

          	
             
                4, 70, 149-150
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                D. Property, plants and equipment
             

          	
             
                27-28, 30, 116, 130-131
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                5
             

          	
             
                 
             

          	
             
                Operating and financial review and
                prospects
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                A-D
             

          	
             
                5-10, 11, 28-29, 31-69, 125-129,
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                130-131, 145-147
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                6
             

          	
             
                 
             

          	
             
                Directors, senior management and
                employees
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                A. Directors and senior management
             

          	
             
                74-75
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                B. Compensation
             

          	
             
                71-73, 75-77, 81-82, 141-144
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                C. Board practices
             

          	
             
                74-77, 79-82
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                D. Employees
             

          	
             
                30, 114
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                E. Share ownership
             

          	
             
                71-72, 81-82, 124-125
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                7
             

          	
             
                 
             

          	
             
                Major shareholders and related party
                transactions
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                A. Major shareholders
             

          	
             
                76, 181-183
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                B. Related party transactions
             

          	
             
                76-77, 139-141
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                8
             

          	
             
                 
             

          	
             
                Financial information
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                A. Consolidated statements and other financial
                information
             

          	
             
                70, 85-180
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                B. Significant changes
             

          	
             
                145
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                9
             

          	
             
                 
             

          	
             
                The offer and listing
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                A4. Price history of stock listed
             

          	
             
                181-183
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                C. Markets
             

          	
             
                181-183
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                10
             

          	
             
                 
             

          	
             
                Additional information
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                B. Memorandum and articles of association
             

          	
             
                194-195
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                C. Material contracts
             

          	
             
                5-8, 16-23
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                D. Exchange controls
             

          	
             
                183
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                E. Taxation
             

          	
             
                183-185
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                H. Documents on display
             

          	
             
                195
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                I. Subsidiary information
             

          	
             
                149-150
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                11
             

          	
             
                 
             

          	
             
                Quantitative and qualitative disclosures about
                market risk
             

          	
             
                67-68, 125-129
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                13
             

          	
             
                 
             

          	
             
                Defaults, dividend arrearages and
                delinquencies
             

          	
             
                60-62, 119-122
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                15
             

          	
             
                 
             

          	
             
                Controls and procedures
             

          	
             
                79-82
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                16
             

          	
             
                 
             

          	
             
                Reserved
             

          	
             
                 
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                A. Audit committee financial expert
             

          	
             
                79-80
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                B. Code of ethics
             

          	
             
                79
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                C. Principal accountant fees and services
             

          	
             
                79-80, 109
             

          
	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          	
             
                 
             

          
	
             
                18
             

          	
             
                 
             

          	
             
                Financial statements
             

          	
             
                85-178
             

          

 
 

     
        199

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