Elan Reports Second Quarter 2006 Financial Results

Commenting on Elan's business, Kelly Martin, Elan's president andchief executive officer, said, "The second quarter, once again,reflected our continued discipline and focus on delivering tangiblebusiness results. We recently received approval in the US and Europeto make Tysabri available to patients suffering from MS. We have beendiligently working to have this effective treatment available topatients and their physicians. We believe that Tysabri will play asignificant role as a treatment alternative for patients sufferingfrom this chronic and debilitating disease. We also have madeimportant advances in all areas of our business, recently demonstratedby our alliances with Abbott in nanotechnology and Archemix inautoimmune. We continue to actively evaluate and pursue both internaland external opportunities that will reinforce our strategic focus,strengthen our capabilities and generate value as we move theenterprise forward."

Commenting on Elan's second quarter financial results, ShaneCooke, Elan's executive vice president and chief financial officer,said, "We are very pleased to report another solid quarter with strongprogress across all of our business and development activities and a37% reduction in net losses. We reported a 15% increase in revenues,improved operating margins and, excluding costs and revenuesassociated with Tysabri, adjusted EBITDA was positive for the thirdconsecutive quarter. Since the end of the quarter, we have launchedTysabri in Germany, Ireland, UK and Sweden and re-introduced it in theUS." Mr. Cooke added, "With the approval of Tysabri and theimprovements we have made to the business, we are now entering into anew and exciting phase in the development of Elan. We are confidentthat revenues from Tysabri will drive our return to profitability."
Unaudited Consolidated Income Statement Data and Reconciliation of US
GAAP Income Statement Data to Adjusted Income Statement Data
Excluding Share-Based Compensation

Three Months Ended June 30
------------------------------------------
2005 2006 2006 2006
US$m US$m US$m US$m
Excluding Share-Based Total
Share-Based Compensation
Compensation
--------------------------- ------- ------------- ------------- ------
Revenue (see page 8)
Product revenue 111.6 130.8 -- 130.8
Contract revenue 7.0 5.6 -- 5.6
------- ------------- ------------- ------
Total revenue 118.6 136.4 -- 136.4

Operating Expenses (see
page 10)
Cost of goods sold 40.7 46.8 1.1 47.9
Selling, general and
administrative 90.4 88.0 8.1 96.1
Research and development 64.3 48.3 4.3 52.6
Net (gain)/loss on
divestment of products
and businesses (21.0) 0.9 -- 0.9
Other net charges (0.9) 3.4 -- 3.4
------- ------------- ------------- ------
Total operating expenses 173.5 187.4 13.5 200.9
------- ------------- ------------- ------
Operating loss (54.9) (51.0) (13.5) (64.5)
------- ------------- ------------- ------

Net Interest and Investment
Gains and Losses (see page
12)
Net interest expense 34.7 27.2 -- 27.2
Net investment losses 1.7 1.2 -- 1.2
Net charge on debt
retirement 52.2 -- -- --
------- ------------- ------------- ------
Net interest and investment
losses 88.6 28.4 -- 28.4
------- ------------- ------------- ------

Net loss from continuing
operations
before tax (143.5) (79.4) (13.5) (92.9)
Benefit from income taxes (0.3) (2.4) -- (2.4)
------- ------------- ------------- ------
Net loss from continuing
operations (143.2) (77.0) (13.5) (90.5)
Net income from
discontinued operations 0.6 -- -- --
------- ------------- ------------- ------
Net loss (142.6) (77.0) (13.5) (90.5)
------- ------------- ------------- ------

Basic and diluted net loss
per ordinary share (0.35) (0.18) (0.03) (0.21)
Basic and diluted weighted
average number of ordinary
shares outstanding (in
millions) 405.8 430.0 430.0 430.0


To supplement its consolidated income statement data presented on a US
GAAP basis for the three months ended June 30, 2006, Elan is providing
its US GAAP income statement data adjusted to exclude the impact of
share-based compensation. Effective January 1, 2006, Elan adopted
Statement of Financial Accounting Standards No. 123R (SFAS 123R)
regarding the expensing of share-based compensation. We believe the
adjusted income statement data allows readers to better compare the
performance of Elan before and after the adoption of SFAS 123R. Elan's
management uses the adjusted income statement data in evaluating
Elan's operating performance and when planning for future periods. The
adjusted income statement data is not being presented as and should
not be considered an alternative measure of Elan's income statement
data as determined in accordance with US GAAP. The reconciliations of
the adjusted income statement data to Elan's US GAAP income statement
data are set out above in the table titled, "Unaudited Consolidated
Income Statement Data and Reconciliation of US GAAP Income Statement
Data to Adjusted Income Statement Data Excluding Share-Based
Compensation."


Unaudited Consolidated Income Statement Data and Reconciliation of US
GAAP Income Statement Data to Adjusted Income Statement Data
Excluding Share-Based Compensation

Six Months Ended June 30
-------------------------------------------
2005 2006 2006 2006
US$m US$m US$m US$m
Excluding Share-Based Total
Share-Based Compensation
Compensation
-------------------------- ------- ------------- ------------- -------
Revenue (see page 8)
Product revenue 207.0 259.0 -- 259.0
Contract revenue 14.3 11.7 -- 11.7
------- ------------- ------------- -------
Total revenue 221.3 270.7 -- 270.7

Operating Expenses (see
page 10)
Cost of goods sold 103.7 94.6 2.2 96.8
Selling, general and
administrative 193.0 166.4 15.4 181.8
Research and development 120.2 94.8 8.6 103.4
Net gain on divestment of
products and
businesses (65.1) (43.3) -- (43.3)
Other net charges (0.9) 3.4 -- 3.4
------- ------------- ------------- -------
Total operating expenses 350.9 315.9 26.2 342.1
------- ------------- ------------- -------
Operating loss (129.6) (45.2) (26.2) (71.4)
------- ------------- ------------- -------

Net Interest and
Investment Gains and
Losses (see page 12)
Net interest expense 70.7 54.6 -- 54.6
Net investment
(gains)/losses 6.2 (1.1) -- (1.1)
Net charge on debt
retirement 52.2 -- -- --
------- ------------- ------------- -------
Net interest and
investment losses 129.1 53.5 -- 53.5
------- ------------- ------------- -------

Net loss from continuing
operations
before tax (258.7) (98.7) (26.2) (124.9)
Benefit from income taxes (0.1) (1.1) -- (1.1)
------- ------------- ------------- -------
Net loss from continuing
operations (258.6) (97.6) (26.2) (123.8)
Net income from
discontinued operations 0.4 -- -- --
------- ------------- ------------- -------
Net loss (258.2) (97.6) (26.2) (123.8)
------- ------------- ------------- -------

Basic and diluted net loss
per ordinary share (0.64) (0.23) (0.06) (0.29)
Basic and diluted weighted
average number of
ordinary shares
outstanding (in millions) 400.7 429.5 429.5 429.5

To supplement its consolidated income statement data presented on a US
GAAP basis for the six months ended June 30, 2006, Elan is providing
its US GAAP income statement data adjusted to exclude the impact of
share-based compensation. Effective January 1, 2006, Elan adopted
Statement of Financial Accounting Standards No. 123R (SFAS 123R)
regarding the expensing of share-based compensation. We believe the
adjusted income statement data allows readers to better compare the
performance of Elan before and after the adoption of SFAS 123R. Elan's
management uses the adjusted income statement data in evaluating
Elan's operating performance and when planning for future periods. The
adjusted income statement data is not being presented as and should
not be considered an alternative measure of Elan's income statement
data as determined in accordance with US GAAP. The reconciliations of
the adjusted income statement data to Elan's US GAAP income statement
data are set out above in the table titled, "Unaudited Consolidated
Income Statement Data and Reconciliation of US GAAP Income Statement
Data to Adjusted Income Statement Data Excluding Share-Based
Compensation."


Unaudited Non-GAAP Financial Information - EBITDA


Three Months Non-GAAP Financial Information Six Months
Ended June 30 Reconciliation Schedule Ended June 30

2005 2006 2005 2006
US$m US$m US$m US$m
---------- ---------- --------------------------- --------- ----------

Net loss from continuing
(143.2) (90.5) operations (258.6) (123.8)
34.7 27.2 Net interest expense 70.7 54.6
(0.3) (2.4) Benefit from income taxes (0.1) (1.1)
Depreciation and
30.7 33.5 amortization 65.2 66.1
(13.3) (9.8) Amortized fees (24.9) (21.2)
Revenue received and
0.7 -- deferred 0.7 --
---------- ---------- --------- ----------
(90.7) (42.0) EBITDA (147.0) (25.4)
========== ========== ========= ==========



Three Months Non-GAAP Financial Information Six Months
Ended June 30 Reconciliation Schedule Ended June 30

2005 2006 2005 2006
US$m US$m US$m US$m
--------------------- --------------------------- --------------------
(90.7) (42.0) EBITDA (147.0) (25.4)
-- 13.5 Share-based compensation -- 26.2
Net (gain)/loss on
divestment of products and
(21.0) 0.9 businesses (65.1) (43.3)
(0.9) 3.4 Other net charges (0.9) 3.4
Net investment
1.7 1.2 (gains)/losses 6.2 (1.1)
Net charge on debt
52.2 -- retirement 52.2 --
---------- ---------- --------- ----------
(58.7) (23.0) Adjusted EBITDA (154.6) (40.2)
========== ========== ========= ==========

To supplement its consolidated financial statements presented on a US
GAAP basis, Elan provides readers with EBITDA (Earnings Before
Interest, Taxes, Depreciation and Amortization) and Adjusted EBITDA,
non-GAAP measures of operating results. EBITDA is defined as net loss
from continuing operations plus or minus depreciation and amortization
of costs and revenues, provisions for income tax and net interest
expense. Adjusted EBITDA is defined as EBITDA plus or minus
share-based compensation, net gains or losses on divestment of
products and businesses, other net gains or charges, net investment
gains or losses and net charge on debt retirement. EBITDA and Adjusted
EBITDA are not presented as and should not be considered alternative
measures of operating results or cash flow from operations, as
determined in accordance with US GAAP. Elan's management uses EBITDA
and Adjusted EBITDA to evaluate the operating performance of Elan and
its business and these measures are among the factors considered as a
basis for Elan's planning and forecasting for future periods. Elan
believes EBITDA and Adjusted EBITDA are measures of performance used
by some investors, equity analysts and others to make informed
investment decisions. EBITDA and Adjusted EBITDA are used as
analytical indicators of income generated to service debt and to fund
capital expenditures. EBITDA and Adjusted EBITDA do not give effect to
cash used for interest payments related to debt service requirements
and do not reflect funds available for investment in the business of
Elan or for other discretionary purposes. EBITDA and Adjusted EBITDA,
as defined by Elan and presented in this press release, may not be
comparable to similarly titled measures reported by other companies.
Reconciliations of EBITDA and Adjusted EBITDA to net loss from
continuing operations are set out in the tables above titled,
"Non-GAAP Financial Information Reconciliation Schedule."


Unaudited Consolidated US GAAP Balance Sheet Data

December 31 March 31 June 30
2005 2006 2006
US$m US$m US$m
------------------------------------------ --------- -------- --------
Assets
Current Assets
Cash and cash equivalents 1,080.7 1,078.9 1,024.8
Restricted cash 20.4 20.6 20.9
Marketable investment securities 10.0 11.3 6.8
Held for sale assets 11.2 - -
Prepaid and other current assets 130.1 126.3 147.8
--------- -------- --------
Total current assets 1,252.4 1,237.1 1,200.3

Non-Current Assets
Intangible assets, net 665.5 643.9 623.1
Property, plant and equipment, net 353.6 351.4 349.3
Marketable investment securities 13.1 10.1 10.1
Restricted cash 4.5 4.4 3.0
Other assets 51.8 55.2 47.8
--------- -------- --------
Total Assets 2,340.9 2,302.1 2,233.6
========= ======== ========

Liabilities and Shareholders' Equity
Accounts payable and accrued liabilities 246.7 233.3 234.1
Deferred income 60.1 48.7 39.0
6.5% convertible guaranteed notes due 2008 254.0 254.0 254.0
7.25% senior notes due 2008 613.2 613.2 613.2
7.75% senior notes due 2011 850.0 850.0 850.0
Senior floating rate notes due 2011 300.0 300.0 300.0
Shareholders' equity/(deficit)(1) 16.9 2.9 (56.7)
--------- -------- --------
Total Liabilities and Shareholders'
Equity 2,340.9 2,302.1 2,233.6
========= ======== ========

Movement in Shareholders' Equity(1)
Opening balance 16.9 2.9
Net loss for the period (33.3) (90.5)
Share-based compensation 12.7 13.5
Issuance of share capital 4.5 17.1
Other 2.1 0.3
-------- --------
Closing balance 2.9 (56.7)
======== ========

(1) None of Elan's debt covenants require us to maintain or adhere to
any specific financial ratios and consequently the shareholders'
deficit has no impact on our ability to comply with our debt
covenants.


Unaudited Consolidated US GAAP Cash Flow Data


Three Months Six Months
Ended June 30 Ended June 30

2005 2006 2005 2006
US$m US$m US$m US$m
--------------------- --------------------------- --------------------

Cash flows from operating
(50.0) (10.4) activities (138.1) (17.2)
Movement on debt interest
(59.3) (48.4) and tax (83.5) (76.6)
Working capital movement
(87.3) (7.6) (1) (92.2) (30.4)
Net purchases of tangible
(12.8) (8.2) and intangible assets (34.8) (15.6)
Net proceeds from sale of
33.3 2.6 investments 54.0 10.9
Net proceeds from product
18.3 -- and business divestments 50.2 50.3
Cash flows from financing
(86.6) 16.6 activities (74.1) 21.3
43.9 1.3 Release of restricted cash 168.0 1.4
-- -- Repayment of EPIL III notes (39.0) -
---------- ---------- ---------- ---------
(200.5) (54.1) Net cash movement (189.5) (55.9)
1,358.6 1,078.9 Beginning cash balance 1,347.6 1,080.7
---------- ---------- ---------- ---------
Cash and cash equivalents
1,158.1 1,024.8 at end of period 1,158.1 1,024.8
========== ========== ========== =========

(1) For three months and six months ended June 30, 2005, working
capital movement includes a $40.0 million cash payment for the
settlement of the 2002 class action.

Net Loss

The net loss for the second quarter of 2006 amounted to $90.5million, a decrease of 37% over the $142.6 million reported in thesame quarter of 2005. The decrease in net loss is principally due tostrong growth in product revenue, improved operating margins and theinclusion in 2005 of a charge associated with retiring debt early,partially offset by the impact of expensing share-based compensationin the second quarter of 2006 and the inclusion in 2005 of a gain onthe divestment of Zonegran(TM).

Share-Based Compensation

Effective January 1, 2006, Elan adopted the provisions of SFAS123R, which requires share-based compensation to be measured using afair value method and expensed over the requisite service period. Theadoption of SFAS 123R resulted in a charge for share-basedcompensation of $13.5 million for the second quarter of 2006, which iscomprised of $1.1 million of cost of goods sold, $8.1 million ofselling, general and administrative (SG&A) expense, and $4.3 millionof research and development (R&D) expense.

Adjusted EBITDA

A reconciliation of negative Adjusted EBITDA to net loss fromcontinuing operations, is presented in the table titled, "UnauditedNon-GAAP Financial Information - EBITDA," included on page 4. Afurther analysis of Adjusted EBITDA between Tysabri(TM) and the restof the business is included in Appendix I and II.

Negative Adjusted EBITDA was $23.0 million in the second quarterof 2006, compared to $58.7 million in the second quarter of 2005, animprovement of 61%, and includes negative Adjusted EBITDA of $28.0million related to Tysabri (2005: $38.2 million). The improvement innegative Adjusted EBITDA related to Tysabri reflects the costsassociated with the voluntary suspension of Tysabri in 2005, andconsequent reduced spending on Tysabri in the second quarter of 2006.Adjusted EBITDA for the rest of the business, excluding costs relatedto Tysabri, was $5.0 million (2005: negative $20.5 million). Theimprovement in Adjusted EBITDA from the rest of the business reflectsprincipally the strong growth in product revenues and improvedoperating margins.

Revenue

Total revenue increased 15% to $136.4 million in the secondquarter of 2006 from $118.6 million recorded in the second quarter of2005. Revenue is analyzed below between product revenue and contractrevenue.
Three Months Six Months
Ended June 30 Ended June 30

2005 2006 2005 2006
US$m US$m US$m US$m
---------- ---------- --------------------------- ---------- ---------
Revenue from Marketed
Products
39.9 42.6 Maxipime(TM) 59.7 87.3
14.8 20.0 Azactam(TM) 23.2 39.9
1.8 3.0 Prialt(TM) 2.8 5.6
(1.3) (0.1) Tysabri 11.6 (0.2)
---------- ---------- ---------- ---------
Total Revenue from Marketed
55.2 65.5 Products 97.3 132.6

Manufacturing Revenue and
47.7 56.8 Royalties (see page 9) 92.4 109.4

Amortized Revenue -
8.5 8.5 Adalat(TM)/Avinza(TM) 17.0 17.0

Revenue from Divested
0.2 -- Products 0.3 --
---------- ---------- ---------- ---------
111.6 130.8 Total Product Revenue 207.0 259.0
---------- ---------- ---------- ---------

Contract Revenue
3.1 2.1 Amortized fees 6.5 4.2
Research revenue and
3.9 3.5 milestones 7.8 7.5
---------- ---------- ---------- ---------
7.0 5.6 Total Contract Revenue 14.3 11.7
---------- ---------- ---------- ---------

---------- ---------- ---------- ---------
118.6 136.4 Total Revenue 221.3 270.7
========== ========== ========== =========

Product Revenue

Total product revenue increased 17% to $130.8 million in thesecond quarter of 2006 from $111.6 million recorded in the samequarter of 2005 primarily due to increased revenue from marketedproducts and manufacturing revenue and royalties, as further analyzedbelow.

Revenue from marketed products

Revenue from marketed products was $65.5 million in the secondquarter of 2006, compared to $55.2 million recorded in the same periodof 2005. The increase of 19% is due to higher sales of Maxipime,Azactam and Prialt.

Revenue from Maxipime for the quarter increased by 7% to $42.6million from $39.9 million in the second quarter of 2005. Azactamrevenue for the quarter increased to $20.0 million from $14.8 millionin the second quarter of 2005, or 35%. These increases reflectincreased demand. Azactam lost its patent exclusivity in October 2005and its sales are expected to be negatively impacted by genericcompetition. However, to date no generic form of Azactam product hasbeen approved.

Revenue from Prialt for the second quarter of 2006 was $3.0million, compared to $1.8 million recorded in the second quarter of2005. Prialt was launched in the US market during the first quarter of2005.

Tysabri was voluntarily suspended from the market in February2005. Elan and Biogen Idec, Inc. (Biogen Idec) received approval fromthe US Food and Drug Administration (FDA) in June 2006 to re-introduceTysabri for the treatment of relapsing forms of multiple sclerosis(MS). Approval for the marketing of Tysabri in the EU was alsoreceived in June 2006. The distribution of Tysabri in both the US andEU commenced in July 2006.

Manufacturing revenue and royalties

Manufacturing revenue and royalties from Elan's Drug Technologybusiness comprise revenue earned from products manufactured for thirdparties and royalties earned principally on sales by third parties ofproducts that incorporate Elan's technologies.

Manufacturing revenue and royalties were $56.8 million in thesecond quarter of 2006, an increase of 19% over the $47.7 millionrecorded in the second quarter of 2005, and can be further analyzed asfollows:
Three Months Six Months
Ended June 30 Ended June 30

2005 2006 2005 2006
US$m US$m US$m US$m
---------- ---------- --------------------------- --------- ----------
10.6 12.5 Tricor(TM) 19.0 22.7
4.3 9.6 Skelaxin(TM) 8.2 14.4
7.2 8.5 Verelan(TM) 16.3 20.0
4.1 4.7 Diltiazem(TM) 9.1 9.9
2.8 3.3 Avinza(TM) 4.9 6.3
2.2 2.8 Ritalin(TM) 5.7 5.4
2.9 1.0 Zanaflex(TM) 5.2 1.7
13.6 14.4 Other 24.0 29.0
---------- ---------- --------- ----------
47.7 56.8 Total 92.4 109.4
---------- ---------- --------- ----------

Except as noted above, no other product accounted for more than10% of total manufacturing revenue and royalties in the second quarterof 2006 or 2005. Of the total of $56.8 million (2005: $47.7 million)in manufacturing revenue and royalties, 42% (2005: 35%) consisted ofroyalties received on products that were not manufactured by Elan.

Amortized product revenue

The results for the second quarters of 2006 and 2005 include $8.5million of amortized revenue related to the licensing of rights toElan's generic form of Adalat CC and the restructuring of Elan'sAvinza license agreement with Ligand Pharmaceuticals, Inc. whichoccurred in 2002. The remaining unamortized revenue on these productsof $18.2 million, which is included in deferred income, will berecognized as revenue through June 2007 (generic Adalat CC), andNovember 2006 (Avinza), reflecting Elan's ongoing involvement in themanufacturing of these products. Amortized revenue for the full-year2006 is expected to be $30.7 million for these two products.

Contract Revenue

Contract revenue in the second quarter of 2006 was $5.6 million, adecrease of 20% from the $7.0 million recorded in the second quarterof 2005. This decrease primarily reflects a reduction in amortizedfees.

Gross Profit

The gross profit margin on product revenue was 63% in the secondquarter of 2006, compared to 63% in the same period of 2005.

Operating Expenses

SG&A expenses increased 6% to $96.1 million in the second quarterof 2006 (including $8.1 million of share-based compensation expense)from $90.4 million in the same quarter of 2005 (including $nilshare-based compensation expense) and can be analyzed as follows:
Three Months Six Months
Ended June 30 Ended June 30

2005 2006 2005 2006
US$m US$m US$m US$m
---------- ---------- --------------------------- --------- ----------
54.4 48.4 Rest of business 106.0 92.5
17.9 20.8 Tysabri 48.2 36.2
Depreciation and
amortization (principally
18.1 18.8 Maxipime and Azactam) 38.8 37.7
-- 8.1 Share-based compensation -- 15.4
---------- ---------- --------- ----------
90.4 96.1 Total 193.0 181.8
---------- ---------- --------- ----------

SG&A expenses, excluding depreciation, amortization andshare-based compensation, related to the rest of the businessdecreased by 11% to $48.4 million in the second quarter of 2006 from$54.4 million in the second quarter of 2005, principally due to theinclusion in 2005 of litigation related settlement costs of $8.0million. The SG&A expenses related to Tysabri, excluding amortizationand share-based compensation, were $20.8 million in the second quarterof 2006, compared to $17.9 million in the second quarter of 2005.

R&D expenses were $52.6 million in the second quarter of 2006(including $4.3 million of share-based compensation expense), comparedto $64.3 million in the same period of 2005 (including $nil ofshare-based compensation expense). The decrease of 18% is primarilydue to reduced expenses related to Tysabri and Prialt, offset by theimpact of expensing of share-based compensation and increaseddevelopment costs associated with our key Alzheimer's programs,including the AAB-001 Phase 2 trials and ACC-001 Phase 1 trial.Included in R&D expenses for the second quarter of 2006 is $7.1million related to Tysabri (including $0.6 million of share-basedcompensation expense), compared to $19.5 million in the same period of2005. The decrease principally reflects the completion of the Tysabrisafety evaluation in 2005.

Net Gain/Loss on Divestment of Products and Businesses

The net loss on divestment of products and businesses in thesecond quarter of 2006 was $0.9 million, compared to a net gain of$21.0 million in the same period of 2005. The net gain in the secondquarter of 2005 included consideration related to the divestment ofZonegran to Eisai Co. Ltd. in April 2004.

Other Net Charges

Other net charges for the three and six months ended June 30, 2006and 2005 were as follows:
Three Months Six Months
Ended June 30 Ended June 30

2005 2006 2005 2006
US$m US$m US$m US$m
---------- ---------- --------------------------- --------- ----------

(0.5) (3.6) Severance and restructuring (0.5) (3.6)
In-process research and
-- 7.0 development -- 7.0
(0.4) -- Other (0.4) --
---------- ---------- --------- ----------
(0.9) 3.4 Total (0.9) 3.4
========== ========== ========= ==========

The $3.4 million charge in the second quarter of 2006 principallyconsists of a $7.0 million in-process research and development chargearising from an upfront payment under our recent alliance withArchemix (see page 14), offset by a net $3.6 million creditprincipally related to the reversal of previously provided costs forseverance and restructuring activities.

Net Interest and Investment Gains and Losses

Net interest and investment losses were $28.4 million for thesecond quarter of 2006, compared to net interest and investment lossesof $88.6 million for the same period of 2005. In the second quarter of2006, net interest expense amounted to $27.2 million, compared to$34.7 million in the same period of 2005. Net interest expensedecreased in the second quarter of 2006 over the corresponding periodin 2005 primarily as a result of interest savings due to the earlyretirement of $242.8 million of debt in June 2005, and higher interestincome earned on cash balances due to increased interest rates.

During the second quarter of 2005, Elan incurred a net charge of$52.2 million as a result of the early retirement of $242.8 million of2008 debt.

Research & Development

Autoimmune

Tysabri - US

In June 2006, Elan and Biogen Idec received the approval from theFDA to re-introduce Tysabri in the US as a monotherapy treatment forrelapsing forms of MS to slow the progression of disability and reducethe frequency of clinical relapses.

The FDA granted approval for re-introduction based on the reviewof Tysabri clinical trial data; revised labeling with enhanced safetywarnings; and a risk management plan (TOUCH Prescribing Program)designed to inform physicians and patients of the benefits and risksof Tysabri treatment and minimize potential risk of progressivemultifocal leukoencephalopathy (PML). Because of the increased risk ofPML, Tysabri monotherapy is generally recommended for patients whohave had an inadequate response to, or are unable to tolerate,alternate MS therapies.

Tysabri became commercially available in the US in July 2006.Under the TOUCH Prescribing Program, only prescribers, infusioncenters, and pharmacies associated with infusion centers registered inthe TOUCH program are able to prescribe, infuse or distribute Tysabri.Elan has contracted with a single distributor, ICS, a division ofAmerisourceBergen Specialty Group, and 12 specialty pharmacies:Caremark, CuraScript, PharmaCare, PrecisionRx Specialty Solutions,Medmark, BioScrip, McKesson Specialty, Option Care, Cigna Tel-DrugSpecialty Pharmacy, Aetna Specialty Pharmacy, Prescription Solutions,and Accredo NovaFactor. ICS and the 12 specialty pharmacies have beentrained on the TOUCH Prescribing Program and are obligated to followthe requirements of the program in order to purchase and distributeTysabri to authorized infusion sites and central pharmacies.

Tysabri - Europe

In June 2006, Elan and Biogen Idec received approval from theEuropean Commission to market Tysabri as a treatment for relapsingremitting MS to delay the progression of disability and reduce thefrequency of relapses. Tysabri is indicated as a single diseasemodifying therapy in highly active relapsing remitting MS for patientswith high disease activity despite treatment with a beta-interferon orin patients with rapidly evolving severe relapsing remitting MS.

Tysabri was launched in Germany, Ireland, UK and Sweden in July2006 and will be launched in other EU countries over the next twelvemonths.

Tysabri - Crohn's Disease

The results from the Phase 3 ENCORE (Efficacy of Natalizumab inCrohn's Disease Response and Remission) trial in Crohn's disease werepresented at Digestive Disease Week (DDW) in Los Angeles in May 2006.Data from the trial demonstrated significant induction of clinicalresponse in patients with moderately to severe active Crohn's disease.

The trial met its primary endpoint of induction of clinicalresponse as defined by a 70-point decrease in baseline Crohn's DiseaseActivity Index (CDAI) score at both weeks 8 and 12. Tysabri also metall secondary endpoints of clinical remission as defined by a CDAIscore less than 150 at both weeks 8 and 12, clinical response at week12 and clinical remission at week 12. In addition, significantresponse and remission rates were seen with Tysabri treatment by week4.

There were no notable differences in the overall rates of adverseevents or serious adverse events between the Tysabri and placebotreatment groups. The most common adverse events seen in bothtreatment groups were headache, nausea and abdominal pain. Incidenceof infections was similar in both groups. No opportunistic infectionswere seen in this trial.

Elan and Archemix Alliance

In July 2006, Elan and Archemix entered into a multi-year,multi-product alliance focused on the discovery, development, andcommercialization of first-in-class aptamer therapeutics to treatautoimmune diseases. The companies will seek to develop aptamertherapeutics to IL-23, a cytokine that has emerged as a mediator inthe chronic autoimmune inflammatory diseases, and additional proteintargets. The collaboration combines Archemix's extensive expertise inaptamer therapeutics with Elan's experience and leadership in thedevelopment and commercialization of new therapies for autoimmunediseases.

Alzheimer's and other Neurodegenerative Diseases

Elan is focused on building upon its breakthrough research andextensive experience in Alzheimer's disease (AD) and is also studyingother neurodegenerative diseases, such as Parkinson's disease. Elan iscontinuing to progress its own internal Gamma and Beta secretaseAlzheimer's programs.

Two of our compounds from our Alzheimer's disease immunotherapyprogram, AAB-001 and ACC-001, in collaboration with Wyeth, areprogressing through clinical trials.

AAB-001

The Phase 2 clinical trials for AAB-001, a humanized monoclonalantibody to A-beta, are progressing as planned. Interim analyses ofPhase II data from AAB-001 will be made in the second half of thisyear to determine the time point at which this program can move intothe next phase of clinical trials.

ACC-001

The Phase 1 trials for ACC-001 (active Abeta immunotherapeuticconjugate) are progressing as planned. Interim analyses of the Phase 1data will be made in the second half of this year to determine thetime point at which this program can move into Phase 2.

Elan Drug Technologies

On July 6, 2006, Elan announced a License Agreement with AbbottPharmaceutical PR Ltd in which Abbott has been granted US rights, in apartnership with AstraZeneca Pharmaceuticals, LP, to utilize Elan'sproprietary NanoCrystal Technology to develop and commercialize asingle fixed-dose combination product containing the activepharmaceutical ingredients in Abbott's TriCor 145 (fenofibrate) andAstraZeneca's Crestor(R) (rosuvastatin calcium) products.

Under the License Agreement, Elan's NanoCrystal Technology may beutilized in the combination product in order to optimizebioavailability and absorption in patients. TriCor 145 and Crestor areboth currently marketed and used to treat adults with highcholesterol. TriCor, part of a class of medications called fibrates,has been shown to predominately reduce triglycerides, a form of fat orlipid obtained through food sources, raise HDL cholesterol and lowerLDL cholesterol. Crestor is part of a class of medications calledstatins, which have been shown to reduce LDL cholesterol. Thesuccessful combination of the two products into one oral dosage formcould provide patients with a single treatment.

About Elan

Elan Corporation (NYSE: ELN), plc is a neuroscience-basedbiotechnology company committed to making a difference in the lives ofpatients and their families by dedicating itself to bringinginnovations in science to fill significant unmet medical needs thatcontinue to exist around the world. Elan shares trade on the New York,London and Dublin Stock Exchanges. For additional information aboutthe company, please visit http://www.elan.com.

Forward-Looking Statements

This document contains forward-looking statements about Elan'sfinancial condition, results of operations, business prospects andproducts in research that involve substantial risks and uncertainties.You can identify these statements by the fact that they use words suchas "anticipate", "estimate", "project", "target", "intend", "plan","believe" and other words and terms of similar meaning in connectionwith any discussion of future operating or financial performance orevents. Among the factors that could cause actual results to differmaterially from those described or projected herein are thefollowing:, the potential of Tysabri, the incidence of serious adverseevents associated with Tysabri (including cases of PML) and thepotential for the successful development and commercialization ofadditional products, including those utilizing Tysabri; the potentialof Elan's other marketed products; Elan's ability to maintainsufficient cash, liquid resources, and investments and other assetscapable of being monetized to meet its liquidity requirements; thesuccess of research and development activities including, inparticular, whether the Phase 2 clinical trials for AAB-001 and thePhase 1 clinical trials for ACC-001 are successful and the speed withwhich regulatory authorizations and product launches may be achieved;competitive developments affecting Elan's products; the ability tosuccessfully market both new and existing products; difficulties ordelays in manufacturing and supply of Elan's products (including, inparticular, Maxipime); trade buying patterns; the impact of genericand branded competition after the expiration of Elan's patents,including the impact of any generic competition following the loss ofpatent exclusivity for Azactam in October 2005; whether restrictivecovenants in Elan's debt obligations will adversely affect Elan; thetrend towards managed care and health care cost containment, includingMedicare and Medicaid; the potential impact of the MedicarePrescription Drug, Improvement and Modernisation Act 2003; possiblelegislation affecting pharmaceutical pricing and reimbursement, bothdomestically and internationally; failure to comply with kickback andfalse claims laws including in respect to past practice related to themarketing of Zonegran; failure to comply with Elan's paymentobligations under Medicaid and other governmental programs; exposureto product liability and other types of lawsuits and legal defensecosts and the risks of adverse decisions or settlements related toproduct liability, patent protection, governmental investigations andother legal proceedings; Elan's ability to protect its patents andother intellectual property; claims and concerns that may ariseregarding the safety or efficacy of Elan's products or productcandidates; interest rate and foreign currency exchange ratefluctuations; governmental laws and regulations affecting domestic andforeign operations, including tax obligations; general changes in USand International generally accepted accounting principles; growth incosts and expenses; changes in product mix; and the impact ofacquisitions, divestitures, restructurings, product withdrawals andother unusual items. A further list and description of these risks,uncertainties and other matters can be found in Elan's Annual Reporton Form 20-F for the fiscal year ended December 31, 2005, and in itsReports of Foreign Issuer on Form 6-K filed with the SEC. Elan assumesno obligation to update any forward-looking statements, whether as aresult of new information, future events or otherwise.

Elan continually evaluates its liquidity requirements, capitalneeds and availability of resources in view of, among other things,alternative uses of capital, debt service requirements, the cost ofdebt and equity capital and estimated future operating cash flow. Elanmay raise additional capital, restructure or refinance outstandingdebt, repurchase material amounts of outstanding debt, consider thesale of products, interests in subsidiaries, marketable investmentsecurities or other assets, or take a combination of such actions orother steps to increase or manage its liquidity and capital resources.Any such actions or steps, including any sale of assets or repurchaseof outstanding debt, could be material. In the normal course ofbusiness, Elan may investigate, evaluate, discuss and engage in futurecompany or product acquisitions, capital expenditures, investment andother business opportunities. In the event of any future acquisitions,capital expenditures, investment or other business opportunities, Elanmay consider using available cash or raising additional capital,including the issuance of additional debt.
Appendix I

Three Months Ended Three Months Ended
June 30, 2005 June 30, 2006


Tysabri Rest of Total Tysabri Rest of Total
(1) Business (1) (1) Business (1)
US$m (1) US$m US$m (1) US$m
US$m US$m
--------- --------- ------ ------------------ ------- --------- ------
Revenue
(1.3) 112.9 111.6 Product revenue (0.1) 130.9 130.8
1.7 5.3 7.0 Contract revenue 0.7 4.9 5.6
--------- --------- ------ ------- --------- ------
0.4 118.2 118.6 Total revenue 0.6 135.8 136.4
--------- --------- ------ ------- --------- ------

Operating Expenses
(0.5) 41.2 40.7 Cost of goods sold 0.6 46.2 46.8
Selling, general
and
18.4 72.0 90.4 administrative(2) 21.5 66.5 88.0
Research and
19.5 44.8 64.3 development 6.5 41.8 48.3
Net gain on
divestment of
products and
-- (21.0) (21.0) businesses -- 0.9 0.9
-- (0.9) (0.9) Other net charges -- 3.4 3.4
--------- --------- ------ ------- --------- ------
Total operating
37.4 136.1 173.5 expenses 28.6 158.8 187.4
--------- --------- ------ ------- --------- ------
(37.0) (17.9) (54.9) Operating loss (28.0) (23.0) (51.0)

Depreciation and
0.5 30.2 30.7 amortization 0.7 32.8 33.5
(1.7) (11.6) (13.3) Amortized fees (0.7) (9.1) (9.8)
Net gain on
divestment of
products and
-- (21.0) (21.0) businesses -- 0.9 0.9
Revenue received
-- 0.7 0.7 and deferred -- -- --
-- (0.9) (0.9) Other net charges -- 3.4 3.4
--------- --------- ------ ------- --------- ------
(38.2) (20.5) (58.7) Adjusted EBITDA (28.0) 5.0 (23.0)
========= ========= ====== ======= ========= ======

(1) Excludes share-based compensation.

(2) General and corporate costs have not been allocated to Tysabri.


Appendix II

Six Months Ended Six Months Ended
June 30, 2005 June 30, 2006

Tysabri Rest of Total Tysabri Rest of Total
(1) Business (1) (1) Business (1)
US$m (1) US$m US$m (1) US$m
US$m US$m
----------------------------------------------------------------------
Revenue
11.6 195.4 207.0 Product revenue (0.2) 259.2 259.0
3.7 10.6 14.3 Contract revenue 1.4 10.3 11.7
---------- --------- ------- ------- --------- ------
15.3 206.0 221.3 Total revenue 1.2 269.5 270.7
---------- --------- ------- ------- --------- ------

Operating Expenses
Cost of goods
24.8 78.9 103.7 sold(2) 1.3 93.3 94.6
Selling, general
and
49.2 143.8 193.0 administrative(3) 37.6 128.8 166.4
Research and
36.9 83.3 120.2 development 11.7 83.1 94.8
Net gain on
divestment of
products and
-- (65.1) (65.1) businesses -- (43.3) (43.3)
-- (0.9) (0.9)Other net charges -- 3.4 3.4
---------- --------- ------- ------- --------- ------
Total operating
110.9 240.0 350.9 expenses 50.6 265.3 315.9
---------- --------- ------- ------- --------- ------
(95.6) (34.0) (129.6)Operating loss (49.4) 4.2 (45.2)

Depreciation and
1.0 64.2 65.2 amortization 1.4 64.7 66.1
(3.7) (21.2) (24.9)Amortized fees (1.4) (19.8) (21.2)
Net gain on
divestment of
products and
-- (65.1) (65.1) businesses -- (43.3) (43.3)
Revenue received
-- 0.7 0.7 and deferred -- -- --
-- (0.9) (0.9)Other net charges -- 3.4 3.4
---------- --------- ------- ------- --------- ------
(98.3) (56.3) (154.6)Adjusted EBITDA (49.4) 9.2 (40.2)
========== ========= ======= ======= ========= ======

(1) Excludes share-based compensation.

(2) Cost of goods sold for Tysabri for the six months ended June 30,
2005 includes $14.0 million of inventory written-off related to
the voluntary suspension of the marketing of Tysabri.

(3) General and corporate costs have not been allocated to Tysabri.