Elan Reports Third Quarter 2005 Financial Results

Commenting on Elan's business, Kelly Martin, Elan's president andchief executive officer, said, "Our disciplined execution continued inthe third quarter. On Tysabri, we completed the patient safetyevaluation in both MS and CD/RA. In addition, for MS we submitted ansBLA to the FDA and a similar data package to the EMEA and we lookforward to working with the regulatory agencies during the reviewprocess. In Alzheimer's, we advanced our immunotherapeutic approach.Our humanized monoclonal antibody program continues to progress and iscurrently in Phase II. Our second program, an active immunizationconjugate, has entered Phase I clinical trials this quarter. Theseaccomplishments, along with progress in our core businesses, continueto reinforce our commitment to moving toward profitability andbuilding shareholder value. We remain dedicated to meeting unmetmedical needs of patients. This continues to define us as a companyand as individuals."

Commenting on Elan's third quarter financial results, Shane Cooke,executive vice president and chief financial officer, said, "The lossfor the quarter was reduced by 38% over 2004 to $67.1 million,principally because of the inclusion of litigation settlement costsand product disposals in 2004. We are pleased that the core business,excluding Tysabri, continued to perform strongly with product revenuesup over 40% over last year despite some disruption to the supply ofMaxipime.

Mr Cooke added, "We continue to aggressively manage our cost basewhile not compromising revenue growth or our ability to re-launchTysabri, and are optimistic that the business, excluding Tysabri, ison track to achieve our target of breakeven, on an EBITDA basis, bythe end of the year."
Unaudited Consolidated U.S. GAAP Income Statement Data

Three Months Ended Nine Months Ended
September 30 September 30
2004 2005 2004 2005
US$m US$m US$m US$m
------ ------- --------------- ------- -------
Revenue (See
page 6)
85.7 118.4 Product revenue 302.0 325.4
Contract
15.4 10.2 revenue 55.8 24.5
------ ------- ------- -------
101.1 128.6 Total revenue 357.8 349.9
------ ------- ------- -------

Operating
Expenses (See
page 10)
Cost of goods
39.8 45.6 sold 122.3 146.9
Research and
55.5 60.3 development 185.9 180.5
Selling,
general and
77.8 81.0 administrative 232.8 276.4
Net gain on
divestment of
(5.6) (23.3) businesses (42.4) (88.4)
Other
significant
55.5 3.2 charges 63.3 2.3
------ ------- ------- -------
Total operating
223.0 166.8 expenses 561.9 517.7
------ ------- ------- -------
(121.9) (38.2) Operating loss (204.1) (167.8)
------ ------- ------- -------

Net Interest
and Investment
Gains and
Losses (See
page 11)
Net interest
24.6 28.7 expense 73.7 99.4
Net investment
(2.2) (1.0) gains (59.0) (14.9)
Impairment of
0.3 0.7 investments 44.6 20.8
Loss on EPIL II
-- -- guarantee 47.1 --
Net charge on
debt
-- -- retirement -- 52.2
------ ------- ------- -------
Net interest
and investment
gains and
22.7 28.4 losses 106.4 157.5
------ ------- ------- -------

Net loss from
continuing
operations
(144.6) (66.6) before tax (310.5) (325.3)
Provision
for/(benefit
from) income
(6.9) 0.7 taxes (5.1) 0.6
------ ------- ------- -------
Net loss from
continuing
(137.7) (67.3) operations (305.4) (325.9)
Net income from
discontinued
operations
(see Appendix
29.9 0.2 I) 17.8 0.6
------ ------- ------- -------
(107.8) (67.1) Net loss (287.6) (325.3)
======= ======= ======= =======

Basic and
diluted net
loss per
$(0.28) $(0.16) ordinary share $(0.74) $(0.80)
Weighted
average number
of ordinary
shares
outstanding
391.1 425.5 (in millions) 389.1 409.0
Number of
shares
outstanding at
September 30
391.8 426.6 (in millions) 391.8 426.6



Unaudited Non-GAAP Financial Information - EBITDA

Non-GAAP
Three Months Ended Financial Nine Months Ended
September 30 Information September 30
2004 2005 Reconciliation 2004 2005
US$m US$m Schedule US$m US$m
----------------------------------------------------------------------

Net loss from
continuing
(137.7) (67.3) operations (305.4) (325.9)
Net interest
24.6 28.7 expense 73.7 99.4
Provision
for/(benefit
from) income
(6.9) 0.7 taxes (5.1) 0.6
Depreciation
and
29.8 30.6 amortization 93.3 95.8
(14.5) (17.9) Amortized fees (39.9) (42.8)
Revenue
received and
-- 3.5 deferred 7.0 4.2
------- ------ ------- -------
(104.7) (21.7) EBITDA (176.4) (168.7)
======= ====== ======= =======


Non-GAAP
Three Months Ended Financial Nine Months Ended
September 30 Information September 30
2004 2005 Reconciliation 2004 2005
US$m US$m Schedule US$m US$m
----------------------------------------------------------------------

(104.7) (21.7) EBITDA (176.4) (168.7)
Net gain on
divestment of
(5.6) (23.3) businesses (42.4) (88.4)
Other
significant
55.5 3.2 charges 63.3 2.3
Loss on EPIL
-- -- II guarantee 47.1 --
Net investment
gains and
(1.9) (0.3) losses (14.4) 5.9
Net charge on
debt
-- -- retirement -- 52.2
------------ ------ ------ --------
Adjusted
(56.7) (42.1) EBITDA (122.8) (196.7)
============= ======= ======= =======

To supplement its consolidated financial statements presented on aU.S. GAAP basis, Elan provides readers with EBITDA (Earnings BeforeInterest, Taxes, Depreciation and Amortization) and Adjusted EBITDA,non-GAAP measures of operating results. EBITDA is defined as net lossfrom continuing operations plus or minus depreciation and amortizationof costs and revenues, provisions for income tax and net interestexpense. Adjusted EBITDA is defined as EBITDA plus or minus net gainsor losses on divestment of businesses, other significant charges, losson EPIL II guarantee, net investment gains and losses and net chargeon debt retirement. Neither EBITDA nor Adjusted EBITDA are presentedas alternative measures of operating results, cash flow fromoperations or net loss from continuing operations, as determined inaccordance with U.S. GAAP. Elan's management uses EBITDA and AdjustedEBITDA to evaluate the operating performance of Elan and its businessand these measures are among the factors considered as a basis forElan's planning and forecasting for future periods. Elan believesEBITDA and Adjusted EBITDA are measures of performance used by someinvestors, equity analysts and others to make informed investmentdecisions. EBITDA and Adjusted EBITDA are used as analyticalindicators of income generated to service debt and to fund capitalexpenditures. EBITDA and Adjusted EBITDA do not give effect to cashused for interest payments related to debt service requirements and donot reflect funds available for investment in the business of Elan orfor other discretionary purposes. EBITDA and Adjusted EBITDA, asdefined by Elan and presented in this press release, may not becomparable to similarly titled measures reported by other companies.Reconciliations of EBITDA and Adjusted EBITDA to net loss fromcontinuing operations are set out in the tables above titled "Non-GAAPFinancial Information Reconciliation Schedule."
Unaudited Consolidated U.S. GAAP Balance Sheet Data

December 31 June 30 September 30
2004 2005 2005
US$m US$m US$m
----------------------------------------------------------------------
Assets
Current Assets
Cash and cash equivalents 1,347.6 1,158.1 1,130.7
Restricted cash 164.3 -- --
Marketable investment securities 65.5 18.0 14.2
Prepaid and other current assets 152.5 163.8 118.5
--------- -------- ---------
Total current assets 1,729.9 1,339.9 1,263.4

Non-Current Assets
Property, plant and equipment, net 346.2 358.0 355.6
Intangible assets, net 764.0 720.3 698.9
Marketable investment securities 39.0 21.2 18.6
Restricted cash 28.4 24.6 24.7
Other assets 68.4 57.9 54.4
--------- -------- ---------
Total Assets 2,975.9 2,521.9 2,415.6
========= ======== =========

Liabilities and Shareholders' Equity
Accounts payable and accrued liabilities 361.5 270.9 244.8
Deferred income 110.4 86.0 71.6
EPIL III notes due March 2005 39.0 -- --
6.5% convertible guaranteed notes due 2008 460.0 254.0 254.0
7.25% senior notes due 2008 650.0 613.2 613.2
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 205.0 147.8 82.0
--------- -------- ---------
Total Liabilities and Shareholders'
Equity 2,975.9 2,521.9 2,415.6
========= ======== =========

Movement in Shareholders' Equity
Opening balance 91.1 147.8
Net loss for the period (142.6) (67.1)
Change in unrealized gain on investment
securities (6.0) (2.0)
Issuance of share capital 206.3 3.8
Other (1.0) (0.5)
-------- ---------
Closing balance 147.8 82.0
======== =========


Unaudited Consolidated U.S. GAAP Cash Flow Data

Three Months Nine Months
Ended Ended
September 30 September 30
2004 2005 2004 2005
US$m US$m US$m US$m
---------------- ------------------------------------ ----------------

(175.7) (30.5) Cash flows from operating activities (259.7) (168.6)
(24.6) (28.2) Movement on debt interest and tax (79.3) (111.6)
123.5 (12.4) Working capital movement(1) 101.4 (104.7)
Net purchases of tangible and
(13.1) (7.4) intangible assets (23.7) (42.3)
Net proceeds from sale of
42.5 5.0 investments 229.8 59.0
Net proceeds from business
40.0 43.6 divestments 270.4 93.8
10.6 2.5 Cash flows from financing activities 25.7 (71.6)
0.2 -- Release of restricted cash 20.3 168.1
-- -- Repayment of EPIL III notes -- (39.0)
-- -- Cash payment under EPIL II guarantee (391.8) --
------- -------- ------- --------
3.4 (27.4) Net cash movement (106.9) (216.9)
667.9 1,158.1 Beginning cash balance 778.2 1,347.6
------- -------- ------- --------
Cash and cash equivalents at end of
671.3 1,130.7 period 671.3 1,130.7
======= ======== ======= ========

(1) For nine months ended September 30, 2005, working capital movement
includes $40.0 million cash payment for the settlement of the 2002
class action.

The analysis below is based on the revenues and costs fromcontinuing operations presented in accordance with U.S. GAAP.

Net Loss and Adjusted EBITDA

The net loss for the third quarter of 2005 amounted to $67.1million, a decrease of 38% over the $107.8 million reported in thesame quarter of 2004, principally due to strong growth in productrevenue from our core business, a net gain on divestment ofbusinesses, and costs of $55.0 million related to the settlements ofthe shareholder class action lawsuit and the United States Securitiesand Exchange Commission (SEC) investigation which were incurred in thethird quarter of 2004, offset by increased operating expenses relatedto Tysabri(TM).

Negative Adjusted EBITDA was $42.1 million in the third quarter of2005, compared to $56.7 million in the third quarter of 2004, andincluded negative Adjusted EBITDA of $36.7 million related to Tysabri(2004: $31.9 million). Adjusted EBITDA for the rest of the business,excluding costs related to Tysabri, is targeted to get to breakeven bythe end of 2005 and was negative $5.4 million in the third quarter of2005 (2004: $24.8 million). A reconciliation of negative AdjustedEBITDA to net loss from continuing operations, is presented in thetable titled "Unaudited Non-GAAP Financial Information - EBITDA"included on page 3.

Revenue

Total revenue increased 27% to $128.6 million in the third quarterof 2005 from $101.1 million in the third quarter of 2004, principallydue to an increase in product revenue from the core business, offsetby reduced revenue from divested products and contract revenue.Revenue is analyzed below between product revenue generated from thecore business, revenue arising from products that have been divestedand contract revenue.

Three Months Ended Nine Months Ended
September 30 September 30
2004 2005 2004 2005
US$m US$m US$m US$m
-------------------------------------------------------

Revenue from Marketed
Products
33.0 33.8 Maxipime(TM) 87.7 93.5
12.5 17.0 Azactam(TM) 35.3 40.2
-- (0.2) Tysabri -- 11.4
-- 1.5 Prialt(TM) -- 4.3
-------- ------ ------ ------
Total Revenue from
45.5 52.1 Marketed Products 123.0 149.4

Manufacturing Revenue
and Royalties (see
29.0 57.8 page 9) 90.6 148.8

Amortized Revenue -
8.5 8.5 Adalat(TM)/Avinza(TM) 25.5 25.5
-------- ------ ------ ------
Total Product Revenue
83.0 118.4 from Core Business 239.1 323.7

Revenue from Divested
Products
-- -- European business 10.5 --
-- -- Zonegran 41.2 --
2.7 -- Other 11.2 1.7
-------- ------ ------ ------
Total Revenue from
2.7 -- Divested Products 62.9 1.7
-------- ------ ------ ------

-------- ------ ------ ------
85.7 118.4 Total Product Revenue 302.0 325.4
-------- ------ ------ ------

Contract Revenue
5.0 7.0 Amortized fees 11.5 13.5
Research revenue
10.4 3.2 and milestones 44.3 11.0
-------- ------ ------ ------
Total Contract
15.4 10.2 Revenue 55.8 24.5
-------- ------ ------ ------

-------- ------ ------ ------
101.1 128.6 Total Revenue 357.8 349.9
======== ====== ====== ======

Product Revenue

Total product revenue for the third quarter of 2005 of $118.4million increased 38% from $85.7 million recorded in the same quarterof 2004 due primarily to an increase in revenue from marketed productsand an increase in manufacturing revenue and royalties.

Revenue from marketed products

Revenue from marketed products was $52.1 million in the thirdquarter of 2005, compared to $45.5 million recorded in the same periodof 2004 due to increased sales of Maxipime and Azactam, and the salesof Prialt which was launched in 2005.

As previously reported, we have experienced third party supplyshortages and disruptions with Maxipime during 2005. This has led to asignificant decline in inventories that are held by our wholesalecustomers and hospitals and, consequently, on our ability to meetdemand. As a result of the inventory shortages, Maxipime prescriptionvolume demand for July and August of 2005 decreased by 5%, compared tothe same period in 2004. Revenue for the third quarter of 2005increased by 2% from $33.0 million in the third quarter of 2004 to$33.8 million. The supply situation improved during the third quarterand we expect to be able to meet demand and wholesaler inventoryrequirements during the fourth quarter of 2005. We will continue toactively manage the supply of Maxipime which is manufactured by athird party.

Azactam prescription volume demand for July and August of 2005increased by 4%, compared to the same period of 2004, while revenuefor the quarter increased from $12.5 million to $17.0 million, or 36%.Changing wholesaler inventory levels primarily explains the differencebetween Azactam prescription growth rate and revenue growth in thethird quarter of 2005. Azactam lost patent exclusivity in October 2005and we anticipate generic competition will have an impact on sales ofAzactam from the end of the year.

Prialt, a new treatment for severe chronic pain, was approved inthe U.S. in December 2004. Revenue from Prialt for the third quarterof 2005 was $1.5 million, down from $1.8 million reported in thesecond quarter of 2005, due to increased demand offset by reducedwholesaler inventories.

Manufacturing revenue and royalties

Manufacturing revenue and royalties from Elan's Drug Technologybusiness comprises 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 was $57.8 million in the thirdquarter of 2005, an increase of 99% over the $29.0 million recorded inthe third quarter of 2004. This primarily reflects increased sales bythird parties of products that incorporate Elan's technologies,principally Tricor(TM), and increased manufacturing activity for thirdparties.

Manufacturing revenue and royalties can be further analyzed asfollows:
Three Months Ended Nine Months Ended
September 30 September 30
2004 2005 2004 2005
US$m US$m US$m US$m
-----------------------------------------
-- 11.1 Tricor -- 30.1
6.9 10.6 Verelan(TM) 19.1 26.9
3.5 6.5 Skelaxin(TM) 9.5 14.7
3.2 5.3 Ritalin(TM) 8.3 11.1
2.8 4.2 Avinza(TM) 10.8 9.1
4.0 3.7 Diltiazem(TM)15.2 12.8
-- 3.4 Zanaflex(TM) -- 8.8
8.6 13.0 Other 27.7 35.3
-------- ----- ----- ------
29.0 57.8 Total 90.6 148.8
-------- ----- ----- ------

No product accounted for more than 10% of total manufacturingrevenue and royalties in the third quarter of 2005 or 2004, except asnoted above. Of the total of $57.8 million in manufacturing revenueand royalties in the third quarter of 2005, 35% (2004: 15%) consistedof royalties received on products that are not manufactured by Elan.

Amortized revenue

The results for the third quarter of 2005 and 2004 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 $43.7 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.

Contract Revenue

Contract revenue in the third quarter of 2005 was $10.2 million, adecrease of 34% from the $15.4 million recorded in the third quarterof 2004, principally due to a reduction in research revenue andmilestones arising from research and development activities performedby Elan on behalf of third parties. The reduction resulted from, amongother things, the timing of milestone receipts, the completion oftransitional research and development activities related to certaindivested products and the suspension of activity related toSonata(TM).

Gross Profit

The gross profit margin on product revenue was 61% in the thirdquarter of 2005, compared to 54% in the same period of 2004. Theincrease was due principally to the change in the mix of sales andcost management.

Operating Expenses

Research and development (R&D) expenses were $60.3 million in thethird quarter of 2005, compared to $55.5 million in the same period of2004 and $64.3 million in the second quarter of 2005. The increase inthe third quarter of 2005 from the same quarter of 2004 is due tocosts related to the Tysabri safety evaluation study and the ongoingenrollment of patients in Phase II clinical trials with a humanizedmonoclonal antibody, AAB-001, for Alzheimer's disease. Included in R&Dexpenses is $19.4 million related to Tysabri (2004: $18.1 million).

Selling, general and administrative (SG&A) expenses increased 4%to $81.0 million in the third quarter of 2005 from $77.8 million inthe same quarter of 2004 and decreased 11% from $91.4 million in thesecond quarter of 2005 and can be analyzed as follows:
Three Months Ended Nine Months Ended
September 30 September 30
2004 2005 2004 2005
US$m US$m US$m US$m
-----------------------------------------
Rest of
48.1 45.9 business 159.2 152.5
13.8 16.7 Tysabri 22.3 64.9
Depreciation
and
amortization
(principally
Maxipime and
15.9 18.4 Azactam) 51.3 59.0
------- ----- ------ ------
77.8 81.0 Total 232.8 276.4

Rest of business SG&A expenses, excluding amortization, decreasedby 5% from $48.1 million in the third quarter of 2004 to $45.9 millionin the third quarter of 2005. The SG&A expenses related to Tysabri,excluding amortization, were $16.7 million in the third quarter of2005, compared to $13.8 million in the third quarter of 2004 and $17.9million in the second quarter of 2005.

Net Gain on Divestment of Businesses

The net gain on divestment of businesses in the third quarter of2005 was $23.3 million, compared to a net gain of $5.6 million in thesame period of 2004. Included in the net gain in the third quarter of2005 is $23.0 million of contingent consideration related to thedivestment of Zonegran (zonisamide) to Eisai Co. Ltd (Eisai). Inaddition, Elan expects to receive additional consideration of $25.0million from Eisai if generic zonisamide is not introduced into theU.S. market before January 1, 2006.

Other Significant Charges

Other significant charges were $3.2 million (mainly severancecosts) in the third quarter of 2005, compared to $55.5 millionincurred in the same period of 2004. The $55.5 million incurred in thethird quarter of 2004 primarily consisted of costs to settle theshareholder class action and the SEC investigation.

Net Interest and Investment Gains and Losses

Net interest and investment gains and losses amounted to a netcharge of $28.4 million for the third quarter of 2005, compared to anet charge of $22.7 million for the same period of 2004. The increaseis primarily a result of the issuance of $1.15 billion in senior fixedand floating notes in November 2004, partially offset by the repaymentof the EPIL III notes, the retirement of $242.8 million of our 2008debt in the second quarter of 2005, and by interest income earned onhigher average cash balances.

EBITDA

Negative Adjusted EBITDA for the third quarter of 2005 amounted to$42.1 million, compared to a negative Adjusted EBITDA of $56.7 millionin the same period of 2004. The improvement is due to increasedproduct revenue and operating margins from the core business,partially offset by increased costs associated with Tysabri.

Negative Adjusted EBITDA, excluding Tysabri, was $5.4 million inthe third quarter of 2005 compared to $20.5 million in the secondquarter of 2005. The second quarter of 2005 included $8.0 million oflitigation settlement costs. The improvement in negative AdjustedEBITDA, excluding Tysabri, is principally a result of continued growthin product revenue from the core business and the impact of the costcontainment initiatives announced in April 2005. Negative AdjustedEBITDA for Tysabri was $36.7 million in the third quarter of 2005,compared to $38.2 million in the second quarter of 2005.

A reconciliation of negative EBITDA and Adjusted EBITDA to netloss from continuing operations, as reported under U.S. GAAP, ispresented in the tables titled, "Non-GAAP Financial InformationReconciliation Schedule," included on page 3.

Research & Development

Tysabri (Natalizumab)

The comprehensive Tysabri safety evaluation for multiple sclerosis(MS), Crohn's Disease (CD) and rheumatoid arthritis has been completedand the findings resulted in no new confirmed cases of progressivemultifocal leukoencephalopathy (PML). The companies have previouslyreported three confirmed cases of PML, two of which were fatal. OnSeptember 26, 2005, Elan and Biogen Idec announced the submission of asupplemental Biologics License Application (sBLA) for Tysabri to theU.S. Food and Drug Administration (FDA) for the treatment of MS. Thecompanies have requested Priority Review designation from the FDA. ThesBLA includes final two-year data from the Phase III AFFIRMmonotherapy trial and SENTINEL add-on trial with AVONEX(R) (Interferonbeta-1a) in MS, the integrated safety assessment of patients treatedwith TYSABRI in clinical trials, a revised label and a risk managementplan. The companies have also submitted a similar data package to theEuropean Medicines Agency. The process to restart clinical trials inMS is ongoing.

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.

Two of our compounds from the Alzheimer's disease immunotherapyprogram, in collaboration with Wyeth, are currently progressingthrough clinical trials.

ACC-001

Following the acceptance of the Investigational New DrugApplication for ACC-001, our active A-beta immunotherapeuticconjugate, we entered a phase I clinical trial and initiated dosing ofpatients in the third quarter of 2005. This twelve month clinicaltrial is designed to study safety and pharmacokinetics in patientswith mild to moderate Alzheimer's disease.

AAB-001

The phase II clinical trials with our humanized monoclonalantibody, AAB-001, designed and engineered to remove the neurotoxicbeta-amyloid peptide that accumulates in the brain of patients withAD, is advancing as planned. Dosing was initiated in the first half of2005 and is scheduled to last eighteen months, with several plannedinterim analyses.

About Elan

Elan Corporation, plc is a neuroscience-based biotechnologycompany committed to making a difference in the lives of patients andtheir families by dedicating itself to bringing innovations in scienceto fill significant unmet medical needs that continue to exist aroundthe world. Elan shares trade on the New York, London and Dublin StockExchanges and. For additional information about the company, pleasevisit 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 the following:whether and when Elan will be able to resume marketing and developingTysabri; even if Elan can resume marketing and developing Tysabri, thepotential of Tysabri and the potential for the successful developmentand commercialization of additional products, including thoseutilizing Tysabri; the potential of Elan's current products; Elan'sability to maintain sufficient cash, liquid resources, and investmentsand other assets capable of being monetized to meet its liquidityrequirements; the success of research and development activities andthe speed with which regulatory authorizations and product launchesmay be achieved; competitive developments affecting Elan's products;the ability to successfully market both new and existing products;difficulties or delays in manufacturing and supply of Elan's products(including, in particular Maxipime); trade buying patterns; the impactof generic and branded competition after the expiration of Elan'spatents, including the impact of any generic competition following theloss of patent exclusivity for Azactam in October 2005; whetherrestrictive covenants in Elan's debt obligations will adversely affectElan; the trend towards managed care and health care cost containment,including Medicare 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; failure to comply with its payment obligationsunder Medicaid and other governmental programmes; exposure to productliability and other types of lawsuits and legal defense costs and therisks of adverse decisions or settlements related to productliability, patent protection, governmental investigations and otherlegal proceedings; Elan's ability to protect its patents and otherintellectual property; claims and concerns that may arise regardingthe safety or efficacy of Elan's products or product candidates;interest rate and foreign currency exchange rate fluctuations;governmental laws and regulations affecting domestic and foreignoperations, including tax obligations; general changes in U.S.,International and Irish generally accepted accounting principles;growth in costs and expenses; changes in product mix; and the impactof acquisitions, 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 Form 20-F forthe fiscal year ended December 31, 2004,as amended by Amendment No. 1on Form 20-F/A, and in its Reports of Foreign Issuer on Form 6-K filedwith the SEC. Elan assumes no obligation to update any forward-lookingstatements, whether as a result of new information, future events orotherwise.

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

In previous quarters and in accordance with SFAS No. 144, Elanrecorded the results and gains or losses on the divestment of itsdiscontinued operations including Elan Transdermal Technologies,Athena Diagnostics, Elan Diagnostics, a manufacturing business inItaly, the pain portfolio of products, Actiq(TM), the dermatologyportfolio of products, Abelcet(TM) U.S. and Canada, Frova(TM),Myobloc(TM) and two products that were marketed in the United Kingdomand Ireland, within discontinued operations in the consolidated incomestatement. An analysis of the results of the discontinued operationsis set out below.

Elan has also sold a number of other assets and businesses(principally the primary care franchise, the European sales andmarketing business and Zonegran), which in accordance with SFAS No.144, are not included in discontinued operations. Elan believes thatit has a significant continuing involvement in the operations of thesebusinesses, for example, through ongoing supply arrangements orformulation activities.
Discontinued Operations (unaudited)

Three Months Nine Months
Ended Ended
September 30 September 30
2004 2005 2004 2005
US$m US$m US$m US$m
----------------------------------------------------------------------
Revenue
0.4 -- Product revenue 23.7 --
-- -- Contract revenue 5.0 --
------- ------ ------- -------
0.4 -- Total revenue 28.7 --
------- ------ ------- -------
Operating Expenses
0.3 -- Cost of goods sold 13.4 --
(0.6) 0.1 Research and development 5.0 (0.4)
(2.6) -- Selling, general and administrative 4.2 0.3
(26.5) (0.3) Net gain on divestment of businesses (11.2) (0.5)
------- ------ ------- -------
(29.4) (0.2) Total operating expenses 11.4 (0.6)
------- ------ ------- -------

29.8 0.2 Operating profit 17.3 0.6

0.1 -- Net investment gains 0.5 --
------- ------ ------- -------

Net income from discontinued operations
29.9 0.2 before tax 17.8 0.6
-- -- Provision for tax -- --
------- ------ ------- -------
29.9 0.2 Net income from discontinued operations 17.8 0.6
======= ====== ======= =======

Non-GAAP Financial Information
EBITDA
29.9 0.2 Net income from discontinued operations 17.8 0.6
Depreciation and amortization included
-- -- in operating profit 1.0 --
Amortized revenue included in total
-- -- revenue (4.6) --
------- ------ ------- -------
29.9 0.2 EBITDA 14.2 0.6
------- ------ ------- -------

(26.5) (0.3) Net gain on divestment of businesses (11.2) (0.5)
(0.1) -- Net investment gains (0.5) --
------- ------ ------- -------
3.3 (0.1) Adjusted EBITDA 2.5 0.1
======= ====== ======= =======

Appendix II
Three Months Ended Nine Months Ended
September 30, 2005 September 30, 2005
Rest of Rest of
Tysabri Business Total Tysabri Business Total
US$m US$m US$m US$m US$m US$m
------------------------- ------------------ -------------------------
Revenue
(0.2) 118.6 118.4 Product revenue(1) 11.4 314.0 325.4
5.6 4.6 10.2 Contract revenue 9.3 15.2 24.5
-------- --------- ------ ------- --------- -------
5.4 123.2 128.6 Total revenue 20.7 329.2 349.9
-------- --------- ------ ------- --------- -------

Operating Expenses
Cost of goods
0.4 45.2 45.6 sold(2) 25.2 121.7 146.9
Selling, general
and
17.2 63.8 81.0 administrative(3) 66.4 210.0 276.4
Research and
19.4 40.9 60.3 development 56.3 124.2 180.5
Net gain on
divestment of
-- (23.3) (23.3) businesses -- (88.4) (88.4)
Other significant
0.3 2.9 3.2 charges 0.3 2.0 2.3
-------- --------- ------ ------- --------- -------
Total operating
37.3 129.5 166.8 expenses 148.2 369.5 517.7
-------- --------- ------ ------- --------- -------
(31.9) (6.3) (38.2) Operating loss (127.5) (40.3) (167.8)

Depreciation and
0.5 30.1 30.6 amortization 1.5 94.3 95.8
(5.6) (12.3) (17.9) Amortized fees (9.3) (33.5) (42.8)
Net gain on
divestment of
-- (23.3) (23.3) businesses -- (88.4) (88.4)
Revenue received
-- 3.5 3.5 and deferred -- 4.2 4.2
Other significant
0.3 2.9 3.2 charges 0.3 2.0 2.3
-------- --------- ------ ------- --------- -------
(36.7) (5.4) (42.1) Adjusted EBITDA (135.0) (61.7) (196.7)
======== ========= ====== ======= ========= =======

(1) Revenue from sales of Tysabri in the nine months ended September
30, 2005, is net of $15.0 million for sales returns related to the
product recall.

(2) Cost of sales for Tysabri in the nine months ended September 30,
2005, includes $14.0 million of inventory write-off related to the
voluntary suspension of the marketing of Tysabri.

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