Elan Corporation (ELN)

Intangible Assets and Impairment

We assess the carrying value of intangible assets annually, using discounted cash flows and net realisable values (estimated sales proceeds less costs to sell). When reviewing carrying values, we assess R&D risk, commercial risk, revenue and cost projections, our expected sales and marketing support, our allocation of resources, the impact of competition, including generic competition, the impact of any reorganisation or change of business focus, the level of third party interest in our intangible assets and market conditions.

In July 2002, we began a recovery plan. As a result of certain actions relating to the plan, we recorded material impairment charges of $Nil and $189.5 million in 2004 and 2003, respectively. For additional information on these impairment charges, please refer to Note 4 to the Consolidated Financial Statements. Where the carrying value of intangible assets exceeded their recoverable amounts, the carrying values of those intangible assets have been written down to their recoverable amounts. Total goodwill and other intangible assets amounted to $1,019.5 million at 31 December 2004 (2003: $1,252.4 million). If we were to use different estimates, particularly with respect to expected proceeds from divestments, the likelihood of R&D success, the likelihood and date of commencement of generic competition or the impact of any reorganisation or change of business focus, then an additional material impairment charge could arise. We believe that we have used reasonable estimates in assessing the carrying values of our intangible assets.

At 31 December 2004, we have $46.6 million of intangible assets and goodwill and $1.9 million of inventory relating to Tysabri. As a result of the voluntary suspension of the marketing and clinical dosing of Tysabri in February 2005, we have reassessed our periodic review of goodwill and other intangible assets for impairment. Our reassessment does not indicate impairment at this stage in relation to these assets. However, should new information arise, we may need to reassess goodwill and other intangible assets in light of the new information and we may then be required to take impairment charges related to goodwill and/or other intangible assets.