Elan Corporation (ELN)

Operating Expenses

Research and development (R&D) expenses were $60.3 million in the third quarter of 2005, compared to $55.5 million in the same period of 2004 and $64.3 million in the second quarter of 2005. The increase in the third quarter of 2005 from the same quarter of 2004 is due to costs related to the Tysabri safety evaluation study and the ongoing enrollment of patients in Phase II clinical trials with a humanized monoclonal antibody, AAB-001, for Alzheimer’s disease. Included in R&D expenses 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 in the same quarter of 2004 and decreased 11% from $91.4 million in the second quarter of 2005 and can be analyzed as follows:

10

Elan Third Quarter 2005 Financial Results

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

Operating Expenses

Selling, general and administrative (SG&A) expenses increased 22% to $91.4 million in the second quarter of 2005 from $75.1 million in the same quarter of 2004 and can be analyzed as follows:

Rest of business SG&A expenses, excluding amortization, decreased by 6% from $60.6 million in the second quarter of 2004 to $57.2 million in the second quarter of 2005 and includes litigation settlement costs of $8.0 million related to BioPort and our former chief executive officer. The SG&A expenses related to Tysabri, excluding amortization, were $17.9 million in the second quarter of 2005, compared to $30.3 million in the first quarter of 2005. The reduction was as a result of the prompt actions taken to adjust the investment in the commercialization of Tysabri following its voluntary suspension.

Research and development (R&D) expenses were $64.3 million in the second quarter of 2005, compared to $65.0 million in the same period of 2004 and $55.9 million in the first quarter of 2005. The increase in the second quarter of 2005 from the first quarter of 2005 is due to costs related to the Tysabri safety evaluation study and the ongoing enrollment of patients in Phase II clinical trials with a humanized monoclonal antibody, AAB-001, for Alzheimer’s disease. Included in R&D expenses is $19.5 million related to Tysabri (2004: $24.9 million).