Elan has hired Citigroup to work out a new financial strategy that might include a sale or merger, as the Irish biotech company struggles with investor disappointment over a new multiple sclerosis drug and mounting concern over its ability to repay $1 billion (£680 million) in borrowings.

The company's disclosure that it was being advised by Citigroup followed a sudden surge in its share price late last week as rumours surfaced that Pfizer, the American drug giant, might be interested in acquiring Elan.

The rumour was denied by Kelly Martin, the chief executive of Elan, but the company confirmed today that a disposal was one of the options facing the company.

Elan said that Citigroup would help the company to secure the financial resources to develop its pipeline of drugs.

"The range of alternatives that will be assessed could include minority investment or strategic alliance, a merger or sale," the company said.

The Irish company said last month it would cut 114 jobs and close offices in New York and Tokyo to save $25 million.

It has been attempting to respond to shareholder criticism of excessive costs and last year's collapse in its share price, which has fallen from a high of €24 to €7.

Elan's share price fell 40 per cent after the publication in July of disappointing trial results for bapineuzumab, a treatment for Alzheimer's disease.

Two days later, the shares plunged again after Elan revealed evidence of dangerous side-effects of Tsybari, a multiple sclersosis drug and another of its star compounds.

The company must repay $1.7 billion in loans within five years, leaving it vulnerable to the interest of predators.

Big drug companies, such as Pfizer are believed to be on the lookout for smaller biotech companies with interesting product lines that may come under financing difficulties in the gathering recession.

However, Elan has two joint ventures that may rule out a hostile takeover of the company.

These relationships, with Biogen and Wyeth over Tysbari and bapineuzumab, respectively, contain change-of-control clauses that could deter a third party from making a hostile offer.

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