Elan Matches Earnings Ests. - Analyst Blog

Elan Corporation plc (ELN) reported loss per share of 7 cents for the third quarter of 2010, in line with the Zacks Consensus Estimate but way below the year-ago earnings of 11 cents per share. The year-ago quarter saw Elan recording a divestment gain of $107.7 million, which is primarily the reason for the substantial year-over-year decline in earnings. On an adjusted basis, the company reported a loss of 5 cents per share, an improvement from a loss of 11 cents per share in the third quarter of 2009.

Revenues

Quarterly revenues declined 2% year over year to $281.4 million and also missed the Zacks Consensus Estimate of $298 million.

Elan operates through two segments – BioNeurology and Elan Drug Technologies (EDT). Revenues from the BioNeurology segment went up 0.2% to $218.2 million, driven by higher Tysabri sales. The EDT segment sales, however, declined 8.6% year over year to $63.2 million. Lower Skelaxin revenues affected EDT segment sales.

Revenues from Tysabri, indicated for the treatment of multiple sclerosis (MS) and Crohn's disease (CD), amounted to $215.9 million during the third quarter of 2010, reflecting a year-over-year increase of 12.8%. Higher demand and price increases helped boost Tysabri sales.

Elan has a co-development agreement with Biogen Idec Inc. (BIIB) for Tysabri, under which Elan markets the drug in the US and books the entire sales as its revenues. Outside the United States, Biogen is responsible for distribution, and Elan records as revenue its share of the profit or loss on these sales of Tysabri. This collaboration agreement provides Elan with the option to buy the rights of Tysabri if Biogen changes hands.

Expenses

During the reported quarter, selling, general and administrative (SG&A) expenses declined 4% to $64.2 million. Lower sales and marketing costs helped in the decline. Research and development (R&D) expenses came in at $63.8 million, down 20% from the year-ago quarter. The divestment of the Alzheimer's Immunotherapy Program during the third quarter of 2009 is still helping Elan save costs.

Outlook

Elan expects adjusted earnings before interest, tax, depreciation and amortization to cross $150 million in 2010. Further, the company is looking to end 2010 with about $400 million of cash and investments, with the objective of becoming cash flow positive in 2011.

Further, the company said that it expects SG&A and R&D expenses to range between $475 million and $525 million during 2010.

Our View

We currently have a Neutral recommendation on Elan. The company is highly dependent on Tysabri for revenue generation. We remain concerned that an increase in the number of progressive multifocal leukoencephalopathy (PML; a viral infection of the brain) cases associated with the use of Tysabri could lead to a slowdown in the sales of the drug going forward.