Elan's 4Q Loss Wider Than Expected

Elan Corporation’s (ELN - Snapshot Report) loss of 10 cents per share (excluding special items) for the fourth quarter of 2011 was wider than the Zacks Consensus Estimate of a loss of 3 cents per share. Fourth quarter 2011 revenues increased 18% from the year-ago figure to $271.0 million. The Zacks Consensus Estimate was $283 million. The increase was primarily attributable to strong sales of Tysabri.

The company suffered an adjusted loss of 3 cents in the year-ago quarter. Full year loss of 15 cents was wider than the Zacks Consensus Estimate of a loss of 9 cents and the year-ago loss figure of 10 cents. Full year revenues (pro forma, excluding EDT) were $1,068.1 million reflecting an increase of 19% year over year. The Zacks Consensus Estimate was $1,263 million.

Quarter in Details

Following the sale of the Elan Drug Technologies (“EDT”) segment to Alkermes plc (ALKS - Analyst Report) in 2011 Elan solely focuses on its BioNeurology segment. All figures reported below are excluding EDT.

We note that Elan has a co-development agreement with Biogen Idec Inc. (BIIB - Analyst Report) for Tysabri, under which Elan markets the drug in the US and books the entire sales as its revenues.

Outside the US, Biogen is responsible for distribution, and Elan records as revenue its share of the profit/loss on these sales of Tysabri. The agreement provides Elan with the option to buy the rights of Tysabri if Biogen changes hands.

In-market net sales of Tysabri climbed 14% to $379.6 million in the reported quarter. The increase was driven by increased global demand and higher price in the US market. The sales of Tysabri recorded by Elan rose 18.0% to $270.6 million.

During the reported quarter, selling, general and administrative (“SG&A”) expenses increased 9% to $58.2 million. Research and development (“R&D”) expenses came in at $48.9 million, down 3% from the year-ago quarter.

Outlook

Elan expects 2012 revenues to be in the range of $1.20 billion – $1.25 billion. The Zacks Consensus Estimate of $1.23 billion is within the company’s guidance range. The gross profit margin is expected to be in the range of 44%–47% of total revenues. Combined SG&A and R&D expenses for 2012 are projected in the range of $420 - $440 million.

Our Recommendation

We currently have a Neutral recommendation on Elan. The stock carries a Zacks #4 Rank (Sell rating) in the short run. The company is highly dependent on Tysabri for revenue generation. In January 2012, Tysabri’s label was updated to include anti-JC virus antibody status as one potential factor that could help stratify the risk of progressive multifocal leukoencephalopathy (“PML”) occurring in patients treated with Tysabri. The inclusion of the anti-JCV virus antibody status in the product label should help drive patient growth in the near term. However, we are concerned about the increasing competition in the multiple sclerosis (“MS”) market in the form of Novartis’ (NVS - Snapshot Report) Gilenya, which competes with Tysabri. The MS market is likely to become more competitive with the entry of oral treatments being developed by other companies.

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