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Elan Narrows Q3 Loss

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Elan Corporation , soon to be acquired by Perrigo Company (PRGO - Free Report) , reported a loss of a penny per share in the third quarter of 2013 from its continuing operations, compared with the year-ago loss of 33 cents per share.

Elan’s third quarter of 2013 revenues from continuing operations came in at $48.6 million. Third quarter revenues primarily consisted of 12% royalty on net sales of the multiple sclerosis drug, Tysabri. We note that Tysabri is currently marketed by Biogen Idec (BIIB - Free Report) while Elan receives royalties on the drug.

However, the company reported earnings of 3 cents per share from its total operations (including discontinued operations), compared to a loss of 39 cents in the year-ago quarter.

Earnings and revenues, as per the Zacks Consensus Estimate, were 3 cents per share and $57 million, respectively.

During the reported quarter, selling, general and administrative (SG&A) expenses were almost flat at $24.1 million. Research and development (R&D) expenses came in at $17.4 million, down 24%. The lower R&D expenses reflect the impact of restructuring initiatives.

Pipeline Update

In Sep 2013, Elan initiated a phase IIa study on ELND005 to evaluate the safety and pharmacokinetics of the candidate in comparison to placebo in young adults suffering from Down syndrome without dementia. The study will also include select cognitive and behavioral measures.
ELND005 is also being developed for the treatment of Alzheimer’s disease (AD) and also for the maintenance treatment of bipolar disease. In Jul 2013, the U.S. Food and Drug Administration (FDA) granted a fast track designation to ELND005 for the treatment of neuropsychiatric symptoms in AD.

Tysabri Transaction

Elan closed its Tysabri transaction with Biogen earlier this year. Biogen paid an upfront payment of $3.25 billion to Elan. As a result, Biogen gained full strategic, commercial, and operational control of the drug.

Elan will be receiving continuing royalties in the future. Elan is eligible to receive a royalty payment of 12% on worldwide net sales of Tysabri (for all indications) for the first year. After the first year, Elan will receive a royalty of 18% on up to $2 billion of global net sales of Tysabri and 25% thereafter.

Elan to be Acquired by Year End

In July this year, Perrigo announced its intention to acquire Elan for approximately $8.6 billion. The cash and stock deal, cleared by the boards of directors of both companies, is expected to close by the end of calendar year 2013.

Following the closure of the deal, the shareholders of Perrigo will own approximately 71% of the merged entity while Elan shareholders will possess the balance. As per the terms of the deal, each stockholder of Elan will be entitled to receive $6.25 per share in cash from Perrigo following the closure. Furthermore, each shareholder of Elan will receive 0.07636 shares of the merged company for each Elan share. We expect investor focus to remain on the Perrigo transaction.

Elan, a biotechnology company, currently carries a Zacks Rank #4 (Sell). Currently, WuXi PharmaTech looks well placed in the biotech space with a Zacks Rank #1 (Strong Buy).

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