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Loss at Elan Wider than Expected

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Elan Corporation’s loss of 5 cents per share (excluding special items) for the second quarter of 2012 was wider than the Zacks Consensus Estimate of a loss of 1 cent per share. Lower-than-expected revenues were primarily responsible for the wider-than-expected loss incurred by Elan in the second quarter of 2012. The company incurred an adjusted loss of 8 cents per share in the second quarter of 2012.

Second quarter 2012 revenues increased 6.4% from the year-ago figure to $288.0 million. The increase was primarily attributable to higher Tysabri sales. Total revenues included Tysabri sales recorded by Elan, adjustments related to Azactam (which the company no longer markets) and royalties. Revenues, however, fell short of the Zacks Consensus Estimate of $301 million.

All the percentages mentioned below are on a year-over-year basis.

Quarter in Detail

The sales of Tysabri recorded by Elan rose 7.1% to $288.4 million. As of the end of June 2012, about 69,100 patients were on commercial and clinical Tysabri therapy worldwide. This represents an increase from 66,700 patients at the end of March 2012.

We note that Elan has a co-development agreement with Biogen Idec Inc. (BIIB - Free 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.

Global in-market net sales of Tysabri climbed 2% to $395.5 million in the reported quarter. In the US, Elan recorded net sales of $211.5 million, up 16%. The rise was primarily attributable to an increase in patient base coupled with a higher selling price.

Tysabri rest of the world (ROW) revenues went down 10.6% to $184 million. Out of the total ROW revenues, Elan recorded revenues of $76.9 million, down 10.8%. The sales in ROW were impacted by negative currency translations and $16.3 million of deferred revenue in Italy.

During the fourth quarter of 2011, Biogen received a notification from the Italian National Medicines Agency stating that Tysabri sales had exceeded a limit established during its 2006 price determination. Biogen is contesting the claim.

During the second quarter, Elan received a major pipeline setback when Pfizer, Inc. (PFE - Free Report) announced disappointing top-line results on Alzheimer’s disease candidate bapineuzumab. Elan is collaborating with Johnson & Johnson (JNJ - Free Report) and Pfizer for the development of the candidate. Pfizer said that bapineuzumab failed to meet its co-primary endpoints in a phase III study (Study 302).

During the reported quarter, selling, general and administrative (SG&A) expenses increased 20.5% to $60.6 million. The increase was due to higher expenses incurred for marketing Tysabri. Research and development (R&D) expenses came in at $49.2 million, down 3.3% from the year-ago quarter.


Elan expects Biogen to resolve the Tysabri-related issue in Italy during 2012, which is reflected in the 2012 revenue guidance. However, failure of Biogen to do so will impact Elan’s revenues by approximately $30–$35 million in 2012. Elan expects 2012 revenues to be in the range of $1.20 billion – $1.25 billion. The Zacks Consensus Estimate of $1.2 billion is at the low end of the company’s guidance range.

Our Recommendation

We currently have a Neutral recommendation on Elan. The stock carries a Zacks #5 Rank (Strong Sell rating) in the short run.

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