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Loss at Elan Wider than Expected

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Elan Corporation’s loss of 12 cents per share (excluding special items) for the third quarter of 2012 was wider than the Zacks Consensus Estimate of a loss of 8 cents per share. The company incurred an adjusted loss of 9 cent per share in the third quarter of 2011.

Third quarter 2012 revenues increased 9.7% from the year-ago figure to $306.6 million. The increase was primarily attributable to higher Tysabri sales. Total revenues included Tysabri sales recorded by Elan as well as royalties from the drug. Revenues beat the Zacks Consensus Estimate of $302 million.

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

Quarter in Detail

Sales of Tysabri recorded by Elan rose 9.8% to $306.4 million. As of the end of September 2012, about 71,100 patients were on commercial and clinical Tysabri therapy worldwide. This represents a 3% increase from 69,000 patients at the end of June 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 3% to $403.8 million in the reported quarter. In the US, Elan recorded net sales of $230.5 million, up 16.9%. The rise was primarily attributable to an increase in patient base in conjunction with a higher selling price.

Tysabri rest of the world (ROW) revenues went down 11% to $173.3 million. Out of the total ROW revenues, Elan recorded revenues of $75.9 million, down 7.3%. The sales in ROW were impacted by negative currency translations and $47.0 million of deferred revenue in Italy.

During the third quarter, Elan received a major pipeline setback when Pfizer, Inc. (PFE - Free Report) and Johnson & Johnson (JNJ - Free Report) announced the discontinuation of Alzheimer’s disease candidate bapineuzumab. Elan is collaborating with Johnson & Johnson and Pfizer for the development of the candidate. Pfizer said that bapineuzumab failed to meet its co-primary endpoints in both the phase III studies (Studies 302 and 301).

Elan started a phase II study of oral ELND005 during the third quarter of 2012. ELND005 is being developed for the treatment of bipolar I disorder. The company also filed an Investigational New Drug (IND) application for NEOD001 for the treatment of amyloid light chain amyloidosis during the quarter.

During the reported quarter, selling, general and administrative (SG&A) expenses decreased 1.8% to $48 million. The decrease was due to lower sales and marketing expenses in the US for Tysabri. Research and development (R&D) expenses came in at $37.0 million, down 16.7% from the year-ago quarter.

Discontinued Operations

We remind investors that in August this year, Elan announced its decision to split into two separate publicly traded companies. The spin-off, approved by its Board of Directors, is expected to be completed by year end. While one company will focus on drug discovery, the other, which will retain the company name, will have Tysabri. The company which will focus on drug discovery will be named Neotope Biosciences.


Elan expects 2012 revenues to be around $1.2 billion. The company expects that the Tysabri Italian price dispute to be resolved by year end. The Zacks Consensus Estimate is in line with the company’s guidance.

Elan expects operating expenses for 2012 in the range of $380–$400 million (previous guidance: $420–$440 million).

Our Recommendation

We currently have a Neutral recommendation on Elan. The stock carries a Zacks #2 Rank (Strong Buy rating) in the short run.

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