Elan Corporation plc’s (ELN) adjusted loss per share of 2 cents for the first quarter of 2011 was narrower than the Zacks Consensus Estimate of a loss of 3 cents. The company posted break-even results in the year-ago quarter.
The narrower-than-expected loss was attributable to the higher revenues and lower expenses recorded in the quarter. Including a gain of $78 million, pertaining to the settlement with Celgene Corporation (CELG) on Abraxane, Elan earned 12 cents per share in the first quarter of 2011.
Revenues
First quarter revenues increased 1% to $313.0 million, surpassing the Zacks Consensus Estimate by $16 million. The increase was primarily attributable to higher revenues from the BioNeurology business. The Elan Drug Technologies (EDT) segment performed disappointingly in the reported quarter and saw a 13.7% decline in its revenues.
Segment Details
Elan operates through two segments – BioNeurology and Elan Drug Technologies. The BioNeurology segment focuses on neurodegenerative diseases. The EDT segment is the drug delivery unit at Elan. Revenues from the EDT segment declined 13.7% to $65.9 million in the first quarter of 2011.
Revenues from the BioNeurology segment climbed 5.6% to $247.1 million in the reported quarter. Higher Tysabri sales led to the increase. 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 US, Biogen is responsible for distribution, and Elan records as revenue its share of the profit or 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, indicated for the treatment of multiple sclerosis and Crohn’s disease, climbed 20% to $349.4 million in the reported quarter. Increased demand for the drug coupled with the high Tysabri price in US market contributed to the rise. The sales of Tysabri recorded by Elan rose 23% to $245.2 million.
Expenses
During the reported quarter, selling, general and administrative (SG&A) expenses declined 10% to $57.3 million. Research and development (R&D) expenses came in at $59.5 million, down 8% from the year-ago quarter.
Outlook
The company expects adjusted earnings before interest, tax, depreciation and amortization to exceed $200 million in 2011, driven by strong revenue growth. Elan is also aiming to become cash flow positive in 2011.
Our View
We currently have a Neutral recommendation on Elan, which is supported by a Zacks #3 Rank (short-term Hold rating). The company is highly dependent on Tysabri for revenue generation. In this scenario, we note that an increase in the number of progressive multifocal leukoencephalopathy (PML) cases associated with the use of Tysabri could lead to a slowdown in the sales of the drug going forward.
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