Elan Corporation plc (ELN) reported loss per share of 9 cents for the fourth quarter of 2010, wider than the Zacks Consensus Estimate of a loss of 4 cents but a penny narrower than the year-ago loss of 10 cents per share. For fiscal year 2010, the company incurred a loss of 56 cents per share, wider than the Zacks Consensus Estimate of 41 cents and the year-ago loss of 35 cents per share.
Elan recorded a settlement charge of $206.3 million during 2010, which is primarily the reason for the substantial year-over-year decline in earnings.
On an adjusted basis, the company reported break-even earnings per share during the fourth quarter, in line with the year-earlier period. However, adjusted loss for 2010 came in at 8 cents per share, a substantial improvement from the year-ago loss of 38 cents.
Fourth quarter revenues increased 3% to $308.9 million, beating the Zacks Consensus Estimate of $284 million. Revenues for 2010 amounted to $1.17 billion, beating the Zacks Consensus Estimate of $1.15 billion and reflecting a year-over-year increase of 5%.
Higher revenues from the Elan Drug Technologies (EDT) business helped boost quarterly revenues, while increased revenues from the BioNeurology business led to an upside to annual revenues.
Quarterly Details
Elan operates through two segments – BioNeurology and Elan Drug Technologies. Revenues from the BioNeurology segment declined 0.6% to $230.4 million due to cessation of revenue from Maxipime, Azactam and Prialt, offset slightly by higher Tysabri sales. The EDT segment grew 15% to $78.5 million, driven by higher revenue from Ampyra.
Revenues from Tysabri, indicated for the treatment of multiple sclerosis (MS) and Crohn’s disease (CD), amounted to $229.4 million during the fourth quarter of 2010, reflecting a year-over-year increase of 14%. Higher demand and price increases helped boost Tysabri sales.
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 United States, Biogen is responsible for distribution, and Elan records as revenue its share of the profit or loss on these sales of Tysabri. This collaboration agreement provides Elan with the option to buy the rights of Tysabri if Biogen changes hands.
In December last year, Elan and Biogen submitted a supplemental Biologics License Application (sBLA) to the US Food and Drug Administration (FDA) seeking permission to include anti-JC Virus antibody status as one potential factor that could help stratify the risk of progressive multifocal leukoencephalopathy (PML; a rare but serious brain infection) occurring in patients treated with Tysabri.
Elan and Biogen have also submitted a Type II Variation to the European Medicines Agency (EMA) regarding the label update.
The prescribing information on Tysabri’s label has been updated to include information regarding the increased risk of developing PML that increases with longer use of the drug. The label also includes language regarding limited experience beyond 3 years of treatment.
Expenses
During the reported quarter, selling, general and administrative (SG&A) expenses went up 2% to $62.7 million. Higher sales and marketing costs led to the increase. Research and development (R&D) expenses came in at $64.6 million, up 24% from the year-ago quarter, driven primarily by Tysabri and EDT development activities.
Outlook
The company expects adjusted earnings before interest, tax, depreciation and amortization to come in at $200 million in 2011, reflecting a year-over-year increase of 20%. It is also aiming to become cash flow positive in 2011.
Moreover, Elan anticipates total revenues to accelerate in 2011 by more than 5%, compared to 2010 levels, driven primarily by elevated Tysabri. However, revenues from the EDT business segment are expected to decline 5% to 10% in 2011.
A potential delay in the European approval of Ampyra for improving walking speed in multiple sclerosis patients, increased competition for some legacy products and the clearance of a large backlog of Ampyra prescription requests in 2010 are expected to negatively impact revenues from the EDT business.
Ampyra has been developed by Acorda Therapeutics Inc. (ACOR), which has a supply agreement with Elan for the manufacturing of the drug.
Gross margin for 2011 is expected to be in the range of 47% to 50%. Additionally, total SG&A and R&D expenses are expected to range between $470 million and $500 million during 2011.
Separately, SG&A expenses are estimated to be less than 20% of total revenues.
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 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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