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Tickers in this Article: ELN, VRX, JNJ, BIIB
Elan Corporation (ELN) reported earnings of 15 cents per share for the fourth quarter of 2012 compared to the year-ago loss of 32 cents per share. Earnings benefited from higher revenues. Fourth quarter 2012 revenues increased 18% year over year to $319.8 million. Revenues during the quarter were ahead of the Zacks Consensus Estimate of $318 million. The increase was primarily attributable to strong sales of Tysabri.

Full year loss of 63 cents was wider than the Zacks Consensus Estimate of a loss of 50 cents per share but narrower than the year-ago loss of 77 cents per share. Full-year revenues were $1.2 billion reflecting an increase of 13%. Elan's full year revenues were however in line with the Zacks Consensus Estimate.

Quarter in Detail

Sales of Tysabri recorded by Elan rose 18.1% to $319.6 million. At year-end 2012, about 72,700 patients were on commercial and clinical Tysabri therapy worldwide. This represents a 12% increase from the year-ago number.

Global in-market net sales of Tysabri climbed 14% to $432.8 million in the reported quarter. In the US, Elan recorded Tysabri net sales of $243.0 million, up 24%. The rise was primarily attributable to an approximately 17% increase in units sold as well as price hikes.

Tysabri rest of the world (ROW) revenues went up 4% to $189.8 million. Out of the total ROW revenues, Elan recorded revenues of $76.6 million, up 3.2%. The upside in ROW sales reflect an increase in units sold, which was eventually offset partially by unfavorable pricing and foreign currency movements.

During the reported quarter, selling, general and administrative (SG&A) expenses increased 3.1% to $58.9 million. The increase was due to higher expenses in the US related to Tysabri. Research and development (R&D) expenses came in at $37.5 million, down 9.6% from the year-ago quarter.

2013 Outlook

The company expects global in-market net sales of Tysabri to increase by around 15% over 2012 in-market net sales. Elan expects aggregate SG&A and R&D expenses (excluding Tysabri) in the range of $170 million to $190 million.

The company also expects to contribute around $60-$80 million to Janssen AI, a subsidiary of Johnson & Johnson (JNJ) during 2013. Out of the expected contribution to Janssen, $30 million was paid in January this year.

Biogen Buys Tysabri Rights

Elan also announced that it agreed to restructure the Tysabri collaboration with Biogen Idec Inc. (BIIB). Biogen will gain full strategic, commercial and operational control over Tysabri.

Elan will be receiving an upfront payment of $3.25 billion from Biogen. For the first year, Biogen will make royalty payment of 12% on the worldwide net sales of Tysabri (for all indication). After the first year, Elan will receive a royalty of 18% on up to $2 billion of global net sales and 25% on over $2 billion of global net sales of Tysabri.

The current collaboration agreement (profit and loss equally shared) between the companies will be terminated. The transaction is expected to end in the first half of this year.

Our Take

Elan's fourth quarter and full year results were overshadowed by the company's announcement regarding the restructuring of its agreement with Biogen. Although the restructuring provides Elan with funds and royalties, Elan will be losing an important product like Tysabri. Elan's shares were down 10.1% following the news.

We expect Elan to actively pursue in-licensing deals or acquisitions to boost its product portfolio and pipeline.

Elan carries a Zacks Rank #2 (Buy). However, other pharma stocks such as Valeant Pharmaceuticals (VRX) carry a Zacks Rank #1 (Strong Buy).

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