Foolish Forecast: Plenty of Zing in Elan

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Wednesday morning brings news from the Emerald Isle, as Irish drug designer Elan (NYSE: ELN) reports fourth-quarter earnings. Check out what fellow Fool Brian Lawler saw in the last report, and come back here for an outlook as fresh as Irish spring.

What Fools say:
Here's how Elan's CAPS scoring rates against some of its peers and competitors:

	Market Cap (millions)	Trailing P/E Ratio	CAPS Rating
Pfizer (NYSE: PFE)	$150,040	18.5	***
Merck (NYSE: MRK)	$98,430	30.2	***
Teva Pharmaceutical Industries (Nasdaq: TEVA)	$35,900	21.3	*****
Biogen Idec (Nasdaq: BIIB)	$18,008	30.8	***
Elan	$11,940	N/A	***

Data taken from Motley Fool CAPS on Feb. 11.

Elan's supporters and detractors are happy to trade barbs on the company's CAPS page. The bulls like Elan for its strong product pipeline, and for Tysabri's habit of going from strength to strength. The bears think the recent run-up will end on the slightest stumble, and a few players think that management is running the company into the ground.

What management does:
As you can see here, the bottom line oozes more red than the operating income does. That's because interest payments on Elan's large debt load weighs on earnings, and a $52 million asset writedown last summer didn't help any. That's what happens when drug patents expire and generic competition for some lesser lights in the portfolio start popping up.

Margins	6/2006	9/2006	12/2006	3/2007	6/2007	9/2007
Gross	63.2%	61.2%	64.8%	63.2%	60.8%	58.5%
Operating	(28.7%)	(46.3%)	(38.5%)	(35.2%)	(29.8%)	(24.7%)
Net	(223.1%)	(56.0%)	(47.7%)	(54.3%)	(57.7%)	(49.2%)
FCF/Revenue	(32.9%)	(35.5%)	(48.2%)	(30.9%)	(36.2%)	(29.5%)

Y-O-Y Growth	6/2006	9/2006	12/2006	3/2007	6/2007	9/2007
Revenue	17.4%	12.8%	14.3%	31.4%	13.4%	32.4%

Data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Tysabri was recently approved as a treatment for Crohn's disease, expanding the addressable market a bit further. That's after 21,000 multiple sclerosis patients worldwide got their prescriptions, without a single case of the dreaded PML brain infection that sent Tysabri to the sidelines in 2005. Biogen already reported $129 million in Tysabri sales in its fourth quarter, or 25% sequential growth.

That's the important data here. Every quarter, thousands of MS patients sign up for the most effective drug for their ailment, and they're not exhibiting symptoms of rare brain diseases. Evidence is mounting that Tysabri is safe when used properly, and it could still become a first-line treatment if doctors and patients clamor for it loudly enough. "Time is brain," say the drug's most strident proponents.

Now, the miracle drug is still far away from making Elan profitable, and other promising leads, like the Alzheimer's drugs and nanotech drug delivery systems, are even farther out on the horizon. Regardless, I'm happy to hold my shares. The stock price today is just about what I thought it should have been two years ago, before several quarters of growing Tysabri acceptance.