Ah, the holy grail of biotech: positive cash flow. Elan
The company thinks it'll have positive EBITDA (earnings before interest, taxes, depreciation, and amortization) by the end of the fourth quarter, but, as Fools know, EBITDA isn't cash flow. I'll be more impressed when the company isn't burning through cash and can begin paying down its nearly $1.8 billion in long-term debt.
Elan's revenue for the third quarter was up 53% year over year, but that wasn't a big surprise because Biogen Idec
Research and development expenses increased substantially as the company pushes its Alzheimer's disease treatment bapineuzumab through phase 3 clinical trials. There are four ongoing clinical trials to test bapineuxumab -- two run by Elan and two by its partner Wyeth
Some of the huge drop in Elan's stock price over the past couple of months was overdue. Investors were putting too high a value on bapineuzumab, even though it's unproven -- witness failures by Myriad Genetics
But, with a market cap hovering above $3 billion and the company on the verge of becoming profitable, Elan seems bizarrely cheap right now. Investors with the guts to buy now may very well see returns only rivaled by the returns that Elan provided in the two to three years after Tysabri was pulled from the market in 2005.