What Will Elan Do for an Encore?

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In 2011, drug developer Elan (NYSE: ELN  ) lightened up its balance sheet, divested part of its operations, and became profitable for the first time in, oh, forever. Share prices climbed nearly 140% as investors soaked in all the good news.

It's not easy to follow up on a year like that. What will Elan do for an encore in 2012? Let's figure it out.

What a difference a year makes
When Elan sold its drug-delivery technologies to Alkermes (Nasdaq: ALKS  ) , only half of the payment arrived at the Dublin headquarters in crisp euro bills. The rest was in Alkermes shares, and that stock has climbed about 20% since the deal was announced. In theory, Elan is getting about $100 million more than it expected.

Management plans to sell those shares in a controlled manner, thus converting the equity holding into liquid cash -- don't invest in Elan as a long-term proxy for Alkermes, in other words. "We're not a venture capital company," says CEO Kelly Martin. "We're not a private equity company, so our shareholders will expect us over time to take this investment and monetize it."

What to do with all this cash?
So Elan is going to improve its balance sheet a bit further in 2012, using proceeds from the Alkermes sale. But the company also wants to invest in more drug research, more clinical trials, and more of its core business overall. Multiple sclerosis drug Tysabri carries the entire company on its shoulders today, but there's plenty of cool stuff in the pipeline.

For example, the research done for Tysabri helps Elan's scientists understand other brain-breaking diseases as well. There are several Alzheimer's treatments (including a partnership with Johnson & Johnson (NYSE: JNJ  ) for bapineuzumab, already in phase 3 FDA trials) and a Parkinson's drug in the discovery stage. I'd be shocked to see any of it on the market in 2012, but there's long-term promise here. Oh, and Tysabri might work as a simple subcutaneous shot rather than the infusion you'd get today. Stay tuned for that project, currently in Phase 1 trials.

Don't fall asleep at the wheel!
Meanwhile, Tysabri is surrounded by a growing posse of new therapies. Many of them are simple pills, not scary injections or infusions. Elan and development partner Biogen Idec (Nasdaq: BIIB  ) are fighting back with a testing program for the often fatal brain disease progressive multifocal leukoencephalopathy, which could settle down a lot of rattling patient nerves. As an MS patient myself, I know I'd be on Tysabri if that pesky lethality risk didn't scare my family so much. Remove the PML risk and higher Tysabri sales will follow, or so the thinking goes. That's certainly something to keep an eye on in 2012.

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Fool contributor Anders Bylund holds no position in any of the companies mentioned. The Motley Fool owns shares of Johnson & Johnson. Motley Fool newsletter services have recommended buying shares of Elan and Johnson & Johnson, as well as creating a diagonal call position in Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Check out Anders' holdings and bio, or follow him on Twitter and Google+. We have a disclosure policy.

Read/Post Comments (1) | Recommend This Article (3)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 09, 2012, at 3:55 PM, ikkyu2 wrote:

    As a practicing neurologist, I would state my opinion which is that in the majority of cases, the real risk to the family's peace of mind ought to be progression of MS, not PML.

    The STRATIFY data suggests that people with a negative serum anti-JC virus antibody may not go on to develop PML. Worth checking it out.

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