Specialty pharmaceutical company Elan (NYSE: ELN), based in Dublin, Ireland, took a big step into the world of oncology products today with its acquisition of The Liposome Company (Nasdaq: LIPO) for about $575 million in stock.

The deal, worth about $15.28 per share, is about a 6% premium based on Liposome's close Friday. Biotechnology company Liposome's shares plunged last September after an oncology committee failed to recommend its cancer-fighting drug Evacet for FDA approval.

On top of the stock Elan is offering, it may make a cash payment of $98 million to Liposome shareholders if its cancer-fighting drug Evacet hits various milestones. This would boost the total purchase price to $673 million.

Built through acquisitions, Elan is transforming itself from a drug-delivery company into a specialty pharmaceutical manufacturer with a pipeline expected to deliver big results. Three of its drugs -- Ziconotide (for chronic pain), Neurobloc (muscle spasms), and Zonegran (epilepsy) -- may very well be approved for use in the U.S. this year and are expected to ultimately hit more than $100 million in sales apiece.

Specialty pharmaceutical companies play in the side waters of the drug industry. They focus on niche products in a few specific areas, rather than tackling broad swaths of the drug universe or focusing on areas like antidepressants, where the biggest companies fish. It's a strategy that can reward shareholders. While analysts and investors look for big pharmaceutical companies to develop blockbuster drugs (which achieve $1 billion in sales), a drug that produces $100 million in sales can be quite profitable and remains a rare animal.

Elan has three divisions: Elan Pharmaceuticals, Elan Pharmaceutical Technologies, and Elan Pharmaceutical Operations. It focuses on neurology, pain management, and acute care. Pharmaceuticals make up about one-third of the company's $1 billion in total sales, but analysts are looking for that to increase as new products emerge from the pipeline.

The company has done a good job expanding into new areas, so its push into oncology isn't without precedent. For example, Elan moved into the neurosciences arena in 1996 through its acquisition of Athena Neurosciences. As with any pharmaceutical company, Elan wants to broaden its product portfolio as a way to smooth earnings and generate cash for future growth.

Still, there's work to be done. Elan faced setbacks in its pipeline last year and must prove that it can bring its eagerly awaited drugs to market. In addition, the company has to decide what to do with Evacet, Liposome's cancer drug. Evacet has been approved for use in Europe, but Elan hasn't yet determined whether to continue developing the drug for use in the U.S. In September, the Oncologic Drugs Advisory Committee determined there wasn't sufficient reason to recommend the drug for FDA approval. Liposome's Abelcet, another cancer-fighting drug, had sales of $86 million last year, up a modest 17% from $73.5 million a year ago.

Elan looks like an emerging star and has made efforts to improve the quality of its earnings, which were called into question last year as a result of aggressive accounting practices. Still, after a recent run-up, the company is priced to grow fast. It trades at about the same P/E as Pfizer (NYSE: PFE).

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