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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