Yesterday, drugmaker Elan (NYSE:ELN) announced its first-quarter financial results. Elan also updated investors on the sales uptake of multiple sclerosis (MS) drug Tysabri, which it markets with partner Biogen IDEC (NASDAQ:BIIB).
With a highly leveraged balance sheet and a net loss of $93 million this quarter, Elan desperately needs Tysabri sales to pick up. Worldwide sales of the novel, newly-launched MS therapy reached $48 million worldwide this quarter, compared to $30 million in the previous three months.
Despite the increase in Tysabri sales, Elan is still going to struggle to get into the black. Its other top products, Maxipime and Azactam -- which accounted for more than 40% of its $176 million in revenue this quarter -- could be facing generic competition within the next year. Not only that, but the drugmaker's cash and equivalents on its balance sheet has declined by more than $170 million in the past twelve months.
Not having the cash flow to pay its bills means, at minimum, mucho share dilution for Elan shareholders, and in just the trailing 12 months alone the average share count has risen by 9%. Elan's management guided for more losses in 2007 with negative cash flow even before having to pay its huge interest expenses. Even if Tysabri turns out to become a moderately-sized blockbuster, the size of the shareholder pie is going to be much larger.
It's no secret that I've been bearish on shares of Elan, considering its nearly $7 billion market cap, negative cash flow, and reliance on Tysabri to bring it to profitability. Even with the expected continued ramp-up in Tysabri sales, and barring some clinical trial successes with its Alzheimer's drug candidates, Elan's valuation looks way too rosy to me.
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Fool contributor Brian Lawler does not own shares of any company mentioned in this article. Biogen Idec is a Stock Advisor recommendation. The Fool has a disclosure policy.
