Welcome to Dublin, Ireland, where pharmaceutical drug developer Elan (NYSE:ELN) is gearing up for a second-quarter earnings report tomorrow morning. Here's your preview of what to expect:

What Fools say:
Here's how Elan's CAPS rating stacks up against some of its peers and competitors:

 

Market Cap (Billions)

Trailing P/E Ratio

CAPS Rating (Out of 5)

Wyeth (NYSE:WYE)

$59.6

13.3

****

Teva Pharmaceutical Industries (NASDAQ:TEVA)

$35.8

20.5

*****

Biogen Idec (NASDAQ:BIIB)

$20.7

32.9

****

Elan

$16.1

N/A

***

Insmed Incorporated (NASDAQ:INSM)

$0.1

N/A

-

Data taken from Motley Fool CAPS on 7/23/08.

CAPS bears on Elan generally think that the stock is priced for a perfection that may not be in the cards. "It has to be that the street is counting on bapineuzumab to become the drug of choice for Alzheimer's," ponders all-star player zzlangerhans. "I wouldn't buy into that quite yet, as the pathophysiology of Alzheimer's is still poorly understood. [...] The odds of bapineuzumab failure, when weighed against Elan's inflated market cap, definitely argue for a red thumb."

Even the bulls acknowledge that you're betting on a lot of unproven qualities here: "Elan is sitting in an excellent position for treatment with both Alzheimer's and MS," says aapoire, but "that is not to say that one more good accounting or wrongful death suit won't send the stock plummeting. Not a good investment if your risk adverse for just that reason but I have faith that the long term benefit from their drugs outweighs the risk."

What management does:
Even with multiple sclerosis drug Tysabri gaining sales traction these days, Elan is still a ways away from being profitable. If negative cash flows and net margins are deal-breakers for you, maybe you'd be happier with Johnson & Johnson (NYSE:JNJ) in that IRA portfolio.

Margins

12/06

3/07

6/07

9/07

12/07

3/08

Gross

62.5%

60.9%

58.7%

56.5%

55.5%

52.9%

Operating

(41.0%)

(37.5%)

(32.0%)

(26.7%)

(24.0%)

(22.3%)

Net

(47.7%)

(54.3%)

(57.7%)

(49.2%)

(53.3%)

(49.8%)

FCF/Revenue

(48.4%)

(30.9%)

(36.2%)

(29.5%)

(25.5%)

(36.0%)

Y-O-Y Growth

12/2006

3/2007

6/2007

9/2007

12/2007

3/2008

Revenue

14.3%

31.4%

13.4%

32.4%

35.5%

32.6%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Risks here, negative earnings there, and the flood of red flags never ends. Yet your humble scribe remains excited about owning Elan stock. This is the best-performing stock in my 27-ticker holdings -- a four-bagger in just over three years, slightly ahead on my three-bagger in two-and-a-half years of Intuitive Surgical (NASDAQ:ISRG) ownership.

My interest in Elan was sparked by a friend's personal MS woes, and it still feels great to invest in a drug company that makes a better life for victims of a terrible disease like multiple sclerosis. If the Alzheimer's product works out, the karmic aura only shines brighter in Eire.

But this investment is about business results in the end, not feel-good sentiments. Tysabri is an unqualified hit and will only grow bigger over the next couple of years. Alzheimers presents a massive market with no proven panacea on the market, so even a partially effective bapineuzumab (say that six times fast!) could become a real blockbuster. Then there's the nanotechnology for more efficient drug delivery that already brings in revenue from Roche and others. And the pipeline is deep enough to keep the gravy train rolling for years to come.

Johnson & Johnson is a Motley Fool Income Investor selection. Intuitive Surgical is a Motley Fool Rule Breakers pick. Biogen Idec is a Motley Fool Stock Advisor recommendation. Try any of our Foolish newsletters today, free for 30 days. Or just sign up for a free CAPS account to find the identities of your fellow Fools who were quoted above. They might have more to tell you!

Fool contributor Anders Bylund owns shares in Elan and Intuitive Surgical but holds no other position in any of the companies discussed here. You can check out Anders' holdings if you like, and Foolish disclosure is the Punxsutawney Phil of financial forecasting.