Elan's Headed in the Right Direction

Revenue up, costs down. It's a good direction for Elan (NYSE:ELN) to take, even if the company's final earnings number was slightly inflated.

Total revenue rose 6% thanks to Tysabri's slow but steady growth; Biogen Idec (NASDAQ:BIIB) spilled the beans on that earlier in the week. Just as importantly, selling, general, and administrative expenses were lower than the year before, as Elan slowly but surely makes its way towards being cash flow-positive.

Tysabri is and will be the most important drug for Elan for years to come, but the company's royalty income should soon enjoy another boost. Johnson & Johnson (NYSE:JNJ) recently got a long-lasting version of its antipsychotic Invega approved, incorporating Elan's NanoCrystal technology. Elan will also get double-digit royalties from Acorda Therapeutics' (NASDAQ:ACOR) multiple sclerosis drug Amaya, in the more than likely event that the Food and Drug Administration approves it. (Eventually.)

Elan actually showed a profit this quarter, but that owed entirely to closing its convoluted deal with Johnson & Johnson to buy half of Elan's Alzheimer's-disease program. Pfizer (NYSE:PFE) owns the other half now that it has closed its acquisition of Wyeth.

While I wasn't very excited about the deal that Elan got, it did provide the company with some much-needed cash, which helped refinance its debt. Investors really couldn't have expected too much more, considering the bind that Elan had worked itself into.

Thanks to the increased revenue and the decreased costs, the company expects to have an adjusted operating profit in the fourth quarter for the first time in many years. That's a nice start, but I'll be more impressed when the Motley Fool Rule Breakers recommendation is making enough to cover all of its bills, including taxes and interest payments.