"Cash flow positive!" -- three little words that are music to biotech investors' ears.

I'm not sure if investors are quite as excited about "adjusted EBIDTA positive." It just doesn't have the same ring to it. Not to mention that earnings before interest, depreciation, taxes, and appreciation doesn't mean nearly as much as seeing the greenbacks in the bank account.

For now, though, that's all Elan's (NYSE: ELN) investors are getting. The company recorded positive adjusted EBIDTA in the third quarter and is looking for more than $150 million in adjusted EBIDTA this year. Producing more cash than it's using will have to wait until next year.

Elan is basically a one-trick pony at this point. Its share of Tysabri sales, which Elan splits with Biogen Idec (Nasdaq: BIIB), made up 77% of revenue in the third quarter. There's some revenue from Elan Drug Technologies -- mainly manufacturing and royalty revenue from drugs such as Johnson & Johnson's (NYSE: JNJ) Invega Sustenna and Acorda Therapeutics' (Nasdaq: ACOR) Ampyra -- but Elan is likely to spin off EDT in due time.

At that point, it'll basically be Tysabri and the pipeline of Alzheimer's drugs. While the potential for both is huge, Elan is going to have to operate flawlessly on Tysabri to convince patients that the benefits from taking the drug outweigh the risk.

For the Alzheimer's drugs, the company just needs to get lucky. The disease has taken down many a drug -- Eli Lilly's (NYSE: LLY) semagacestat most recently -- and bapineuzumab, which Elan has licensed to Johnson & Johnson and Pfizer (NYSE: PFE), didn't exactly have the cleanest phase 2 data. A phase 3 failure isn't guaranteed, but I would say the trio could use all the luck they can get.

Elan is headed in the right direction, but investors should be cautious here. Elan needs more than a little cash flow to justify the $3 billion market cap.

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Elan is a Motley Fool Rule Breakers pick. Pfizer is a Motley Fool Inside Value recommendation. Motley Fool Options has recommended a diagonal call position on Johnson & Johnson, which is a Motley Fool Income Investor selection. The Fool owns shares of Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.