Ask biotech investors what's the most important event for a development-stage drugmaker, and you'll get a variety of answers: Some will say proof-of-concept phase 2 trials, others will cite phase 3 data that seems likely for approval, while still others will claim Food and Drug Administration approval is most important. And they're all right in some way, because those events are value inflection points for biotechs.
But that value is only real if the company can actually make a profit. Having an approved drug where the revenue isn't covering costs is a losing proposition no matter how novel, exciting, or efficacious the drug is.
So while Elan's
Elan completed the sale of its drug-formulation business, Elan Drug Technologies, to Alkermes
The newly focused Elan is really firing on all cylinders. Sales of Tysabri, which it markets with Biogen Idec
Cash from the sale of EDT helped retire 50% of the company's debt, which will add to the bottom line through lower interest expenses. The company still owns 31.9 million shares in Alkermes as part of the transaction, but plans to sell its stake next year. That cash -- about $566 million at today's price -- could help retire the $626 million in debt still remaining on the books.
The next major inflection point for Elan will come in the middle of next year with the release of phase 3 data for the company's Alzheimer's disease drug, bapineuzumab, which it shares with Pfizer
Fool contributor Brian Orelli holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Johnson & Johnson. Motley Fool newsletter services have recommended buying shares of Johnson & Johnson, Elan, and Pfizer. Motley Fool newsletter services have recommended creating a diagonal call position in Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. 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 Motley Fool has a disclosure policy.