Has Elan Corporation, plc (ADR) (ELN) Become the Perfect Stock?

Elan is best known for its Tysabri drug, the multiple sclerosis treatment that it shared with Biogen Idec Inc. (NASDAQ:BIIB) . Yet in the biggest news for the company of the past year, Elan decided to sell out its 50% share of Tysabri rights to Biogen, taking $3.25 billion in upfront cash, as well as royalties of 12% during the first year and a tiered 18% to 25% royalty on sales in subsequent years. The move should help Biogen compete more effectively against MS rivals by allowing it to coordinate sales of Tysabri with fellow MS drug Avonex and its soon-to-be-approved BG-12 oral drug without worrying about cannibalizing its own revenue stream.

For Elan, though, the deal leaves the company with plenty of cash and no clear substantial revenue from continuing operations. Another drug to which Elan had retained financial rights, bapineuzumab, didn’t pan out when Johnson & Johnson (NYSE:JNJ) and Pfizer Inc. (NYSE:PFE) said in July that one of its late-stage trials didn’t show the drug was effective in treating Alzheimer’s. The company spun off its Prothena Corporation plc (NASDAQ:PRTA) drug discovery unit in December and recently sold off its shares of Alkermes Plc (NASDAQ:ALKS) that it obtained from selling off its drug technology unit, leaving it with a minimal pipeline.

The big question is what Elan will do with all of its cash. If it uses the money to buy back shares or pay dividends to shareholders, then the recent drop will be unwarranted. But if it wastes the money on ill-advised acquisitions, Elan could end up being worthless in the long run. In either event, Elan isn’t going to move toward perfection at all until it comes up with a viable business strategy for its future.

The article Has Elan Become the Perfect Stock? originally appeared on Fool.com and is written by Dan Caplinger.

Fool contributor Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Johnson & Johnson. The Motley Fool owns shares of Johnson & Johnson.

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