Elan Corporation (NYSE: ELN) is a pharmaceutical turnaround story that may soon get even better. The pharmaceutical company had a brush with bankruptcy in 2002 and reported a wider-than-expected loss of $405 million for 2007. However, the company said it expects a sharp turnaround in 2008, forecasing revenue growth of over 30 percent and possibly exceed $1 billion, driven by sales of its flagship multiple sclerosis drug Tysabri. The company currently receives 50 percent of the revenues from the drug when sales exceed $700 million. Altogether this turnaround story already has shares trading near their 52-week high, but many investors believe that they could get much higher next year.

Elan is also considering spinning off its development and manufacturing division Elan Drug Technology (EDT), which could be worth up to $1.5 billion. The company said that EDT has been consistently profitable and an important source of financing for the firm, with EBITDA of $125.5 million on revenues of $295.5 million in 2007. Meanwhile, the remaining biopharmaceuticals division posted a loss of $155.9 million on revenue of $463.9 million. Management reportedly wants to saddle the technology unit with $1 billion of debt to unlock value in its remaining biopharmaceuticals business as it pushes into profitability with the help of Tysabri. This is a classic move that could pay big dividends.

So, how will these events impact shares? Well, Tsybri is a blockbuster drug but does face a small hurdle with its newly-disclosed risk of liver injury. This is common for many drugs and the company kept its sales forecast, but it is a concern that it worth noting. Meanwhile, spin offs are well known for unlocking value in situations like this one. Now that the biopharmaceutical division won’t need additional financing through EDT, the move makes perfect sense to unlock value through debt reduction. Additionally, spin offs in general tend to outperform the overall market during their first two years for a variety of reasons.

In the end, this is all great news for shareholders. Elan has a blockbuster drug on its hands with revenues that could exceed $1 billion next year while it is also taking action to unlock value through a spin off. It not not too common to find a company with such savvy to act so quickly to unlock shareholder value. Shares may be trading near their 52-week high now, but they could definitely extend much higher over the next year. This makes ELN a stock that is definitely worth keeping an eye on in 2008!

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