Market Overview

Alexion Pharmaceuticals Trending Down Despite Stellar Earnings

Alexion Pharmaceuticals (NASDAQ: ALXN) has once again lived up to its growth in the past three years. Yet, shares are indicating down following the open. The ultra-rare nature of its targeted diseases, the tampering of a still-impressive annual revenue growth and its fatter-than-peers eranings multiple may be, again, rearing concern among invetors.

The company reported that, in the first quarter of 2012, its revenues jumped 47 percent and its GAAP income to 69 percent. The company's solid results are all based on its lone drug currently on the market, its eculizumab compound sold under the Soliris label. It is an orphan drug that targets two extremely rare congenital conditions, Paroxysmal Nocturnal HemoGlobinuria (PNH) and atypical Hemolytic Uremic Syndrome (aHUS, that affect less than 10,000 people combined, worldwide.

Alexion said steady additions to both these indicators aided into first quarter revenues of $244.7 million, compared to $166.1 million in 2011 Q1. Its PNH indicator saw steady QoQ increases in the US, Western Europe and Japan, and added new patients from other countries where the company gained presence during the quarter. The company said most new patients were newly diagnosed. uHUS also saw a steady increase in new patients, and that does not yet include upside from EU approval in November 2011.

The company's GAAP income was $45.4 million, up from $26.8 million in the year-ago quarter. On a per-share basis, GAAP income was $0.23, up from $0.14 a year ago. Excluding share-based compensations, tax adjustments, amortization of acquired intangible assets and acquisition costs, the company posted non-Gaap net income of $88.1 million or $0.45 per share compared to $56.3 million or $0.29 per share in 2011. The company noted that Q1 non-GAAP income was markedly lower in Q1 than other quarter, due to the timing of medical conferences.

THe company ended the quarter with $359 million in cash, cash equivalents and marketable securities, compared to $541 a quarter ago. A positive cash flow from Q1 operations and acquisition debt offset outflows for the Enobia acquisition.

Alexion has eight further indicators in its pipeline, which the company said was the broadest in its history. Two additional indicators are for its current eculizumab compound, whereas five more are brand new. All of them focus on ultra-rare diseases.

Soliris is the only approved and known treatment for its current uses. Alexion remained confident that use on its current indicators would continue to grow as patients, even in those geographies where the company has had established presence, were significantly underdiagnosed or misdiagnosed as to their conditions.

As such, the company has lifted its guidance into the rest of 2012. It now expects to finish the year with $1.07 billion in revenues, versus $1.04 billion in its previous forecast. Its guidance range is also tighter now, at $1.065-1.085, suggesting upward revisions in both PNH and AHUS growth. The company also revised its non-GAAP EPS projections by 5 cent to $1.65-1.75 for 2012.

ALXN closed at $91.64 on Monday and is currently trading down 2% after trending higher on open. The ultra-rare nature of its indicators, both marketed and under development, may give investors pause for concern. Revenue growth, although in keeping with the annual 45% growth average so far, is expected to temper to around 33% per the latest yearly guidance. Finally, its forward earnings multiple, firmly above 50, is vastly superior to the mid-teens that is typical across its peer base. Shares saw a similar spike on March 28, around the time we addressed such concerns.

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