Market Overview

Alexion Pharmaceuticals Riding High Despite Doubts


Alexion Pharmaceuticals (NASDAQ: ALXN) specializes in extremely rare diseases. Its only marketed drug, Soliris, currently targets paroxysmal Nocturnal Hemoglobinuria (PNH) a condition afflicting less than 10 thousand people worldwide. At an estimated annual cost of $400 thousand per patient, Soliris has brought in sharply rising sales. But with most of the target market already identified--and that sales growth slowing--analysts are wondering whether there is enough upside to shares from here to justify its lofty share price.

With sales and profits clipping 45 and 50 percent respective annual growth rates, the company appears to justify its 70-something percent compound annual growth in its shares. For 2012 alone, shares have registered a further 31 percent increase, hitting an all-time-high last Friday at $94.90.

The company has said 2012 revenues should reach between $1.04 to $1.07 billion, up from $783 million in 2011. EPS is expected to come in between $1.60 to $1.70 on a non-GAAP basis, compared to $1.38 last year.

That puts the company's valuation at between 55 snd 59 times 2012 earnings, as Neil A Martin notes in a bearish piece for Barron's on the company. He notes that institutional investors, who hold roughly 95 percent of the stock, have already started to cool towards the company. The article cites StreetSight data indicating reduced exposure to shares for many big names such as Fidelity.

Such scrutiny has the company indicating no shortage of places where it intends to go dig for a corresponding upside. These include additional uses for current drug Soliris, its development pipeline, as well as outside acquisitions.

Additional uses for Soliris are not a new area for the company. Last September, the FDA gave approval of the drug's secondary use to treat atypical Hemolytic Uremic Syndrome (aHUS), an even rarer condition than its first indicator, with a target patient population of around 700 in the US). But a recent opportunity for the drug to be used for the treatment of two other conditions, Neuromyelitis Optica (NMO) and Myasthenia Gravis (MG) promises to be more lucrative, with a larger targeted patient space.

Alexion may have added a further $0.6 billion to its annual sales book with its recently announced acquisition of privately-held Enobia Pharma, which is currently at work on a treatment for Hypophosphatasia, a rare and life-threatening genetic bone disorder. The price for this potential sales addition is just under a billion--$610 million in upfront cash and another $470 due upon achievement of certain developmental milestones.

The company's own pipeline consists of four compounds beyond Solaris: Asfotase Alfa, cPMP Replacement Therapy, TT30 and ALXN1007, each of which targets ultra-ultra rare diseases. Barron's Neil Martin notes that these are in very-early stages of developments, some already having established competitors.

Despite this, the track record of Soliris to-date, coupled with the expanded market space associated with its two new indications have analysts reinforcing their bullish stance on shares. JP Morgan, who valued the drug's NMO opportunity at $1 billion, lifted its price target on shares by $10 a share to $105, while reaffirming its overweight rating.

Goldman Sachs is similarly upbeat on the expansion of Solaris opportunities, reiterating their own $105 price target and Buy rating on shares on March 21st, following three compelling Soliris case studies appearing on The New England Journal of Medicine. Based on these studies, Goldman Sachs sees likely success on a trial related to a rare kidney disease and a potential trigger for faster regulatory approval for the rest of indications up for review.

Currently, ALXN is trading at $94.44 a share, testing its Friday all-time high of $94.90.

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