Analysts See Expensive Drug Catalyst for Alexion Pharma Shares

One of the under the cover success stories of the past few years has been Alexion Pharmaceuticals (NASDAQ:ALXN).  For a company with a $15 billion market cap, and fantastic stock action (has not broken its 200 day moving average in years), it is surprising how little attention the name gets.

The company reported another solid earnings beat Thursday morning, on the back of its one drug Soliris.

Soliris is a first-in-class terminal complement inhibitor developed from the laboratory through regulatory approval and commercialization by Alexion. Soliris is approved in the US, European Union, Japan and other countries as the first and only treatment for patients with paroxysmal nocturnal hemoglobinuria, a debilitating, ultra-rare and life-threatening blood disorder, characterized by complement-mediated hemolysis (destruction of red blood cells). Soliris is also approved in the US and the European Union as the first and only treatment for patients with atypical Hemolytic Uremic Syndrome (aHUS), a debilitating, ultra-rare and life-threatening genetic disorder characterized by complement-mediated thrombotic microangiopathy, or TMA (blood clots in small vessels). 

Via IBD:

  • Alexion focuses on severe “ultrarare” diseases, affecting at most one out of every 50,000 people. Compensating for the small market is the fact that there are no other treatments, so Alexion has a nearly guaranteed revenue stream. It also has pricing power: A year’s course of Soliris costs around $400,000.

Via AP:

  • Alexion said its quarterly profit rose 82 percent and revenue increased 46 percent. Both surpassed analyst estimates, and the company said sales of Soliris should grow more than 80 percent in 2012 after the drug received an additional marketing approval.
  • Soliris is the Cheshire, Conn., company’s only drug on the market. It was approved in 2007 as a treatment for paroxysmal nocturnal hemoglobinuria, or PNH, which causes a breakdown of red blood cells and leads to anemia. The drug was approved in late 2011 as a treatment for a second condition, atypical hemolytic uremic syndrome, which often leads to kidney failure and death. Alexion said most of its sales growth in the fourth quarter came from PNH patients.
  • Alexion has only recently launched Soliris as a treatment for aHUS in the U.S. and will begin marketing the drug to European patients with that condition this year. Alexion is also testing Soliris as a treatment for several other conditions, including blood and kidney disorders, neurological illnesses, and age-related macular degeneration.
  • Robert W. Baird & Co. analyst Christopher Raymond upgraded the stock to “Outperform” from “Neutral” Friday, saying Alexion raised its guidance four times in 2011 and still did better than analysts expected. He added that STEC-HUS could be a major new market for Soliris: about 20,000 U.S. patients develop the condition every year, and treatment might cost about $60,000 per patient. Raymond raised his price target to $100 per share from $72.
  • For the full year, Alexion’s profit rose 81 percent to $175.3 million, or 91 cents per share, from $97 million, or 52 cents per share, in 2010. Revenue increased 45 percent to $783.4 million from $541 million.

Guidance

  • In 2012, worldwide net product sales are expected to be within a range of $1.04 to $1.07 billion. Based on a forecast of approximately 197 million diluted shares outstanding, Alexion is providing guidance of $1.60 to $1.70 for non-GAAP earnings per share for the year.

We can see using the company’s (potentially conservative) guidance, ALXN is not cheap with a forward P/E (end of year 2012) of 50ish.  Even assuming some upside to guidance, we’re still talking something in the 40s.  But with the dearth of high growth opportunities for institutions to own, we often see names from a range of industries (think Chipotle, Whole Foods, lululemon) get bid up to very rich valuations, as long as they continue to bring in the growth.

Competitors to Watch: Johnson & Johnson (NYSE:JNJ), Merck (NYSE:MRK), Pfizer Inc. (NYSE:PFE), Eli Lilly & Co. (NYSE:LLY), Abbott Laboratories (NYSE:ABT), Teva Pharmaceutical Industries Ltd (NASDAQ:TEVA), and Novartis AG (NYSE:NVS).

Disclosure Notice

Any securities mentioned on this page are not held by the author in his personal portfolio. Securities mentioned may or may not be held by the author in the mutual fund he manages, the Paladin Long Short Fund (PALFX). Trader Mark also authors the blog Market Montage.

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To contact the reporter on this story: Trader Mark at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com