Alexion Pharmaceuticals riding high despite doubts
Can the company continue to grow off of the success of Soliris?
Alexion Pharmaceuticals (ALXN) specializes in extremely rare diseases. Its only marketed drug, Soliris, currently targets paroxysmal Nocturnal Hemoglobinuria, a condition affecting less than 10,000 people worldwide.
At an estimated annual cost of $400,000 per patient, Soliris has seen sharply rising sales. But with most of the target market already identified -- and that sales growth slowing -- analysts are wondering whether the company has enough of an upside to justify its lofty share price.
With sales and profits posting 45% and 50% respective annual growth rates, the company appears to justify compound annual growth of more than 70% in its shares. For 2012 alone, shares have registered a 31% increase, hitting an all-time high last Friday at $94.90. Shares closed Monday at $94.31.
The company has said 2012 revenue should reach between $1.04 to $1.07 billion, up from $783 million in 2011. Per-share profit 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 between 55 and 59 times 2012 earnings, as Neil Martin noted in a bearish piece for Barron's on the company. Martin noted that institutional investors, which hold roughly 95% 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 Soliris, its development pipeline and 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, an even rarer condition than its first indicator. But a recent opportunity for the drug to be used for the treatment of two other conditions, neuromyelitis optica and myasthenia gravis, promises to be more lucrative, with a larger targeted patient space.
Alexion may have added $600 million 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 quite large -- $610 million in upfront cash and another $470 million due upon achievement of certain developmental milestones.
The company's own pipeline consists of four compounds beyond Soliris: Asfotase Alfa, cPMP Replacement Therapy, TT30 and ALXN1007, each of which targets 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. JPMorgan (JPM), which valued the drug's neuromyelitis optica opportunity at $1 billion, lifted its price target on shares by $10 a share to $105, while reaffirming its overweight rating.
Goldman Sachs (GS) is similarly upbeat on the expansion of Soliris 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.
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The company has made at least 4 acquisitions in the space, and few people have paid any attention.
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