Like a rock band's second album, a biotech's second drug can
say a lot about its long-term prospects.
Alexion Pharmaceuticals (
) is about to face this test. The 22-year-old firm has become a
big-cap and a perennial on the IBD 50 list of top-rated stocks
thanks to one marketed product, Soliris.
First launched in 2007 to treat a blood disease called
paroxysmal nocturnal hemoglobinuria (PNH), Soliris was one of the
first products to prove that you could make a mint with an
"orphan drug" strategy -- treating ultrarare but deadly diseases
that have no other treatments.
The key is the price. In the U.S., Soliris can cost over
$400,000 a year. Few patients have such money, so marketing the
drug means persuading insurers and government payers that the
drug is worth it.
That, in turn, requires patience. For instance, Soliris was
approved in the European Union for its second indication, a
kidney disorder called atypical hemolytic uremic syndrome (aHUS),
back in November 2011. But then came country-by-country
reimbursement negotiations. Alexion struck a deal with France for
PNH and aHUS only in March of this year, leading the company to
then raise its guidance and giving the stock a nice bump.
Another Rare-Disease Drug
The company will likely go through the same process with its
second product, asfotase alfa. Earlier this year, Alexion started
a rolling submission process with the Food and Drug
Administration for approval to treat hypophosphatasia (
), a rare genetic disease that affects bone formation. In its
severe form, which appears in about one out of 100,000 births, it
can kill children very quickly, and even the survivors can suffer
problems such as deformed limbs, rickets and difficulty breathing
due to malformed chests.
In early May, Alexion delivered a review of its phase-two
clinical trials of asfotase alfa. The design of such trials is
important not only in getting regulatory approval but also in
getting insurers to pay up, says Morningstar analyst Stefan
"It's very important for them to show that their products keep
patients out of expensive kinds of other therapy," Quenneville
told IBD. "One of the endpoints for asfotase alfa is (a
significant number of) children who come off respirators, which
is expensive intervention with time in the hospital."
The data did indeed show a reduction in the need for
respirators, along with improvements in walking speed, motor
abilities and skeletal abnormalities. Alexion has said that the
FDA filing should be completed by about now, with approval
expected by year's end.
Predicting what happens after that is a bit tricky. Many
analysts expect the drug to pass the "blockbuster" mark of $1
billion a year at some point and maybe reach $2 billion. But
Leerink analyst Howard Liang says that getting there might take a
while because the existence of asfotase alfa itself should slowly
increase the population pool by an uncertain amount.
"Because the disease has a high mortality rate, many
(sufferers) will have died by an early age," Liang told IBD.
"Somewhat like aHUS, if you catch the patients at the right time,
it becomes a much bigger product over time."
New Uses For Soliris?
Alexion also has three other drugs in early stages of
development, but much of the rest of its pipeline consists of
developing new indications for Soliris. The company is currently
testing the drug for a viral version of HUS called STEC-HUS, two
kinds of severe complications related to kidney transplants and
the neurological diseases neuromyelitis optica and myasthenia
Analysts expect that these developments will keep driving the
growth of Soliris and of Alexion's finances. For the last five
years, the company has been enjoying almost monotonous sales
growth in the 35% to 45% range, both quarterly and annually, with
profit growth generally a little bit higher.
In the most recent reported quarter, the French deal helped
kick profit up 135% vs. the prior year to $1.53 a share, with
sales rising 67% to $566.6 million. That kick will make
year-over-year comparisons tough for Q1 2015, in which analysts
expect an 18% profit decline, but they see subsequent quarters
picking up in the 30% range.
In the nearer term, analysts estimate that second-quarter
profit this year rose 45% to $1.06 a share, with sales up 38% to
Alexion is among the largest stocks by market cap in IBD's
Medical-Biomed/Biotech industry group, which ranks No. 102 of 197
tracked.Gilead Sciences (
) is the biggest in the group, followed byAmgen (
),Biogen Idec (
),Celgene (CELG) and then Alexion.
Though Alexion's stock maintains a high IBD Composite Rating
of 95, the stock price is still down somewhat from the
first-quarter biotech selloff.
Alexion dropped especially hard when debates broke out about
the high price of Gilead's new hepatitis C drug, Sovaldi. After
all, Sovaldi's $84,000 for a cure is still a lot cheaper than
Soliris' $400,000 a year for a lifetime.
However, analyst Quenneville says that the money worries about
Sovaldi stemmed from not just the individual price but also the
sheer number of hepatitis C sufferers -- an estimated 3 million
to 4 million in the U.S. alone. And as the diseases that Alexion
treats number their patients in only four or five digits for the
entire planet, they're unlikely to bankrupt any insurer.
"I think the focus of a lot of payers tends to be on the
larger-population drugs -- in aggregate, that's where most of the
money goes," Quenneville said. "I think as these rare-disease
drugs get bigger, people focus on them a bit, and you might get
some pushback. But I think there's a good argument for these
drugs, because they do have a transformational impact on people's