Orphan-drug firmAlexion Pharmaceuticals (
) has settled back into busy business as usual since its stock
got such a sharp jolt on an otherwise sleepy summer day in July
that trading was briefly halted.
Alexion shares soared almost 13% on July 12 after multiple
reports surfaced of a potential takeover bid by Swiss
drugmakerRoche Holding (
Alexion spokesman Irving Adler called the reports last week
"old news," declining to comment further "on rumors."
If the rumor were true, Roche would presumably have been
interested in Alexion's one and only drug and moneymaker,
Soliris, which treats two ultra-rare blood and kidney
Orphan drugs treat diseases with patient populations so tiny
that big pharma firms don't usually bother with them, though
Roche is hardly a small drug outfit, with $50 billion in revenue
and a market cap of $215 billion.
Tiny by comparison, Alexion is richly valued, with a market
cap of $22 billion.
Analyst Geoffrey Porges of Sanford C. Bernstein said, "It is
one of the most expensive stocks in the entire biopharmaceutical
group, in effect trading at a 40% to 50% premium to other
large-cap companies with similar profiles."
Such a rich valuation puts a "big burden" on management to
over-deliver on earnings and revenue each quarter, he says.
Alexion is the sixth largest company by market capitalization
in IBD's Medical-Biomed/Biotech industry group, afterGilead
),Biogen Idec (BIIB) andRegeneron (REGN). The group is ranked No.
5 of 197 that IBD tracks.
After the mid-summer stock spike, Alexion went on to report
another terrific quarter, with second-quarter earnings soaring
55% from a year earlier to 73 cents a share, or $147.2 million in
net income. Revenue rose 35% to $370 million.
The Connecticut-based biotech firm has been posting 30% to
more than 60% per-share earnings growth every quarter the last
few years as sales kept rising.
How does it keep growing so much when its chief molecule
treats ultra-rare conditions with only a handful of patients per
every 1 million in population?
First of all, Soliris is very expensive. And Soliris keeps
attracting a steady stream of new patients for its two approved
indications, though just how many is unclear as Alexion doesn't
disclose patient numbers.
It's sold in nearly 50 countries but most of the sales are in
the U.S., Western Europe and Japan.
Soliris' lead indication is for the blood disorder called
paroxysmal nocturnal hemoglobinuria, or PNH, which helps to
reduce the destruction of red blood cells caused by it. The
second indication is for the kidney condition known as atypical
hemolytic uremic syndrome, or aHUS. Both are life-threatening if
"It's a highly effective drug," said Leerink Swann analyst
Howard Liang. "Once you capture newly diagnosed patients and
convert them into customers, the patients stay on the therapy for
the rest of their lives."
With PNH, Soliris keeps gaining new patients in its core
markets -- the U.S., Western Europe and Japan. It has also gained
traction lately in Turkey, Brazil and Russia.
Alexion's more recent Soliris launch for aHUS patients in the
U.S. and Europe has been moving along well, management says. In
Europe, progress has been particularly strong in England.
On Friday, Alexion said it received approval in Japan for
Soliris' use in patients with aHUS and expects patients to begin
using it in the fourth quarter.
"Our opportunity to serve aHUS patients is at least as large
as our opportunity to serve patients with PNH, and perhaps
larger," said CEO Leonard Bell in a late-July conference
In June, the New England Journal of Medicine published
positive data from the company's registration trials on Soliris
in patients with aHUS, which Bell said helped to broaden
understanding of the product's impact on those patients.
More Uses For Soliris
Soliris also has the potential to be used more broadly in
other diseases, says Liang.
Alexion is preparing a registration trial for its use in a
neurological condition called neuromyelitis optica, or NMO, and
another to treat severe refractory myasthenia gravis, or MG.
In July, regulators in the U.S. and Europe granted orphan-drug
status for Soliris for treating NMO.
Alexion also hopes over the next several years to receive
approvals for using Soliris in kidney transplants, certain grafts
as well as "next-generation follow-on products."
And second and third products are in the works. The first is
asfotase alfa, an enzyme replacement therapy now in late-stage
development. It's meant to treat hypophosphatasia, or HPP, an
inherited, ultra-rare metabolic disorder that damages organs and
The other is cPMP for infants with molybdenum cofactor
deficiency Type A (MoCD), a severe, rare genetic metabolic
Alexion has nine lead development programs under way with five
"Upside will come from consistent growth with current and
additional indications," Liang said. Like most analysts, he
expects revenue to more than double by 2017, when he sees it
topping $3 billion, from $1.5 billion this year.
Analyst Porges thinks revenue needs to grow at a faster pace
than analysts forecast to justify the stock's high valuation.
Shares were last trading near $114, up 22% for the year after
pulling back in August and pushing forward again.
"For this stock to have upside they need to achieve revenue at
least 25% to 30% above what's in the consensus already," Porges
But it's "almost impossible" to forecast demand for Soliris,
he says. So investors must rely on management to guide them. He
says management "has turned much more bullish" in communicating
revenue potential "and part of the reason may be an unwelcome
overture from a pharmaceutical acquirer."
Analysts expect earnings to keep growing in the double digits
for the foreseeable future, but at a somewhat slower rate than
previously. They forecast year-over-year earnings growth of 42%
this year, to $3.03 a share. They see it slowing to 10% next year
as development programs ramp up.
Earnings are seen growing 25% in 2015 and 33% in 2016,
according to the poll by Thomson Reuters.