Alexion Pharma Looks To Life Beyond Its Blockbuster

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Like a rock band's second album, a biotech's second drug can say a lot about its long-term prospects.

Alexion Pharmaceuticals ( ALXN ) 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 ( HPP ), 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 Quenneville.

"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 gravis.

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 $509.3 million.

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 ( GILD ) is the biggest in the group, followed byAmgen ( AMGN ),Biogen Idec ( BIIB ),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 lives."

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Investing Ideas
Referenced Symbols: ALXN , HPP , GILD , AMGN , BIIB

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