Potential in Alexion Pharmaceuticals

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The Overview

On May 24, 2012, Alexion Pharmaceuticals (NASDAQ: ALXN) became the latest company to be included in the S&P 500 index, replacing Motorola Mobility (which has been acquired by Google). Upon news of this selection, Alexion's stock gained 5.2%, an increase which follows a long string of successes for the company and its stock. In fact, Alexion Pharmaceuticals has seen its stock price rise 29.3% YTD on positive developments such as its 2012 first quarter results.

On Tuesday, April 24, Alexion Pharmaceuticals announced its 2012 first quarter results. Its EPS handily beat estimates by $0.07 while its revenue of $245M beat estimates by $4M and constituted a 47.3% YOY gain. Net profit also increased 69% to $45.4M. These results show the continued strength of Alexion Pharmaceutical's core business and are positive indicators of Alexion Pharmaceutical's ability to grow and develop in the future.

The Niche

Alexion Pharmaceuticals is a biopharmaceutical company with a $17.28B market cap that generates revenues through its development of "orphan drugs" for ultra-rare and severe disorders. Orphan drugs, as mentioned on my analysis of Salix Pharmaceuticals here, are pharmaceutical agents developed specifically to treat rare medical conditions. These drugs gain special exclusivity rights from the government; companies that successfully develop orphan drugs can usually market them for seven years without market competition. Alexion Pharmaceutical's orphan drug and key profit-driver is a drug known as Soliris.

Soliris is a drug approved in the US, EU, and Japan for patients with a rare blood disease known as PNH. Moreover, it is also approved in the US and EU as the first and, currently, only treatment for patients with a genetic disease known as aHUS. Soliris is the bread-and-butter for Alexion Pharmaceuticals, and it seen significant demand. In fact, in the first quarter of 2012, Alexion reported net product sales of Soliris increasing 47% YOY to $244.7M. The number of patients using Soliris for PNH continue to rise, especially in Alexion's core territories of the US, Western Europe, and Japan. The sales of Soliris will also be positively affected  by of another significant catalyst: Alexion expects to begin serving aHUS patients with Soliris in initial European countries later in 2012. This will mark the opening up of an entirely new market of aHUS patients that will greatly benefit from Soliris. Moreover, other areas of treatment Soliris could be utilized for are currently being explored; recently published studies in the New England Journal of Medicine highlighted the success of Soliris in treating rare kidney diseases.

Although Soliris is Alexion's marquee drug, Alexion is currently expanding its other avenues of profitability, mainly through acquisitions and research. On December 28, Alexion agreed to acquire biotech firm Enobia for $1.08B. With its purchase of Enobia, Alexion gained full worldwide development and commercial rights to Enobia's lead product candidate, asfotase alfa. This treatment was awarded orphan drug designation in the U.S. and EU in 2008 and Fast Track status in the U.S. in 2009. Current clinical trials of asfotase alfa, which is in Phase II clinical development, show positive results. Alexion also currently has "lead development programs underway with five highly innovative therapeutics, including eculizumab (Soliris), being investigated across eight severe and ultra-rare disorders beyond PNH and aHUS."  These trials as well as the acquisition of Enobia stand to significantly expand Alexion's pipeline and decrease its dependence on its flagship drug Soliris.

The Results

Alexion Pharmaceutical's strong financial performance reflects the popularity of its Solaris drug as well as its strategic decisions to branch out through research and acquisition. For the first quarter of 2012, Alexion's EPS increased 55% YOY, leading Alexion's average EPS growth for the last 3 quarters up to a strong 53%. When we approach Alexion's EPS from a broader spectrum, we can see that not only is its 3-Year EPS at 48%, but it also has had 4 consecutive years of EPS growth. The current EPS for 2012 is expected to increase 29.71% over 2011's EPS figures. 

Perhaps more importantly, the robustness of Alexion's pipeline is reflected by its strong sales growth rates. For the first quarter of 2012, Alexion reported a 47% sales increase YOY. Moreover, Alexion's 3-Year Sales Growth Rate of 42% shows that its products, fueled by strong and unrelenting demand, have had consistent sales growth for an extended period of time.

Finally the strength of Alexion Pharmaceuticals is also reflected in its profitability. Alexion's Annual Pre-Tax Margin is 36.8% and its annual ROE is 26.7%. Its Gross Margin (ttm) is among the highest in the biopharmaceutical industry at 88.15%, compared to the industry average of 63.64%. 

The Verdict

On March 22, Goldman Sachs reiterated a Conviction Buy on Alexion and set its price target on Alexion shares to $105. On February 23, Alexion was upgraded to a Buy by UBS while on February 10, Baird upgraded Alexion to Outperform and set a $100 price target on Alexion stock. As of now, among analysts covering Alexion, there are 10 Strong Buy recommendations, 7 Buy recommendations, 3 Hold recommendations, and 1 Sell recommendation issued for the stock. Moreover, Alexion has seen 8 consecutive quarters of increasing fund ownership. The investment world is undoubtedly taking note of the potential and financial strength of Alexion Pharmaceuticals. I strongly recommend investors look into this company and consider it as a potential investment. 

Bilifuduo has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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