ALXN Alexion Pharmaceuticals Inc

We continue to have a Neutral recommendation on Alexion Pharmaceuticals, Inc. (ALXN), with a target price of $87.00.

Alexion performed impressively in the final quarter of 2011. The company earned 36 cents in the quarter (on an adjusted basis), beating the Zacks Consensus Estimate by 7 cents and the year-ago adjusted earnings by 14 cents per share. Earnings in the quarter benefited from increased revenues. (Read our full coverage of the earnings report at Alexion Exits 2011 on a Strong Note).

2011 was a good year for Alexion. During the year, the company successfully expanded the label of its sole marketed product Soliris. Soliris is available since 2007 for the treatment of paroxysmal nocturnal hemoglobinuria, a rare genetic blood disorder and atypical hemolytic uremic syndrome (aHUS), an ultra-rare genetic disorder.

In September 2011, the US Food and Drug Administration (FDA) cleared Soliris for treating children and adults suffering from aHUS. Soliris was subsequently launched in the US. In November 2011, Soliris was approved for aHUS in the EU.

Alexion is studying Soliris for additional indications as well, such as acute humoral rejection, myasthenia gravis and STEC-HUS. Currently, there are no approved treatments for any of these disorders and the successful development of Soliris for one or more of these indications will further expand the market potential of the drug.

We are also encouraged by the company’s strategy of pursuing acquisitions/signing deals to expand its pipeline beyond Soliris. The acquisitions of Taligen Therapeutics, Enobia Pharma and the purchase of the patents and assets from Orphatec Pharmaceuticals are aimed towards fulfilling this objective. Moreover, the strong balance sheet gives Alexion the opportunity to make further acquisitions/deals to develop its pipeline and expand its product portfolio.

However, the excessive dependence of Alexion on Soliris for growth concerns us. Failure of the company to develop additional products will impact the stock price negatively.

Even though pleased with the label expansion of Soliris in the US and EU for the aHUS indication, we believe that it will take some time before sales from the additional indication start contributing meaningfully to the top line. Moreover, we believe that sales potential will be limited given the small aHUS patient population.

We prefer to remain on the sidelines until more visibility is obtained on the commercial potential of Soliris for the aHUS indication. Consequently, we retain our Neutral stance on the stock.

 
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