Alexion Pharmaceuticals (NASDAQ:ALXN) is on a very steep upward trend that has taken the stock from under $10 per share five years ago to up near the $85 per share range of today. The stock is also hitting new all time highs on a weekly basis. The company's two closest competitors in the industry are Amgen Inc. (NASDAQ:AMGN) and Baxter International Inc. (NYSE:BAX). Amgen Inc. presently has a five year expected PEG ratio of 1.27 along with a five year earnings growth forecast of 9.4%. Baxter International Inc. at the moment has a five year expected PEG ratio of 1.46 with a five year earnings growth forecast of 9.2%. Alexion Pharmaceuticals is currently priced mid range by comparison with a five year expected PEG ratio of 1.36 but has a significantly higher five year earnings growth forecast of 31.6%. Let's take a look at why Alexion's number have been so good:
I believe the majority of growth is coming from Alexion Pharmaceutical's blockbuster drug Soliris. The drug was originally approved by the United States Food and Drug Administration in 2007 for the treatment of paroxysmal nocturnal hemoglobinuria, which causes the breakdown of red blood cells and eventually leads to anemia. In September of 2011 the Food and Drug Administration cleared Soliris for treating patients with atypical hemolytic uremic syndrome, which eventually leads to kidney failure and death. The European Union followed in November of 2011 with the approval for Soliris in the treatment of atypical hemolytic uremic syndrome. This multi treatment attribute from a single base drug represents exponential revenue growth for the company in my opinion and it doesn't stop there.
Alexion Pharmaceuticals is also studying Soliris for the treatment of several other medical conditions such as acute humoral rejection, myasthenia gravis as well as other blood and kidney disorders, neurological illnesses and age-related macular degeneration. As early as this year the company is expecting to report the results of a clinical trial for the drug in the treatment of STEC-HUS, which is another very rare type of infection. Alexion Pharmaceuticals also reported a profit rise of 82% and a revenue increased 46% in the final quarter of 2011-- beating analysts' estimates.
The company is not only beating analysts' estimates it is also surprising itself. Alexion Pharmaceuticals raised its guidance four times in 2011 and beat these estimates each time. In the fourth quarter of 2011 the company reported earnings per share of $.36 which beat estimates by $.07 per share and was $.14 per share above the year ago period. In addition to expanding its revenue growth through other applications of Soliris the company is formulating a strategy of growth through acquisitions and signing deals to expand its pipeline.
In December of 2011 Alexion Pharmaceuticals announced its intentions to purchase Enobia Pharma Corp. for about $1 billion. The company is paying $610 million upfront and an additional $470 million pending regulatory approval and estimated sales figures of Enobia's drug Asfotase Alpha. The drug is presently in the second of three trials needed to pass Food and Drug Administration approval and showing strong results in the trials. Enobia furthermore, focuses on treating rare diseases and should integrate well with the Alexion Pharmaceutical's business model. I think the success of this drug will, to an extent, quell the concerns of many analysts that the company is relying on just Soliris for its revenue growth.
Alexion Pharmaceuticals also recently announced that it intends to acquire Taligen Therapeutics. This purchase also comes with contingency payments and an upfront cash payment of $111 million for 100 percent of Taligen Therapeutics' equity interests. The contingency payments are based on clinical efficacy of six products Taligen Therapeutics has in the pipeline and milestone payments in the drug approval processes in both the United States and the European Union. In my opinion these two types of acquisitions (Enobia, Taligen) limit Alexion Pharmaceuticals risk significantly but still represent a nice payoff upon completion of the approval process.
The company is extending this reduced risk, purchasing strategy and intensifying its global outreach with the purchase of patents and assets from Orphatec Pharmaceuticals, in my opinion. Orphatec Pharmaceuticals is a privately held biotechnology company that is based in Cologne, Germany. Alexion Pharmaceuticals is putting about $3 million upfront with contingency payments paid upon certain development, regulatory, and commercial milestones. The two companies will also be collaborating in research to accelerate development of the investigational therapy.
A little charity can go a long way. This is especially true when you are trying to brand your product and your company's reputation in a positive light. Most company's give lip service to charity in general and try to deceive the public into believing it is something that it is not-- this strategy usually backfires when the facts are discovered, in my opinion. Alexion Pharmaceuticals is putting its money where its mouth is, on the other hand, and is proving the fact that a good deed does not go unpaid. Since 2010 the company has been providing Soliris free of charge to E coli victims in Germany. Enterohaemorrhagic Escherichia coli is a rare form of E coli that produces a Shiga toxin that damages the liver by affecting blood cells and is usually fatal. Through its German subsidiary Alexion Pharmaceuticals has been providing victims of this disease with Soliris for free and in return has foregone the costly clinical trials required by regulators to prove the drug safe and effective. This act of good will was further sanctioned by the United States Food and Drug Administration when in June of 2011 the administration put the approval process for Soliris on the fast track for treating patients with atypical hemolytic uremic syndrome.
Atypical hemolytic uremic syndrome is a rare genetic disease that kills more than 50% of the people who have it. The Food and Drug Administration approval of Soliris "… marks the most important advance that has been made for patients and families with this disease" according to the Director of Pediatric Nephrology at Emory University and Children’s Healthcare of Atlanta. A little charity can indeed go a long way once you stand back and look at the big picture, in my opinion. For these reasons, I recommend buying shares of Alexion Pharmaceuticals today.
About the author:
I fundamentally analyze every business from the top down.
In my personal life, I have a strong Jewish faith and enjoy playing Scrabble and entrepreneurship.