Is Alexion Pharmaceuticals a Good Investment?

The orphan drugs category is the bread and butter of the pharmaceutical companies at the moment. An increasing number of companies are focusing on developing and marketing orphan drugs. Some companies are built on a single drug and rely almost entirely on that drug. While relying on a single drug can be risky, it can also be massively beneficial if the drug is as good as Alexion Pharmaceuticals' (NASDAQ: ALXN  ) Soliris. Alexion has been increasing its revenues at an exceptional rate, and at $409,500 a year per patient, Soliris is the most expensive drug in the world at the moment.

Will the revenue growth continue?
Before going into the future growth opportunities, let's take a look at the revenue growth shown by the company in the past three years. Alexion generated $541 million in revenues at the end of 2010, which had gone up to $1.13 billion by the end of the last year, showing average annual growth rate of over 40% in revenues. A look at the trailing 12 month revenues ($1.32 billion) indicates that the company will be able to continue the recent earnings growth and substantial growth figures can be expected in the upcoming earnings announcements.

Soliris is prescribed for paroxysmal nocturnal hemoglobinuria, or PNH, an ultra-rare disease that causes the red blood cells to release hemoglobin into urine. The disease can significantly affect quality of life and cause death. Soliris is the only drug approved to treat the condition, which approximately affects between 1 in 5 per million people. The exact number of the patient population worldwide is unknown for this disease; however, it is estimated that there are between 10,000 and 21,000 people suffering from this condition in North America and Europe. Furthermore, about 1,700 new patients are diagnosed with the disease each year in these two regions. At the moment, about 400 patients are added to the U.S. patient population for PNH each year and 80 in the U.K.

Keeping in mind the price of the drug and the number of patients, it is easy to say that a substantial revenue growth for the company is yet to come, and it will have no trouble in sustaining the revenue growth in the short to medium term. The drug is approved in more than 40 countries, Japan being the most recent addition; the drug received marketing approval in September. While Alexion has not yet completely exploited the growth opportunity available in PNH, it is already looking to increase the horizon of the drug by testing it for other conditions.

A few words about recent earnings
Alexion increased its earnings guidance for the current year as the company was able to expand the label of Soliris with the addition of aHUS condition. Furthermore, an increase in the PNH patient pool resulted in soaring Soliris sales. Alexion announced its third-quarter earnings this week. It posted revenue growth of 36%, up to $400.4 million. Adjusted earnings per share rose to $0.83, up from $0.60 in the same quarter last year. Factors to consider here are continued strong sales of Soliris and addition of Japan to the regions Soliris has been approved. Alexion will launch Soliris for aHUS in Europe during the course of the current year, which will further boost the earnings of the company.

Keep an eye on these orphan drug manufacturers, too
Sarepta Therapeutics (NASDAQ: SRPT  ) is focused on developing RNA-based therapies. The company is currently working on eteplirsen, a drug to treat Duchenne muscular dystrophy, a rare disease that mainly occurs in boys. The disease is caused by a mutation in a gene, called the DMD gene. Individuals who have DMD have progressive loss of muscle function and weakness, which begins in the lower limbs. Eteplirsen is in the phase 2b trials at the moment, and it has recorded some extremely impressive results. Sarepta has other drug candidates in its portfolio, but almost all of them are either in pre-clinical trials or in phase 1 trials. Eteplirsen is expected to meet an unmet medical need, and according to Sarepta's CEO, it will cost between $150,000 and $200,000 per patient.

Isis Pharmaceuticals (NASDAQ: ISIS  ) is also focused on developing the RNA-based therapies. However, the company's business model is a little different from its peers -- it develops treatments and licenses the rights to the more established players in the sector. At the moment, Isis has only one drug in the market, Kynamro, which is marketed by Genzyme. The drug is prescribed for the patients with a genetic disease that causes the problem of high cholesterol. Kynamro costs $176,000, substantially lower than its competitor (Aegerion Pharmaceuticals' Juxtapid, which costs between $235,000 and $295,000 per year).

Summary
Alexion has not yet completely exploited the growth opportunity in the PNH segment, and as I mentioned above, there is a consistent increase in the patient pool each year. As a result, the company will have the opportunity to sustain growth in revenues over the short to medium term. Furthermore, the expansion of the label and geographic regions is another plus for company. Alexion stock will continue to show gradual rise in my opinion, and it should be a good long-term investment.

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