What happened

Shares of Alexion Pharmaceuticals (NASDAQ:ALXN), a large-cap biotech company with a focus on rare genetic diseases, tumbled 15% during the month of October, according to data from S&P Global Market Intelligence, costing it about $4.6 billion in market cap in the process. The catalyst for this shellacking is none other than the company's third-quarter earnings report, released on Oct. 26.

So what

The interesting thing about Alexion's third-quarter operating results is that they weren't bad. They simply didn't meet Wall Street's already lofty expectations in certain respects.

Prescription pills laid on top of a hundred dollar bill, with only Ben Franklin's eyes left visible.

Image source: Getty Images.

For the quarter, the maker of the most expensive drug in the world, Soliris, reported total sales of $859 million, representing an 8% increase from the prior-year period. Soliris sales grew by 4% to $756 million in the third quarter, but quicker growth was observed from Strensiq and Kanuma, which recorded $87 million and $16 million in respective Q3 sales, representing growth of 44% and 79% from the prior-year quarter.

It's worth noting that Alexion also recognized $35 million in favorable order timing, which positively impacted its third-quarter sales results.

In terms of its bottom line, the company generated adjusted EPS of $1.44, which was considerably higher than the adjusted $1.23 in EPS reported in the year-ago period.

So, what was the issue? Though Alexion's adjusted profit surpassed Wall Street's expectations by $0.12 per share, its sales figure fell $5 million shy of estimates. The additional commentary citing favorable order timing suggests that Soliris sales, which are its bread and butter, would otherwise have been stagnant, or perhaps even declined, without this good fortune.

Alexion also updated its full-year guidance. The bottom-end of its total sales and Soliris sales figures for the full-year were raised slightly, along with full-year EPS expectations. The updated range of $5.50 to $5.65 in adjusted EPS compares favorably with its prior forecast of $5.40 to $5.55 in adjusted EPS. Nonetheless, full-year GAAP results and operating margin were cut, which is a result of added restructuring expenses. 

A magnifying glass held over a balance sheet.

Image source: Getty Images.

Now what

This was the epitome of a mixed quarter for Alexion. Whereas the company's smaller medicines performed well, and it did just fine on an adjusted profit basis, investors who pay attention to GAAP accounting, or those who realize that Soliris is the kingpin of this portfolio, weren't too thrilled.

The real key to growth for this company is going to be continued label expansion opportunities for Soliris, as well as pricing power. As a company focused on ultra-rare diseases, it usually doesn't face a lot of competition. However, if the U.S. federal government decides to crack down on frivolous drug pricing, or new competitors take aim at Soliris, which is generating an extrapolated $3 billion in sales each year, it could become a problem for Alexion.

For the time being, I'd consider looking at Alexion as a modest value here. Wall Street fully expects price hikes, organic demand, and label expansions to drive growth for the company's lead drug, all while new pipeline products and therapies like Strensiq mature. There's still a very good chance that Alexion could increase its full-year sales by 50% between now and 2020, which would be enough to nearly double its EPS. While not without risks, Alexion is beginning to look attractive.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.