The bandwagon for biotech darling Alexion Pharmaceuticals (ALXN +0.00%) keeps getting more crowded.
With Alexion's wonder drug, Soliris, powering the company's stock up more than 600% since 2008, investors who got in early on this medical magician caught a windfall of epic proportions. As the company hits new heights, some might be tempted to sell now in order to capitalize on immense gains before the stock falls back down to Earth. But could they miss out on bountiful future growth while Alexion heads even higher?
Beating the completion -- or lack thereof
Alexion made its mark with Soliris, its lone product on the market and a $400,000 orphan drug treating rare blood disorders that most of us have never heard of. With virtually no competition in this small niche, Soliris became the most expensive drug in the world -- and sent waves of envy across the entire industry. This drug set the ideal mix of business and treatment for orphan drugs, and the meteoric rise of Alexion shares to all-time highs has reflected that unparalleled success.
Rumors have swirled about top pharmaceutical companies targeting Alexion as an acquisition candidate with the massive patent cliff looming, particularly after Goldman Sachs picked out the company as a top buyout prospect for the year. Even without such a move, the company has more than enough to keep it headed higher.
Soliris might be Alexion's only drug on the market right now, but it's certainly worth its weight in gold. The drug cost $800 million over a 15-year development period, but all that waiting paid off: Alexion saw 62% earnings growth in the second quarter on the back of its flagship product. The company has numerous other indications for Soliris in its pipeline as well, with six different treatments for neurologic and nephrology diseases in Phase 2 development.
Soliris' market for the two rare diseases it treats -- paroxysmal nocturnal hemoglobinuria and atypical hemolytic uremic syndrome -- may only be around 10,000 to 20,000 patients. Still, Alexion could see multibillion-dollar future revenues from this segment alone on the back of a six-figure drug. Soliris is expected to record more than $1 billion in revenue this year after Alexion pulled in only $783 million last year, and expectations see that number doubling within three years.
Given that the lone alternative to Soliris for suffering patients is a drastic bone marrow transplant, the drug should succeed so long as its patents and exclusivity hold. The company holds patent protection in Soliris until 2021 in the U.S. and 2015 in Europe, although Alexion also filed for exclusivity until 2020 in numerous European countries. That's plenty of time to ride this money train higher.
What's beyond Soliris?
Alexion boasts little in its pipeline besides new indicators for Soliris, but one major move could provide another future orphan drug superstar. The company's $1.1 billion buyout of Enobia landed a prize that could swell to more than $700 million in revenue. Alexion took over Enobia's asfotase alfa, a drug in promising Phase 2 development to treat hypophosphatasia, a rare affliction of children with only a few thousand sufferers in the U.S. While it might not sell to the same astronomical levels of Soliris, the basic story of exploiting a lucrative, untapped niche sounds strikingly familiar.
Looking at the company through a purely financial lens, Alexion stacks up nicely against other players marketing high-priced orphan drugs.
|
Company |
P/E |
Net Margin |
5-Year Growth Estimate |
Debt/Equity |
Return on Investment |
|---|---|---|---|---|---|
|
Alexion |
113.6 |
20.6% |
37.8% |
13% |
10.1% |
|
Vertex Pharmaceuticals (VRTX 1.10%) |
30.8 |
19.4% |
57% |
45.1% |
28.3% |
|
ViroPharma (NASDAQ: VPHM) |
24.1 |
18.7% |
5% |
18.4% |
9.6% |
Source: Yahoo! Finance; Motley Fool CAPS.
Investors will pay a hefty premium to pick up Alexion, but it's worth noting that the company's forward P/E of 43.5 comes in lower than those of Vertex and ViroPharma. While neither of these two companies competes with Alexion directly, both Vertex and ViroPharma sport expensive orphan drugs of their own -- cystic fibrosis drug Kalydeco and hereditary angioedema therapy Cinryze, respectively -- making the companies fair comparisons from a broad investment standpoint. Nonetheless, Alexion stands tall in the financial field despite its extreme valuation.
No end in sight to this rally
Call Alexion overly focused on one drug if you wish, but Soliris is set to keep this company at the pinnacle of the field for years to come. With no real competition in Soliris's growing market and a potential star in the pipeline with asfotase alfa, Alexion should only keep up its trend of beating financial estimates and returning healthy rewards to its shareholders. Don't let the valuation fool you; this is a solid company with a bright future.
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