Alexion Pharma Has Plenty of Room to Grow

Since the launch of its drug Soliris in 2007, Alexion (NASDAQ:ALXN) has achieved sales of over $386 million in 2009 and has upped guidance for total 2010 net product sales to between $536-$538 million, a 39% increase over the previous year.
Soliris is indicated solely for the treatment of Paroxysmal Nocturnal Hemoglobinuria (PNH), an ultra rare disease with an annual incidence of 1-2 cases per million. There are an estimated 5000 individuals living with PNH in the US. PNH is caused by a missing gene, allowing complement proteins to destroy red blood cells in a process called hemolysis. It is an antibody targeted against complement C5, preventing its activation, thereby slowing the destruction of red blood cells.
Alexion is a rarity in the biotech world, launching its drug on its own, and building an international salesforce from scratch. With the drug’s commercial success, analysts have long speculated Alexion as a takeover target. Newly released interim results from a clinical trial for Soliris in atypical Hemolytic Uremic Syndrome (aHUS) only further the takeover speculation. These early results show the drug to be effective in the treatment of this disease, caused by dysregulation of the complement system, in severe cases leading to renal failure and death. It has been estimated Alexion could achieve sales of around $500 million in this indication. This is a tidy sum on top of the already strong sales in PNH.
Big Pharma has been showing a keen interest in the rare disease field. In the last couple years, Pfizer (NYSE:PFE) licensed Protalix BioTherapeutics’ (NYSEMKT:PLX) Gaucher’s disease drug, GSK formed a collaboration with Prosensa to develop a Duchenne Muscular Dystrophytreatment, and Novartis (NYSE:NVS) developed its own drug, Ilaris, for the treatment of Cryopyrin-Associated Periodic Syndrome. This is not to mention Sanofi Aventis’ (NYSE:SNY) hostile bid for Genzyme (GENZ), maker of multiple ultra rare disease treatments.
Rare diseases is a bright spot in pharmaceutical drug development. While total drug approvals have drifted downwards, approvals for drugs treating rare diseases have remained constant. Passage of the Orphan Drug Act in 1984 also provided financial incentives including shorter regulatory review times, and an extra seven years of exclusivity from competition.
The acquisition of Alexion would bring not only a blockbuster drug, but expertise in the development and sales of drugs for ultra rare diseases. Soliris’ success begins with its effectiveness, but it is only the beginning. The company’s ability to educate patients, advocacy groups, specialty doctors, and regulatory bodies served to increased awareness of this rare disease and Soliris as a treatment option. This combined with the adoption of state-of-the-art diagnostics tools helped make patient recruitment and fee reimbursements possible. Also, importantly, the company brings expertise in designing clinical trials with a very small number of patients.
Alexion is not a cheap stock, valued at over $6 billion, with a forward PE of 28. With continued penetration in the US and Western Europe, expansion into Japan, Latin America, and Canada, among others, PNH sales should continue to increase. Anticipated success of Soliris in aHUS, and farther out, in other complement mediated diseases, will further drive sales growth. Acquisition or not, it will do just fine.
Disclosure: Long ALXN, NVS