Entering text into the input field will update the search result below

Alexion Pharmaceuticals: Patent Resolution Is Too Little Too Late

Dulan Lokuwithana profile picture
Dulan Lokuwithana


  • The patent disputes over the leading drug forced Alexion to seek the revenue diversification.
  • The recent acquisitions are unlikely to accelerate the current growth momentum any time soon.
  • With the majority of patients already converted to the replacement drug, the resolution to the U.S. patent dispute looks too late.
  • Despite more optimistic revenue forecasts, our relative valuation, using the current trading multiple to reflect the unchanged prospects, indicates an overvalued stock.
  • With the disgruntled activist investors pushing for a sale of the company, we believe, Alexion is a ‘Hold’.

Investment Thesis

The patent disputes over its leading revenue generator have taken its toll on Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN), with its share price lagging the peers as the company attempts to diversify the top-line. The recent acquisitions, driven by the rising cash flows and low gearing, are, however, unlikely to further benefit the record-breaking revenue growth any time soon. Having already converted a majority of patients to the replacement therapy, the eventual resolution to U.S. revenue dispute looks too late. Meanwhile, with patient-friendly and more affordable candidates, the rivals are targeting the less rare indications, currently the domain of Alexion.

In contrast to the past, this year's management guidance indicates a sharp slowdown to reflect the pandemic impact. With the economy opening up faster than expected, our NTM revenue forecast in line with the historicals looks promising, though it suggests an undervalued stock with the current trading multiple, which, in our view, doesn't deserve a premium given Alexion's dreary prospects. However, with the activist hedge fund, Elliot Management, pushing for change in the company, including a sale, we believe, Alexion is a 'Hold'.

Alexion_Drug PortfolioSource: The Company Website

Patent Issues Lead to Diversification

When Alexion bid for Portola Pharmaceuticals, Inc. (PTLA) in early May, adding a premium of more than ~131% to the stock's last traded price, the long-standing investor concerns over the company's acquisition spree reached a boiling point. The stock tanked ~5% on the day of the announcement, and a few days later, the Hedge fund, Elliott Management, questioning the management's strategic direction, called for a sale of the company. Elliot's worries were understandable. Since it built an activist stake in December 2017, Alexion had dropped ~9%, underperforming the ~17% rise in the NBI (NASDAQ Biotechnology Index) as the patent woes exposed

This article was written by

Dulan Lokuwithana profile picture
A research analyst with CFA (US) Level I & II qualifications, and CIMA (UK) full qualification, Dulan primarily covers Health-care and Restaurant Stocks for Seeking Alpha. A Graduate in Human Biology, Dulan's expertise in the industry refines his Health-care analysis, and the sheer passion in cuisines spices up the Restaurant sector coverage. With a focus on medium to long-term investment horizon, Dulan hopes to uncover investment opportunities in mid-cap to large-cap stocks less well covered by the analysts.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

Comments (7)

@Dulan Lokuwithana So, pretty much everything you stated was conjecture or hyperbole.
"In contrast to the past, this year's management guidance indicates a sharp slowdown to reflect the pandemic impact."

So, that statement, with respect to COVID-19, is completely in accurate. They barely changed their guidance and the slower momentum that you may be conflating with initial full year guidance was, by most accounts, conservative. In part because the new CFO is, in my opinion, terrible. If you article made an argument around that I would absolutely agree - she doesn't not belong in the C-Suite.

Finally, the companies you claim that are challenging the pricing supremacy and market share that ALXN has benefited from for 10 plus years, even under the worse case scenarios, will likely have little impact. APLS has a massive uphill battle on the clinical and payer front in store for it. Partly, because, despite the headline grabbers APLS marketing team has created their candidate has it's own set issues like the fact that the completely missed their secondary endpoints. PnH is primarily a disease of break through hemolysis and the should no improvement over Solaris let alone the better improved Ultomiris. Even still, PnH is a small part of their revenue at this point so even if they managed to pressure on that front they would have zero influence in the much more lucrative neurology franchises.

By most models including mine ALXN and assuming some worse cases including biosimilar entrants byt 2023 (which is now pushed out to 2025) should generating close to $10 billion in top line revenue by 2025 and that includes 0 contribution from the existing pipeline which likely will grow both organically and through M&A.

All that considered I am not sure how you can assign a hold to a company generating enormous cash flows on very reasonable margins and double digit y/y growth. All of which should continue unabated for the next 5 plus years while the pipeline takes shape.

This seems like analysis that started from the predisposition of being bearish ALXN - possibly because of previous article that you had to eat crow on.
Paladin306 profile picture
ALXN may, or may not get cheaper over the short term as much of that will depend on what the overall market and economy due. But, for long term holders, I totally disagree with this article and, am therefore Long the stock via a 2021 Leap option. ALXN is Forecast to grow 3% this and 10% next year as well as the year after. In addition, M* gives ALXN a fair value of $155.
Exit16 profile picture
I wonder where Akari's nomacopan fits in in the complement area. PNH is one of the leading indications of nomacopan, inhibits C5 and LTB4. It's also mentioned to play a role in fighting the cytokinestorms during COVID-19 infection.
Dulan Lokuwithana profile picture
Currently undergoing 4 trials. Positive interim data in a Phase 3 trial with SC administration. It is currently on hold.
stockstudent111 profile picture
Thanks for the article. Am curious as to a little more color on why 7x is the right mutiple ? Why not do a DCF? Thanks
Dulan Lokuwithana profile picture
Thanks. 1. Despite a string of acquisitions in the past, Alexion hasn't done enough to justify a premium multiple in my view. Moreover, the competitors are catching up fast so I kept the current multiple unchanged. 2. DCF is more appropriate for a more stable company like WMT or COST. With the today's uncertainty where the disruption, be it a blockbuster therapy or a new technology from a rival , is the norm I prefer not to use DCF.
Birgir Magnusson profile picture
What competitors are catching up? When might the possibly have products on the market? Amgen in 2025? Anything else?
Disagree with this article? Submit your own. To report a factual error in this article, . Your feedback matters to us!
To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.