Alexion - Still a 1-Drug Wonder

Alexion: One-Drug Wonder Continues - How Long Can This Be Sustained?

Soliris sales continues to grow in 1Q09

Late last week, Alexion Pharmaceuticals, Inc. (ALXN - Analyst Report) reported first quarter 2009 financial results. Soliris sales were in line with our expectation of $81.3 million -- up 78.1% y-o-y and 5% sequentially.

Due to strong Soliris sales, Alexion has been enjoying profitability since the second quarter last year. In 1Q09, adjusted net income was $14.6 million, with diluted earnings per share (EPS) of $0.16. Excluding share-based expenses, Alexion achieved a net income of $22.5 million or EPS of $0.25 in 1Q09. First quarter net income and EPS were less than our estimate of $17.6 million and $0.19 per share due to higher R&D and SG&A expenses.

Soliris (eculizumab) is a humanized monoclonal antibody complement inhibitor, which blocks cleavage of the C5 component of the complement system, thereby preventing the final stages of complement activation. Soliris is indicated for the treatment of Paroxysmal Nocturnal Hemoglobinuria (PNH), a rare genetic blood disorder, which affects a very small number of people (a few thousand in the US). Other than Soliris, currently there is no drug specifically available for treatment of patients with PNH.  Soliris has approved in the US, EU, Canada, and Australia.

Alexion relies heavily on Soliris for its success. Since its launch in late March 2007, Soliris has been performing very well. Soliris has a potential to become a blockbuster, but the drug has a long way to go to achieve a blockbuster status.

Alexion may need to overcome a few challenges to accelerate Soliris sales. We believe the identification of PNH patients would be very difficult given that PNH is a rare genetic disease and prevalence is very low. We expect Soliris sales growth will slow down in 2009 and beyond due to saturation of the market. Growth is expected to be 42%, 21% and 18% respectively for 2009, 2010 and 2011 compared to 290% growth for 2008.

Weak pipeline may hurt sustainable growth

Alexion is a one drug company, and Soliris is all Alexion has right now. In order to address its weakness in the pipeline, Alexion are doing two things: expands Soliris label into other indications, and diversifies its product portfolio beyond Soliris.

Alexion has already begun or expects to begin studies of Soliris for other indications which include myasthenia gravis (MG), multifocal motor neuropathy (MMN), severe asthma, Catastrophic Antiphosopholipid Syndrome (CAPS), Atypical Hemolytic Uremic Syndrome (AHUS), Cold Hemagglutinin Disease (CHAD), and pulmonary artery hypertension (PAH).

We believe these new indications for Soliris will expand its utility and accelerate its growth. However, all these studies are in early stages, and it's very hard to predict any success.

Beyond Soliris, Alexion is also conducting a phase I/II clinical study of the company's proprietary anti-CD 200 antibody ALXN6000 in chronic lymphocytic leukemia (CLL) patients. The CD200 molecule is overexpressed in certain tumor cells and may inhibit the body's immune response to that tumor which could allow for the growth and survival of tumors involved in several types of cancers, including CLL, multiple myeloma, non-Hodgkins lymphoma, melanoma, ovarian cancer and neuroblastoma.

Portfolio expansion beyond Soliris is a "must" for Alexion to sustain its growth in the long run. However, the gap between the company's Soliris and the rest of its pipeline is huge in our view. One strategy to fill the gap is to acquire late or middle stage drug candidates. But we don't see any indication of this.

We have a neutral rating on ALXN with a price target of $38.5.