Alexion Cut to Neutral

We recently downgraded Alexion Pharmaceuticals Inc. (ALXN - Analyst Report) from Outperform to Neutral. Our target price on the stock is $73.00.

Even though pleased with the label expansion of Alexion’s sole marketed product, Soliris in the US and EU for the atypical hemolytic uremic syndrome (aHUS) indication in 2011, we believe that it will take some time before sales from the additional indication start contributing meaningfully to total revenues. Moreover, the small patient population for aHUS limits the sales potential of Soliris for the indication.

We remind investors that the label of Soliris, already marketed for paroxysmal nocturnal hemoglobinuria (PNH), a rare genetic blood disorder, was successfully expanded into the aHUS indication in the US and EU in September and November 2011, respectively. The regulatory authorities cleared Soliris for treating children and adults suffering from aHUS, an ultra-rare genetic disorder. The disorder often leads to heart attack, stroke or kidney failure, any of which can be fatal.

Moreover, we are concerned about Alexion’s dependence on a single product for growth. Apart from Soliris, Alexion does not have a decent pipeline. The other notable candidate is samalizumab.

Samalizumab is undergoing early-stage development for treating patients suffering from chronic lymphocytic leukemia or multiple myeloma. In the absence of any late-stage candidate, growth at Alexion is entirely dependent on Soliris. If Alexion’s sales dwindle, then the company has little to fall back on. This will pull down the stock significantly.

In view of these concerns, we have downgraded Alexion to Neutral from Outperform. We prefer to remain on the sidelines until more visibility is obtained on the commercial potential of Soliris for the aHUS indication.

Read the full analyst report on ALXN