We are upgrading Alexion Pharmaceuticals ( ALXN - Analyst Report ) to Outperform from Neutral on valuation grounds - we believe that there is significant scope for upside from current levels.

In February 2012, Alexion Pharma announced encouraging fourth quarter and full year 2011 results. Alexion Pharma earned $0.36 per share in the final quarter of 2011, beating the Zacks Consensus Estimate by $0.07 thanks to strong Soliris sales. Soliris, Alexion’s sole marketed product, is available in the US, EU, Japan and many other countries for the treatment of paroxysmal nocturnal hemoglobinuria - a rare genetic blood disorder.

The label of the drug was expanded in 2011, in the US and EU for treating children and adults suffering from atypical hemolytic uremic syndrome (aHUS), an ultra-rare genetic disorder. This is the first drug for the indication to be cleared in both markets. The absence of competition bodes well for the initial sales ramp of Soliris for the new indication.

The successful label expansion of Soliris has boosted the sales potential of the drug. We expect Soliris to continue performing well in 2012. Consequently, we have increased our revenue estimate for 2012 and expect Soliris sales to exceed $1 billion in 2012.

Alexion is studying Soliris for additional indications as well, such as acute humoral rejection, myasthenia gravis and STEC-HUS. Currently, there are no approved treatments for any of these disorders and the successful development of Soliris for one or more of these indications will further help expand the market potential of the drug.

We are also encouraged by the company’s strategy of pursuing acquisitions/signing deals to expand its pipeline beyond Soliris. The acquisitions of Taligen Therapeutics, Enobia Pharma and the purchase of the patents and assets from Orphatec Pharmaceuticals are aimed towards fulfilling this objective.

Moreover, the strong balance sheet at Alexion (cash, cash equivalents and marketable securities of $540.9 million and no long-term debt at the end of 2011) gives it the opportunity to make further acquisitions/deals to develop its pipeline and expand its product portfolio.

In view of these positives, we have upgraded the stock to Outperform. Our long-term recommendation is in line with the Zacks #1 Rank (“Strong Buy” rating) carried by the stock in the short run.