Alexion Downgraded to Neutral

We recently downgraded Alexion Pharmaceuticals Inc. (ALXN - Analyst Report) from Outperform to Neutral. Our target price on the stock is $91.00.

Even though pleased with the label expansion of Alexion’s sole marketed product, Soliris in the U.S. and E.U. for the atypical hemolytic uremic syndrome (aHUS) indication in 2011, we believe that the sales potential represented by the aHUS indication is limited given the small aHUS patient population.

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 U.S. and E.U. 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.

Though the acquisition of Enobia Pharma in January this year was a good move, we remain concerned about the integration risks associated with mergers. Moreover, asfotase alfa, added to Alexion’s pipeline through the acquisition, is still a long way away from approval. Consequently, the acquisition will not expand Alexion’s product portfolio in the near-term.

Moreover, we are concerned about Alexion’s dependence on a single product for growth. Apart from Soliris, Alexion does not have a decent pipeline. 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 challenges, we have downgraded the stock to Neutral. Our long term recommendation is in line with the Zacks #3 Rank (“Hold” rating) carried by the stock in the short run.