Alexion Pharmaceuticals ALXN
May 26, 2017 - 11:02pm EST by
2017 2018
Price: 97.70 EPS 3.05 4.99
Shares Out. (in M): 226 P/E 32 20
Market Cap (in $M): 22,080 P/FCF 22 16
Net Debt (in $M): 1,551 EBIT 882 1,397
TEV (in $M): 23,631 TEV/EBIT 27 17

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Alexion is an ultra-orphan disease company which is currently undervalued by the market.  A series of missteps by the prior management have created an interesting opportunity for investors.  However, with a biologic in the ultra-orphan space that is growing double digit and has potential line extensions on the horizon we believe there is significant value.  


The previous management overpaid for Synageva, lacked financial discipline and pursued aggressive sales behavior ultimately led to a complete overhaul of the executive team.  Their operation expenses are bloated and for a company that has 92% GM, their non-GAAP net income is only 36% of revenues.  


On March 27, 2017, ALXN named former Baxalta CEO Ludwig Hantson as its new CEO.  At Baxalta, he was CEO of the company through its spin-off from Baxter to its acquisition by Shire.  Prior to Baxalta, Dr. Hantson was President of Baxter BioScience, a $6 billion global business unit of Baxter where he drove significant value into its pipeline by adding 25 New Molecular Entities and Biologics License Applications, and launching 13 new products.  Prior to Baxter, Hantson was at Novartis from 2001 to 2010, including CEO of Novartis Pharma North America, CEO of Novartis Europe, and President of Novartis Pharma Canada.  Though not as biotech focused a background as some investors might have wished, we believe that Hantson has experience with orphan diseases from his time at Baxalta and Baxter and will be able to bring some much needed financial, R&D, and ethical discipline to the organization.  





Their main drug is Soliris, a biologic which is approved to treat two ultra orphan diseases - Paroxysmal Nocturnal Hemoglobinuria (PNH) and Atypical Hemolytic Uremic Syndrom (aHUS).   Soliris is a very high priced drug due to the very small patient population is serves.  PNH patients can bring in $500k a year in revenue.  


Soliris (eculizumab)

Soliris is designed to inhibit a specific aspect of the complement component of the immune system and thereby treat inflammation associated with chronic disorders in several therapeutic areas, including hematology, nephrology, neurology and transplant rejection. Soliris is a humanized monoclonal antibody that effectively blocks terminal complement activity at the doses currently prescribed. The initial indication for which we received approval for Soliris is PNH.

Paroxysmal Nocturnal Hemoglobinuria (PNH)

PNH is a debilitating and life-threatening, ultra-rare genetic blood disorder defined by chronic uncontrolled complement activation leading to the destruction of red blood cells (hemolysis). The chronic hemolysis in patients with PNH may be associated with life-threatening thromboses, recurrent pain, kidney disease, disabling fatigue, impaired quality of life, severe anemia, pulmonary hypertension, shortness of breath and intermittent episodes of dark-colored urine (hemoglobinuria). We continue to work with researchers to expand the base of knowledge in PNH and the utility of Soliris to treat patients with PNH. Soliris is approved for the treatment of PNH in the U.S., Europe, Japan and in several other territories. We are sponsoring a multinational registry to gather information regarding the natural history of patients with PNH and the longer term outcomes during Soliris treatment. In addition, Soliris has been granted orphan drug designation for the treatment of PNH in the U.S., Europe, Japan and several other territories.

Atypical Hemolytic Uremic Syndrome (aHUS)

aHUS is a severe and life-threatening, ultra-rare genetic disease characterized by chronic uncontrolled complement activation and thrombotic microangiopathy (TMA), the formation of blood clots in small blood vessels throughout the body, causing a reduction in platelet count (thrombocytopenia) and life-threatening damage to the kidney, brain, heart and other vital organs. Soliris is approved for the treatment of pediatric and adult patients with aHUS in the U.S., Europe and Japan. We are sponsoring a multinational registry to gather information regarding the natural history of patients with aHUS and the longer-term outcomes during Soliris treatment. In addition, the FDA and European Commission (EC) have granted Soliris orphan drug designation for the treatment of patients with aHUS.



The company has guided to 2017 Soliris sales of $3.025 - $3.1B.  This is after expected FX headwinds, and includes $70-110M in lost sales due to trial recruitment for their follow-on agent, ALXN1210 (more on that below).  Thus despite the 8% sales growth based on the mid-point of guidance, Soliris grew 22% on a volume basis in the 1Q 2017 (before significant impact from ALXN1210 trial enrollment).  We believe double-digit growth is sustainable for Soliris and the overall franchise for years to come.  Though PNH is growing in the high single digits, aHUS should be able to sustain double-digit growth.  








ALXN1210 and Competitive Landscape


Soliris is currently 90% of ALXN's revenues.  The composition of matter patent on Soliris expires in 2021 in the US.  The next generation agent, ALXN1210 is currently in pivotal development and has composition of matter patents through 2035 in the US and Europe.  Soliris is currently dosed every 2 weeks.  ALXN1210 is being investigated with every 8 week dosing.  Phase I/II data presented at the American Society of Hematology meeting in December of 2016 ( demonstrated that monthly dosing with ALXN1210 was well tolerated and effective in PNH patients, with the higher 1800mg monthly maintenance dose performing slightly better.


All patients showed rapid reductions in mean LDH levels at Week 1 (the first evaluable time point), which were sustained over the study analysis period. As of the study analysis cutoff, treatment with ALXN1210 led to a mean reduction in LDH levels of 86 percent in Cohort 1 (baseline to Week 24) and 85 percent in Cohort 2 (baseline to Week 20). Four out of 6 patients in Cohort 1 (67 percent) and 4 out of 5 patients in Cohort 2 (80 percent) achieved LDH normalization, and 5 out of 6 patients in Cohort 1 (83 percent) and 5 out of 5 patients in Cohort 2 (100 percent) achieved mean LDH levels ≤1.5 times the upper limit of normal. Among five patients with one or more transfusions in the year prior to the study, one patient in Cohort 1 required a transfusion, while no patients in Cohort 2 required a transfusion with ALXN1210 treatment. In addition, mean levels of hemoglobin, another marker of intravascular hemolysis, were improved or stable in both cohorts.

A sell-side note also commented on patients that were dosed with Q8W (every 8 week) and Q12W (every 12 week) dosing.  The 8 week dosing led to reductions in LDH levels that were sustained over 3 months with no signs of breakthrough hemolysis.  Based on FDA input it appears that the Q8W was selected as the paradigm for pivotal trials.