We are maintaining our Neutral stance on Alexion Pharmaceuticals (ALXN) with a target price of $55.00.
Alexion Pharma delivered a strong performance in the second quarter of 2011. Second quarter adjusted earnings of $0.23 per share surpassed the Zacks Consensus Estimate by $0.01 and the year-ago earnings by $0.07. Earnings include the effect of the two-for-one stock split, which was completed in May 2011. Earnings in the quarter benefited from an increase in revenues.
The main growth driver at Alexion Pharma is Soliris, which is marketed for the treatment of paroxysmal nocturnal hemoglobinuria (PNH), a rare genetic blood disorder. We note that strong Soliris sales have bolstered the company's profitability since the second quarter of 2008.
Besides PNH, Alexion Pharma is exploring the use of Soliris in other indications as well. In April 2011, the company submitted marketing applications in the US and the European Union (EU), seeking approval to market Soliris for treating patients suffering from atypical hemolytic uremic syndrome (aHUS). The disorder often leads to heart attack, stroke or kidney failure that can prove to be fatal.
In June 2011, the US Food and Drug Administration (FDA) stated that it will review Alexion’s application on a priority basis, which implies a six month review period. Consequently, the drug is expected to be launched in the US by year-end, if approved for the additional indication.
We note that the aHUS market provides an opportunity for the company as patients suffering from the disorder have limited treatment options. Therefore, if Soliris is approved for treating the disease then the market potential for this product will further expand.
Alexion Pharma is also studying Soliris in patients undergoing kidney transplantation, having a high risk of organ rejection. The condition is referred to as acute humoral rejection (AHR). Recently, the regulatory agencies in the US and Europe cleared clinical protocols for a global, company-sponsored controlled study. The study will evaluate Soliris to prevent AHR in patients undergoing kidney transplant. Moreover, Alexion is preparing to initiate a living-donor study in the fall of 2011 and a deceased-donor study by year-end.
However, we remain concerned about Alexion Pharma’s dependence on a single product for growth. Given the absence of any late-stage pipeline candidate, we are concerned about the company’s long-term growth prospects.
We prefer to remain on the sidelines until we have better visibility regarding the pipeline development at Alexion Pharma and thus retain our Neutral stance on the stock.
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