Opinion and Analysis

By Mitchell Young

brennan  
Alexion Board Chair
David Brennan
 
elliot  
Activist Investor,
Paul Elliott Singer
 

NEWHAVEN: Things are looking better at Alexion Pharmaceuticals [NASDAQ: Alxn] as the New Year begins. The collapse of the company’s stock from $149 to $105 has abated with a rise back to $125 a share as the year started.

The company announced on January 4th that it has made peace with activist investor Elliot Management. Elliot reportedly made a sizable investment in the company and according to a report in the New York Times wanted to see the company do more to increase the stock price including the possible sale of the company [see Activist Investor Targets Alexion].

Elliot also questioned the level of bioscience expertise on the board, a criticism we raised about the company’s board as well in early November 2017 in Alexion Sent On Market Tailspin Since Relocation, Reorganization Announcements.

On November 11, soon after an October meeting with Elliot the company announced the addition of rare disease bio-science executive Francois Nader, M.D..

In the “peace agreement,” the company has agreed to work with Elliot in the appointment of another board member.

Board Chairman David Brennan explained the agreement with Elliot saying, “the agreement between the board and Elliott is part of efforts to maintain active and constructive dialogue with all of our shareholders.”

In a release from Alexion, the company included a statement from the activist, “Elliott is pleased to reach agreement with Alexion to identify a new independent director to join the Company’s Board of Directors. We are encouraged by actions taken under Ludwig’s leadership to improve financial performance and re-set Alexion’s strategy. Enhancing the strength of the Board is another step toward maximizing value creation for all shareholders.”

What is confusing to us about the statement is that the actions by the company to “re-set the strategy” with the exception of the different direction on the board were announced well on on September 14 prior to the meeting between Elliot and Alexion management in October.

Market reaction to Alexion’s "new strategy" announcement was the action that appeared to set the stock into a freefall from $149 to $105. The company “re-set” included moving the headquarters from New Haven to Boston and establishing a research effort in that city to develop a wholly new unrelated pipeline of drugs. The new developments to be paid for by cuts of 20% of the workforce involved in the current Solirs, Kunuma, and Strensiq drug efforts and the closing of some facilities and the outsourcing of manufacturing.

Alexion CEO Ludwig Hantson said the company expected, to yield $250 million per year in savings from the changes.

While the stock has recovered somewhat, stock analysts have become divided on the company. With one, cutting the stock price expectation from $178 to $130 and others raising expectations for the company.

Ironically it is appears that it is reaction by analysts and the market to the company’s previous strategies and not the new strategy that is propelling the more positive outlook fueling the stock rebound.

Eric Schmidt, an analyst with Cowen & Co. on CNBC said the recent approval by the Food and Drug Administration (FDA) in October, of the company’s lead drug Soliris in treating generalized myasthenia gravis (gMG), a rare but severe immune system disorder, drug was a “major breakthrough and could add $1 billion in sales to the company.”

A second generation drug, ALXN 1210 to replace Soliris is in development with clinical results expected in the second quarter of 2018. Stensiq sales have continued a slow climb and even the much derided Kanuma received positive clincal trial news in the fourth quarter of 2017.

"We see as much as 30% upside from the current stock price to our base case outcome from the [ALXN 1210]  trials,” according to Boston based healthcare investment bank Leerink’s Geoffrey Porges.

In late December Alexion announced a licensing agreement with Halozyme Therapeutics, Inc. [Nasdaq:HALO] a relatively small public biotech based in San Diego, for a technology that would allow ALXN 1210 to be administered by injection rather than infusion and help the company fend off competitive drugs that may come on line in the next few years.