News and Analysis
By Mitchell Young
BOSTON, NEW HAVEN: With an Investors Business Daily headline “Santa Comes Early As This Biotech Stock Grabs its Fourth Approval” the company could typically expect a rising stock price. Instead investors in Alexion Pharmaceuticals [NYSE: Alxn] have seemingly abandoned the company in spite of a slew of “good news” in the past few months.
The stock market and general biotech slide certainly accounts for some of the stock’s troubles, but the decline to a 52 week low at $92.56 on December 24 came in the face of numerous analyst’s “buy” recommendations. Indeed analyst predictions are listed for a “consensus” $165 share price. In March 2018 with the stock closing at $122 per share, a Deutsch Bank analyst in reaction to positive clinical data, calling it a “clear success” suggested a buy recommendation with a $160 per share target. As recently as September on the back of more positive clinical results for a new disease treatment, several analysts reiterated and raised their support for the company, with expected share prices of $140 to $170 per share.
When CEO Ludwig Hantson was appointed in March 2017, the company’s stock was trading in the $120s. Hantson himself bought a million dollars of Alexion stock at $116 per share a few months later.
A year ago the stock was trading around $120 per share but that didn’t impress activist investor Paul Singer’s Elliot Management. The New York Times reported that Elliot had made an investment in the company and was seeking a possible sale or changes in strategy for the company, including a broadening of its board to include more bio savvy directors.
The company complied and in January 2018 announced it had agreed to “collaborate” with Singer on board picks, the company added three new bio-experienced directors. As this year ends however, according to Holdings Channel an investment website that tracks hedge fund’s and activist investors, the investment site, shows no Elliot ownership of Alexion shares.
In spite of Hantson’s inability to raise the company’s stock price, the company has been busy building a “new strategy.” Among Hantson’s first moves was a near 20% workforce reduction and a move of the company’s headquarters from New Haven to Boston. In spite of the increased expenses of a Boston headquarters and vacant space at its New Haven leased location, the company claims it will save $250 million annually. New Haven was targeted as a “Research Center of Excellence” and the new headquarters in Boston, is to “support innovation and future growth.”
The company has said that the reductions would help pay for $100 million annually in new investments and acquisitions and true to that word the company has made several investments and two major acquisitions.
At a cost that will reach as much as a billion dollars before a product comes to market, Alexion acquired Wilson Therapeutics of Stockholm, Sweden, a clinical stage company for $855 million in cash. Wilson is in Phase 3 development for a treatment of Wilson’s disease, a rare genetic disorder that causes excess copper to accumulate in the liver, causing debilitating symptoms and liver failure. Estimates are that 30,000 people in the world have the disease.
Apparently the new bio savvy directors are getting a spin, in September Alexion agreed to acquire Syntimmune, another clinical-stage biotechnology company in the “rare” disease category. Syntimmune is still at an early stage with its core products in Phase 1b/2a, as it develops “antibody therapeutics.” Syntimmune received an upfront payment of $400 million, with the potential for additional milestone-dependent payments of up to $800 million, for an acquisition total value of up to $1.2 billion.
Media coverage has typically challenged the company for its aggressive pricing, but citing Alexion’s strong sales growth, this September Forbes Magazine, ranked the company as 22nd in its World’s Most Innovative Companies report, Netflix was number 6, Facebook 10, Starbucks 30.
Alexion under Hantson and the new board has made some smaller scale “venture” style investments as well. But it has been the success and continued development of the legacy technology that continues to drive the company. While as many as 400 employees were eliminated from New Haven, the 450 remaining work primarily on research of the flagship products and for now at least are driving the profit and sales growth of the company.
Financial results for the third quarter of 2018, showed continued and powerful sales growth. Total revenues in the third quarter were $1,026.5 million, a 20 percent increase compared to the same period in 2017.
The FDA just approved, two months earlier than expected, Ultomiris, Alexion’s next generation of the company’s flagship drug Soliris. Ultomiris is expected to help fend off coming competition for the company. The new drug works as well as Soliris for the treatment of PNH, the company’s principal source of revenue, but offers a great benefit to patients, it is taken once every eight weeks instead of every two weeks. Additionally, the company is in clinical trials for a version that can be administered by injection by the patient themselves, instead of via infusion at a medical facility.
Whether the reduced dosing sequence and patient injection will allow the company to maintain its $400,000 plus annual cost as the U.S. and governments across the globe are actively trying to reduce costs, remains to be seen.
The company’s researchers however continue to find new disease treatments for Soliris, with an approval for a subset [10-15%] of patients with generalized myasthenia gravis (gMG) an autoimmune neuromuscular disorder characterized by fatigable muscle weakness. The number of potential patients is estimated to be fewer than 10,000 in the U.S.
This past October the company announced positive Phase III results for the treatment of neuromyelitis optica spectrum disorder [NMOSD] another rare disease treatment. NMOSD is an autoimmune disease similar to Multiple Sclerosis, that primarily attacks the optic nerves and spinal cord leading to blindness and potential paralysis, The disease was often misdiagnosed as MS until the last ten years when new tests came into usage. Estimates are between approximately 5-8,000 potential patients in the U.S.
Continued sales growth, positive clinical results, analysts’ buy recommendations and good media, a drive for pipeline diversification are seemingly at odds with a collapsing stock price.
Concerns about new price regulation may be what’s spooking investors.
In October President Trump said that US drug prices should mirror prices that other countries are charging and Democrats have promised to make drug prices a presidential issue, the political concern appears to be driving bi-partisan talks on drug costs.
Whether rare disease treatments with their media enticing costs can escape the onslaught is anyone guess.
Regardless the politics maintaining the premium cost of Soliris and Ultomiris will be the overall challenge for the company and could be the anchor holding back the stock. Two other Alexion drugs Strensiq and Kanuma which also treat very rare disease are even more expensive than Soliris. Sales growth has been challenged as the drugs have faced approval problems in Canada and the UK over cost, either being denied completely or facing demands for deep discounts.