Alexion Pharmaceuticals’ (ALXN) fourth quarter 2010 earnings (excluding special items but including stock-based compensation) of $0.43 per share surpassed the Zacks Consensus Estimate by $0.01 and the year-ago earnings by $0.20. Earnings in the quarter benefited from an increase in revenues.
On a reported basis (including special items), the company earned $0.28 per share in the reported quarter as against $2.59 in the year-ago quarter. The year-ago reported earnings included a one-time tax gain of $215.5 million.
Alexion’s revenues jumped 41% to $156 million in the reported quarter driven by strong Soliris (eculizumab) sales. Revenues surpassed the Zacks Consensus Estimate of $154 million. The impressive revenues recorded in the reported quarter were indicative of the addition of new patients primarily in the US, Western Europe and Japan.
Soliris is Alexion’s only approved product. It is approved for the treatment of paroxysmal nocturnal hemoglobinuria (PNH), a rare genetic blood disorder. The disorder can lead to anemia, fatigue, pain and breathing problems. Alexion is working to expand the label of Soliris into other indications.
During the final quarter of 2010, the company made solid progress in trying to expand the label of Soliris. In November 2010, positive data from Alexion’s two mid-stage studies (26-week) which evaluated Soliris as a treatment for adult and adolescents suffering from atypical hemolytic uremic syndrome (aHUS) were presented at the American Society of Nephrology.
The disorder often leads to heart attack, stroke or kidney failure which can even prove to be fatal. Furthermore, Alexion is conducting separate studies to evaluate Soliris for treating aHUS in pediatrics and adults.
Alexion 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).
Alexion, which is lending support to investigator-initiated studies in high-risk kidney transplantation in the US and Australia, is planning two company-sponsored controlled studies using Soliris to prevent AHR in kidney transplant patients. The studies are expected to commence in multiple centers across the globe in 2011.
Currently, there are no approved treatments for any of these disorders and the successful development of Soliris for one or more of these indications will help expand the market potential for this product.
Operating expenses for the reported quarter jumped 20.8% to $90.7 million in the reported quarter. The increase was attributable to a hike in both research and development (R&D) expenses (up 17.1%) and selling, general and administrative expenses (up 22.5%). We expect R&D costs to increase further as the company is exploring the use of Soliris in other indications besides PNH.
For full year 2010, Alexion earned (excluding special items but including stock-based compensation) $1.43 which fell short of the Zacks Consensus Estimate by a penny. 2010 earnings, however, whizzed past the year-ago earnings by $0.56. 2010 revenues jumped 39.9% to $541 million in the reported quarter driven by strong Soliris sales. Revenues surpassed the Zacks Consensus Estimate of $539 million.
2011 Projection
Apart from disclosing financial results, Alexion also provided guidance for 2011. The company expects adjusted earnings of $2.10-2.25 per share. Net product sales for 2011 are expected in the range of $715 million – $735 million. The current Zacks Consensus Estimate for 2011 is $1.82 on revenues of $717 million.
Alexion in Expansion Mode
Alexion also announced that it has bought the patents and assets from German based Orphatec Pharmaceuticals for $3 million in cash. The purchase relates to a therapy for a rare genetic disorder that results in severe brain damage and can prove to be fatal in newborns. The disorder, known as molybdenum cofactor deficiency type A, currently has no treatment options.
The acquisition of assets from the German company comes close on the heels of the purchase of Taligen Therapeutics, a privately held biotech firm focused on treating inflammatory diseases, for an upfront cash payment of $111 million.
The acquisition of Taligen will allow Alexion to widen its portfolio and enhance its expertise in translational medicine by incorporating additional accomplished researchers. The merger with Taligen strengthens Alexion’s pipeline significantly which was imperative for the company to sustain growth by expanding its scope beyond its only approved product Soliris.
Our Take & Recommendation
Currently, we have a Neutral stance on Alexion which is supported by a Zacks# 3 Rank (short-term Hold recommendation). We believe that Alexion’s future is tied to Soliris. Approval of the drug in additional territories should help drive sales in the coming quarters.
Alexion is also seeking to expand Soliris’ label. Approval of the drug for any additional indication will further boost the company’s top line. However, we remain concerned about the company’s dependence on a single product for growth.
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