In a bid to widen its portfolio and enhance its expertise in translational medicine by incorporating additional accomplished researchers, Alexion Pharmaceuticals Inc. (ALXN) purchased Taligen Therapeutics, a privately held biotech firm focused on treating inflammatory diseases, for an upfront cash payment of $111 million.
Apart from the upfront payment to Taligen, which acquires its entire equity, Alexion could make further payments on the achievement of certain milestones for at least six candidates in the US and European Union.
The merger strengthens Alexion’s pipeline significantly which was imperative for the company to sustain growth by expanding its scope beyond its only approved product Soliris (eculizumab). Soliris is a humanized monoclonal antibody complement inhibitor approved for treating patients suffering from paroxysmal nocturnal hemoglobinuria (PNH), a rare genetic blood disorder.
With the Taligen acquisition, Alexion has acquired ophthalmic candidates including candidates for treating patients suffering from age-related macular degeneration (AMD), in addition to other candidates to combat inflammatory diseases.
We note that Alexion will disclose financial results for the fourth quarter and full year 2010 on February 10, 2011. We expect the company to come up with a financial outlook for 2011 the same day whereby it will give details of the expenses incurred related to the merger. Alexion expects adjusted research and development expenses for 2011 to hover around 18% of sales. This will include the expenses incurred for developing the acquired programs.
Our Recommendation
Alexion currently has a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating. We are also ‘Neutral’ on the stock in the long term. We believe that Soliris has strong growth potential from increased penetration in existing markets and contributions from new territories that will drive product sales for the company.
However, we remain concerned about the company’s excessive dependence on a single product for growth. Although Soliris is being evaluated in multiple additional indications, most of them are in the early-to-mid stages of development. Consequently, we believe that the acquisition of Taligen is a right step towards lessening the concern as the purchase boosts Alexion’s pipeline considerably. However, since the added candidates are in early stage of development, an Alexion product hitting the market is a distant possibility.
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