Alexion Pharmaceuticals’ (ALXN) third quarter 2010 earnings (excluding special items but including stock-based compensation) of 41 cents per share surpassed the Zacks Consensus Estimate by 4 cents and the year-ago earnings by 12 cents. On a reported basis (including special items), the company earned 30 cents per share in the reported quarter as against 29 cents in the year-ago quarter. Earnings in the quarter benefited from an uptake in revenues.
Alexion’s revenues jumped 38% to $141.6 million in the reported quarter driven by strong Soliris (eculizumab) sales. Revenues surpassed the Zacks Consensus Revenue Estimate of $137 million. The impressive revenues recorded in the reported quarter were indicative of the addition of new patients in the US and European nations coupled with the initial launch of Soliris in Japan during the quarter.
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 exploring the use of Soliris in other indications as well besides PNH.
During the quarter the company made handsome progress in trying to expand the label of Soliris. We note that recently the company presented positive interim data from two mid-stage studies evaluating Soliris for treating patients suffering from atypical Hemolytic Uremic Syndrome. The disorder often leads to kidney failure.
Operating expenses for the reported quarter jumped approximately 33% to $74.3 million in the reported quarter. The increase was attributable to a hike in both research and development (R&D) expenses (up 20.3%) and selling, general and administrative expenses (up 39.2%) expenses. We believe the increase in operating expenses is primarily due to increased clinical trial programs. We expect R&D costs to increase further as the company is exploring the use of Soliris in other indications besides PNH.
In addition, higher costs associated with the expansion of Alexion’s commercial operations in existing markets in the US, Europe and several other countries were also responsible for the increase in operating expenses.
2010 Guidance Raised
Alexion raised its previously announced guidance for 2010. Adjusted earnings for 2010 are now forecasted in the range of $1.73-$1.75 as opposed to its previous view of $1.63-$1.68 per share. The company now expects net product sales in the range of $536 million to $538 million as against its previous guidance of $515 million to $530 million. The Zacks Consensus Estimates for 2010 earnings and revenues are $1.46 and $530 million respectively.
Our Take & 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.
We believe that the risk/reward profile at Alexion is balanced. Consequently, we are Neutral on the stock which is supported by a Zacks# 3 Rank (short-term Hold recommendation).
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