Alexion riding high on Soliris' potential

Analysis

“Darling of the biotech world” is an often used and commonly misplaced phrase to describe a range of undeserving companies, yet in the case of Alexion Pharmaceuticals it seems perfectly apt.

The last couple of weeks have seen Alexion’s shares consistently break record highs, closing last night at $64.98, higher even than prices achieved during the height of the biotech boom in 2000 - the Connecticut biotech is now valued at an impressive $5.86bn. Alexion’s remarkable progress with Soliris, the world’s most expensive drug with so-called ‘nichebuster’ potential, is the key driver as sales continue to exceed market expectations since its launch in 2007 as the first treatment for paroxysmal nocturnal haemoglobinuria (PNH). To date Alexion has maintained a relatively low profile within the industry, yet with such a prized asset and antibody technology platform that quiet life could soon be disturbed.

Market potential conundrum

One of the key drivers behind Alexion’s recent share price surge has been a realisation amongst the analyst community that Soliris’ market potential could be significantly higher than initially predicted.

This has much to do with the difficulty in identifying the prevalence of PNH around the world.

PNH is a rare, acquired, life-threatening disease resulting from increased haemolysis, or the destruction of red blood cells. While anaemia and shortness of breath are common symptoms, 40% of patients develop thrombosis, which is the main cause of severe complications and death in PNH. Average life expectancy is just 10-15 years after initial diagnosis. The median age at diagnosis is 42, although the age can range from 16 to 75.

Soliris is a monoclonal antibody targeting C5 complement factor, proven to reduce haemolysis, decrease related morbidity such as thrombosis and kidney failure, as well as reducing blood transfusion rates.

The incidence rate of PNH is just 1-2 cases per million yet estimates vary wildly as to the prevalence of the disease, from 4-16 cases per million; in other words, the number of patients currently being treated and identified as the target population for Soliris could represent a small fraction of available PNH patients.

Recent reports from Cowen and Needham estimate around 10,000 patients in the US and Europe combined, with a further 2,000 in Japan, another key market where Soliris was launched earlier this year. Cowen estimates the global population of PNH at over 22,500, half of which may be eligible for Soliris.

At an annual treatment cost over $400,000, that is a significant commercial opportunity. A survey by Forbesearlier this year ranked Soliris as the world’s single most expensive drug.

Upgrades all round

As quarterly sales for Soliris continue to exceed consensus estimates, a number of analysts have significantly upgraded their sales forecasts for the drug as well as price targets for Alexion’s shares.

For example, within the past week alone Bernstein upped its price target to $75 from $60 and Needham raised its target price to $76 from $64.

Indeed, ten leading banks have strong buy recommendations on the stock with a consensus price target of $66.80, a figure that could rise further given recent share price gains.

Indeed, Bernstein also predicted the stock could easily exceed $90 should big pharma start looking seriously at acquiring the company, particularly as Alexion is now one of few remaining independent companies with a fully validated antibody technology platform.

Eli Lilly’s $6.5bn acquisition of ImClone and Bristol-Myers Squibb’s $2.4bn purchase of Medarex in recent years is indicative of big pharma’s desire to acquire such assets.

Pipeline within a product?

In terms of current expectations for Soliris, sales last year of $387m are projected to reach $1.33bn by 2016, an estimate that has increased by 11% since the start of the year, according to EvaluatePharma’s archive consensus forecasts.

Yet those estimates could grow further should pivotal phase II data in atypical haemolytic uremic syndrome (aHUS) be positive when the trial reports by the end of the year. aHUS is another rare disease that can lead to kidney failure or death and analysts see significant potential for Soliris in this indication.

Both Cowen and Bernstein estimate that Soliris sales in aHUS by 2015 will exceed $500m. Regulatory approval in this new indication could be granted by the end of 2011.

Meanwhile, the therapeutic potential of Soliris across a range of diseases is significant. Further uses of Soliris include kidney transplant rejection and multifocal motor neuropathy (MMN), with phase II trials ongoing in both indications.

Furthermore, new formulations of Soliris, such as a nebulised version for asthma and an intravitreal form to treat dry-age related macular degeneration, all add to the the product’s potential.

With just one other pipeline candidate, samalizumab (ALXN6000), an anti-CD200 antibody in early stage trials for B-chronic lymphocytic leukaemia (B-CLL) and multiple myeloma, it could be argued that Alexion is essentially a one-product company.

However, the progress of Soliris so far and its clear potential suggest Alexion could indeed have that enviable and valuable asset which is a pipeline within a product.

With the company now profitable and starting to generate decent cash flow, the concerns raised by some analysts soon after the launch of Soliris now seems like an age ago (Alexion facing test of potential, March 3, 2008).

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