Company Overview: Alexion Pharmaceuticals, Inc. is a biopharmaceutical company. The Company is focused on the development and commercialization of therapeutic products. The Company's products include Soliris (eculizumab), Strensiq (asfotase alfa) and Kanuma (sebelipase alfa). The Company's clinical development programs include Soliris (eculizumab), cPMP (ALXN1101), SBC-103, ALXN1210 (IV) and ALXN1210 (Subcutaneous). Its Soliris is the therapeutic approved for patients with either paroxysmal nocturnal hemoglobinuria (PNH) or hemolytic uremic syndrome (aHUS). PNH and aHUS result from chronic uncontrolled activation of the complement component of the immune system. Its Strensiq is for the treatment of patients with Hypophosphatasia (HPP). Its product, Kanuma is for the treatment of patients with Lysosomal Acid Lipase Deficiency (LAL-D). It is a recombinant form of the human LAL enzyme, which is a replacement therapy that is approved for the treatment for patients with LAL-D.


ALXN Details
 
Unique Product Pipeline to Deliver Robust Growth:  Alexion Pharmaceuticals, Inc. (NASDAQ: ALXN) is engaged in biopharmaceutical business, which is specialized in treating rare diseases through the detection, development and marketing of life-changing medicines. The company holds a leading position in complement biology and inhibition for over two decades. ALXN has successfully developed and is marketing two approved complement inhibitors, which are used for the treatment of paroxysmal nocturnal hemoglobinuria (PNH) and atypical hemolytic uremic syndrome (aHUS). The business holds a unique position across complement inhibitor, used for the treatment of anti-acetylcholine receptor (AChR), antibody-positive generalized myasthenia gravis (gMG) and neuromyelitis optica spectrum disorder (NMOSD). Alexion possesses two exceedingly ground-breaking enzyme replacement therapies, followed by the first and only approved therapies for patients with life-threatening and ultra-rare metabolic disorders, hypophosphatasia (HPP) and lysosomal acid lipase deficiency (LAL-D). Additional to the Marketed therapies, the business has a product portfolio related to internal innovation and business development. The company specialized its research efforts on the novel molecules and aims in the complement cascade. ALXN seeks development across the core therapeutic areas of hematology, nephrology, neurology, metabolic disorders and cardiology.

Looking at the historical performance over the period of FY15-FY19, the company’s total revenue improved from $2,604 million in FY15 to $4,991 million in FY18, posting a CAGR of 17.7%. Net Income grew from $144.4 million to $2404.3 million in FY19, witnessing a robust CAGR of 102% over the same period.

Going forward, the company will continue to strengthen the foundation of the business based upon the strategy to lead, expand and diversify. The company’s achievements include establishing ULTOMIRIS as the market leader in PNH within the first year of launch along with the expansion of C5 portfolio. The company intends to seek its largest neurology franchise in the U.S. The business is looking forward to diversify the product pipeline with seven business development deals adding five clinical-stage assets to the portfolio.


5-Year Income Statement Highlights (Source: Company Reports)

Revenue Recognition: The company generates its revenue through the sale of its product and through contracts with the clients. The revenue is recognized by transferring control of the product to the clients upon successful delivery of the product. In certain geographies, the company directly sells its products to the distributors on a consignment basis and records revenue when control of the product is transferred to the customer upon sale to the end consumer. The revenue recognition includes both fixed and variable consideration and excludes the amounts which are collected from customers and dispatched to government authorities, like value-added taxes across the foreign jurisdictions. The company has entered volume-based collaborations with certain countries and other clients in which reimbursement does not exceed the contractual amount. Within this type of deal, the amounts billed in excess of the contractual limitation are repaid to the customer as a  mode of rebate. 

FY19 Key Business Highlights for the Period ended 31 December 2019: ALXN announced its full-year results, wherein the company posted net product sales of $4,990 million as compared to $4,130.1 million in FY18. Income from flagship product, SOLIRIS® (eculizumab) stood at $3,946.4 million, up of 11% on y-o-y basis aided by increased global demand for SOLIRIS therapy from the patients with gMG. ULTOMIRIS® delivered a growth of 25% on y-o-y basis at $338.9 million on account of the loading doses required in a patient's first year on therapy. The product of KANUMA® reported a sale of $112.2 million, representing a 22% increase from FY18. The business witnessed volume growth from increased demand for STRENSIQ and KANUMA driven by the continued efforts to identify and reach more patients with HPP and LAL-D globally. Selling, general and administrative expenses during FY19 came in at $1,261.1 million, increased from $1,111.8 million in FY18. The increase was due to an increase in salary, benefits and other labour expenses of $112.3 million mainly related to higher headcount for commercial activities related to SOLIRIS for gMG and increased staff costs associated with commercial support activities including NMOSD pre-launch efforts.

On a GAAP basis, the company reported its research and development (R&D) expenses of $886 million, depicting an increase of 21.3% y-o-y basis, driven by an additional $76.7 million upfront payments, related to Zealand Pharma A/S (Zealand), Affibody AB (Affibody), Eidos Therapeutics, Inc. (Eidos) and Stealth BioTherapeutics Corp. (Stealth). The increment was also associated with a $37.1 million increase in the payroll and benefits allocated due to higher headcounts, followed by an increase of $34.8 million for target option exercise fees and research milestones associated with the agreement with Dicerna. Increase of $23.6 million in direct clinical development expenses related primarily to an increase in various studies and a decrease of $18.2 million in direct product development expenses related to a decline in the manufacturing expenses associated with the material for ALXN1210. The year was marked by higher bottom-line growth at $2,404.3 million improved from $77.6 million in FY18 on account of an expense related to acquire in-process research and development of $1,183 million in FY19. GAAP income tax benefit came in at $225.5 million as compared to the tax expenses of $164.6 million in the previous financial year, which includes one-time tax benefits related to intra-entity asset transfers of intellectual property.


Key FY19 Income Statement Highlights (Source: Company Reports)

Q4FY19 Key Financial Highlights for the Period ended 31 December 2019: The company posted net product sales of $1,384.2 million, as compared to $1,128.5 million in the previous corresponding period. Improved in sales was driven by a 4% y-o-y increase in SOLIRIS® followed by 32% growth in STRENSIQ and 33% growth in KANUMA. On a GAAP basis, cost of sales stood at $114.3 million, up from $96.8 million in Q4FY18. R&D expense on GAAP basis came at $269.6 million, as compared to $205.6 million in the fourth quarter of 2018. GAAP SG&A expense was $381.0 million, compared to $318.7 million in the fourth quarter of 2018 due to due to higher salary, benefits and other labour expenses. On a GAAP basis operating margin stood at 39%, increased 3,521 bps from the previous corresponding period, primarily driven by an expense of $379M for IPR&D asset acquired in connection with Syntimmune in Q4FY18. GAAP income tax benefit was $287.0 million, inclusive of one-time tax benefits related to intra-entity asset transfers of intellectual property in the fourth quarter of 2019, compared to expenses of $12.1 million in the fourth quarter of 2018.


key Income Statement Highlights for Q4FY19 (Source: Company Reports)

Quarterly Sales Break-up (Source: Company Reports)

Q4FY19 Product-wise Revenue Break-up (Source: Company Reports)

Top 10 Shareholders: The top 10 shareholders have been highlighted in the table, which together forms around 42.33% of the total shareholding. The Vanguard Group, Inc. and Fidelity Management & Research Company hold the maximum interests in the company at 7.61% and 6.31%, respectively.
 

Top 10 Shareholders (Source: Thomson Reuters)

Key Metrics: The Company reported strong numbers in FY19, wherein ALXN posted gross margin at 92.1% improved from 90.9% in FY18 and stood higher than the industry median of 85%. EBITDA margin, during the year, stood at 50.2% from 45.6% in FY18. Operating margin during FY19 came in at 42.5%, improved from 6.5% in FY18. FY19Net margin at 48.2% saw a significant improvement from 0.5% in FY18. On similar lines, return on equity also stood higher at 23.5% as compared to just 0.2% in the previous financial year.

 
Key Metrics (Source: Thomson Reuters)

Recent Updates:
In November 2019, the company received approval from the Ministry of Health, Labour and Welfare of Japan for the extension of the current marketing authorization of SOLIRIS® (eculizumab) to include the prevention of relapse in patients with anti-aquaporin-4 (AQP4).

On 28 January 2020, the company announced that it has completed the acquisition of Achillion Pharmaceuticals, Inc. which resulted in the addition of two clinical-stage oral small molecule Factor D inhibitors to product pipeline. It further provides the groundwork and expertise for a broader oral Factor D inhibition development platform with the potential to treat several additional complement-mediated diseases.


Key Valuation Metrics (Source: Thomson Reuters)

Guidance: For FY20, the company expects total revenue to come in the range of $5,500 to $5,560 million, depicting an increase of more than 11% on y-o-y basis. Metabolic revenues are likely to come in the range of $745 million to $760 million, a growth of ~7% on y-o-y basis. On a GAAP basis, the company expects R&D expenses (% of total revenues) to stand within the range of 19.0% to 22.5%, a growth of 300 bps. On a GAAP basis, operating margin is likely to come in the range of 39.3% to 43.5%. Earnings per share on GAAP basis is expected within the range of $7.91 to $8.71.


FY20 Guidance (Source: Company Reports)

Valuation Methodologies: 

Method 1: Enterprise Value to Sales Based Valuation 


Enterprise Value to Sales Based Valuation (Source: Company Reports)

Method 2: Price to Cash Flow Based Valuation 


Price to Cash Flow Based Valuation (Source: Company Reports)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Month

Stock Recommendation: The stock of ALXN is closed at $105.19 with a market capitalization of $23.28 billion. The stock made a 52-week low and high of $94.59 and $141.86 and is currently trading at the lower band of its 52-week trading range. The stock has generated a negative return of 18.08% and 15.34% in the last nine-months and one-year, respectively. The company is confident and is well-positioned for future growth and will continue to build momentum in FY20, with a sustained focus on delivering long-term shareholders’ value by advancing the mission of developing and bringing transformative medicines for people with rare diseases. The business will continue to focus on the development of Achillion’s oral Factor D inhibitor portfolio, with two clinical-stage medicines-in-development – danicopan (ACH-4471) and ACH-5228 – as well as multiple compounds in preclinical development. Considering the aforesaid facts, current trading levels, business prospects, etc., we have valued the stock using Enterprise Value (EV) to Sales and Price to Cash Flow based relative valuation methods. For this, we have considered peers like Amgen Inc (NASDAQ: AMGN), Biogen Inc (NASDAQ: BIIB), Abbvie Inc (NYSE: ABBV), etc. and arrived at a target price which is offering a lower double-digit upside (in % terms). Hence, we give a ‘Buy’ recommendation on the stock at the closing price of $105.19, up 2.66% as on 12^th February 2020.

 
ALXN Daily Technical Chart (Source: Thomson Reuters)

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