Alexion Pharmaceuticals Raising Target Price to $200

ALXN : NASDAQ : US$162.00
Target: US$200.00

Alexion is a biotechnology company focused on the
development and commercialization of therapies for rare
diseases with high unmet need. Alexion has one
commercially available product, Soliris, for the treatment
of PNH and aHUS. The development pipeline consists of
additional indications for Soliris including MG, NMO and
transplant rejection, as well as TT30, asfotase alpha,
cPMP and ALXN1007. Alexion is headquartered in
Chesire, Connecticut.
All amounts in US$ unless otherwise noted.

Life Sciences — Biotechnology
ALXN reported a Q4 top- and bottom-line beat with solid FY14 guidance. We are
strongly encouraged by the new tax structure given non-GAAP guidance of 11-
13% (vs. prior comments of ~28%) driven by global supply chain and IP centered
in Ireland that enables a lower tax rate even after utilization of ~$190M in tax
credits – we now model for a non-GAAP tax rate of 18% in FY17+. In addition to
the bottom-line support, the lower tax rate enables further investment in SG&A
(metabolic team in place for a Q4 asfotase alfa launch) and R&D (internal
mandate to have 8-10 programs in the clinic). We continue to view the pipeline as
undervalued, particularly given ALXN has the potential for up to 7 launches in
2014-18 (asfotase for HPP; Soliris for MG, NMO, and kidney transplant [DGF and
AMR], cPMP for MoCD and next-generation Soliris). Net-net, we would be buyers
of ALXN for the following 2014 drivers: 1) penetration in new territories (PNH –
Turkey, Russia, Brazil; aHUS – E.U., Japan); 2) pipeline progress, specifically P2
proof-of-concept ALXN1007 data in Q4 (undisclosed disease); cPMP healthy
volunteer/retrospective trial data); and 3) asfotase approval and launch in Q4. We
are increasing our revenue growth trajectory and OpEx, while reducing the tax
rate – raising our price target to $200.
 aHUS, asfotase and Moderna have upside potential: Management emphasized
that aHUS is at least as large an opportunity as PNH given higher incidence
rate – we see upside given our aHUS peak sales estimate of $836M in 2018 vs.
$1.9B for PNH. Given the asfotase target market includes adults, we view our
$880M WW peak sales as conservative. On the Moderna deal, ALXN is working
through ultra-rare diseases caused by protein deficiencies.
 Financials; changes to model: Q4 non-GAAP EPS and revenue of $0.87
$441.9M beat consensus of $0.83 and $430.7M, respectively. We now model
for $2.02B in FY14 revenue (+30% YoY), although Q1 revenue ($460.8M,
+4.3% QoQ) will be impacted by 2 fewer shipping days (~$8M/day) and FX,
particularly Japanese Yen and commodity currencies. We model for non-GAAP
R&D expense of $376M (vs. guidance of $260M – $380M) and non-GAAP SG&A
expense of $577M (guidance of $560M – $580), and arrive at our new FY14
non-GAAP EPS estimate of $3.80, at the high end of guidance ($3.70 – $3.80).


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