Analyst: With This Much Pessimism Priced In, Alexion Begins To Look Attractive

Alexion Pharmaceuticals, Inc. ALXN shares are down 23.5 percent in the past month as investors have grown concerned about the growth outlook for Solaris and the implications of the company's management shuffling. At this point, market pessimism has gotten so high that the absence of negative headlines could be the stock’s next catalyst, UBS analyst Martin Auster said in a new note.

A Brightening Horizon

“Without clear emerging evidence of fundamental weakness (we think the company would have lowered 2017 guidance in ALXN’s recent management changes presser if that were on the table), an absence of a ‘next shoe’ may be enough to stabilize shares,” Auster said.

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At this point, Alexion’s risks are fully reflected in the stock’s valuation, Auster said. These risks include an increase in discount rate from 10 percent to 12 percent, a 25 percent reduction in PNH/aHUS growth rate through 2021 (from 9 percent to 7 percent) and the complete failure of ALXN1210, Soliris-gMG and Soliris-NMO. The market is currently pricing in a 35 percent probability of success for ALXN1210 and a 0 percent probability of success for Soliris-gMG and Soliris-NMO, Auster said.

UBS projects gMG and NMO could add a combined $1.5 billion in peak sales if approved. In addition, the firm projects that ALXN1210 will draw 50 percent of the new PNH and aHUS patient market share by 2021. UBS also projects $1 billion in annual Strensiq sales by 2023.

Assuming the company can gain traction with several of its main projects, management will likely focus on cost-cutting in years ahead, Auster said. Alexion’s R&D budget ballooned from $370 million in 2014 to a projected $750 million in 2017.

UBS has lowered its price target for Alexion from $143 to $140 but maintains its Buy rating for the stock.