Alexion: Bright Outlook for Soliris?

12/12/2017 5:00 am EST


Crista Huff

Editor, Cabot Undervalued Stocks Advisor

Alexion Pharmaceuticals (ALXN) is a biopharmaceutical company that researches and manufactures treatments of severe and rare health disorders, notes Crista Huff, editor Cabot Undervalued Stocks Advisor.

Ra Pharmaceuticals (RARX) presented Phase II data for RA101495, a potential competitor to Alexion’s blockbuster product Soliris, a medication used to treat paroxysmal nocturnal hemoglobinuria (PNH) and atypical hemolytic uremic syndrome (aHUS).

The press release on the Phase II results gives a rosy impression, but the biotech analyst at a major investment firm commented that RA101495 “has inferior efficacy, limiting its competitive threat to Soliris.” Approximately half the patients in the trial switched back to Soliris when their health situations destabilized.

The stock market continues to express caution over developments at other drug firms that could also compete with Soliris, but this latest news reinforces that Soliris sets a high bar that’s not easily surpassable.

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Profits are growing aggressively and the stock is undervalued. The consensus opinion among 21 Wall Street analysts is that Alexion’s earnings per share (EPS) will grow 22.1% in 2017 and 25.5% in 2018, with continued aggressive growth thereafter (December year-end).

The 2018 price/earnings ratio is just 15.3, and the debt ratio is a relatively low 25%. Not only do those numbers present an incredible growth and value scenario, but they’re almost guaranteed to instigate a significant share price rebound.

Of course, nothing is guaranteed in the stock market. Under rational circumstances, I would expect professional investors to jump all over this opportunity, which could also generate the interest of larger pharmaceutical companies that want to jump-start their slow earnings growth via a corporate buyout.

ALXN is a volatile stock. The 2017 drop in the share price has been significant, which in turn presents investors with a 44% capital gain opportunity as the stock rebounds to its April 2016 high at $160.

We’re just weeks away from the close of tax-loss selling season. I’m therefore moving ALXN from "Buy" to "Strong Buy" because the risk-reward equation is now heavily stacked in the direction of near-term capital gains.

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