A Rare Approach Widens the Moat for This Biotech

Stefan Quenneville: We think that Alexion (ALXN) is a biotech company that has a widening moat because of its broadening pipeline, which was helped by its recent acquisition of Synageva BioPharma, and its strategy to focus on attractive rare-disease markets. 

Unlike most pharma and biotech companies that are typically interested in diseases that affect a lot of people like diabetes or asthma, Alexion focuses on rare and severe afflictions that only impact a few thousand people globally. So, while rare diseases makes it sound like a small opportunity, this is actually an area with some of the strongest pricing power in the drug industry, particularly for very effective drugs that treat serious chronic disorders. Rare-disease markets also tend to have less competition and a more welcoming regulatory pathway. 

In Alexion's case, its only marketed drug, Soliris, costs about $500,000 a year because it is such an effective treatment for two very rare and deadly blood disorders. The drug currently has revenues of about $2.5 billion and has a peak sales potential of about $5 billion. In its pipeline, the company has two more ultra-rare-disease drugs that should be approved in the second half of this year and both have blockbuster potential. One of these drugs comes from [Alexion's] recent acquisition of Synegeva, which also added several early-stage assets to its pipeline. 

Given its diversifying pipeline and the attractive competitive dynamics of rare-disease markets, we think Alexion's competitive position is strengthening. From a valuation perspective, the stock is currently trading at a discount to our fair value estimate of $175 per share. So, we think this could be an interesting time for investors to take a look at the stock.