How can you determine a great biotech stock from a good one?
The approach will vary, but here are a few concepts. The biotech should be beneficial and on the road to even higher gains. Its financial performance shouldn’t be too dependent on one remedy. The stock should outperform most of its peers. Management should organize shareholder interests.
Only so many biotech’s meet all of these specifics. At least one, though, looks to be on the cusp of moving to the next phase — Alexion Pharmaceuticals (NASDAQ: ALXN). Here’s why Alexion possibly might be poised to transition from good to great.
Checking off the list
Gaining benefits hasn’t been a concern for Alexion for some years. And while there have definitely been ups and downs, the trajectory certainly looks promising.
That’s the past, though. What about Alexion’s future revenue potential? The company foresees 2015 adjusted revenue will increase by at least high single digits in contrast to this pastier. That’s not bad, but it’s not the best. Yet, analysts assume year-over-year revenue growth of over 13% — and Alexion tends to beat analysts’ estimates. What’s makes it better is that analysts also foresee Alexion’s revenue will increase by an average rate of 25% throughout the next five years.
What about stock performance? generally biotech stocks have been hot, Alexion’s share value would most likely be described as scorching.
All money invested in the iShares Nasdaq Biotechnology ETF (NASDAQ: IBB) five years ago would have almost quadrupled by now. That’s impressive. Consider, though, that the same dollar invested in Alexion would have multiplied nearly seven-fold. That’s staggering.
With this performance, it would be hard to argue that Alexion’s management hasn’t highly prioritized shareholder interests. Dr. Leonard Bell founded the company in 1992 and has guided Alexion as CEO for 23 years. During his tenure, Alexion has received multiple awards, including being named three years in a row to Forbes magazine’s list of the world’s most innovative companies.
The next hurdle
There is one criteria of a great biotech that Alexion hasn’t checked off yet, though. The company’s revenue stems totally from one type of medicine — Soliris.
The explanation for not wanting a biotech to be mostly dependent on one drug is really about risk. Accomplishments of a rival drug could be especially harmful for a company with a one-trick pony. In the case of Soliris, though, this threat doesn’t appear to be too great. The drug is used to treat two very rare illnesses — paroxysmal nocturnal hemoglobinuria (PNH) and atypical hemolytic uremic syndrome (aHUS) — that don’t have any other approved medication.
Alexion thinks that Soliris potentially can aid other conditions as well. The biotech has currently conducted clinical testing targeting the drug as a potential remedy for neurological illnesses refractory myasthenia gravis and relapsing neuromyelitis optica as well as delayed graft function and antibody mediated rejection, either of which are transplant-related conditions .
And Soliris most likely won’t be the only money-generator for Alexion for the near term. The company has filed for regulatory approval for asfotase alfa in helping to treat hypophosphatasia in the U.S., Europe, and Japan. Peak yearly sales for the medicine could one day in the near future top $1 billion.
Alexion looks to be well-positioned to check off all the criteria put forward earlier for acknowledging a superior biotech stock. One potential chink in the chain happens in a couple of weeks,yet: The company’s longtime CEO is retiring.
That doesn’t seem probable to present an issue for investors, though. COO David Hallal was deemed to take Dr. Bell’s position as the new CEO. Hallal has been on board with Alexion since 2006 and worked as a key player in the launch of Soliris. His prior experience includes 25 years in the biopharmaceutical industry, with work experience at two biotechs that some would sum up as great already — Amgen (NASDAQ: AMGN) and Biogen Idec (NASDAQ: BIIB). Leonard Bell will stay on as chairman, and the pick of Hallal as CEO shows that staying on path was what the board of directors were looking for.
Profitable. An increase in revenue likely in store. Sizzling stock performance. Strong management. A second blockbuster drug potentially ready for market. Good to great? Alexion is showing the potential to make the leap.