We came across a bullish Alexion Pharmaceuticals (ALXN) thesis on Valueinvestorsclub posted by skca74. Valueinvestorsclub is one of our favorite sites to follow because the ideas are usually posted by aspiring analysts who are trying to find holes in their own thinking. We find the ideas presented on the site well thought out and definitely worth checking. Below we summarized skca74’s ALXN bullish thesis:
Alexion Pharmaceuticals (ALXN) is one of the many players in the highly competitive pharmaceutical industry. It specializes in developing treatments that target rare diseases, a segment that many pharmaceuticals shy away from. The segment has complexities and requires heavy investment in terms of capital and time. The above factors contribute to limited profits for companies like Alexion. However, modern technologies and breakthroughs especially in the medical space present opportunities to develop effective treatments against rare illnesses. Alexion’s flagship product is Soliris, a treatment for paroxysmal nocturnal hemoglobinuria (PNH) and atypical hemolytic uremic syndrome (aHUS).
ALXN made some critical changes in 2017 such as hiring new management in an attempt to improve its performance and generate shareholder value. The new management made some progress in some areas such as boosting operating margins however the market is concerned about potential competition from the generic drugs (namely “generic version of Soliris from Amgen in 2025”). To address the oncoming revenue cliff, “the company continues to shift patients from Soliris to its less expensive, more convenient product Ultomiris,” and this is affecting its current profitability.
ALXN’s management appears to be learning from its mistakes and is now ready to push the company forward. It plans to achieve this by addressing the challenges that previously held it back. The first major step is expanding its pipeline from the 2 products it had in 2017, to 10 products in the next two or three years. More products should translate into more revenue.
In terms of valuation ALXN “is currently trading at 10x this year’s consensus earnings of $11.05 and 7x EV to this year’s consensus EBITDA of $3.4 billion. Over the next several years, we expect the company to generate cash equivalent to 50+% of its market cap. At 10x 2023 EPS of $13.60 plus the accrued cash, we expect upside over the next several years to $160, up 40% from here”.
Our database shows that hedge funds are actually getting more bullish every quarter. The number of bullish hedge fund positions in ALXN is currently at its all time high. Nevertheless, ALXN isn’t among the 30 most popular stocks among hedge funds.