Why Oppenheimer Says Alexion Is a Cheap Buy Now

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The biotech and pharmaceutical industries were hit hard recently when a presidential candidate posited via Twitter that drug prices were absurdly high. This caused a massive sell-off in the stocks. Despite this sell-off, one key analyst sees an opportune entry point for Alexion Pharmaceuticals Inc. (NASDAQ: ALXN).

Oppenheimer maintained its Outperform rating with a $228 price target for Alexion, which implies upside of roughly 43% from Wednesday’s close. The firm recommends buying Alexion on recent weakness, noting that near-term launches of Strensiq and Kanuma are low-risk opportunities likely to drive above-consensus revenue growth over the next 12 to 18 months.

The firm noted that its conservative slower-than-historical ERT launch estimates for Strensiq and Kanuma yield above consensus revenue starting in the second half of 2016. Oppenheimer expects U.S. approval of Strensiq and Kanuma by the 2015 year end and launch acceleration likely in 12 to 18 months, with further patient identification strategies driven by improved diagnosis due to treatment availability. It anticipates readouts from a mostly under-appreciated pipeline, including 30 pre-clinical programs yielding upside in 2016 and beyond. Finally, Oppenheimer believes any pricing pressure concerns are unwarranted. Alexion historically manages mandatory discounting and organic growth well.

Estimates for the ERT launches were adjusted to reflect anticipated timing of sales. Oppenheimer estimates both launches to be similar to slow historical enzyme replacement therapy launches that require a high-touch selling model.

Ultimately the firm believes that Alexion is trading at a discount to rare disease peers, despite conservative launch expectations and consistent profitability. Patient identification is a core competency of Alexion that drives organic growth of the Soliris franchise and should also apply to new launches. This current weakness provides a buying opportunity, according to Oppenheimer.

So far in 2015, Alexion has underperformed the market. The stock is down 13.7% year to date, while in the past 52 weeks it is up only 0.6%.

Shares of Alexion closed Wednesday up 0.2% at $159.63 on its 52-week trading range of $150.06 to $208.88. The stock has a consensus analyst price target of $223.88. Alexion shares were down 1.3% at $157.60 just after Thursday’s opening bell.

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