Alexion Pharmaceuticals’ (ALXN) second-quarter 2014 earnings (including stock-based compensation expense) of 99 cents per share were in line with the Zacks Consensus Estimate. Increased costs led to modest results. Earnings were however above the year-ago figure by 53%.

Alexion Pharmaceuticals, Inc - Earnings Surprise | FindTheBest

Including one-time items, Alexion’s earnings climbed 73% year over year to 83 cents per share in the reported quarter.

Alexion’s revenues climbed 38% year over year in the second quarter to $512.5 million. We note that the entire revenues at Alexion are generated from Soliris sales. Revenues were unfavorably impacted by foreign exchange movements. However, the top line edged past the Zacks Consensus Estimate of $511 million.

Soliris, the sole marketed product at Alexion, is available in the U.S., EU, Japan and many other countries for the treatment of paroxysmal nocturnal hemoglobinuria (:PNH), a rare genetic blood disorder. Sales of the drug have been boosted further by its label expansion into the aHUS indication in the U.S. (Sept 2011) and the EU (Nov 2011). Japanese approval for Soliris in the aHUS indication came in Sep 2013.

Operating expenses (excluding stock-based compensation expense and upfront and milestone payments related to license and collaboration deals and other special items) increased 28.7% to $224.6 million in the quarter. The increase was due to a rise in research and development (R&D) expenses (34% higher) and selling, general and administrative (SG&A) expenses (25.7% higher). The increase in R&D expenses was due to the company’s efforts to develop its pipeline. SG&A expenses increased due to Alexion’s efforts to expand.

Alexion had initiated the rolling submission of a Biologics License Application (:BLA) for asfotase alfa in the hypophosphatasia indication in Apr 2014. The rolling submission to the FDA is underway. The candidate is also under review in the EU. The application has been granted accelerated assessment status in the EU.

2014 Outlook

Alexion increased its guidance for 2014 both on the top and the bottom line. The company now expects adjusted earnings per share in the range of $4.95 to $5.05 (old guidance: $4.75–$4.85).

Revenues for 2014 are now expected in the range of $2.18 billion to $2.20 billion (old guidance: $2.15 billion to $2.17 billion). The Zacks Consensus Estimate for 2014 is pegged at earnings of $4.55 per share on revenues of approximately $2.2 billion. The company still expects R&D costs (excluding stock-based compensation expense) in the range of $360 million to $380 million. Selling, general and administrative costs (excluding stock-based compensation expense) are still expected in the range of $550 million to $570 million.

Our Take

We are encouraged by Alexion’s hike in the 2014 earnings guidance. We expect growth at Alexion to be driven by strong Soliris sales in the PNH and aHUS indications.

We are also impressed by Alexion’s efforts to develop its pipeline. Alexion is expecting seven product approvals through 2018 including asfotase alfa, ALXN 1101 and Soliris’ label expansion into indications such as antibody-mediated rejection, neuromyelitis optica and the prevention of delayed graft function in renal transplant patients. This will reduce the company’s dependence on Soliris for growth.

Alexion currently carries a Zacks Rank #3 (Hold). While Alexion’s second-quarter results were in no way exceptional, Gilead (GILD) posted outstanding second-quarter results on Jul 23 after market close. Gilead’s results surpassed expectations by a wide margin with its hepatitis C virus (:HCV) drug, Sovaldi, delivering sales of $3.5 billion in the quarter.

Better-ranked stocks in the healthcare sector include The Medicines Company (MDCO) and Biogen Idec (BIIB). Both stocks sport a Zacks Rank #1 (Strong Buy).

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