Alexion Pharmaceuticals (ALXN) loves its orphan drugs. Orphan drugs are specifically designed to tread rare diseases. Alexion has made a fortune with its key drug Soliris, and is committed to taking those profits to develop a portfolio of orphan drugs for diseases that are both rare and severe.
Like most (all?) biotech stocks, ALXN has been on a tear for the past year. As you can see from the chart below, the stock has pretty much doubled. I compiled this data on February 7th when it was $157 and three weeks later it’s already $181.
One Year Chart
Geeze. This stock is too high right now. I should have been in earlier, say after the stock popped back in July. The P/E of 41 is reasonable because I think this stock is worth 40 times earnings. Normally, a 40 P/E is high for a 28% long-term grower, but ALXN just upped annual estimates big time. 2014’s went from $3.41 to $3.87 in the last three months.
Fair Value
Like many of these Biotech stocks, ALXN doesn’t have much near-term upside. I see the stock getting to $205 next year, but with the current $180 price that’s not much of a gain.
Sharek’s Take
Alexion Pharmaceuticals is a great stock. I love the growth of Annual Profits shown on the right side of the one-year chart. The problem is vast amounts of money have flown into this sector and pushed these stocks up to record heights. I don’t want to risk buying here and then see profit taking cause the stock to drop 30% or more. ALXN’s P/E is 41. It was 18 in 2008, 13 in 2009, 16 in 2011 and 17 in 2012. I think the move higher is close to being done, this smells like a parabolic move here and those are dangerous (check out the ten-year chart). I’m not taking the risk, I’ll sit and wait and hope Alexion dips.
View the Earnings Table here. View the Profit History here. View the Ten Year Chart here.
