Drug Development

Alexion adds a failed pivotal Soliris trial to an air of crisis. The perfect time to talk buyout

Martin Mackay, Alexion

Martin Mackay, Alexion

With its executive suite in turmoil and the company in crisis over an unexplained fraud probe, Alexion $ALXN reported today that its Phase II/III registration study for Soliris for a serious complication linked to organ transplants has failed.

Investigators were hoping to make a case for the expanded use of Soliris in treating delayed graft function (DGF) after kidney transplantation in adult recipients of a deceased donor kidney has failed. But in looking at a primary endpoint that eyed the drug’s impact on the need for dialysis as well as death, graft loss, and loss to follow-up, including discontinuation, the drug flopped against the placebo arm.

This is more bad news to add to the general air of alarm that settled in at Alexion on December 12. That’s when the CEO and CFO abruptly exited the company during an ongoing internal fraud probe that had been triggered by a whistleblower’s allegations regarding Soliris sales. With the company’s quarterly report delayed, at least one analyst says this could be the perfect time for an acquirer to step up and capitalize on a takeout.

Geoffrey Porges, Leerink

Geoffrey Porges, Leerink

“Were an acquirer to purchase the company, we believe they would take an even more aggressive approach (on cost cutting),” notes Geofffrey Porges at Leerink, “removing all R&D and SG&A overhead, halting all research and capping commercial support, and spending at more or less at the current dollar range regardless of revenue growth. This would drive operating margins above 70% by 2021E (which is not out of line for incremental profitability of large specialty franchises), and we calculate the value of the cash flows, assuming Alexion’s current tax rate and cost of capital (probably both too high for many acquirers), would be $252/share.”

Investigators recruited 288 patients for the failed study for Soliris, an approved orphan drug that ranks as one of the most expensive therapies on the planet. But this time around, Porges also felt that Alexion’s latest stab at expanding the franchise had little to offer in the long run.

“The failure of Soliris for the prevention of delayed graft function (DGF) after kidney transplantation does not materially impact our long-term Soliris forecasts or growth rate, but does represent another example of Alexion ploughing Soliris profits into high risk trials for low value indications,” chided Porges. “DGF represented less than $50mm of annual global sales for our long-term Soliris forecasts (previous probability of success was 35%), and the removal does not impact our valuation.”

Alexion R&D chief Martin Mackay had this to say:

We are disappointed that this trial did not meet its primary endpoint, given the urgent need for preventive therapies for patients at risk of DGF and the potential role of the complement cascade in the development of this serious and life-threatening complication. We continue to analyze the data to better understand what the findings mean for patients undergoing a kidney transplant. Importantly, the safety of eculizumab in this trial appears consistent with the favorable safety profile observed in nearly a decade of real-world experience with this highly innovative therapy.

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