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Alexion Pharmaceuticals Inc. made its name selling one drug, Soliris, to a tiny handful of patients around the world for hundreds of thousands of dollars a year each. It’s been a lucrative model -- one the company is now trying to prove was no fluke.
In May, Alexion agreed to buy Synageva BioPharma Corp. for $8.4 billion, acquiring Kanuma, a drug that could transform the lives of patients with a rare organ-damaging disease, according to a New England Journal of Medicine article published Wednesday. Yet some investors questioned whether the deal’s 120 percent premium raised was an expensive price to try and repeat Soliris’s success.
While the company’s strategy isn’t complex, the company says it requires slow and steady work. Alexion seeks out drugs for rare, devastating diseases with no other options, and goes ahead only with treatments that can change or save lives. Along with the U.S., it focuses on European and Japanese markets, charging high prices that those sometimes-stingy governments are willing to pay because of the therapy’s effectiveness and the lack of any other option. It also spends large amounts of time and money to identify patients who are 1 in 100,000 or rarer.
"It’s a country-by-country slugfest," Chief Executive Officer David Hallal said in a Sept. 1 interview in New York.
Yet as a result, more than half of Alexion’s revenue comes from outside the U.S., and the company has been largely insulated from the pricing pressure faced by manufacturers of drugs for cancer, diabetes and hepatitis C.
"What I think about as CEO of Alexion is -- what would the government in England, what would the government in France think about this? Because that’s success," Hallal said.
Alexion’s geographically diversified revenue is almost unheard in an industry that relies heavily on high U.S. prices to offset government-negotiated European ones. Of 33 U.S.-listed biotechnology companies valued at more than $1 billion that disclose regional sales, only three got less than half their revenue last year from the U.S., according to data compiled by Bloomberg.
Kanuma was approved by European regulators earlier this month alongside another of Alexion’s drugs, Strensiq. Kanuma is projected to reach $443 million in sales by 2018 and Strensiq to hit $355 million, according to analysts’ estimates compiled by Bloomberg. The U.S. Food and Drug Administration is scheduled to rule on Kanuma by January and on Strensiq within the next few weeks.
"In 2007 the bear story on Alexion was, how do you even make a business in this?" Hallal said. "What you see with us is slow and steady over time, and that’s just the dynamics of an ultra-rare disease business."
Biotechnology investors don’t always reward slow-and-steady, however. Alexion’s shares have gained almost sixfold since September 2010, compared with a fourfold gain of the Nasdaq Biotechnology Index. Yet in the last year they’re up 6.4 percent, while the biotech index is up 28 percent.
While the company’s signature is now its focus on rare diseases, it wasn’t always that way. In fact, it fell into the strategy almost a decade after being formed to address large inflammatory diseases.
"When I left Yale in early 1992 to start Alexion, it was based upon the premise that we could create a new form of anti-inflammatory therapies called complement inhibitors," Lenny Bell, the company’s founder and board chairman, said in a phone interview. "And like most things in biotech, within six months of leaving Yale everything had failed miserably."
But by the early 2000s the company saw that its drug showed results in a rare disease known as PNH, a condition in which the body begins to destroy its own red blood cells. A third to half of patients would die within five years of onset. Soliris stops the body’s overactive immune system, reducing blood clotting and prolonging patients’ lives.
Alexion had to look all over the world for patients -- the company has estimated that 10,000 people or fewer in the U.S. and Europe have PNH. Because of that, it chose to keep its prices fairly consistent across countries.
"Essentially we end up forming partnerships with governments over the world, and it’s very important to treat all your partners equally," Bell said.
"For Soliris I had the Canadian government begging me for the U.S. price," Hallal said. The drug costs about $440,000 in the U.S. for PNH patients.
Yet replicating that success will be a challenge. After announcing the Synageva deal and its rich premium on May 6, Alexion’s shares fell 8 percent, the stock’s worst one-day drop in seven years. While the company’s new drugs have blockbuster potential, said Stefan Quenneville, an analyst at Morningstar Inc., turning them into the next Soliris won’t be easy.
"There aren’t a lot of examples of this big a mega-blockbuster, rare-disease success like Soliris," Quenneville said.