Alexion Pharmaceuticals (ALXN): Has It Hit the Ceiling For New Investors? IBB & XBI

On Thursday, rare disease biotech stock Alexion Pharmaceuticals, Inc (NASDAQ: ALXN) surged 21.14% after giving a stronger-than-expected sales forecast of its drug Soliris, meaning its probably time to take a closer look at the stock along with potential performance benchmarks like biotech ETFs of iShares NASDAQ Biotechnology Index ETF (NASDAQ: IBB) and SPDR S&P Biotech ETF (NYSEARCA: XBI).

What Is Alexion Pharmaceuticals, Inc?

Rare disease biotech stock Alexion Pharmaceuticals is a global biopharmaceutical company focused on developing and delivering life-transforming therapies for patients with severe and life-threatening diseases that are also ultra-rare with no effective treatment options. Alexion Pharmaceuticals' first commercial product is Soliris® (eculizumab), the world's first and only approved terminal complement inhibitor that is approved in nearly 50 countries as a treatment for patients with paroxysmal nocturnal hemoglobinuria (PNH), and in the United States, European Union, Japan and other countries as a treatment for patients with atypical hemolytic uremic syndrome (aHUS) - ultra-rare diseases that are caused by chronic uncontrolled complement activation. The company's pipeline programs are focused and span several therapeutic areas including hematology, nephrology, transplant, neurology, metabolic disorders and inflammatory disorders.

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As for potential biotech performance benchmarks, the iShares NASDAQ Biotechnology Index ETF tracks the Nasdaq Biotechnology Index through 123 stocks and has a 77.79% weight in "biotechnology" and a 22.29% weight in Pharma while the SPDR S&P Biotech ETF tracks the S&P Biotechnology Select Industry Index with a 100% allocation in 71 biotechnology stocks.

What You Need to Know or Be Warned About Alexion Pharmaceuticals, Inc

Yesterday, Alexion Pharmaceuticals reported that 2013 net product sales increased 37% to $1.551 billion while fourth quarter net product sales increased 38% to $441.9 million with the revenue increases reflecting steady additions of new patients with paroxysmal nocturnal hemoglobinuria and atypical hemolytic uremic syndrome commencing Soliris treatment. GAAP net income for the year came in at $252.9 million, or $1.27 per share, verses $254.8 million, or $1.28 per share due to a $153.0 million impact related to non-cash tax expense associated with centralizing certain business operations, impairment of intangible assets, expenses from license agreements and an intellectual property settlement.

As of December 31, the company also had $1.515 billion in cash, cash equivalents and marketable securities verses $989.5 million a year earlier while for 2014, worldwide net product sales are expected to be within a range of $2.00 to $2.02 billion with R&D expenses expected to be in the range of $360 to $380 million and SG&A expenses in the range of $560 to $580 million on a non-GAAP basis. Non-GAAP earnings per share for the year are expected to be $3.70 to $3.80.

However, investors should keep in mind the following statistics about PNH and aHUS:

Paroxysmal Nocturnal Hemoglobinuria (PNH). Estimates range from 10,000 to 21,000 people with PNH across North America and Europe, with as many as 1,700 new diagnoses across these regions each year. That equates to about 400 new PNH patients each year in the US and around 80 each year in the UK for a total of nearly 5,000 people with PNH in the US and nearly 1,000 in the UK. Atypical Hemolytic-uremic Syndrome (aHUS). It is estimated that 1 in 500,000 people per year in the US suffer from aHUS with the atypical form probably about 10 times less common than the typical form.

Moreover and according to Yahoo! Finance statistics, Alexion Pharmaceuticals has a trailing P/E of 91.63 and a forward P/E of 35.29. I am not sure if those numbers reflect the latest earnings report and yesterday's surge, but they are rather high albeit the company did give a rosy guidance.

Share Performance: Alexion Pharmaceuticals, Inc vs. IBB & XBI

On Thursday, Alexion Pharmaceuticals surged 21.14% to $162 (ALXN has a 52 week trading range of $81.82 to $169.98 a share) for a market cap of $31.76 billion plus the stock is up 71.1% over the past year and up 778.5% over the past five years. Here is a look at the performance of Alexion Pharmaceuticals verses that of the iShares NASDAQ Biotechnology Index ETF and SPDR S&P Biotech ETF:

As you can see from the above chart, Alexion Pharmaceuticals has outperformed both biotech ETFs.

Finally, here is a look at the latest technical charts for Alexion Pharmaceuticals as well as the iShares NASDAQ Biotechnology Index ETF and SPDR S&P Biotech ETF:

The Bottom Line. Certainly Alexion Pharmaceuticals has been a solid play in the rare disease space, but I do have to question a rare disease stock with one approved drug for some very rare conditions having a $31.76 billion valuation as that just seems rather high for my comfort zone. My guess is that baring any new approved drugs, the upside is going to be rather limited for new and old investors alike.