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Alexion Pharmaceuticals' Gains Make Stock Pricey


Shares of the biotech drug maker are up almost 70% this year on strong sales of the drug Soliris for rare diseases.

Alexion Pharmaceuticals (ALXN) has been a good stock to own this year. The shares are up almost 70% on strong sales of its only drug -- Soliris for rare genetic diseases -- and better-than-expected earnings.

Last week, Soliris was approved for a second indication, atypical hemolytic uremic syndrome, or AHUS. The ultra rare disease causes life-threatening blood clots. The new use for the drug is expected to add to already robust sales. What's more, Alexion expects European regulators also to approve the expanded use of the drug in the next couple of months. The company raised its earnings estimates and Wall Street analysts adjusted their financial models accordingly.

Shares of the company continue to rise, up 2% to $67.55 in midday trading Tuesday. The shares have risen almost 7% since Thursday, the day before the new FDA approval was announced.

The problem is the stock is trading at about 69 times forward earnings. Each time the company raises its sales and profit forecast, the shares rise even more. (Alexion just raised its EPS target to as much as $1.20 from an upper-end of $1.15.) How much higher can the stock go? (See Alexion Pharma Hits an All-Time High.)

"Upside is largely priced in here," Robert W. Baird analyst Christopher Raymond says.

The analyst just raised his financial forecast for the company and lifted his price target on the stock to $67. Raymond is a fan of the company but he has a hold on the shares given their recent rise. Raymond says he sees a "better entry point in the mid-$50s" for investors looking to get into the stock.

Soliris will climb to more than $1.5 billion in annual sales by 2014, Raymond predicts. He's a little above consensus estimates. Either way, he sees Soliris' future success already built into the price of Alexion's stock.

There's no doubt that Soliris has been a strong seller for Alexion. Product sales were $351.8 million through the first half of this year, a 45% increase over the year-earlier period. Those sales reflect Soliris revenue for the treatment of the rare genetic blood disease paroxysmal nocturnal hemoglobinuria, or PNH. Soliris became the only drug approved to treat that disease in the US and Europe in 2007 and in Japan last year.

Unlike some of their biotech brethren, Alexion execs tend to be conservative with their financial targets. In fact, Raymond predicts the company will raise its forecast again before the end of the year. The question is whether the stock will continue to rally?

Twitter: @brettchase
No positions in stocks mentioned.
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