Alexion Pharmaceuticals, Inc. (ALXN), Onyx Pharmaceuticals, Inc. (ONXX): This Orphan Drug Company Only Appears Expensive

With Alexion also comes an enzyme replacement therapy – the company’s late-stage program for treatment of HPP, an inborn error of metabolism arising from a genetic deficiency – a rare and sometimes fatal bone disease.

With such a spread on the table, I want to reiterate that Alexion is not moving on buyout euphoria alone.

The Onyx case study

Onyx Pharmaceuticals, Inc. (NASDAQ:ONXX) presents us with a similar picture. Its Kyprolis is a very promising orphan drug, sales of which are expected to touch $897 million by 2017. After rejecting Amgen’s offer, Onyx Pharmaceuticals, Inc. (NASDAQ:ONXX) is still looking for a buyer. According to a Reuters report, Amgen is still interested.

Since that bid, the share price of Onyx Pharmaceuticals, Inc. (NASDAQ:ONXX) has surged from $120 (the price at which Amgen initially offered to buy) to $134.40 (as of the end of trading on Aug. 1). The Amgen offer has simply drawn people’s attention to Onyx Pharmaceuticals, Inc. (NASDAQ:ONXX)’s products and pipeline. The resultant surge is now being supported by an understanding of its growth potential.

Onyx Pharmaceuticals, Inc. (NASDAQ:ONXX) does not have as strong a pipeline as Alexion. There are only two drugs,  one in early-stage trials and the other in Phase III, from which it expects to receive royalty and milestone payments from Pfizer on global sales if approved. Right now, it derives revenues from royalty and partnership revenue from Bayer, and now from sales of its wholly owned Kyprolis. However, Kyprolis alone is a drug of such strong potential that it has singlehandedly supported the stock’s movement post the bid rejection.

Investor takeaway

Alexion has a lot going for it. By virtue of being an orphan drug meant for treating a small number of patients, Soliris is eligible for enhanced exclusivity. It also gets insurance coverage, which makes it a valuable target.

Considering that the FDA is inclined towards fast approval of orphan drugs (35% of all approvals in 2012 were orphan drugs), I think that Alexion is a good stock to own for the long haul (3-5 years).

The article This Orphan Drug Company Only Appears Expensive originally appeared on Fool.com and is written by Kanak Kanti.

Dr. Kanak Kanti De has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Kanak is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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