There are past postings here about Achillion Pharmaceuticals, owned by Alexion Pharmaceuticals (ALXN) for around 12 months. Familiarity with the technology behind Achillion’s experimental drug Danicopan, now identified as ALXN2040 by Alexion, pertains to its intended mechanism of action. It turns out that Alexion is no longer investigating the product candidate for what appeared to be its most promising indication. The reason is “incomplete inhibition” of a pathway, which was hoped to produce a therapeutic benefit.

Confidence was high here about Danicopan/ALXN2040’s prospects.

Pertaining to the specific illness, other research is ongoing. Switzerland’s Novartis AG (NVS) is evaluating a drug known as LNP023 that hopefully does sufficiently and safely inhibit, or knock down, the same pathway. While any approval has potential to help a serious, unmet need, the effect on the stock may not be as substantial as it would have been if a small cap corporation owned the technology. Novartis is worth approximately $190 billion. 

Novartis also has taxes applied to dividend payments made to some non-Swiss investors. 

LNP023 is being evaluated for another rare disease with no approved treatment. However, multiple competitors each have already shown positive data in ongoing trials. In fact two, maybe three out of four potential indications appear to have solid prospects for viability.

Additionally, most technology is identified with a perpetual transition to obsolescence. As an example, semiconductor products can be in high demand but, within months or years, there may not be any customers for key chips. Approved pharmaceuticals can enjoy patent protection, which tends to eventually give way to biosimilar or generic competition. 

Alexion’s base business has held up remarkably well as several other corporations investigated similar or alternative treatments. It has used its profits to make acquisitions, though the company’s value remains attributable to the same or very similar mechanism of action. Pursuant to a past buyout, it owns an experimental drug, ALXN1840, intended to treat a rare condition, and has been continuing evaluation of it. Phase III data is anticipated during the first half of 2021–if not imminent.

Meanwhile, a British pharmaceutical giant, AstraZeneca (AZN), has made an offer to acquire Alexion (atop the “Top 10 biopharma M&A Deals of 2020“). The offer is for $60 in cash plus 2.1243 shares of AZN for each share of ALXN (about $168.33). If AstraZeneca were to walk way from the offer, it would owe Alexion $1.4 billion as a “Termination fee.” 

However, there is not apparently a stipulation pertaining to regulatory scrutiny or objection to the merger. It could be relevant, as the Federal Trade Commission has just announced a new working group that is designed with drug company mergers in mind. So, as the merger is pending various decisions, there is a growing chance the combination will not be approved. 

In such a scenario, there appears to be little cushion for Alexion investors. Data on ALXN1840 may be available in the interim. If it is positive, the future owner or shareholders should have better prospects. If it is negative, and AstraZeneca walks away from the agreement with no other criteria, then the termination fee should be owed to Alexion. Either way, Alexion’s prospects could then be bettered; however, its share price would probably decline substantially if it is not bought out.

Alexion is also scheduled to eventually read out phase III data on its central technology for a potential new indication. As has been mentioned at this space previously, there is a good chance of efficacy and approval. However, a competing product known as narsoplimab is potentially free of concerning side effects, in addition to its encouraging therapeutic benefit that has been shown in trials thus far. Incidentally, narsoplimab acts upon the same portion of the immune system as Alexion, but as with Achillion’s intent, knocks down a pathway that activates it.

Confidence is lacking that the reward outweighs the risk for investment in Alexion currently.

***the author owns stock in OMER and may invest in ALXN***

***4/12/21 OMER is highly volatile & can be difficult to own through downdrafts such as today’s, which may not be the last***