Speculating on Alexion Pharma
Viewers should know by now why Cramer says biotech is the sector to own in this environment. He’s been talking about it all week.
(You’re not going to make excuses and say you haven’t seen Mad Money this because of the Olympics, are you? Because we have a live show midday at 1:30p ET and then another full show at 11p. But we digress… If you missed out, read about Cramer’s previous calls this week: Onyx, Genzyme and Vertex Pharma.)
On Thursday, he talked up Alexion Pharma , which is a bit more speculative than the rest but still worthy of consideration for any portfolio.
Alexion’s big drug is Soliris, an orphan-status treatment for a rare blood disease. Remember, orphan status means the disease affects so few people that governments provide incentives for companies to find a remedy. In the U.S., those incentives come in the form of exclusivity, meaning no competition, for seven years and tax credits. The European Union offers 10 years of exclusivity.
As Cramer mentioned earlier this week, the small number of patients doesn’t hurt Alexion’s revenues at all because Soliris is so expensive. One year’s worth of treatment for one person costs $399,000. Given the only alternative – blood transfusions – people are probably willing to pay up for this treatment.
If only 35% of patients with this blood disorder in the U.S. and Europe take Soliris, then Alexion should trade at $135 rather than the $94 and change it’s at now. And that’s not counting the growth potential in Asia and the Pacific Rim, Spain, France, Italy, the U.K. and Australia over the next couple of years. Then there’s the possibility Soliris could be found to help with any number of other conditions a la Genentech’s Avastin, which was a huge success for just that reason.
But don’t jump in just yet. The stock’s already had a big run. Wait for the two-for-one stock split coming on Aug. 22, where Cramer’s expecting some profit taking. That should provide investors with the entry point they need. He recommended all interested parties wait for a good 5% or 6% pullback before they buy.
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