Go long with Alexion

Alexion (ALXN) is one of the most successful biotech companies and has been a Wall Street darling for years. As the result, it has been pushed up to a valuation unbelievably expensive and at its peak, become one of the ten most expensive stocks cross the board! Its P/E at peak was ridiculously high over 150. Needless to say, people holding its shares were happy and were still willing to chase it regardless how expensive it was. That’s typically a herd behavior that they feel great when something is hot and loved by everyone but that’s exactly the most dangerous time for savvy investors. In the end, we have to face reality as anything, even flying up to the moon, will have to come back to earth. Early this year when ALXN was pushed to its all time high around 200, I shorted it and was expecting it would come down probably to 125. Looks like the technical analysis prevails this time as ALXN has been struggling all year around and in last few days, it plunged another 20% or so to $110ish. So it has lost close to 50% of its market cap from its peak, a rather severe pain for anyone chasing it when it was hot! Now we start to see the opposite sentiment at the moment as people are just dumping the stock to run away from it. Again, when the herd is scared and dumping, it is usually the time to think about buying as contrarian. I think ALXN looks quite attractive technically now. Don’t get me wrong as ALXN is still not really cheap but compared to its 150 P/E, it is really reasonable now with a forward P/E of 19. Some analyst has estimated that per the company’s key product, Soliris sales for the treatment of paroxysmal nocturnal hemoglobinuria and atypical hemolytic uremic syndrome, its share price should be around $115. So fundamentally ALXN may be a bit discounted already. The company is also developing its next-generation Soliris, ALXN1210. The prospect appears encouraging as the drug has a seemingly better profile with less frequent dosing vs. Soliris. If successful, it may very well replace Soliris to beat the generic competition starting in 2021.

So based on the technicals and fundamentals, I’m willing to bet for an upside run for ALXN in the next few months at least. I entered my positions already a few days ago and it indeed recovered a bit by now. It may still struggle for a while in the very near term but I think it is at its bottom for this round of correction.