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2014 Zacks Investment Research, All Rights reserved. www.Zacks.com 111 North Canal Street, Chicago IL 60606

Alexion Pharmaceuticals, Inc. (ALXN-NASDAQ)

SUMMARY

SUMMARY DATA

Risk Level * Hig

Type of Stock Large-Growt

Industry Med-Biomed/Gen

Zacks IndustryRank * 89 out of 26

Current Recommendation OUTPERFORMPrior Recommendation Neutral

Date of Last Change 02/07/2014

Current Price (02/06/14) $157.40

Target Price $189.00

We are upgrading Alexion Pharmaceuticals to Outperfollowing its strong fourth quarter 2013 results andguidancefor 2014. The company s fourth quarter adjuearnings of $0.78 per share surpassed the ZConsensus Estimate by 5 cents and the year-ago fby 44%. Results were driven by strong Soliris salethe PNH and aHUS indications. The company exrevenues in the range of $2.0 $2.02 billion, well 2013 levels. Growth at Alexion is expected to be drivestrong Soliris sales. Moreover, the company wibenefiting from lower tax rates. We are also impresseAlexion s efforts to develop its pipeline. We believe

the company s bright prospects will lead to signifstock price appreciation.

52-Week High $162.00

52-Week Low $83.39

One-Year Return (%) 67.75

Beta 0.52

Average Daily Volume (sh) 1,610,774

Shares Outstanding (mil) 196

Market Capitalization ($mil) $30,850

Short Interest Ratio (days) 4.08

Institutional Ownership (%) 96Insider Ownership (%) 3

Annual Cash Dividend $0.00

Dividend Yield (%) 0.00

5-Yr. Historical Growth Rates

Sales (%) 42.4

Earnings Per Share (%) 59.6

Dividend (%) N/A

P/E using TTM EPS 58.3

P/E using 2014 Estimate 46.3

P/E using 2015 Estimate 33.8

Zacks Rank *: Short Term1 3 months outlook 1 -Strong Buy

* Definition / Disclosure on last page

ZACKS CONSENSUS ESTIMATES

Revenue Estimates(In millions of $)

Q1 Q2 Q3 Q4 Year(Mar) (Jun) (Sep) (Dec) (Dec)

2012 245 A 275 A 294 A 321 A 1,134 A

2013 339 A 370 A 400 A 442 A 1,551 A

2014 461 E 489 E 515 E 560 E 2,025 E

2015 2,553 ENote: Quarterly nos. may not add up to annual figs due to rounding off

Earnings Per ShareEstimates(EPS is operating earnings before non-recurring items, but including employe

stock options expenses)

Q1 Q2 Q3 Q4 Year

(Mar) (Jun) (Sep) (Dec) (Dec)

2012 $0.38 A $0.41 A $0.53 A $0.54 A $1.86 A2013 $0.58 A $0.63 A $0.71 A $0.78 A $2.70 A2014 $0.77 E $0.83 E $0.91 E $0.97 E $3.40 E2015 $4.65 ENote: Quarterly nos. may not add up to annual figs due to rounding off

Projected EPS Growth -Next 5 Years % 31

February 7,2014
http://www.zacks.com/


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Equity Research ALXN| Page 2

OVERVIEW

Based in Cheshire, Conn., Alexion Pharmaceuticals is a biopharmaceutical company formed in 1992The company focuses on the development and commercialization of life-transforming drugs for treatinpatients suffering from ultra-rare disorders.

Alexion s only marketed product is Soliris (eculizumab). Soliris is available in the U.S, EU, Japan anmany other countries for the treatment of paroxysmal nocturnal hemoglobinuria (PNH). PNH is a rargenetic blood disorder characterized by the onset of severe hemolytic anemia, chronic fatigue anintermittent episodes of dark colored urine, known as hemoglobinuria. Currently, Soliris is the only druavailable for the treatment of PNH patients. In Sep 2011, the U.S.Food and Drug Administration (FDAcleared Soliris for treating children and adults suffering from atypical hemolytic uremic syndrome (aHUSan ultra-rare genetic disorder. Soliris was subsequently launched in the country. In Nov 2011, a similaapproval for the drug was granted in the EU.Japanese approval for the aHUS indication came in Se2013. Soliris is being studied for additional indications. The drug recorded sales of $1.55 billion in 2013up 37%.

Alexion currently has several candidates in clinical development focusing on different areas. Thcompany is also working on expanding Soliris label into additional indications like Shiga-toxin producin

e. coli hemolytic uremic syndrome, neuromyelitis optica and myasthenia gravis.

Alexion s pipeline also includes asfotase alfa (hypophosphatasia), ALXN 1101 (molybdenum cofactodeficiency type A) and ALXN1007 (inflammatory disorders). Asfotase alfa was added to Alexion s pipelinfollowing its 2012 acquisition of Enobia Pharma for up to $1.08 billion in cash. Alexion expects to launcseven products in the 2014 2018 time frame.

Alexion is making constant efforts to expand. Towards fulfilling this objective, the company inked a deawith the privately held Moderna Therapeutics in Jan 2014 for the discovery and development omessenger ribo nucleic acid (mRNA) therapeutics to treat patients suffering from rare diseases. ThEnobia acquisition, mentioned above, was another move towards the fulfillment of the same objective.

In Feb 2011, Alexion purchased the patents and assets of Germany-based Orphatec Pharmaceuticals fo$3 million in cash. The purchase is related to a therapy for a rare genetic disorder that results in severbrain damage and can prove to be fatal in newborns. In Jan 2011, Alexion purchased privately-heTaligen Therapeutics for an upfront cash payment of $111 million. With the Taligen acquisition, Alexioacquired ophthalmic candidates, including candidates for treating patients suffering from age-relatemacular degeneration (AMD), in addition to other candidates to combat inflammatory diseases.

REASONS TO BUY

Alexion reported strong fourth quarter results 2013 beating estimates both in terms of revenues awell as earnings. Results were aided by strong Soliris sales which climbed 38% in the final quarter o2013. The guidance provided by the company on Soliris sales in 2014 was also encouraging. Solirsales continue to be strong in the PNH indication. Moreover, sales in the aHUS indication arsurpassing expectations. The company expects revenues in the range of $2.0 $2.02 billion, weover 2013 levels. We are upgrading Alexion to Outperform following its strong fourth quarter resultand rosy guidance for 2014. We have increased our estimates for 2014 revenues as well aearnings per share.


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We are impressed by Alexion s efforts to develop its pipeline. Alexion is expecting seven producapprovals within the time period of 2014 to 2018 including asfotase alfa, ALXN 1101 and Solirislabel expansion into indications such as antibody-mediated rejection, myasthenia gravisneuromyelitis optica and the prevention of delayed graft function in renal transplant patientsAsfotase alfa is expected to be approved by year end. This will reduce the company s dependencon Soliris for growth.

We are encouraged by the company s strategy of pursuing acquisitions/signing deals to expand itpipeline beyond Soliris. In a bid to expand, Alexion inked a deal with Moderna Therapeutics in Ja2014for the discovery and development of mRNA therapeutics to treat patients suffering from rardiseases. The drug discovery platform can expedite the development and manufacture of candidatefor treating patients with rare diseases. As per the terms of the deal, Alexion will make an upfronpayment of $100 million to Moderna for purchasing 10 product options to develop and commercializtherapies utilizing the mRNA platform. Alexion, which has made a $25 million preferred equitinvestment in Moderna, will have to make milestone and royalty payments to the latter if situatioarises.The acquisitions of Taligen Therapeutics, Enobia Pharma and the purchase of the patentand assets from Orphatec Pharmaceuticals are also encouraging.

Alexion stands to benefit from lower tax rates thus aiding its long-term growth prospects. Thcompany said on the fourth quarter 2013 conference call that it has made certain operationachanges to improve efficiencies. Alexion stated that effective from 2014, its Irish units are holdin

certain intellectual property rights to Soliris and other compounds. The move is aimed to centralizbusiness operations within Alexion s units in Ireland, where the corporate tax rate is very lowAlexion also stated that it intends to utilize its net operating loss (NOL) balance (approximately $million at the end of 2013) as well as tax credits ($190 million at the end of 2013) to offset its taxablprofits. These measures are reflected in the company s adjusted tax rate projections of 11% 12% fo2014, 13% 14% in 2015 and 16% 18% in 2018. The move to invest heavily in Ireland is indicativof the management s efforts to increase shareholder value.

RISKS

With Soliris being the only approved product, Alexion is a one-drug company right now. The companrelies entirely on Soliris for growth. Failure of the company to develop additional products will impacthe stock price negatively and might cause us to re visit our recommendation.

RECENT NEWS

Strong Quarter at Alexion-Jan 30, 2014

Alexion sfourth-quarter 2013 earnings (including stock-based compensation expense) of $0.78 per sharbeat the Zacks Consensus Estimate by 5 cents. Earnings were above the year-ago figureby 44%. Thyear over-year rise in earnings was attributable to higher product sales. The stock gained significantly

pre-market trading, reflecting investors optimism on the earnings report.

Alexion s revenues jumped 38% to approximately $441.9 million in the final quarter of 2013 driven bstrong Soliris sales. Soliris is available in the U.S, EU, Japan and many other countries for the treatmenof paroxysmal nocturnal hemoglobinuria (PNH). PNH is a rare genetic blood disorder. Sales of the druhave been boosted further by its label expansion into the aHUS indication in the U.S. (Sept 2011) and thEU (Nov 2011). Japanese approval for Soliris in the aHUS indication came in Sep 2013. Revenuesurpassed the Zacks Consensus Estimate of $431 million.


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Adjusted operating expenses (excluding stock-based compensation expense) climbed approximate24% to $201.7 million in the fourth quarter of 2013. The increase was attributable to a rise in botresearch and development (R&D) expenses (up 33%) and selling, general and administrative (SG&Aexpenses (up 18%). The increase in R&D expenses was attributable to the company s efforts to develoits pipeline. SG&A expenses increased due to Alexion s efforts to expand.

The company s full year earnings (including stock-based compensation expense) were $2.70 per shareup45.2% year over year and above the Zacks Consensus Estimate of $2.68 per share. Revenues camin at $1.55 billion, up 37% year over year and marginally surpassing the Zacks Consensus Estimate o$1.54 billion. Revenues in 2013 were above the company s projected range of $1.535 $1.540 billion.

2014 Outlook

Apart from announcing its earnings results, Alexion provided guidance for 2014. The company expectrevenues in the range of $2.0 $2.02 billion, well over 2013 levels. The company expects R&D cost(excluding stock based compensation expense) for 2014 in the range of $360 $380 million. Sellinggeneral and administrative costs (excluding stock based compensation expense) in 2014 are expected ithe range of $560 $580 million. The company expects adjusted earnings for 2014 in the range of $3.70$3.80 per share.

VALUATION

Alexion reported higher-than-expected earnings in the final quarter of 2013, thanks to strong Soliris salesThe successful label expansion of Soliris into the aHUS indication boosted revenues further. Thcompany s guidance for 2014 is encouraging. We expect growth at Alexion to be driven by strong Solirsales in the PNH and aHUS indications.

We are also impressed by Alexion s efforts to develop its pipeline. Alexion is expecting seven producapprovals within the time period of 2014 to 2018 including asfotase alfa, ALXN 1101 and Soliris labe

expansion. Asfotase alfa is expected to be approved by year end. This will reduce the companydependence on Soliris for growth. We believe the current price represents an attractive entry point folong-term investors. We expect the company s bright prospects to lead to significant stock pricappreciation. The stock carries a Zacks Rank #1 (Strong Buy) in the short run.

Alexion s current trailing 12-month P/S multiple is 19.9, compared to its peer group multiple of 9.4. Thstock is trading at 15.2x our 2014sales estimate, aboveits peer group multiple of 9.1. Our target price o$189.00 per shareis based on 18.3x our 2014 sales estimate.


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Key Indicators

P/SF1

P/SF2

Est. 5-YrEPS Gr%

P/CF(TTM)

P/S(TTM)

P/E5-YrHigh

(TTM)

P/E5-YrLow

(TTM)

Alexion Pharmaceuticals, Inc. (ALXN) 15.2 12.1 31.0 55.8 19.9 91.2 40.1

Peer groupAverage 9.1 7.9 18.2 76.4 9.4 153.7 21.6

Actelion Ltd. (ALIOF) 5.6 5.5 8.0 25.6 5.8 27.7 10.9Regeneron Pharmaceuticals, Inc. (REGN) 13.4 10.7 28.4 59.1 14.5 82.5 34.9Illumina Inc.(ILMN) 13.6 11.9 18.6 49.6 13.4 84.9 22.4Qiagen NV (QGEN) 3.7 3.5 9.3 11.7 3.9 25.1 14.5

TTM is trailing 12 months; F1 is 2014and F2 is 2015, CF is operating cash flow

P/BLastQtr.

P/B5-Yr High

P/B5-Yr Low

RO E(TTM)

D/ELast Qtr.

Div YieldLast Qtr.

EV/EBITDA(TTM)

AlexionPharmaceuticals, Inc.

(ALXN) 13.1 14.2 5.8 24.3 0.0 0.0 64.1

Industry Average 15.0 15.0 15.0 -228.7 -0.1 0.0 -16.1


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Earnings Surprise and Estimate Revision History


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DISCLOSURES & DEFINITIONS

The analysts contributing to this report do not hold any shares of ALXN. The EPS and revenue forecasts are the Zacks Consensuestimates. Additionally, the analysts contributing to this report certify that the views expressed herein accurately reflect the analysts personviews as to the subject securities and issuers. Zacks certifies that no part of the analysts compensation was, is, or will be, directly or indirectrelated to the specific recommendation or views expressed by the analyst in the report. Additional information on the securities mentioned in threport is available upon request. This report is based on data obtained from sources we believe to be reliable, but is not guaranteed as accuracy and does not purport to be complete. Because of individual objectives, the report should not be construed as advice designed to methe particular investment needs of any investor. Any opinions expressed herein are subject to change. This report is not to be construed as a

offer or the solicitation of an offer to buy or sell the securities herein mentioned. Zacks or its officers, employees or customers may have position long or short in the securities mentioned and buy or sell the securities from time to time. Zacks uses the following rating system for thsecurities it covers. Outperform- Zacks expects that the subject company will outperform the broader U.S. equity market over the next six ttwelve months. Neutral- Zacks expects that the company will perform in line with the broader U.S. equity market over the next six to twelvmonths. Underperform- Zacks expects the company will under perform the broader U.S. Equity market over the next six to twelve months. Thcurrent distribution of Zacks Ratings is as follows on the 1056companies covered: Outperform - 16.7%, Neutral - 77.0%, Underperform 5.6%Data is as of midnight on the business day immediately prior to this publication.

Our recommendation for each stock is closely linked to the Zacks Rank, which results from a proprietary quantitative model using trends earnings estimate revisions. This model is proven most effective for judging the timeliness of a stock over the next 1 to 3 months. The modassigns each stock a rank from 1 through 5. Zacks Rank 1 = Strong Buy. Zacks Rank 2 = Buy. Zacks Rank 3 = Hold. Zacks Rank 4 = Sell. ZacRank 5 = Strong Sell. We also provide a Zacks Industry Rankfor each company which provides an idea of the near-term attractiveness ofcompany s industry group. We have 264industry groups in total. Thus, the Zacks Industry Rank is a number between 1 and 264. In terms investment attractiveness, the higher the rank the better. Historically, the top half of the industries has outperformed the general market. determining Risk Level, we rely on a proprietary quantitative model that divides the entire universe of stocks into five groups, based on eacstock s historical price volatility. The first group has stocks with the lowest values and are deemed Low Risk, while the 5th

group has the highe

values and are designated High Risk. Designations of Below-Average Risk, Average Risk, and Above-Average Risk correspond to th

second, third, and fourth groups of stocks, respectively.

Analyst Maharathi Basu (DQCA)QCA Arpita DuttEditor BipashaReason for update Rec change+4Q13, FY13 earnings

zacks alexion pharma 14 02

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