With the release of its full-year ’13 and Q4 financials on Thursday, Alexion Pharmaceuticals (ALXN) beat on both earnings and revenue, now guiding for 2014 revenue and EPS to be even higher than consensus Wall Street expectations (’14 EPS of $3.70-3.80 vs. $3.42 consensus, and ‘14 revs of $2-2.02B vs. $1.96B consensus). The stock is up 20%, or $27, as a result. You can see PropThink’s most recent coverage of Alexion here
But Alexion’s performance on Thursday is due more to an improved tax rate following its corporate relocation to Ireland, which at a 12.5% corporate tax rate has rapidly become a go-to location for profit-generating pharma (the country is home to 7 of the top 10 global bio companies). Even Google shuttles profits through Ireland.
PropThink wrote extensively about this tax inversion incentive in relation to Endo Pharmaceuticals (ENDP) (here), the strategy at Valeant (VRX), and most recently in relation to QLT Inc. (QLTI) (here). On Thursday, with ALXN up almost 30 points in response to the tax maneuver, Wall Street is sniffing around for similar opportunities.
Questcor Pharma (QCOR) is rumored to be a candidate for the tax inversion approach given its considerable cash flow and the fact that the market still doesn’t give the company credit for its earnings. It’s no secret that Questcor trades at a heavy discount to peers, a result of overhanging risk from multiple government investigations. While PropThink suggested taking profits in QCOR when more investigations were revealed, Wall Street’s interest in the tax approach may bring momentum into this name in the near-term.
Auxilium Pharmaceuticals (AUXL) has also been kicked around as a potential tax-incentivized strategic acquirer, although a recent dealReporter article suggests AUXL is a takeover target. PropThink wrote about Auxilium last year, suggesting that betting on management made sense – the stock is up 60% since.
Another consideration is Amarin’s (AMRN) Irish domicile. Despite the underwhelming commercial performance of Vascepa, the company’s prescription-grade fish oil pill, Amarin’s $300M valuation doesn’t build in a whole lot. The company has a product that may do $100M on an annual basis; losses that could be written off on future earnings; and most importantly, Irish domicile. We can’t say Amarin would put itself up for sale just yet, but there’s a case to be made that it’s a target based on the Irish implications alone. At $1.75, downside is certainly limited.
QLTI, which announced the evaluation of strategic alternatives back in November, fits the trend of tax-driven acquisitions. QLTI is up 40% since PropThink first called this a buy on the company’s focus on building shareholder value. The company recently announced that the first patient has been dosed in a phase 2a proof-of-concept trial of QLT091001 in adult subjects with Impaired Dark Adaptation (IDA).
In connection with ALXN and QLTI, PropThink has taken a long position.
