Analyzing Alexion’s Performance on an EV-to-EBITDA Basis
A Good Year for Alexion? The Proof Is in the Pipeline
Forward EV-to-EBITDA for Alexion Pharmaceuticals
On February 23, 2016, the forward EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of Alexion Pharmaceuticals (ALXN) was 17.81x. The forward EV-to-EBITDA multiples for peers such as Regeneron Pharmaceuticals (REGN), Amgen (AMGN), and Celgene Corporation (CELG) stood at a 16.77x, 8.76x and 11.55x, respectively, on the same day.
Median and average EV-to-EBITDA for the industry
According to Bloomberg, the median EV-to-EBITDA for the industry during 2016 should be 12.22x, whereas the average should be 18.28x. Alexion’s EV-to-EBITDA multiple of 17.81x seems to be lower as the company still has huge growth potential.
Alexion invests heavily in the research and development of pipeline candidates. Similarly, expanding its product portfolio would offer increased opportunities to the rare disease drug manufacturer. (For information on operating efficiency of Alexion, please refer to “Alexion Pharmaceuticals’ Cost Structure and EBITDA Margins.”)
The valuation metric and the share price of the company have moved in line over the past year. However, since January 2016, the multiple has been constant, despite the fall in share price. One of the reasons for such a stable multiple might be Alexion’s expected potential launches and label expansions in 2016.
Why EV-to-EBITDA?
In the previous part of this series, we compared Alexion’s performance based on PE (price-to-earnings) multiple. But comparing performance based on two different metrics offers better insight of the stock valuation. As biotechnology is a capital-intensive industry, these companies are highly leveraged, so in this case, EV-to-EBITDA offers a better comparison because EV is capital structure neutral, whereas EBITDA excludes non-operating components.
As share price is quite susceptible to any industry or company specific event, a risk-averse investor might do well to look for ETF options, such as the SPDR S&P 500 ETF (SPY), which has 0.19% of its total holdings in Alexion Pharmaceuticals’ stock.
In the next part, we’ll analyze what financial experts are expecting from Alexion as seen in their recommendations.
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