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Alexion to Restructure Operations, to Lower Headcount by 20%

Zacks Equity Research

Alexion Pharmaceuticals, Inc. ALXN announced that it will undertake a restructuring plan to re-align the organization with refocused corporate strategy.

Details of Restructuring

The company plans to focus on rare diseases businesses in core areas of hematology, nephrology, neurology and metabolic disorders to enhance productivity. Alexion will reduce spending and headcount associated with the previously announced de-prioritized pipeline programs as well as optimizing additional R&D expenses.

The three programs which have been deprioritized are — ALXN1101 (cPMP replacement therapy) and ALXN6000 (samalizumab) as well as partnerships with Moderna Therapeutics, Blueprint Medicines and Arbutus Biopharma ABUS.

Alongside, the company will shut Alexion Rhode Island manufacturing facility and certain regional and country-based offices. The company will align investments with its core, high-growth markets, optimize the global operating structure to leverage synergies across regions and countries, reduce operating redundancies and focus on continuity of the field teams.

Meanwhile, the company is also right-sizing certain G&A functions, such as Human Resources, Finance and Information Technology (IT), including out-sourcing certain non-core Finance and IT roles to support the realigned business. Alexion will continue to invest in other G&A functions, such as Legal and Compliance, to support its global business.

Concurrently, the company plans to relocate its headquarters to Boston, MA by mid-2018 with approximately 400 positions.

As a result of the restructuring plan, the company will reduce its global workforce by approximately 20%. The company expects that the increased financial flexibility will allow it to reinvest approximately $100 million annually into R&D.

Financial Impact

Alexion expects pre-tax savings of approximately $250 million by 2019 while the total pre-tax restructuring and related expenses associated with the plan will be in the range of $340- $440 million. The company targets non-GAAP operating margin of 50% by 2019. Approximately 50% of the restructuring and related expenses will result in cash outlays and restructuring (pre-tax) and related expenses of approximately $240 million to $300 million are expected to be recorded in 2017.

However, the company does not expect any changes to its annual revenue guidance due to the restructuring initiative.

Our Take

Alexion has been facing challenging conditions in recent times and the company is looking to turn around things. In June, Alexion named Paul J. Clancy as its Chief Financial Officer effective July 31, 2017.

Alexion’s stock price has increased 18.1%, outperforming the industry’s gain of 16.5%

Earlier, in 2017, the company shares were hit after a Bloomberg report stated that it is under investigation by the U.S. Department of Health and Human Services’ (HHS) Office of Inspector General (OIG). The HHS has reportedly said it is conducting an "open and ongoing investigation" into the biotech, though it did not specify what it was about. The investigation is reportedly related to Alexion’s support of charitable organizations that provide financial assistance to Medicare patients who take drugs sold by the company.

Alexion’s lead drug, Soliris continues to perform well but the company relies heavily on the drug for growth. The company is expecting Soliris revenues to be lower in the second half of the year due to an accelerating impact from the ALXN1210 trials. In addition, pricing will impact sales by 1%. Alexion is working on expanding Soliris’ label into additional indications.

Alexion has filed regulatory applications with the FDA as well as the European Medicines Agency for Soliris for the treatment of refractory gMG in patients who are anti-acetylcholine receptor antibody-positive. The FDA accepted the supplemental Biologics License Application  and set a Prescription Drug User Fee Act date of Oct 23.

We expect the restructuring plan to boost savings and positively impact margins.

Zacks Rank & Other Stocks to Consider

Alexion currently sports a Zacks Rank #1 (Strong Buy).

Other top-ranked stocks in the healthcare sector are Regeneron Pharmaceuticals, Inc. REGN and Aduro Biotech, Inc. ADRO. While Regeneron carries a Zacks Rank #1, Aduro carries a Zacks Rank #2 (Buy).  You can see the complete list of today’s Zacks #1 Rank stocks here.

Regeneron’s shares up 20.7% this year so far. Earnings estimates have risen 16.8% for 2017 while that for 2018 have gone up by 8.1% over the past 60 days.

Aduro Biotech’s loss per share estimates narrowed from $1.46 to $1.32 for 2017 and from $1.55 to $1.24 over the last 60 days. The company delivered positive surprises in two of the trailing four quarters with an average beat of 2.53%.

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