Alexion: Canada's Drug Price Watchdog Ordered Price Cut For Soliris

Last week Canada's Patented Medicine Prices Review Board ("PMPRB") Hearing Panel ordered Alexion Pharmaceuticals (ALXN) to reduce the price of its top-selling drug Soliris:

The Panel has found that the price of Soliris (eculizumab) 10 mg/mL was and is excessive under sections 83 and 85 of the Patent Act. The Panel has ordered Alexion to pay to Her Majesty in right of Canada an amount calculated in accordance with Schedule A to this decision. The Hearing Panel has also ordered Alexion to lower the list price of Soliris in Canada as of September 20, 2017 to no higher than the lowest price in the seven comparator countries set out in the Patented Medicines Regulations.

The news hastened ALXN's 3% decline last week. From a public relations standpoint the edict sounds rather ominous as Soliris represents 89% of total revenue. I had the following takeaways on the news:

It Could Hasten The Decline In Alexion's Revenue Growth

Soliris treats ultra-rare disorders like paroxysmal nocturnal hemoglobinuria (PNH) and atypical hemolytic uremic syndrome (aHUS). The fact that it treats such rare diseases usually connotes a limited number of patients. The rarity of its treatments also allows the company to demand high prices. Soliris is consider one of the world's most expensive drugs. In my opinion, Alexion could be an easy target for governments that want price rollbacks for expensive drugs.

The dollar impact from a price cut in Canada is uncertain. First of all, the company has yet to quantify the dollar impact of a potential price cut. The PMPRB wants Alexion to lower the price to "to no higher than the lowest price in the seven comparator countries set out in the Patented Medicines Regulations." What price that is and how much lower it is than where Soliris is currently being priced is unclear.

Secondly, it is also uncertain how much in Soliris sales is derived from Canada. Of the $814 million Soliris sales reported in Q2 2017 86% was derived from the U.S., Europe and Asia Pacific. Sales to Canada would be included in the 14% sold to the rest of the world ("ROW"). What is certain is that Alexion can ill-afford any hiccups. It grew Q2 revenue and EBITDA by at least 20% Y/Y. The market has come to expect double digit growth, but it might be coming to an end. My previous article illustrated how revenue for the second half of 2017 could be less than the $1.8 reported in the first half:

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