Nearly four years removed from a disastrous sales fraud probe and an overhaul of its senior leadership, Alexion has launched a campaign to bolster its rare disease pipeline through pricey acquisitions. But one activist investor thinks Alexion's strategy is ill-conceived––and the old foe is airing its grievances in public.
In an open letter to the drugmaker's board, Elliott Advisors, a subsidiary of infamous proxy brawler Elliott Management, slammed Alexion's deal to buy Portola Pharmaceuticals, calling the buyout a symptom of Alexion's "go-it-alone, trust-us" approach toward investors.
Last week, Alexion inked the $1.4 billion agreement to acquire Portola and its laggard bleeding drug Andexxa, which has delivered disappointing sales since its launch in 2018.
Investors' negative reaction to the Portola buy––which saw Alexion lose $1.7 billion in market cap within 24 hours––drove Elliott to take its complaints with the board public, the firm said. In December, Elliott quietly asked Alexion to put itself up for sale, but the drugmaker rebuffed that request.
"(The Portola acquisition) offers the latest evidence in support of our view that the Board is taking Alexion in the wrong direction, and that the Company’s current strategy is unlikely to restore the market’s perceptions of Alexion’s attractiveness and uniqueness," Elliott wrote. "We believe that this Board is in urgent need of fresh perspectives and a new direction."
Elliott cited a list of grievances with Alexion's corporate strategy, including its "sudden" replacement in the fall of Chief Financial Officer Paul Clancy, whom the firm called "experienced and perceptive," with Aradhana Sarin, M.D., Alexion’s former chief strategy and business officer responsible for $2 billion in pipeline pickups.
The firm also blasted Alexion's $930 million purchase of Achillion just a month after Clancy's departure was announced, a move that appeared to confirm Alexion's new M&A-heavy strategic direction. Elliott argued Alexion misjudged "the appearance of defensiveness in the timing and communication around (the Achillion) transaction" and suggested Alexion was fighting to maintain its market share in paroxysmal nocturnal hemoglobinuria.
In a statement, Alexion said it would review the claims in Elliott's Tuesday letter and continue a "constructive dialogue" with the firm and other investors.
"Alexion maintains an active dialogue with shareholders and welcomes input and feedback as we execute on our transformation strategy," Alexion said.
In a note to investors Wednesday, SVB Leerink analyst Geoffrey Porges said he had heard similar discontent from other Alexion investors with "similar dismay, and fatigue, with the company’s returns."
Porges agreed that Alexion's recent M&A investment were "underwhelming" and suggested pursuing a sale might not be a worst-case scenario for the drugmaker.
"We agree that the most immediate and obvious value creation opportunity would be the sale of the company to a larger acquirer, and concur that Alexion’s portfolio would be a good fit with a number of much larger companies that have significant interests in rare disease treatments already," Porges wrote.
Elliott's screed comes as Alexion is hurriedly bolstering its portfolio and pipeline amid a gung-ho switching campaign from aging blockbuster Soliris to follow-up drug Ultomiris.
Alexion argued that its Portola buyout was part of a long-term strategy to diversify its offerings and move beyond the company's stable of ultra-rare disease drugs. Andexxa's value, in particular, could take a long time to develop as the drug has only captured 3% of the factor Xa reversal agent market more than a year into its launch.
"The way we look at value here is long-term value," Sarin told analysts last week. "This is a diversification play for us .. [and] we'll need to have a really heavy lift in the next few quarters and years to drive value here."
It's just the latest run-in between Alexion and Elliott, which has spent years agitating for change at the drugmaker. '
In January 2018, Alexion caved to an Elliott request to infuse biotech experience on its board after then-new CEO Ludwig Hantson had filled a number of senior leadership roles with pharma peers. Two years before, the drugmaker had been mired in a sales fraud investigation that led to a complete C-suite overhaul.
And Alexion is far from Elliott's only target. In December 2018, Elliott Management reportedly lobbied for Bayer to split its pharmaceutical and crop sciences division after the drugmaker's disastrous $63 billion buyout of Monsanto that year. The consummation has been dogged by class-action lawsuits over weedkiller Roundup and free-falling share prices.