Alexion Hunts For A CEO While Investors Await Investigation Details

CEO David Hallal and CFO Vikas Sinha have both left the company amid an audit investigation, while the company said it will file a delayed 10-Q in January or earlier.

Alexion Pharmaceuticals Inc. has turned to board director and former AstraZeneca PLC CEO David Brennan to lead the company through an unexpected transition. Brennan will succeed David Hallal, effective immediately, in a leadership shakeup coinciding with an ongoing audit investigation, though the company said it was due to “personal reasons.”

The company announced the appointment Dec. 12, along with news that Chief Financial Officer Vikas Sinha has also left the company “to pursue other opportunities.” The longtime CFO, who has held the post since 2005, will be replaced by former Honeywell CFO David Anderson immediately. Alexion’s stock opened 10% lower at $118.61 and dropped further to close the day at $115.08, nearly 13% lower.

The leadership changes raise questions about what Alexion might have uncovered in the investigation, which was announced Nov. 9. At the time, the company said it was looking into allegations by a former employee related to the company’s sales of blockbuster rare disease drug Soliris (eculizumab), which resulted in the company delaying its third quarter 10-Q filing. (Also see "Alexion Investigating Soliris Sales Practices, Delays Earnings Report" - Scrip, 10 Nov, 2016.) Soliris generated sales of $729m in the third quarter, growth of 9.6%.

During a Dec. 12 conference call with investors, Brennan said the ongoing investigation is nearing completion and the firm has not identified any facts to date that would require the company to update previously reported historical results. Alexion expects to file the delayed 10-Q in January or earlier, he said.

“When the board asked me to become the interim CEO, I did so without hesitation, and that’s because I strongly believe in our company,” Brennan said. “I would not have accepted this responsibility if I were not confidant that Alexion is a strong company with an exceptionally bright future.”

Brennan has served on Alexion’s board of directors since July 2014. He was previously the CEO of AstraZeneca for six years, but resigned in 2012 amid investor pressure. Hallal has been the CEO of Alexion since April 2015, having taken over the daily operations from Leonard Bell, the founder of Alexion who served as CEO for 23 years. Bell remains chairman of the board of directors. In connection with the termination, Alexion said Hallal would receive a payment of $3.65m.

“We are very fortunate to have someone of David’s caliber to guide us during this transition,” Bell said during the conference call. The search for a permanent CEO is underway. Management declined to take any questions from investors.

Analysts Agree Alexion’s Fundamentals Appear Strong

Analysts were mixed about what the leadership changes could mean about the ongoing investigation, but they generally agreed the company’s fundamentals appear strong. Barclays analyst Geoff Meacham said in a same-day note that the news appears to be positive in that it does not sound like Alexion will have to restate its prior financials. Despite the uncertainty surrounding a new management team, he suggested the weaker stock could represent a buying opportunity.

But RBC Capital Markets analyst Simos Simeonidis wasn’t as positive about where the investigation might lead. “What started out as an innocuous delay in filing of 3Q financials has turned out to be a serious problem for Alexion, costing the job of its CEO and CFO, for starters,” he said in a Dec. 12 note.

Regarding the company’s statement that the investigation has not to date identified any reason for the company to update its historical results, Simeonidis said, “Obvious question: well, then why are David and Vikas gone?”

“We also view ‘to date’ as the key part of that sentence. We would not be surprised if the investigation turns up one or more issues that occurred under the CEO and CFO’s watch in terms of what the whistleblower had alleged about Alexion’s practices,” he said.

However, while Simeonidis said there could be more than a 50% chance of financial restatements, he said they aren’t likely to be “major,” meaning they aren’t likely to change how investors view the core Soliris opportunity.

Alexion is in the midst of transitioning into a multi-asset drug marketer. (Also see "No One-Trick Pony: Alexion’s Evolution Into A Multi-Asset Drug Company" - Pink Sheet, 21 Dec, 2015.) The company has been dependent on Soliris since it was approved in 2007. The drug, which boldly carries a reputation as the most expensive in the world, is approved to treat two ultra-rare diseases, paroxysmal nocturnal hemoglobinuria (PNH) and atypical hemolytic uremic syndrome (aHUS).

But last year, Alexion added two new drugs to its commercial portfolio when they were approved back to back: Strensiq (asfotase alfa), approved for a rare genetic progressive metabolic disease called hypophosphatasia (HPP), and Kanuma (sebelipase alfa), approved last December for treatment of lysosomal acid lipase (LAL) deficiency, an ultra-rare condition that causes multiple organ damage and premature death.

The launches mark a foray into metabolic disease, an entirely new commercial platform for Alexion, although they generate limited revenues for now. Strensiq generated net product sales of $61m in the third quarter, and Kanuma generated $9m. Alexion is also continuing to evaluate new indications for Soliris and is developing a next-generation anti-C5 antibody ALXN1210 that could have dosing benefits over Soliris.