How Alexion Pharma became Biotech's Entrepreneurial Glory
Image: Evan Kafka for Forbes
$440,000-a-year treatment for rare diseases turned Alexion Pharmaceuticals into biotech’s biggest entrepreneurial success story and the health care system’s biggest paradox. It also landed them the No. 2 slot on Forbes’ annual list of The World’s Most Innovative Companies
The pharmaceutical business is not kind to entrepreneurs. It takes more than a decade and hundreds of millions of dollars in venture capital to get from cool idea to marketed drug, which is why the founders of Amgen, Genentech and Gilead were gone by the time those companies became big successes. But nestled near a pastoral local farm 40 minutes outside of New Haven, Connecticut, is the exception to that rule. There, an unassuming, self-deprecating doctor named Leonard Bell still serves as chief executive of Alexion Pharmaceuticals, the company he founded after he quit his medical professorship at Yale 20 years ago.
His salvation: Soliris, launched in 2007 to treat a rare cause of anaemia. In 2012, that drug will do more than $1.1 billion in revenue, with Wall Street expecting that figure to double over the next three years. Its current net margin: 22 percent. Alexion shares are up 600 percent since the drug’s approval—outperforming tech darlings such as Apple and Salesforce.com over the same period. The company sports a market capitalisation of $20 billion, and Bell’s stake is worth $179 million. These kinds of statistics underscore why little-known Alexion hit No. 2 in Forbes’ annual ranking of the most innovative companies.
They also point to a paradox in the health care system. Alexion, with 1,100 employees, is a multinational pharmaceutical company with offices in more than 30 countries—but only a few thousand patients the whole world over. Soliris is a blockbuster—and Alexion a juggernaut—because of the drug’s astronomical price: $440,000 per patient per year. Yet, the drug is so effective that private insurers and national health agencies, even sticklers like the United Kingdom and Australia, are willing to pay.
“We focus on patients with absolutely devastating disorders that are also either lethal or life-threatening,” says Bell. “They’re also very, very rare, so they get no attention from anybody. They’re left with no hope, and we only go forward not with treatments that will make it a little bit better but with treatments that will transform their lives.”
There is no doubt that Soliris makes a dramatic difference in patients’ lives. And unlike most drugs, it seems to help almost every patient who receives it. Take, for instance, Joe Ellenberg, a former college wrestler aspiring to join the Ultimate Fighting Championship, the often-brutal mixed martial arts competition. After winning his first nine fights, he got extremely tired while training for his 10th. “I was in zombie mode,” he says. He won the bout, but his stomach hurt and his urine was black. His fiancée convinced him to see a doctor, and after months of tests he was diagnosed with paroxysmal nocturnal hemoglobinuria (PNH), the first disease Soliris was approved to treat. He got the diagnosis over the phone, blithely texted it to his loved ones and went to a practice. He came back to 40 panicked texts and voice mails carrying the terrible news delivered by Google searches: PNH leads to disabling anaemia, does not go away and kills a third of patients within five years.
But because of Soliris, he is not bedridden and waiting to die but back to his training and expecting his first baby. His private insurance pays for Soliris, with the National Organization for Rare Disorders, which gets funding from Alexion, picking up his co-payments.
The results surrounding Soliris’ second approved use, for treating a terrible, one-in-a-million kidney ailment called atypical hemolytic uremic syndrome (aHUS), are perhaps more dramatic. Christian Billingsly, now 17, was three months old when he started projectile vomiting, the first evidence the disease was attacking every part of his body, especially his kidneys, which failed when he was 18 months old. Christian got a transplant kidney from his father when he was a toddler, but that failed in eight months. He lived his life on dialysis, and when his family had to evacuate their Louisiana home because of Hurricane Katrina, he wound up with a terrible infection that made dialysis harder. Christian remains small, with low bone density, but Soliris has stopped the attacks that destroyed his kidneys in the first place, and his dad is hoping a kidney transplant will follow and give him a normal life. Insurance, Medicare and charity paid for his treatment.
Analysts estimate that the disease could represent many hundreds of millions of dollars a year in sales for Alexion, which underscores the model that the company leverages: There are big profits in solving extremely rare disorders. Soliris is one of at least a dozen drugs whose price for the average patient is greater than $200,000 per year, all of them targeting dangerous, obscure conditions, such as Naglazyme for Maroteaux-Lamy syndrome and Elaprase for Hunter syndrome.
“We know this is the price that has to be charged in order to create a carrot to treat these disease states,” says Douglas Paul, vice president at Medical Marketing Economics in Oxford, Mississippi, a consultant who advises companies on ultra-rare drugs. “One [insurer] told us this is the cost of doing business. This is why you offer insurance, so they do have access to these treatments.”
Treatments for ultra-rare disorders tend to sell surprisingly well in nationalised health care systems, especially if they are highly effective. Outside the US, Bell sees price pressure on drugs for diseases that afflict tens or hundreds of thousands of people—but not for his drugs.