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Is Alexion's Boston Move A Smoke Screen?

Alexion Pharmaceuticals Inc.'s big announcement Tuesday that it will pull up stakes and relocate to Boston could well be about planting itself in a more fertile biotech environment, as CEO Ludwig Hantson asserted on a conference call Tuesday with market analysts. But it could also be something else: an expensive exercise in corporate misdirection — that is, doing something shiny and new to distract observers from the ugly and old. If so, New Haven and environs will wind up paying a steep price in lost jobs so Alexion can buy time ahead of financial woes and investigations.

Consider first that Hantson's stated case for trading New Haven for Boston was surprisingly thin. In fact, it amounted to just 18 words in the media release: Alexion wants "a larger biopharmaceutical talent pool and a variety of life-sciences partners to further support future growth initiatives." That was the only explanation offered.

But New Haven hosts Yale, one of the world's great research universities, and a rich ecosystem of science professionals. That's why Alexion moved there instead of Boston in the first place. In fact, the company had given no earlier indication that talent constraints were a barrier to Alexion. It is still planning to keep a big research presence in the city. The main limitations, instead, appear to have been serial unethical and ruinous executive errors. In any case, at the same time Hantson was calling for more talent, he was planning layoff notices to some 20 percent of Alexion's worldwide workforce. Firing, not hiring, seems the CEO's first priority. So it is fair to ask if there might have been other reasons for the move.

Unfortunately, there could be lots. Alexion has been and remains in a world of trouble even as its treatments of rare diseases help save lives. An accounting and aggressive marketing scandal, reminiscent of Wells Fargo's unscrupulous practices, surfaced last year in the U.S. and Brazil. This brought down at least four top executives, including the chair, CEO and chief financial officer and, last May, a raft of others. Sharp scrutiny over pricing of Alexion's star drug Soliris — a single year's treatment can reportedly cost up to $700,000 — has attracted criticism. Bloomberg Businessweek wrote that the U.S. Securities and Exchange Commission has been investigating Alexion over business practices at home and abroad. Alexion's share price has lagged its biotech peers, prompting investor dismay.

Nothing distracts from bad news like a shiny headline of a headquarters relocation. It certainly seemed to dazzle some market analysts. But were they looking at the right metrics?

While approving the overall restructuring, few seemed to examine the merits of the expensive Boston move. One, Barclays analyst Geoff Meacham, was even quoted as praising the transfer to Boston since the city is "an environment new CEO Ludwig Hantson is familiar with, having run Baxalta" there previously. But could Hantson have persuaded Alexion's board to make the switch to suit his geographic preferences, especially as it involves uprooting some 400 professionals and families and comes with a price tag in the tens of millions? Or could executives have wanted to keep gullible market analysts focused for six months on the move instead of stepping up questions over Alexion's business model flaws?

Hantson would have outsiders believe that New Haven was one of the factors holding Alexion back. You don't have to be a Connecticut enthusiast to question that assumption.

Top shareholding institutions including T. Rowe Price, Fidelity, Vanguard, Blackrock and State Street, who together control nearly 41 percent of Alexion, will now find it in their fiduciary interest to probe whether the headquarters shift is corporate misdirection to sidetrack attention, or whether it is corporate prudence designed to reposition Alexion for long-term growth, as Hantson asserts. The jury may be out on that for now. But Wall Street traders offered their early reaction to the announcement. Instead of jumping, Alexion's stock price barely nudged and remains well below its prescandal range in 2015 and 2016.

Stock traders clearly haven't yet found Alexion's strategy satisfactory. Short of more convincing information, the rest of us might not either.

Stephen Davis of Madison is a senior fellow at Harvard Law School's Program on Corporate Governance.

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