London: AstraZeneca Plc, one of the drugmakers leading the fight against Covid-19, highlighted where its growth will come from after the pandemic with a $39 billion deal for rare-disease specialist Alexion Pharmaceuticals Inc.
The proposed cash-and-stock acquisition will add treatments for uncommon blood and immunological disorders to the portfolio of Cambridge, U.K.-based AstraZeneca, which had spent years paring away older and less profitable products to focus on cancer.
While the pandemic smothered economies and AstraZeneca entered a relatively low-return project to develop a Covid-19 vaccine with the University of Oxford, Chief Executive Officer Pascal Soriot kept his eyes downfield. After months of patients avoiding hospitals and clinics for fear of viral exposure, immunizations are coming online that promise to return society, and the drug industry, to some semblance of normal.
The purchase is "an important step in the history of the company," Soriot said on a call with reporters. "It's a tremendous opportunity for us to accelerate our development of immunological" therapies.
High-priced medicines for rare diseases can generate billions in sales from relatively few patients. Snapping up drugmakers that focus on them has been a popular way for larger pharmaceutical companies to stimulate sales growth in recent years.
The offer values Alexion at $175 a share, a 45% premium to the closing price on Friday. It's the largest deal for AstraZeneca since it was founded in a 1999 combination of British and Swedish companies, and would entrench its position among the world's 10 biggest drugmakers. It's also the biggest pharmaceutical and biotechnology takeover this year, as well as the fourth-largest transaction globally across all sectors, according to data compiled by Bloomberg.
Covid vaccine
The news gives Soriot a chance to focus on something other than the company's experimental coronavirus vaccine. AstraZeneca has been wrestling with questions surrounding the efficacy of the potential shot and the way the late-stage trials were handled.
Before the pandemic, AstraZeneca was one of the hottest pharmaceutical companies, with some 70% growth in value over the past three years as it churned out cancer drugs like Lynparza, Imfinzi and Tagrisso, its biggest seller. It's divested rights to older brands like Seroquel for schizophrenia while halting costly development programs that looked unlikely to pan out.
But a takeover attempt from Pfizer Inc. that Soriot fended off six years ago taught the importance of scale. AstraZeneca made a preliminary approach to Gilead Sciences Inc., Bloomberg reported in June.
While those talks went no further, adding Alexion could put the U.K. drugmaker out of an acquirer's reach. Relatively cash-poor for the past few years, AstraZeneca will also see benefits from gaining Alexion's lucrative business.
Bigger base
That will help AstraZeneca pay its dividend and "gives them a much bigger base from which to invest in R&D," said Sam Fazeli, a Bloomberg Intelligence analyst. Chief Financial Officer Marc Dunoyer said this would be the last of AstraZeneca's big deals for a while.
The new products will also allow Soriot to indulge more in one of his priorities: the China market, which now accounts for roughly a fifth of the company's revenue. Alexion doesn't have a footprint in the country, making it the most important market for expanding that company's reach, he said.
Alexion has specialized in developing drugs that selectively inhibit immune factors to fight diseases that involve the body's protective system. Soliris, the company's biggest product with almost $4 billion in 2019 sales, is a monoclonal antibody used to treat rare conditions such as paroxysmal nocturnal hemoglobinuria.
Monoclonal antibodies have garnered attention because two such drugs made by Eli Lilly & Co. and Regeneron Pharmaceuticals Inc. have been given emergency authorization in the U.S. for the treatment of Covid. Alexion announced plans in April to conduct late-stage tests of another monoclonal antibody, Ultomiris, in severely ill patients with the disease.
Alexion has been pressured in the past to put itself on the block. Activist investor Elliott Management Corp. opposed the company's deal earlier this year to acquire Portola Pharmaceuticals, saying the transaction didn't make strategic sense and didn't fit with Alexion's focus on rare diseases.
Deal Financing
In the sale to AstraZeneca, holders of each Alexion share will receive $60 in cash and 2.1243 AstraZeneca American depositary shares, the U.K. company said in a press release Saturday. The drugmaker will fund the acquisition with a $17.5 billion financing facility from Morgan Stanley, JPMorgan Chase & Co. and Goldman Sachs Group Inc.
Despite the premium, the price is attractive for AstraZeneca, and its agreement with Alexion could draw out other offers, SVB Leerink analyst Geoffrey Porges said in a note. Alexion shareholders could hold out for $200 per share or seek a higher cash portion, he said.
"We believe that in the coming days and weeks the debate about this transaction will center on whether this is enough, and whether other bidders might emerge, rather than whether this was too much," Porges wrote.
The current deal includes a fee of $1.2 billion if Alexion agrees to sell itself to another bidder, while AstraZeneca faces a $1.4 billion breakup penalty. The acquisition is expected to close in the third quarter of 2021 and Alexion shareholders would own 15% of the combined companies.
Alexion had $5.9 billion in sales for the 12 months ending with the third quarter of 2020, with a 24% growth rate, AstraZeneca said.
Rare-disease headquarters
The U.K. company said it intends to establish its headquarters for rare diseases in Boston. There are no plans for a major reduction in employment, Soriot said. The combined companies should have a dozen blockbuster drugs - those with more than $1 billion in sales - by 2023, up from nine as of 2019, CFO Dunoyer said on a call.
The deal will add to earnings, with annual synergies of about $500 million projected three years after completion, the company said.
Evercore Partners International LLP and Centerview Partners UK LLP are AstraZeneca's lead financial advisers, while Ondra LLP also gave advice. Bank of America Corp. worked with Alexion.
