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AstraZeneca acquires rare disease specialist Alexion in $ 39 billion deal

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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 a rare disease specialist Alexion Pharmaceuticals Inc.

The proposed cash and equity acquisition will add treatments for rare blood and immunological disorders to the portfolio of Cambridge, UK-based AstraZeneca, which had spent years phasing out older, less profitable products to focus on cancer.

As the pandemic stifled economies and AstraZeneca embarked on a relatively low-yielding project to develop a Covid-19 vaccine with the University of Oxford, CEO Pascal Soriot kept his eyes on the ground. After months of patients shunning hospitals and clinics for fear of viral exposure, vaccines are coming online that promise to bring society and the pharmaceutical industry back to a semblance of normalcy.

This purchase is “a milestone in the history of the company,” Soriot said on a call with reporters. “It is a great opportunity for us to accelerate our development of immunological therapies”.

Expensive drugs for rare diseases can generate billions in sales for relatively few patients. Hooking up drugmakers who focus on them has been a popular way for large pharmaceutical companies to drive sales growth in recent years.

The offer values ​​Alexion at $ 175 a share, a 45% premium over Friday’s closing price. This is the largest transaction for AstraZeneca since its inception in 1999 by combining British and Swedish companies, and would consolidate its position among the top 10 drug manufacturers in the world. It is also the largest pharmaceutical and biotech takeover this year, as well as the fourth global transaction across all industries, 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 struggled withquestionsregarding the effectiveness of the potential shot and how the late stage trials were handled.

Prior to the pandemic, AstraZeneca was one of the hottest pharmaceutical companies, growing 70% in value over the past three years as it produced anti-cancer drugs like Lynparza, Imfinzi and Tagrisso, its biggest seller . He ceded the rights to older brands like Seroquel for Schizophrenia while shutting down expensive development programs that seemed unlikely to materialize.

But an attempt to take control of Pfizer Inc. that Soriot repelled six years ago has taught the importance of the ladder. AstraZeneca made a preliminary approach to Gilead Sciences Inc., Bloombergreportedin June.

While those talks didn’t go any further, the addition of Alexion could put the British drugmaker out of reach of a buyer. Relatively cash-poor in recent years, AstraZeneca will also see the benefits of earning Alexion’s lucrative business.

“Larger base”

This will help AstraZeneca pay its dividend and “give them a much broader base to invest in R&D,” said Sam Fazeli, analyst at Bloomberg Intelligence. CFO Marc Dunoyer said it would be the last of AstraZeneca’s big deals for some time.

The new products will also allow Soriot to focus more on one of its priorities: the Chinese market, which now accounts for around a fifth of the company’s turnover. Alexion does not have a footprint in the country, which makes it the most important market for expanding the reach of this business, he said.

Alexion has specialized in the development of drugs that selectively inhibit immune factors to fight diseases that involve the body’s protective system. Soliris, the company’s largest product with nearly $ 4 billion in sales in 2019, is a monoclonal antibody used to treat rare conditions such as paroxysmal nocturnal hemoglobinuria.

Monoclonal antibodies have gained attention because two of these drugs manufactured by Eli lilly & Co. and Regeneron Pharmaceuticals Inc. has received emergency clearance in the United States for the treatment of Covid. Alexion in April announced plans to conduct advanced testing of another monoclonal antibody, Ultomiris, in critically ill patients with the disease.

Alexion has been pressured in the past to get on the block. Activist investor Elliott Management Corp. opposed the company’s deal earlier this year to acquire Portola Pharmaceuticals, saying the transaction made no strategic sense and did not fit Alexion’s focus on rare diseases.

Transaction financing

Upon the sale to AstraZeneca, holders of each Alexion share will receive $ 60 in cash and 2.1243 US custodian AstraZeneca shares, the UK company said in a press release on Saturday. Drugmaker to finance acquisition with $ 17.5 billion financing facility Morgan stanley, JPMorgan Chase & Co. and Goldman Sachs Group Inc.

Despite the premium, the price is attractive for AstraZeneca and its deal with Alexion could lead to further offers, Geoffrey Porges, analyst at SVB Leerink, said in a note. Alexion shareholders could hold $ 200 per share or seek a higher share of cash, he said.

“We believe that in the days and weeks to come, the debate on this transaction will focus on whether this is enough and whether other bidders could emerge, rather than if it was too much,” Porges wrote.

The current deal includes a fee of $ 1.2 billion if Alexion agrees to sell to another bidder, while AstraZeneca faces a breach penalty of $ 1.4 billion. The acquisition is expected to be finalized in the third quarter of 2021 and Alexion shareholders would own 15% of the merged companies.

Alexion achieved revenue of $ 5.9 billion for the 12 months ending with the third quarter of 2020, with a growth rate of 24%, AstraZeneca said.

Seat of rare diseases

The British company said it intends to establish its rare disease head office in Boston. There are no plans for a major reduction in employment, Soriot said. The merged companies are expected to have a dozen blockbuster drugs – those with sales of over $ 1 billion – by 2023, up from nine in 2019, CFO Dunoyer said on a call.

The deal will increase profits, with annual synergies of around $ 500 million projected three years after its completion, the company said.

Evercore Partners International LLP and Centerview Partners UK LLP are AstraZeneca’s main financial advisers, while Ondra LLP has also provided advice. Bank of America Corp. worked with Alexion.

–With help from Emma Court, Tim Loh, Suzi Ring, Stephanie Baker and Aaron Kirchfeld.

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