AstraZeneca’s $ 39 billion deal with Alexion marks the transition from prey to predator

Pascal Soriot, chief executive of AstraZeneca, spent most of 2020 with two things in mind: to create a Covid-19 vaccine and to seek a mega-deal to take advantage of the drug company’s share price surge.

The difficult yards of the former are largely over, with the announcement last month that the vaccine developed with the University of Oxford was safe and efficient. The second has only just begun.

On Saturday, Mr Soriot made the biggest deal in AstraZeneca history, agreeing to buy American rare disease specialist Alexion in a $ 39 billion treasury and stock deal.

Samuel Johar, who chairs the Buchanan Harvey board advisory group, said the purchase underlines the Anglo-Swedish company’s transformation from “prey to predator” six and a half years after Pfizer launched on a then failing AstraZeneca .

Mr Soriot sawed off the American group with a promise to revitalize his company’s research and development activities – but for years lucrative new drugs remained elusive and AstraZeneca’s share price languished far below of the £ 55 offered by the American pharmaceutical giant.

These memories have been banned for the past two years with the rebirth of AstraZeneca’s fortune, in large part thanks to a slew of cancer drugs that appear to be destined for blockbuster status.

Its shares have risen by around 12% in the past year, although some investors were clearly baffled by Alexion’s 45% premium, as the stock fell 5% to £ 77.49 at the start. Monday session.

The question now is whether Mr Soriot, who has spent months arguing with rivals including larger targets such as California-based Gilead Sciences, picked the right partner to bolster the drug pipeline of AstraZeneca in the new field of rare diseases.

“[Pascal] has been very systematic looking at a lot of things, very determined, and has done a full business finance exercise, ”said one person who has been monitoring the situation closely. “The reality is that a lot of times people make deals when they have to, but this deal was made to leverage buyer’s strength.”

By taking over Alexion, Soriot adds a company focused on treating diseases caused by the uncontrolled activation of a part of the immune system known as the complement system. Alexion has a pipeline of 11 molecules that hinder these diseases.

Mr Soriot on Saturday touted the benefits of the merger, which he said would allow AstraZeneca to apply its signature capabilities in areas such as genomics to rare disease targets, while using its leverage in emerging markets and in China to globalize Alexion’s portfolio and apply the scientific knowledge of American society on the most common diseases.

“This is an acquisition that will create a substantial increase in [earnings per share], increasing our basic operating margin and increasing our cash flow, ”he said.

Alexion was forecasting 2020 revenue of around $ 5.9 billion, up from $ 5 billion the year before when he reported net profit of $ 2.4 billion. The company has net debt of less than $ 1 billion.

Under terms announced on Saturday, Alexion shareholders will receive about $ 175 per share, of which $ 60 is in cash and the remainder is in shares.

Negotiations led by CEOs and company presidents went without fireworks but turned into a slow war of attrition over several months as Alexion sought to raise the price of the offer.

One factor, however, will be whether Alexion’s shareholders – including activist hedge fund Elliott, which in May asked the company to sell itself – are satisfied with the 45% premium paid by AstraZeneca, given the rapid growth of the pharmaceutical stocks market during the pandemic.

SVB Leerink analysts said this weekend that the price might need to be closer to $ 200 to appease investors.

If the deal goes through, one of the winners will be Alexion CEO Ludwig Hantson, who earned $ 18.9 million in 2019 and is expected to earn $ 56 million with a golden parachute clause if he leaves. after the deal is closed, as calculated by FT using data from the company’s most recent proxy filing.

Payday would mark the second time Mr Hantson has cashed in selling a pharmaceutical company he runs, after Shire’s $ 32 billion buyout The American pharmacist Baxalta in 2016.

AstraZeneca’s entry into the rare disease arena, where drugs are typically sold at exorbitant prices reflecting their limited market, is not without potential reputational and political dangers, however.

Alexion’s flagship immune disease drug Soliris sells for around $ 600,000 per year, in stark contrast to the expected cost of $ 3-4 for AstraZeneca’s Covid vaccine, a price designed to ensure the vaccine reaches developing countries.

Ellen ‘t Hoen, director of the Medicines, Law and Policy research group, described Alexion as “a “Orphan drug” company that uses the orphan market exclusively to extract as much money as possible from the health system ”.

“This is part of the personalized medicine trend, and it may indicate that AstraZeneca is jumping on this bandwagon,” she said, adding: “It would be the exact opposite of low-cost vaccine manufacturing. for the masses. “

Alexion told the Financial Times on Sunday that “The development of new transformative drugs is difficult, expensive and time consuming. . . The price of our drugs reflects these challenges and their life-changing benefits for patients and society. “

In 2016, the company encountered difficulties when its CEO and CFO has left, weeks after Alexion said he was launching an internal investigation into unspecified charges of fraud in the sale of Soliris.

Marc Dunoyer, chief financial officer of AstraZeneca, told reporters on Saturday that Soliris’ “second generation” successor Ultomiris was around 30% cheaper, while Mr Soriot noted that Sanofi-Genzyme, Novartis and Roche ” also made less frequent or rare breakthroughs. diseases at higher prices ”.

“Our intention will always be to make sure that our prices remain reasonable given the size of the population that needs to be treated, but it is definitely something that we have to manage,” Mr Soriot said.

A change in US administration after Joe Biden’s victory over Donald Trump, promised a reduction in nationalist rhetoric and a less hostile climate to high drug prices, which may have made the continuation of the deal more palatable to Mr. Soriot.

Upcoming drug price battles in the United States, the world’s largest drug market, will likely focus on steady increases in commonly used drugs such as those for diabetes, rather than expensive treatments for rare diseases.

The timing of the purchase of Alexion by AstraZeneca may still prove to be politically, as well as strategically, auspicious, allowing Mr. Soriot to claim a success that has been brewing for many years.