AstraZeneca stock tumbled Monday after the pharmaceutical giant announced its $39 billion plan to acquire rare-diseases biotech company Alexion Pharmaceuticals (ALXN).
The deal brings to fruition investors’ long-held hopes that Alexion would find an acquirer, analysts say. It also helps AstraZeneca (AZN) expand deeper into rare-disease drugs, Alexion’s bread and butter. AstraZeneca will pay $175 for each share of Alexion stock.
Piper Sandler analyst Christopher Raymond called it “a deal so obvious, no one thought it would happen.” Raymond originally saw Amgen (AMGN) as a strong fit for Alexion. Alexion has a double-digit operating margin and double-digit sales and earnings growth.
“Given that the stock has been frustratingly rangebound despite strong commercial and pipeline execution, (we) thought it was just a matter of time before strategics began to take notice,” he said in a report to clients. “That appears to have been the case with this weekend’s news.”
But investors in AstraZeneca stock saw their shares sink. In early trading on the stock market today, AstraZeneca stock toppled 7.2% near 50.40. Alexion stock, on the other hand, catapulted 29.7% near 157.
AstraZeneca Stock Falls On Alexion Deal
Under the terms of the deal, AstraZeneca will pay $60 in cash and 2.1243 AstraZeneca American depositary receipts for each share of Alexion stock. Based on the average price of AstraZeneca stock at $54.14, this comes out to $39 billion in total, the company said in a news release.
Both boards of directors have approved the acquisition. The companies expect to wrap up the deal in the third quarter of 2021. Then, Alexion shareholders will own 15% of the combined company.
“Alexion has established itself as a leader in complement biology, bringing life-changing benefits to patients with rare diseases,” AstraZeneca Chief Executive Pascal Soriot said in a written statement. “This acquisition allows us to enhance our presence in immunology.”
Alexion long has focused on rare diseases tied to the complement immune system. The biotech company’s biggest moneymaker is Soliris. In 2019, Soliris generated $3.95 billion in sales, growing 11%. Piper Sandler’s Raymond notes the company has beat quarterly forecasts every period expect one.
But the risk of biosimilar competition for Soliris has weighed on the stock, he said.
To that point, SVB Leerink analyst Andrew Berens noted Soliris will lose patent protection in 2025. Alexion has worked to create a next-generation version of Soliris, known as Ultomiris. Ultomiris can treat two of the four diseases Soliris treats.
Will Other Bidders Emerge?
Berens kept his outperform rating on AstraZeneca stock.
He sees Alexion as a good fit for AstraZeneca. AstraZeneca focuses on oncology, cardiovascular, rental, metabolic and respiratory illnesses.
“While this rare-disease arena may seem strategically outside the company’s wheelhouse, there are a number of similarities between AstraZeneca’s current oncology focus and Alexion’s expertise in rare diseases,” he said in his note to clients.
In a separate report, however, fellow SVB Leerink analyst Geoffrey Porges suggested the $175 per share takeover price might be too low. He sees Alexion’s worth at $200 per share. He acknowledged Alexion’s drug franchise might be more valuable in the hands of a larger player.
A diversified company will be able to eliminate much of the overhead associated with global sales. Further, rare-disease treatments are particularly attractive in biotech because they tend to have longer patent protection. This acquisition elevates AstraZeneca stock into “the top tier” of large, diversified companies investing in rare diseases, he said.
But “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,” he said.
Follow Allison Gatlin on Twitter at @IBD_AGatlin.
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