Picture: REUTERS/STEFAN WERMUTH
Picture: REUTERS/STEFAN WERMUTH

London — AstraZeneca, one of the drugmakers leading the fight against Covid-19, highlighted where its growth will come from after the pandemic with a $39bn deal for rare-disease specialist Alexion Pharmaceuticals.

The proposed cash-and-stock acquisition will add treatments for uncommon blood and immunological disorders to the portfolio of Cambridge, UK-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 low-return project to develop a Covid-19 vaccine with the University of Oxford, CEO Pascal Soriot kept his eyes downfield. After months of patients avoiding hospitals and clinics for fear of viral exposure, immunisations are coming online that promise to return society, and the drug industry, to a semblance of normality.

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 few patients. Snapping up drug makers 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 drug makers. It’s also the biggest pharmaceutical and biotechnology takeover in 2020, as well as the fourth-largest transaction globally across all sectors, according to data compiled by Bloomberg.

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 about 70% growth in value over the past three years as it churned out cancer drugs such as Lynparza, Imfinzi and Tagrisso, its biggest seller. It’s divested rights to older brands such as Seroquel for schizophrenia while halting costly development programmes that looked unlikely to pan out.

But a takeover attempt from Pfizer that Soriot fended off six years ago taught the importance of scale. AstraZeneca made a preliminary approach to Gilead Sciences, Bloomberg reported in June.

While those talks went no further, adding Alexion could put the UK drug maker out of an acquirer’s reach. Cash-poor for the past few years, AstraZeneca will benefit from gaining Alexion’s lucrative business.

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. CFO 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 about 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 specialised 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 $4bn 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 and Regeneron Pharmaceuticals, have been given emergency authorisation in the US 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 opposed the company’s deal earlier in 2020 to acquire Portola Pharmaceuticals, saying the transaction didn’t make strategic sense and didn’t fit with Alexion’s focus on rare diseases.

In the sale to AstraZeneca, holders of each Alexion share will receive $60 in cash and 2.1243 AstraZeneca American depositary shares, the UK company said at the weekend. The drug maker will fund the acquisition with a $17.5bn financing facility from Morgan Stanley, JPMorgan Chase and Goldman Sachs Group.

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 a share or seek a higher cash portion, he said.

“We believe that in the coming days and weeks the debate about this transaction will centre on whether this is enough, and whether other bidders might emerge, rather than whether this was too much,” Porges wrote.

The deal includes a fee of $1.2bn if Alexion agrees to sell itself to another bidder, while AstraZeneca faces a $1.4bn break-up 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 $5.9bn in sales for the 12 months ending with the third quarter of 2020, with a 24% growth rate, AstraZeneca said.

The UK company said it intends to establish its headquarters for rare diseases in Boston. There are no plans for a big reduction in employment, Soriot said. The combined companies should have a dozen blockbuster drugs — those with more than $1bn in sales — by 2023, up from nine since 2019, Dunoyer said on a call.

The deal will add to earnings, with annual synergies of about $500m projected three years after completion, the company said.

Evercore Partners International and Centerview Partners are AstraZeneca’s lead financial advisers, while Ondra also gave advice. Bank of America worked with Alexion.

Bloomberg

Would you like to comment on this article or view other readers' comments?
Register (it’s quick and free) or sign in now.

Speech Bubbles

Please read our Comment Policy before commenting.