Saturday’s deal by
brings a franchise in rare immune disorders to Astra, while also bringing to a close a campaign by discontented Alexion stockholders to get the company sold.
AstraZeneca’s $39 billion payment in cash and stock was valued at $175 per share of Alexion, and the stock of Alexion (ticker: ALXN) jumped 30% on Monday’s open, to $157. Shares of AstraZeneca (AZN) slipped 6.3%, however, to $50.88.
The deal will just about use up AstraZeneca’s capital available for deal-making. Investors have mixed feelings.
Although Alexion enjoys strong cash flow from treatments for disorders in a part of the immune system known as the complement, SVB Leerink analyst Andrew Berens raised concerns about expiring patents on Alexion’s big-selling drug Soliris. He said, though, that before that becomes a problem, the addition of Alexion could nearly double AstraZeneca’s cash flow in the next five years.
And Alexion’s immune-system treatments bring little overlap with AstraZeneca’s current portfolio of cancer products and vaccines. He maintained his Outperform rating for AstraZeneca.
Institutional investors in Alexion had grown unhappy with that company’s own acquisition history. The stock responded poorly to a $700 million deal for Achillion in 2019 and a $1.2 billion deal for Portola this past May.
On May 12, the activist hedge-fund manager Elliott Advisors sent Alexion’s board a letter detailing the erosion of the Alexion’s stock valuation multiple despite its otherwise strong cash flows. Alexion should put itself up for sale, said the activists.
The AstraZeneca deal, approved by both companies’ boards, is a good outcome in the view of sell-side analysts who followed Alexion. The offer of $60 cash and 2.1243 depositary shares of AstraZeneca was a 45% premium to Friday’s price for Alexion.
Guggenheim’s Yatin Suneja has rated Alexion at Neutral. Soliris brings in over 80% of the $6 billion in revenue that Suneja expects for Alexion this year. As patents on the antibody product expire, biosimilars could start competing on price. Meanwhile, a bunch of rivals are developing complement treatments of their own, including
Johnson & Johnson
(JNJ) and arGENx (ARGX).
But Suneja’s colleague Seamus Fernandez thinks that the combination of AstraZeneca and Alexion will succeed in shifting many current users of Soliris to a second-generation product from Alexion, called Ultomiris.
AstraZeneca also enjoys strong sales in China. The companies believe that country will become a good market for Alexion’s immune-disorder treatments.
So the Alexion deal reaffirms the Buy rating that Fernandez has on AstraZeneca—whose shares he thinks have more than 20% upside.
“Substantially improved margins and robust cash flow have been a sustained overhang for [AstraZeneca],” wrote Fernandez, in a Sunday note. “With [Alexion], this should quickly fade.”
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