By Aron Adamski, BSc Economics @LSE
OVERVIEW OF THE DEAL:
- Announcement date: 12/12/2020
- Industry: Biotechnology
- Implied EV/LTM EBITDA: 12.6x
- Deal consideration: Cash-and-stock mix
- Acquirer advisors: Evercore, Centerview Partners
- Target advisors: Bank of America
Drugmaker, AstraZeneca, entered into a definitive agreement to acquire US biotechnology group Alexion Pharmaceuticals for $39bn, making it the biggest deal struck by a pharmaceutical company since the start of the pandemic.
Under the terms of the deal, Alexion shareholders will receive $60 in cash and 2.1243 AstraZeneca’s shares for each Alexion’s share. The transaction values Alexion at $175 per share, a 48% premium to its closing price 5 days before the announcement. By using stock to finance the deal, AstraZeneca is effectively taking advantage of its soaring share price in recent months, amid its race to develop a COVID vaccine. Upon completion, Alexion shareholders will own 15% of the combined company.
Morgan Stanley, J.P. Morgan and Goldman Sachs will commit to $17.5bn bridge-financing facility to finance the cash component of the transaction.
The transaction is subject to receipt of regulatory and shareholder approvals of both companies, and approval of the new AstraZeneca shares for listing with the FCA. The Boards of Directors of both companies have unanimously approved the acquisition.
The acquisition is expected to deliver robust and sustainable accretion to AstraZeneca’s core earnings per share (EPS) from the outset, with double-digit percentage accretion anticipated in the first 3 years following the completion of the deal.
The acquisition is expected to close in Q3 2021.
COMPANY DETAILS: AstraZeneca PLC
- Founded in: 1992
- Headquartered in: Cambridge, United Kingdom
- Market Cap: $134.6bn
- EV: $152.2bn
- LTM EBITDA: $7.71bn
- EV/ LTM EBITDA: 19.7x
AstraZeneca is a multinational pharmaceutical and biopharmaceutical company which discovers, develops, and commercialises prescription medicines in the areas of oncology, cardiovascular, respiratory, autoimmunity and infection worldwide. It has major UK presence, including R&D centre and HQ in Cambridge, and £120mn manufacturing centre in Cheshire. Recently, together with Oxford University, AstraZeneca developed a COVID-19 vaccine which is currently pending approvals.
COMPANY DETAILS: Alexion Pharmaceuticals Inc.
- Founded in: 1992
- Headquartered in: Boston, Massachusetts, United States
- Market Cap: $34.6bn
- EV: $35.2bn
- LTM EBITDA: $3.1bn
- EV/ LTM EBITDA: 11.4x
Alexion Pharmaceuticals is a biopharmaceutical company which focuses on development of treatments for diseases caused by an uncontrolled activation of a part of the immune system, known as the complement system, that spurs antibodies’ abilities to clear microbes and promotes inflammation. Currently, its portfolio consists of 5 approved medicines and pipeline of 11 molecules which hinder diseases, that AstraZeneca will hope to build on when developing new treatments.
STRATEGIC RATIONALE
COMPLEMENTARY NATURE
Both companies share the same dedication to science and innovation to deliver life-changing medicines. AstraZeneca has built a growing scientific presence in oncology, cardiovascular and respiratory diseases with a focus on organ protection, through small molecules and biologics, with a growing focus in precision medicine. It also increased its efforts in immunology research and the development of medicines for immune-mediated diseases.
Alexion’s immunology expertise, its R&D team and pipeline of 11 molecules will accelerate AstraZeneca’s growing presence in immunology. Combining AstraZeneca’s capabilities in precision medicine and Alexion’s expertise in rare-disease development and commercialisation will enable the new company to develop a portfolio of medicines addressing the large unmet needs of patients suffering from rare diseases.
AstraZeneca is targeting $500m in pre-tax synergies from the deal, mainly from headcount reduction in general administrative functions. However, in the long-run we can expect these synergies to be higher, conditioned on successful development of new treatments. The combined company is expected to deliver double-digit average annual revenue growth through 2025. AstraZeneca can boost Alexion’s sales by selling its drugs in emerging markets, like China.
“This is an acquisition that will create substantial accretion of EPS, increase of our core operating margin and increase in our cash flow.” ~ Pascal Soriot, CEO AstraZeneca
RISKS AND UNCERTAINTIES
Despite the billion dollar price tag on Alexion, the premium paid by AstraZeneca is low by biotech standards. One of the main reasons for that is that its blood disease drug Soliris is approaching the end of its patent life, and the success of the other treatments in the clinical trials stage is upmost speculative.
Also, biopharmaceuticals which command sky-high prices compared to regular drugs may cause reputational damage to AstraZeneca. Whilst AstraZeneca pledges to sell its COVID vaccine at cost of around $3, the Soliris treatment costs $600k/year. Some have called Alexion an “orphan drug company” that uses the orphan market exclusively to extract as much money as possible out of the healthcare system.
Moreover, there remains uncertainty whether the deal will be approved in its current shape. Analysts at SVB Leerink predict that the price per share may need to be raised to $200 in order to appease some of the “hard to win” investors, such as an activist hedge fund Elliott.
