Interactive Investor

ii view: AstraZeneca confirms Alexion mega-deal

14th December 2020 12:19

Keith Bowman from interactive investor

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Strength in cancer drugs, a Covid-19 vaccine and now a move to add rare disease medicines. 

Proposed acquisition of US company Alexion

  • Total consideration to Alexion shareholders of $39 billion (£29 billion), or $175 per share
  • Combined company is expected to deliver double-digit average annual revenue growth through 2025
  • Expected to deliver accretion to Astra’s core earnings per share (EPS) from the outset

Chief executive Pascal Soriot said:

"Alexion has established itself as a leader in complement biology, bringing life-changing benefits to patients with rare diseases. This acquisition allows us to enhance our presence in immunology. We look forward to welcoming our new colleagues at Alexion so that we can together build on our combined expertise in immunology and precision medicines to drive innovation that delivers life-changing medicines for more patients."

ii round-up:

Drug maker and Covid-19 vaccine developer AstraZeneca (LSE:AZN) today announced a proposed $39 billion purchase of US drugs company Alexion Pharmaceuticals (NASDAQ:ALXN).  

Alexion specialises in drugs to treat rare diseases and the immune system. The potential acquisition will help extend Astra’s own immunology drug portfolio while adding medicines for rare diseases. The purchase marks Astra’s biggest ever deal.

AstraZeneca shares fell by more than 5% in UK trading, leaving them little changed year-to-date. Alexion shares are up around 12% in 2020 and prior to the deal being announced. 

Over 7,000 rare diseases are known of but only around 5% have US Food and Drug Administration-approved treatments. AstraZeneca intends to establish Boston as its headquarters for rare diseases. The global rare disease market is forecasted to grow by a low double-digit percentage in the future.

Astra intends to build on its own geographical footprint and extensive emerging markets presence to accelerate the worldwide expansion of Alexion's portfolio.

The acquisition is expected by management to be immediately core earnings accretive. Alexion revenues grew by 21% year-over-year to $5 billion in 2019. 

Enhanced operating margin and cash flow will enable rapid debt reduction following the proposed purchase. The combined company is expected to maintain a strong, investment-grade credit rating. 

Subject to regulatory clearances and approval by shareholders, the acquisition is expected to close in the third quarter of 2021. 

ii view:

AstraZeneca is a global, science-led biopharmaceutical company. Oncology or cancer drugs at over two-fifths of overall sales provide for its biggest segment. While its Covid vaccine is not intended to generate near-term profits, it does significantly add to its brand status globally.  Its little known separate AZD7442 long-acting antibody Covid-19 therapy has the potential to deliver a significant revenue boost of up to $3 billion (£2.25 billion) next year, according to recent research by broker Morgan Stanley. 

Now, a proposed purchase of Alexion will add to its diversification. Its existing category of immunology and respiratory will be strengthened, with rare diseases adding another string to its bow. Alexion's pipeline of 11 molecules across more than 20 clinical-development programmes could add further to AstraZeneca’s growing new medicines stable. 

For investors, growth via acquisition brings risks. Only time will tell if Alexion lives up to the price being paid. It also sees the company taking on a $17.5 billion (£13 billion) bridging loan to initially finance the deal. That said, the addition of a rare disease’s category adds diversity to its existing strengthens in Oncology and Cardiovascular, Renal and Metabolism (CVRM) arena of compounds. A maintained dividend payment in recent years and an historic yield of over 2.5% is also not unattractive in the current era of ultra-low interest rates. In all, recent results and ongoing developments look to offer good prospects for growth.

Positives: 

  • Alexion adds to its diversity of drug treatments
  • Attractive dividend

Negatives:

  • Respiratory & immunology sales retreated by 12% in Q3
  • Other medicine sales including those where patents have expired fell by 5% in Q3

The average rating of stock market analysts:

Buy

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