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AstraZeneca gains footprint in rare diseases, immunology with $39B Alexion swoop

AstraZeneca PLC's $39 billion bid for U.S. biotech Alexion Pharmaceuticals Inc. will allow the U.K.'s biggest drugmaker to gain a foothold in rare disease and expand its immunology offering, in the largest deal for the sector this year.

Cambridge, U.K.-based AstraZeneca will use its stronghold in China and emerging markets to drive sales of Alexion's hematology medicines, including C5 inhibitors Soliris and Ultomiris. Alexion's capabilities, added to AstraZeneca's recent COVID-19 vaccine efforts, will result in a broadly expanded range of therapeutic interests from respiratory, cardiovascular and renal medicines to cancer. Annual synergies of $500 million are forecast by the end of the third year, and the deal is expected to deliver double-digit annual revenue growth through 2025, the companies said in their Dec. 12 news release. A break fee of at least $1.2 billion will arise should the deal fall through.

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AstraZeneca CEO Pascal Soriot
Source: Marcus Lyon

Swedish bank Carnegie said the alliance is a good strategic fit and the acquisition price, at a 45% premium to Alexion's close on Dec. 11, seems reasonable. "The capabilities of AstraZeneca will expand from primary/specialist care to include rare diseases, a rapidly growing segment of the pharma market," said analysts Erik Hultgård and Kristofer Liljeberg in a note to clients. "The companies also bring complementary science and commercial infrastructure in immunology."

Under CEO Pascal Soriot, AstraZeneca has intensified its focus on oncology and on China. The company has a clutch of its blockbuster cancer drugs Lynparza, Tagrisso and Imfinzi set to lose patent exclusivity from the end of the decade. Alexion's pipeline offers complementary replenishment, with experimental therapies for ultra-rare conditions such as Wilson's disease an inherited disease in which excess copper builds in the body as well as kidney and neurology compounds.

"It's a sensible deal in my view [AstraZeneca] acting from a position of strength to mitigate the impact of Lynparza, Imfinzi and Tagrisso patent expiries in 2029, 2030 and 2032," said an analyst speaking to S&P Global Market Intelligence on condition of anonymity. "If only other companies would act the same way."

Alexion whose board is chaired by former AstraZeneca CEO David Brennan — has a pipeline of 11 molecules across more than 20 clinical development programs in rare diseases and beyond that will underpin AstraZeneca's, which is the second-largest research and development pipeline in the industry after Roche Holding AG. With U.S. regulatory approval granted for only 5% of the 7,000 rare diseases identified to date, there is still a significant unmet need.

Still, analysts including Goldman Sachs' Keyur Parekh raised the issue of competitive pressures to Alexion's portfolio, both from biosimilars and new entrants, which are expected to impact the Boston-based biopharmaceutical group in the near future. Some 65% of 2020 estimated sales of Soliris will face U.S. biosimilars by 2025, although Alexion aims to convert sales to its newer, more conveniently dosed Ultomiris, according to Jefferies analyst Peter Welford.

AstraZeneca's ambition

Under 61-year-old Soriot, the Anglo-Swedish drugmaker has invested about $30 billion in R&D over the last five years. After reversing nine years of declining sales due to patent expirations, the company returned to growth in 2018. By the following year, oncology sales had jumped 47%, driven by Tagrisso and Lynparza, among others, bringing in almost $9 billion, with emerging markets sales of cancer drugs some 52% higher. Eight years after taking on the CEO role and having infamously rebuffed Pfizer Inc.'s $118 billion approach in 2014, Soriot is well on his way to achieving his pledge to reach sales of $40 billion by 2023.

"He's a man of tremendous ambition and he really did turn around the business where quite frankly, most of the market was skeptical that they could," said Shore Capital's Tara Raveendran in an interview with S&P Global Market Intelligence. "He brought it back it took eight years of really strategic focus they've established themselves as a force to be reckoned with in oncology. And I think this speaks to him really trying to serve the business for the mid to long term, not just until 2025."

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AstraZeneca shares fell in early London trading, losing 6.69% or £5.46 by 12:29 pm GMT, which Shore Capital's Raveendran said reflected the fact that the U.K. company did not have to do this deal. "I think 6% down is an over-reaction and I would have expected 5% to 6% down if it had been announced in market hours," she said.

The company has been the subject of a number of M&A rumors in recent months, as its share price has soared alongside optimism regarding its coronavirus vaccine development, significantly increasing its ability to finance potential large-scale deals. AstraZeneca's shares have gained 82% in the last five years compared with Alexion's 37% comparative share price drop.

"[AstraZeneca] is being proactive by buying good, durable assets that provide long-term visibility, albeit at a hefty price," said SG Cowen analyst Steve Scala, who rates the stock an "outperform." "This is a bold move, but one history likely will view as a smart one."