One of the largest pharmaceutical deals in recent years is also one of the most curious.
On Saturday, AstraZeneca announced plans to acquire Alexion Pharmaceuticals for just shy of $40 billion. The deal would combine two companies working in very different areas of drug research, with Alexion focused on rare diseases and AstraZeneca mostly invested in medicines for cancer, diabetes and respiratory conditions.
Analysts had long considered Alexion a prime target for a big acquisition. So when AstraZeneca's offer valued the biotech's shares at $175 apiece, some couldn't help but wonder if Alexion had left money on the table, even though that price is higher than what the stock has traded at over the last several years.
"This is such a scarce and high-quality asset that in this instance, the final transaction price may need to reach $200 to satisfy Alexion's shareholders," noted Geoffrey Porges, an analyst at SVB Leerink. Looking ahead, Porges expects there to be debate about whether other bidders may come forward.
Yet, if willing buyers are out there, none look prepared to wager as much as AstraZeneca. On a call with investors, company executives said that, to their knowledge, the bidding process wasn't competitive.
Taken together, the price, bidding pool and seeming strategic mismatch raise questions about why the companies would do this deal and, especially, why now?
Appeasing Alexion investors
For Alexion, a sale brings an end to a frustrating saga. Though the biotech has consistently achieved revenue growth in the double digits, its stock price has gone in the opposite direction since peaking at nearly $210 in mid-2015. Ahead of Saturday's announcement, shares were sitting at $120 apiece.
Alexion "couldn't have executed much better, and yet the stock has done nothing," Steven Seedhouse, an analyst at Raymond James, told BioPharma Dive.
Investors had reasons to be wary. A sales scandal in 2016 rocked Alexion's reputation and led two of its top executives to leave. Then there were the more enduring issues, like how the company's marketed drugs each carry large price tags, making them targets for criticism and, potentially, new regulations meant to tamp down on expensive medicines.
Alexion also continues to rely on a single product for most of its revenue. Any threat to that drug, called Soliris, could acutely affect the company's health.
With the share price depressed, activist investor Elliott Advisors had urged Alexion to consider a sale. The push intensified following acquisitions of two biotechs, both of which were met with considerable skepticism. One of the companies, Portola, had struggled for years to sell its flagship drug. And Alexion risked nearly $1 billion on the other, Achillion, only to see the biotech's top prospect fail in a clinical trial.
Executives have fought back, saying as recently as late 2019 they would not be pursuing a sale. And yet, AstraZeneca's offer, which values Alexion at a 45% premium, looks to be too attractive to pass on. Indeed, the companies have agreed to break-up fees that exceed $1 billion if the deal falls apart or certain terms change.
"You can make the argument — and I think the management team, the board probably did — that finding this type of return near term for Alexion just seems unrealistic," Seedhouse said. "So an acquisition like this is, frankly, just a relief in many ways."
More is better
If the deal is a way out for Alexion, then for AstraZeneca it's a way to go even deeper into the market for specialty care drugs.
When Pascal Soriot came on as CEO in 2012, AstraZeneca was defined by the kind of everyday medications prescribed by primary care doctors, drugs like Crestor for high cholesterol and Nexium for stomach problems. An unwanted buyout offer from Pfizer in 2014 forced company executives to set out an ambitious plan to diversify its business and amplify revenue.
By most measures, Soriot and his team have delivered. Today, AstraZeneca says its business is roughly half primary care, half specialty care. And during the first nine months of this year, in spite of the coronavirus pandemic, the company recorded more than $19 billion in revenue — an 8% increase that was largely driven by three blockbuster cancer treatments.
Alexion would add five more specialty drugs to AstraZeneca's portfolio and a substantial income boost, as the biotech forecasts almost $6 billion in sales this year alone. AstraZeneca believes that its foothold in China, the world's second largest drug market, will help to further grow sales of Alexion's drugs.
"We've been looking at options on a regular basis over the last number of years," Soriot told investors Saturday. "We believe it's the right time" to do the Alexion deal.
Seedhouse argues the deal is more valuable than just an immediate revenue bump. Alexion is "not the company you would look at" for an acquisition which is "strictly a financial engineering ploy." There are other mid- to large-sized biotechs that could offer more free cash flow at not much heftier of a price, he said.
Rather, Alexion brings AstraZeneca to the front of rare disease drugmaking — a field that it has shown little interest in until now. In fact, about three years ago AstraZeneca spun out several rare disease drugs, including an eventual rival therapy to Alexion's top-seller, into a standalone biotech.
The move isn't only about rare diseases, however, but also attempting to match its growing oncology division with one in immunology, too.
"In the long-term, our goal is really to build a leadership position in the field of immunology," Soriot said.
AstraZeneca also highlighted how Alexion's work in the complement system, which is part of the immune system, could have applications in a large variety of common diseases, from glaucoma to arthritis to mood disorders.
All told, AstraZeneca expects the combined company to have 28 drug programs in late-stage development by next year, to sell 12 blockbuster products by 2023, and to achieve double-digit growth through 2025.
For now, though, that vision of the future will take a backseat to AstraZeneca's efforts alongside the University of Oxford to develop a coronavirus vaccine. The shot has been a frontrunner, but a series of missteps cost AstraZeneca valuable time and dinged its reputation.
The company will be under a magnifying glass as it prepares to distribute the vaccine, so any indication the Alexion deal is distracting that effort would be met with criticism.
"Of course there will be some disruptions," Soriot said. "But it's not like merging two very large pharmaceutical companies."
"The overlaps," he added, "are relatively limited."