Anglo-Swedish pharmaceutical giant AstraZeneca is set to acquire the US-based rare diseases firm Alexion for $39 billion in the 3rd quarter of 2021, making it the largest pharmaceutical transaction worldwide since the start of the COVID-19 pandemic. Alexion shareholders are estimated to receive $175 per share: a value which represents a 45% premium over Alexion’s average monthly share-price. This share premium will be composed of $60 cash and 2.1243 American Depository shares.
Alexion is a relatively small pharmaceutical company based in Boston, USA, with approximately 2500 employees. As a company, their focus is on developing drugs to tackle immune-related rare diseases, specifically ones caused by the uncontrolled activation of the complement system: a part of the immune system that enhances the ability of antibodies to attack pathogens and remove damaged cells. For their size, they have a relatively global clientele, spanning 50 countries, in regions ranging from Europe, the Middle East, Asia Pacific, Latin America and of course North America.
AstraZeneca’s acquisition of Alexion comes as the result of Alexion’s activist hedge fund, Elliott Management, demanding last May that it be sold, citing management missteps as the reason. With the approval of AstraZeneca’s COVID-19 vaccine, the company’s share value has soared to unprecedented heights. Hence, it comes as no surprise that their CEO, Mr Pascal Soriot, hopes to take advantage and expand the company’s capabilities.
The advantage of this union to AstraZeneca is that it deepens their growing focus on immunology, specifically with reference to rare diseases. In addition to this, it helps strengthen their ever-increasing presence in the US pharmaceutical industry. Rare diseases are a promising area for big pharmaceutical companies for an array of reasons. Firstly, pricing is usually very high; Soliris, a drug produced by Alexion, costs an estimated 600,000 USD for a year’s usage, and insurers typically bear these expenses. Secondly, the marketing costs related to these drugs is also low given their highly specialized nature and limited competition, allowing for better margins. Many large pharmaceutical corporations such as Johnson and Johnson and the Takedo Pharmaceuticals Co. have made similar, successful moves into this sub-industry.
For Alexion the opportunity to be a part of a company like AstraZeneca that places great emphasis on research and development is invaluable. They currently have 11 molecules in their development pipeline, which, with Astra-Zeneca’s investment, they can not only develop faster but also develop in greater quantities. Furthermore, with AstraZeneca’s vast global portfolio, there is no doubt that Alexion will have greater exposure to emerging markets, which for a company that treats rare diseases could greatly expand their client base and profits.
As promising as this union seems, AstraZeneca’s shareholders are still sceptical over the benefit of the union, mainly because at present Alexion remains a two-product drug company. Their only two administrable drugs, Soliris and Ultomiris, account for 80% of the company. This is extremely risky for investors given that the company’s success is heavily dependent on such a limited product range. Moreover, the fact that this acquisition has been delayed due to COVID-19 until the 3rd quarter of 2021 has led many investors to believe that AstraZeneca has played its cards too early, and to worry that the interest of other pharmaceutical companies will drive up Alexion’s price. The trepidation of shareholders was exhibited almost immediately after the news of the acquisition, with AstraZeneca’s share price dropping 6% during December 2020. The long-term implications of any such deal remain to be seen.
By Paul Brown
Sector Head: Venkat Rajasingham