AstraZeneca and Alexion Pharmaceuticals Inc Deal: Analysis of the Acquisition
AstraZeneca signed a definitive agreement to acquire the entire share of Alexion pharmaceuticals Inc in a friendly deal for $39.308bn or $175 per share in a stock swap transaction on December 12th, 2020. Alexion, which is a leading biopharmaceutical company founded in 1992 and based in Boston Massachusetts that specialized in treating rare disorders, will help AstraZeneca reinforce its position in the global market of rare disease drug development while maintaining its position in
the cancer drug development market. AstraZeneca, which was founded in 1999 and headquartered in Cambridge, UK, is a company specialized in manufacturing and wholesaling pharmaceutical products that treat central nervous system, cardiovascular, respiratory, infectious oncology and gastrointestinal diseases. In addition to that, the company offers medical devices and implants to be used in healthcare with a focus in urology while operating in other fields such as odontology, diagnostic radiology and surgery. The company is present worldwide with operations in more than 100 countries. This deal will not only allow AstraZeneca to accelerate and strengthen its presence in immunology R&D of medicines for immune-mediated diseases, but also to be geographically present with a dedicated rare disease unit in Boston Massachusetts and to create value for shareholders.
This acquisition is expected to close in Q3 2021 after the receipt of regulatory clearances and approval by shareholders of both companies which will result in Alexion shareholders owning 15% of the joint company.
Details of the acquisition :
Under this acquisition, Alexion shareholders will receive $60 in cash per share and 2.1243 new AstraZeneca ADS listed on Nasdaq exchange for each of their Alexion share, a 45% premium and 43% premium to Alexion shareholders based on Alexion closing stock price on the 11th December 2020 and on the 30-day volume-weighted average closing stock price. Upon
completion of the acquisition, Alexion shareholders will own 15% of the combined company. To finance the cash portion and the associated costs of the acquisition, AstraZeneca entered into a new committed $17.5B bridge-financing facility provided by Morgan Stanley, J.P Morgan Securities plc and Goldman Sachs which is available for an initial term of 12 months from the date
of completion of the acquisition and 12 December 2021 with up to two six months extensions if decided by AstraZeneca. The bridge financing facility will be used to refinance the existing term loan and revolving credit facilities of Alexion.
Deal summary :
Synergies of the deal :
Such a deal will not only help AstraZeneca support its long-term vision to develop and manufacture new drugs in the field of immunology, but it will also be a considerable addition to its science and innovation-driven strategy through capitalizing on talent in the greater Boston area by establishing Boston as its headquarters for rare diseases. The combination of the two companies is expected to enhance significantly revenue growth, operating margin and cash flow as scale will be increased and recurring run-rate pre-tax synergies are estimated to be $500M per year by the end of the 3rd year following the completion of the acquisition, mainly from commercial and manufacturing efficiencies along with savings in central costs. The increase in the generation of cash flow will provide more flexibility to reinvest in R&D and reduce debt quickly to be able to increase the dividend. The combined company is also expected to deliver double-digit average annual revenue growth through 2025.
According to AstraZeneca, both companies share the same values. They aim to innovate in order to deliver life-changing medicines. By acquiring Alexion, the new structure will be more adapted to aim this goal thanks to the consolidation of their technology. Moreover, the new entity will have a global footprint and broad coverage across cares.
Valuation Methodology :
The comparable company analysis using multiples was used in order to perform the valuation analysis for Alexion pharmaceuticals Inc. A list of companies operating in “Pharmaceutical, Biotechnology and Life Sciences industry” were selected. The initial list which comprises 51 companies (Figure 2) was narrowed down to four companies with similar size, products and geographies. Only US companies having around the same market cap were chosen (See Figure 3).
After performing the valuation using the multiples approach, Alexion’s pharmaceutical value is estimated to be $37.8B based on the EV/EBITDA approach (Figure 4). It is also estimated to be $31.66B based on EV/Revenue approach (Figure 5). The deal value of $39.308b represents 4% and 24.1% premium, respectively. The premium paid is the goodwill for Alexion’s leading expertise in the complement biology and for its geographical location. The acquisition is expected to create synergies and drive the profitability for the combined firms.
What’s next? :
In 2020, where the pandemic has severely disrupted the pharma industry, AstraZeneca has grown revenue by a considerable 10% and by 16% in its core earnings per share in the first 3 quarters. The main reason behind such growth is the company’s wide presence in the field of oncology which happened to grow in revenue by 24% in 2020. It also seems that the recently launched drug Colquence which has just been approved in the EU for treating lymphocytic leukaemia is very promising and will open up new opportunities for growth. In addition to the company many blockbusters in its metabolism, cardiovascular and renal business, AstraZeneca has several opportunities sitting in the pipeline which are estimated to 172 sizable projects and 9 medicines in final-stage trials. Alexion is another company that is profiting at the moment and that is mainly thanks to its one
drug ‘Soliris’ which is an intravenous injection that cures a rare blood disorder commonly known as PNH or paroxysmal nocturnal hemoglobinuria. Given the fact that the company enjoys very little competition in the area of rare disease market, Soliris can increase in price until $500k per treatment which is the highest priced medicine in the market at the moment and covers up to 70% of the company’s sales. Given all the factor mentioned above, I personally think that this acquisition will be successful and very unlikely to be disrupted by the current climate.
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Written on 17/01/2021