AstraZeneca’s $39bn Alexion deal marks shift from prey to predator

AstraZeneca’s $39bn Alexion deal marks shift from prey to predator


Pascal Soriot, AstraZeneca chief executive, spent most of 2020 with two things on his mind: creating a Covid-19 vaccine and hunting for a mega-deal to take advantage of the drug company’s soaring share price. 

The hard yards of the first are largely done, with the announcement last month that the vaccine developed with Oxford university was safe and effective. The second is only now getting under way.

On Saturday Mr Soriot struck the largest deal in AstraZeneca’s history, agreeing to buy US rare disease specialist Alexion in a $39bn cash-and-stock agreement. 

Samuel Johar, who chairs board advisory group Buchanan Harvey, said the purchase underlined the Anglo-Swedish company’s transformation from “prey to predator”, six-and-a-half years after Pfizer swooped on a then-faltering AstraZeneca.

Mr Soriot saw off the US group with a promise to revitalise his company’s research and development operation — but for years lucrative new drugs remained elusive and AstraZeneca’s share price languished far below the £55 offered by the US pharma giant. 

The timing of AstraZeneca’s purchase of Alexion may yet prove politically, as well as strategically, propitious for Pascal Soriot © Charlie Bibby/Financial Times

Those memories have been banished in the past two years with the revival of AstraZeneca’s fortunes, largely through a string of cancer drugs that seem destined for blockbuster status.

Its shares have risen about 12 per cent in the past year, although some investors were clearly unnerved by the 45 per cent premium for Alexion with the stock dropping 5 per cent to £77.49 in early trade on Monday.

The question now is whether Mr Soriot, who spent months talking to rivals including larger targets such as California-based Gilead Sciences, has settled on the correct partner to bolster AstraZeneca’s pipeline of drugs in the new arena of rare diseases.

“[Pascal] was very systematic at looking at many things, very determined, and went through the full corporate finance exercise,” said one person who followed the situation closely. “The reality is that many times people do deals when they have to do them, but this deal was done to leverage the buyer’s strength.”

By picking up Alexion, Mr Soriot is adding a business focused on treating diseases caused by uncontrolled activation of a part of the immune system known as the complement system. Alexion has a pipeline of 11 molecules that hinder these diseases.

Mr Soriot on Saturday touted the advantages of the tie-up, which he said would allow AstraZeneca to apply its signature capabilities in areas such as genomics to rare disease targets, while using its heft in emerging markets and China to globalise Alexion’s portfolio and apply the US company’s scientific insights to more common diseases.

“This is an acquisition that will create substantial accretion of [earnings per share], increase of our core operating margin and increase in our cash flow,” he said.

Vials on a production line at AstraZeneca’s biologics factory in Sweden © Mikael Sjoberg/Bloomberg

Alexion forecast 2020 revenues of around $5.9bn, up from $5bn for the previous year when it reported net income of $2.4bn. The company has less than $1bn in net debt.

Under the terms announced on Saturday, Alexion shareholders will receive roughly $175 per share, $60 of which would be cash and the rest in shares.

Negotiations led by the companies’ chief executives and chairmen proceeded without fireworks but turned into a slow war of attrition over several months as Alexion sought to drive the offer price higher. 

One factor, however, will be whether Alexion shareholders — including activist hedge fund Elliott, which in May demanded the company sell itself — are satisfied with the 45 per cent premium AstraZeneca has paid, given the fast-rising market for pharma stocks during the pandemic. 

Analysts at SVB Leerink said at the weekend that the price may need to be closer to $200 to soothe investors. 

If the deal goes through, one clear winner will be Alexion chief executive Ludwig Hantson, who earned $18.9m in 2019 and stands to make $56m from a golden parachute clause if he leaves following the deal’s completion, according to FT calculations using data from the company’s most recent proxy filing.

The payday would mark the second time Mr Hantson has cashed in by selling a pharma company he runs, following Shire’s $32bn takeover of US drugmaker Baxalta in 2016.

AstraZeneca’s entry into the rare diseases arena, where drugs typically come with sky-high price tags reflecting their limited market, is not without potential reputational and political peril, however.

Alexion’s flagship immune-disease drug Soliris sells for about $600,000 a year, offering a striking contrast to the planned $3-$4 cost of AstraZeneca’s Covid vaccine, a price designed to ensure the jab reaches the developing world. 

Ellen ‘t Hoen, director of research group Medicines, Law and Policy, described Alexion as “an ‘orphan drug’ company that uses the orphan market exclusively to extract as much money as possible out of the healthcare system”.

“It is part of the personalised medicine trend, and it may signal that AstraZeneca is jumping on that bandwagon,” she said, adding: “That would be the exact opposite of making low-cost vaccines for the masses.”

Alexion told the Financial Times on Sunday that “developing transformative new medicines is difficult, costly and time-consuming . . . The pricing of our medicines reflects these challenges as well as their life-changing benefits to patients and society.”

In 2016 the company faced difficulties when its chief executive and chief financial officer left, weeks after Alexion had said it was launching an internal probe over unspecified accusations of fraud in the sale of Soliris.

Marc Dunoyer, AstraZeneca’s chief financial officer, told reporters on Saturday that Soliris’s “second-generation” successor Ultomiris was about 30 per cent cheaper, while Mr Soriot noted that Sanofi-Genzyme, Novartis and Roche “have also made inroads in less frequent or rare diseases at higher price points”. 

“Our intent will always be to make sure our prices remain reasonable considering the size of the population that needs to be treated but it is definitely something we have to manage,” Mr Soriot said. 

A change in the US administration following Joe Biden’s victory over Donald Trump has promised a reduction in nationalistic rhetoric and a less hostile climate to high drug prices, which may have made pursuit of the deal more palatable for Mr Soriot.

The next battles over drug pricing in the US, the world’s largest drug market, are likely to focus on regular hikes in commonly used drugs such as those for diabetes, rather than costly treatments for rare diseases.

The timing of AstraZeneca’s purchase of Alexion may yet prove politically, as well as strategically, propitious, allowing Mr Soriot to claim a success that has been many years in the making.

 



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