AstraZeneca buys Alexion for $39 billion

Acquisition Summary:

Multinational AstraZeneca’s acquisition of rare-disease specialist Alexion marks the largest transaction in the pharmaceuticals industry since 2019. The $39bn cash-and-stock takeover is primarily driven by AstraZeneca’s desire to further consolidate its presence in immunology, augment the geographic reach of both companies and capitalise on key profitability-enhancing gains of the combination. The timing of the transaction is also favourable; with Alexion being pressured to sell itself by activist hedge fund Elliott Management and Astra Zeneca’s lofty share price suggesting an opportune time for this part-equity deal. Despite investor enthusiasm for pharmaceuticals in 2020 due to the sector’s role in the development and production of coronavirus vaccines, whether such support will be maintained in the year to come remains highly uncertain.

Deal Structure and Financing:

In this cash-and-stock takeover, AstraZeneca values Alexion at $175 per share, or a 45% premium to its closing price prior to the transaction’s announcement. If regulatory and shareholder approval for the deal is granted, Alexion stockholders will own approximately 15% of the new entity. The deal is expected to close in Q3 2021. For each Alexion share, shareholders ware set to receive $60 in cash and 2.1234 American Depositary Shares (ADS) in AstraZeneca, with each ADS representing 0.5 of an ordinary AstraZeneca Share (according to data on American Depositary Receipts (ADRs) for each share in Alexion). With AstraZeneca’s average ADR price of $54.14, the implied total consideration to Alexion shareholders amounts to $175 per share or $39bn in aggregate. J.P. Morgan Securities, Morgan Stanley and Goldman Sachs have provided a $17.5bn bridge-financing facility for AstraZeneca in order to support the financing of the offer consideration. The facility will be available for 12 months from whichever of 12th December 2021 and the transaction’s completion date is the earliest, with an option to extend it for a further 6 months. The bridge-financing facility is set to finance the cash proportion of the acquisition consideration and aid to meet various acquisition costs, as well as refinancing Alexion’s existing term loans and credit facilities. AstraZeneca intends to refinance the facility by combining business cash flows, debt-capital market issuances, business cash flows and new, medium-term bank loan facilities.

AstraZeneca Overview:

AstraZeneca is a Swedish-British multinational biopharmaceutical firm which is headquartered in Cambridge, England. The group was formed in 1999 following the merger of British chemicals company Zeneca Group PLC and Swedish Astra AB. AstraZeneca has approximately 71,ooo employees and became the partner of Oxford University for the development of a vaccine for COVID-19 in 2020. The firm pledged to sell the vaccine it develops at marginal cost throughout the pandemic, and at no profit to developing nations indefinitely. AstraZeneca does not possess its own native vaccine division, with an emphasis on R&D in sectors such as oncology.

Alexion Overview:

Boston, Massachusetts-based Alexion Pharmaceuticals is a pharmaceutical firm which is best known for Soliris, a drug used for the treatment of rare disorders. The 28-year-old rare-disease specialist focuses on ailments which are caused by an uncontrolled immune system activation which impedes antibodies’ capabilities to clear microbes and encourages inflammation. The firm, which has undertaken 7 substantial acquisitions since may 2015, has approximately 2,400 employees and is a component of the Nasdaq 100 and S&P 500.

Industry Insight:

The coronavirus pandemic revitalised interest in the pharmaceutical industry as the need to combat its effects became growingly prominent. In Q4 2020, large funds closed in on the life-science sector more broadly, which was highly lucrative in the last calendar year as the benchmark iShares US Pharmaceuticals ETF yielded 61% since its nadir in late March. Investors should arguably consider three key trends for 2021. First, is the role of oncology in driving growth for Big Pharma. Research firm Evaluate opines that oncology is set to remain the value-creating sector for the broader sector, despite investors being particularly drawn to vaccine and other Covid-19 efforts. For instance, the two largest sales-generating pharmaceutical products in 2021 are likely to be Merck & Co’s cancer drug Keytruda, expected to generate $2.7bn, and Dupixent, a drug to treat asthma and eczema by Regeneron Pharmaceuticals and Sanofi, with $1.6bn in expected sales. Nevertheless, the state of the pandemic relief effort will certainly act as a noteworthy backdrop. Evaluate caveats its oncology-driven-outlook by stating that signs the pandemic is being brought under control with effective coronavirus vaccines will be required to further drive pharma investments in 2021. Another prevalent trend which may affect the industry is the resurging debate over drug prices. In particular, the emerging healthcare policies of the incoming Biden administration will be closely watched by biopharma investors, to determine whether it will take a similar stance to the current administration which pursued various strategies to reduce drug prices. Although the issue of rising costs is growing increasingly prominent in public discourse, certain health experts are not optimistic about reform under Biden. Despite the fact that over 500 branded drugs are expected to become more expensive in 2021, according to 46brooklyn Research, director of the Center for Pharmaceutical Policy and Prescribing at the University of Pittsburgh Walid Gellad does not believe there is as fertile an environment for more extreme drug measures to be taken. Lastly, a key theme may also be the need for investment given the vicissitudes of addressing the coronavirus pandemic. The stratospheric 67% rise of the Nasdaq biotechnology index from March 2020 seemingly signals ample support by market participants. The surviving valuations may reflect the attention-grabbing nature of firms which began developing the COVID-19 vaccines and potentially drew new investors into the life-sciences sector altogether.