Alexion to Takeover Enobia Pharma

In a bid to reduce its dependence on Soliris, Alexion Pharmaceuticals, Inc. ( ALXN - Analyst Report ) , a US-based biopharmaceutical company, which focuses on developing drugs to treat patients suffering from ultra-rare, severe and life-threatening diseases, announced that it will purchase privately held biotech company Enobia Pharma Corporation, for upto $1.08 billion in cash.

Alexion Pharma intends to finance the deal, expected to close in the first quarter of 2012, through its available cash balance and committed bank debt worth $300 million. The transaction, for which Goldman, Sachs & Company ( GS - Analyst Report ) is the financial advisor to Alexion Pharma, has been approved by the Boards of both the companies.

Per the terms of the deal, Alexion Pharma will make upfront cash payment of $610 million to Enobia. Moreover, Alexion Pharma will have to shell out upto $470 million as regulatory and sales milestone payments.

The acquisition will add ENB-0040 (asfotase alfa), an enzyme-replacement therapy being developed to treat patients suffering from hypophosphatasia (HPP), to Alexion Pharma’s pipeline. HPP refers to an ultra-rare, genetic metabolic disorder currently devoid of any approved therapies. Alexion Pharma expects ENB-0040 to be approved in the second half of 2014.

We believe that the addition of ENB-0040 will boost Alexion Pharma’s moderate pipeline. Moreover, Alexion needs to introduce more products in the market as it is overly dependent on its sole marketed product Soliris. Soliris is marketed to treat paroxysmal nocturnal hemoglobinuria -a rare genetic blood disorder- apart from atypical hemolytic uremic syndrome, an ultra-rare genetic disorder.

2011 View Backed

Apart from announcing the acquisition, Alexion Pharma also reaffirmed the guidance provided by it while releasing the third quarter 2011 results in October last year. The company expects to end 2011 with adjusted earnings in the range of $1.25–$1.28 per share. Revenues are expected in the range of $770–$775 million. Adjusted Selling, General & Administrative (SG&A) expenses are expected in the range of $275 –$280 million. The forecasted range for adjusted research & development (R&D) expenses is $133 –$138 million.

2012 Projection

Alexion Pharma also provided a preliminary outlook for 2012. While adjusted R&D expenses for 2012 are expected in the range of 20-21% of sales, due to activities pertaining to Enobia’s programs, they are expected to come down to 17-18% of sales in 2013. Adjusted SG&A expenses related to the proposed take over of Enobia are expected to have marginal impact in 2012. Detailed financial guidance for 2012 will be released by the company in February 2012 with the fourth quarter and full year 2011 results.

Our Recommendation

Currently, we have a long-term Neutral recommendation on Alexion Pharma, which is in line with the Zacks #3 Rank (Hold rating) carried by the stock in the short-run.