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ETFs to Tap AstraZeneca Mega-Deal to Buy Alexion

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The biotech sector has been buzzing hot amid the COVID-19 vaccine rollout and mega-merger activity. British pharmaceutical company AstraZeneca plc (AZN - Free Report) has agreed to buy rare-disease specialist Alexion Pharmaceuticals (ALXN - Free Report) for $39 billion. The deal would represent the biggest transaction in pharmaceuticals since 2019, when AbbVie had acquired Allergan for $63 billion, and the largest deal to target a U.S. company in any sector this year.

Deal in Focus

Per the terms of the deal, Alexion shareholders will receive $60 in cash and 2.1243 AstraZeneca American Depositary Shares (ADSs) for each Alexion share. This cash and stock merger agreement values Alexion at $175 a share, which represents a 45% premium to the closing price on Dec 11. Upon the closure of the transaction, Alexion shareholders will own roughly 15% of the newly formed healthcare titan.

The acquisition will help AstraZeneca, which has a strong presence in oncology, cardiovascular, renal and metabolism, and respiratory diseases, to expand deeper into rare-disease drugs and immunology. It will also diversify its fast-growing cancer drugs business. Alexion’s bestselling drug is Soliris, one of the most expensive drugs in the world, used to treat paroxysmal nocturnal hemoglobinuria — a rare, life-threatening blood disease.

The combined company would have $32 billion in annual sales and make AstraZeneca the world's seventh-largest pharmaceutical company and the biggest FTSE 100 firm worth close to £180 billion (read: 3 Reasons to Bet on Healthcare ETFs).

The deal, which has been approved by the boards of both companies, is expected to close in the third quarter of 2021. The transaction is expected to deliver double-digit average annual revenue growth through 2025. Additionally, it will provide an immediate boost to earnings per share with double-digit percentage accretion expected in the first three years, following the completion of the acquisition. Overall, the transaction will deliver pretax synergies of around $500 million a year from the transaction while incurring a one-time cash cost of $650 million to realize the synergies.

Market Impact

Following the news, shares of Alexion Pharmaceuticals soared to a four-and-a-half year high and closed at up 29.2% on the day. The stock crushed its average volume as nearly 22.1 million shares moved hands compared with 1.8 million, on average. Meanwhile, shares of AZN slumped to a nine-month low, falling 7.8% to close on the day.

This has put the spotlight on some ETFs, which could be the best ways for investors to tap the opportunity arising from the proposed AstraZeneca-Alexion deal. Investors should keep a close eye on the movement of these ETFs over the coming weeks.

VanEck Vectors Biotech ETF (BBH - Free Report)

This fund offers exposure to 24 companies involved in the development and production, marketing and sales of drugs based on genetic analysis and diagnostic equipment by tracking the MVIS US Listed Biotech 25 Index. Alexion takes the fifth spot accounting for 4.7% in the portfolio. BBH has amassed $491.1 million in its asset base and charges 35 basis points in fees per year. It has a Zacks ETF Rank #3 (Hold) with a High risk outlook (see: all the Healthcare ETFs here).

Invesco Dynamic Biotechnology & Genome ETF (PBE - Free Report)

This fund follows the Dynamic Biotech & Genome Intellidex Index and provides exposure to companies engaged in the research, development, manufacture, and marketing and distribution of various biotechnological products, services and processes and companies that benefit significantly from scientific and technological advances in biotechnology and genetic engineering and research. It holds 30 stocks in its basket with Alexion occupying the eight position with 4.5% of assets. The ETF has managed $241.6 million in its asset base and charges 58 bps in annual fees. It has a Zacks ETF Rank #3 with a High risk outlook.

Invesco Dynamic Pharmaceuticals ETF (PJP - Free Report)

This fund offers companies that are principally engaged in the research, development, manufacture, sale or distribution of pharmaceuticals and drugs of all types. It follows the Dynamic Pharmaceuticals Intellidex Index and holds 28 stocks in its basket with ALXN accounting for 2.8% share. The product has AUM of about $333.1 million and charges 56 bps in fees and expenses. It has a Zacks ETF Rank #3 with a High risk outlook.

First Trust NYSE Arca Biotechnology Index Fund (FBT - Free Report)

This fund follows the NYSE Arca Biotechnology Index, which measures the performance of companies in the biotechnology industry that are primarily involved in the use of biological processes to develop products or provide services. It holds about 31 securities in its basket with ALXN making up for 3.4% share. The ETF has accumulated $2 billion in its asset base and charges 55 bps in annual fees. It has a Zacks ETF Rank #3 with a High risk outlook (read: ETF Sectors to Bet on Positive Vaccine News).

VanEck Vectors Pharmaceutical ETF (PPH - Free Report)

This ETF follows the MVIS US Listed Pharmaceutical 25 Index and offers exposure to companies involved in pharmaceuticals, including pharmaceutical research and development as well a production, marketing and sales of pharmaceuticals. It holds 25 stocks in its basket with AZN taking the eight spot with 4.7% allocation. The product has amassed $264.8 million in its asset base and charges 36 bps in annual fees. The fund has a Zacks ETF Rank #3 with a Medium risk outlook.

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