Alexion Pharmaceuticals, Inc. (ALXN - Free Report) announced that it has entered into a definitive agreement to acquire Synageva BioPharma Corp. in a transaction valued at approximately $8.4 billion net of Synageva’s cash. The deal is expected to close in mid-2015.
The consideration of $230 ($115 in cash and 0.6581 Alexion shares) for each share of Synageva represents an approximately 140% premium over Synageva’s undisturbed closing price on May 5. Synageva shares shot up 112.2% on the news. However, Alexion shares declined 8% due to concerns over the acquisition value.
What Alexion Stands to Gain?
Currently, there are no approved products at Synageva. Its lead pipeline candidate, Kanuma, is under regulatory review in the U.S. and Europe for the treatment of lysosomal acid lipase deficiency (LAL deficiency). The company expects a response from the FDA regarding the approval status of Kanuma by Sep 8, 2015. A regulatory decision in Europe is expected in the second half of 2015.
Kanuma enjoys an orphan drug designation in the U.S. and Europe. Additionally, it has received fast track designation and Breakthrough Therapy designation from the FDA for LAL deficiency in infants.
With Soliris being the only approved product, Alexion is currently a one-drug company. The company relies entirely on Soliris for growth. The lead pipeline candidate at Alexion is Strensiq for hypophosphatasia. The company expects an opinion from the Committee for Medicinal Products for Human Use (CHMP) on Strensiq in the first half of this year, while the U.S. approval and launch are expected in the second half.
Thus, the addition of Kanuma to Alexion’s pipeline has the potential to accelerate and diversify revenues. Alexion expects to achieve annual cost synergies from the deal starting this year and growing to at least $150 million in 2017. The transaction is expected to be accretive to adjusted earnings per share in 2018.
The acquisition will also add several other pipeline candidates including SBC-103 (phase I/II - for the treatment of mucopolysaccharidosis IIIB).
Apart from the Synageva deal, Alexion also announced that its board of directors has increased the size of the company's share repurchase authorization to a total of $1 billion. There is no fixed timeframe for the repurchases. However, no repurchases are expected until the Synageva acquisition is completed.
The M&A frenzy shows no signs of slowing down in the health care sector. Earlier this year, AbbVie (ABBV - Free Report) entered into an agreement to acquire Pharmacyclics in a deal valued at approximately $21 billion to gain partial rights to Imbruvica. Imbruvica is expected to generate U.S. net product revenues of approximately $1 billion in 2015.
We are positive on Alexion’s efforts to diversify and reduce its dependence on Soliris for growth. However, we remain concerned as Kanuma is yet to be approved anywhere and its commercial potential is not proven in the market. Other pipeline candidates at Synageva are still several years away from entering the market if at all.
Alexion currently carries a Zacks Rank #3 (Hold). Gilead Sciences Inc. (GILD - Free Report) is a better-ranked stock in the health care space carrying a Zacks Rank #1 (Strong Buy).