- AstraZeneca plc (NASDAQ: AZN) announced it is buying Alexion Pharmaceuticals, Inc. (NASDAQ: ALXN) for $39 billion in cash and shares. These are the details.
AstraZeneca plc (NASDAQ: AZN) announced it is buying Alexion Pharmaceuticals, Inc. (NASDAQ: ALXN) for $39 billion in cash and shares. As part of the deal, Alexion shareholders will receive $60 in cash and 2.1243 AstraZeneca American Depositary Shares (ADSs) (each ADS representing one-half of one (1/2) ordinary share of AstraZeneca) for each Alexion share. And based on AstraZeneca’s reference average ADR price of $54.14, this implies total consideration to Alexion shareholders of $39 billion (or $175 per share).
The boards of directors of both companies have unanimously approved the acquisition. And subject to receipt of regulatory clearances and approval by shareholders of both companies, the acquisition is expected to close in Q3 2021. Upon completion, Alexion shareholders will own c.15% of the combined company.
Why AstraZeneca Is Buying Alexion
Both companies share the same dedication to science and innovation for delivering life-changing medicines. And the capabilities of both organizations will create a company with great strengths across a range of technology platforms with the ability to bring innovative medicines to millions of people worldwide. The combined company is going to also have an enhanced global footprint and broad coverage across primary, specialty, and highly specialized care.
AstraZeneca has built a growing scientific presence in oncology along with cardiovascular, renal and metabolism, and respiratory diseases with a focus on organ protection. And AstraZeneca has developed a broad range of technologies, initially focused on small molecules and biologics and with a growing focus in precision medicine, genomics, oligonucleotides, and epigenetics. More recently, AstraZeneca has been increasing its efforts in immunology research and the development of medicines for immune-mediated diseases.
Alexion is known for pioneering complement inhibition for a broad spectrum of immune-mediated rare diseases caused by uncontrolled activation of the complement system, a vital part of the immune system. And Alexion’s franchise includes Soliris (eculizumab), a first-in-class anti-complement component 5 (C5) monoclonal antibody.
This medicine is approved in many countries for the treatment of patients with paroxysmal nocturnal haemoglobinuria (PNH), atypical haemolytic uremic syndrome, generalized myasthenia gravis, and neuromyelitis optica spectrum disorder. And more recently, Alexion launched Ultomiris (ravulizumab), a second-generation C5 monoclonal antibody with a more convenient dosing regimen.
Alexion’s immunology expertise extends to other targets in the complement cascade beyond C5 as well as additional modalities with its deep pipeline including Factor D small-molecule inhibitors of the alternative pathway of the complement system, an antibody blocking neonatal Fc receptor (FcRn)-mediated recycling, and a bi-specific mini-body targeting C5. The FcRn extends the half-life and hence the availability of pathogenic immunoglobulin G (IgG) antibodies.
With Alexion’s R&D team, AstraZeneca will work to build on Alexion’s pipeline of 11 molecules across over 20 clinical-development programs with a spectrum of indications in rare diseases and beyond. And Alexion’s leading expertise in complement biology will accelerate AstraZeneca’s growing presence in immunology.
This acquisition adds a new technology platform to AstraZeneca’s science and innovation-driven strategy. And the complement cascade is pivotal to the innate immune system. It plays a crucial role in many inflammatory and autoimmune diseases across multiple therapy areas, including hematology, nephrology, neurology, metabolic disorders, cardiology, ophthalmology, and acute care.
But in contrast, AstraZeneca’s capabilities in genomics, precision medicine, and oligonucleotides can be utilized to develop medicines targeting less-frequent diseases. And combining AstraZeneca’s capabilities in precision medicine and Alexion’s expertise in rare-disease development and commercialization will enable the new company to develop a portfolio of medicines addressing the large unmet needs of patients suffering from rare diseases.
The combined companies are going to bring together two rapidly converging and patient-centric models of care delivery with combined strengths in immunology, biologics, genomics, and oligonucleotides to drive future medicine innovation. And AstraZeneca intends to establish Boston, Massachusetts as its headquarters for rare diseases, capitalizing on talent in the greater Boston area.
AstraZeneca’s acquisition of Alexion will support its long-term ambition to develop novel medicines in areas of immunology with high unmet medical needs. And Alexion achieved impressive revenue growth over the last few years with revenues of $5 billion in 2019 (21% year-on-year growth). And Alexion has exhibited skillful commercial execution in building its “blockbuster” C5 franchise.
The success of the franchise is demonstrated by the effective transition of over 70% of PNH patients from Soliris to Ultomiris in less than two years of launch in its key markets, including the US, Japan and Germany, as well as the strong pipeline of additional indications for Ultomiris.
Rare diseases is a high-growth therapy area with rapid innovation and significant unmet medical need. And over 7,000 rare diseases are known today and only c.5% have US Food and Drug Administration-approved treatments. AstraZeneca is intending to build on its geographical footprint and extensive emerging markets presence to accelerate the worldwide expansion of Alexion’s portfolio.
The two companies have been on converging paths as AstraZeneca has been expanding its presence from primary to specialty care while Alexion has been progressing from ultra-orphan to orphan and specialty conditions. And the acquisition strengthens AstraZeneca’s industry-leading growth, underpinned by its broad portfolio of medicines — which will enable the new company to bring innovative medicines to a broad range of healthcare practitioners in primary, specialty, and highly specialized care.
The combined company is expected to deliver double-digit average annual revenue growth through 2025. And the acquisition is expected to improve the combined group’s profitability with the core operating margin significantly enhanced in the short term, and with continued expansion going forward.
This uplift is supported by increased scale and expected recurring run-rate pre-tax synergies of c.$500m per year from the combined group (by end of the third year following completion of the acquisition). And AstraZeneca expects to generate significant value from the acquisition by extending Alexion’s commercial reach through leveraging AstraZeneca’s global presence and accelerating the development of Alexion’s pipeline.
This acquisition also strengthens AstraZeneca’s cash-flow generation, providing additional flexibility to reinvest in R&D and rapid debt reduction with an ambition to increase the dividend.
The acquisition is expected to deliver robust and sustainable accretion to AstraZeneca’s core earnings per share (EPS) from the outset with double-digit percentage accretion anticipated in the first three years following the completion of the acquisition. And the acquisition of Alexion is consistent with AstraZeneca’s capital-allocation priorities.
The combined company is expected to maintain a strong investment-grade credit rating and the acquisition supports AstraZeneca’s progressive dividend policy. And the combination represents a significant step in AstraZeneca’s strategic and financial growth plans.
This acquisition will be undertaken through a US statutory merger in which Alexion shareholders will receive $60 in cash and 2.1243 new AstraZeneca ADSs listed on the Nasdaq exchange for each of their Alexion shares.
And the cash and ADS consideration represents a c.45% premium to Alexion shareholders based on the closing stock price of Alexion on December 11, 2020, and a c.43% premium based on the 30-day volume-weighted average closing stock price of $122.04 before this announcement. If they elect, Alexion shareholders may receive their allocation of AstraZeneca ADSs in the form of a corresponding number of ordinary shares of AstraZeneca in addition to the cash consideration.
Based on AstraZeneca’s reference average ADR price of $54.14, this implies total consideration to Alexion shareholders of $39 billion or $175 per share.
Financing
To support the financing of the offer consideration, AstraZeneca entered into a new committed $17.5 billion bridge-financing facility, provided by Morgan Stanley, J.P. Morgan Securities, and Goldman Sachs.
And the bridge-financing facility is available for an initial term of 12 months from the earlier of the date of completion of the acquisition and December 12, 2021, with up to two six-month extensions available at the discretion of AstraZeneca.
The initial bridge financing facility is intended to cover the financing of the cash portion of the acquisition consideration and associated acquisition costs and to refinance the existing term loan and revolving credit facilities of Alexion. AstraZeneca intends to refinance the initial bridge-financing facility through a combination of new medium-term bank loan facilities, debt-capital market issuances and business cash flows.
The acquisition is expected to significantly enhance cash generation, which will support rapid debt reduction and overall deleveraging. AstraZeneca remains committed to maintaining a strong investment-grade credit rating. And the dividend policy remains unchanged with a commitment to a progressive dividend policy; dividend cover is expected to be materially enhanced as a result of the acquisition.
The acquisition is expected to realize recurring run-rate pre-tax synergies of c.$500m per year from the combined group, generated from commercial and manufacturing efficiencies as well as savings in central costs with full run-rate expected to be achieved by end of the third year following completion of the acquisition.
And to realize the total synergies, AstraZeneca expects to incur one-time cash costs of c.$650m, during the first three years following completion.
Management
The members of Alexion’s current senior management team will lead the future rare-disease activities. And under the terms of the acquisition agreement, AstraZeneca has agreed that for 12 months following closing, it will provide the Alexion employees with the same level of salary as such employees had before closing, incentive compensation opportunities that are in the aggregate no less favorable than those provided before closing and substantially comparable benefits to those provided before closing.
The companies will mutually agree on two individuals from the Alexion board of directors who will join the AstraZeneca board as directors upon closing of the acquisition.
KEY QUOTES:
“Alexion has established itself as a leader in complement biology, bringing life-changing benefits to patients with rare diseases. This acquisition allows us to enhance our presence in immunology. We look forward to welcoming our new colleagues at Alexion so that we can together build on our combined expertise in immunology and precision medicines to drive innovation that delivers life-changing medicines for more patients.”
— Pascal Soriot, Chief Executive Officer, AstraZeneca
“For nearly 30 years Alexion has worked to develop and deliver transformative medicines to patients around the world with rare and devastating diseases. I am incredibly proud of what our organization has accomplished and am grateful to our employees for their contributions. This transaction marks the start of an exciting new chapter for Alexion. We bring to AstraZeneca a strong portfolio, innovative rare disease pipeline, a talented global workforce, and strong manufacturing capabilities in biologics. We remain committed to continuing to serve the patients who rely on our medicines and firmly believe the combined organization will be well-positioned to accelerate innovation and deliver enhanced value for our shareholders, patients, and the rare disease communities.”
— Ludwig Hantson, Ph.D., Chief Executive Officer, Alexion
