AstraZeneca shares fell almost 6 per cent as investors worried about the Anglo-Swedish drugmaker’s $39bn acquisition of Alexion, the biggest pharmaceutical deal since the start of the coronavirus pandemic.
Shares in AstraZeneca were down more than 8 per cent at one point on Monday, with some shareholders sceptical of the tie-up, which values Alexion at $175 per share, a 45 per cent premium to the US biotechnology company’s previous closing price.
“Financial attractions are clear but strategic rationale less so and management track record in M&A [is] arguably unproven,” said one top-30 AstraZeneca shareholder.
The cross-border transaction, a rarity in the Covid-19 era, comes after months of speculation that AstraZeneca chief executive Pascal Soriot was hunting for a large target.
AstraZeneca approached Alexion in the summer, leading to a four-month “back and forth”, which mainly focused on the headline price, according to a person familiar with the matter. Alexion also pushed for a greater chunk of the deal to be in cash, the person added.
But it became obvious AstraZeneca could not pay any more in cash for such a large deal and nor could most Big Pharma companies. “This takes AstraZeneca out of the M&A market for a while,” the person said.
Alexion had come under pressure from activist investor Elliott Management to put itself up for sale since May, arguing that the rare disease specialist should take advantage of a surge in the valuation of biotech stocks during the pandemic.
One large Alexion shareholder said they were “supportive of the deal” and found AstraZeneca to be “a good fit” for the company. Alexion shares rose more than 30 per cent to $159.
Not all AstraZeneca shareholders were hostile to the deal. “By looking ahead at what they may need in the longer term, AZ are looking to future-proof the business and broaden the platform they operate in,” said another top-30 investor. “Their rationale has been explained well by management and we feel this is a positive deal for them.”
Dan Mahony, co-head of healthcare at Polar Capital, which has a holding in AstraZeneca, said the deal showed that there was still considerable value to be extracted from biotechs.
“For some of these large-cap biotechs people have been worried about growth and valuation. [The deal] shows there is still some value in there and quite a lot of cash generation,” he added.
Alexion’s portfolio of rare disease drugs may be easier to sell than other medicines in an environment in which governments and private health systems increasingly demand evidence of the effectiveness of drugs, Mr Mahony said.
“The beauty of some of these rare diseases is that showing the value of those medications is easier. If you can effectively cure a child, that shows obvious value and there is no discussion about what it’s worth,” he added.
Raju Prasad, an analyst at William Blair, said: “While the acquisition premium for Alexion is slightly lower than our comparable transactions, we see the potential for a higher bid after this announcement as unlikely.”