Alexion Pharmaceuticals Inc.; market cap (as of 09/05/2015): $32.54bn

Synageva Biopharma Corp.; market cap (as of 09/05/2015): $7.91bn



On May 6, 2015, Alexion Pharmaceuticals Inc. (NASDAQ:ALXN), the manufacturer of the world’s single most expensive prescription drug Soliris, and Synageva BioPharma Corp. (NASDAQ:GEVA) have entered into a definitive agreement under which the former will acquire Synageva in an $8.4bn deal to create one of the most robust rare disease pipelines in biotechnology.


About Alexion

Alexion, headquartered in Cheshire (CT), is a global biopharmaceutical company, whose aim is to focus on serving patients with severe and rare disorders in order to deliver medical breakthroughs, where none currently exist, through the innovation, development and commercialization of life-transforming therapeutic products. Alexion’s only marketed drug is Soliris, which is used to treat two rare blood disorders: paroxysmal nocturnal hemoglobinuria (PNH) and atypical hemolytic uremic syndrome (aHUS). At the same time, Alexion is developing other highly innovative biotechnology product candidates across multiple therapeutic areas.


About Synageva

Synageva, headquartered in Lexington (MA), is a biopharmaceutical company dedicated to the discovery, development and delivery of therapeutic products for patients with rare diseases. Among the company’s products, the firm is now planning to globally launch Kanuma, designed for the treatment of LAL Deficiency, a fatal genetic disorder. In addition, the company’s first-mover programs are for disorders of calcification.


Deal Structure

Alexion has agreed to buy Synageva in a stock-and-cash transaction valued around $8.4bn. Under the terms of the deal, Alexion will acquire all of the outstanding shares of Synageva’s common stock through an exchange offer, followed by a second-step merger. The company will pay Synageva’s shareholders $115 in cash and 0.6581 of its own shares, for each share of Synageva. This implies a total per share value of $230 for Synageva’s stock, which represents an immense premium of 139% over target’s closing price of $95.87 on Tuesday. The boards of both companies have approved the merger, which is expected to complete in mid-2015.

Upon the public announcement of the deal the shares of the target rose 112% by close of trading while acquirer’s shares plummeted 8%, reflecting concerns about the high valuation. It is interesting to mention that the fall in the acquirer’s share price is not aligned with the recent trend of buyer’s share price rising on the news, as investors tend to reward companies seeking inorganic growth.


Deal Rationale

The acquisition of Synageva seems to be a costly but strategically alluring opportunity for the rare disease drug maker Alexion. Alexion’s main product, the marketed drug Soliris, is the first and only available drug used for the treatment of two rare blood disorders. Despite marketing just one product, the sales of Soliris have been very successful with its eyebrow raising price-tag of almost $400,000 a year per patient and the market of 1000 patients in the US, contributing steadily over the years to the company’s bottom-line. Also, the company’s US patent on its breakthrough drug will expire in 2021 whereas in the EU, its patents will expire in 2015 in some countries and in 2020 in others, so there is still enough time to monetize on the sales of its blockbuster drug. However, with the acquisition of Synageva the company could secure its growth in the long-run through bolstering its product line, adding new highly innovative drugs to its clinical trials program as well as benefitting from synergies to be unlocked from the biotech consolidation. In fact, Synageva, which also specializes in rare diseases, is a very appealing target as one of its drugs, Kanuma, has already received a breakthrough therapy designation from the US drugs watchdog and is expected to be launched on the market this year. Kanuma would be used as treatment for Lysomal Acid Lipase Deficiency (LALD), a serious and underdiagnosed disease that manifests mostly in childhood but can be diagnosed at all ages with a simple blood test. The market for Synageva’s lead drug is estimated to be at least 3000 patients across Europe and US. Moreover, David Hallal, chief executive of Alexion, stated that Alexion will try to increase the market for Kanuma by raising awareness among doctors, so that more patients receive the diagnosis just as it did with Soliris.

Following the anticipated approvals of Kanuma and Strensiq, a drug for a rare metabolic disorder that Alexion hopes to bring to market this year, backed up by the stable lucrative sales of Soliris, Alexion will have three highly innovative and transformative therapies serving patients with four devastating and rare diseases in 2015.


A Record Premium

As one can notice, even though the deal seems to be strategically appealing, the untraditionally high premium could raise some questions about company’s valuation. In fact, Alexion is offering a 139% premium over the target’s closing price of $95.87 on Tuesday, which is one of the highest premiums ever paid in a corporate takeover. According to Yaron Werber, an analyst at Citigroup, the premium is rather steep and highlights the scarcity value of drug assets addressing very rare diseases.




The premium could also be justified by the complementarity of the Synageva’s product pipeline to Alexion’s growing portfolio of highly innovative product candidates for patients with devastating and rare diseases. In fact, the acquisition is expected to create the most robust rare disease pipeline in biotechnology: three products for four indications are expected to be on the market by 2015; eight products’ candidates in clinical trials for eleven indications; more than 30 diverse pre-clinical programs across a range of therapeutic modalities with at least four pre-clinical candidates from the combined pipelines to enter the clinic by year-end 2016.


Industry Overview

After 2014, the hottest year for pharmaceutical M&A in a decade, the beginnings of 2015 have not been seeing much of a cool-down in the sector. On the contrary, extensive pharma deal making has kept the pace, with biotech startups leading the way as the most sought for targets. After remarkable acquisitions such as AbbVie’s $21bn deal for Pharmacyclics, Shire’s takeover of NPS Pharmaceuticals for $5.2bn or Teva’s $3.2bn purchase of Auspex Pharmaceuticals, observers have been tracing formation of a bubble in the industry. However, there also exist sensible reasons to justify this trend. The most important one is that acquisitions provide the easiest way to extend the product line while taking advantage of synergies, reflected in lower R&D costs. This is especially true for the so-called orphan drugs, which are meant to address very rare diseases. They have been the main targets in the above-mentioned acquisitions by Shire, Teva as well as Alexion. Their rising popularity stems from the fact that although the number of patients with “orphan diseases” is very small, the companies can charge tremendous prices for these drugs, reaching even $500,000 a year per patient. Furthermore, many incentives have been introduced for developing this kind of drugs that were supposed to revive this sector, which was earlier deemed as unprofitable. Firstly, it is easier to gain both regulatory and marketing approval for orphan drugs. Secondly, after introducing the product to the market, the competition protection periods are much longer than for usual pharmaceuticals. Finally, insurers have not been paying much attention to huge claims connected with these rare diseases because of negligible number of occurrences. However, this last factor might change soon as the number of patients reaching for expensive treatment is increasing and insurers are taking this into account.


Financial advisors

Alexion was advised by Lazard and JPMorgan while Goldman Sachs advised Synageva in the transaction.

[edmc id= 2748]Download as PDF[/edmc]