Wednesday, July 17, 2013

Alexion (ALXN) Shares Up On Potential Bid

Shares of Alexion Pharmaceutical (ALXN) climbed 13% to $114.26 last Friday on news that Roche Holding AG has been seeking financing for a potential acquisition of Alexion, potentially making it one of the most expensive deals in the industry at a price upwards of $20 billion. Alexion only has a single drug approved, Soliris, which treats two rare blood diseases and is estimated to be a $1.1 billion product, costing patients as much as $400,000 per year. The drug however is solid and sees virtually no competition in the space. Roche Holding AG has been struggling as of late to bring its pipeline to fruition and coupled with the impending patent cliff make Alexion an attractive target for an acquisition, which is estimated to have revenue growth of 180% from Soliris through 2017. Many investors feel as though price point will be the issue for Roche, having walked away from another strategic acquisition earlier in the year of Illumina because of its $7 billion price tag that couldn't be justified. We believe the acquisition doesn't make sense for Illumina for the key reasons that the acquisition will be highly dilutive to Roche earnings and there will not be core synergies from an acquisition because the two companies do not have many overlapping research or manufacturing capabilities. Furthermore the deal is too risky for Roche considering Alexion's high biotech valuation. Still, it should be interesting to see the situation play out in the markets over the next few weeks, especially given that market participants feel that the current period of low-rate financing may soon end.

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