Alexion puts its stock to use at last

After Alexion’s shares nearly doubled in three years on the strength of one drug, Soliris, a move to put the stock to use was long overdue, and it happened today with the $8.4bn takeover of Synageva Biopharma.

The move might not have been entirely unexpected, but the valuation Synageva has achieved is remarkable, and suggests that Alexion thinks it can turn the target’s key asset, Kanuma, into another Soliris. It will also fan the flames of speculation as to which will be the next rare disease company to get bought out.

Renewed attention will undoubtedly fall on the likes of BioMarin, Ultragenyx and Amicus Therapeutics, with Shire seen as one of several companies that need to buy – perhaps to avoid falling prey themselves. Ultragenyx, Amicus and BioMarin opened up this morning, by 9%, 7% and 3% respectively.

But just how huge a bet Alexion is placing can easily be illustrated by looking at sellside forecasts for Kanuma. The project, for treating lysosomal acid lipase deficiency, is expected to sell $740m in 2020, giving it a 95% risk-adjusted NPV of $2.8bn, as computed by EvaluatePharma.

It will not pass unnoticed that Alexion is willing to pay three times as much to get its hands on Synageva. Kanuma is awaiting US approval, with an FDA action date of September 8, after generating a phase III win that had been greeted with some caution last July (Synageva’s shares sink despite trial win, July 1, 2014).

True, Synageva does have a second asset – SBC-103 is in phase I/II for mucopolysaccharidosis IIIB – as well as a preclinical portfolio, and Alexion cites $150m of annual cost-cutting opportunities. But there might be just one justification for such a huge premium: Alexion ramping up the price of Kanuma way beyond what the sellside is currently assuming.

In ultra-rare disease pricing Alexion has form. Soliris, for haemolytic uraemic syndrome and paroxysmal nocturnal haemoglobinuria, is the world’s most expensive drug, with an average price tag of over $500,000 per patient per year. It sold $2.2bn last year, and is expected to bring in $5.5bn in 2020.

Hartaj Singh, an analyst at BTIG, wrote today that Kanuma could become a billion-dollar product, assuming a “conservative” orphan disease price tag of $300,000, adding: “The key question here is whether Alexion can utilize its more than 50-country platform to increase the available patient population.”

Stock as currency

Since floating in 2011 Synageva shares had risen by over 500%, and the Alexion takeover values it at a further premium of roughly 130% relative to yesterday’s close. $4.3bn of the purchase price is in cash, with the remainder comprising Alexion stock.

While the risk of Kanuma not getting US approval is small, the actual patient population and target market have yet to be tested. Nevertheless, on a call today Alexion chief executive David Hallal insisted that “We are acquiring Kanuma at the right point in time – before approval.”

The group also claimed that the addition of Synageva would give it the “most robust rare disease pipeline in biotech”, with eight product candidates in 11 indications. This will include SBC-103 as well as Strensiq (asfotase alfa), an enzyme-replacement therapy awaiting US approval for hypophosphatasia.

Alexion had acquired Strensiq through its purchase of Enobia Pharma in 2011 for $610m in up-front cash. Sellside consensus for 2020 Strensiq sales is $762m, and Alexion expects both it and Kanuma to be on the market this year.

Back in 2011 eyebrows had been raised at the price Alexion paid for Enobia and an asset tested in fewer than 100 people. There were more jitters this morning over the Synageva deal – to all intents and purposes a use of overvalued stock to buy an overvalued company – with Alexion off 11% in early trade.

Still, Gilead has shown the power of making an apparently overpriced acquisition work by smart business decisions like hiking a product's price. Bulls must hope that Alexion has an ace up its sleeve.

To contact the writer of this story email Jacob Plieth in London at jacobp@epvantage.com or follow @JacobPlieth on Twitter

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