(Reuters) – Alexion Pharmaceuticals Inc on Wednesday said it agreed to buy Synageva BioPharma Corp for $8.4 billion, more than twice its market value, to expand its offering of potentially high-priced medicines for rare diseases.
Alexion’s willingness to pay an eye-popping premium for Synageva demonstrates that the appetite for large acquisitions in healthcare continues unabated. It also highlights the attraction of medicines for rare diseases that can command exceptionally high prices with little payer pushback because of the limited number of patients.
Alexion’s lone product, Soliris, a treatment for two extremely rare life-threatening conditions, is among the world’s most expensive drugs. The medicine, which can cost more than $500,000 per year, generated sales of $2.23 billion in 2014.
The companies’ combined developmental pipelines would give Alexion eight experimental medicines in clinical trials for 11 diseases, the company said. That includes Synageva’s Kanuma, which is awaiting U.S. and European approval to treat a rare and potentially fatal condition that causes a build-up of fat in the blood and liver.
Alexion Chief Executive David Hallal expressed confidence that Kanuma sales will eventually exceed $1 billion.
The deal would also give Alexion Synageva’s SBC-103, an experimental enzyme replacement therapy for a rare genetic disorder that has both orphan status and fast-track designation from the U.S. Food and Drug Administration. That should speed up the approval process and, in the event of approval, confer an additional seven years of marketing exclusivity, an incentive for developing medicines for small patient populations.
“I think Alexion wanted to do something big. There aren’t many opportunities … to do that, and so this is their big shot,” said Paul Yook, portfolio manager at BioShares Biotechnology Funds, which holds stakes in both companies.
Yook said the announcement could put Alexion in the takeover crosshairs. “Anybody who’s been looking at them now will have to make a move more quickly if they don’t want to acquire Synageva as well.”
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Alexion is offering $115 in cash and 0.6581 of its shares, or $225.92 per Synageva share, more than double its closing price of $95.87 on Tuesday.
“While some investors may be picking their jaws off the floor at such a valuation, we note that Synageva has only disclosed a fraction of its development efforts,” Baird Equity Research analyst Christopher Raymond said.
Synageva’s shares soared on Wednesday, ending regular trading at $203.39, up 112 percent. Alexion shares traded as low as $150.06 before finishing at $155.01, down 8 percent, a sign of investor dissatisfaction with the price the company agreed to pay for Synageva.
Paul Hudson, president of AstraZeneca’s U.S. operations, speaking at the FT US Healthcare and Life Sciences Conference in New York, said he expects to see “more raised eyebrows” over future deal valuations. Whether you end up paying a high valuation is based on “whether you see some magic that others don’t see,” he said.
The deal would provide a windfall for Baker Brothers Investments, which owns about 32 percent of Synageva and stands to make $2.68 billion.
There has been a steady wave of recent deals and takeover efforts in healthcare, including AbbVie’s nearly $21 billion deal for Pharmacyclics and Pfizer’s planned $16.7 billion purchase of Hospira.
In the rare-disease space, Teva Pharmaceutical Industries bought Auspex Pharmaceuticals for $3.5 billion, and Shire acquired NPS Pharmaceuticals for $5.2 billion. Meanwhile, Teva is pursuing generic drugmaker rival Mylan, which rejected a $43 billion offer and is itself trying to buy Ireland-based Perrigo, which in turn rebuffed Mylan’s $34 billion bid.
Lazard and JPMorgan were Alexion’s financial advisers, while Goldman Sachs advised Synageva.
Wachtell Lipton Rosen & Katz is Alexion’s legal counsel, while Sullivan & Cromwell LLP and Ropes & Gray LLP are Synageva’s legal counsel.
BY VIDYA L NATHAN, NATALIE GROVER AND BILL BERKROT (Additional reporting by Caroline Humer in New York and Ankur Banerjee in Bangaluru; Editing by Savio D’Souza, Saumyadeb Chakrabarty and Steve Orlofsky)