AstraZeneca signaled its intent to expand into rare disease drug development and grow into an immunology leader on Saturday when it announced plans to acquire Alexion Pharmaceuticals for $39 billion, in what would be the largest biopharma acquisition of 2020.

The deal will create a roughly $30 billion-a-year biopharma powerhouse that expands AstraZeneca’s focus on developing drugs for indications in oncology, respiratory diseases, and cardiovascular, renal, and metabolic disorders, by adding Alexion’s five marketed products and pioneering complement inhibition pipeline, specializing in treating a variety of immune-mediated rare diseases.

“This transaction marks the start of an exciting new chapter for Alexion,” Ludwig Hantson, PhD, Alexion’s CEO, said in a statement. “We bring to AstraZeneca a strong portfolio, innovative rare disease pipeline, a talented global workforce, and strong manufacturing capabilities in biologics.”

Added AstraZeneca CEO Pascal Soriot: “Alexion has established itself as a leader in complement biology, bringing life-changing benefits to patients with rare diseases. This acquisition allows us to enhance our presence in immunology.”

In a presentation to investors, Soriot said the deal will help AstraZeneca achieve near-, medium-, and long-term goals in immunology:

  • Near term: Launch the type I interferon inhibitor anifrolumab for systemic lupus erythematosus (SLE); initiate life cycle management for anifrolumab and tezepelumab, a TSLP inhibitor for severe uncontrolled asthma [Phase II], atopic dermatitis, and chronic obstructive pulmonary disease (COPD; Phase I); and build translational science, clinical expertise, and commercial expertise capabilities.
  • Medium term: Expand interferon franchise with launches in cutaneous lupus erythematosus (CLE) and myositis; launch eosinophil (Fasenra® [benralizumab]) and epithelial (tezepelumab, MEDI3506 for diabetic kidney disease [Phase II], and COPD, atopic dermatitis, asthma, and COVID-19 [Phase I]) franchises.
  • Long term: Focus R&D on areas of high unmet need diseases; Develop precision medicines to disrupt mature markets; Explore potential for remission and cure by leveraging cell therapy platform.

AstraZeneca said the companies would expand on Alexion’s pipeline of 11 molecules across more than 20 clinical-development programs in rare diseases and beyond.

The companies said they anticipated $500 million in annual pre-tax “synergies” due to reduced spending by the end of the third year following completion of the acquisition, as well as double-digit core earnings per share growth for the first three years as a combined company.

Complement inhibition franchise

Alexion’s complement inhibition franchise is anchored by Soliris® (eculizumab), a first-in-class anti-complement component 5 (C5) monoclonal antibody that won FDA approval in 2007. Soliris is indicated for paroxysmal nocturnal hemoglobinuria (PNH), atypical hemolytic uremic syndrome, generalized myasthenia gravis, and neuromyelitis optica spectrum disorder.

During the first three quarters of 2020, Soliris racked up $3.041 billion in global net product sales, up 3.7% from $2.933 billion for Q1–Q3 2019, and close to the $3.946 billion generated in all of 2019.

In 2018, Alexion won FDA approval for Ultomiris® (ravulizumab), a second-generation C5 monoclonal antibody with a more convenient dosing regimen. Sales of Ultomiris more than quadrupled this year, to $763.2 million in the first nine months of this year compared to $168.7 million a year earlier, about half of the $338.9 million that Ultomiris generated in all of 2019.

According to the companies, more than 70% of PNH patients have effectively transitioned from Soliris to Ultomiris in less than two years in its key markets, including the United States, Japan, and Germany—a reflection, they said, of the success of Alexion’s complement inhibition franchise.

COVID-19 studies

Alexion is studying both Soliris and Ultomiris as potential treatments for COVID-19. In announcing third-quarter 2020 results on October 29, Alexion said a Phase III randomized controlled trial (NCT04369469) assessing Ultomiris in adults with COVID-19 who are hospitalized with severe pneumonia or acute respiratory distress syndrome was underway. The trial is estimated to enroll 270 participants in the United States and four other countries (France, Japan, Spain, and the U.K.).

Six days later on November 4, investigators from the COVID-19 ICU at Hôpital Raymond Poincaré in Garches, France, published results from a nonrandomized proof-of-concept, 80-patient study in The Lancet suggesting Soliris may improve survival and reduce hypoxia in patients with severe COVID-19. The study showed an 82.9% survival rate in patients receiving Soliris, compared with 62.2% of patients not treated with the complement inhibitor.

However, the Soliris study cautioned: “Our data also suggest that treatment with eculizumab may be associated with an increased risk of ventilator-associated pneumonia. Though in our study, the survival and clinical improvement benefits outweighed the risks of developing ventilator-associated infections with eculizumab treatment, larger, randomized studies are needed to perform a more extensive risk:benefit analysis.”

AstraZeneca has generated global headlines for its effort to develop a COVID-19 vaccine. It has partnered with the University of Oxford and a spinout to develop AZD1222, a leading candidate that has generated interim Phase III results shown vaccine efficacy of 70.4% after two doses and protection of 64.1% after at least one standard dose. However, the result may have been affected by a dosing error as patients were given the first dose at half strength due to an error related to the manufacturing of the doses. AstraZeneca plans to conduct a new global trial comparing the one-and-a-half dose regime to a two full-dose regimen.

Alexion finished 2019 with a 21% year-over-year jump in revenues to $4.991 billion, about one-fifth of the $24.384 billion in revenue reported in 2019 by AstraZeneca.

In immunology, Alexion’s expertise includes other targets in the complement cascade beyond C5 and other modalities, including Factor D small-molecule inhibitors of the alternative pathway of the complement system, an antibody blocking neonatal Fc receptor (FcRn)-mediated recycling, and a bi-specific mini-body targeting C5, among others. The FcRn extends the half-life and hence the availability of pathogenic immunoglobulin G (IgG) antibodies.

AstraZeneca said it would establish a rare disease headquarters in Boston, where Alexion is now based. In addition to its Boston HQ, Alexion maintains a Center of Excellence for its complement research and process development teams in New Haven, CT, where the company was founded in 1992 as a startup based at Science Park. Leonard Bell, MD, Alexion’s founder, retired as CEO in 2015 and as chairman and director a year later.

During Bell’s tenure at the helm, Alexion moved to suburban Cheshire, CT, before returning to New Haven in 2016 after the state of Connecticut agreed to shell out $51 million in economic incentives. But after Bell’s successor resigned and Hantson became CEO in 2017, Alexion eliminated 20% of its workforce and relocated to Boston.

Is the price right?

At $39 billion, AstraZeneca’s purchase price amounts to $175 per share to Alexion shareholders—$60 cash and 2.1243 AstraZeneca American Depositary Shares (ADSs), with each ADS representing half of an ordinary AstraZeneca share, as evidenced by American Depositary Receipts (ADRs) for each Alexion share. The deal is based on AstraZeneca’s reference average ADR price of $54.14.

“We view the deal premium for ALXN as healthy (~45% from Friday’s closing price) given its concentrated revenue in the C5 franchise (~86% of revenue) & likely competition & pricing pressure in 2022, along with yet-to-be materialized pipeline diversification,” Eun K. Yang, PhD, managing director and senior equity research analyst with Jefferies, wrote Sunday in a research report, using Alexion’s stock symbol.

Andrew Berens, MD, managing director and a senior research analyst at SVB Leerink covering targeted oncology, wrote in a research note Saturday that the deal was a beneficial one for AstraZeneca since Alexion’s current revenue estimate of about $6 billion this year is expected to grow to ~$8.6bn in 2024, mainly driven by Soliris and Ultomiris, according to an SVB Leerink analysis.

“In our view, this acquisition makes sense for AZN on a number of levels, including strategic and financial, as well as from an investment thesis perspective,” Berens wrote. “While AZN’s strategic focus and core growth has historically centered on the oncology franchise, this deal would diversify the company’s portfolio by expanding into an immunology-related, rare disease franchise.

“In our view, like targeted oncology, the rare disease arena is an area with high margins, little competition, and significant pricing leverage, which we believe could continue to improve AZN’s operating margins, further strengthening the investment thesis,” Berens added.

However, Berens’ colleague at SVB, Geoffrey C. Porges, MBBS, director of therapeutics research and a senior research analyst, wrote separately Saturday that while it made sense for Alexion to be acquired by a biopharma giant, and although he earlier viewed $175 per share as the right range, the price may not be right now.

“In today’s inflated market we believe investors could demand more from AZN, or another acquirer,” Porges wrote, using the stock symbol for AstraZeneca. “This is such a scarce and high-quality asset that in this instance, the final transaction price may need to reach $200 to satisfy Alexion’s shareholders, or to be based more in cash, rather than predominantly stock.”

Back on August 24, Porges included AstraZeneca among six companies he viewed as less likely to buy Alexion among 10 potential acquirers for the company. The four more likely buyers in his view—Biogen, Pfizer, Novartis, and Sanofi—all had established rare disease businesses, and all had bought at least one rare disease company over the previous three-and-a-half years.

Porges’ August note came three months after a long-term investor in Alexion, Elliott Advisors, urged the company’s board to immediately explore a sale when its market value plunged $1.7 billion a day after it agreed to acquire Portola Pharmaceuticals for $1.4 billion. The deal, completed in July, added Alexion’s fifth marketed product to its portfolio, the Factor Xa inhibitor reversal agent Andexxa® [coagulation factor Xa (recombinant), inactivated-zhzo] to Alexion’s commercial portfolio.

Struggling stock price

Elliott noted that Alexion’s stock value had failed to rise despite the strong sales of Soliris and Ultomiris: “Despite Alexion’s attractive franchise and favorable operating performance, the company’s share price has persistently struggled over the last few years,” Elliott Advisors wrote in a May 12 letter to Alexion’s board

Alexion shares closed Friday at $120.98, up 60% from its 2020 low of $75.56 on March 16, but well below the $209-per-share peak it reached in July 2015, the year it won regulatory approval for two enzyme replacement therapies—Kanuma® (sebelipase alfa) for lysosomal acid lipase deficiency (LAL-D); and Strensiq® (asfotase alfa) for perinatal/infantile- and juvenile-onset hypophosphatasia (HPP). Alexion has not traded above $145 per share since September 2017.

The deal is expected to close in the third quarter of 2021, subject to regulatory clearances and approval by shareholders of both companies. Upon completion, Alexion shareholders will own about 15% of the combined company.

The boards of Alexion and AstraZeneca have both unanimously approved the deal.

“For nearly 30 years Alexion has worked to develop and deliver transformative medicines to patients around the world with rare and devastating diseases. I am incredibly proud of what our organization has accomplished and am grateful to our employees for their contributions,” Hantson stated.

Added Soriot: “We look forward to welcoming our new colleagues at Alexion so that we can together build on our combined expertise in immunology and precision medicines to drive innovation that delivers life-changing medicines for more patients.”

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