Analyst Note | Dec 13, 2020
AstraZeneca’s $39 billion acquisition of Alexion should diversify cash flows but doesn’t have an impact on our AstraZeneca fair value estimate or moat rating. While the $175 per share acquisition prices represents close to a 13% premium to our stand-alone fair value estimate for Alexion, the likely $500 million in annual synergies gained in the deal support the higher payment. Further, we are increasing Alexion’s fair value estimate to $175 as we expect the deal to complete. We don’t believe AstraZeneca needed to make this acquisition, but was likely being opportunistic to acquire a firm trading below its fair value. Also, the more diverse cashflow streams should help AstraZeneca consistently reinvest in research and development, supporting the firm’s wide moat.
While AstraZeneca gains a strong new rare disease platform through Alexion, the acquisition brings AstraZeneca increased patent exposure through rare disease drug Soliris (biosimilar competition expected in 2025). However, we expect a high conversion to the firm’s next-generation drug Ultomiris to mitigate the biosimilar pressure. Soliris represented close to 60% of Alexion’s total sales in 2019, but we expect close to a 70% conversion rate to Ultomiris (already seen with initial approved indications) to mitigate the eventual biosimilar competition. Ultomiris offers dosing every eight weeks versus Soliris’ every two weeks, and a likely subcutaneous version of Ultomiris could make a major difference for patients. Further, patents around Ultomiris last beyond 2030, setting a up a long-term driver of cashflows.
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