While AstraZeneca (LON:AZN) is a bit behind the eight-ball in the race for a COVID-19 vaccine—especially given that the first batch of doses have already rolled off the loading docks at a competitor—it's working to cement its status as being more than a one-note operation. To that end, AstraZeneca picked up Alexion Pharmaceuticals (NASDAQ:ALXN) in a substantial deal that will leave AstraZeneca with an even more diverse product line than it already had.
Tale of the Tape
The deal calls for AstraZeneca to lay out a hefty $39 billion in cash and stock to pick up Alexion Pharmaceuticals' entire operations. The move was made, reports suggest, as AstraZeneca's CEO, Pascal Soriot, took a look at the broader market and realized that the vaccinations against COVID-19 that his company was working toward—along with those of competitors like Pfizer (NYSE:PFE), whose first batches just rolled out of the Kalamazoo, Michigan plant in the last day or so, and Moderna (NASDAQ:MRNA), among others—would be instrumental in getting society back to something that looks a lot more like normal than 2020 did outside of, say, February or so.
Such a deal effectively values Alexion shares at $175 per share, which is a hefty premium given that Alexion closed trading on Friday at $120.98. Though the regulatory issues involved will likely keep this deal tied up for some time—some reports suggest we won't see this conclude until the second half of 2021—it's a very big deal, and one that gives both sides a lot of positive outlook.
Beyond the Deal
The latest word from the analyst community, as revealed by our latest research, demonstrates noteworthy points in and of itself.
Alexion's benefit in this deal is, of course, obvious, and as such it's no surprise the analyst community considers it a “buy”. The particularly interesting part here, though, is that despite AstraZeneca taking this recommendation as literally as possible, it's also the lowest consensus ratio we've seen in six months.
Alexion sits currently at 12 “hold” ratings, 11 “buy” ratings, and one “strong buy” rating. Just last month, the company was at seven “hold”, 16 “buy” and one “strong buy.” By way of comparison, six months ago there was a “sell” rating thrown in that mix, with six “hold”, 16 “buy” and one “strong-buy” involved. The price target, meanwhile, has been canting upward over the last three months, from $141.57 then to $153.88 today. With six separate analysts hiking price targets today, that suggests the purchase is not lost on the broader market.
Meanwhile, AstraZeneca remains stuck at “hold” territory, and without a whole lot of variance over the last three months. Interestingly, its own price target has been adjusted by seven different analysts in the last 10 days, which does suggest a certain expectation for movement.
The Rising Tide Lifting Both Boats
The benefit to Alexion stockholders here is obvious. AstraZeneca's paying nearly half again the stock's value to buy the company out, which means current shares have an obvious new floor and any purchases made at that point will likely go up to as least the limit of the floor. With some analysts actually looking for the price to go beyond that floor—Credit Suisse is looking at $194 and SVB Leerink is looking at $200 even—there's some expectation that the company will continue to succeed.
Meanwhile, AstraZeneca gets to look beyond COVID-19, and what it sees is a future that will once again call for surgical procedures that aren't COVID-related, vaccinations of other types, and beyond. Thus it not only lays the foundation for its own recovery, but it also looks to add new opportunities beyond that. AstraZeneca will soon have access to the Soliris and Ultomiris treatment systems, which focus mainly on overactive immune systems. Several other metabolic diseases will also have cause to fear AstraZeneca, and the revenue from same is expected to be around $840 million just this year alone.
If you can make nearly $1 billion from a product line in the midst of all this, you have a winner of a product line on hand. Putting up that profit for at least the next four decades might have been a bit much in getting it, but improving its presence isn't a bad move. If doctors can prescribe AstraZeneca for one disease, they may well turn to AstraZeneca for others—the halo effect works almost everywhere—and that gives AstraZeneca big new opportunities for a post-COVID market. Those opportunities make AstraZeneca every bit as much a buy in the long-term as Alexion Pharmaceuticals is in the short-term.
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