April 28, 2010 / 6:23 PM / 9 years ago

DEALTALK-Alexion remains takeover target, just not this year

(For more Reuters DEALTALKS, click [DEALTALK/])

* Analysts do not see Alexion getting bought out in 2010

* Deal likely after major trial data late 2010, early 2011

* Expensive valuation a possible deterrent to deal By Esha Dey

BANGALORE, April 28 (Reuters) - Alexion Pharmaceuticals Inc (ALXN.O) continues to be an attractive takeover target, but an expensive valuation and major trial data expected at the end of 2010 rule out the possibility of a deal this year.

The company will release data from trials of an additional indication for its potential blockbuster drug, Soliris, towards the end of 2010.

“The data is less than a year away and is something that would change the expected takeout price. Everything points to it being positive, so for (Alexion) to want to sell it beforehand — it almost sounds irresponsible,” Brean Murray, Carret and Co analyst Jonathan Aschoff said.

Soliris, which treats a rare genetic disorder called paroxysmal nocturnal hemoglobinuria (PNH), is currently being tested in four clinical trials for atypical hemolytic uremic syndrome (aHUS), another rare but serious disease that can lead to kidney failure.

Most estimates put peak sales of the aHUS indication at around $500 million if approved, which would give Alexion greater command over any subsequent takeover discussion.

Giant, cash-rich drugmakers like Bristol-Myers Squibb Co (BMY.N), Merck & Co Inc (MRK.N), Celgene Corp (CELG.O), Genzyme Corp GENZ.O and Amgen Inc (AMGN.O) are often cited as being interested in the company.

Alexion shares, which hit a year high of $57.19 last week, are already trading at 33 times forward earnings, compared to the biotechnology industry average of 28, according to Thomson Reuters data.

“I think if it was cheaper, say in the $40s, then you could see it being more of a target. But it is unclear to me if a pharmaceutical company would be willing to pay seventy plus dollars for the company,” Cowen and Co analyst Craig Gordon said.

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With about $157 million in cash and cash equivalents as of December, and multiple international launches set for later this year, Alexion is also not a biotech story that is dependent on a partner or an acquirer to realize its full potential.

“We believe management has done a great job building the company and think anyone would have to pay a huge price (to buy them out now) because the Soliris trajectory from here is still significant in our opinion,” Matthew Strobeck of Westfield Capital Management Co said.

Westfield Capital owns about 3.26 percent of Alexion stock.

STEEP PREMIUM EXPECTED

Given all this, most analysts think management is unwilling to sell for less than a substantial premium.

“My best guess is that (management) will not sell for less than $75 to $80. I think the company is very unmotivated to sell, except at a very high price because they are executing flawlessly,” Cowen’s Gordon said.

Piper Jaffray analyst Ian Somaiya said he expects the company to get a premium of around 45 percent to 50 percent.

“At the time Millennium was acquired, it was trading at 13 times its current sales number. If we apply a similar type of multiple to Soliris sales, we can get to significantly higher valuations,” Somaiya added.

Last year, Bristol-Myers bought Medarex Inc for a 90 percent premium to gain access to its expertise in making antibody-based drugs, while Millennium Pharmaceuticals was bought by Japan’s Takeda Pharmaceutical Co Ltd (4502.T) for a 53 percent premium in 2008.

According to Piper Jaffray, at a revenue multiple of 13, Alexion is worth about $6.8 billion, or $75 a share.

Given current prices, the company now trades at about 9 times sales, and is valued at about $4.88 billion.

The company declined to comment on questions regarding a possible buyout offer and the management’s stance on it.

ORPHANS GETTING ATTENTION

Niche-market focused biotechnology firms like Alexion are beginning to see more interest as Big Pharma is wisening up to the fact that even drugs targetted at rare and orphan diseases can bring in big money.

“The attitude towards orphan indications has changed...Sales can get easily above blockbuster status, with growth of around 15 percent to 20 percent for over a decade with little or no competition,” Piper Jaffray’s Somaiya said.

Orphan drug designation is granted by the U.S. Food and Drug Administration to drugs or biologics that treat a condition affecting less than 200,000 Americans, giving the drugmaker marketing exclusivity of seven years in the United States on approval.

Soliris is a complement inhibitor that helps to fight disorders arising out of an excess production of complement proteins in the body. Complement proteins are used by the body to fight foreign particles, but a disorder can cause them to attack and destroy healthy tissues.

The drug, launched in April 2007, had sales of $386.8 million in 2009, up 49 percent from a year ago.

According to Thomson Reuters data, it is expected to reach sales of about $988 million in 2014.

The drug can also be expanded into still other indications, making the company a strategic fit for big pharmaceutical and biotechnology firms with a hematology/oncology focus.

Apart from the aHUS trials, Alexion is also testing Soliris in a rare blood disorder, an autoimmune condition and certain neurologic disorders, while independent investigators are examining the drug in kidney-transplant rejection and a rare kidney disease.

"Soliris is a billion dollar drug in the current indication of PNH alone...if they get approval for aHUS, that could be a $500 million dollar market opportunity worldwide," Collins Stewart analyst Salveen Kochnover said. (Reporting by Esha Dey in Bangalore; Editing by Anthony Kurian, Aradhana Aravindan) (For more M&A news and our DealZone blog, go to here)

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