AstraZeneca Agrees to Buy MedImmune for $15.6 Billilon

AstraZeneca Agrees to Buy
MedImmune for $15.6 Billion

AstraZeneca PLC said it will pay $15.6 billion in cash to buy MedImmune Inc, in a deal that will transform the size of its biotechnology business and allows it to enter the vaccines market.

The takeover will allow the British pharmaceutical company, which has suffered from a string of setbacks with drugs under development over the last two years, to strengthen its pipeline as it complements it with experimental biological treatments and vaccines.

It does so at a heady valuation -- AstraZeneca is paying 12 times 2006 revenues. The price of $58 a share represents a 21% premium on MedImmune's closing price Friday of $48.01. By 2009, AstraZeneca expects to save around $500 million a year from the combination of its businesses with those of MedImmune.

AstraZeneca's shares declined in reaction to the deal, because the takeover is draining its cash pile and will probably dilute earnings this year and next. In midday trading in London, the stock was down 3.6% at £28.48 ($57.06), the biggest decliner on a slightly lower FTSE 100.

The deal, which AstraZeneca hopes to close in June, would increase the proportion of biotechnology drugs in the British drugmaker's pipeline to 27% from 7%.

The takeover of MedImmune "creates a leading fully integrated biologics and vaccines business with critical mass and enhances AstraZeneca's research and development science base through which we will deliver a stronger product pipeline," said Chief Executive David Brennan in a statement.

MedImmune is bringing two late-stage assets to the table. One is a next generation follow-on to flagship product Synagis, which is used to prevent respiratory syncytial virus, or RSV, in babies. The second is a refrigerated formulation of its FluMist influenza vaccine, which will probably be launched in the coming U.S. winter season. The U.S. vaccines and biotechnology company will also be adding around $1.2 billion to annual sales, the company said.

Deutsche Bank pharmaceutical analysts, who have a buy rating on the stock, in a note to investors said "The acquisition significantly accelerates and reduces the execution risk of AstraZeneca's biologicals strategy in creating a leading fully integrated biologics and vaccines business to complement the existing largely small molecule approach."

By entering the vaccines market, AstraZeneca is following in the footsteps of Novartis AG, which last year acquired U.S. vaccines maker Chiron. Among European drug companies, GlaxoSmithKline PLC and Sanofi-Aventis SA also have large vaccines business.

Big pharmaceutical companies are rediscovering vaccines as a growth opportunity after years of neglect, attracted by a market with few producers and a reduced risk of generic competition.

The emergence of a deadly strain of avian flu a few years ago, and the lack of a vaccine that would protect against it, has persuaded many governments to guarantee companies the purchase of certain vaccines, to encourage research on new ones.

The deal was earlier reported by the Wall Street Journal. The newspaper said at least four large companies were involved in a bidding process for MedImmune, prized for its collection of drugs for respiratory viruses and influenza, but whose stock faltered during 2006 and came under pressure from investor Carl Icahn.

David Brennan, Chief Executive Officer of AstraZeneca, said that the bidding process for MedImmune had been "ferociously competitive," and that bids were sealed during the course of Sunday. "We are delighted to have won against all of our peers in the pharma industry," he told reporters on a conference call to discuss the deal.

AstraZeneca plans to keep up its $4 billion share buyback program, but Chief Financial Officer Jon Symonds said he doubts a possible buyback program next year will be as big as the current one. He added that "we have always said our share buybacks are opportunity dependent."

The takeover of MedImmune is obviously reducing the company's cash reserves and AstraZeneca's board of directors will decide on the size of a possible buyback toward year-end, he said.

AstraZeneca brought forward the release of its first quarter results due to the deal, saying net profit rose 9.8% to $1.56 billion, while sales increased 13% to $6.97 billion, ahead of analysts' forecasts which had called for $6.55 billion. The company benefited from the strong dollar as sales at constant exchange rates rose at a slower pace of 9%.

Andrew Fellows, analyst at Swiss broker Helvea in London, who has a neutral rating on the stock, said "The quarterly figures are broadly in line and show again that although AstraZeneca is able to deliver healthy growth in the short term, both in terms of top line and operating income, the real concerns lie in the ability of the company to deliver from its ailing pipeline, and hence the need for an acquisition for a company such as MedImmune."

AstraZeneca's top drugs performed well during the quarter, with heart-burn drug Nexium up 10% to $1.31 billion, schizophrenia treatment Seroquel up 14% to $923 million and sales of cholesterol drug Crestor rising 62% to $628 million.

AstraZeneca said it was still on track for reaching its target earnings per share in 2007 of $3.80 to $4.05, excluding any contribution from U.S. sales of Toprol-XLTM and restructuring costs. It said it expects $250 million in charges relating to supply-chain restructuring in 2007, about half the total to be incurred.