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Analysts question value of rumoured $20bn Roche bid for Alexion

Shares in orphan drug specialist slide back after earlier surge


Alexion PharmaceuticalsShares in Alexion have started to slide back after surging on reports that Roche was interested in acquiring the orphan drug specialist.

Roche is rumoured to be seeking finance to buy Alexion, according to Bloomberg and Reuters reports, which placed a value on the acquisition of $20bn or more. The news prompted a surge in Alexion's shares late last week, rising 12 per cent on Friday to close over $114.

Almost immediately the rumours started to fly, however, a number of analysts started to poke holes in the deal as being too expensive and providing limited value to Roche. Yesterday the company's shares lost almost half the earlier gain, closing down 5.5 per cent to just under $108.

Alexion currently has one drug on the market in the form of Soliris (eculizumab), a treatment for the rare blood disorder paroxysmal nocturnal haemoglobinuria (PNH) and atypical haemolytic uraemia syndrome (aHUS).

Despite the rarity of these conditions, Soliris' hefty price tag - it is currently the priciest drug in the world with an annual cost of around $440,000 - means that it comfortably breached the $1bn sales barrier in 2012, while its orphan status means it has the benefit of lengthy exclusivity on the market.

Nevertheless, Roche's supposed plan to offer $130-per-share for Alexion means it would pay 20 times annual revenues for the company. That would suggest it is banking on Soliris continuing to grow robustly - it is also in trials for a number of other indications - as the remainder of Alexion's pipeline is in early development and high risk.

One other enticing asset could however be asfotase alfa, an enzyme replacement for the inherited metabolic disorder hypophosphatasia (HPP) that was recently granted breakthrough status by the FDA and is in phase II testing, with filings due next year.

Robyn Karnauskas of Deutsche Bank said he was sceptical about the deal from Roche's perspective due to "lack of strategic fit, synergies and high valuation versus risks", but added that it looks less expensive when considering Alexion's potential peak revenues.

Soliris has just been granted orphan designation for neuromyelitis optica (NMO), a life-threatening, ultra-rare neurological disorder. Alexion already has positive phase II data in hand so could move ahead with a filing fairly soon.

NMO and other indications such as Shiga toxin Escherichia coli-related haemolytic uremic syndrome (STEC-HUS), myasthenia gravis and kidney transplant could drive annual sales above $3bn level.

However, there is already thought to be a lot of off-label prescribing of the drug so negative trials in any of the new uses could peg back Soliris' peak potential. Some observers have put the sales value of Alexion's entire pipeline at $6bn.

Aside from the risk in Alexion's product portfolio, analysts have also suggested there are few opportunities for Roche to cut costs.

For example, Bernstein Research's Geoff Porges said in a research note that Alexion has its own specialised manufacturing, discovery and development and commercialisation capabilities and has been frugal setting them up.

"For these reasons, we believe the synergies available to an acquirer of Alexion would be limited," he wrote.

Meanwhile, Roche has shown in the past that it will not pursue deals that it considers overvalued. Last year it backed away from a $6.8bn offer for US gene sequencing specialist Illumina saying the price asked was "unrealistic".



16th July 2013

From: Research, Sales



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