AstraZeneca’s recent purchase of MedImmune for $15.6 billion in cash was too steep a price for the biotech’s R&D portfolio and capabilities, analysts and shareholders say.
The price tag reflects a 53% premium over the then current share price. AZ’s reasoning: the deal expands its biologic capabilities and complements the 2006 acquisition of biotech firm Cambridge Antibody Technology. MedImmune also gives AZ a presence in the vaccines market, albeit a small one.
FluMist, a flu vaccine given as a nasal spray, has not exactly flourished, and Synagis, an antibody-based treatment for respiratory syncytial virus (RSV), had about $1 billion in sales, accounting for most of MedImmune’s revenues last year.
An article in UK mag The Business last week quoted a “senior source within AstraZeneca” as saying the company would consider offloading the MedImmune vaccines business if one last FluMist marketing push didn’t pay off. FluMist has had trouble making headway against a field of oral and injectable competitors, but the company is rolling out a reformulated version that is easier to store and seeking an indication for use in children ages 1-5—a key demographic for flu vaccines.
A source close to the industry told MM&M that that sounded like tough talk meant to reassure Wall Street the company would get its cash pile back if the franchise didn’t perform. “Wall Street wants to know that there’s a contingency plan, so they’re hedging their bets,” said the source, “but most big pharmas are trying to get into the vaccines space right now.”
The Anglo-Swedish giant is still far from solving the pipeline woes that have plagued CEO David Brennan since he assumed the top job. Shareholders have told Brennan as much in meetings, and analysts say his latest splurge is not likely to change the firm’s future prospects too much.
“Overpaying is one thing, but overpaying for something that lacks pizzazz is something different,” wrote Prudential analyst Tim Anderson in a recent research note.
MedImmune has 45 mostly early stage experimental biologics, Anderson noted, but two are in Phase III: Numax, a Synagis follow-on for RSV infection, and CAIV-T, the Flumist follow-on.
According to Anderson, the steep price of MedImmune simply reflects the high cost of doing business in pharma these days. The scarcity of new compounds, combined with a glut of cash among Big Pharma, is driving up the price of biotechs.
“Drug companies are between a rock and a hard place,” he wrote. “They can either participate in M&A and shoulder the criticism that they are paying too much, or they can do less interesting things with their cash like buy back shares or increase dividend yields.”
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