Sees stock sink after deal set

Analysts question latest acquisition

AstraZeneca Plc’s shares slumped Monday to an eight-month low after it agreed to buy Alexion Pharmaceuticals Inc. for $39 billion, with some investors questioning the strategic rationale for the British pharmaceutical giant’s biggest deal in its history.

The acquisition would push AstraZeneca, which has fostered a turnaround on its strength in oncology, into new areas such as immunology. While those are potentially lucrative and could help address the company’s relative shortage of cash, there are few synergies with existing operations.

And the transaction potentially adds to longerterm risks that the company faces from patent expirations.

Markus Manns at Union Investment, which holds AstraZeneca shares, said the deal also prompts questions over prospects for the company’s existing portfolio.

AstraZeneca Chief Executive Officer Pascal Soriot has focused on cancer drugs such as Lynparza, Imfinzi and Tagrisso.

“If you don’t have cash, don’t buy a large com

pany unless it is a once-ina-lifetime opportunity and has strong strategic merits,” Manns said.

“You can hardly call this deal a once-in-a-lifetime opportunity, and the strategic merits are weak.”

The shares fell 5.74% in London on Monday, after falling more than 9% in early trading.

Alexion surged 29% in U.S. trading, to $156.31. With the drop in AstraZeneca’s shares, the value of the cashandstock deal slipped to around $171 a share from an initial $175. Still, with Alexion trading well below that level, it suggests that investors see limited prospects for a higher approach from another bidder.

AstraZeneca has $8 billion of cash in hand, and its debt load amounts to 1.7 times its earnings — a lighter burden compared with the average for European high- grade companies.

AstraZeneca is funding the deal in part through a $17.5 billion financing facility from Morgan Stanley, JPMorgan Chase & Co. and Goldman Sachs Group Inc.

It’s not unusual for the shares of acquiring companies to fall when a deal is announced, unless there’s a clear cost-cutting rationale.

Still, the size of the drop in AstraZeneca’s stock is significant, adding to the pressure amid questions surrounding the efficacy of the company’s potential coronavirus vaccine and the way the late-stage trials were handled.

Soriot has talked up the prospects for increasing sales in China, where Alexion has not been a big player while AstraZeneca has made inroads.

Investors, however, have focused on potential longerterm threats to some of Alexion’s products.

Soliris, a monoclonal antibody treatment for immunerelated conditions, could face competition from biosimilar drugs after 2025, just as some existing AstraZeneca medicines lose patent protection, analysts at Intron Health said in a note.

“They have financially engineered their way out of it in the short term but stored up even bigger issues for the future whilst destroying $8 billion of value,” the analysts wrote.

The deal also materially increases AstraZeneca’s risk profile, they said.