Alexion Pharmaceuticals (ALXN) announced today that it bought Synageva (GEVA) for $8.4 billion in a cash and stock deal. Alexion shares were down 13.5% on the news at the close, probably because investors believe that it paid too much of a premium (140%). Shares of Synageva soared more than double its share price to close $203.39 per share. Synageva is a rare-disease drug maker that has no current products out in the market.
The cash and stock deal values Synageva at $230 per share, which is a 140% premium from Tuesday’s closing share price of $95.87 per share. As mentioned above, Synageva is a rare-disease drug maker. Its main drug, known as Kanuma, treats lyposomal Acid Lipase — LAL. This is a rare disease in which patients develop a buildup of fat in the liver and blood vessels. This buildup causes many serious health problems, up to and including death.
Rare-disease drug companies are becoming big targets for big pharmaceutical companies. Despite what its shareholders seem to think, Alexion wasn’t afraid to pay a 140% premium just so that it could acquire Synageva. The reason behind this is that rare-disease drugs have multiple benefits compared to other drug therapy treatments. For instance most rare diseases — not all — are designated with orphan drug status, which commands longer market exclusivity along with special tax benefits. Another good reason is that since there is hardly any competition for rare-disease drugs these companies can easily charge a higher price for the drug.
At the moment it is not clear where Alexion and Synageva will set the price for Kanuma, but some analysts are expecting the drug to sell to each patient for $350,000 per year. Because Kanuma was given priority review it pushed up the FDA review date to September, and given the disease doesn’t have many treatment options it is more likely that the FDA could approve it for marketing. Even better, the EMA is expected to make a decision on Kanuma in the 2nd half of 2015 which should be another boost in value for Alexion. Shareholders who sold off today may be less sanguine about the approvals.
