At $23.5 billion in market capitalization, Alexion has grown to become a major player in the biotech world, yet its current valuation does not give credit to the potential and pipeline of its overall business. And it seems Amgen has taken notice. Although there’s some pressure on Amgen to do a deal given the Bristol Myers’ recent acquisition of Celgene, the Alexion deal is attractive nonetheless.
If we take a closer look at Alexion from a free cash flow perspective, we find a solid growing stream of cash flows where after 10 years, the present value of those cash flows would equate to $19.1 billion given a cost of equity of 10.5%. But that’s not the full value of the company, we need to take into account the terminal value of the business at that 10th year. Assuming a perpetual growth rate of 2.7% (equivalent to the 10 year government bond rate) and the same cost of equity, we arrive at a terminal value of $51 billion. Discounted back to present time, the terminal value is $18.9 billion. Adding the two components together, the total value today of Alexion is approximately $38 billion.
But beyond the math exercise, the acquisition also makes strategic sense for Amgen due to the nice fit within its hematology focus. Overall Amgen’s core therapeutic areas are bone health, cardiovascular, hematology/oncology, inflammation, and neurosciences. Alexion, on the other hand, is more specialized in drugs that target rare blood diseases, including atypical hemolytic uremic syndrome and paroxysmal nocturnal hemoglobinuria. There’s a good fit plus limited conflict – there is one key conflict in that Amgen is developing its own biosimilar to Alexion’s Soliris that would need to be resolved.
Industry speculation is that Amgen would be bought for $200 per share, representing a 74% premium to Alexion’s stock price today.
Alexion was founded in 1992 in New Haven, Connecticut by Steven Squinto and Leonard Bell. Since 2000 it has pursued five major acquisitions – Proliferon in 2000, Enobia in 2011, Synageva BioPharma in 2015, Wilson Therapeutics in 2018 and Syntimmune in 2018. The company is primarily held by institutional investors including Fidelity Investments, T. Rowe Price, BlackRock and others. Alexion is led by CEO Ludwig Hantson Ph.D. who was previously President and CEO of Baxalta, a successful spin-off from Baxter in July 2015. Before that he was President of Baxter BioScience.