Canceled Appearance at Conference, Late 10Q Filing Fuel Alexion Acquisition Rumors

Published: Nov 08, 2016

Canceled Appearance at Conference, Late 10Q Filing Fuel Alexion Acquisition Rumors  November 7, 2016
By Mark Terry, Breaking News Staff

Rumors of either a takeover or some sort of problem caused Alexion  stock to first climb, then drop on Friday.

Alexion stock traded on Thursday, November 3, for $127.50. After news that it had canceled an appearance at a healthcare investor conference, shares jumped to $141.25 on Friday, November 4, but then dropped later in the day to $125.82. Shares are currently trading for $129.

The spike appears to be based on rumors that the company was an acquisition target. This had something to do with the conference cancellation. Investors also noted that although Alexion had announced third-quarter earnings, eight days later it still had not filed a 10Q report with the U.S. Securities and Exchange Commission (SEC). This led investors—apparently in a jittery mood—to wonder if something bad was going on with the company, which apparently was behind the resultant drop in stock prices.

Adam Feuerstein, with The Street, wrote, “Of course, starting a takeout rumor when a company bows out of an investor conference is a staple of speculators’ playbooks, and nine times out of ten, such rumors aren’t true. But Alexion’s stated reason for canceling was that ‘something came up’—a bit odd, although the statement could mean anything.”

So what are the pros and cons of an Alexion acquisition? The company focuses on ultra-rare drugs, and currently markets three. One is Soliris, which has the dubious distinction of being the world’s most expensive drug. It costs about $440,000 for a year’s treatment of a rare blood disease known as paroxysmal nocturnal hemoglobinuria (PNH). As Feuerstein notes, although there is political pressure to clamp down on drug prices, rare and ultra-rare diseases tend not to be considered in the discussion and most of the time insurance companies just pay the price, typically because there’s no alternative treatment and because there are relatively few patients that require the drugs.

And Feuerstein writes, “Alexion is also one of the few large-cap biotech companies that doesn’t rely on price increases to drive much revenue growth. Alexion is expected to deliver $3.1 billion in sales this year, which should grow to $3.6 billion in 2017 and $4.3 billion in 2018, according to FactSet.”

Those are reasons why companies might be interested. Roche (RHHBY) took a look at Alexion in 2013, but thought it was too expensive. That probably hasn’t changed. Other companies that might be interested, including Roche, are Novartis (NVS), Pfizer (PFE), Gilead Sciences (GILD), AstraZeneca (AZN) or Sanofi (SNY).

The problem, as suggested by the Roche case, is that Alexion has a market cap of around $31 billion. So an acquisition would likely run around $40 to $50 billion. That’s a very large deal.

Otherwise, 24 analysts gave the stock an average “buy” recommendation. One equities research analyst gave it a “sell,” six gave it a “hold” and sixteen gave it a “buy.” The average one-year price target $169.16.

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