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AstraZeneca's latest purchase fails to impress investors

Published on 10/05/07 at 12:20pm

AstraZeneca has entered the lucrative vaccine market and gained a range of potential new biologic products with the $15.6 billion purchase of MedImmune.

Chief executive David Brennan said the acquisition of MedImmune was a transformational step for AstraZeneca's biologics strategy, but many investors were unimpressed with the move.

Concerns about the value of the US biotech's price tag and the strength of its late-stage pipeline saw AstraZeneca's shares fall by 1.5% following the announcement.

One pharmaceutical sector analyst called the deal "uninspiring and over-priced". He told the Financial Times: "In general, the financial markets are pretty good at valuing. This looks like desperation."

MedImmune will be combined with Cambridge Antibody Technology, the UK biotech AstraZeneca acquired last year for $2.2 billion, to create a fully integrated biologics and vaccines subsidiary.

The price attached to both deals in AstraZeneca's spending spree has attracted comment. The offer for MedImmune values its shares 53% higher than their early April level,when the company put itself up for sale and CAT was purchased at a 67% premium to its market capitalisation.

A number of senior MedImmune figures are expected to stay with the company once it is integrated with CAT. These include chief executive and president David Mott, who will also take a leadership role within AstraZeneca, and R&D president James Young.

AstraZeneca says it will gain $500 million of cost-savings from the acquisition of MedImmune by 2009 and that after that date it will begin contributing to its earnings.

The driving force behind AZ's recent spending is not just a need to re-stock its pipeline following a series of late-stage failures and to shore-up its R&D capabilities - the deal also substantially increases its position in biotechnology.

MedImmune's leading products are Synagis, the first monoclonal antibody treatment for infectious disease, and the FluMist nasal flu vaccine, plus there are follow-ups to both in late-stage trials.

A major area of interest to its new owner is MedImmune's vaccine product candidates and technology. The biotech's technology generates royalties from GlaxoSmithKline and Merck for their respective cervical cancer vaccines, which are estimated to reach combined peak sales of $5.5 billion, and its vaccine pipeline includes phase I candidates for avian (H5N1) influenza and the respiratory infection parainfluenza.

Overall, the company's pipeline encompasses oncology, infection and respiratory/inflammation candidates, and will bring a total of 45 new projects to AstraZeneca.

Although the majority of these are still at the pre-clinical stage, the acquisition changes AstraZeneca's R&D focus, increasing the proportion of biologics in its pipeline from seven per cent to 27%.

Biologics tend to be more expensive but harder to produce than traditional small molecule drugs and AstraZeneca also gains MedImmune's biologics manufacturing facilities.

The biotech company will increase production capability over the next three years and AstraZeneca says it would only take a modest increase in spending to double the planned expansion. This would stop it having to invest in a separate biologics plant in the near-term.

MedImmune, based in Maryland, employs more than 2,500 people worldwide and last year, had revenues of $1.3 billion, pre-tax profits of $75 million and gross assets of $3 billion. Outside the US, it has manufacturing plants in the UK at Speke in Merseyside and in the Netherlands at Nijmegen.

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