Alexion to buy Synageva for $8.4bn

Alexion, a rare-disease drug developer, agreed to acquire smaller rival Synageva BioPharma for $8.4bn, more than double its market value before the deal was announced, in the latest sign that the biotech sector is heating up.

Under the terms of the agreement, the Connecticut company will pay Synageva shareholders $115 in cash and 0.6581 Alexion shares, valuing Synageva's stock at $230. On Tuesday, Synageva's share price closed at $95.87.

The 139 per cent premium Alexion agreed to pay for the rival is likely to raise fresh concerns that the biotech and Biopharma sector is entering bubble territory as company's take bigger risks to secure potentially lucrative drugs.

The makers of rare-diseases drugs command very high prices. Alexion is the maker of Soliris, a treatment for a rare condition called atypical haemolytic-uremic syndrome, which causes kidney failure, costs the UK's National Health Service £340,200 a year per patient.

Alexion said that Synageva has a pipeline of innovative drugs including its SBC-103, an investigational enzyme replacement therapy in an ongoing phase 1/2 trial for patients with a genetic and progressive rare metabolic disease. SBC-103 obtained Fast Track designation by US regulators in January 2015.

Synageva's shares rose 128 per cent in pre market trading, while Alexion's fell 4 per cent in a clear sign that the investors of the larger company were concerned about the premium being paid.

Buyer's shares in most transactions over the past 18 months have usually risen as investors rewarded companies seeking inorganic growth. Historically the opposite has been true.

Alexion, which has a market valuation of about $34bn, said that the acquisition would strengthen its portfolio of transformative therapies for patients with rare diseases and is expected to accelerate its revenues.

Once the transaction is completed Alexion said it will achieve annual cost synergies as early as this year although it did not specify how much. By 2017 it said it would obtain synergies of at least $150m. It added that the deal will be accretive to earnings per share in 2018.

"Synageva is an ideal strategic and operational fit for Alexion that aligns with what we know well and do well - providing life-transforming therapies to an increasing number of patients with devastating and rare diseases," said David Hallal, Chief Executive Officer of Alexion.

Lazard and JPMorgan advised Alexion, and Wachtell, Lipton, Rosen & Katz was its legal counsel. Goldman Sachs advised Synageva, with the legal support of Sullivan & Cromwell LLP and Ropes & Gray.

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