Rallying around rare diseases

Alexion bets billions on Synageva and its drug candidate Kanuma

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CHESHIRE, Conn. & LEXINGTON, Mass.—In a move meant to give Alexion Pharmaceuticals Inc. more than one horse in the race, the biopharmaceutical company has signed a definitive agreement to acquire Synageva BioPharma Corp. for $115 in cash and 0.6581 Alexion shares for each share of Synageva, which translates to a total per-share value of approximately $230 and a total transaction value of approximately $8.4 billion, net of Synageva’s cash. Alexion will acquire all of Synageva’s outstanding shares of common stock via an exchange offer followed by a second-step merger. Completion of the offer is subject to customary closing conditions, regulatory approval and the tender to the offer of a majority of Synageva’s outstanding shares.
The merger agreement stipulates that under certain circumstances, Alexion may effect the transaction via a one-step merger; in such a case, a meeting would be held for Synageva stockholders to vote on the transaction. Certain Synageva shareholders, including affiliates of Baker Brothers Investments, have entered into voting and support agreements with Alexion that represent roughly 33.5 percent of Synageva’s outstanding shares.
At present, Alexion’s only marketed drug is Soliris, which has been approved for the treatment of paroxysmal nocturnal hemoglobinuria (PNH) and atypical hemolytic uremic syndrome (aHUS), though the U.S. approval and launch of Strensiq, its drug candidate for hypophosphatasia, is expected in the second half of this year. Nabbing Synageva gives Alexion access to the other company’s pipeline, which contains eight product candidates in clinical trials for 11 indications.
Its lead drug candidate is Kanuma, a recombinant form of the human LAL enzyme, which Synageva is developing as an enzyme replacement therapy for lysosomal acid lipase deficiency (LAL deficiency). The drug has received orphan designation from the FDA, European Medicines Agency (EMA) and Japan’s MHLW. Kanuma has also received Fast Track designation and Breakthrough Therapy designation from the FDA for LAL deficiency presenting in infants. It is under Priority Review with the FDA and has been granted accelerated assessment of its Marketing Authorization Application by the EMA, and regulatory decisions in both regions are expected in the second half of 2015. Sanj K. Patel, president and CEO of Synageva, said in a press release that “Alexion is uniquely suited to advance Synageva’s mission to deliver life-saving therapies to patients whose diseases were once considered too rare for developing treatments.”
 “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, CEO of Alexion. “With strong ongoing Soliris growth in PNH and aHUS worldwide, and the anticipated 2015 global launches of Strensiq and Kanuma, we will accelerate and diversify our revenue growth. We are excited to create the most robust rare disease pipeline in biotech across a range of therapeutic modalities. Synageva is an outstanding company that shares Alexion’s commitment to serving patients with rare diseases, and together we will create increasing value for our stakeholders.”
Reactions are mixed among both investors and analysts, given the price Alexion is paying and what it’s getting in return; Alexion’s shares dropped 8 percent upon announcement of the deal, the largest drop since November 2008, but Synageva’s jumped 112.2 percent. While the rare disease market is an attractive one for its limited competition within certain indications and the associated ability to set higher prices, the $230 per share consideration Alexion is paying is a premium of roughly 140 percent over the closing price of Synageva’s shares on May 5, which is a hefty price tag for a company that doesn’t yet have a drug on the market. Barclays Plc analyst Geoff Meacham, however, commented in a note that the deal makes sense, adding that Kanuma could see up to $1.5 billion in annual sales.
Zacks Equity Research is generally supportive of the deal, saying it is “positive on Alexion’s efforts to diversify and reduce its dependence on Soliris for growth,” noting that adding Kanuma to its arsenal could accelerate and diversify the company’s revenues, but that it “remain[s] concerned,” given that Kanuma has yet to gain approval and “other pipeline candidates at Synageva are still several years away from entering the market, if at all.”
The merger transaction, which is expected to close mid-2015, has gotten a unanimous thumbs-up from both companies’ boards of directors. Alexion expects the deal to result in annual cost synergies beginning this year and growing to at least $150 million in 2017 and to be accretive to non-GAAP earnings per share in 2018. Synageva Chairman Dr. Felix Baker will join Alexion’s board once the transaction is complete.

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