Yet again another headline-grabbing event has just taken place: on 23 April, AstraZeneca entered into a definitive agreement to acquire MedImmune in an all-cash transaction which will purchase the company for U$15.2 B – a 21% premium to MedImmune’s closing share price of US$48.01 on 20 April, and a full 53.3% to that of US$37.84 on 11 April 2007 – the last business day before MedImmune announced that it was to explore strategic alternatives. Clearly, pharmaceutical companies have not lost their appetite for acquiring biotechs. However, when it was announced, this latest move actually resulted in AstraZeneca’s share price dropping by 5%. So has AstraZeneca made the right move, and will it be paying too much?
In previous commentaries I have discussed the issue of pharmaceutical companies buying biotechs to acquire product pipelines, as well as their recent interest in divesting or spinning out their early-stage clinical development programmes to biotechs. In fact, television interviews with two biotechs, Speedel and Synosia, both of which have acquired products from pharmaceutical companies, can be seen on PharmaTelevision. Putting products that don’t fit strategically into entrepreneurial biotech environments, with an option to reacquire their rights again if the product regains strategic importance, is becoming increasingly common because it allows pharmaceutical companies effectively to spread bet their pipelines. Conversely, acquiring biotechs provides an opportunity for pharmaceutical companies to obtain complete or partial pipelines and access novel technologies. I believe that there are also other options or business models that pharmaceutical companies can use, and I have discussed these before in other business commentaries and on the conference panel circuit.
“So did AstraZeneca offer too much as some analysts and shareholders have complained? Well my decisive and firm view on this is – it depends! It depends on what the company does next. MedImmune is rich with opportunities.”
Currently, there is a lot of discussion on how MedImmune should be integrated into AstraZeneca, and I am sure that discussion is more intense inside AstraZeneca than outside. The company has already said that there will be cost savings, so changes will be afoot. So did AstraZeneca offer too much as some analysts and shareholders have complained? Well my decisive and firm view on this is – it depends! It depends on what the company does next. MedImmune is rich with opportunities. A pure financial analyst’s view from spreadsheet models of MedImmune’s portfolio may result in a question mark on the amount that AstraZeneca is to pay. However, today is not important; tomorrow and the future are. It will be the integration of MedImmune into AstraZeneca’s operations that will determine whether AstraZeneca paid too much or even too little! In other words, it is the string of decisions following that important decision to acquire that is essential to value. Most of those decisions will revolve around strategy, as well as issues of culture and management style. Success in extracting the best value out of MedImmune will determine whether AstraZeneca paid too much – or too little.