London's AstraZeneca PLC said yesterday that it will pay $15.6 billion in cash to acquire FluMist developer MedImmune Inc. in a deal that highlights how far the pharmaceutical industry is willing to go to shore up its future by tapping into biotechnology.
The $58-per-share price tag is the highest paid for a Maryland-based company. And it's significantly more than most investors had predicted when MedImmune, whose headquarters is in Gaithersburg, announced this month that it was considering a sale.
But analysts say it gives AstraZeneca a fighting chance amid increasing competition from generic drugs, which threaten to eat away at profits from traditional best-sellers like its acid reflux medication Nexium, which brought in $1.3 billion in sales during the first quarter of this year.
As one of the top 10 biotech companies worldwide based on revenue, MedImmune has helped develop the competitive scientific industry in Maryland by setting a leadership example, turning former employees into entrepreneurs and raising $300 million in seed money for new businesses across the country through a venture capital subsidiary.
The sale provides Maryland with its first large pharmaceutical presence, which state officials have been unsuccessfully chasing for years. And it allows MedImmune to continue operating in Maryland, where it employs 1,700 people. The company and Chief Executive David M. Mott will take charge of the British drugmaker's burgeoning biologics program, and local employees will be offered retention grants to stay on board.
"AstraZeneca, I think, is an excellent fit for MedImmune. It gives us greater global resources to continue doing what we love doing and already do very, very well. ... I think our employees will readily see that," Mott said in a conference call.
His 605,000 MedImmune shares will be worth about $35 million once the deal closes. Mott also holds options for more than 5 million additional shares.
MedImmune investors will receive a 21 percent increase over yesterday's opening stock price of $48.01. The deal, reached during the weekend, also reflects a 53 percent premium over the company's share price of $37.84 on April 11.
That was the day before MedImmune's board reversed a commitment to remain a stand-alone company and said it was considering offers to sell the business to appease dissatisfied stockholders. Those investors include billionaire Carl C. Icahn, who is best known as the mastermind behind takeover bids for companies including Texaco Inc. and USX Corp.
Icahn, who owns 2.8 million MedImmune shares and revealed last week that he pressured the board to sell, stands to make a $71 million profit after the deal is done. It's expected to close in June assuming shareholders approve.
The announcement sent MedImmune's stock soaring. It closed up $8.56, or 18 percent, to $56.57 on the Nasdaq, where it was among the day's biggest gainers and the most active stock in both share and dollar volume. AstraZeneca's stock closed down $3.13, or 5 percent, to $55.91 on the New York Stock Exchange.
Industry analysts had estimated MedImmune could command about $45 to $50 per share. Yesterday, they characterized the amount AstraZeneca plans to pay - reached through an intense bidding process involving multiple suitors - as a sign of desperation among pharmaceutical makers.
"There's kind of a land grab going on," said Peter Winter, editorial director for Burrill & Co., a San Francisco merchant bank that finances biotech businesses. "Major biotech companies are being scooped up."
Many companies have also implemented drastic cost-cutting measures, including AstraZeneca. Though the British company said yesterday that its first-quarter sales were $7 billion with a profit of about $2.2 billion, it announced plans in February to lay off 3,000 people, about 4.6 percent of its work force.
AstraZeneca executives said the MedImmune deal, which includes a $15 billion loan supplemented by company cash, is part of a long-term strategy to grow the business.
During the past couple of years, giant pharmaceutical companies have partnered with or acquired smaller biotech companies in the hopes that their development drugs could lead to the next big moneymaker. And though some recent deals have fallen through, or were priced conservatively, MedImmune offers more than most biotechs.
It comes with its own blockbuster drug, infant respiratory treatment Synagis, which had sales of $1.2 billion last year. AstraZeneca will fold the drug into its portfolio, along with the business' manufacturing facilities, vaccine divisions and rich pipeline of treatments under development.
"Strengthening the pipeline has been our highest priority for some time," AstraZeneca Chief Executive David Brennan said yesterday during the conference call. "This business combination ... offers more potential and new technology and new capabilities to improve our product flow over the long term."
The MedImmune acquisition will add 45 investigational drugs to the 113 AstraZeneca already has in its pipeline, along with three marketed products. Fifteen of the MedImmune's developing drugs are already in clinical testing.
MedImmune also has a foothold in the treatment of human papillomavirus, or HPV. Other pharmaceutical companies rely on MedImmune's technology to create vaccines to ward off the cancer-causing sexually transmitted disease.
Merck & Co. pays MedImmune royalties for its Gardasil vaccine, which had $365 million in sales during the first quarter of this year.
Adding the company to AstraZeneca furthers a mission begun in May when the British pharmaceutical business made its first foray into biologics, acquiring a relatively small-scale English company called Cambridge Antibody Technologies, which will now merge with MedImmune. That division will become an AstraZeneca subsidiary.
"I assume that's why they were very attractive to a company like AstraZeneca, which is looking to expand their biologics," said Michael J. Werner, president of the Werner Group, a biotech consulting firm in Washington.
Despite the laundry list of assets, recent setbacks had led MedImmune shareholders to grumble.
New versions of FluMist, which has been a failure in the marketplace, and cash cow Synagis have run into development snags. And management has been criticized for relatively little growth in the company's stock price.
David Katz, president of institutional shareholder Matrix Asset Advisors, which owns about 1.8 million MedImmune shares, has repeatedly called for the company's sale over the past year.
"Clearly MedImmune has garnered a full price in the sale of their business. ... Our investors have done well today," said Katz, who attributed the deal price in part to a weak U.S. dollar allowing American companies to be bought "at a discount."
MedImmune's founder and chairman of the board, Wayne T. Hockmeyer, said he is not yet sure what will happen to the company's venture capital subsidiary, MedImmune Ventures Inc., which he oversees.
And Hockmeyer does not know whether there will be a role for him once the deal is sealed, making the development slightly bittersweet, he said. (He has options to buy more than 2 million shares.)
"I've always been a little bit pragmatic about these things. For a company to be successful, it needs to continue to grow and innovate and do what it does best," said Hockmeyer, who incorporated the company in 1987. "The next 20 years will be a generation of a different MedImmune."
Sun reporter Jay Hancock contributed to this article.
June 1987 - Incorporates as Molecular Vaccines Inc., changing its name to MedImmune in October 1990
May 1991 - Raises $24 million through its initial public offering of stock
October 1995 - Acquires exclusive worldwide rights to human papillomavirus technology, kicking off an intellectual-property portfolio that's attributed to the development of vaccines that ward off the cancer-causing sexually transmitted virus; MedImmune receives royalties on Merck's HPV vaccine, Gardasil
August 1996 - Announces plans to build its own manufacturing plant in Frederick
June 1998 - Synagis, an infant respiratory treatment whose sales will eventually reach blockbuster status, is approved for marketing January 2002 - Acquires California-based Aviron Inc. along with its investigational nasally inhaled flu vaccine, FluMist
July 2002 - Forms MedImmune Ventures Inc., a venture capital subsidiary designed to invest in new biotech businesses
June 2003 - FluMist is approved for sale in the United States
September 2005 - Announces plans to develop pandemic influenza vaccines with the National Institutes of Health
July 21, 2006 - Stock closes at $25.46, a 15-month low, after company outlines lower than expected earnings.
April 12 - Board announces it is considering selling the company
Yesterday - AstraZeneca PLC says it has agreed to buy MedImmune in a $15.6 billion deal
The companies at a glance
Main headquarters: London
U.S. headquarters: Wilmington, Del.
Chief executive: David Brennan
2006 revenue: $26.5 billion
2006 profit: $8.2 billion
Employees: 66,000 employees worldwide, with about 27 percent in the Americas
Key products: Arimidex to treat breast cancer; Crestor to reduce cholesterol; Nexium for acid reflux disease; Seroquel for treatment of schizophrenia; and Symbicort to treat asthma
Chief executive: David M. Mott
2006 revenue: $1.28 billion
2006 profit: $75 million
Employees: 2,500 worldwide; 1,700 in Maryland
Key products: Synagis, an infant respiratory treatment, and FluMist, a nasally inhaled flu vaccine; new versions of both products are nearing commercialization
[Source: AstraZeneca; MedImmune]