MedImmune: A Booster Shot for Astra?

The vaccine maker fetches a premium price as the European pharma giant seeks to strengthen its product portfolio

Vaccine maker MedImmune (MEDI) was the latest prize for a big pharma looking to beef up its product offerings. Anglo-Swedish giant AstraZeneca (AZN) said Apr. 23 it would snap up the U.S. biotech for $15.2 billion, or $58 per share. MedImmune shares soared on the news to trade up 18% to close at $56.57 in Nasdaq trading Apr. 23.

Shares previously jumped on Apr. 12 after the company said it was exploring sale options and had enlisted advisors including Goldman Sachs (GS). American depositary shares of AstraZeneca closed at $56, down 5.2%, in New York Stock Exchange trading Apr. 23.

Gaithersburg (Md.)-based MedImmune has won approval for Synagis, a treatment for serious lower respiratory tract disease caused by the respiratory syncytial virus. The company's other main product is FluMist, a flu vaccine inhaled as a nasal spray.

It is developing products that it hopes will be improved versions of each. Notably, its latest stage product candidate is CAIV-T is a variation of FluMist which can be stored in a refrigerator instead of a freezer.

Analysts generally applauded the move, even when finding the valuation a bit steep. Following the announcement, Morningstar analyst Karen Andersen wrote that AstraZeneca is paying a "full price" for MedImmune but added that it would be able to use its existing sales force to sell MedImmune products. Additionally, Andersen said MedImmune's pipeline will be a boon for AstraZeneca. AstraZeneca's top sellers are the heartburn pill Nexium which had more than $5 billion in 2006 sales and the schizophrenia medication Seroquel which notched up sales of $3.4 billion.

Like many of its big pharma peers, AstraZeneca is feeling squeezed by expiring drug patents and a thin pipeline (see, 1/29/07, "More Merger Mania Ahead For Pharma"). However, big buyers have different purchasing strategies. AstraZeneca is shelling out $15 billion for MedImmune, a profitable company, while in the last year Merck (MRK) has snapped up early stage, loss-making outfits Sirna (see, 10/31/06, "Merck's Big Play in RNA") and Glycofi for the comparative bargains of $1.1 billion and $400 million respectively. Without either company holding the potential to generate revenue soon, Merck bought those outfits more for their technologies promise than for beefing up next year's balance sheet.

The related medical diagnostics field has also seen acquisitions. Beckman Coulter (BEC) and Inverness Medical Innovations (IMA) have both expressed interest in cardiac diagnostics outfit Biosite (BSTE), which has seen its stock almost double in the last month (see, 4/5/07, "Inverness Sparks Bidding War for Biosite").

In addition to MedImmune's existing products, its pipeline includes cancer treatments and a vaccine for a virus that causes mononucleosis. The company reported a net income of $49 million for 2006, vs. a net loss of $17 million in 2005. MedImmune also receives revenues from GlaxoSmithKline (GSK) and Merck for the license technology used in the two pharmas' vaccines for human papillomavirus, a cause of cervical cancer. Merck's vaccine, Gardasil, is available in the U.S. Approval is pending for GSK's competing product.

Following the deal Standard and Poor's Equity Research Services maintained its buy rating on Astra and its hold call on MedImmune. The price of 11.8 times MedImmune's 2006 sales was "significantly" higher than the analyst's anticipated price of 8 times earnings for the company. "We think the bid premium was calculated to deter rival bids," said the research outfit. (S&P, like, is owned by The McGraw-Hill Cos.)

Before it's here, it's on the Bloomberg Terminal.