Investors cautious on Alexion's $8.4bn Synageva bid

Alexion is confident its $8.4bn takeover of Synageva will give it another blockbuster product - but a slump in its shares suggests investors may take a bit of convincing.

The announcement on Wednesday of the $230-per-share offer sparked an 8 per cent fall in Alexion's shares and prompted questions about whether the offer- an almost 140 percent premium over Synageva's closing share price the previous day - was overblown.

While the stock regained some ground yesterday, it was still trading down at the close as investors gauged whether the bid provides value, given that Synageva still has no products on the market.

The success of the takeover hinges on the anticipated approval of Synageva's Kanuma (sebelipase alfa), a drug for the rare genetic metabolic disorder lysosomal acid lipase deficiency (LAL D) which Alexion insists has the potential to become a $1bn-a-year product - provided it bags FDA approval due by 8 September.

Alexion's offer ties in with a rising interest among speciality drugmakers in rare disease therapies, which can command high prices that more than make up for an often tiny patient population.

Recent M&A activity in the sector includes Shire's recent acquisition of NPS Pharma, which was also agreed before a key regulatory milestone, and Valeant's pursuit of Salix. Meanwhile, shares in other rare disease drug producers such as BioMarin, Ultragenyx and PTC Therapeutics have also climbed on expectation other takeovers may be in the offing.

Alexion's own Soliris (eculizumab) for the orphan diseases paroxysmal nocturnal haemoglobinuria (PNH) and atypical haemolytic uraemic syndrome (aHUS) is a case in point. It carries the princely price tag of $500,000 a year, helping the product clear more than $2 billion in sales last year.

On a conference call, Alexion chief executive David Hallal noted that Kanuma is the first effective treatment for LAL-D, which is invariably fatal when diagnosed in infancy so represents a significant unmet medical need.

Moreover, LAL D is more common than generally thought, he said - perhaps affecting as many as 1,800 patients in the US alone - which would give it somewhere between half and on-third the target population for Soliris.

Kanuma under accelerated review both in the US and EU and Alexion "is acquiring [the drug] at exactly the right time," said Hallal, although some analysts - including Wedbush Securities' David Nierengarten - suggested that while Synageva has been viewed as a takeover target he was expected FDA approval of Kanuma to be in hand before an approach.

The timing and scale of the offer has also led to suggestions that Alexion was concerned another offer for Synageva could have been in the offing, given recent interest in the rare disease sector, and it wanted to table a bid that brooked no argument.

It has also been mooted that Alexion may be concerned about competition for Soliris from Alnylam, which has a PNH candidate coming through clinical development. Adding Kanuma means that Alexion could have three ultra-rare disease therapies on the market by the end of the year, as it is also hoping for approval and launch of its Strensiq (asfotase alfa) candidate for hypophosphatasia (HPP) before the end of the year.