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Why Alexion Pharmaceuticals Is Soaring and AstraZeneca Is Sinking Today

By George Budwell - Dec 14, 2020 at 11:35AM

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Alexion finally gets taken out.

What happened

Shares of the rare-disease specialist Alexion Pharmaceuticals ( ALXN ) are up by a healthy 30.6% as of 10:03 a.m. EST Monday morning. The biotech's shares are roaring higher this morning in response to a $39 billion buyout agreement with British and Swedish pharma giant AstraZeneca ( AZN 0.42% ).

This cash and stock merger agreement reportedly values Alexion at $175 a share, which represents a 45% premium compared to where the company's shares closed last Friday. The transaction is expected to close in the third quarter of 2021. Upon closing, Alexion shareholders will own roughly 15% of the newly formed healthcare titan.

Two businessmen shaking hands over a table.

Image source: Getty Images.

Astra's shares are reacting poorly to this news, however, with the drugmaker's shares falling by as much as 7% in early morning trading. The drugmaker has thus shed approximately $8 billion in market capitalization since the opening bell only a few hours ago. 

So what

While it's not exactly a secret that Astra has been deal-hunting this year in an effort to meet CEO Pascal Soriot's $40 billion revenue goal by 2023, Alexion and its rare-disease drug portfolio probably weren't on most investors' radars.

The reason is that Astra has been keenly focused on building out a top-notch cancer drug portfolio over the past several years -- highlighted by the development of several new growth products such as the lung cancer drug Tagrisso, the PARP inhibitor Lynparza, and the checkpoint inhibitor Imfinzi.

Wall Street and industry insiders, in fact, were largely expecting the pharma giant to pursue a bolt-on acquisition in line with its emergence as an oncology powerhouse. This sizable rare disease acquisition, though, takes Astra in an entirely different direction, a fact which might explain the decidedly dour reaction from the biopharma's shareholders today.   

Now what

Did Astra make the right move? Albeit unexpected, Astra's deep dive into the realm of rare-disease drugs actually holds a lot of promise from a growth standpoint. Alexion's annual revenue, after all, could more than double from current levels by 2025. Therefore, bargain hunters might want to take advantage of this weakness in the pharma giant's shares today. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Alexion Pharmaceuticals, Inc. Stock Quote
Alexion Pharmaceuticals, Inc.
ALXN
AstraZeneca PLC Stock Quote
AstraZeneca PLC
AZN
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