On Monday, British pharmaceutical firm AstraZeneca
As a result of a string of clinical trial setbacks in the past year (see thesearticles for examples), AstraZeneca needed the MedImmune acquisition to shore up its sputtering drug pipeline. While there are always numerous unknown variables that play a part in any acquisition of this size, I'm in the camp that believes AstraZeneca overpaid -- considering, among other things, that it paid more than 10 times MedImmune's revenues with the acquisition price.
Getting to AstraZeneca's financials for the first quarter, sales were up 13%, although four of those percentage points were due to favorable exchange rates. Earnings per share (EPS) also grew 13% and AstraZeneca reiterated its forecast for full-year adjusted EPS of $3.89 to $4.14.
With a $5.6 billion cash hoard, it's worthwhile to mention that AstraZeneca had free cash flow of $1.9 billion this quarter and operating cash flow of nearly $8 billion last year. Therefore, paying $15 billion cash for MedImmune is not a big deal.
Many of the large-cap pharmas like AstraZeneca are dealing with the same twin problems of stagnating sales growth and an inactive drug pipeline. Combine this with the gobs of free cash flow that their currently marketed products are bringing in, and it's no wonder that such pharmas are looking for ways to spend this cash in order to spur future sales growth. It will be years before the full impact of the MedImmune acquisition can be better analyzed. Preliminarily, at least, it looks like AstraZeneca shareholders got a raw deal by paying such a high acquisition price -- more than 130% higher than MedImmune's 52-week low share price.
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