Amylin Purchase Makes Sense for AstraZeneca

This latest acquisition will help Astra and Bristol-Myers cope with their patent cliffs

Damien Conover, CFA 3 July, 2012 | 10:11AM
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Bristol-Myers (BMY) in collaboration with AstraZeneca (AZN) announced the acquisition of Amylin (AMLN) for $31 per share in an all-cash deal. Amylin's board of directors unanimously recommended that shareholders tender their shares. We don't see any major hurdles to the deal closing or any new bidders coming into the process.

For Bristol and Astra, even though the purchase price was $1.5 billion higher than our valuation for Amylin under the best-case scenario, we don't expect any major changes to our fair value estimates for either Big Pharma firm. In our view, the rich price tag was diluted by the companies splitting the purchase and the likely cost synergies that should materialise as the larger companies optimise sales and marketing costs.

Strategically, we believe the deal makes sense for both Bristol and Astra as the companies need to continue bringing new drugs to the market to offset patent losses as the pipelines have failed to generate enough new drugs, especially in Astra's case. 

The acquisition of Amylin follows the trend of Big Pharma firms acquiring biotechnology companies to help offset patent losses and lack of sufficient internal pipeline productivity. We expect this trend will continue and likely intensify as several drug companies have reduced their research and development spending. We believe other likely takeover targets in the biotechnology industry include Actelion (ATLN), Biomarin (BMRN), Human Genome Sciences (HGSI) and Onyx (ONXX).

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
AstraZeneca PLC10,008.00 GBX0.39Rating

About Author

Damien Conover, CFA  is an equity analyst and associate director at Morningstar.

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