LONDON AstraZeneca (AZN.L) has agreed to buy U.S. biotechnology company MedImmune MEDI.O for more than $15 billion (7.5 billion pounds) in its biggest transaction since the creation of the Anglo-Swedish drugs group in 1999.
The all-cash deal, announced on Monday, is the boldest move yet by AstraZeneca Chief Executive David Brennan who aims to boost the company's depleted drug portfolio by moving deeper into biotech medicine and taking a first step into vaccines.
Analysts, however, said price being paid for the maker of flu vaccines and a respiratory drug for children was steep, at nearly 11 times expected 2007 sales, and AstraZeneca shares fell more than 4 percent.
The stock was the biggest loser in the FTSE-100 index, closing at 28.32 pounds, after a 14-month low of 28.20.
AstraZeneca, which also posted a slightly higher-than-expected 11 percent rise in first-quarter profit, said it would pay $58 a share in cash for MedImmune, or 53 percent above the U.S. group's share price on April 11, the day before it said it was considering a sale.
MedImmune jumped 18 percent to $56.60 in Nasdaq trade.
Analysts said the deal made long-term sense and would boost AstraZeneca's presence in biological medicines and vaccines -- two of the fastest-growing areas of drug research. But it had few near-term benefits.
"It does little to address the weakness in the Phase III pipeline and exhausts the company's cash pile for share buybacks and product acquisitions," Merrill Lynch analyst Graham Parry wrote in a research note.
A previously announced $4 billion share buyback programme for 2007 remains in place but Chief Financial Officer Jon Symonds told reporters this was likely to decline in 2008.
AstraZeneca said the deal was expected to close in June 2007. The transaction values Gaithersburg, Maryland-based MedImmune at $15.6 billion, or $15.2 billion in terms of enterprise value after allowing for $340 million of net cash.
That is more than most analysts expected the company to fetch, reflecting current intense demand for biotech assets.
"AstraZeneca was never going to find assets worth owning that came at a low price," Citigroup analyst Kevin Wilson said.
The sale is a victory for activist shareholders whose criticism of MedImmune management's performance triggered the decision to ask Goldman Sachs Inc. (GS.N) to find a buyer for the firm.
Speculation over a disposal was fuelled after billionaire investor Carl Icahn disclosed in February he owned 2.8 million shares of the company.
AstraZeneca's need for new products was highlighted when it said it was dropping future development of AtheroGenics Inc.'s AGIX.O experimental heart drug AGI-1067 following disappointing clinical trial results. The move, widely anticipated by analysts, will result in a charge of $83 million.
AtheroGenics stock fell around 12 percent on the news.
AstraZeneca continues to generate strong sales from existing medicines like Seroquel for schizophrenia, Crestor for cholesterol and top-seller Nexium for stomach acid. But analysts say it needs to replenish the cupboard in the face of looming generic competition.
The group reported an 11 percent increase in first-quarter pretax profit to $2.27 billion, just above analysts' expectations, as sales rose 13 percent, helped by a weaker dollar. The average forecast of 18 industry analysts in a Reuters poll had been for pretax profits of $2.22 billion.
MedImmune, one of the larger independent biotech companies in the United States, is best known as the maker of the nasal spray flu vaccine FluMist, but it also has two other marketed products, Synagis for infectious respiratory disease and Ethyol for reducing chemotherapy side effects.
It also has two late-stage products in development -- the next-generation follow-on to blockbuster Synagis and a refrigerated formulation of FluMist.
Synergies following the acquisition are expected to total around $500 million annually by 2009, by which time the deal should be cash-earnings enhancing, AstraZeneca said.
Brennan said the deal would significantly accelerate AstraZeneca's position in biologics, or biotech medicines, and was a particularly good fit with recently acquired Cambridge Antibody Technology, a smaller, UK-based biotech firm.
With MedImmune on board, the proportion of biologics in the pipeline will increase to 27 percent from 7 percent.
MedImmune's chief executive, David Mott, and its head of research, James Young, will stay on after the takeover.
Merrill Lynch MER.N acted as main adviser to AstraZeneca on the deal.
(Additional reporting by Mark Potter in London and Paritosh Bansal in New York)