Market Overview

Morgan Stanley: Market's Reaction To Linger For Alexion Pharmaceuticals


Alexion Pharmaceuticals Inc. (NASDAQ: ALXN) shares are likely to suffer lingering ill effects from its $8.4 billion plan to acquire Synageva Biopharma Corp. (NASDAQ: GEVA), an analyst said Thursday.

Even with a recent recovery, Alexion remains off more than 10 percent since the cash-and-stock deal got announced early Wednesday: The stock traded recently at $164.44, up $6.43.

A long pay-back period for the acquisition suggests that the market's "knee-jerk reaction will linger," Morgan Stanley's Matthew Harrison said.

"Investors will need to see a significant ramp-up" in sales of Synageva's lead product Kanuma before warming up on the deal, according to Harrison, who maintained a Neutral rating on Alexion.

Alexion expects the acquisition will boost its adjusted earnings per share by 2018, and result in annual cost synergies of at least $150 million by 2017.

But Harrison said the stock component of the deal will make earnings accretion by 2018 "tough" for Alexion to achieve, even taking into account the full $1 billion added buyback authorization Alexion announced Wednesday.

Harrison estimates that Alexion will issue a net of 20 million shares in the acquisition along with taking on the $3.5 billion in debt financing it announced.

The newly issued shares will create a 9 percent "dilution headwind" on their own, Harrison estimated.

"This will take time to play out," Harrison said, adding that positive aspects include revenue diversification and a broader product pipeline for Alexion.

Latest Ratings for ALXN

Apr 2019ReinstatesOutperform
Feb 2019Initiates Coverage OnNeutral
Feb 2019MaintainsOverweightOverweight

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Posted-In: Matthew Harrison Morgan StanleyAnalyst Color Analyst Ratings


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