BOSTON (TheStreet) -- I have no doubt Roche (RHHBY) has considered buying Alexion Pharmaceuticals (ALXN) (I'm sure other large drug companies have taken an interested look as well) but an acquisition at today's lofty valuation is very hard to justify.
My prediction: No Roche-for-Alexion deal. I'm taking the other side of Jim Cramer's call.
Roche is reportedly exploring financing options for an Alexion takeout, according to Reuters and Bloomberg. The Swiss drug giant has not denied these stories, which leads Jim to believe a deal will happen, even if Alexion is overvalued.
To his credit, Jim caught on early to the incredible investment opportunity created by orphan drug companies. He's been a longtime fan of Alexion, BioMarin Pharma (BMRN) and Vertex Pharma (VRTX), among others -- all orphan drug stock winners. And he's right that Big Pharma has been slower to realize the value of orphan drug development, which is why catching up through M&A makes sense.But price still matters, which is why it's hard to see the logic in Roche buying Alexion today. Spending $25-30 billion to acquire Alexion would be highly dilutive to Roche. Alexion's main drug Soliris is expected to generate about $1.5 billion this year and may reach peak sales of $3 billion to as much as $6 billion, depending on which analyst forecasts you believe. Soliris sounds like an attractive takeover target, but the risk is too extreme when you consider Alexion is already valued at $20 billion. Today, the stock trades at more than 32 times 2014 earnings. We've seen this story play out before when Roche went after the gene sequencing company Illumina (ILMN). A Roche-Illumina combination made a lot of strategic sense, but Roche ultimately walked away because the nearly $7 billion price couldn't be justified financially. If anything, an acquisition of Alexion is harder to justify from a strategic and financial perspective, Sure, Roche would like to dig into the orphan drug market, but buying Alexion would not produce much cost-saving synergies because the two companies don't have overlapping research or manufacturing capabilities.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV