This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Roche Won't Buy Alexion Because Deal Is Too Expensive

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.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

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.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

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.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,279.74 +13.75 0.08%
S&P 500 2,010.40 -0.96 -0.05%
NASDAQ 4,579.7870 -13.6380 -0.30%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs