MedImmune Makes a Deal

AstraZeneca will buy the company for $58 a share.
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Updated from 11:59 a.m. EDT

When

MedImmune

(MEDI)

said Big Pharma suitors were interested in putting it under new ownership, it wasn't kidding around.

Now one of the biggest,

AstraZeneca

(AZN) - Get Report

, has made its move, saying it will buy the vaccine maker for $58 a share, or $15.6 billion in total.

At that price, the transaction is worth well more than many analysts had been expecting MedImmune to ultimately fetch. MedImmune had been seen as a takeover candidate for some time, and earlier this month it said it would see if it could a deal done. Apparently it has, and at a sizable premium.

The offering price is nearly $10 above MedImmune's closing price on April 20 and is 53% higher than its $37.84 finish on April 11, the day before the Gaithersburg, Md., company said it had hired an investment banking firm to explore its options.

Recently, shares of MedImmune were up $8.69, or 18.1%, to $56.70. AstraZeneca was down $2.04, or 3.5%, to $57.

AstraZeneca is one of the world's largest pharmaceuticals companies, and it's known for drugs like Zomig, Nexium and Crestor. Taking over MedImmune, it said, will give it the ability to significantly expand its efforts to develop biotechnology drugs, adding to the research that it acquired when it bought Cambridge Antibody Technology last year.

The combination is "better than what either company could do on its own," said David Mott, president and chief executive of MedImmune.

Buying MedImmune "dramatically increases our ability" to create and produce drugs via biotechnology, said John Patterson, AstraZeneca's executive director for development, in a conference call with analysts. Executives said buying MedImmune was more efficient than spending the time and money to slowly build its biotechnology business internally or with piecemeal acquisitions.

Assuming regulatory approval, the deal is expected to close in June. MedImmune's board has unanimously approved the deal, which requires the company to pay a $450 million break-up fee to AstraZeneca under certain circumstances.

The biggest near-term prize for AstraZeneca is MedImmune's Synagis, which prevents respiratory syncytial virus, a dangerous lung disease in infants and young children. Last year, Synagis accounted for $1.1 billion, or 86% of MedImmune's revenue.

Last year's Synagis sales were the same as those in 2005, although the company recently predicted that first-quarter 2007 sales would be 9% to 10% better than those for the year-ago quarter. The company is working on a follow-up drug called Numax, which is in late-stage clinical trials.

However, MedImmune's long-term benefit will be its efforts to develop biotechnology drugs and vaccines, AstraZeneca and analysts alike believe. AstraZeneca currently isn't in the vaccines business.

AstraZeneca executives said MedImmune's experimental work in the areas of cancer, respiratory diseases and inflammatory diseases will complement their existing work.

For example, three of AstraZeneca's cancer drugs produced $1 billion or more in sales last year. Seven AstraZeneca compounds are in mid- to late-stage clinical testing. MedImmune has three cancer products in early-stage testing. Each company is conducting clinical trials on three drugs for inflammatory diseases.

The MedImmune deal "represents a transformational step to deliver our biologics strategy soon than anticipated," David Brennan, AstraZeneca's CEO, said.

Brennan added that his company will try to retain as many MedImmune executives and employees as possible. He announced that Mott and James Young, president of research and development, will stay.

In addition to Synagis, MedImmune sells two smaller products. One is Ethyol, which treats the side effects of certain cancer therapies, and the other is the nasal-spray flu vaccine FluMist.

The flu vaccine has been a poor seller since its introduction during the 2003-2004 U.S. flu season. MedImmune has received approval from the Food and Drug Administration for a new version of FluMist that should reduce the storage problems that contributed to the drug's weak start.

MedImmune's technology also produces revenue via milestone payments and sales-based royalties from

Merck

(MRK) - Get Report

and

GlaxoSmithKline

(GSK) - Get Report

for their vaccines to prevent human papillomavirus, a cause of cervical cancer. Merck's Gardasil is on the market.

MedImmune is working on many vaccines, including products to prevent Epstein-Barr virus, which causes infectious mononucleosis; pneumococcal disease; several pediatric respiratory diseases; and avian flu.

AstraZeneca's bid for MedImmune is by far its biggest bet for the future. Like others major drugmakers, AstraZeneca faces the dilemma of finding new products with substantial sales potential to replace prominent medications that have or will soon lose patent protection.

At the moment, its near-term R&D pipeline isn't impressive, an issue exacerbated by a series of expensive recent setbacks involving homegrown drugs, as well as compounds developed with partners.

On Monday, AstraZeneca announced it had cancelled its collaboration with

AtheroGenics

(AGIX)

to develop a heart-disease drug. AstraZeneca dropped out after results of a clinical trial last month failed to meet the companies'goals.

In October, AstraZeneca ended its collaboration with another small company to develop a stroke-prevention drug after the medication failed to achieve its target in a late-stage clinical trial.

Last year, the company halted work on a diabetes treatment after reviewing disappointing results from four late-stage clinical trials, and it pulled its clot-preventing drug Exanta from foreign markets due to concerns about liver damage. Exanta never made it to the U.S. because the FDA rejected it in October 2004.