MedImmune Fattens Its Drug Pipeline by Buying Aviron

The acquisition brings rights to an inhaled flu vaccine that could become a blockbuster.
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is betting that Monday's $1.5 billion acquisition of vaccine maker



helps it break out of the one-drug club.

By acquiring Aviron, MedImmune gains partial rights to FluMist, an inhaled flu vaccine that is expected to gain regulatory approval in the second half of next year. FluMist has the potential to be a billion-dollar seller.

So, if all goes well, MedImmune will become a member of that elite club populated by profitable biotech companies with two or more successful drugs on the market. MedImmune is already profitable, but it's heavily dependent on one drug for its fortunes. Synagis, used to prevent serious respiratory tract disease in children, accounted for 80% of the company's $541 million in revenue last year.

Having two successful products on its roster could make its rather pricey stock more palatable. At its Nov. 30 closing price of $44.10, MedImmune was trading at 64 times expected 2001 earnings of 64 cents per share; and 43 times expected 2002 earnings of $1.02 per share.

But the Aviron acquisition is expensive and investors will have to wait for a payoff. The deal is highly dilutive in 2002 -- MediImmune executives have reduced guidance for next year's earnings to a range of 65 cents to 70 cents a share. The company says the transaction will be neutral to earnings in 2003 and accretive beginning in 2004.

Shares of MedImmune fell $5.22, or 12%, to $38.88 in recent Monday trading. Share of Aviron were up $4.28, or 12%, to $41.33.

Of course, the biggest unanswered question is whether FluMist will be approved. At the end of August, Aviron said it received a "complete response letter" from the Food and Drug Administration requesting additional clinical and manufacturing data for FluMist. The company hasn't disclosed many details about the FDA's request, but said it did not believe new clinical trials would be needed.

During its third-quarter conference call, Aviron executives said it would respond to the FDA's letter by the end of the year, which could lead to an approval decision by mid-2002. If that happens, FluMist would be on pharmacy shelves in time for the 2002-2003 flu season.

Aviron -- now MedImmune -- shares FluMist revenue and profits roughly equally with

American Home Products


under a previously signed co-marketing agreement.

After Synagis and FluMist, MedImmune is developing an experimental drug called MEDI-507 for psoriasis, and a vaccine for human papillomavirus infection, which is known to cause cervical cancer. Both drugs are still in mid-stage testing.

Terms of Monday's deal call for MedImmune to exchange 1.075 of its shares for each Aviron share. The deal values Aviron at $47.41 per share, or $1.5 billion, based on MedImmune's Nov. 30 closing price of $44.10 per share. The deal's purchase price represents a 28% premium to Aviron's closing price of $37.05 per share on Nov. 30.