AstraZeneca Goes Back To The M&A Well Yet Again

By Stephen D. Simpson, CFA | August 26, 2013 AAA

AstraZeneca (NYSE:AZN) CEO Pascal Soriot is pulling out all the stops, and repeatedly pulling out the checkbook, to rebuild the future prospects of this lagging Big Pharma company. Having spent nearly $1 billion on Omthera and Pearl Therapeutics earlier this year, AstraZeneca has announced yet another deal โ€“ this time a potentially $500 million deal for an early-stage company in the hot oncology immunotherapy space.

SEE: Will Immunotherapy Disrupt The Oncology Market?

The Deal
AstraZeneca announced Monday morning that it had reached an agreement to acquire privately-held Amplimmune for up to $500 million in cash. AstraZeneca will be paying $225 million upfront, with another $275 million tied to predetermined (but undisclosed) milestones. While AstraZeneca is in a net debt position (as of the last quarter), the company had over $8 billion in cash on the balance sheet, and this deal will not represent any meaningful change in the company's liquidity.

What AstraZeneca Is Buying
AstraZeneca already had some underappreciated assets in the oncology immunotherapy space, with a collection of checkpoint agents including an anti-OX40 monoclonal antibody. That said, this deal certainly adds to the company's early-stage portfolio of assets.

Amplimmune is readying an IND filing for AMP-514, a pre-clinical PD-1 antibody that could target the same multi-billion dollar markets as more advanced PD-1 therapies from Bristol-Myers Squibb (NYSE:BMY), Merck (NYSE:MRK), and Roche (Nasdaq:RHHBY). In addition, the company has numerous pre-clinical molecules targeting the B7 family of proteins โ€“ a group that interacts significantly with PD-1 in immune responses to cancer.

It's also noteworthy that this is hardly the first outside affirmation of Amplimmune's approach. Amplimmune and Glaxo (NYSE:GSK) signed a partnership agreement almost three years ago for PD-1 fusion proteins, including AMP-224. While this agreement included an upfront payment of $23 million, the total potential value of the deal was announced at $508 million (assuming all milestones were hit) and still granted double-digit royalties to Amplimmune.

Amplimmune also has an agreement with Daiichi Sankyo for an autoimmune application (AMP-110) of the company's technology, in a $50 million deal announced earlier this year.

SEE: What Makes An M&A Deal Work?

Grabbing Acreage In An Increasingly Attractive Landscape
Given where Amplimmune's technology is in the clinic, it's going to be several years before AstraZeneca has any real indication as to whether this deal was a good use of cash. As it stands today, though, it's a worthwhile deal for a company that needs to improve its pipeline and prospects at nearly every stage of development and in every disease state.

Although skeptics may well wonder just how many multi-billion dollar drugs targeting PD-1 (or PD-L1) there can be, I believe it would be a mistake to look at this deal just in terms of its standalone potential. AstraZeneca will almost certainly look to combine Amplimmune's technology and products with existing immunotherapy approaches in its own pipeline with an eye towards even more effective combination therapies.

The Bottom Line
I am a little curious as to why Amplimmune didn't consider going the IPO route, as the biotech market has been red-hot recently. Perhaps the company was worried that the window of opportunity would close too quickly and/or that the AstraZeneca deal offered a certain payout. In any case, I think AstraZeneca has acquired some very interesting early-stage compounds and a platform technology approach that could ultimately produce some billion-dollar oncology drugs. While this doesn't help AstraZeneca's near-term growth deficit even slightly, it does improve the odds that AstraZeneca will be a much more interesting company around 2020.

Disclosure โ€“ At the time of writing, the author owned shares of Roche.

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