ALEX BRUMMER: Pharma giant Astrazeneca’s £100bn plus valuation and £30bn bid for Alexion is a tonic for global Britain
For the second time in the last six years, Astrazeneca (AZ) is defying the odds. In the run-up to the Brexit referendum, chief executive Pascal Soriot fought off a £69bn bid from Pfizer.
Now AZ is on the front foot with a valuation of £100billion plus and going global with its £30billion bid for Boston-based Alexion. AZ’s shares initially have cratered but that should not be allowed to detract from the most ambitious project for a UK quoted company since the aborted Prudential bid for AIA in 2013.
It would be nice to think that Soriot’s ambition in life sciences can be replicated elsewhere. Barely a day passes when the product of UK science and innovation, such as British video games maker Codemasters, does not find itself under the hammer. Taking the UK’s infant industries to the next level is a perennial problem preventing the country turning invention into Silicon Valley gold.
A shot in the arm: It would be nice to think that Pascal Soriot’s ambition in life sciences can be replicated elsewhere
Large UK-US mergers do not always do that well.
The last big pharma deal, the Glaxo Wellcome merger with Smith Kline Beecham two decades ago, took years to settle amid battles over hegemony between warring head offices. Eventually then chief executive Jean-Pierre Garnier managed to halt the value destruction and discovered the power of GSK’s vaccine technology.
In spite of AZ’s recent brief sojourns at the top of the FTSE 100, as the group’s ground breaking immunology drugs have come to fruition, there has always been the concern that it is sub-scale in global terms.
Soriot has been looking to bulk up. In the midst of its early work with Oxford-Jenner on the Covid vaccine, it was reported that Soriot was in talks with US pioneer Gilead, which in October won approval for its remdesivir anti-viral treatment. But doing a transaction at the then height of the pandemic when Gilead shares were flying did not go down well. Even though Astra will have to take a substantial cash loan to buy Alexion, it will largely be using its shares.
The target company’s best-known compounds Soliris and Ultomiris are used in the treatment of rare diseases. The R&D and expertise in blood disorders could be useful as AZ pursues research which makes it easier to detect cancers much earlier. In spite of the critics of AZ’s upbeat profit forecasts at the time of the Pfizer bid, it eventually hit the target. That should give some confidence in the group’s forecasts of £3billion of extra operating profits once the deal has settled down in 2023.
There may also be some relief that Alexion, with a mixed management record, is finding a safer home. AZ’s global distribution in Asia and China should enable investors in the US firm to take a share of the upside.
Finally, a British company is on the front foot.
The easy bit for the Government is deciding to go ahead with the new nuclear facility at Sizewell C. Running roughshod over a determined band of anti-nuclear protesters will be as nothing when it comes to putting together financing for the £20billion project.
China, a big player at Hinkley in Somerset, is being left in the cold. It has long been the case that finding private sector capital for new nuclear projects is tricky. If the plant is to be built, and it is essential for the nation’s energy, some kind of government guarantees will be needed. As is often the case with infrastructure, costs tend to spiral out of control.
The favoured form of finance is the ‘regulated asset model’. This is a posh name for investors being paid dividends while the asset is being built, as is the case with the Thames Tideway. The cost is passed on to consumers through utility bills.
There is bound to be an outcry when it is discovered that Canadian pension funds or Middle East investors are being paid through the Cayman Islands at the expense of consumers.
A hard sell will be needed if the electric cars are not to end up stranded on the motorways because of power shortages.
Not very green, you might think, but Britain’s classic car sector, employing 113,000 people and contributing £18.3bn to the economy is more valuable than all Britain’s ports and worth double the Scotch whisky industry. Forecaster CEBR also claims it is green too as drivers of heritage vehicles only travel 1,200 miles a year. Make mine an Aston Martin DB6.