By Vidya L Nathan and Natalie Grover
(Reuters) - Drugmaker Alexion Pharmaceuticals Inc (O:ALXN) agreed to buy Synageva BioPharma Corp (O:GEVA) for $8.4 billion (£5.5 billion) at a hefty premium to expand in the lucrative market for drugs that treat rare diseases.
Makers of drugs that treat rare diseases are seen as attractive takeover targets because of their revenue-generating potential as they typically charge high prices for their products.
With the deal, Alexion will have eight experimental rare disease drugs under its belt, including Synageva's potential blockbuster Kanuma.
The drug, whose marketing application is being reviewed in the United States and Europe, treats a rare and potentially fatal disease that causes a build-up of fatty material in the blood and liver.
Kanuma is expected to touch peak sales of $603 million in 2020, according to Thomson Reuters Cortellis.
Alexion, however, is confident it can grow the drug's sales to more than $1 billion, Chief Executive David Hallal said.
Alexion is offering $115 in cash and 0.6581 of its shares, or $225.92 per Synageva share — more than double Synageva's closing price of $95.87 on Tuesday.
Synageva's shares were 114 percent higher at $205.23 shortly after midday, while Alexion was down 9.7 percent at $152.11.
"While some investors may be picking their jaws off the floor at such a valuation, we note that Synageva has only disclosed a fraction of its development efforts," Baird Equity Research analyst Christopher Raymond said.
Alexion's sole product on the market, Soliris, the only approved treatment for two potentially fatal conditions, raked in $2.23 billion in 2014. But the drug's sales growth is expected to slow in the coming years.
"So I think Alexion wanted to do something big," Paul Yook, portfolio manager at BioShares Biotechnology Funds, which holds stakes in both the companies.
"There aren't many opportunities ... to do that, and so this is their big shot."
The deal provides a windfall for Synageva shareholders, particularly Baker Brothers Investments, which owns about 32 percent of the company. The firm stands to make $2.68 billion from the transaction.
The deal is the latest involving rare disease drug makers this year. Teva Pharmaceutical (ARCA:TEVA) Industries Inc (TA:TEVA) purchased Auspex (NASDAQ:ASPX) Pharmaceuticals for $3.5 billion and Shire (L:SHP) acquired NPS Pharmaceuticals for $5.2 billion.
Lazard and JPMorgan (NYSE:JPM) were Alexion's financial advisers, while Goldman Sachs advised Synageva.
Wachtell Lipton Rosen & Katz is Alexion's legal counsel, while Sullivan & Cromwell LLP and Ropes & Gray LLP are Synageva's legal counsel.