Who Wins, Who Loses in the MedImmune-Aviron Deal
By Nadine Wong
Special to TheStreet.com
12/06/2001 08:02 AM EST
The economy is in a slump, Enron is in a pickle, AT&T and Excite@Home are
having Internet woes, and worries about the Middle East persist. Yet with all the
negative news, consumers are still spending. No wonder the markets have been
acting so moody -- up one day and down the next. It's a tough economic
environment that is undoubtedly causing confusion for investors.
One thing is certain, though: Medicines, like food, do
not suffer as much as businesses that seek to separate
consumers from their discretionary income. Luxury
items such as jewelry, fancy vacations and
entertainment have been hit hard in times of economic
uncertainty, as many individuals feel guilty that they might be enjoying themselves
while others suffer. Drugs, on the other hand, are purchased because they are
viewed as a necessity to keep us healthy and alive. So as I see it, drug demand
will always be a constant in our economy.
Having said that, I think that the merger agreement between MedImmune
(MEDI:Nasdaq - news - commentary - research - analysis) and Aviron
(AVIR:Nasdaq - news - commentary - research - analysis) is a good match.
MedImmune is using advances in monoclonal antibodies as a basis for new
biologicals, while Aviron is focused on the prevention of disease through innovative
vaccine technology, such as "crippled viruses" that can't cause diseases.
At this time, I would be a buyer of MedImmune, but
not of Aviron. There are several reasons why:
First, Wall Street reacted negatively to the
announcement, sending shares of MedImmune
down sharply, primarily because it thinks Aviron's
share price is too high (the price tag is a $1.5
billion stock swap to add FluMist, Aviron's nasal
spray vaccine for influenza, to MedImmune's own
portfolio of biologicals to treat infectious diseases).
Second, FluMist still needs to get Food and Drug Administration approval for
marketing. And last, if FluMist doesn't receive FDA approval, I'm assuming the
merger deal would end, and MedImmune wouldn't be liable. Therefore, if the merger
doesn't get completed, it would be business as usual for MedImmune, and its
share price would go back to its normal trading range. Aviron would be left holding
the bag and suffer a falling share price.
On the other hand, the likelihood that FluMist will get FDA approval is strong.
Aviron has conducted numerous large clinical trials that have demonstrated not
only that FluMist is effective at preventing the flu, but that it is also safe. Also,
Aviron has indicated that there is no need to conduct additional trials to satisfy the
FDA to get the approval. If that's the case, only the timing of the approval is left,
which, for obvious reasons, greatly influences the launch of FluMist. Will it be
approved for the 2002-2003 flu season or the subsequent season?
Whenever FluMist gets approved, MedImmune would be getting a blockbuster drug
that would reach the market sooner than any of the biologicals in its own product
pipeline. This would add to MedImmune's earnings growth and share price.
MedImmune would have to split FluMist revenue and profits roughly equally with
American Home Products (AHP:NYSE - news - commentary - research -
analysis) under a previously signed co-marketing agreement with Aviron. But the
influenza vaccine market is huge, with estimated annual sales in the U.S. alone
targeted for $1 billion. In this instance, MedImmune comes out ahead.
How would Aviron benefit from the deal? More than likely through synergy with
MedImmune. MedImmune has the expertise and experience to get a unique
product into the market successfully, such as Synagis, its antibody that helps
prevent respiratory tract diseases, infections that afflict premature babies.
So why would I not be a buyer of Aviron? This is the sticky part. Essentially,
though, it's difficult to place a value on a promise, and the market has more than
likely already factored a full value into Aviron's share price to reflect a positive
merger outcome, so the upside potential is limited. Looking at the different possible
scenarios, then, it seems there are more cases in which MedImmune comes out
ahead than ones in which Aviron does. |
