MedImmune -- What Was AstraZeneca Thinking?

Yes, there is such a thing as a legal robbery - MedImmune (MEDI) just did it to AstraZeneca shareholders, or, should I say, AstraZeneca just robbed its own shareholders. Guys, what were you thinking?

Am I exaggerating? Aw, c'mon, $15 billion for MedImmune? Christmas came way early this year - as has Christmas for the next several years. Here's why:

• First, $15 billion is a great deal of money, even for a fat and flailing big Pharma company, and you could buy a good many other companies with better revenues streams and profitability, perhaps a cluster of them over time, than MedImmune

• MedImmune appears to be in good shape - the numbers this past quarter looked good with revenues were $575 million, profits of $166 million. But nearly 90% of revenues were from the sale of one drug, Synagis for the prevention of respiratory infections in premature and other health-compromised infants - a narrow marketplace of 125,000 patients a year, maybe. The purchase price, therefore, puts the deal at six times revenues and 20-23 times profits, which is also not an unreasonable price. But....

• What is in MedImmune's pipeline? Yeah, I know you thought it was the Flumist company, but my kid's baseball team generates more money through hot dog sales than Medimmune did with its FluMist flu vaccine.

They have two treatments in Phase III trials - including a different version of FluMist - four drugs in Phase II and six in Phase 1 trials. That is less than the combined product pipelines of Spectrum Pharmaceutical (SPPI) and Targacept (TRGT), which together boast a market cap equal to roughly 2% of that of MedImmune. Yes, I said 2%. Also, the MedImmune pipeline is all over the place, cutting across infectious disease, vaccine and cancer markets and while many could be solid products, it is hard to see any becoming blockbusters for major diseases like multiple solid tumor cancers or diabetes.

I am sure supportive analysts (employed by hopeful or engaged investment bankers) have crunched their drug modeling spreadsheets and come out with nice answers saying Synagis revenues and profits pay for much of the deal and the pipeline being bought by AstraZeneca is reasonable. What they are leaving out is the management and financial bandwidth sucked up by this large a deal precludes AstraZeneca from going after other and better companies with more robust pipelines. There is only so much time in a day and so much dilution shareholders can stomach and it is hard to imagine AstraZeneca going after any medium and/or revenue-generating companies in the next two years, a real loss for its shareholders.

Stay away from AZN and thank them for boosting the valuation of many other companies in this space, from the little guys to big caps such as Biogen Idec (BIIB).