Astra’s reckless $2.7bn deal hits the regulatory buffers

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If AstraZeneca’s chief executive, Pascal Soriot, is today shouting down the phone at some seriously embarrassed business development people then his counterpart at Actelion, Jean-Paul Clozel, must be breathing a huge sigh of relief.

The US FDA’s complete response letter for the hyperkalaemia agent ZS-9 makes Astra’s $2.7bn purchase of its originator, ZS Pharma – an acquisition that Actelion just missed out on – look even more reckless. It also shines the spotlight on a competitor, Relypsa, which stands as an immediate beneficiary of the regulatory setback.

Relypsa’s Veltassa is a US-marketed hyperkalaemia drug that for as long as ZS-9 is delayed will threaten Astra’s potential market share. Consensus sellside forecasts, as computed by EvaluatePharma before today’s CRL announcement, saw ZS-9 bringing in 2022 sales of $849m versus Veltassa’s $529m.

With the ZS-9 setback Relypsa is seen as a takeover target, either by a red-faced AstraZeneca, or by Actelion – which must be thanking its lucky stars that it missed out on ZS Pharma – or indeed by another company with an interest in hyperkalaemia like Astellas. Relypsa shares this morning opened up 20% after a 45% rise in the pre-market.

Careful now...

Still, while much of Relypsa’s climb today is down to short positions being covered, investors going long must play it carefully.

Veltassa’s US approval came with a black box warning of drug-drug interactions. Just two days ago Relypsa applied to change Veltassa’s label, based on 12 drug-drug interaction studies, but the obvious risk now is that increased FDA scrutiny over ZS-9 means that the agency might be very cautious over Veltassa too.

That said, there is no denying that for Astra the CRL is a second big setback, the first occurring just one day after its $2.7bn takeout was announced. That had concerned reports of hypertension and peripheral oedema in a long-term safety trial (Forehead slaps in order for Astra as data dwarf $2.7bn deal, November 9, 2015).

The recent revelation that a mockup ZS-9 website for prescribers could be easily found just added insult to injury. The page had been prepared under the assumption that ZS-9 was approved, giving it the trade name Lokelma and saying it would be “available at local retail pharmacies nationwide on August XX, 20XX” (sic); the web page was swiftly removed.

Manufacturing

Astra is today playing down the CRL, saying it does not require generation of new clinical data, merely referring to observations from a manufacturing inspection.

However, it also says the FDA has not yet reviewed recently submitted data, which UBS reckons relates to ZS-9’s own drug-drug interaction studies. So while there is no call for additional trials – at present – the risk is that a clinical data-related issue could still trip Astra up.

Investors should also be wary of the fact that, as usual, the full text of the CRL has not been made available; a recent study revealed that corporate press releases routinely failed to disclose key details about regulatory rejections.

Until more details emerge the precise extent of the delay to ZS-9 is hard to gauge. And, while at present it is not catastrophic, taken together with the safety worry and $2.7bn price tag it is a serious embarrassment at a time when Astra has several setbacks to deal with and desperately needs to boost confidence in its pipeline.

Nothing ventured nothing gained is an apt saying in biopharma, but events like the ZS-9 CRL show why some big pharmas prefer to wait until after a drug is approved before pulling the acquisition trigger, even if that means paying through the nose.

To contact the writer of this story email Jacob Plieth in London at jacobp@epvantage.com or follow @JacobPlieth on Twitter

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