Cash-rich Actelion needs to acquire, that much is clear. But ZS Pharma, a one-trick pony that floated on Nasdaq last year, is not the clearest immediate choice, even if at around the $2bn the price tag is in Actelion’s sweet spot.
However, the way news of Actelion’s interest dribbled out, as a brief confirmation of an earlier press report, suggests that ZS is just one of several companies the Swiss speciality pharma group is scrutinising. And ZS’s focus – hyperkalaemia – throws up a couple of other names that Actelion will surely be considering, most notably another recent Nasdaq entrant, Relypsa.
It is Relypsa that has the more advanced asset for hyperkalaemia: patiromer is awaiting US approval, with an FDA decision due by October 21 (JPM 2015 – Relypsa awaits lift-off, January 15, 2015). The PDUFA date for ZS’s sole clinical project, ZS-9, does not fall until May 26, 2016.
Actelion confirmed yesterday that it had “initiated preliminary discussions with ZS”, sending ZS stock up 28%. The target company is now valued at nearly $2bn, still short of the $2.5bn deal that, according to Bloomberg, Actelion had suggested last month.
In tandem Relypsa closed up 8%, though it has a market cap of roughly half that of ZS. Meanwhile, Ardelyx, a smaller biotech with a much earlier presence in hyperkalaemia via its potassium transport modulator RDX013, was up 4%.
ZS-9 uses an ion trap technology to reduce the high potassium that characterises hyperkalaemia, while patiromer is an exchange polymer that binds excess potassium and then excretes it. The latter has some advantages: it has more extensive safety data and is dosed twice daily rather than the initial three with ZS-9.
ZS vs Relypsa
So why should Actelion have targeted ZS rather than Relypsa? Well, it is highly possible that it had approached both, but only news of the former leaked out. Moreover, it is only an assumption that an outright purchase is on the cards, and Jefferies analysts caution that what might be discussed is simply a ZS-9 licensing deal.
Analysts at Bryan Garnier said hyperkalaemia presented little in the way of overlap with Actelion’s portfolio, and simply called ZS an opportunistic speciality care play. Jefferies, however, suggested that Actelion reps targeting cardiologists might have strategic relevance.
Hyperkalaemia is usually discovered through blood tests for other conditions, and patients are classified as having a medical emergency. Dialysis can be used to remove excess potassium, but the only drug, Kayexalate – approved in 1958 – has gastrointestinal side effects.
The condition seems ideal for a speciality pharma company, requiring a medium-sized sales effort to target a subset of nephrologists and non-interventional cardiologists. ZS and Relypsa are – so far – planning to commercialise their respective treatments solo in the US. EvaluatePharma consensus is for ZS-9 to post sales of $993m in 2020, versus patiromer’s $825m.
The risk of Actelion making an acquisition before key regulatory decisions suggests that an acquisition might not be on the cards immediately, though risk could be offset with a contingent value rights element.
Still, even if for now the focus is licensing, Actelion has to pull the M&A trigger sooner or later. It needs to branch out, notwithstanding an impressive lifecycle management strategy in pulmonary arterial hypertension that now focuses on securing approval of Uptravi.
If nothing else, Actelion has bigger acquisitive speciality players like Shire breathing down its neck, so pursuing M&A has a defensive element as much as being for growth. The Swiss group has over CHF1bn ($1bn) of gross cash on its balance sheet.
Debt financing is readily accessible, as Gilead and Biogen demonstrated with their respective $10bn and $6bn bonds issued in the past two days. But the cheap availability of cash is just as much an opportunity to Actelion as it is a threat.