AstraZeneca’s $1.8bn cash acquisition of CinCor should provide a bit of a pick-me-up for biotech investors. The sector has swooned in the past year, with the S&P Biotechnology index down by a fifth. The UK pharma group’s bid — which values CinCor at up to three times its previous market value, or almost two-thirds above its three-month average — highlights how under-appreciated some biotechs are.
AstraZeneca fancies the prospects of CinCor’s hypertension drug, baxdrostat. In a phase 2 trial by the US Food and Drug Administration, it reduced the blood pressure of treatment-resistant patients. If this finding were to be confirmed in a larger phase 3 trial, baxdrostat would have a huge addressable market.
This drug regulates the salt and water in our bodies, so it might also be used to treat kidney disease. That would make it a good complement for AstraZeneca’s Farxiga.
Given this background, baxdrostat could achieve coveted “blockbuster” status with peak sales above $1bn a year. On bullish multiples of 3-5 times, that might equate to $3-5bn of market value.
Of course, baxdrostat might not pass its phase 3 trial. But AstraZeneca has built some buffer into the price. It is paying $1.3bn upfront, or roughly $800mn excluding the cash on CinCor’s balance sheet. It will pay an extra $500mn if baxdrostat reaches an undisclosed regulatory milestone.
That begs the question of why the market had previously valued CinCor at only the value of cash on its balance sheet after the group had reported an unnerving poor result for one of the patient groups in phase 2.
Other beaten-down biotech groups may be out there with a potential blockbuster. Pharma groups are on the hunt. Two more deals on Monday — Italian group Chiesi’s $1.5bn bid for Amryt, which specialises in rare diseases, and France’s Ipsen’s $1bn offer for Albireo — were both priced significantly above undisturbed market values.
Given the battering that biotech has taken, investors can expect more deals in the pipeline.