AstraZeneca to Buy ZS Pharma for $2.7 Billion

Dow Jones Newswires

AstraZeneca PLC has agreed to pay $2.7 billion for Californian biotech ZS Pharma Inc., in a deal which will bolster the drug maker's cardiovascular disease portfolio as it faces the loss of exclusivity in the U.S. for its best-selling cholesterol-lowering drug Crestor. The U.K.-based pharmaceutical company said it would pay $90 a share in cash for the biotech, a premium of around 42% to the company's closing share price on Thursday. The deal comes weeks after Switzerland's Actelion Ltd. revealed that it was in preliminary discussions with ZS Pharma over a potential strategic transaction. The deal will add a drug that treats high potassium levels in the blood, or hyperkalemia, to AstraZeneca's portfolio. The drug, called ZS-9, is undergoing review by U.S. regulators, with a decision expected by May 26. Astra said the drug could generate peak annual sales of more than $1 billion. It comes amid a wave of deal-making in the pharmaceuticals industry, driven by an appetite for new drugs to replace revenue lost as aging blockbusters lose patent protection. Hyperkalemia is a common complication of chronic kidney disease and heart failure. It can also arise as a side effect of certain drugs used to treat patients with heart problems and diabetes. Chief Executive Pascal Soriot said the acquisition "complements our strategic focus on cardiovascular and metabolic disease by adding a potential best-in-class treatment to our portfolio of innovative medicines." If approved, ZS-9 could lend some strength to AstraZeneca's heart drug and metabolic disease portfolio. Revenue from this franchise is expected to decline sharply next year because of the loss of exclusivity in the U.S. for blockbuster Crestor, which brings in revenue of around $5 billion a year. The company expects ZS-9 to start generating revenue next year. Luke Miels, head of portfolio and product strategy at Astra, said the deal would have longer-term benefits too. "If it was a bridging deal" to boost revenue and earnings in the short-term "we would buy a company and take out the costs. This is not this type of transaction," he said. He said Astra would retain ZS Pharma's existing sales force to sell the drug to kidney specialists, whose patients make up the largest market for the drug. He added that since hyperkalemia also affects those with heart disease and diabetes--areas where Astra already sells drugs--the pharmaceutical group could leverage its own sales force to expand the reach of the drug. The uptake of ZS-9, if approved, will depend on whether it can demonstrate a better safety profile than its direct competitor, according to analysts. U.S. regulators last month approved a drug made by Relypsa Inc. for hyperkalemia, but warned that since it could interact with other oral drugs, patients must not take it within six hours of other medications. "If ZS-9 can demonstrate that drug binding is not an issue, then it may have an edge," said analysts at UBS. AstraZeneca said the acquisition didn't affect its financial guidance. It said it expected the deal to slightly dilute earnings in 2016 and 2017 but boost earnings by 2018. The company has guided that it will return to growth in 2017. On Thursday, it raised its full-year outlook to say revenue would be in line with 2014, and that core earnings a share would increase by a mid-to-high single digit percentage, in constant exchange rates.

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