ZS Pharma Soars on $2.7B Buyout Offer from AstraZeneca

AstraZeneca plcAZN announced its intention to acquire ZS Pharma ZSPH - a San Mateo, CA-based biotech company that utilizes its proprietary ion-trap technology for the development of treatments targeting hyperkalemia (a serious condition of elevated potassium in the bloodstream, usually associated with chronic kidney disease [CKD] and chronic heart failure) - in an all-cash transaction valued at about $2.7 billion or $90 per share.

The offer price represents a significant premium of 42.2% over ZS Pharma's Nov 5 closing price of $63.31. While AstraZeneca's shares were down 1.3% on the news, ZS Pharma's shares hit a 52-week high of $89.40 on Nov 6, 2015. So far, ZS Pharma's shares have gained 40.6% on the news.

What Does AstraZeneca Gain?

The proposed acquisition of ZS Pharma will add a regulatory-stage candidate, ZS-9, to AstraZeneca's pipeline. ZS-9 is currently under FDA review for the treatment of hyperkalemia with a response expected by May 26, 2016. A regulatory filing in the EU is expected by the end of this year.

AstraZeneca expects the acquisition to be accretive to core earnings from 2018 with minimum earnings dilution over 2016 and 2017. Moreover, AstraZeneca stated in its press release that ZS-9 should start contributing to sales from 2016 and is estimated to generate global peak sales of more than $1 billion.

The acquisition is expected to close by year end. Meanwhile, AstraZeneca confirmed that the acquisition is not expected to impact its financial guidance for 2015 (guidance provided along with the third-quarter 2015 results). The company continues to expect revenues in line with the prior year.

Revenues are, however, expected to decline in the high single-digit percentage range in 2015 at constant exchange rate (CER). Core earnings per share are expected to increase in the mid-to-high single-digit percentage range at CER and are expected to remain largely in line with the previous year.

Our Take

The ZS Pharma acquisition is in sync with AstraZeneca's strategy of boosting and strengthening its cardiovascular & metabolic disease portfolio and pipeline. AstraZeneca's cardiovascular & metabolic disease portfolio currently consists of Brilinta/Brilique and Onglyza among other drugs while pipeline candidates include roxadustat (phase III - anemia associated with CKD) and others.

The acquisition of ZS Pharma does not come as a surprise -- the company was already being viewed as an attractive acquisition target. About a couple of months back, Actelion Ltd. ALIOF had confirmed that it was in preliminary discussions with ZS Pharma with the intention of acquiring the latter. Mergers and acquisitions in the health care space show no signs of slowing down and we expect to see even more buyouts through the remainder of the year and into 2016.

Currently, both AstraZeneca and ZS Pharma carry a Zacks Rank #2 (Buy). Other favorably ranked stocks in the health care sector include Actelion and UCB S.A. UCBJF . Both hold a Zacks Rank #1 (Strong Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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