By Albert Ibekwe (University of St Andrews), Athean Myat, Evan Schnell, James Ludlow and Nina Choophungart (Cornell University)
Photo: Brano (Unsplash)
Overview of the deal
Target: CinCor Pharma
Implied Equity Value: $1.3bn (inc. milestone payment)
Total Transaction Size: $1.8bn (inc. milestone payment)
Announcement Date: January 9th 2023
Closed date: Expected Q1 2023
Target advisor: Centerview Partners (Financial Advisor), Cooley LLP (Legal Advisor)
Acquirer advisor: Covington & Burling LLP (Legal Advisor)
AstraZeneca announced its acquisition of CinCor Pharma at JP Morgan’s 41st Annual Healthcare Conference. CinCor board unanimously approved the transaction. This acquisition supports AstraZeneca’s strategic push to lead in the cardiovascular renal and metabolic (CVRM) space. It comes as part of a wave of biotech deals supported by attractive valuations in the sector. At $26 a share the acquisition is at a 121% premium over CinCor closing market price on the 6th of January 2023. The transaction promises an additional $10 per share contingent on regulatory submission of one of CinCor’s products, Baxdrostat. This would see the total deal size rise from $1.3bn to $1.8bn. AstraZeneca will also acquire the cash and marketable securities on CinCor’s balance sheet, which totalled approximately $522m.
“Acquiring CinCor supports our commitment to cardiorenal disease and further strengthens our pipeline with baxdrostat. Excess levels of aldosterone are associated with hypertension and several cardiorenal diseases… and being able to effectively reduce this would offer a much-needed treatment option for these patients.” - Mene Pangalos, Executive VP of BioPharmaceuticals R&D (AstraZeneca)
Company Details (Acquirer - AstraZeneca)
AstraZeneca is a British-Swedish pharmaceutical and biotechnology company headquartered in Cambridge. Formed in 1999 as the result of a merger between Swedish AstraAB and British Zeneca group, the group became one of the world’s largest pharmaceutical companies. AstraZeneca has a broad global sales base drawing sales from Emerging Markets (33%), US (33%), Europe (21%), and the Rest of the World (13%). It has a leading position in the oncology space which represents over a third of its revenues and a broad portfolio of treatments for cardiovascular, gastrointestinal neuroscience, respiratory inflammatory and rare diseases.
Founded in 1999, headquartered in Cambridge, United Kingdom
CEO: Pascal Soriot
Number of employees: 83,100
Market Cap: $222.0bn (as of 18/01/2023)
LTM Revenue: $45.2bn
LTM EBITDA: $13.6bn
LTM EV/Revenue: 5.6x
LTM EV/EBITDA: 18.4x
Company Details (Target - CinCor Pharma)
CinCor is a biopharmaceutical company whose primary product is a cardio-renal asset known as CIN-107 (Baxdrostat). The company received licensing rights for Baxdrostat from Roche in 2019 and has focused on conducting Phase 2 trials to see the asset’s effect on Hypertension, Chronic Kidney Disease, and Primary Aldosteronism.
Founded in 2018, headquartered in Boston, Massachusetts
CEO: Marc de Garidel
Number of employees: <25
Market Cap: $1.3bn (as of 22/01/2023)
LTM EBIT: $(83.31)mn
Total Financing Received Prior to Deal: $418mn
Projections and Assumptions
The acquisition aims to add CinCor’s Baxdrostrat to AstraZeneca’s pipeline of CRVM drugs. Baxdrostrat is a drug for hypertension that aims to lower the patient’s blood pressure. Phase 2 trials in November 2022 failed to prove it worked on patients with uncontrolled hypertension leading to a sell-off of Cincor’s shares. AstraZeneca plans to enter phase 3 trials in the second half of the year and then synergize Baxdrostat with Farxiga, its existing drug for chronic kidney disease, to support its strong position in the market. This could lead to more potent drugs for hypertension, a condition that is estimated to affect 20% of the world’s population.
After the announcement, share prices in CinCor rose from $11 to $28, slightly above the guaranteed premium but lower than the $36 potential full consideration; indicating that the market anticipates a slight potential that Baxdrostrat meets the specified milestones.
The transaction will add a new asset into AstraZeneca’s sizable Cardiovascular, Renal, and Metabolism (CVRM) Pipeline, which as of November 2022, includes 19 projects conducting Phase 2 testing or later. AstraZeneca made $6.9 billion from CVRM products during the first three quarters of 2022, over a fifth of the firm’s overall revenues. While a small asset compared to AstraZeneca’s other products, Baxdrostat’s development should bolster the already substantial revenues in 2023.
AstraZeneca’s considerable size and robust pipeline also create further testing opportunities for Baxdrostat beyond Phase 2 trials. These trials are promising as the firm can expand and cultivate more products targeting cardiorenal diseases, of which there are few products available for patients experiencing such diseases.
While current focus will remain on finding applications for Baxdrostat with other mature products like Farxiga, AstraZeneca also creates further opportunities to develop products in the Cardiorenal disease market. The renal disease market focused on kidney functions has a projected CAGR of 3.6% by 2077, while the heart disease market has a projected CAGR of 1.7% by 2028.
Risks and Uncertainties
While a small bet, AstraZeneca acquired CinCor at a 121% premium in a year that recently experienced record lows for transaction size and number. The primary risk AstraZeneca faces with the bet is Baxdrostat’s product viability. Baxdrostat was a tenuous enough product that Roche, the initial owner, shelved the asset before CinCor’s licensing deal in 2019. CinCor’s current Phase 2 trials have also not been entirely successful with patients with uncontrolled hypertension. With AstraZeneca hoping to begin Stage 3 clinical trials in the latter half of 2023, it remains uncertain if the product will be viable enough for FDA filings.
An additional risk is the limited time available for Baxdrostat’s combination with Farxiga. Farxiga’s exclusivity in the US will end by 2024, limiting the amount of time available for a Stage 3 clinical trial for Baxdrostat. If generics begin to outcompete against Farxiga or other potential combinatory products before Baxdrostat achieves approval, then there will be much lower returns.
“We are excited about the proposed acquisition of CinCor Pharma by AstraZeneca as we believe it offers the prospect of accelerating the development timeline and expanding the breadth of benefits patients with cardiorenal diseases might obtain from baxdrostat, if approved.” - Marc de Garidel, CEO (CinCor Pharma)