Vertex Is Paying a 102% Premium to Acquire Crinetics for $10 Billion. Here's Whether the Deal Is Worth It.

In the latest big-ticket deal in the pharmaceutical industry, Vertex Pharmaceuticals (VRTX 1.31%) and Crinetics Pharmaceuticals (CRNX +98.74%) announced in a joint press release that Vertex is acquiring Crinetics. This won’t come cheap, to put it mildly; it’s a premium-priced deal that will cost billions of dollars. Here’s a look at whether that’s likely to be capital well spent.

Quite a pricey premium

Vertex is paying $85 per share to acquire Crinetics, to be paid entirely in cash. This values the latter pharmaceutical company at approximately $10 billion, or roughly $8.8 billion when accounting for the cash and short-term investments Crinetics has on hand. As for the per-share price, $85 is slightly more than double the level at which Crinetics closed on Monday.

Image source: Getty Images.

The boards of directors at both companies have unanimously approved the deal, which is expected to close in the third calendar quarter of this year.

Vertex is buying a company that recently earned its first Food and Drug Administration (FDA) approval. This was for its Palsonify, a treatment for the rare endocrine disorder acromegaly (characterized by excessive growth hormone production). This medication was greenlit by the regulator last September for adult use, and since it’s currently the only approved acromegaly treatment administered as a once-daily pill (as opposed to a monthly injection), it has quite a strong position in the market — in its first full quarter following approval, the drug brought in $10.7 million in revenue.

Palsonify was also approved for the same indication by the 27-country European Union’s European Commission at the end of this past April.

Crinetics also has a pipeline distinguished by one standout drug candidate in particular. This is atumelnant, which targets the most severe form of congenital adrenal hyperplasia (CAH), an affliction of the adrenal glands. While this disorder is rarer than acromegaly, it has a significant unmet medical need — meaning that if it comes to market, it’ll have excellent sales potential from the start. That might not be too far in the future, as the drug is currently in late Phase 3 clinical development.

Other pipeline drugs in Crinetics lab target afflictions such as hyperparathyroidism, Graves’ disease, diabetes, and obesity, with the latter a durably hot segment of the pharmaceutical market.

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Immediate return on investment

In the press release, the two companies quoted Vertex CEO Reshma Kewalramani as saying that his company “can build on the strong momentum of the Palsonify launch by applying our experience in commercializing medicines for rare genetic diseases.”

He added that “we are also excited by the significant potential of atumelnant to transform the treatment landscape for CAH.”

His company clearly believes owning Crinetics will produce immediate results thanks to the latter company’s already-popular commercialized drug. It described atumelnant as a product with multi-billion dollar potential if it can also earn approval for another affliction, Cushing’s syndrome (a hormonal disorder that arises from over-exposure to cortisol). So we can assume management feels that $10 billion is a reasonable price for the investigational drug alone.

Together, Palsonify and the potentially dual-indication atumelnant could bring in $5 billion in annual sales for the Crinetics-owning Vertex.

Future blockbusters?

In short, Vertex could eventually have in its portfolio not one but two blockbuster drugs (i.e., those that generate at least $1 billion in annual sales). It’s got plenty of cash in its coffers, with over $5.5 billion in greenbacks as of the end of March. It’s also secured a $4.5 billion bridge loan from lenders Bank of America (BAC 0.07%) and Morgan Stanley (MS 0.03%).

I think this is a bold and impressive move by Vertex, which gives the company, at the very least, an already-strong commercialized product with Palsonify, despite the fairly limited size of the product’s addressable market. So far, it looks like atumelnant has similar potential and could even be the company’s No. 1 if it’s ultimately approved for both desired indications. This deal is definitely worth it, in my view, despite the gasp-inducing price tag and monster premium to Crinetics’ share price.