Biotech acquisitions continue to abound this year. On April 10, Vertex Pharmaceuticals (VRTX -0.05%) announced it would purchase Alpine Immune Sciences (ALPN 0.16%) for $4.9 billion in cash in a deal that's set to close before the end of this quarter. The prized asset that Vertex will gain as part of this purchase is ALPN-303, a potential autoimmune treatment that's in phase 2 clinical trials.
But there's a lot more to the deal's potential value for Vertex than the purchase of this particular pharmaceutical candidate might suggest. Let's explore why this move could be great in the long term to understand the issue a bit more.
A gift that could keep on giving
ALPN-303 is being developed to treat IgA nephropathy (IgAN), a rare autoimmune disease of the kidney with no approved treatments capable of addressing its root cause. IgAN is thought to develop in around 4,200 people annually in the U.S., though the precise figure is not known because noticeable symptoms can take a long time to develop. Roughly 125,000 people are living with it in the U.S. today.
Buying ALPN-303 meshes well with advancing Vertex's strategic focus on rare disease. All of its commercialized medicines treat illnesses with small patient populations, like cystic fibrosis (CF), beta thalassemia, and sickle cell disease, and most of its pipeline is devoted to developing treatments for similarly uncommon maladies.
Plus, it serves management's long-standing goal of continuing to diversify its offerings beyond its traditional market -- cystic fibrosis therapies. So from the perspective of evaluating how this acquisition will help shareholders, it's a very bullish move and a reason to buy more of the stock as it shows that management is intent on continuing to execute the core business model successfully and also ambitiously.
Before the end of the year, Alpine's program is scheduled to enter late-stage clinical trials, so it could be approved for sale in a couple of years if everything goes as planned. But the molecule that's the active ingredient of ALPN-303, povetacicept, could actually have a smorgasbord of therapy applications going far beyond IgAN. And therein lies an uncertain number of additional reasons why it might be worth buying the stock.
Per Alpine's researchers, povetacicept could potentially be useful in treating three other types of glomerulonephritis beyond IgAN, as well as pemphigus, lupus, vasculitis, a trio of different autoimmune cytopenias, myasthenia gravis, a couple of other neurological autoimmune diseases, and autoimmune hemolytic anemia too. If you've never heard of most of those conditions, have no fear.
The point is that each of those illnesses represents the potential to eventually expand the molecule's addressable market by conducting additional clinical trials or doing some additional research and development (R&D) work. That's why Alpine's leadership calls its molecule a "pipeline in a box." There were enough directions worth exploring that investing in other candidates supposedly wasn't necessary. And now Vertex, with its tremendous resources, owns the whole shebang.
Risks are contained
It's quite likely that Vertex will not succeed in commercializing a new product for every possible indication that's theoretically possible to treat with povetacicept. Many of the potential indications are for rare autoimmune conditions, which may be difficult to concoct safe and effective treatments for. Nonetheless, shareholders don't need to worry about taking on more risk than they signed up for, and here's why.
In the most recent quarter, Vertex had $11.2 billion in cash, equivalents, and short-term investments on hand. After the purchase, when taking the ownership of the $327.4 million in cash and equivalents Alpine currently holds into account, it should have around $6.6 billion. In other words, it'll still have plenty of money to invest in seeking other growth opportunities, so this acquisition didn't decrease its flexibility by much at all.
Furthermore, Vertex's trailing-12-month free cash flow (FCF) is close to $3.3 billion. With cash generation like that, it'll likely recoup the capital it committed to buying Alpine in no time flat. So if you're looking for a sign that this business is worth buying, you now have a few more than before.
