Earlier this month, U.K.-based drugmaker GSK (GSK 1.63%) reached a deal to buy Canadian biotech company Bellus Health (BLU) for $2 billion in cash.
With the acquisition anticipated to close by the third quarter of this year, it's worth asking: What did GSK obtain from this deal? And was it worth the cash consideration to acquire? Let's dig in to find out.
Potential breakthrough for a challenging condition
Should GSK's deal for Bellus Health be approved by regulatory authorities and a two-thirds majority of the latter's shareholders, the former will pick up a promising drug candidate, camlipixant, that aims to treat refractory chronic cough (RCC).
RCC is a cough that continues for longer than eight weeks despite proper treatment for any underlying conditions that could result in a cough. Leading to more than 900 coughs daily, the condition can be disruptive to life. This can cause rib fractures, loss of sleep, urinary incontinence, and depression, which can be detrimental to a patient's quality of life.
Surprisingly, there are no approved therapies for RCC in the United States or the European Union. The good news for patients with RCC is that companies like Bellus and Merck (NYSE: MRK) are working to bring treatments to the market. Bellus currently has camlipixant in two phase 3 clinical trials that are expected to share data near the end of 2024 and in 2025, respectively.
The company advanced the drug candidate to these clinical trials based on encouraging phase 2 clinical trial results. Bellus enrolled patients with an awake cough frequency of at least 25 per hour in the clinical trial to receive either placebo or a 12.5 milligram (mg), 50 mg, or 200 mg dose of camlipixant each day.
Patients in the treatment group fared much better than patients in the placebo group; at day 28 of the clinical trial, camlipixant patients reported reductions in their cough frequency compared to placebo ranging from 21.1% for the 12.5 mg dose to 34.2% for the 200 mg dose.
Camlipixant's safety profile was also comparable to the placebo during the clinical trial, which was another encouraging factor that prompted the company to advance the drug candidate.
Image source: Getty Images.
The deal looks brilliant
Camlipixant could be a huge advance in treatment for a condition that is estimated to impact 28 million patients around the world. What could this mean for GSK's sales if it ultimately ends up snagging BELLUS and its drug candidate?
Camlipixant will likely face competition from Merck's gefapixant. But analysts at Jefferies believe that the drug candidate has best-in-class potential, which is why they expect the drug to generate peak sales of $1.2 billion in the U.S. alone. Against the $35.7 billion in revenue that analysts are predicting for 2023 from GSK, this would be a solid boost to the pharmaceutical's top line.
A clear value stock with solid growth prospects
GSK also has dozens of other projects in its development pipeline, like its respiratory syncytial virus vaccine candidate. That's why analysts are projecting that the company will deliver 5.3% annual earnings growth over the next five years.
Yet, the stock appears to be cheaply valued. GSK's forward price-to-earnings ratio of 9.3 is well below the drug manufacturers industry average of 13.6. That is why I rate the stock as a buy for value investors at its current $37 share price.
