Deal Watch: Merger Addresses Problems Of Both Aegerion, QLT

Convinced on safety, Shire buys Phase III-ready IBD candidate from Pfizer. Teva looks ahead to its acquisition of Allergan's generic portfolios by divesting ANDAs through two deals, while ending a stem cell collaboration with Mesoblast.

The Pink Sheet regularly covers business development and deal-making in the biopharmaceutical industry. Below is a roundup of some of the most noteworthy transactions that occurred between June 10-16. Deal Watch is supported by deal intelligence provided by Strategic Transactions.

Aegerion/QLT

Two floundering companies are joining together in what analysts and investors believe will be a fruitful combination that could solve their cash flow and diversification problems. While the move seems positive for both companies, it could hinge on the success of one late-stage product and ongoing settlements with regulators.

Beleaguered Aegerion Pharmaceuticals Inc. announced June 15 that it will merge with Canada's QLT Inc. in an all-stock merger that will make Aegerion a direct subsidiary of QLT. Each share of Aegerion common stock will be exchanged for 1.0256 shares of QLT common stock, resulting in QLT shareholders owning 67% of the new company. The resulting new company will be renamed Novelion Therapeutics and will continue to be traded on both the NASDAQ and the Toronto Stock Exchange. The deal is expected to close in the third quarter.

"Today's announcement represents our commitment to achieving the transformative impact pillars of the strategy we outlined in February and bolstering our pipeline through business development initiatives," Aegerion CEO Mary Szela said June 15. "Our global commercial capabilities in rare diseases and our patient-support services are important components of the orphan drug business model. And we believe a transaction with QLT that leverages cash position and pipeline assets would create a strong platform for reimagining the Company and accelerating our potential revenue growth and profitability."

In conjunction with the deal, a syndicate of old and new investors has agreed to buy 22 million QLT shares. The syndicate has agreed to vote in favor of the deal and the investment will help fund the new company.

If all goes as planned, Novelion will have an unrestricted cash balance of $100m. The new company will be led by current Aegerion CEO Szela. Novelion's board will have 10 members including four Aegerion designees, four QLT designees and two shareholder representatives, one from Broadfin Capital and the other from Sarissa capital management.

Szela told investors that the new company could bring in $500m in potential revenues, including up to $100m from its currently marketed homozygous familial hypercholesterolemia (HoFH) drug Juxtapid (lomitapide), $200m to $250m from the already approved lipodystrophy drug Myalept (metreleptin) and $200m from QLT's Phase III-ready zuretinol.

Novelion will be headquartered in Vancouver, but will retain Aegerion operations in Cambridge, Mass. The merger prompted analysts to question motives behind the deal and whether the deal would trigger an advantageous tax rate. During an investor call, executives admitted that there would be potential future benefits for Novelion, but that the tax structure was not the underlying reason for the deal.

The reasons for the deal are fairly easy to discern – both companies were plagued with problems. Aegerion has been trying to diversify away from Juxtapid for the last couple years as sales waned and competition from the PCSK9s entered the market. Yet lagging sales were the least of Aegerion's problems; the company has faced a swath of lawsuits and warnings from regulators related to improper sales and marketing. Former CEO Marc Beer was even issued a warning letter by FDA for his comments on television about the intended use of Juxtapid.

Aegerion reached an agreement with the Department of Justice and the Securities and Exchange Commission regarding its activities related to Juxtapid, agreeing to a settlement of $40m in May 2016 (Also see "Aegerion Juxtapid Settlement Shows REMS Have Teeth: Alternate Route To Enforce Off-Label?" - Pink Sheet, 23 May, 2016.). The settlement is still preliminary, but the deal includes adjustments should those numbers change and executives noted it would not be a roadblock to completing the deal.

Beyond giving Aegerion a clean slate, the merger also brings the company the cash it needs to expand its pipeline and conduct further business development activities.

"[The deal] provides us with time to reconfigure Aegerion's core business with the goal to deliver positive operating cash flow in 2017. Importantly, the transaction structure does not trigger a repayment obligation with respect to Aegerion's outstanding convertible senior notes," said Szela.

For QLT, the merger provides the company with the diversification it needs, both from a product portfolio perspective, but geographically as well. Like Aegerion, QLT has faced numerous problems over the last few years, including several dashed attempts at previous mergers.

Pfizer/Shire

Shire PLC said it was buying Pfizer Inc.'s PF-00547659, a monoclonal IgG2 antibody directed against MAdCAM-1, because of its promise in late-stage trials for treating moderate-to-severe inflammatory bowel disease (IBD). The drug is among several that target white blood cell trafficking in the intestinal mucosa as a way of treating IBD, which includes ulcerative colitis and Crohn’s disease – serious, chronic diseases characterized by inflammation of the intestine.

Shire must be impressed with the PF-00547659's promise given the company's plans to cull some activities in its R&D pipeline after completion this month of the company's combination with Baxalta Inc., which cost some $32bn (Also see "Shire Is Agnostic On Baxalta's Biosimilars Pipeline As Integration Begins" - Pink Sheet, 3 Jun, 2016.). Shire CEO Flemming Ornskov said on June 3 that the combined R&D teams of Shire and Baxalta would meet later this month to start deciding what projects would continue and which would be scrapped, saying, "We won't be able to do everything going forward."

But Shire gave little insight about the price it paid for PF-00547659 or its regulatory plans when announcing the pact with Pfizer on June 14 [See Deal]. Deal terms were not disclosed. Shire's head of clinical development, Howard Mayer, did say that the Dublin-based group will “look forward to continuing the development of PF-00547659, a unique and differentiated biologic that will benefit from our experience in IBD and across the gastrointestinal space.”

PF-00547659 is a fully-human monoclonal antibody designed to directly target a gastrointestinal endothelial adhesion molecule known as mucosal addressin cell adhesion molecule 1 (MAdCAM-1), that binds to the alpha4beta7 integrin on white blood cells. Most anti-adhesion molecule therapies target the integrin family. Takeda Pharmaceutical Co. Ltd.'s currently approved ulcerative colitis and Crohn's disease drug Entyvio (vedolizumab) and Roche's investigational agent for the condition called etrolizumab both bind to this molecule, as does the multiple sclerosis drug Tysabri (natalizumab).

But the experience with Biogen Inc./Elan Corp. PLC’s Tysabri, which promotes an often fatal brain inflammation known as progressive multifocal leukoencephalopathy (PML), has made gastroenterologists wary of agents sharing any aspect of its mechanism of action. Although no cases of PML have been seen so far with the other anti-alpha4beta7 agents, FDA questioned Takeda closely about vedolizumab's risk profile before approving the drug (Also see "Takeda Avoids REMS For Entyvio, But Must Continue PML Monitoring" - Pink Sheet, 21 May, 2014.).

In order to avoid such concerns, the Pfizer drug that Shire has bought targets a different factor called MAdCAM-1, an adhesion molecule on endothelial cells that interacts with alpha4beta7 and which – unlike Tysabri – doesn't influence immune surveillance in the central nervous system and does not bind to VCAM-1, another indirect target of Tysabri that appears to be involved in PML.

PF-00547659 has completed Phase II clinical trials in ulcerative colitis and Crohn’s disease, known as TURANDOT and OPERA, respectively. The Pfizer-sponsored TURANDOT Phase II trial met its primary and secondary end points; adult patients with moderate to severe active ulcerative colitis who failed at least one previous treatment and were treated with PF-00547659 showed an increased rate of remission, response, and mucosal healing at week 12, compared to placebo. The most commonly reported adverse events were consistent with the underlying disease, Shire said in a statement.

Merck/Afferent

Merck & Co. Inc.agreed to pay $500m up front to acquire Afferent Pharmaceuticals Inc., a seven-year old private biotech developing treatments for neurogenic diseases. Afferent also could earn up to $750m in earn-outs based on clinical and commercial achievements under the deal announced June 10 [See Deal].

The company, a Roche spin-out, is developing lead compound AF219 in Phase IIb trials for refractory chronic cough and Phase II for idiopathic pulmonary fibrosis with cough (Also see "Afferent Pharmaceuticals Inc." - Scrip, 15 Jan, 2013.). The candidate is a non-narcotic P2X3 antagonist originally discovered at Roche, but later discontinued. One of the lead scientists that discovered AF219 took the compound off of Roche's hands and co-founded Afferent in 2009 along with investors Pappas Ventures, Third Rock Ventures, Domain Associates, New Leaf Partners and Roche Ventures.

Afferent's other clinical-stage project, AF130, is in Phase I for resistant hypertension and preclinical studies for migraine. The addition of Afferent's AF219 could be key for Merck, which is seeing a steady and continuing decline in its respiratory business due to generic competition and lack of promising pipeline candidates. Afferent raised at least $78m through venture rounds, including a $55m crossover round in July 2015 [See Deal].

Teva/Dr. Reddy's and Teva/Sagent

Teva Pharmaceutical Industries Ltd. is selling off a selection of ANDAs as a precondition of the Securities and Exchange Commission to its closing of the $40.5bn acquisition of Allergan PLC’s generics business.

India-based Dr. Reddy's Laboratories Ltd. said June 14 that it had entered into a definitive agreement with Teva and an affiliate of Allergan to buy eight ANDAs for $350m in cash (Also see "Dr. Reddy’s Pumps Complex Generics Play With Teva Deal" - Scrip, 15 Jun, 2016.). Teva announced another divestiture necessary to complete the Allergan deal on June 16, transitioning a portfolio of five ANDAs to Sagent Pharmaceuticals Inc. for $40m. The Illinois firm said the five products – not named in the announcement – have combined sales of about $340m and are expected to yield $40m-$50m in aggregate sales on an annualized basis after the generic versions are launched.

The deal with Dr. Reddy's covers a mix of filed ANDAs pending approval and an approved ANDA, and comprises complex generic products across diverse dosage forms. Branded versions of these products reported moving annual total sales of about $3.5bn in the US for the 12 months ended in April, as per IMS Health data.

Analysts, in general, seemed enthused about the deal, especially given the potentially limited competition products that could be covered therein. They also sought to delink the deal from any attempts to "buy growth" in the backdrop of the ongoing compliance issues at some of Dr. Reddy's Indian sites.

"The deal looks good for Dr. Reddy’s and is more opportunistic in nature rather than any reflection of aggravated US regulatory issues. Usually products divested mandatorily post an M&A [mergers and acquisitions] transaction are likely to have low competition," said Nimish Mehta, founder of Research Delta Advisors.

Dr. Reddy’s currently has more than 79 ANDAs filed pending approval, of which 18 are likely have first-to-file status. Alok Sonig, Dr. Reddy's exec VP and North America head, said that the acquisition of "attractive" ANDAs from Teva will enhance the company's "short-to-midterm aspirations" and is consistent with its growth initiatives to identify inorganic opportunities to expand the base business.

Teva/Mesoblast (No Deal)

Australia-based Mesoblast Ltd. faced angry questions from analysts on June 14 when it tried to put a positive spin on news – which followed a 10-day halt in trading in its shares – that Teva had ended a research partnership with the stem cell specialist and returned full rights to its experimental therapy for advanced chronic heart failure, which is in late-stage testing. Mesoblast shares sank upon resumption of trading, falling more than 40% from the previous close.

Mesoblast had partnered with Teva on the experimental stem cell therapy, called MPC-150-IM, through a 2010 partnership with Cephalon Inc.[See Deal]. Teva bought out Cephalon for $6.8bn in 2011, putting it on the hook to fund ongoing development of MPC-150-IM [See Deal]. Teva has now pulled out of the partnership and fully returned the drug to Mesoblast, citing the need to focus on "core therapeutic areas."

"We regained full rights, full economic benefits and there are no financial considerations to Teva. I think this is a great outcome for Mesoblast and its shareholders," CEO Silviu Itescu told an analysts' call to explain the development. He said the therapy has the potential to be a multibillion dollar blockbuster for Mesoblast and that his group had secured an equity finance facility that will allow it to progress the late-stage drug.

"We have a financial facility in place that allows us to draw down at our full control in such a way that we can match the funding requirements for the program through to its completion," Itescu said. He gave no details on its size or origin.

MPC-150-IM is derived from Mesoblast's Mesenchymal Precursor Cell (MPC) platform; cells are extracted from the bone marrow of donors and then expanded into therapeutic quantities (Also see "Mesoblast/Teva May Have Shorter Path To Market In Chronic Heart Failure" - Pink Sheet, 15 Jan, 2016.). The goal is to produce an "off-the-shelf" stem cell therapeutic.

Itescu said Teva had made a strategic decision which was not taken on financial grounds alone. "I think it's far more than simply the funds required to complete the Phase III trial - and I think it's fair to say that Teva is currently engaged in focusing on much larger generics targets and in other areas of strategic focus than cardiovascular medicine," the exec said.

He added that Teva remained a Mesoblast shareholder and had retained rights other than cardiovascular, "notably in the neuroscience part of the deal."

Otsuka/Acucela (No Deal)

Otsuka Holdings Co. Ltd. has ended two long-standing licensing and development agreements with Acucela Inc. following an assessment of clinical results and development priorities (Also see "Double Whammy For Acucela As Otsuka Ends Alliances" - Scrip, 14 Jun, 2016.). Affected by the June 13 decision are emixustat (ACU-4429), an Acucela oral small molecule for dry age-related macular degeneration (AMD), and OPA-6566, an Otsuka candidate for glaucoma.

The two firms signed a collaborative agreement for emixustat back in 2008, under which they were working jointly to develop and commercialize the drug, a visual cycle modulator that targets the RPE65 enzyme to reduce the accumulation of retinoid-related toxic metabolites, including A2E, in the eye.

However, emixustat recently missed its primary endpoint in the 508-patient, Phase IIb/III S.E.A.T.T.L.E. study in geographic atrophy secondary to dry AMD, failing to show any significant difference in a once-daily regimen over placebo in terms of lesion growth rate (Also see "Otsuka, Acucela JV Ready Phase III Trials Of Dry AMD Drug In Europe, U.S." - Scrip, 25 Mar, 2013.).There was also no significant difference in the mean change of best corrected visual acuity from baseline to month 24 between treatment groups.

Under the original agreement – worth $5m upfront and up to $258m in milestones to Acucela – the partners shared development and co-promotion rights across indications in North America, and were to share equally all expenses and profits from sales in this market [See Deal].

Otsuka had exclusive rights in Japan, Asia and selected other global markets, and funded all development through Phase II, while Acucela held rights in Europe and other markets, with the two firms sharing equally all Phase III expenses (Acucela was helped by a loan from Otsuka).

Acucela now says it will discontinue further analysis of clinical data from the study relating to the target indication, but will continue to explore the benefits of emixustat for retinal disorders in an ongoing Phase II trial in proliferative diabetic retinopathy, as well as in a planned Stargardt disease study due to start this year.

Otsuka also dropped, through the exercise of a contractual right upon the lapse of a predetermined notification period, a 2010 development and collaboration agreement with Acucela for OPA-6566. The topical selective adenosine A2a receptor agonist had already completed a Phase I/II trial in the US, and next steps were being considered.