Assistant Managing Editor

Looking to pad its immunology portfolio, Cephalon Inc. paid $7 million to pick up an option for midstage celiac disease candidate larazotide acetate from struggling private biotech Alba Therapeutics Inc.

Alba will complete a Phase IIb trial, with help from a loan from Cephalon. Then Cephalon will have a specified period after the read-out of those data to make a decision. Should the Frazer, Pa.-based firm exercise its option to acquire all the assets relating to the tight junction modulator – Alba's lead drug and its primary focus since restructuring in early 2009 – another $15 million would be due. Beyond that, Cephalon would owe undisclosed regulatory and sales milestones.

All told, it seems a pretty sweet deal for Cephalon, especially considering that larazotide acetate (formerly AT1001), at an earlier stage of development, managed to capture $25 million up front in a potential $325 million ex-U.S. deal with Shire plc in 2007. Shire also was to have picked up half of the product's global development costs and shoulder its share of a Phase III program. (See BioWorld Today, Dec. 17, 2007.)

But the Shire partnership "was dissolved about a year ago," a Cephalon spokesperson told BioWorld Today.

No reason for the termination of that deal was given, but it could have stemmed from mixed Phase II data. Cephalon CEO Kevin Buchi told investors on the firm's earnings call that the earlier Phase II results had shown a "signal of efficacy" for Alba's drug, but the endpoint used might not have been adequate for use in celiac patients.

The new Phase IIb study, set to start this year, will use a different endpoint, he said, though he did not disclose what that endpoint might be.

Besides the loss of partner Shire, Baltimore-based Alba apparently also ran into trouble raising cash. Once one of the shining stars of the University of Maryland Biopark incubator, Alba, founded by former Eli Lilly and Co. exec Blake Paterson, had raised $30 million in solid Series A round in 2005. But plans for a $20 million to $40 million Series B financing never materialized. In January 2009, Alba was forced to cut about half of its 40-member staff, mostly research and administrative positions. (See BioWorld Today, Aug. 24, 2005.)

The addition of larazotide acetate to Cephalon's pipeline would fit well "with our strategy of looking at specialty-based products," the firm's spokesperson said. Celiac disease, an inherited autoimmune disease, is believed to affect about 1 percent of the population and is typically diagnosed by gastroenterologists.

Triggered by the consumption of food that contains gluten – that includes nearly everything made from wheat, barley, rye or oats – Celiac disease causes damage to the inner surface of the small intestine and results in symptoms such as intestinal pain, bloating and diarrhea. Currently, the only solution for celiac patients is to adhere to a gluten-free diet, which can be difficult to follow. Even then, some patients still remain symptomatic.

Alba is one of only a few firms working on drugs for celiac patients. Chief competitor is Alvine Pharmaceuticals Inc., of San Carlos, Calif., which is developing ALV003, an oral mixture of two recombinant proteases designed to degrade gluten into non-immunogenic fragments, essentially preventing the gluten from triggering the autoimmune response.

Alba's drug aims to work by preventing gluten from slipping through the intercellular tight junctions. In the presence of gluten in celiac disease patients, those junctions remain open, launching the inflammatory cascade within the bowel.

The addition of Alba's drug would mark the latest in a string of business development activities for Cephalon. In the past year or so, the company picked up Ception Therapeutics Inc. in a $250 million deal centered around a Phase III-ready interleukin-5-targeted antibody in eosinophilic asthma, and acquired BioAssets Development Corp. for $30 million for an anti-TNF program in sciatica. Cephalon also expanded its international reach with a $590 million buyout of Mepha AG. (See BioWorld Today, Oct. 27, 2009, Feb. 2, 2010, and Feb. 24, 2010.)

Recent partnerships have added other programs, perhaps most notably a December deal with Australian firm Mesoblast Ltd., which marked Cephalon's first foray into the regenerative medicine space. (See BioWorld Today, Dec. 9, 2010.)

Cephalon, which reported earnings after market close Thursday, posted total net sales of about $2.8 billion for 2010. Full-year sales from its central nervous system franchise brought in about $1.4 billion, pain drug sales totaled $526.3 million and oncology drug sales grew to $513.6 million, the latter helped primarily by increased sales of lymphoma drug Treanda (bendamustine), which rose to $393.5 million for 2010. The company's net income was $657 million, or $5.66 per share for the year.

Shares of Cephalon (NASDAQ:CEPH) fell 79 cents to close Thursday at $60.11.