Barely three months after reporting solid Phase IIb data for EP-101, its aerosol therapy for chronic obstructive pulmonary disease (COPD), Elevation Pharmaceuticals Inc. is being snagged in a buyout by Sunovion Pharmaceuticals Inc. in a deal valued at up to $430 million.

Sunovion, a Marlborough, Mass., subsidiary of Dainippon Sumitomo Pharma Co. Ltd., is paying $100 million up front for the San Diego-based biotech. Elevation can earn up to $300 million in "high probability" milestones payments that are "fair and balanced between development and commercial milestones," said CEO Bill Gerhart.

As much as $90 million in payments are tied to development of EP-101 and up to $210 million in commercial milestones.

"You can never count the money until it's in the bank, but we're very optimistic about earning those milestones," he told BioWorld Today.

In addition to performing well in the first Phase IIb trial – data from a second study are anticipated next week – EP-101 has a relatively low-risk development profile. The product is based on an existing pharmaceutical product – a long-acting muscarinic antagonist (LAMA) glycopyrrolate – currently marketed as a dry powder formulation by Novartis AG. Elevation formulated glycopyrrolate for nebulizer-based administration, aimed at targeting a specific subpopulation of COPD patients.

"There are no LAMAs available in nebulizer form, so this was an opportunity we saw," said Gerhart, who co-founded Elevation in 2008 along with Cam Garner and Ahmet Tutuncu, specifically to focus on drugs targeting underserved subpopulations in the respiratory disease space.

About 80 percent of COPD patients are adequately treated with dry powder inhalers or metered-dose inhalers. "But for some, particularly the sicker and older patients, they can't effectively coordinate their breathing to operate those [devices]," Gerhart said.

By turning the solution into a mist, however, those patients are able to get a full dose of drug. And the new generation nebulizer, based on a vibrating membrane, is capable of administering a full dose in about two minutes, he added.

In May, Elevation reported data from the Phase IIb GOLDEN-1 (Glycopyrrolate for Obstructive Lung Disease via Electronic Nebulizer) trial, which evaluated the long-acting muscarinic antagonist glycopyrrolate in patients with moderate-to-severe COPD. The 140-patient trial met its endpoint of superior efficacy vs. placebo, as measured by improved lung function on day seven following administration.

A third Phase II study is expected to begin later this year, testing EP-101 in patients with moderate to severe COPD. Phase III studies are expected to launch in the second half of 2013.

EP-101 is delivered via the eFlow nebulizer device licensed from PARI Pharma GmbH, of Grafelfing, Germany.

Its delivery would set EP-101 apart from other competitors in the space, including the highly touted LAMA/LABA bronchodilator combination product from Theravance Inc. and GlaxoSmithKline plc, which is set for regulatory filings after hitting endpoints in the first four of seven Phase III studies last month. That product, which combines umeclidinium bromide and vilanterol, is administered via a dry powder inhaler.

The ability to carve out a significant share of the multibillion COPD market clearly was an attraction for Sunovion. But the pharma firm also picks up a device platform that it can incorporate into other areas of its respiratory pipeline where existing products for asthma and COPD can be enhanced to nebulizer formulations. That platform "can form the cornerstone of Sunovion's franchise," Gerhart noted.

The remaining $30 million in milestone payments is tied to the development of new programs using the device platform.

Elevation's management will remain involved in the EP-101 program through a transition period. Gerhart said Sunovion retained the small biotech's management team under consulting agreements for up to 12 months.

Having operated largely as a virtual company, Elevation's founders had always sought to deliver EP-101 to a big pharma firm for late-stage development and commercialization. The firm began garnering interest from potential acquirers earlier this year and brought on board an investment banker to explore its options. Sunovion's proposed terms proved the best for investors, which include Canaan Partners, Novo Ventures, TGP Biotech, Care Capital and Mesa Verde Venture Partners.

In fact, should Elevation end up earning the full $430 million, its investors are looking at a nearly 10x return.

Elevation has raised about $44 million since its inception. It closed a $31.6 million Series A round in early 2010. Investors committed an additional $30 million in January, but to date Elevation had only drawn down the first $12.4 million tranche. (See BioWorld Today, Jan. 26, 2010, and Jan. 5, 2012.)

Both Sunovion's and Elevation's boards have approved the agreement, though the acquisition is subject to closing conditions.