Hyperion Therapeutics Inc. broadened its orphan disease pipeline in a big way by inking an agreement to acquire Andromeda Biotech Ltd., an Israel-based subsidiary of Clal Biotechnology Industries Ltd., in a carefully crafted deal that links much of the economics to back-end milestones.
Hyperion, of Brisbane, Calif., agreed to pay $12.5 million up front in cash, less adjustments for transaction-related expenses, plus 312,869 shares of its common stock. The company valued the stock portion of the transaction at approximately $7.85 million, based on the average closing price of $25.09 per share for the 15 consecutive trading days ending April 17.
The remainder of the deal was structured with contingent payments to Andromeda shareholders, including potential regulatory and approval milestone payments totaling $120 million – triggered by acceptance of the first marketing application accepted for review in the U.S. or Europe – and up to $430 million in commercial milestones once global net sales reach $450 million. Andromeda shareholders also are entitled to tiered contingent sales payments ranging from 10 percent on global net sales of up to $300 million to 17 percent on net sales that exceed $1.2 billion. Distributors in certain territories would receive a 25 percent sales payment rate.
Don Santel, Hyperion's CEO, called the agreement "a highly structured deal that has minimum cash outlay now, with potential for a huge upside if we prevail in the second phase III."
Hyperion's trophy is Andromeda's only candidate, Diapep277, a first-in-class immune intervention therapy that's in a confirmatory phase III study in adults with new onset type 1 diabetes. The 24-amino acid peptide, derived from human heat-shock protein 60, has shown specific and beneficial effect against the autoimmune attack of pancreatic beta cells that occurs in type 1 diabetes.
Adult new onset type 1 diabetes is considered an orphan indication, with approximately 15,000 adults in the U.S. and 20,000 in Europe diagnosed annually, according to Hyperion.
Diapep277 preserves endogenous insulin secretion by selectively inducing anti-inflammatory T cells and impeding beta cell destruction without affecting other essential immunological functions or causing systemic immune suppression. Though the therapy does not replace the use of insulin, its use in new onset type 1 patients could potentially curtail insulin usage while slowing disease progression, maintaining metabolic control and reducing the risk of diabetic complications, Hyperion officials said on a Thursday morning conference call.
Diapep277 is administered through subcutaneous injection once every three months. The therapy has been studied in more than 500 patients across a dozen clinical trials, all of which examined release of C-peptide as a measure of pancreatic beta cell function. The FDA granted the therapy orphan drug designation for type 1 diabetes patients with residual beta cell function.
The initial randomized, double-blind, placebo-controlled, multinational Phase III, known as DIA-AID 1, evaluated safety and efficacy in 457 new onset adult type 1 diabetes patients over a 24-month treatment period. Results in both the modified intent-to-treat and per-protocol populations showed significant improvement in the preservation of glucagon-stimulated C-peptide secretion and a higher proportion of patients who maintained HbA1c target levels in the Diapep277 treatment arm compared to placebo. The compound was safe and well tolerated, with no significant differences in serious adverse events or adverse events observed between the treatment and placebo arms. Findings from the study were published in the May 2014 issue of Diabetes Care.
The fully enrolled DIA-AID 2 phase III study is examining the safety, tolerability and efficacy of Diapep277, also over 24 months, in 474 newly diagnosed type 1 patients ages 20 to 45 years. The primary endpoint is preservation of glucagon-stimulated C-peptide secretion, with secondary endpoints including percentage of subjects who achieve target HbA1c levels, percentage of subjects who require daily insulin dosing less than 0.5 U/kg, hypoglycemic events and event rates. The company expects to report data in the first quarter of next year.
If the findings replicate those of DIA-AID 1, Diapep277 could be positioned to emerge as the first disease-modifying therapy approved for type 1 diabetes, according to Hyperion.
"This would be a huge win for patients," said Bruce Scharschmidt, the company's chief medical officer. "They've had nothing but insulin for decades. This is a highly differentiated project that could change the trajectory of the disease."
'WE KNEW WE NEEDED TO MOVE QUICKLY'
Hyperion last year gained FDA approval for Ravicti (glycerol phenylbutyrate) for the chronic management of urea cycle disorders (UCDs) in adults and children 2 and older and recently acquired Buphenyl (sodium phenylbutyrate) tablets and powder from Ucyclyd Pharma Inc. as adjunctive therapy in chronic UCD management. (See BioWorld Today, Feb. 4, 2013.)
The company also is developing Ravicti for hepatic encephalopathy, but it could be four to five years before the compound gains approval in that indication, according to Santel.
Hyperion has made no secret of wanting to expand its orphan drug pipeline, raising $57.9 million last year in a follow-on offering and ending 2013 with cash, equivalents and investments of $118.1 million.
"We continue to look at assets, and there are always several things we're evaluating at various stages," Santel told BioWorld Today. Most of those prospects "fall off the cart" at some point along the way – "some early, some later," he added.
The company was apprised of the Andromeda opportunity in November through a boutique bank that Hyperion had been courting, "because they do tend to get these interesting off-market opportunities that might fly under the radar of bigger organizations," said Natalie Holles, senior vice president of corporate and business development and architect of the Andromeda deal.
The company dove into intensive due diligence, "and by the end of the year we were pretty convinced this was something we wanted to pursue aggressively," Holles said. "Being a small player in a sea of bigger fish with deeper pockets, we knew we needed to move quickly."
Hyperion had a signed term sheet in February and closed the deal late Wednesday night.
Diapep277 was developed by Irun Cohen, a professor of immunology at Israel's Weizmann Institute, and originally developed at Rehovot, Israel-based Peptor Ltd. Germany's Develogen AG gained the access in 2004 when it completed a stock-based merger with Peptor. (See BioWorld Asia, May 19, 2004.)
Clal, Israel's largest portfolio by market cap, founded Andromeda in 2007 to return the asset to Israel, with Goettingen, Germany-based Develogen set to receive regulatory and commercial milestones and royalties on eventual sales. (See BioWorld Asia, April 18, 2007.)
Teva Pharmaceutical Industries Ltd., of Jerusalem, which has ties to Clal, considered acquiring Andromeda but, instead, inked a global licensing deal with the company. Terms of that 2007 deal called for Teva to invest $50 million in Tel Aviv, Israel-based Andromeda, giving Teva 60 days following an interim analysis of the DIA-AID I trial to invest $17.5 million at a $90 million pre-money valuation. A year later, Teva invested another $3 million in the Diapep277 development program, under an amended agreement. (See BioWorld Today, Dec. 4, 2007, and Aug. 26, 2008.)
In February, without fanfare, the companies terminated their agreement. Teva transferred full rights back to Diapep277 back to Andromeda for approximately $72 million, to be paid in future installments based either on Andromeda's revenues or on a distribution payable to its shareholders.
With the Hyperion acquisition, the latter will apply, Holles said.
"The up-front and the contingent payments will be shared between Teva and Andromeda until such time as Teva's fully paid out, then the balance of the consideration goes to the Andromeda shareholders," she explained.
Hyperion plans to operate Andromeda as a wholly owned subsidiary and to retain the company's 10 employees. The transaction was approved by the boards of both companies and is expected to close this quarter.
In an analyst note, Leerink Partners LLC analyst Joseph Schwartz said the deal looked "financially and scientifically sound."
The FDA's stance on the groundbreaking technology is an open question, going forward, but Schwartz said Hyperion structured that unknown "wisely" into the deal.
"It remains to be seen how the FDA will receive the totality of the data, but we believe HPTX performed significant due diligence in this area, is very experienced at interacting with regulators, and pays relatively little for the asset until it crosses meaningful goal lines," he wrote.
Cowen and Co. analyst Phil Nadeau agreed. "Although clinical and regulatory success of Diapep appears far from certain, the initial phase III data are intriguing, and the upside potential is large," he wrote in a company note. "Moreover, HPTX structured the deal so that most payments are success-based."
Hyperion turned a profit at the end of last year, according to Santel, and will report first quarter financials in early May. Trading in the company's stock (NASDAQ:HPTX) was remarkably quiet Thursday, as investors seemed to mull over the long-term prospects of the Andromeda buy. Shares fell 8 cents, closing at $25.53.