Astellas Pharma Inc. has agreed to acquire Iota Biosciences Inc., a company developing ultra-small implantable bioelectronic medical devices, in a deal valued at up to $429 million. According to a merger agreement, Tokyo-based Astellas will make an initial payment of roughly $127.5 million for all outstanding equity not already held by Astellas. Iota shareholders will receive further payments of up to $176.5 million as Iota completes predetermined milestones.

In addition, Astellas has agreed to spend a total of $125 million over the next five years to drive Iota’s growth.

Upon completion of the acquisition, Iota will become a wholly owned subsidiary of Astellas. The deal is expected to close in the third quarter of Astellas’ fiscal year, which ends March 31, 2021.

Earlier collaboration

The transaction builds on a 2019 research and development agreement to explore new biosensing and treatment measures using Iota’s ultrasonic-powered bioelectronic devices in a range of indications for diseases with high unmet medical needs.

The acquisition of the Berkeley, Calif.-based company is expected to fuel growth in Astellas’ Rx+ business, which combines pharma expertise, innovative medical and nonmedical technologies and patient-focused care. According to Astellas, the transaction will accelerate Rx+ projects already covered in the collaborative agreement and enable the exploration of opportunities to leverage Iota’s bioelectronics platform in new disease targets.

Founded in 2017, Iota’s approach is based on neural dust technology out of the University of California at Berkeley, which makes it possible to develop devices a few millimeters in size that are equivalent to a bit of font on the face of a penny and powered by ultrasound. In time, it is expected the company could create a device that is less than 1 cubic millimeter.

Because of its tiny size, the Iota implant doesn’t require separate components within in the body, such as lead wires, batteries and transmitters, which have often been obstacles for neuromodulation implants in terms of patient safety and device lifespan. Iota also incorporates diagnostics into its implants, offering the potential for real-time, closed-loop treatment as the implant assesses the patient’s condition and responds automatically.

In January 2019, Iota raised $15 million in a series A round aimed at funding a first-in-human pilot study of its bioelectronic implants.

‘Promising core technology’

“I believe that Iota’s technology is a promising core technology that can be applied not only to the current programs we are working on, but to broader types of diseases that have yet to be worked on,” said Kenji Yasukawa, Astellas’ president and CEO. “I expect that the combination of their capabilities with our strength cultivated through our prescription business will become a strong basis to further drive our Rx+ business.”

Since first collaborating in September of 2019, the companies have advanced research and development combining their respective strengths. Clinical trials on a number of projects are expected to get underway early in this decade – including projects under the R&D agreement.

“The partnership between Iota Biosciences and Astellas allows us to combine our respective strengths to bring revolutionary new approaches to managing and treating diseases that affect hundreds of millions of people across the world,” said Michel Maharbiz and Jose Carmena, Iota co-founders and co-CEOs. “A new era in bioelectronic medicine is dawning and Iota Biosciences, powered by Astellas, will be leading the charge.”

Among larger deals in 2020

If completed, the Astellas/Iota transaction would be the seventh largest this year (See chart). Teladoc recently inked a deal to acquire Livongo Health Inc. for $18.5 billion, making it 2020’s largest M&A if it closes as anticipated in the fourth quarter.

Also pending is Siemens Healthineers AG’s buyout of Varian Medical Systems Inc. for $16.4 billion. However, that deal, which was announced in the third quarter, is not expected to close until the first quarter of next year. Assuming both of those deals close, they would become the sixth and seventh largest M&As for the med-tech industry within the BioWorld database.

Another large pending M&A announced in September is Illumina Inc.’s purchase of liquid biopsy startup Grail Inc. for $8 billion. That deal, which would bring back into the fold a company Illumina spun out in 2016, is not expected to close until the second half of 2021, however.

Astellas (OTCMKTS:ALPMY) shares opened at $13.84 Thursday, inching up to $14 before closing at $13.97 for the day, down 1.34% from Wednesday’s close.

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