Allergan to buy Tobira in push for fatty liver disease drugs

September 20, 2016 8:22 AM EDT

The Allergan logo is seen in this photo illustration November 23, 2015. REUTERS/Thomas White/Illustration/File Photo

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By Ransdell Pierson and Natalie Grover

(Reuters) - Botox maker Allergan Plc, in its third acquisition this month, said it would pay up to $1.7 billion for Tobira Therapeutics Inc to get a leg up in the race to develop therapies for NASH, an incurable fatty liver disease closely linked to obesity.

Just hours later on Tuesday, Allergan announced it would also pay $50 million upfront and make future milestone payments for Akarna Therapeutics Ltd, a privately held company that is planning early-stage studies of a treatment for NASH.

There are no approved treatments for the disease affecting more than 15 million Americans, which involves accumulation of fat in the liver not caused by alcohol, and can lead to cirrhosis, liver transplants or liver cancer.

"Allergan is making an excellent move into the NASH space, which is under appreciated by Wall Street and one of the major categories of untreated diseases," said Len Yaffe, portfolio manager of StocDoc Partners who holds shares of Tobira.

Allergan's offer on Tuesday of $28.35 upfront per Tobira share is a whopping 500 percent premium to the stock's close on Monday, which had given Tobira a market capitalization of about $89 million. Tobira shareholders could receive up to $49.84 per share, contingent on the company achieving certain milestones.

Tobira's stock surged 720 percent to $38.91 on Tuesday. But Allergan's fell 2.7 percent to $238.67 as some industry analysts said the deal came at a steep price.

Tobira shares have been on a roller coaster ride since July 25, when they tumbled 60 percent to $4.50 after the company's lead product, cenicriviroc, failed its main goal in a mid-stage trial of showing a 2-point reduction on a scale that measures features of NASH (nonalcoholic steatohepatitis).

But cenicriviroc achieved a secondary goal by reducing by at least one stage the extent of fibrosis, a scarring of the liver that can lead to cirrhosis, without worsening of NASH. Tobira said the drug has potential to be approved if that favorable secondary finding can be duplicated in a larger late-stage study.

Yaffe said cenicriviroc and related therapies being developed by the company have potential to reap annual sales of $5 billion.

He said experimental NASH drugs being developed by Gilead Sciences Inc have similar sales potential and that treatments being studied by Intercept Pharmaceuticals Inc and others also have blockbuster sales potential.

Allergan research chief David Nicholson, in an interview, said liver biopsies are now required to confirm NASH, but

less-invasive diagnostic tests should be available by the time the first NASH treatments reach the market, or soon after.

"The science in NASH is breaking now and this could become one of Allergan's largest categories" of medicines, Nicholson said.

The proposed acquisition is the latest in a string of deals orchestrated by Brent Saunders, Allergan's chief executive, since the company's planned $160 billion merger with Pfizer Inc collapsed in April because of unfavorable new U.S. tax regulations.

Allergan, best known for its Botox anti-wrinkle treatment, last week said it would pay $639 million for Vitae Pharmaceuticals, which is developing drugs for psoriasis, eczema and autoimmune disorders. It agreed on Sept. 6 to pay $60 million for RetroSense, a privately held company developing an ophthalmology gene therapy.

Other major contenders in the race to develop a drug to treat NASH include Conatus Pharmaceuticals Inc, whose shares rose 19.4 percent, and Galectin Therapeutics Inc, whose stock gained 14.8 percent.

Covington & Burling are Allergan's lead legal counsel. Centerview Partners and Citi are Tobira's financial advisers, while Skadden, Arps, Slate, Meagher & Flom LLP and Gunderson Dettmer Stough Villeneuve Franklin & Hachigian LLP are its legal counsel.

(Reporting by Ransdell Pierson in New York and Natalie Grover in Bengaluru; Editing by Savio D'Souza and Matthew Lewis)

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