Seeking a rare and precious prize

Alexion to acquire Enobia and gain first potential treatment for patients with ultra- rare disease hypophosphatasia

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CHESHIRE, Conn.—Already well-acquainted with developingtherapies for ultra-rare diseases, Alexion Pharmaceuticals Inc. seeks to goeven deeper into that realm, signing a definitive agreement to acquire EnobiaPharma, a private biopharmaceutical company based in Montreal, Canada andCambridge, Mass., that is focused on therapies to treat patients withultra-rare and life-threatening genetic metabolic disorders.
Under the terms of the agreement, Alexion has agreed to pay$610 million up front and as much as $470 million in cash to be paid uponachievement of various regulatory and sales milestones. Alexion is not issuingequity in connection with the acquisition and it intends to finance theacquisition through cash on hand and $300 million of committed bank debt, withexpected completion of the deal in the first quarter of 2012.
The key prize in this acquisition is Enobia's lead productcandidate ENB-0040 (asfotase alfa), a human recombinant targeted alkalinephosphatase enzyme-replacement therapy for patients suffering withhypophosphatasia (HPP), an ultra-rare, life-threatening, genetic metabolicdisease characterized by defective bone mineralization and impaired phosphateand calcium regulation that leads to progressive damage to vital organs andincludes destruction and deformity of bones, profound muscle weakness,seizures, impaired renal function and respiratory failure.
For its part, Alexion is known for Soliris (eculizumab), afirst-in-class terminal complement inhibitor that is approved for the treatmentof patients with paroxysmal nocturnal hemoglobinuria (PNH), a progressive andlife-threatening disease characterized by the excessive destruction of redblood cells. Soliris is the first and only therapy approved for the treatmentof PNH to reduce hemolysis.
With the acquisition of Enobia, Alexion may be first out ofthe starting gate again, as there are no approved therapies for HPP, and asnoted by Alexion's executive vice president and head of research anddevelopment, Dr. Stephen Squinto, "Asfotase alfa is on track to be the firstand only therapy to specifically address the underlying pathology of HPPthrough a targeted enzyme-replacement therapy and therefore could dramaticallyalter the course of this disease."
Alexion will acquire full worldwide development andcommercial rights to asfotase alfa, which earned orphan drug designation in theUnited States and the European Union in 2008, as well as fast-track status inthe Unites States in 2009.
Three clinical studies have been completed with asfotasealfa in HPP patients: A Phase I adult safety study, a Phase II study in infantsand young children up to 3 years in age who have severe HPP and a Phase IIjuvenile study in children ages 5 to 12 with severe HPP. According to Squinto,the results from the Phase II studies are "highly encouraging" and showedmarked improvement in bone development, muscle strength and respiratoryfunction.
Although asfotase alfa addresses a disease area not yetpursued by Alexion, CEO Dr. Leonard Bell sees no problems, noting that thecompany had already added nephrology onto its existing global hematologyplatform and that the "structure we are building is well-suited to expand andaddress metabolic disorders."
"For several years, and increasingly in 2011, Alexion hasbeen developing its translational, clinical and regulatory groups to increaseour capacity to simultaneously develop compounds for more patients sufferingwith additional severe and ultra-rare disorders," he added during a conferencecall to investors about the acquisition. "During 2011, Alexion had meaningfullybroadened and deepened our drug development pipeline through threeacquisitions: Taligen, Orphatec and now Enobia—all focused on what we know welland do well, which is developing and delivering life-transforming therapies forpatients severe, ultra-rare and life-threatening disorders."
According to Bell, adding the skills of Enobia's team willaccelerate ongoing programs with Soliris, which in addition to its PNHindication received approval from the U.S. Food and Drug Administration inSeptember 2011 as a treatment for atypical hemolytic uremic syndrome, anotherrare genetic disorder that damages vital organs. He also expects Enobia'sprofessionals to help advance "other innovative compounds" and added that thecombination of Alexion's and Enobia's people will also expedite the developmentof asfotase alfa for patients suffering with HPP.
In examining the deal for the investment community, ZacksInvestment Research, like Alexion itself, also made note of asfotase alfa'sability to move Alexion beyond just Soliris.
"We believe that the addition of ENB-0040 will boost AlexionPharma's moderate pipeline," Zacks noted in a recent research note. "Moreover,Alexion needs to introduce more products in the market as it is overlydependent on its sole marketed product Soliris."
"The acquisition of Enobia gives Alexion a solid late-stageasset that, to some degree, diversifies the concentration on Soliris," J.P.Morgan analyst Geoff Meacham noted similarly in a client note.
While Howard Liang, an analyst at Leerink Swann, lowered his2012 earnings per share estimate for Alexion on the expectation of increasedresearch and development costs and interest expense for the acquisition, healso noted that he found asfotase alfa's safety profile and efficacy to beimpressive. He predicts that Alexion should see a good return on its investmentin Enobia.
"Alexion has proven expertise in developing andcommercializing therapies to transform the lives of patients with severe and ultra-raredisorders, making them the ideal partner to advance the work of the Enobia teamand bring asfotase alfa to HPP patients around the world," said JonathanSilverstein, Enobia's chairman and a general partner at OrbiMed—which is acontrolling shareholder in Enobia—in an official statement.
"Enobia and our scientific collaborators have developed anelegant compound showing very promising clinical results to date," addedDr. Robert Heft, president and CEO of Enobia, in the news release announcingthe acquisition. "Together with Alexion, we share a sharp focus on transformingthe lives of patients with severe and ultra-rare disorders. Thehypophosphatasia patient community will be well-served by the experience andinternational scope of Alexion."
Alexion will provide 2012 financial guidance in February,including one-time expenses related to the Enobia acquisition. 2012 non-GAAPresearch and development expenses are expected to transiently rise toapproximately 20 percent to 21 percent of sales, due to activities associatedwith Enobia's programs, and then to return to the company's target ofapproximately 17 percent to 18 percent of sales in 2013. Alexion expectsnon-GAAP selling, general and administrative expenses associated with theproposed acquisition to have limited impact in 2012.

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