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With Tobira Deal, Allergan Keeps Shopping For “Questionable” Assets

Xconomy San Francisco — 

[Updated 9/20/16, 4:45 p.m. See below.] Since its mega-merger with drug giant Pfizer (NYSE: PFE) fell apart, Allergan has been on an acquisition spree of its own.

Its latest purchase has the highest profile—and highest premium—of the lot. Allergan (NYSE: AGN) said today it is paying up to $1.7 billion for Tobira Therapeutics (NASDAQ: TBRA), whose most advanced drug, for a liver disease known as NASH, hit a big obstacle less than two months ago.

About one third of the purchase price, $600 million, is upfront. Allergan will base the rest of the payments on the performance of Tobira’s drugs, including its most advanced, cenicriviroc, which Allergan will move into a Phase 3 trial. The full $1.7 billion price tag would be a premium of more than 500 percent. “Allergan appears to be buying biotech assets that the market views as ‘questionable’ or relatively disappointing… and then paying large premiums to current market valuations,” wrote biotech analyst Michael Yee of RBC Capital Markets in a note to clients.

When South San Francisco-based Tobira announced this summer that cenicriviroc failed to improve inflammation and liver damage after a year of treatment in a Phase 2b trial of NASH patients, company officials framed the results in a positive light: the drug seemed to improve the fibrosis, or scarring of the liver, that the disease causes. “To be frank, [improving fibrosis] is a higher hurdle and we believe that is more likely to be more meaningful for patients with this disease,” Tobira CEO Laurent Fischer said on the call in July. “We did not anticipate that we’d have such a significant effect on fibrosis after one year of treatment.”

Investors weren’t impressed. Tobira’s stock plummeted from $11.25 a share to less than $5, and it had remained in the $4-$5 range until today’s acquisition news. In mid-day trading, the stock hit $37.85 a share.

Allergan will now be racing to be the first to market with a NASH treatment. Intercept Pharmaceuticals (NASDAQ: ICPT) of New York has begun a Phase 3 trial for obeticholic acid (Ocaliva). The FDA has approved the drug for a related liver disease, giving Intercept momentum in the field. French firm Gemfit also has a NASH drug in Phase 3.

In announcing its acquisition offer, Allergan cited cenicriviroc’s positive Phase 2b fibrosis results but did not mention the failure to meet the main endpoint. Allergan has proposed an initial payout of $28.35 a share, with $49.84 more per share coming if Tobira’s products hit unspecified milestones. The deal must be approved by Tobira shareholders; Allergan said holders of 36 percent of Tobira shares have agreed to the deal. Allergan hopes to seal it by the end of the year.

NASH, or nonalcoholic steatohepatitis, is a severe form of fatty liver disease often brought on by sugary and fatty diets; 16 million Americans have the disease. It causes inflammation and scarring, and potentially requires a liver transplant if unchecked. There are 6,000 liver transplants in the U.S. each year, but some 17,000 people need one, according to the American Liver Foundation. NASH could soon be the leading cause of liver transplants in the U.S. A drug that could forestall transplants or even reverse the liver damage from NASH could gain traction quickly.

Tobira has a second drug targeting NASH, as well. Evogliptin, licensed from a Korean drug company, is a diabetes drug that Tobira just began testing as a NASH treatment in combination with cenicriviroc. After the Tobira deal was announced, Allergan said it has added another NASH drug with the purchase of Akarna Therapeutics for $50 million upfront. Akarna has a preclinical compound that goes after the same target as Intercept’s obeticholic acid. [Updated with Akarna news.]

Image of liver tissue with fibrosis (red) courtesy of the Salk Institute for Biological Studies.