As it hap­pened: A bid­ding war for an an­tibi­ot­ic mak­er in a mar­ket that has rav­aged its peers

In a be­wil­der­ing twist to the long-suf­fer­ing mar­ket for an­tibi­otics — there has ac­tu­al­ly been a bid­ding war for an an­tibi­ot­ic com­pa­ny: Tetraphase.

It all start­ed back in March, when the mak­er of Xer­a­va (an FDA ap­proved ther­a­py for com­pli­cat­ed in­tra-ab­dom­i­nal in­fec­tions) said it had re­ceived an of­fer from Acel­Rx for an all-stock deal val­ued at $14.4 mil­lion.

The of­fer was well-timed. Xer­a­va was ap­proved in 2018, four years af­ter Tetraphase post­ed its first batch of piv­otal tri­al da­ta, and sales were nowhere near where they need­ed to be in or­der for the com­pa­ny to keep its head above wa­ter.

In the field of an­tibi­otics, ap­proval is on­ly the first hur­dle, the big­ger ob­sta­cle is al­ways go­ing to be reap­ing re­turns in the ‘bro­ken’ mar­ket for these life-sav­ing drugs. The long, ar­du­ous and ex­pen­sive path to an­tibi­ot­ic ap­proval typ­i­cal­ly of­fers lit­tle fi­nan­cial gain as treat­ments are typ­i­cal­ly priced cheap­ly and doc­tors — con­fined by hos­pi­tal bud­gets — are steered in­to us­ing old­er gener­ics in their first re­sponse, re­serv­ing fresh, more tar­get­ed al­ter­na­tives for acute cas­es.

Af­ter a healthy 49% se­quen­tial growth in sales the last quar­ter of 2019, in the fol­low­ing quar­ter, Xer­a­va sales grew a healthy 20% to $1.8 mil­lion, but the com­pa­ny con­tin­ued to re­port a loss. Giv­en the tra­jec­to­ry of the drug’s ex­pect­ed up­take, and the ex­pe­ri­ence of oth­er small an­tibi­ot­ic mak­ers (i.e. a litany of bank­rupt­cies), the road to prof­itabil­i­ty was more of a pipe dream than a mat­ter of pa­tience.

And so, like a knight in shin­ing ar­mor, Acel­Rx made its bid, to res­cue Tetraphase from the fire­sale that most of its peers were even­tu­al­ly sub­ject­ed to. Tetraphase agreed to the merg­er.

The deal made the­o­ret­i­cal sense, Acel­Rx sells a painkiller that is ad­min­is­tered in health­care set­tings such as hos­pi­tals, and Xer­a­va is an in­tra­venous an­tibi­ot­ic al­so pre­scribed in hos­pi­tal set­tings. “By com­bin­ing DSU­VIA and XER­A­VA net prod­uct sales un­der one stream­lined cost struc­ture, we be­lieve the com­bined com­pa­ny may re­al­ize both rev­enue syn­er­gies (ac­cess to more ar­eas across the hos­pi­tal to pro­mote both prod­ucts) as well as more ob­vi­ous cost syn­er­gies by re­mov­ing du­pli­ca­tion across op­er­a­tions, es­pe­cial­ly in sales and mar­ket­ing,” H.C. Wain­wright an­a­lyst Ed Arce wrote in a March note.

Then, in ear­ly May, an­oth­er drug­mak­er ap­peared to be court­ing Tetraphase: La Jol­la Phar­ma­ceu­ti­cals sub­mit­ted a non-bind­ing pro­pos­al to swal­low Tetraphase for $22 mil­lion.

Like Acel­Rx, the deal in­clud­ed of­fer­ing Tetraphase stock­hold­ers one con­tin­gent val­ue right (CVR), which would en­ti­tle the hold­ers to re­ceive ag­gre­gate pay­ments of up to $12.5 mil­lion for Xer­a­va in net sales mile­stones start­ing in 2021.

The in­cen­tive with the of­fer from La Jol­la, which has an ap­proved drug for sep­tic or oth­er dis­trib­u­tive shock and an­oth­er ther­a­py un­der FDA re­view for malar­ia, was the rough­ly $2 ex­tra mil­lion in cash up­front ver­sus Acel­Rx’s of­fer.

The Acel­Rx of­fer in March was an all-stock deal. But Tetraphas­es’ share $TTPH price had grown from $1.03 on March 13, the clos­ing price the week­day be­fore the Acel­Rx deal was made pub­lic, to $1.45 on May 7 when La Jol­la’s of­fer was un­veiled.

But Tetraphase had al­ready ef­fec­tive­ly got­ten en­gaged to Acel­Rx — ac­cord­ing to fil­ings, the com­pa­ny would be on the hook for a ter­mi­na­tion fee of $810,000 and/or re­im­burse Acel­Rx for cer­tain ex­pens­es up to $200,000. “We do not be­lieve La Jol­la’s un­so­licit­ed com­pet­ing bid is suf­fi­cient­ly com­pelling to Tetraphase to pull the com­pa­ny away from the cur­rent pro­posed trans­ac­tion, es­pe­cial­ly giv­en the amount of com­mit­ment and pre-close in­te­gra­tion with Acel­Rx to date,” Arce wrote in May.

And then, the plot thick­ened. Weeks lat­er, Melin­ta — a fel­low an­tibi­ot­ic mak­er fresh­ly re­struc­tured un­der Chap­ter 11 and now pri­vate­ly owned by Deer­fieldof­fered to buy Tetraphase for $27 mil­lion. And so the game be­gan — Acel­Rx up­ping its of­fer prompt­ing Melin­ta to do the same, and rinse and re­peat. On Thurs­day, Acel­Rx bowed out of the mess, mak­ing a sweet $1.8 mil­lion as a break-up fee, and re­tain­ing the co-pro­mo­tion agree­ment for Xer­a­va and Dsu­via as a keep­sake.

Giv­en the way each deal was struc­tured, Acel­Rx’s last of­fer worked out to about a $35.3 mil­lion up­front deal, while the Melin­ta bid was in the re­gion of $39 mil­lion, ac­cord­ing to cal­cu­la­tions by Arce who called the fi­nal deal “more than fair” for Tetraphase share­hold­ers.

And fair it was — Tetraphase share­hold­ers cheered as the stock jumped about 23% to $2.61 in Fri­day morn­ing trad­ing.

Melin­ta should com­mence a ten­der of­fer for all Tetraphase shares by Mon­day, June 15 — and once the deal is con­sum­mat­ed add a fifth an­tibi­ot­ic to its drug ar­se­nal.

As it stands, the an­tibi­ot­ic mar­ket is cursed — it har­bors the stink of mul­ti­ple bank­rupt­cies, a dearth of in­no­va­tion and is con­se­quent­ly bare­ly whet­ting the vo­ra­cious ap­petites of ma­jor phar­ma­ceu­ti­cal com­pa­nies and most ven­ture cap­i­tal­ists. The Tetraphase deal comes months af­ter bank­rupt an­tibi­ot­ic com­pa­ny Ar­a­digm turned to old part­ner/in­vestor Gri­fols for a fi­nal $3 mil­lion fire sale. Melin­ta it­self filed for bank­rupt­cy in late 2019, on­ly to be swal­lowed by its lender Deer­field.

Donald and Melania Trump watch the smoke of fireworks from the South Lawn of the White House on July 4, 2020 (via Getty)

Which drug de­vel­op­ers of­fer Trump a quick, game-chang­ing ‘so­lu­tion’ as the pan­dem­ic roars back? Eli Lil­ly and Ab­Cellera look to break out of the pack

We are unleashing our nation’s scientific brilliance and will likely have a therapeutic and/or vaccine solution long before the end of the year.

— Donald Trump, July 4

Next week administration officials plan to promote a new study they say shows promising results on therapeutics, the officials said. They wouldn’t describe the study in any further detail because, they said, its disclosure would be “market-moving.”

— NBC News, July 3

Something’s cooking. And it’s not just July 4 leftovers involving stale buns and uneaten hot dogs.

Over the long weekend observers picked up signs that the focus in the Trump administration may swiftly shift from the bright spotlight on vaccines being promised this fall, around the time of the election, to include drugs that could possibly keep patients out of the hospital and take the political sting out of the soaring Covid-19 numbers causing embarrassment in states that swiftly reopened — as Trump cheered along.

So far, Gilead has been the chief beneficiary of the drive on drugs, swiftly offering enough early data to get remdesivir an emergency authorization and into the hands of the US government. But their drug, while helpful in cutting stays, is known for a limited, modest effect. And that won’t tamp down on the hurricane of criticism that’s been tearing at the White House, and buffeting the president’s most stalwart core defenders as the economy suffers.

We’ve had positive early-stage vaccine data, most recently from Pfizer and BioNTech, playing catchup on an mRNA race led by Moderna — where every little sign of potential trouble is magnified into a lethal threat, just as every advance excites a frenzy of support. But that race still has months to play out, with more Phase I data due ahead of the mid-stage numbers looming ahead. A vaccine may not be available in large enough quantities until well into 2021, which is still wildly ambitious.

So what about a drug solution?

Trump’s initial support for a panacea focused on hydroxychloroquine. But that fizzled in the face of data underscoring its ineffectiveness — killing trials that aren’t likely to be restarted because of a recent population-based study offering some support. And there are a number of existing drugs being repurposed to see how they help hospitalized patients.

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Elias Zerhouni (Photo by Vincent Isore/IP3/Getty Images)

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Rather than interpret them, I thought it would be best to provide snippets straight from the interview.

On the Trump administration response:

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George Yancopoulos (Regeneron)

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Tesla and SpaceX founder Elon Musk gestures to the audience after being recognized by President Trump following the successful launch of a Falcon 9 rocket at the Kennedy Space Center. (via Getty Images)

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In a late-night tweet Wednesday, the Tesla chief announced:

Tesla, as a side project, is building RNA microfactories for CureVac & possibly others.

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Joseph Kim, Inovio CEO (Andrew Harnik, AP Images)

Pos­i­tive Covid-19 vac­cine da­ta? New mouse study? OWS in­clu­sion? Yep, but some­how, the usu­al tid­bits from In­ovio back­fire

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Tuesday morning Inovio, which has been struggling to get its Covid-19 vaccine lined up for mass manufacturing, put out a release that touched on virtually every hot button in pandemic PR.

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