M&A

Mallinckrodt bags another microcap biotech, picking up Ocera’s failed drug in $117M buyout

Back at the beginning of the year, Ocera looked like just about any other small developer after a head-on collision with bad data. Its Phase IIb in hepatic encephalopathy — triggered by chronic liver disease — flopped on the primary, crushing its stock price and leaving analysts shaking their heads over the wreckage.

Linda Grais

But CEO Linda Grais gamely touted evidence of efficacy at the high dose, and that ultimately gained the attention of Mallinckrodt $MNK, which has picked it up cheap after going biotech shopping in the bargain aisle. And now they’re shooting for an OK on the IV formulation in 5 years, looking for a new way to lower levels of ammonia in the blood.

Mallinckrodt snapped up the microcap this morning, bagging a Phase III-ready drug after it was impressed by their lead drug’s ability to reduce ammonia levels in the blood.

Ocera started the day with a market cap at $26 million, making this a bite-sized buyout for the likes of Mallinckrodt. They’re paying $42 million for the stock — at $1.52 each along with $75 million in contingent value rights for the company.

Mallinckrodt is the polar opposite of Ocera, with a $3 billion market cap. A few months ago they bought out InfaCare for $80 million upfront, bagging a heme oxygenase inhibitor designed to prevent jaundice by inhibiting the formation of bilirubin.

The biopharma company recently bowed out of PhRMA just before the trade group imposed new, higher standards for membership they were unlikely to meet.

Just a few months before that, Mallinckrodt had agreed to pay a $100 million fine to resolve a probe of the long, rather sordid history behind Acthar, an infantile spasm drug which cost $28,000 a vial when Mallinckrodt picked it up in the $5.6 billion acquisition of Questcor. Questcor had been jacking up the price on Acthar when it paid Novartis $135 million to gain US rights to a therapy that posed a direct threat to its drug franchise. And Mallinckrodt was forced to pay the fine for illegally maintaining a drug monopoly — not the kind of sanction PhRMA likes to see for members.

Their comment this morning:

Mallinckrodt believes that trial design elements, in part, drove the primary outcome and, on acquisition, will invest to establish the optimal dosing regimen prior to initiating a Phase III program. Mallinckrodt will have continued engagement with the U.S. Food and Drug Administration (FDA) to confirm the regulatory pathway to gain FDA approval and subsequently launch the IV formulation, expected by 2022, and the oral formulation, expected by 2024.

Grais is more upbeat than ever about the drug’s prospects. She noted: “With this focus, I’m confident this important treatment can be successfully brought to market.”


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