Heptares takes Sosei out of its comfort zone

It makes perfect sense for a small Japanese company to harbour expansion plans, but the private UK neuroscience player Heptares Therapeutics makes an unusual bedfellow for Sosei, a group with a predominantly respiratory focus.

That said, Sosei is buying more than the pipeline alone, and of particular interest should be Heptares’s discovery technology focused on G-protein coupled receptors, which the UK firm stresses are therapy area-agnostic. Whether this is worth the $180m the Japanese group is handing across up front is a separate question.

There is little doubt in the mind of Sosei’s external director Peter Bains, who on a call this morning said his group’s search for targets had identified Heptares as the outstanding prospect, with “world-class science and discovery capabilities”. Sosei already has a UK presence, which serves as its centre for licensing and business development outside Japan.


But it is impossible to avoid the risk inherent in the Heptares deal. This is demonstrated not only in the CNS area, and in particular in Heptares’s lead asset, HTL9936, for Alzheimer’s disease and schizophrenia, but also by how thinly Sosei is stretching itself to get the deal done.

The up-front cash cost is equivalent to 40% of Sosei’s market cap, and is mostly being funded through $168m of bank debt. Mr Bains revealed that this had a highly attractive 1.47% interest rate, but had been set up for only six months, meaning that the group will be looking at options to restructure it sooner rather than later.

Up to a further $220m in milestones will be triggered by undisclosed pipeline and platform events. This year Heptares expects readouts from phase I studies of the Alzheimer’s project (a muscarinic M1 agonist) and an A2A antagonist for ADHD, and in 2016 from an M4 agonist in psychosis and a CGRP antagonist for migraine.

Mr Bains would not say whether any of these readouts would trigger payments. But he did highlight Heptares’s G protein-coupled receptor (GPCR) drug discovery technology, which he said was world-leading and just as interesting as the pipeline itself.

Numerous companies are involved in GPCR research, and Heptares’s GPCR projects are partnered with AstraZeneca and Takeda. Advances in the techniques used to model these complex transmembrane cell receptors have improved understanding of their roles and discovery of compounds that target them.

Malcolm Weir, Heptares’s chief executive, said the risk in the pipeline was mitigated by the fact that the CNS targets had been chosen thanks to their high degree of validation, and the hope of partnering them would defer and share the risk. GPCRs are “agnostic as to therapy area”, he stated, and potential in the GPCR family is almost limitless.

The risks aside, now is clearly a good time for Sosei to be looking at expanding, the group recently having become profitable thanks to royalties from Novartis on the COPD drugs Seebri and Ultibro – acquired in Sosei’s 2005 takeover of the UK company Arakis. Sosei is by no means the only Japanese biopharma group seeking Western growth opportunities.

And Japanese companies have a track record of paying top dollar for such acquisitions – look no further than Otsuka’s $886m purchase of Astex Pharmaceuticals. Heptares had raised around $60m since being founded in 2007, so the Sosei move spells a decent exit for its private backers, which include MVM and the Novartis and Takeda venture funds.

Mr Bains said Sosei wanted to become a global biopharma company. It is obvious that such an ambition will not be achieved without daring and risk.

To contact the writer of this story email Jacob Plieth in London at [email protected] or follow @JacobPlieth on Twitter

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