M&A confirms Vectura solo act

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A serious buyout offer from longtime partner Novartis failing to materialise, UK-based respiratory specialist Vectura has gone on an acquisition hunt of its own, landing the German device specialist Activaero in a €130m ($180m) cash-plus-shares deal.

The deal brings on board an innovative device technology that aims to improve the delivery of medicines to lung tissue, not to mention an unpartnered drug nearing a European filing. With asthma set to become an increasingly genericised space and treatment at the severe end of the spectrum becoming the realm of injectable antibodies, optimised drug delivery is turning into a promising niche for makers of inhalable drugs.

A better mousetrap?

The deal consists of €45m in cash at completion and €50m in shares, with €35m in deferred cash compensation due August 1, 2015. Vectura chief executive Chris Blackwell told EP Vantage today that this deferred compensation is related to accommodating Vectura’s cash flow. The group is expected to become profitable and start generating cash this year, as Novartis products Ultibro Breezhaler and the generic Advair product AirFluSal Forspiro begin generating royalties.

Activaero’s investors are also eligible for an additional €6m payout on the achievement of an undisclosed transaction related to one of the group’s technologies on which negotiations had already begun, Mr Blackwell said.

As part of the deal, Vectura issued 34 million new shares to Activaero’s private investors, equal to about 5% of the company, Mr Blackwell said. Before the deal, Activaero had raised €21m ($29m) in 16 years of existence from six venture capital backers, including Life Sciences Partners and Vesalius Biocapital Partners.

Activaero has built its business around a line of four device families that work in aerosol and dry powder therapies. The jewel in the crown is what it calls the Favorite (Flow And Volume Regulated Inhalation Technology) inhalation technology, which claims to deliver up to 85% of the active drug into the lungs thanks to a longer, smoother inhalation (EP Vantage interview – No pause for breath as Activaero gears up for big 2013, March 19, 2013).

According to Activaero, most inhalation technology falls short because of a short, hard inhalation that leaves most of the active ingredient in the throat and mouth, which in addition to failing to provide optimal treatment also can result in wasted medication and side effects. Favorite helps guide and control patients’ breathing patterns to achieve the improved drug delivery.

“We’ve never seen any other technology that could target pre-selected areas of the lung so effectively,” Mr Blackwell said.

Lower risk

It does not hurt that the target’s pipeline and technology is looking an increasingly lower-risk bet with late-stage success for Favolir, a budenoside therapy using the Favorite technology needing a final clinical trial before regulatory submission, as well as ongoing partnerships with Grifols, Ablynx and Chiesi.

Favolir demonstrates what Favorite is capable of doing, Mr Blackwell said. It is a treatment for severe asthmatics who fail to achieve control on systemic steroids. A more targeted delivery could help wean patients from heavy use of those drugs, and could keep them from progressing to treatment with one of the emerging antibody treatments like GlaxoSmithKline’s mepolizumab, which reported positive phase III data today (Therapeutic focus – Interleukin modulators crowd pipeline for severe asthma, May 28, 2013).

A bonus for Vectura is the potential to generate in-market sales and keep a greater share of the value. With the majority of its respiratory technology franchise having been spoken for by Novartis – royalties are forecast to rise to $137m by 2018, according to EvaluatePharma consensus – the company has identified some upcoming “revenue gaps” it believes it needs to fill. Mr Blackwell said the Activaero pipeline represents products Vectura could self-commercialise, a strategy that if successful could serve to fill those gaps.

With this transaction, Mr Blackwell said he wants to signal that Vectura’s future will be an independent one, no matter how the tight relationship with Novartis might have raised hope of an eventual takeout. “We want to build a company that’s a sustainable specialty pharma,” he said.

Despite these intentions, many investors will still harbour hopes that Novartis eventually pulls the trigger.

To contact the writer of this story email Jonathan Gardner in London at jonathang@epvantage.com or follow @JonEPVantage on Twitter

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