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Alexion makes 'high risk, high reward' bid for Achillion amid FTC deal scrutiny

Alexion Pharmaceuticals Inc.'s $930 million bid for Achillion Pharmaceuticals Inc. is "high risk, high reward," according to analysts, but the maker of Soliris is well-positioned for exactly this type of deal.

While shares of Alexion remained fairly stable following the announcement of the deal, dropping about 1.84% to $102.88 as of 12:13 p.m. on Oct. 16, Achillion's stock jumped up over 71% to $6.25.

Achillion is a small biotechnology company based in Blue Bell, Pa., developing small molecule factor D inhibitor drugs. These therapies target an enzyme that can accelerate disease. Achillion is specifically tackling the blood disease paroxysmal nocturnal hemoglobinuria, or PNH, and the kidney disease C3 glomerulopathy, or C3G.

Analysts from Stifel cautioned that the deal could face regulatory scrutiny, especially as Roche Holding AG's $4.3 billion Spark Therapeutics Inc. acquisition is sidelined by requests from the U.S. Federal Trade Commission and others.

"Rationally speaking this seems a little absurd, but with the Roche/Spark transaction seemingly delayed due to the overlap between a commercial franchise (Hemlibra) and an early-stage gene therapy program, some concern here is warranted," Stifel's Oct. 15 note said.

SVB Leerink analysts said Alexion's $930 million offer could fit neatly within a box of deals valued at about $1 billion to $5 billion that have seen success amid the FTC's heightened interest in pharma deals. The transaction is expected to close in the first half of 2020.

Both Stifel and Leerink pointed to the companies' overlap in PNH — which could prove to be a boon for the combined company or a red flag for the FTC.

A 'hand-in-glove acquisition'

Alexion's Soliris is an immunosuppressive drug approved to treat PNH and other rare diseases. The company's other lead product, Ultomiris, targets the same protein and is only approved for PNH.

Soliris was approved in the U.S. in 2007, while Ultomiris was green lit at the end of 2018, touted by Alexion as an improved version of its older drug.

Boston-based Alexion has since thrown its weight behind promoting Ultomiris as the patent for Soliris is set to expire in 2023.

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As much as $300 million in milestone payouts included in the deal hinge on a U.S. Food and Drug Administration approval of Achillion's lead product danicopan, according to Stifel.

Danicopan was already scheduled to enter a phase 3 clinical trial in PNH in combination with Soliris in 2020. The FDA has previously granted the therapy a breakthrough designation and an orphan-drug tag.

Alexion executives referred to danicopan as an add-on treatment in PNH that is highly complementary to the company's portfolio. About 10% of PNH patients experience a complication called extravascular hemolysis, or EVH, which causes severe anemia and dependence on blood transfusions. Adding danicopan to a regimen of Soliris or Ultomiris could help this subset of patients, said Alexion Executive Vice President and Chief Strategy and Business Officer Aradhana Sarin during an M&A call held Oct. 16.

Stifel said questions still linger about the safety and efficacy of factor D inhibitors, because a large dose is required to elicit a response. Achillion has noted high liver enzymes during clinical testing of danicopan, which is administered three times a day.

Achillion has therefore pointed to another drug in its pipeline, ACH-5228, which is more potent, but further behind in development. A phase 2 study of ACH-5228 is set to begin enrolling in 2020.

In C3G, however, Stifel said danicopan likely has a shot at becoming the first approved treatment and a novel indication for Alexion. The drug has received orphan-drug designation in the U.S. and EU, and two phase 2 clinical trials are underway with data expected in 2020.

Sarin said the focus on the small subset of EVH patients, the C3G indication and ACH-5228 could help the Achillion deal clear the FTC process.

Stifel said if danicopan is ultimately successful, the price paid by Alexion for Achillion will be justified. In the event a better offer is put forward for Achillion and the deal is terminated, Alexion will receive $20 million, Stifel analysts noted.

Alexion's "hand-in-glove acquisition" supports Leerink's earlier opinion that Achillion's factor D program could be "disruptive" in complement-mediated diseases such as PNH and C3G. The Achillion deal is the second such deal in this space in October, after UCB SA moved to take over Ra Pharmaceuticals Inc. for $2.1 billion.

The complement system has been linked by researchers in recent years to a number of immunological and inflammatory conditions including cancer and transplant rejection, according to the National Institutes of Health.

Leerink believes that further research into the complement system could yield advances in indications beyond PNH and C3G, meaning Achillion could boost Alexion's pipeline.