If biotech mergers and acquisitions are truly coming back as market-watchers assert, one important reason why is growing interest by buyers in hearing-loss drug developers or at least some of their treatments, even as their business operations failed to match the promise of their pipelines.

The latest hearing-loss drug developer to get bought out emerged Wednesday, when Decibel Therapeutics agreed to be acquired by Regeneron Pharmaceuticals for up to $213 million. Regeneron explained its proposed buyout of Decibel as one that will both expand the buyer’s pipeline into ear disorder treatments and deepen its gene therapy offerings with Decibel’s pipeline, much of which Regeneron is co-developing through a six-year collaboration.

Regeneron and Decibel are partnering on Decibel’s sole clinical candidate DB-OTO, a cell-selective, adeno-associated virus (AAV) dual vector gene therapy designed to provide durable restoration of hearing to people born with profound hearing loss due to mutation of the otoferlin (OTOF) gene. Decibel gained FDA clearance last year for its Phase I/II CHORD™ trial (NCT05788536), a study that was recruiting patients as of July 17 and is estimated to enroll 22 patients.

In addition, Regeneron and Decibel are collaborating on two preclinical candidates: AAV.103, an AAV gene therapy designed to restore hearing to individuals with a GJB2 deficiency, the most common cause of congenital hearing loss; and AAV.104, designed to restore hearing to individuals with a deficiency of the structural protein stereocilin (STRC).

The companies first joined forces in 2017, through a collaboration of undisclosed value to “discover and develop new potential therapeutics to protect, repair, and restore hearing.” The collaboration was modified in 2020 with the removal of ATOH1 as a target, and changes to terms and plans for the DB-OTO and AAV.103 programs.

Over the years, Regeneron gave Decibel $25 million upfront and purchased 12,500,000 shares of Decibel’s Series B preferred stock at $2 a share, which converted into 989,299 shares of common stock when Decibel went public in 2021, through an initial public offering that raised $124.8 million in net proceeds. That year, Regeneron extended the partnership through November 15, 2023, and issued 10,000,000 shares of Series C preferred stock to Regeneron that converted into 791,439 shares of common stock in the IPO. Last year, Regeneron paid Decibel a $10 million “extension fee.”

“We have full confidence that with Regeneron’s expertise and resources the Decibel pipeline can be optimally developed, and our team is committed to enabling that long-term success,” Laurence E. Reid, PhD, Decibel’s president and CEO, said in a statement.

Ongoing challenge

The acquisition deal also appears designed to address Decibel’s ongoing challenge of holding on to its cash, which it has attributed to rising clinical trial, research, and personnel costs.

Decibel finished the first quarter with $87.941 million in cash, cash equivalents, and available-for-sale securities as of March 31, down 16% from the $104.561 million the company reported as of December 31, 2022. Decibel’s Q1 cash, equivalents, and securities tumbled more than one-third (37%) from the $139.441 million it reported on March 31, 2022, and by nearly half (46%) from $162.294 million at the end of 2021.

Hence the appeal to Decibel investors of the deal terms, which call for at least $4 per share plus one contingent value right (CVR)—no small amount given that shares of Decibel closed between $2.41 (April 14) and $4.18 (June 12) in the six months before the Regeneron deal was announced. The CVR could generate for shareholders an additional:

  • $2 cash per share upon the fifth participant being administered with DB-OTO in a clinical trial on or before December 31, 2024; and
  • $1.50 in cash per share upon either the first participant being dosed with DB-OTO in a registration enabling trial, or DB-OTO being accepted for review of a Biologics License Application by the FDA, a Marketing Authorization Application by the European Medicines Agency or U.K. Medicines and Healthcare Products Regulatory Agency; or an equivalent application in Germany, France, Italy or Spain, whichever occurs first, on or before December 31, 2028.

Investors, two analysts diverge

Decibel’s investors apparently share Reid’s confidence in a buyout by Regeneron. They welcomed the pending acquisition by Regeneron with a buying surge that sent shares of Decibel zooming 80% on Wednesday, from $2.79 to $5.03. Regeneron shares rose about 1%, from $780.32 to $785.61.

Two analysts, however, took a dimmer view of the combination. Jack K. Allen, senior research analyst with Baird, on Thursday, downgraded Decibel’s stock from “Outperform” to “Neutral” and slashed the firm’s 12-month price target 75%, from $21 to $5.25 a share.

“While we are encouraged by this deal, we are reducing our price target to $5.25 to reflect the combination of the upfront cash and our estimated discounted value of the CVR,” Allen wrote Thursday in a research note.

He said Baird has estimated the value of the CVR to run much closer to about $1.25 a share, less than half the $3.50: “To estimate the CVR we assume at 50% probability of success for the first measure (dosing five patients by YE24), 55% probability of success for the second measure (dosing first patient in registrational study or acceptance of regulatory submission seeking approval by YE28), and a 10% annual discount factor.”

In a June 21 research note, Allen said Decibel executives told him and colleagues that they planned to present a holistic dataset from patients treated both in the United States and European Union in the first half of 2024, “which should mark a key catalyst for the company.”

“Moving forward, we continue to view ABR as an objective endpoint and anticipate that Decibel shares could appreciate significantly should DB-OTO be shown to restore hearing in the initial cohort of patients,” Allen wrote, using the initials for auditory brainstem response, a physiologic measure of hearing sensitivity.

Joseph Pantginis, PhD, a managing director at H.C. Wainwright whose research focuses on the healthcare sector, has been much less supportive of the Regeneron-Decibel deal. Pantginis downgraded Decibel shares from “Buy” to “Neutral,” though he maintained Wainwright’s price target of $23 a share on Decibel stock.

Changing hands

Decibel is one of at least three hearing-loss drug developers that have seen themselves, or some of their assets, change hands over the past year. Eli Lilly purchased Akouos for up to $610 million in a deal completed in December 2022; Akouos continues to operate as a subsidiary of the pharma giant.

Like Decibel, Akouos bled capital in the year before the Lilly deal, as it stepped up pipeline R&D. Akouos ended the third quarter of 2022 with cash, cash equivalents, and marketable securities of $169.328 million as of September 30, 2022, down about one-third (32%) from $249.658 million a year earlier.

In March, Spiral Therapeutics shelled out an undisclosed amount for assets related to three treatment candidates initially developed by Otonomy, which shuttered operations in December 2022 after failing to find a buyer for the entire company and its pipeline following a series of disappointing clinical trial results.

In its last quarter before shutting down (Q3 2022), Otonomy disclosed cash and cash equivalents totaling $40.146 million as of September 30, 2022, a 51% plunge from $81.843 million a year earlier.

Acquired by Spiral were preclinical and clinical data related to OTO-104 (OTIVIDEX), a sustained-exposure formulation of dexamethasone; patent rights, data, and know-how related to OTO-510, an otoprotectant; and preclinical and clinical data and inventory related to OTO-413, a sustained-exposure formulation of Brain-Derived Neurotrophic Factor (BNDF).

Just last month, Korro Bio agreed to combine with Frequency Therapeutics through a reverse merger set to close in the fourth quarter. Frequency’s former lead candidate FX-322 in February failed a Phase IIb trial (FX-322-208; NCT05086276) in patients with acquired sensorineural hearing loss. FX-322 was being co-developed with Astellas through a partnership that was designed to generate more than $625 million for Frequency when it launched in 2019.

San Diego-based Frequency has ended FX-322 development, without announcing future plans for that candidate, and instead has tried to find a buyer or licensee for its sole remaining pipeline program, also discontinued—a preclinical remyelination program focused on treating multiple sclerosis. If it finds a buyer for the MS remyelination program, investors of the newly combined company will gain a CVR per share they own, exchangeable for cash.

Frequency too has struggled to retain its cash and equivalents. The company finished the first quarter—the most recent quarter for which detailed financial results were available—with cash, cash equivalents, and marketable securities of $66.65 million, down 47% from $124.771 million in Q1 2022. The combined company Frequency is creating with Korro would have $170 million in cash, cash equivalents, and marketable securities once that deal is completed, a cash “runway” expected to carry the company through several anticipated milestones and into 2026.

Remaining healthy

Despite the headwinds encountered by Frequency, Otonomy, Akouos, and Decibel, two research firms assert that the hearing loss drug market remains a healthy one. DelveInsight Business Research has tallied some 32 companies working to develop 35 pipeline treatments, while Grand View Research has projected the size of the hearing loss drug market will jump 47%, from $12.71 billion last year to an estimated $18.66 billion in 2030, based on a compound annual growth rate (CAGR) of 4.92% between this year and 2030.

Among recent developments reported by hearing loss drug developers:

  • Fennec Pharmaceuticals in June gained Marketing Authorization from the European Commission for Pedmarqsi™ (known as Pedmark® in the United States) as the first and only approved therapy in the European Union for prevention of ototoxicity (hearing loss) induced by cisplatin chemotherapy in patients 1 month to <18 years of age with localized, non-metastatic, solid tumors. Durham, NC-based Fennec said Pedmarqsi was granted the authorization under the pediatric-use marketing authorization (PUMA) which includes eight years plus two years of data and market protection.
  • Rinri Therapeutics researchers in December published data in Frontiers in Neurology showing how patients receiving the company’s regenerative cell therapy for hearing loss were able to perform their own hearing health recordings from their homes, using the electrode arrays of their cochlear implants, over long periods of time. Sheffield, U.K.-based Rinri and Innovate UK funded the study, which was conducted by the National Institute for Health and Care Research, Biomedical Research Centre (NIHR BRC) for Hearing Loss.
  • Sensorion said August 3 it completed a €35 million ($38.6 million) private placement by new investor Redmile Group and existing shareholders Invus and Sonnova Partners. Montpellier, France-based Sensorion said the financing will enable it to extend its cash runway until the end of September 2024. In July, Sensorion announced positive preliminary Phase IIa data showing its lead candidate SENS-401 (arazasetron) had a clinically significant effect on preserving residual hearing after cochlear implantation in all adult patients treated to date.
  • Sound Pharmaceuticals said in May it completed enrollment in the Phase III STOPMD-3 trial (NCT04677972) assessing SPI-1005 as a treatment for Meniere’s disease involving hearing loss, tinnitus, and dizziness. Seattle-based Sound said enrollment was completed six months ahead of schedule with more than 220 eligible patients randomized to either SPI-1005 treatment (400 mg twice daily for 28 days) or matching placebo treatment in nine months.

Leaders and laggards

  • Amyris (AMRS) shares cratered 81% on Thursday, from $0.3424 to $0.659, after the synthetic biology company filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code. Amyris said the filing—in U.S. Bankruptcy Court for the District of Delaware—was part of an operational and financial restructuring designed to further advance its ongoing strategic transformation and position the company for long-term success. Amyris has secured a commitment from an entity affiliated with existing lender Foris Ventures for $190 million of debtor-in-possession financing to support continued day-to-day operations as the company negotiates with its creditors.
  • Cardiff Oncology (CRDF) shares jumped 39% on Tuesday, from $1.57 to $2.18, after the company announced it was advancing lead candidate onvansertib, to a new lead program in first-line RAS-mutated metastatic colorectal cancer (mCRC), and expanding its relationship with Pfizer. Cardiff Oncology plans to launch a Phase II trial, CRDF-004, designed to assess preliminary safety and efficacy data from two doses of onvansertib, to confirm an optimal dose. Onvansertib will be added to standard-of-care consisting of FOLFIRI plus bevacizumab, or FOLFOX plus bevacizumab. CRDF-004 will receive support from Pfizer’s end-to-end developmental and clinical service, Pfizer Ignite. If results are positive, Cardiff Oncology will begin a Phase III registrational trial. Cardiff Oncology will end enrollment in its Phase II ONSEMBLE trial (NCT05593328), which had evaluated the lead program in second-line mCRC.
  • Illumina (ILMN) shares fell nearly 6% in after-hours trading Wednesday, to $173.89 from $184.49 at the closing bell, after the sequencing giant slashed its consolidated (Illumina and Grail operations) revenue guidance to an approximately 1% increase over 2022, down from between 7% and 10%. GAAP consolidated revenue rose 1% during Q2, to $1.176 billion from $1.162 billion. Illumina also disclosed that chief medical officer Phil Febbo, MD, departed the company on Monday, with CTO Alex Aravanis, PhD, set to follow suit “to pursue another opportunity outside of the company.” Aravanis is being succeeded by Steven Barnard, PhD, who is now Illumina’s vice president and head of global advanced science.
  • Poseida Therapeutics (PSTX) shares climbed 21.5% on Monday, from $1.63 to $1.98, after the company joined Astellas Pharma to announce a $50 million investment by the Tokyo pharma giant in the San Diego biotech. Astellas will spend $25 million to acquire 8,333,333 shares of Poseida (about 8.8% of Poseida’s outstanding common stock) at $3 per share in a private placement, plus a one-time $25 million payment for a right of exclusive negotiation and first refusal to license Poseida’s P-MUC1C-ALLO1, a Phase I allogeneic CAR-T cell therapy for multiple solid tumor indications. Poseida also granted Astellas a board observer seat, including the ability to attend Poseida’s scientific advisory board meetings, and notice rights related to any potential change of control of Poseida.
  • Sage Therapeutics (SAGE) shares plummeted 54%, from $36.10 to $16.75, on Monday after the company said the FDA sent a Complete Response Letter refusing to approve Zurzuvae® (zuranolone)—co-developed with Biogen (BIIB)—for major depressive disorder (MDD): “The FDA stated that the application did not provide substantial evidence of effectiveness to support the approval of zuranolone for the treatment of MDD and that an additional study or studies will be needed,” Sage disclosed. However, the FDA authorized Zurzuvae as the first-and-only oral treatment specifically indicated for adults with postpartum depression, which affects a much smaller number of patients. Sage shares have since begun to rebound, rising 13% to $18.99 on Thursday.
  • Vistagen (VTGN) shares multiplied nearly 15-fold, rocketing 1,371% from $1.68 to $24.71 a minute into the trading day Monday before settling for a 677% gain, to $13.05. The surge followed the company announcing that its lead candidate fasedienol (PH94B) aced the Phase III PALISADE-2 trial (NCT05011396) assessing the nasal spray in adults with social anxiety disorder (SAD). Fasedienol met the trial’s primary endpoint by showing a statistically significant difference in average SUDS score during a public speaking challenge compared to placebo. The trial also met its secondary endpoint, demonstrating a statistically significant difference in the proportion of clinician-assessed responders between fasedienol and placebo as measured by the CGI-I scale.
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