Capnia plans to acquire Essentialis through a merger designed to create a combined developer of rare disease treatments, with $8 million in concurrent financing, the companies said today.

The combined company will focus on advancing a diazoxide choline controlled-release tablet (DCCR), a once-daily oral tablet for the treatment of patients with Prader-Willi syndrome (PWS), through a pivotal Phase II/III clinical trial.

Last year, privately held Essentialis reported that DCCR demonstrated an approximately 32% reduction in hyperphagia in the open-label, randomized-withdrawal PC025 clinical study assessing the candidate in 13 overweight and obese, genetically confirmed, adolescent and adult PWS patients between ages 10 and 22.

The mean effect on hyperphagia persisted for over 3 months for DCCR-treated individuals who continued on study through the double-blind treatment phase, while regressing toward baseline in those randomized to placebo. Statistically significant improvements were seen in other endpoints, such as aggressive behaviors, body fat, lean body mass, and cardiovascular risk factors, Essentialis said at the time.

DCCR was granted Orphan Drug Designation for the treatment of PWS by the FDA on May 13, 2014. The combined company also envisions developing DCCR for other unspecified orphan indications.

The merger represents a change of course for Capnia, which until now has focused on developing products for the screening, detection, and treatment of medical conditions.

“While this transaction represents a new strategic direction for Capnia, it offers the potential of a highly promising, late-stage clinical asset for a metabolic disorder for which no effective treatments currently exist,” Capnia CEO Anish Bhatnagar, M.D., said in a statement.

Dr. Bhatnagar will lead the combined company, while Essentialis President and CSO Neil M. Cowen, Ph.D., MBA, will serve as svp of drug development. David O’Toole, Capnia’s svp and CFO, will continue as CFO of the combined company, whose board is expected to consist of nine directors—six current Capnia directors and three current Essentialis directors.

The merger transaction has been approved by the boards of both companies, Capnia and Essentialis said, and is expected to close during the first quarter of 2017—subject to customary closing conditions that include approval by shareholders of publicly traded Capnia.

Upon closing of the merger, Capnia expects to issue $8 million worth of shares of common stock at $0.96 per share to a syndicate comprised of current and new investors. The funds would be used toward a planned Phase II/III clinical study evaluating the efficacy and safety of DCCR in patients with PWS, a study expected to begin in the second half of 2017, according to Capnia and Essentialis.

“The combined company is expected to have a cash runway beyond key value-inflection points, through top-line results from the Phase II portion of the trial,” the companies stated.

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