Buyer looks to bolster CNS portfolio by combining its Abilify, which faces patent cliff, with Avanir’s Nuedexta and several clinical compounds

Otsuka Pharmaceutical said today it will acquire Avanir Pharmaceuticals for $3.5 billion cash, in a deal intended to expand the buyer’s portfolio of CNS therapies.

The acquisition—expected to close in the first quarter of 2015—combines Otsuka’s psychiatric products, led by the anti-psychotic Abilify® (aripiprazole), with Avanir’s marketed Nuedexta, a combination of dextromethorphan and quinidine that is the first FDA-approved treatment indicated for Pseudobulbar Affect (PBA), and several Avanir drug candidates.

These include AVP-786, which is being prepared to enter Phase III clinical trials for agitation associated with Alzheimer’s disease, in addition to major depressive disorder and Phase I for neuropathic pain; and AVP-923, a dextromethorphan/ quinidine formulation indicated for both agitation associated with Alzheimer’s disease, and Levodopa Induced Dyskinesia in Parkinson's disease. AVP-923 is also under Phase II clinical study for treatment-resistant depression, autism, and bulbar function.

However, last week, the FDA issued a Complete Response Letter on another Avanir product (AVP-825 or OptiNose), a drug-device combination of low-dose sumatriptan powder delivered intranasally through the company’s “breath powered” delivery technology. The FDA directed Avanir to assess “root cause(s)” of device use errors observed in earlier studies, and required the company to carry out a new human factors validation study to assess usability of the device following improvements. Avanir said it would conduct the study, with the goal of submitting a response to the letter in the first half of 2015.

Otsuka reasons that it can create an integrated drug development system in the CNS field by combining its Tokushima (Japan) Qs' Research Institute (for CNS drug discovery) and the Cambridge Research Institute it inherited by acquiring Astex Pharmaceuticals in 2013 with Avanir’s clinical development and sales and marketing capabilities.

Otsuka’s acquisition comes just a few months before Abilify is expected to face generic competition following the April 2015 expiration of its U.S. patent. The U.S. is the largest market for Abilify, the world’s first-approved dopamine D2 receptor partial agonist.

In partnership with Bristol-Myers Squibb, Otsuka later rolled out additional indications for Abilify, including mixed and manic episodes of bipolar I disorder, and adjunctive treatment of major depressive disorder. Otsuka also joined Lundbeck in launching the once-monthly injectable schizophrenia treatment Abilify Maintena® in Europe earlier this year and the U.S. last year.

Abilify racked up ¥575.7 billion (about $4.8 billion) in sales during the year that ended March 31. Abilify also generated ¥325.7 billion ($2.7 billion) during the six months of the company’s current fiscal year (April 1—September 30), up 14% from a year earlier. Nuedexta generated $94 million for Avanir for the year that ended in June, up 50% from the previous year.

“As we bring together Otsuka’s experience and business track record in the area of mental illnesses with Avanir’s strengths in neurologic diseases, we believe that we can evolve into a truly global CNS pharmaceutical company,” Taro Iwamoto, Otsuka’s president and representative director, said in a statement.

Added Keith A. Katkin, Avanir’s president and CEO: “Otsuka is a clear leader in psychiatry and Avanir in neurology; together I believe our organizations will be able to more rapidly develop and commercialize needed medications to potentially help millions of patients around the world.”

At $17 per share, Otsuka’s offer for Avanir represents a 13.3% premium over Avanir’s closing share price Monday. The deal has been unanimously approved by the boards of both companies.

Otsuka said it will launch a tender offer to buy all outstanding shares of Avanir within 10 business days. The offer will be subject to the tender of a majority of Avanir's shares outstanding, and customary closing conditions that include expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act.