Mallinckrodt to Acquire Ocera Therapeutics for Up to $117M

Mallinckrodt plc (NYSE: MNK), a leading global specialty pharmaceutical company, and Ocera Therapeutics, Inc. (NASDAQ: OCRX), today announced that they have entered into an agreement under which Mallinckrodt will acquire Ocera, a clinical stage biopharmaceutical company focused on the development and commercialization of novel therapeutics for orphan and other serious liver diseases with high unmet medical need. Ocera's developmental product OCR-002, an ammonia scavenger, is being studied for treatment of hepatic encephalopathy, a neuropsychiatric syndrome associated with hyperammonemia, a complication of acute or chronic liver disease.

OCR-002 is a Phase 2 asset with both intravenous (IV) and oral formulations. Despite inability to meet statistical significance in its primary endpoint, Ocera's Phase 2 STOP-HE trial1 achieved secondary endpoints that revealed differentiated clinical impact, including demonstrated effect on lowering serum ammonia levels. Mallinckrodt believes that trial design elements, in part, drove the primary outcome and, on acquisition, will invest to establish the optimal dosing regimen prior to initiating a Phase 3 program. Mallinckrodt will have continued engagement with the U.S. Food and Drug Administration (FDA) to confirm the regulatory pathway to gain FDA approval and subsequently launch the IV formulation, expected by 2022, and the oral formulation, expected by 2024.

The FDA granted OCR-002 its Orphan Drug Designation, and the resulting seven years' exclusivity would be applied upon first approval of the drug. The FDA also granted its Fast Track designation, a process designed to facilitate development and expedite the review of drugs to treat serious conditions and fill an unmet medical need2. The European Medicines Agency (EMA) also granted Orphan Drug status to OCR-002. If approved, the drug will have substantial durability through its Orphan Drug status and additionally through intellectual property that extends to at least 20303.

"Hepatic encephalopathy can be a debilitating condition, affecting brain function and, in some cases, resulting in coma or death," said Steven Romano, M.D., Chief Scientific Officer and Executive Vice President of Mallinckrodt. "We look forward to bringing this much-needed treatment option to patients who suffer from this condition."

"We believe OCR-002 has the potential to help thousands of patients whose hepatic encephalopathy is insufficiently treated by current therapies," said Linda S. Grais, M.D., President and Chief Executive Officer, Ocera. "We're excited by the additional development capability and commercial reach that can be gained by becoming part of Mallinckrodt. With this focus, I'm confident this important treatment can be successfully brought to market."

Understanding Hepatic Encephalopathy
Roughly 30 to 35 million U.S. patients have chronic liver disease4, which can develop into liver cirrhosis in some cases, a condition where the liver becomes damaged and irreversibly scarred. Cirrhosis can be brought on by a wide range of underlying causes such as nonalcoholic steatohepatitis, or fatty liver disease; alcohol use; hepatitis; autoimmune diseases; diabetes; and obesity. Approximately 5.5 million patients in the U.S. have liver cirrhosis5.

Cirrhosis impedes the liver's ability to remove toxins from the body, including ammonia. Hepatic encephalopathy (HE) is a critical neuropsychiatric condition resulting from hyperammonemia (excess ammonia in the blood).While many patients who develop HE will have cirrhosis, incidents of HE are also reported in patients with other types of liver disease such as acute liver failure or bypass shunts. Progression of HE is measured through neurocognitive symptoms6, including personality changes, disorientation, stupor and, in severe cases, coma or death.

Acute HE is usually initially diagnosed in the emergency department, and treated by a hepatologist or gastroenterologist; outside the hospital, HE is largely treated by gastroenterologists. Hospitalized HE patients with other underlying triggers or conditions, e.g., gastrointestinal bleeding or infection, will be sent to the intensive care unit (ICU). Severe acute HE patients will also likely be sent to the ICU. The typical length of overall hospital stay for an acute HE episode is five to seven days, though it may be longer for patients with concomitant conditions. Many acute HE patients have a recurrence and will be readmitted to the hospital with subsequent acute HE episodes.
OCR-002 Eliminates Ammonia from Bloodstream through Novel Method of Action

Although the STOP-HE study7 did not meet its primary endpoint, it achieved secondary endpoints that validated OCR-002 as a potent ammonia scavenger, leading to significant reduction in circulating ammonia (p=0.017). In a subsequent, post-hoc analysis of the data, it was observed that the degree of ammonia reduction in patients correlated strongly with clinical improvement. As the response rate also appeared to increase proportionally to dose level, this suggests that some patients in the Phase 2 trial may have been under-dosed.

Treatment with OCR-002 rapidly eliminates ammonia in the bloodstream, excreting it through the kidneys, a more effective and less burdensome method of addressing HE than existing treatment options. Those alternatives include lactulose, a laxative that frequently causes severe diarrhea, and Rifaximin, an antibiotic indicated only for reduction of recurrent HE, which can cause broad gastrointestinal issues and is restricted for patients with severe liver issues.

OCR-002's active ingredients are ornithine and phenylacetic acid (PAA). The unique method of action includes:
  • Ornithine contributes to glutamate, which combines with ammonia to create glutamine, a carrier of ammonia that "pushes" ammonia through the body.
  • PAA combines with glutamine to form phenylacetylglutamine, "pulling" ammonia into the urine and excreting it through the kidneys.

The IV formulation of OCR-002, if approved, is expected to provide rapid reduction in symptoms of acute HE, and potentially reduce hospitalization stay. A subset of patients continues to have HE symptoms after discharge. OCR-002's oral formulation, if approved, is expected to provide post-discharge continuity of care for the HE patient, reducing the risk of recurrent HE episodes and rehospitalization. It is also anticipated that patients may transition from the IV to the oral formulation prior to discharge from the hospital setting.

"We believe OCR-002 has the potential to significantly alter the treatment paradigm for patients suffering from this serious condition," said Mark Trudeau, Chief Executive Officer and President of Mallinckrodt. "The addition of this highly durable, unique developmental asset to our portfolio is an excellent example of Mallinckrodt's strategic vision as a patient-centric, innovation driven specialty pharmaceutical growth company focusing on severe and critical conditions."

Hepatic Encephalopathy Market 
Approximately 200,000 U.S. patients are hospitalized with acute HE annually. Acute HE patients' average hospital stay is five to seven days, at an average cost of $30,000 to $60,000 per stay8. There is a 40 to 50 percent recurrence rate and potential rehospitalization within the first year of an acute event, with the likelihood of recurrence increasing with severity9. Only 50 to 60% of high-risk patients are receiving current standard of care and fewer stay on therapy due to poor compliance10.

The U.S. potential market opportunity is estimated at $5 to $7 billion11,12, with $2 to $3 billion in acute treatment and $3 to $4 billion for recurrent incidents. Approximately 1.5 to 2 million patients are at risk of HE13. As noted, no intravenous FDA-approved therapy exists for the treatment of acute HE.

Ocera holds worldwide rights to OCR-002, and Mallinckrodt estimates the market for HE patients in Europe and Japan to be in the range of 150,000 to 200,000 annually. Mallinckrodt will assess regulatory pathways for approvals in markets outside the U.S. post-acquisition.

If approved, Mallinckrodt expects OCR-002 to be commercialized by the company's existing sales organizations. At launch, patient access to this unique treatment option would also be supported and enhanced by the company's strong relationships with hospital networks, insurance companies and group purchasing organizations. Mallinckrodt's existing infrastructure of clinical and medical affairs experts will also support approval and launch of both formulations of the product. Mallinckrodt will work with the Ocera development team to ensure smooth integration of the development and regulatory plan.

Financial Considerations and Closing
A subsidiary of Mallinckrodt will commence a cash tender offer to purchase all of the outstanding shares of Ocera Therapeutics common stock for $1.52 per share (approximately $42 million), plus one Contingent Value Right to receive one or more payments in cash of up to $2.58 per share (up to approximately $75 million) based on the successful completion of certain development and sales milestones.

Mallinckrodt expects dilution from the acquisition to adjusted diluted earnings per share by $0.25 to $0.35 annually beginning in 2018, assuming the expected 2017 close. Guidance on the impact of the acquisition to the company's GAAP14 diluted earnings per share has not been provided due to the inherent difficulty of forecasting the timing or amount of items that would be included in calculating such impact. Subject to customary closing conditions, the company estimates the transaction will close in the fourth quarter of 2017.

Ocera Therapeutics, Inc. is a clinical stage biopharmaceutical company focused on the development and commercialization of OCR-002 (ornithine phenylacetate) in both intravenous (IV) and oral formulations. OCR-002 is an ammonia scavenger and has been granted Orphan Drug designation and Fast Track status by the U.S. Food and Drug Administration (FDA) for the treatment of hyperammonemia and resultant hepatic encephalopathy (HE) in patients with acute liver failure and acute-on-chronic liver disease.
Ocera's HE clinical development efforts include a recently completed Phase 2b clinical trial, STOP-HE, which evaluated the safety and efficacy of intravenously-administered OCR-002 in resolving neurocognitive symptoms of acute HE in hospitalized patients with elevated ammonia. Ocera is preparing to meet with the FDA later this year to review the IV program and discuss potential development paths forward.

Ocera is currently evaluating its oral tablet form of OCR-002 in a Phase 2a study in patients with cirrhosis as a chronic use option to maintain remission of HE. Results of this study are expected to be published by the end of 2017. 

Mallinckrodt is a global business that develops, manufactures, markets and distributes specialty pharmaceutical products and therapies. Areas of focus include autoimmune and rare diseases in specialty areas like neurology, rheumatology, nephrology, pulmonology and ophthalmology; immunotherapy and neonatal respiratory critical care therapies; and analgesics and hemostasis products. The company's core strengths include the acquisition and management of highly regulated raw materials and specialized chemistry, formulation and manufacturing capabilities. The company's Specialty Brands segment includes branded medicines and its Specialty Generics segment includes specialty generic drugs, active pharmaceutical ingredients and external manufacturing.

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