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Mallinckrodt to acquire Ocera Therapeutics

Thursday, November 2, 2017

Mallinckrodt, a global specialty pharmaceutical company, and Ocera Therapeutics 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 II asset with both intravenous (IV) and oral formulations. Despite inability to meet statistical significance in its primary endpoint, Ocera’s phase II 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 III program. Mallinckrodt will have continued engagement with the 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 need. The 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.”

Roughly 30 to 35 million U.S. patients have chronic liver disease, 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 cirrhosis.

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 symptoms, 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.

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.

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