- La Jolla Pharmaceutical will pay $43 million cash to buy Tetraphase Pharmaceuticals, its bid making La Jolla the third company in 2020 to attempt to take over the struggling antibiotic specialist.
- La Jolla's bid was $4 million more than what Melinta Therapeutics offered a few weeks ago. Earlier this year, AcelRx started a bidding war with an all-shares offer that valued Tetraphase at $14 million, which it increased to $37 million after Melinta entered negotiations.
- The offers are a far cry from Tetraphase's $1.8 billion valuation in 2015 as its drug Xerava was approaching readouts from Phase 3 trials. Xerava is now Tetraphase's only product, but it's struggled commercially. Physicians often reserve new antibiotics for more severe cases, fearing the bacterial resistance that has made older products less effective.
What many have called a "broken" business model for antibiotics has taken its toll on small biotechs specializing in the field. Both Achaogen and Aradigm, for instance, recently declared bankruptcy.
Tetraphase's own restructuring last year was a sign of financial distress, making the company yet another example of the challenges of antibiotic drug development — a field in which, paradoxically, there's high need for new advances but also a reluctance to pay a premium for innovation.
Launched in 2018, Xerava is used to treat complicated intra-abdominal infections in hospitals, but the Food and Drug Administration label specifies that it should be saved for bacteria believed to be susceptible in order to avoid resistance.
In 2019, the drug earned only $3.6 million in net sales. Tetraphase has been trying to get it placed on hospital and payer formularies.
La Jolla believes it can do better. The San Diego-based company markets another in-hospital drug called Giapreza for patients in septic shock, and its executives argue the two are complementary. Giapreza had net sales of $23 million in 2019.
"By increasing our presence in the hospital with a second innovative therapy, we look forward to better serving the needs of patients suffering from life-threatening diseases," Kevin Tang, LaJolla's chairman, said in a statement.
La Jolla's offer consists of $43 million in upfront cash and $16 million in contingent value right payouts based on Xerava meeting certain milestones, including at least $55 million in sales in any calendar year before 2025.
Common stock owners will receive $2 a share, with holders of warrants issued in November 2019 due $2.68 per underlying share, and holders of warrants issued in January 2020 due $2.69 per underlying share. Institutional investor Armistice Capital bought the second warrant offering.
Melinta had offered $39 million in cash and $16 million in contingent value rights. Because Melinta and Tetraphase had entered into a definitive merger agreement, Tetraphase is now on the hook for a $1 million termination fee.
Tetraphase shares fell 5% to $2.63 in late morning trading, while La Jolla's fell 3% to $4.92.