Eli Lilly could spend more than $600 million to acquire a gene therapy developer with a slate of programs targeting hearing loss, per terms of a deal announced Tuesday.
Lilly has agreed to purchase all outstanding shares of Akouos for $12.50 apiece, reflecting a 78% premium to the Boston biotechnology company’s stock price on Monday afternoon. The deal also includes a non-tradable security known as a contingent value right, or CVR, which could add as much as $3 for each Akouos share provided the company’s programs achieve certain milestones.
Factoring in the full CVR, Lilly said that total consideration would be up to $610 million. The boards of directors of both companies have already approved the transaction, and expect it to close by the end of the year.
"Gene therapy offers tremendous opportunity to provide durable treatments for patients with genetically defined disease,” Daniel Skovronsky, Lilly's chief scientific and medical officer and president of Lilly Research Laboratories, said in a statement. "With Akouos, we are optimistic that we can make a difference for people with hearing loss and other inner ear conditions.”
In detailing the acquisition, Lilly made note of Akouos’ expertise in getting drugs to the inner ear. The company’s most advanced program, named AK-OTOF, uses an adeno-associated viral vector to deliver a healthy copy of a gene called OTOF, which creates a protein that’s essential for hearing. While this therapy is still in preclinical testing, Akouos hopes to develop it into a one-time fix for the estimated 200,000 people around the world with OTOF-mediated hearing loss.
Akouos is also looking to treat several other inner ear conditions that cause hearing loss. Its AK-CLRN1 program, for example, targets a rare autosomal recessive disorder called Usher Type 3A. Another program, AK-antiVEGF, is directed at a type of noncancerous tumor that grows on a key nerve connecting the ear to the brain.
For Akouos shareholders, how these programs progress will determine the ultimate payout from Lilly.
That’s because the contingent payments rest on three events. CVR holders would receive $1 in cash after the fifth participant is dosed with AK-OTOF in a Phase 1 or Phase 1/2 trial, though that milestone must be completed by Dec. 31, 2024. Holders would receive another $1 in cash after the fifth participant is dosed with an Akouos gene therapy for a second monogenic form of sensorineural hearing loss. However, the AK-OTOF and AK-antiVEGF programs wouldn’t count for that milestone, which also must be completed by Dec. 31, 2026.
Lastly, CVR holders could get $1 in cash either when the first participant is dosed with an Akouos gene therapy product — excluding AK-antiVEGF — for a monogenic form of sensorineural hearing loss in a Phase 3 trial, or when the FDA approves such a product. The payment would be tied to whichever milestone happens first, though either must occur by Dec. 31, 2026, or else the value would start to decrease monthly.
In biopharma dealmaking, CVRs often function as a way for the buyer to hedge its bet. Just this year, Epizyme, Zogenix and Radius Health each agreed to be acquired in deals that incorporated contingent payments.
Lilly, too, has used this tool. Its recent purchase of Prevail Therapeutics — the company’s first-ever acquisition of a gene therapy developer — included a CVR that was worth up to $4 and hinged on Prevail’s most advanced program securing marketing approval by the end of 2024.
“We see this [Akouos] acquisition by [Lilly] as complementary to a growing pipeline of genetic medicines,” wrote SVB Securities’ David Risinger in an Oct. 18 note to clients.
More broadly, the deal could bring a “tailwind” to gene therapies of the type Akouos is developing, noted Stifel analyst Dae Gon Ha, although he cautioned that viewing Lilly’s interest as a positive signal for all developers in the field would be an “oversimplification.”
Shares of Decibel Therapeutics, another biotech developing gene therapies for hearing loss, climbed 26% on Tuesday.