Dive Brief:

• Mallinckrodt plc is adding an investigational treatment for hepatic encephalopathy (HE) to its pipeline through an acquisition of Ocera Therapeutics Inc. costing as much as $117 million.
• The deal has Mallinckrodt handing over $1.52 per Ocera share, or around $42 million, plus a Contingent Value Right (CVR) that allows Ocera investors to receive at least one cash payment of up to $2.58 per share, which could add another $75 million to the transaction's total value. The CVR hinges on successful completion of development and sales milestones that weren't specified in a Nov. 2 announcement.
• The central asset of the deal is OCR-002, a drug composed of two active ingredients that each bind to ammonia and help remove it from the body. Though OCR-002 missed the primary endpoint of a Phase 2 study earlier this year, Mallinckrodt contends the study's design may have prompted the failure, and believes the Food and Drug Administration could approve intravenous and oral versions of the drug by 2022 and 2024, respectively.

Dive Insight:

Mallinckrodt is in the midst of a restructuring aimed at improving its cost structure. But the company's portfolio is also under pressure. Sales from its specialty brands rose less than 1% year over year during the second quarter, while sales from its specialty generics business fell 18%.

In that regard, Mallickrodt has actively pursued M&A to reshape its medicines offerings. The drugmaker divested its Nuclear Imaging business to IBA Molecular for around $690 million in January, and followed that two months later with a sell off of its Intrathecal Therapy business to Piramal Enterprises Ltd. subsidiary for about $203 million. Conversely, Mallickrodt picked up regenerative medicines company Stratatech Corp. for $76 million upfront in August 2016, and a year later snagged a pediatric jaundice drug from InfaCare Pharmaceutical for $80 million upfront.

OCR-002 represents another valuable asset for Mallinckrodt in spite of previous clinical setbacks. In late January, Ocera revealed results from the Phase 2 STOP-HE study that showed patients taking its drug demonstrated a non-statistically significant 17-hour reduction in the time took to show improvement in HE symptoms versus placebo. With OCR-002 being Ocera's only clinical-stage compound, the trial miss consequently caused the biotech's stock to plummet.

"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," Mallinckrodt said in a Nov. 2 statement.

"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."

Perhaps reinforcing Mallickrodt's optimism are the returns other FDA-approved HE treatments.

Valeant Pharmaceuticals International Inc.'s Xifaxan (rifaximin), for instance, accounted for 37%, or about $235 million, of the company's total branded products portfolio during second quarter, according to the company's most recent 10-Q form filed with the Securities and Exchange Commission. The drug first gained the FDA go-ahead in 2004 as a treatment for traveler's diarrhea, but it locked down add-on indications for reducing the risk of recurrence of overt HE in patients with advanced liver disease in 2010.