Eli Lilly could spend more than $600 million to acquire a gene therapy developer with a slate of programs targeting hearing loss, according to the terms of an agreement announced on Tuesday.
Lilly agreed to buy all of Akouos’ outstanding shares for $12.50 each, representing a 78% premium to the Boston biotech company’s stock price on Monday afternoon. The deal also includes a non-negotiable security known as a contingent value right, or CVR, which could add up to $3 for each Akouos share provided the company’s programs reach certain milestones.
Taking into account the full CVR, Lilly said the total consideration would be $610 million. The boards of both companies have already approved the transaction and expect it to close by the end of the year.
“Gene therapy offers a tremendous opportunity to provide lasting treatments for patients with a genetically defined disease,” said Daniel Skovronsky, Lilly’s Chief Scientific and Medical Officer and President of Lilly’s Research Laboratories, in a statement. “With Akouos, we are convinced that we can make a difference for people suffering from hearing loss and other inner ear conditions.
In detailing the acquisition, Lilly noted Akouos’ expertise in delivering drugs to the inner ear. The company’s most advanced program, called AK-OTOF, uses an adeno-associated viral vector to deliver a healthy copy of a gene called OTOF, which creates a protein essential for hearing. Although this therapy is still in preclinical testing, Akouos hopes to develop it into a point solution for the valued 200,000 people worldwide with OTOF-mediated hearing loss.
Akouos also seeks to treat several other inner ear conditions that lead to hearing loss. Its AK-CLRN1 program, for example, targets a rare autosomal recessive disease called Bailiff Type 3A. Another program, AK-antiVEGF, is directed against a type of non-cancerous tumor that grows on a key nerve connecting the ear to the brain.
For Akouos shareholders, the progress of these programs will determine Lilly’s final payout.
This is because contingent payments are based on three events. CVR holders would receive $1 in cash after the fifth participant receives a dose of AK-OTOF in a Phase 1 or Phase 1/2 trial, although this milestone must be reached by December 31, 2024 Holders would receive another $1 in cash after the fifth participant receives a dose of Akouos gene therapy for a second monogenic form of sensorineural hearing loss. However, the AK-OTOF and AK-antiVEGF programs would not count towards this milestone, which must also be completed by December 31, 2026.
Finally, CVR holders could get $1 in cash either when the first participant receives a dose of an Akouos gene therapy product – excluding AK-antiVEGF – for a monogenic form of sensorineural hearing loss in a phase 3 trial, i.e. when the FDA approves such a product. The payout would be tied to whichever milestone occurs first, although either must take place before December 31, 2026, otherwise the value would begin to decrease monthly.
In biopharma transactions, CVRs often work as a way for the buyer to hedge their bet. This year alone, Epizyme, Zogenix and Radius Health have each agreed to be acquired under agreements that incorporate contingent payments.
Lilly, too, used this tool. Its recent purchase of Prevail Therapeutics – the company’s first-ever acquisition of a gene therapy developer – included a CVR worth up to $4 and was based on Prevail’s most advanced program gaining approval from commercialization by the end of 2024.
“We see this [Akouos] acquired by [Lilly] as a complement to a growing pipeline of genetic drugs,” wrote David Risinger of SVB Securities 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, though he cautioned that viewing Lilly’s interest as a a positive signal for all developers in the field would be “oversimplification”. .”
Shares of Decibel Therapeutics, another biotech developing gene therapies for hearing loss, soared 26% on Tuesday.