While Financing Remains Challenging, M&A Activity Raises Hopes for Rare Disease Drug Developers

Despite continuing financing difficulties for biotech companies developing rare disease focused therapeutics, the first half of 2023 closed on a hopeful note with M&A potential deal values up 18 percent compared to the same period in 2022, according to data gathered by Dealforma and Global Genes.

Rare disease focused M&A potential deal values rose to $11.2 billion in the first half of 2023, up 18 percent compared to the same period in 2022, and mostly due to Novartis’s acquisition of Chinook Therapeutics for up to $3.5 billion, the largest, rare disease focused acquisition in 2023 so far.

Novartis paid $40 a share for the developer of therapeutics for rare and chronic kidney diseases, for $3.2 billion, a 67 percent premium to Chinook’s closing price ahead of the announcement. In addition, Chinook shareholders received contingent value rights providing for payment of up to $4 per share upon the achievement of certain future regulatory milestones with respect to Chinook’s lead product candidate, atrasentan, which would bring the total deal value to $3.5 billion.

Total rare disease focused equity and debt reached $7 billion in the first half of 2023, down 21.6 percent from the almost $9 billion raised by these companies in the first half of 2022. Azitra, became the first rare disease focused biotech to complete an initial public offering in 2023, raising $7.5 million by selling 1.5 million shares at $5 per share. Azitra’s lead candidate ATR-12 is a genetically modified strain of S. epidermidis in development for Netherton syndrome, a disorder that affects the skin, hair, and immune system that makes the skin red and scaly and prone to leak fluid.

Rare disease focused privately-held startups raised $3.1 billion in venture and private capital in the first half of 2023, 17 percent less than the $3.7 billion raised by these companies during the first half of 2022. Financings of note in June included $150 million raised by Alkeus Pharmaceuticals in a series B financing round to support the registration and launch of its experimental therapy gildeuretinol to treat the rare, genetic eye condition Stargardt disease and $70 million raised by K36 Therapeutics in a series B financing round to fund development of its investigational therapeutic to treat multiple myeloma patients with genetic translocation, a rare cancer.

Six rare disease drug developers joined a growing list of companies reducing their workforce, stopping development programs, exploring strategic alternatives, and for some closing their doors. In the first half of 2023, Global Genes counted 36 such companies that announced such changes, compared to 27 such restructurings announced between March 1 and June 30, 2022.

While capital markets remain risk averse, several biotech companies took advantage of positive clinical data to raise money. In June, Disc Medicine completed a $137 million in a public offering after reporting positive data for bitopertin in a rare blood disorder. Editas Medicine raised $125 million in a public offering after reporting positive initial data from a trial of its gene editing therapy for the rare inherited blood disorder diseases sickle cell disease and transfusion-dependent beta thalassemia.

The total potential deal value of partnering deals focused on rare disease therapeutics rose to $17.4 billion for the first half of 2023, 3.6 percent above the $16.75 billion in such deals during the first half of 2022. Despite this gain, the deal value of rare disease focused partnering deals at signing dropped 32 percent to $845 million, which may not only be due to financials for many deals not disclosed, but also because many deals are backloaded with developmental and sales milestones.

Xentria’s multi-year licensing agreement with Meitheal Pharmaceuticals was the largest, rare disease focused deal in June.  Meitheal gained exclusive rights to commercialize Xentria’s lead candidate and novel biologic, XTMAB-16 for pulmonary sarcoidosis in North America with Xentria responsible for clinical development and retaining the marketing rights in all other countries subject to a right of first offer. Xentria received an upfront payment of $45 million as well as up to another $35 million on regulatory submission and approval of XTMAB-16, along with potential milestone-based royalties in excess of $600 million.