Waving White Flag, Celladon Merges With Rare Disease Co. Eiger Bio

Xconomy San Diego — A slew of companies have gone public amidst gene therapy’s recent renaissance, and technological advances have gotten these types of treatments closer than they’ve ever been to impacting healthcare in the U.S.

But today, Celladon offered a reminder of how quickly it can all go wrong in gene therapy. The San Diego biotech and its once promising treatment for a genetic form of heart failure will now effectively disappear, thanks to a merger with a privately held company called Eiger BioPharmaceuticals.

Celladon (NASDAQ: CLDN) has agreed to a deal with Eiger that, if approved by shareholders, would see Eiger’s stockholders become the majority owners of the combined company. The entity would carry forward the Eiger name, and the Palto Alto, CA-based company’s strategic plan to develop treatments for a variety of rare diseases like lymphedema, pulmonary arterial hypertension, and hepatitis D. All of Celladon’s directors and executives will resign from their current positions once the deal is done. The new company will be run by Eiger’s team, which is lead by president and CEO David Cory, and be based in the Bay Area.

This is the type of deal that often happens after a publicly held biotech waves the white flag. In January, for instance, Regado Biosciences of Basking Ridge, NJ, merged with Tobira Therapeutics after safety concerns doomed its potential anticoagulant drug. The combined company is known as Tobira, is one third owned by Regado’s old shareholders, and is now developing drugs for inflammatory and liver diseases. A few years ago, a pain drug developer called Zalicus failed a big trial, and merged with a biosimilars company called Epirus Biopharmaceuticals. Targacept, after a string of clinical failures, merged with Catalyst Biosciences in August. These deals give shareholders of the failed biotech a chance to recoup some value after things go wrong—and a quick way for a private company to tap into the public markets.

Now here’s Celladon, which was a high-flying gene therapy company not too long ago. For those unfamiliar, gene therapy is a way of shuttling genetic instructions into the body via a virus, offering the potential for a long-lasting or even permanent fix for a genetic disease. That promise has tantalized scientists for decades, but as with any new science, the field has gone through a number of ups and downs trying to figure out the best way to safely and effectively deliver these treatments.

The progress of companies like UniQure (NASDAQ: QURE), which has the only approved gene therapy in the world, Spark Therapeutics (NASDAQ: ONCE), which could become the first to win FDA approval of a gene therapy next year, and Bluebird Bio (NASDAQ: BLUE)—not to mention academic groups pursuing treatments for hemophilia and other diseases—has helped bring gene therapy back from the depths. A number of gene therapy companies have gone public over the past few years, and Celladon was one of them. It had the financial support of a number of corporate venture arms, like Pfizer Ventures and Novartis Venture Funds, became the first company to win a “breakthrough therapy” designation from the FDA for a gene therapy, and raised $44 million in an IPO in January 2014.

But despite the progress, there have been some setbacks in gene therapy as well, and Celladon unfortunately became one of the prime examples. Its gene therapy, Mydicar, a proposed treatment for patients with severe heart failure, failed miserably in a mid-stage study in April. Shares immediately plummeted 80 percent, and Celladon was forced to begin layoffs and search for strategic alternatives. Celladon’s shares had closed as high as $27.26 apiece in March, leading up to the data release. They’ve been worth just over $1 over the past several months during the trial fallout.

Those shares roughly doubled this morning following the announcement of the Eiger deal. Through it, a syndicate of investors new to Eiger—RA Capital Management, Sabby Management, Sphera Global Healthcare, Perceptive Advisors, and Monashee Capital Partners—-has teamed with longtime Eiger backers ViVo Capital and InterWest Partners to put $39.5 million into the new company. Eiger will have over $60 million in cash after the merger is completed, though the deal has to be approved by Celladon’s shareholders first. The cash should be enough to get Eiger through Phase 2 trials for at least two of its four programs by late 2016.

The company’s lead drug, lonafarnib (Sarasar), was originally developed by Schering Plough (now owned by Merck) and tested for a variety of cancers. Eiger licensed the drug from Merck, and is now developing it as a treatment for hepatitis D.

Celladon will issue about 85 million new shares to Eiger shareholders and the investors providing the financing. That’ll leave the new syndicate with 33 percent of the company, Eiger stockholders with 45 percent, and current Celladon equity holders with 22 percent.

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