UPDATED: Teva scoops up Auspex and NDA-ready CNS drug in $3.2B buyout

Three months after Auspex Pharmaceuticals ($ASPX) excited the market with news that its Phase III study of a new drug for controlling the involuntary movements triggered by Huntington's disease had succeeded, Teva ($TEVA) has swooped in to buy the company in a deal that values the biotech at $3.2 billion.

Teva is paying $101 a share to get its hands on SD-809, a drug that cleared late-stage testing by providing evidence that the drug clearly improved patients' Total Maximal Chorea (TMC) scores compared to placebo. That study included about 90 patients. The therapy--deutetrabenazine--is a small molecule inhibitor of vesicular monoamine 2 transporter, or VMAT2, which is designed to regulate the levels of dopamine in the brain. 

Simply put, SD-809 is a deuterated version of tetrabenazine--Xenazine, already in use for Huntington's--that is designed to break down more slowly in the body, allowing physicians to give it less often in lower doses for maximum efficacy. Concert Pharmaceuticals, which recently completed its own IPO, has been one of the biotech leaders in the deuterium R&D field.

Teva is paying a 42% premium on Auspex's Friday close. Its 52-week low is $14.75, providing another example of the big premiums being paid these days for biotech assets as well as the upside for some of the investors who have been pouring into the sector over the past two years. Auspex went public about a year ago at $12 a share.

Auspex has been working on drugs based on its deuterium R&D platform, a method that's used to improve the efficacy and safety profiles of new drugs. The La Jolla, CA-based biotech is expected to post further Phase III data on tardive dyskinesia for its lead drug this summer. The drug is also in the clinic for Tourette syndrome. Auspex has also been adding to its pipeline. SD-560 (deuterated pirfenidone) is in development for idiopathic pulmonary fibrosis.

Bernstein's Ronny Gal looked at the deal today, flagging concerns that Teva is angling to tackle a drug that is about to go generic with a new drug that may be hard to sell to U.S. payers. "Auspex was acquired in an auction (per comment on call) and SD-809 is essentially a second generation product for a $200-$300M drug," Gal adds in a note to investors. "The $3.2B is a fair price (including M&S synergies) for this initial drug/indication. The value created in this deal is basically in what Teva would do with the pipeline. Teva mentioned additional compounds for Huntington, MS, IPF, migraine and pain. For us, this is the major driver here. Teva essentially now has a library of 'NTE-like' molecules in neurology to follow."

Over at Sterne Agee, meanwhile, Shibani Malhotra notes that the buyout highlights Teva's intent to ink a string of new deals. " We remain buyers as we believe further and potentially transformational deals are likely to provide a catalyst for TEVA shares as management continues to execute on it's strategy to reinvigorate Teva's growth trajectory and enhance shareholder value."

The buyout puts Teva right where it needs to be: Prepping for a new drug application for a CNS therapy. Teva has struggle mightily in recent years to advance new drugs as it faces major league competition to its big franchise for the MS drug copaxone.

"We look forward to accelerating the development and commercialization of the Auspex portfolio based on our infrastructure, capabilities and strong commercial and R&D position in CNS. As we have outlined recently, one of our key priorities for 2015 is to support Teva's mid to long-term growth and create value for our shareholders with business development opportunities that are closely aligned with our core therapeutic areas. This transaction represents a first major step with regards to that commitment and we expect to continue this focus in the future," said Erez Vigodman, the CEO of Teva.

- here's the release