Amgen Buying Venture-Backed KAI Pharma For $315M Cash

Dow Jones VentureWire

Brian Gormley

April 10, 2012

(c) 2012 Dow Jones & Company, Inc.

KAI Pharmaceuticals Inc., which raised $63 million in venture capital and discovered a drug that may help kidney-disease patients who are on dialysis, has agreed to merge with Amgen Inc. in a $315 million cash deal.

Amgen is buying KAI Pharma for its drug, KAI-4196, now in mid-stage clinical studies to treat secondary hyperthyroidism in chronic kidney-disease patients who are on dialysis. In secondary hyperthyroidism, the parathyroid glands produce too much parathyroid hormone. As a result, parathyroid hormone, calcium and phosphorus are no longer in balance.

Amgen already sells an oral drug for secondary hyperthyroidism, Sensipar. Because KAI-4196 is given intravenously at the same time that patients undergo dialysis, there’s less concern about patients failing to take their medication as prescribed. KAI Pharma has found that the drug lowers levels of parathyroid hormone, calcium and FGF-23, all markers of secondary hyperthyroidism.

Secondary hyperthyroidism, a component of chronic kidney disease mineral-and-bone disorder, is a common complication for chronic kidney-disease patients who are on dialysis, the companies said Tuesday. Amgen will acquire worldwide rights to the drug except for Japan.

KAI Pharma raised two venture rounds, the last a Series B financing completed in 2006. It also secured more than $100 million through corporate deals, said Chief Executive Steven James. They included one with Ono Pharmaceutical Co., which obtained the Japanese rights to KAI-4169 in September.

The company’s three largest investors are Intersouth Partners, InterWest Partners and Skyline Ventures, James said. Its other backers are Aberdare Ventures, Delphi Ventures, Investor Growth Capital, Kearny Venture Partners and Lumira Capital.

KAI Pharma, formed in Skyline’s offices in 2002 with technology from Stanford University, overcame some setbacks on the way to this agreement. The company, which raised its Series A round in 2003, initially developed a delta protein kinase C inhibitor called KAI-9803 with potential to treat certain cardiovascular indications.

The company partnered the drug with Sankyo Co. in 2006. After Sankyo merged with Daiichi, however, the combined company determined that the drug wasn’t a fit and returned the rights. In 2008 KAI Pharma partnered the drug again, this time with Bristol-Myers Squibb Co., but BMS returned the rights in 2010.

KAI Pharma rebounded after it found that a drug it had in development had a side effect of lowering calcium levels. The company realized that if it could lower calcium levels in a predictable, dose-dependent way, it would be therapeutically valuable for patients who are on dialysis, according to InterWest General Partner Chris Ehrlich.

The product it developed through that observation, KAI-4169, is a peptide agonist of the calcium-sensing receptor, which affects calcium homeostasis by modulating the release of parathyroid hormone, according to KAI Pharma. In Phase IIa studies the drug was well-tolerated and reduced parathyroid hormone, calcium and FGF-23, the company said.

Amgen began showing interest in KAI Pharma several months ago and ultimately beat out rivals also looking to buy the company, according to Ehrlich. Because of the competition, KAI Pharma was able to get an all-cash deal, which is unusual at a time when biotechnology acquisitions usually involve upfront and contingent-value payments.

Stephen Hoffman, a partner with Skyline, said the sale is a great outcome for the company, investors and Amgen, which has acquired an excellent drug. Had the market for biotech initial public offerings been better, however, KAI Pharma could have continued developing this drug independently, he said.

“I am disappointed that we were not able to take this much further [through] clinical development on our own,” he said. “There are not many opportunities in our careers where you can take products all the way.”

The deal continues Amgen‘s strategy of pursuing external transactions to bolster its research-and-development pipeline as sales growth slows for older drugs. If it reaches market, the KAI Pharma drug also would complement Amgen’s existing portfolio of drugs used by dialysis patients.

“We think the KAI molecule is very interesting and has some important potential benefits that of course need to be borne out by future study,” Michael Severino, Amgen‘s senior vice president of global development and corporate chief medical officer, said in an interview.

He said it’s too early to provide a timeline for Phase III testing or filing the drug for regulatory approval.

–With reporting by Peter Loftus