Lundbeck is buying Chelsea for $658M, with a just-in-case clause

After months of speculation and Wall Street back-and-forth, Chelsea Therapeutics ($CHTP) finally got its buyout deal: Lundbeck has agreed to pick up the biotech for as much as $658 million, provided its banner drug can come through on the sales front.

Under the deal, Denmark's Lundbeck will hand over $530 million up front in cash, good for a 29% premium on Chelsea's latest closing price. Baked into the deal is another $128 million in contingent value rights (CVR), cash payable to shareholders if Chelsea's now FDA-approved Northera can reach unspecified commercial milestones by 2017. Lundbeck expects to close the deal some time next quarter, just in time for the treatment's expected launch date.

In Northera, Lundbeck gets a drug approved to treat lightheadedness associated with the rare neurogenic orthostatic hypotension (NOH), a blood-pressure-lowering disorder tied to neurodegenerative ailments like Parkinson's disease. Analysts have pegged the drug's peak sales at between $300 million and $450 million a year, and Chelsea estimates its target U.S. patient population at around 150,000.

Chelsea and its lead drug have long been controversial among investors, and Northera's stop-and-start trip through the FDA review process led to peaks and valleys for the Charlotte, NC, biotech's share price. But even after approval, Northera's success is no sure thing. The drug carries a black-box warning that it can dangerously increase patients' blood pressure while they're lying down, and the FDA is cautioning those taking taking the drug to sleep with their heads elevated in hopes of reducing the risk of stroke. Furthermore, because the agency approved the drug through its accelerated orphan pathway, regulators looked at only two-week efficacy data and thus consider Northera's long-term effects undemonstrated.

Hence Lundbeck's move to write a CVR into the deal and mitigate some risk. Forest Labs ($FRX) was of the same mind in last month's agreement to buy Furiex ($FURX), handing over $1.1 billion up front and tying up $360 million more in a CVR linked to the biotech's promising irritable bowel syndrome treatment. Sanofi ($SNY) made a similar play in its $20 billion Genzyme buyout, hitching a bigger payout to the fate of the troubled multiple sclerosis treatment Lemtrada.

CEO Joseph G. Oliveto

Beyond the financial terms, Northera fits right in with Lundbeck's stable of neurology drugs, the company said, including the on-the-market seizure drug Onfi and the Phase III Alzheimer's disease treatment Lu AE58054. And for Chelsea, relying on Lundbeck's commercial might beats going it alone on the market, giving Northera its best chance to come through on that CVR, Chelsea CEO Joseph Oliveto said.

"Lundbeck's expertise in commercializing rare disorder CNS products will enable a rapid and successful launch of Northera into the U.S. market and ultimately will provide added benefit to patients suffering from NOH," Oliveto said in a statement.

- here's the release