Otsuka beats back Novartis opposition with $15M purchase of smart pill developer Proteus

Proteus pill
A U.S. court has approved Otsuka to purchase bankrupt smart pill developer Proteus Digital Health for $15 million, even after strong opposition from a group of investors that included Novartis. (Proteus)

Otsuka can now move ahead to acquire its digital pill partner and now-bankrupt Proteus Digital Health for $15 million.

The transaction has been approved by a U.S. bankruptcy court in Delaware, ending weeks of objections from a group of Proteus investors, including Novartis.

Those opponents have been pushing for a delay of the sale, alleging that Otsuka, as a Proteus investor, didn’t give the company’s assets fair value.

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The group called the $15 million offer “nothing more than a giveaway” to an insider, which used it to “buy” the silence of creditors, according to a court filing.

Otsuka, with 19.8% of outstanding senior preferred shares, is Proteus’ largest shareholder, the court filing shows. Through a collaboration first signed in 2012, the two companies in 2017 successfully won FDA clearance for the first digital pill, Abilify MyCite, an ingestible drug-device combination that can track whether a patient adheres to the Japanese drugmaker’s antipsychotic Abilify (aripiprazole).

The two revised the pact in late 2019 when Proteus struggled to raise additional funds. Even as Otsuka went solo with Abilify MyCite and gained exclusive rights to use Proteus’ platform for the development of its digital medicine offerings, the Japanese drugmaker remained Proteus’ largest customer.

RELATED: Digital pill developer Proteus files for bankruptcy

It’s natural that Otsuka first came forward with $15 million in an initial “stalking horse” offer to take up Proteus once it filed for bankruptcy in June. Although that price was meant to set the floor of an auction, no other bidders emerged from the process by the deadline in early August.

Otsuka wasn't Proteus' only pharma investor, though; Novartis threw in $24 million back in 2010. The Swiss drugmaker is an outspoken advocate for digital transformation within the pharma space, though it recently ended a partnership with Pear Therapeutics on FDA-approved reSET and reSET-O products, both software-based therapeutics for substance use disorder.

Novartis and the rest of the dissidents have been asking the court to extend the sale by at least 90 days “to ensure that all parties-in-interest have a fair opportunity to perform due diligence and submit a bid,” arguing that the original timeline and some additional requirements were designed to “chill” bidding.

In rebuttal, Proteus attorneys said in a court filing that the Novartis group’s objections were “baseless accusations and wildly unfounded speculation” and were “at bottom, a thinly veiled collateral attack” on the sale process.

Now that Otsuka is approved to fold in Proteus, the world will officially say goodbye to the “smart pill” unicorn, once valued at $1.5 billion. And the Japanese pharma will have to find a market for Proteus’ tech, something Proteus itself couldn't achieve.

One potential reason for the struggle? A 2019 BMJ study said “there was no evidence of better adherence with the digital version of aripiprazole compared with the non-digital version.” 

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