| TEL AVIV
TEL AVIV Galmed Pharmaceuticals' (GLMD.O) shares surged by a quarter after Allergan (AGN.N) said it would pay up to $1.7 billion for Tobira Therapeutics (TBRA.O), which like Galmed is developing a therapy for NASH, a fatty liver disease linked to obesity.
There are no approved treatments for NASH (nonalcoholic steatohepatitis), an incurable disease affecting over 15 million Americans, which involves accumulation of fat in the liver not caused by alcohol, and can lead to cirrhosis and eventually a liver transplants.
Allergan's offer for Tobira on Tuesday is a 500 percent premium to the stock's close on Monday.
Just hours later the Botox maker announced it would also pay $50 million upfront and make future milestone payments for Akarna Therapeutics Ltd, a privately held company that is planning early-stage studies of a treatment for NASH.
FBR analyst Vernon Bernardino said Galmed would be an attractive acquisition target, but added the Israeli company was so undervalued it would only agree to be acquired for "a similar outsized premium" as Tobira.
Galmed's Nasdaq-listed shares closed up 25.4 percent at $4.61 on Tuesday.
"The drug development landscape in NASH, which has been estimated to have $40 billion in market potential, has no approved drugs and is comprised of less than a half dozen drug candidates in the Phase II stage of development," Bernardino said. Two firms are in Phase III development.
Israel's Galmed is recruiting 240 patients for a midstage IIb clinical trial for its molecule called Aramchol, which combines fatty acids and bile acids.
It expects to have results by the first quarter of 2018 and if they are positive the company can "seamlessly transition" to a Phase III study on 1,000 patients, Galmed Chief Executive Allen Baharaff told Reuters on Wednesday.
Initially Galmed is targeting a smaller population - obese patients who are diabetic or prediabetic.
"Once it's proven safe it will be a drug for the general practitioner to prescribe," Baharaff said.
Bernardino, who rates Galmed "outperform" and estimates Aramchol's sales could reach $1 billion annually, said investors are realizing that Phase III NASH trials will likely be expensive.
He believes Galmed will need to tap capital markets to raise money, potentially in 2017 when it has results from a separate study of Aramchol in HIV patients who suffer from liver disease due to their medications.
Baharaff said Galmed's Phase II study is fully financed from its initial public offering. It has signed a licensing agreement with Samil Pharmaceutical Co for Aramchol in South Korea.
"Our strategy is to have more of these deals," he said.
(Editing by Susan Thomas)