Actelion’s Drug Approval Seen Enticing Buyers: Real M&A

Actelion's Tracleer
Actelion Ltd.'s lung medicine Tracleer is seen in this undated handout photograph. Source: Actelion Pharmaceuticals Ltd. via Bloomberg

Actelion Ltd. is once again shaping up as a takeover candidate after the lung-disease drug on which the company staked its future won regulatory approval.

The drugmaker, which has a market value of 8.3 billion Swiss francs ($9.3 billion), was granted U.S. approval on Oct. 18 for Opsumit, a pill to treat pulmonary arterial hypertension that may generate $1.1 billion in annual revenue by 2017, according to analysts’ estimates compiled by Bloomberg. While the company has gotten $3 billion more expensive in the last year, the drug’s clearance increases Actelion’s chances of receiving takeover interest, Bryan Garnier & Co. said.

Opsumit is the Allschwil, Switzerland-based company’s answer for continued growth after its best-selling medicine Tracleer loses patent protection in 2015. With the approval, buyers from Bayer AG to GlaxoSmithKline Plc now may be more comfortable gambling on an acquisition of Actelion, Jefferies Group LLC said. Potential buyers also will probably be watching for successful phase 3 data in mid-2014 for selexipag, another drug in its pipeline, UBS AG said.

“The risk is out and it’s going to make it more attractive and easier for the company to be valued,” said Philippe Comby, New York-based co-manager of Hottinger Capital Corp.’s $453 million Swiss Helvetia Fund, which owns Actelion shares. “It’s probably an M&A candidate for sure now.”

European Approval

A European Union advisory panel recommended approving the drug last week. The European Commission, the EU’s executive arm, usually follows the panel’s recommendation. Next, the company needs to figure out how to market the new pill and encourage doctors to prescribe it.

“As a company, we must create value at all times,” Jean-Paul Clozel, Actelion’s co-founder and chief executive officer, said in an Oct. 20 interview with Switzerland’s SonntagsZeitung newspaper. “If we are successful, as is the case with Opsumit, then Actelion continues to enjoy a bright future as a stand-alone company.”

Roland Haefeli, a spokesman for Actelion, declined to comment on whether the company has been approached by potential suitors or is considering a sale.

Tracleer Expiration

Opsumit and Tracleer -- as well as Gilead Sciences Inc.’s Letairis and Bayer’s Adempas -- treat an incurable disease in which the blood vessels in the longs become narrowed, making the heart work harder and causing elevated blood pressure.

Tracleer already has been losing market share to Gilead’s Letairis since the U.S. Food and Drug Administration allowed the Foster City, California-based company to remove a reference to the risk of liver damage from the label in 2011. When the FDA approved Actelion’s Opsumit on Oct. 18, it said the new drug also won’t have to carry that warning.

The U.S. patent for Tracleer, which accounted for 87 percent of Actelion’s $1.84 billion of revenue last year, expires in November 2015, and in Europe it could face generic competition less than two years later. The drug’s sales may tumble 70 percent to $484 million in 2017, according to the average of six analysts’ estimates compiled by Bloomberg.

Opsumit will be replacing much of the lost revenue. CEO Clozel said earlier this year that its peak sales may surpass Tracleer’s. Annual revenue from the drug may be as high as $2.2 billion by the time its patent expires in 2024, according to UBS.

Actelion’s Pipeline

“For a company with so few products and with its main product going off patent in the next three years, having this new compound in the same category approved with a good label makes it clear for any company interested in the field and acquiring some growth,” said Eric Le Berrigaud, an analyst at Bryan Garnier in Paris. Opsumit is “more a question of execution, but they have all they need to make it a success.”

The next product in Actelion’s pipeline is selexipag, which is in the third and final stage of trials usually needed for regulatory approval. Positive data from that study will increase the likelihood of Actelion receiving takeover offers, said Guillaume van Renterghem, a London-based analyst at UBS. Bayer is the most likely suitor, he said.

Bayer, which has a market value of $104 billion, already had $14.7 billion of debt and $3.2 billion of cash as of June 30. Oliver Renner, a spokesman for the Leverkusen, Germany-based company, declined to comment on speculation regarding acquisitions.

Respiratory Drug

Buying Actelion would enable Bayer to add the Swiss company’s drugs for pulmonary arterial hypterension to Adempas, its own treatment for the disease that was approved by the FDA earlier this month. Glaxo, also named as a potential buyer, already sells Gilead’s Letairis in Europe under a different brand name.

Novartis, whose headquarters in Basel, Switzerland is only 2 miles (3.2 kilometers) from Actelion’s, is building up a business in respiratory diseases such as asthma and smoker’s cough and also may be interested in acquiring its neighbor, said Bryan Garnier’s Le Berrigaud.

Eric Althoff, a spokesman for Novartis, and Simon Steel, a spokesman for Glaxo, declined to comment on whether the companies are interested in acquiring Actelion.

Actelion hasn’t been a willing seller in the past. In November 2010, Bloomberg News reported that Amgen Inc. was considering a bid for Actelion, citing people with knowledge of the matter. Clozel, Actelion’s CEO, wanted to keep the company independent, and the talks never led to a deal.

Expensive Stock

The recent gain in Actelion’s share price may deter bids, according to Michael Leuchten, a London-based analyst at Barclays Plc. The stock has risen 62 percent this year, including reinvested dividends, and is already more expensive than most of its peers based on projected revenue for the next several years, data compiled by Bloomberg show.

“I’m not quite sure why people are jumping on the M&A bandwagon now,” Leuchten said in a phone interview. “As a disciplined acquirer, I’m not sure you can make this deal work at this sort of level.”

Actelion climbed 0.4 percent to 69.40 Swiss francs in Zurich trading. The stock is the best performer on the benchmark Swiss Market Index this year.

Actelion should wait to sell until next year when the outlook for selexipag is clearer so that it can get the best price for shareholders, said Ori Hershkovitz, a partner at Sphera Funds Management. The Tel Aviv-based firm oversees about $325 million and owns Actelion shares.

Acquisition Gamble

“If I were the company, I would definitely wait until mid-2014” to sell, Hershkovitz said in a phone interview. If they hit the mark with selexipag, “then all hell breaks loose. It could be a huge company.”

Actelion may fetch about $13 billion in an acquisition if selexipag fails, and as much as $20 billion if it’s successful, he estimates. The company had an enterprise value of $8.7 billion last week.

Before Opsumit got FDA clearance, a suitor would have been gambling on both Opsumit and selexipag without the guarantee of being able to market either product, said Le Berrigaud of Bryan Garnier.

“Now Opsumit is a given,” he said. “For any acquirer, it’s good to have a given and a bet, rather than two bets.”

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