Health

Chris Hughes is a Bloomberg Gadfly columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.

Few managers can claim to have been vindicated in the face of external pessimism as often as the team at Actelion Ltd. That will be the biggest obstacle to Johnson & Johnson's attempt to buy the Swiss drugmaker for something north of $17 billion.

History matters here.

Actelion was conceived in 1996 when employees at Roche decided to go it alone with a pioneering blood pressure treatment the Swiss pharma giant didn't want to take further. The science suffered early setbacks both at Actelion and peers. Success came in 2001 with Tracleer, a treatment for pulmonary hypertension that launched just after Actelion's IPO in 2000. The drug propelled nearly a decade of share price growth.

Bull Run
Actelion's shares have surged since late 2011
Source: Bloomberg

In 2011, activist hedge fund Elliott tried to force a sale of the company, arguing that Actelion didn't have the R&D skills to replace Tracleer sales after its patent expired in 2015. Actelion saw off Elliott and was vindicated with lab triumphs of two successor treatments, Opsumit and Uptravi.

Worthy Successors
Actelion has lessened its dependence on sales of Tracleer with Opsumit
Source: Bloomberg
2016 figures are estimates

Small wonder, then, the company repeatedly signals its strong desire to remain an independent company.

Now J&J is stepping in. The U.S. pharma giant, which has a market value of $307 billion and about $22 billion of net cash, has approached Actelion about a potential takeover, Bloomberg News reported on Nov. 24.

Brave or foolish? Things have changed in the last five years. Back then, Actelion was hard to value and betting on its R&D work was an all-or-nothing wager. Today's Actelion isn't facing an existential moment and has nothing to prove. As a result, there is little reason to believe that the recent share price wildly over- or under-values the business.

Selling at a premium to a big pharma group would, on that basis, make sense: it would crystallize the potential value of new drugs which, while successfully launched, are not without rivals and whose sales may not fully meet expectations. The risks and rewards today are arguably less than they were in 2011.

Rising Revenue
Actelion's adjusted sales are set to almost double in less than a decade
Source: Bloomberg

Actelion's three-month average share price was about 150 Swiss francs before speculation about a bid lifted the shares this week. Analysts' 12-month price targets range from 140 to 210 francs. An offer just above that, say at 220 francs, or 23.7 billion francs ($23.4 billion) would deliver a serious-looking 45 percent takeover premium and value the group at 25 times consensus earnings for 2018.

Some analysts think Actelion is worth more than that and could attract competing interest from the likes of AstraZeneca Plc. Bryan Garnier & Co. puts the takeout price at 250 francs a share. Pfizer paid 32 times 2018 earnings for Medivation in September.

The snag is Actelion's founder-managers. It's not hard to see why they may be wedded to independence.

J&J will make about $23 billion in operating profit this year. By 2020, Actelion is forecast to make $1.6 billion -- although that ignores any savings a deal would create by slashing overlapping research and development.

Any bidder looking at this will want to question whether it's really worth the probable fight.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Chris Hughes in London at chughes89@bloomberg.net

To contact the editor responsible for this story:
Edward Evans at eevans3@bloomberg.net