Actelion Takeover: Constant Speculation, Doubts Linger

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by: EP Vantage

Speculation that bidders are circling has added 35% to Actelion's share price in the last six weeks, boosting the Swiss drug maker's market value to Sfr7.18bn ($7.26bn). But despite new rumours appearing almost daily, not all are convinced a straightforward takeout is imminent; growing acceptance of delayed contingent payments could be a way forward.

Belief that the company is overvalued and has hazy pipeline prospects-- which could delay any potential takeover until the second half of 2011 after trial results are released-- are causing doubts among some pharma M&A bankers. "I'm pretty sceptical about it all," said a London-based pharma M&A director. "It's a big cheque for a company with so much pipeline risk and doesn't provide a straightforward explanation to shareholders of any big pharma looking to acquire it."

Hold fire

Actelion has three new drugs in phase III trials and an option over one more, but a run of setbacks has dented confidence in the company's pipeline.

Pivotal data which will provide a more accurate picture of these compounds' value will not emerge until later next year, although a "go / no go" decision is expected on potentially the most valuable candidate, insomnia therapy almorexant, early next year. Unfortunately, hopes are not high that partner GlaxoSmithKline (NYSE:GSK) will push on with the large phase III trials still needed. Even if it does Actelion - or any acquirer - is on the hook for a hefty 60% of what will be substantial R&D costs.

"I would not advise a client to launch a bid until there is more reliable data, especially with Actelion's shares having risen so much lately," said a pharma M&A head at a large German bank.

An industry analyst agreed, saying any company looking to take over Actelion now would be "merely buying cash flows until 2015" when Tracleer's patent expires.

Actelion shares had been falling after closing at a 10-month high of Sfr56.45 last week, but bounced back up to Sfr55.20 on the latest rumour to do the rounds: that a bid of Sfr72 was being prepared, according to Reuters.

Constant speculation

No stranger to takeover speculation, the recent rumours were prompted by a report in the Wall Street Journal claiming the company had appointed a special committee of board members to review strategic options, including a potential sale (Actelion back on the M&A scene, October 8, 2010).

The talk has certainly provided a welcome boost - the stock touched a four-year low of Sfr39.37 at the end of September in the wake of pipeline setbacks - so the board was probably under pressure to take action.

Still, as speculation has swirled Actelion's founder and chief executive, Jean-Paul Clozel, has reiterated he wants the firm to remain independent. Despite these protestations, fresh reports keep emerging. Last week, Bloomberg reported that Amgen (NASDAQ:AMGN) was preparing an approach that could come within days, while the usual big pharma suspects have all been touted as potentially interested. Meanwhile, Mr Clozel has approached Roche (OTCQX:RHHBY), Johnson & Johnson (NYSE:JNJ) and Bristol-Myers Squibb (NYSE:BMY) to test their interest in taking a minority stake to protect itself from a full takeover, Bloomberg has claimed.

Still, one senior banker closely following the situation said Amgen has not submitted a bid for Actelion and that no formal auction process has been launched.

"It's all just a bit weird," he added. "I know our trading desk is doing nothing about it and other institutional investors are sitting on the sidelines, unsure of what position to take. One day is Amgen, another GSK, another Abbott and another J&J. There is too much uncertainty in the process."

Actelion would help Amgen meet its stated desire to expand internationally, the banker said. However, developing synergies between the two businesses - which are not hugely complementary - would prove a slow and difficult task, he noted.

In the last couple of days Amgen investors have vocally expressed their doubts; a report by Bloomberg quoted an Invesco fund manager, which owns a 1.4% stake in the US biotech, as saying Actelion was not a compelling move.

Finding a way

Other than Actelion's statement that it is in regular dialogue with other industry participants, nothing has actually been confirmed in this classic rumour-fuelled takeover saga. Actelion and Amgen would not comment for this article; J&J, BMS and Roche did not return messages.

There is no doubt that big pharma is throwing a lot of money at the search for growth, but not everyone is convinced that an increasingly pricey Actelion is the answer. With such pivotal data on the horizon, buying now would be risky.

The net present value of Actelion’s marketed and R&D products plus cash comes to Sfr7.17bn, according to EvaluatePharma’s NPV Analyzer, almost identical to the company’s market value. Considering the risky pipeline accounts for Sfr1.35bn of that NPV calculation, coming to any agreement over a suitable bid premium could prove challenging.

Still, earn-outs are becoming increasingly common; Genzyme (GENZ) is considering accepting future contingent payments based on the success of Campath in MS in order to push a takeover along, The Wall Street Journal reported this week.

A straightforward takeover of Actelion at this time might not make complete sense, but there are ways a deal could get done.

-- With reporting by guest contributor Ivan Castano --

Disclosure: No positions