Actelion Re-Awakens Research On Sleep Medicine

| About: Actelion Ltd. (ALIOY)

A reasonable person might wonder why Actelion (OTCPK:ALIOY) decided to try again with a sleeping pill from the same class as its failed almorexant. After all, the Swiss group owns pulmonary arterial hypertension, with the two top-selling products, and thanks to shrewd life-cycle management its grip should tighten in the next six years.

With a valuation that puts it out of the reach of all but the most daring buyers, and a pipeline that has yet to excite analysts, Actelion is in some need of a strategic boost. It is debatable whether insomnia is the right direction, as generics have eroded sales in the space and more potent novel agents are subject to strict safety scrutiny.

Discerning view

If any company knows what a disappointing sleep medicine drug looks like, it is Actelion. The company scrapped almorexant in 2011 after phase III over a safety issue that it still has not fully disclosed – a Credit Suisse analyst described it at the time as a “compound-specific tolerability issue” – and this new agent is from the same class, a dual orexin receptor antagonist.

As with the group’s reticence to talk about the almorexant safety issue – in a presentation today, executives said they had licensed the compound to Midnight Pharma, and that all questions should be directed there – the group has not named the new compound. Actelion did sponsor a dose escalation trial of a candidate called ACT-462206, with almorexant used as a comparative agent. However, executives said ‘206’s development has ended.

In today's presentation, Actelion executives talked up phase I data from the new project, which they said shows it to combine a fast onset of action with a duration that leaves few residual next-day effects. The group’s phase II plan features a multi-dose trial in 300 adults, with a placebo arm and an Ambien active-reference arm, and a 50-patient trial in the elderly.

The only orexin receptor antagonist to make it to market so far is Merck & Co’s Belsomra, which achieved FDA approval only at the lowest doses tested in part because of data on next-day effects and driving performance (Safety trumps efficacy as FDA approves novel sleeping pill, August 14, 2014). Indeed, the label has multiple warnings about next-day somnolence, sleep driving and other activities while out of bed and not fully awake, and depression and suicidal thinking.

Similar issues have bedeviled other sleep medicine projects, with Silenor and Intermezzo having both gotten FDA approval only after multiple application cycles. Belsomra achieved approval on the first time of asking but only at sub-optimal doses, and there is no doubt that Actelion will need to conduct exhaustive research on the next-day effects to avoid label warnings.

Look at our pipeline

Announcing a phase II trial of a sleeping pill is not necessarily the sort of thing that thrills traders – shares rose 1% today – but there is no doubt that Actelion is looking to brush up its image among investors. In addition to the new sleeping pill, executives discussed upcoming data from ponesimod and cadazolid, and said there would be more presentations on the R&D pipeline.

The question that must be asked is: to what end? Actelion’s $19bn market cap is more than double the net present value of its commercialized and R&D products, and at the current valuation – it has been hardly damaged by the market turmoil of the past year – there are very few buyers with the firepower to carry it out. It remains a perennial candidate for a takeout, and yet many opportunities to buy at a lower valuation have passed.

Its most recent attempt at M&A came up dry – and in any case, it ought to be thankful it did – and as long as biotech valuations remain stretched it is still difficult to find good value for money (Astra’s reckless $2.7bn deal hits the regulatory buffers, May 27, 2016).

A simple explanation is this: Actelion may be one of those uncommon companies that says it believes in itself as a standalone entity and actually means it, and now is engaging in a charm offensive to animate investors. However, putting a successor to a failed insomnia project front and center in the campaign seems a very unusual start.

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