Actelion near-term bid would risk low premium
A takeover of Swiss biopharmaceutical firm Actelion [VTX:ATLN] based on its current share price risks receiving a premium below the sector average, said one of the top 10 shareholders.
A potential bidder could argue that a takeover premium has already been priced into Actelion’s share price, which has risen to a five-year high, the shareholder said. “The fear is that the takeover premium would be smaller than usual for a biotech company,” he said.
The average premium for biotech deals since 2006 is 35.1%, according to Dealreporter analytics. Actelion is currently trading at a EV/TTM EBITDA multiple of 21.2x. Applying the average 35.1% premium to Actelion, gives it an EV/TTM EBITDA of 29.1x. The average EV/TTM EBITDA multiple for US biotech companies is currently around 24x.
Actelion’s share price shot up after it announced positive results from its Phase III GRIPHON trial for Selexipag, its orally administered treatment for pulmonary arterial hypertension (PAH). This led to speculation that Actelion would become a more attractive tax inversion target. Its Q1 2014 effective tax rate was 12%, though that is expected to rise to 14% to 15%, said a person familiar with the company.
Actelion’s shares were trading at CHF 112.5 on 1 July, 23% above the closing price on 16 June, the last trading day prior to the announcement of Selexipag’s trial results.
In the medium term, Actelion’s share price could go above the CHF 100-130 range if there is more positive pipeline news, the shareholder speculated.
But, even as an inversion target, Actelion would not necessarily be an easy sell. It’s CHF 13.49bn (USD 15.16bn) market capitalization makes it too small for many US companies which have to fulfill an 80/20 US versus foreign company stock split in order to invert, said a sector banker. Gilead [NASDAQ:GILD], for example, has a market cap of USD 127.3bn.
Meanwhile, there may not be the strategic impetus for other potential US biotech bidders to do the deal. Amgen [NASDAQ:AMGN] already had a low effective tax rate of 3.5% in 2013, and would not need an inversion, said a source familiar with Amgen. Biogen Idec [NASDAQ:BIIB] has a broader drug development remit, while Celgene [NASDAQ:CELG] is not active in pulmonary hypertension, according to Olav Zilian, analyst at Helvea.
Also, Bayer [ETR:BAYN], previously tipped as a logical European bidder for Actelion, may not be interested in Actelion after the modest launch of Bayer's new PAH drug Adempas (riociguat), claimed a drug consultant.
Another complication in a takeover of Actelion is that any offer will likely have to be hostile, which increases interloper risk, said the source familiar with Amgen. Shortly after the selexipag results, CEO Jean-Claude Clozel reiterated his belief that Actelion should remain independent. The company also stated its desire to grow through acquisitions in PAH during its 16 June selexipag results conference call.
Actelion’s drug development went through a series of pipeline failures in 2011, culminating in Elliott Advisors taking a stake in the company but ultimately failing to push through plans for an audit, nominating alternative directors and lifting a cap on board directors. Management has learned a “tough lesson” and focused the business on its core area of PAH, earning back trust from its shareholders “to a certain degree,” said the shareholder.
Management will need to deliver on its pipeline both internally and externally in order to sustain that trust, said the shareholder.
Actelion has a phase IV study of Tracleer (bosentan) for pediatric PAH due to release results in 2H14. It is also assessing Opsumit (macitentan) for Eisenmenger's syndrome, and cadazolid for Clostridium difficile diarrhea in Phase III trials, with the former due to release results in 2016.
Actelion has the potential to grow from its current market capitalization to be of a size equal to mid-cap biotech peers such as Alexion [NASDAQ:ALXN], Regeneron [NASDAQ:REGN] and Vertex [NASDAQ:VRTX], according to the shareholder.
BlackRock is the top shareholder in Actelion with 5.64%. The management, which includes CEO Jean-Claude Clozel, also has a stake of more than 5%.
Actelion declined to comment.