Actelion’s independence pursuit strained to reap same R&D rewards of last two decades in PAH – analysis

07 Dec 2016

• PAH portfolio an undeniable value driver with Opsumit and Uptravi
• Phase III C-Diff and MS drugs face market penetration hurdles
• Phase II pipeline lacks clinical evidence to back up differentiation

Actelion's (VTX:ATLN) independence quest may be to the demise of its current inflated valuation, as its pipeline lacks an obvious next blockbuster, industry sources said. Actelion has built itself over the last two decades with R&D and sales driven by its strengths in pulmonary arterial hypertension (PAH) and its next non-PAH pursuits will most likely make small strides in comparison, they added.

On 25 November, Actelion confirmed an approach by Johnson & Johnson (NYSE:JNJ) for a potential transaction. Media reports have cited offers reaching above CHF 250/share for a potential deal worth more than USD 27bn. This would be a 69% premium on Actelion's USD 16bn valuation pre-offer. Yet, Actelion is reportedly holding tight and instead trying to negotiate a more bespoke deal - potentially selling a unit -- which would allow the Swiss biotech company to stay independent with its remaining assets.

Yet, industry sources familiar with Actelion's pipeline noted such a split would not work for Actelion's valuation, considering the PAH franchise - for which it is the market leader -- makes up most of its value. In 2015, Actelion made CHF 2.042bn in sales, and CHF 1.916bn was from four PAH products (of a total six), making up 94% of its revenues. Historical sales have been bolstered by its original PAH blockbuster Tracleer (bosentan) -- approved in 2001 -- peaking at CHF 1.56bn in 2013.

With Tracleer losing its patent in 2015, Actelion successfully developed next-generation drug Opsumit (macitentan) and recently launched Uptravi (selexipag). Both have made strong PAH market launches, according to two PAH physicians. Opsumit and Uptravi are each expected to generate around USD 1.5bn in peak sales by 2020.

While, Opsumit will soon face generic pressure, it has already established itself in the clinic and still could build its market reach with label extensions, noted the first physician and a sector advisor. However, physicians are more excited about Uptravi, a potent and targeted prostacyclin -- making a strong CHF160m since its January 2016 launch -- which is expected to see future increased uptake in potential expanded/earlier treatment settings, the first and a second physician said.

Without these two key drugs, there is nothing a potential buyer would desire in the rest of the pipeline, the advisor said. Actelion's pipeline has yet to reveal a "game changer," agreed an industry consultant and a second sector advisor, who also questioned J&J's attraction to anything other than its PAH revenue stream. Other PAH products include injectable and inhaled prostacyclins Veletri (eproprostenol) and Ventavis (iloprost).

Actelion made great strides in PAH over 15 years and has developed physician-brand loyalty, which will be difficult to replicate no matter how committed CEO Jean-Paul Clozel is to broad innovation, agreed the second physician familiar with company management. PAH will continue to drive Actelion's value, he said, noting Clozel - as a trained cardiologist -- moving away from his expertise doesn't draw confidence on building a non-cardiology focused pipeline.

Clozel strengths lie in science -- as opposed to allocating cash and M&A deals -- which has seen Actelion walk away from good deals, said the second sector advisor. An acquirer could do a full takeover and then carve out and spin-off early stage assets, putting Clozel in charge of that pipeline, he added. A separate deal or acquiring the PAH unit would not make sense considering the US 27bn takeover valuation, the second sector advisor said.

Lack luster views on Phase III non-PAH assets

Actelion's current Phase III drugs outside PAH such as cadazolid for Clostridium difficile-associated diarrhea (CDAD) are questionable and overhyped, said the first sector advisor and consultant. Physicians have previously told BioPharm Insight that larger Phase III trials may struggle to show impressive efficacy despite a solid mechanism. On the other hand, Merck's (NYSE:MRK) already approved competitor Dificid (fidaxomicin) and generic vancomycin will also put competitive pressure on cadazolid, BPI has reported. While a fair battle with Dificid is expected, the consultant said the market is small. Dificid brought in USD 93m in 2015 sales, while cadazolid is only predicted by analysts to peak at USD 210m if approved. An Actelion spokesperson declined to comment on cadazolid's outlook before Phase III results in 1H17, but said a "huge" market would be a misguidance.

Another Phase III contender is oral multiple sclerosis (MS) drug ponesimod, but with Phase III data due in 2019, it will be fourth or fifth in the oral MS race behind drugs from Biogen (NASDAQ:BIIB), Novartis (VTX:NOVN) Sanofi (EPA:SAN) and Celgene (NASDAQ:CELG), the industry consultant said. Novartis' Gilenya (fingolimod) has a similar mechanism to ponesimod and unless Actelion gets lucky with superior Phase III trial efficacy or safety - which is a long shot - market penetration will be tough, he said. Neurologists previously told BioPharm Insight that ponesimod's market opportunity hinges on its safety vs its competitors, however, concerns of cardiovascular toxicities still linger, and physicians remain lack luster on it competitive profile until Phase III results are released.

While competition is fierce, the consultant said MS is a big enough market - expected to exceed USD 20bn in sales by 2020 - so any small slice of that pie is worth pursuing. Biogen's blockbuster Tecfidera (dimethyl fumarate) made USD 3.63bn in 2015, Gilenya made USD 2.8bn, while Sanofi's Aubagio (teriflunomide) made USD 984m in 2015. Celgene's ozanimod - in the same class as ponesimod - is ahead in Phase III trials and targeting a 2018 approval. As a late bloomer, analysts predict USD 200-USD 450m in peak sales. Rapidly reversible action, and also combination studies with Tecfidera are seen as value drivers for ponesimod in the MS landscape, the spokersperson said.

No silent Phase II game changers

While Phase III reveals no blockbusters, any Phase II candidate is unlikely to heavily influence potential buyer considerations. It would be a big risk for Clozel to hold off on a USD 27bn deal for any early asset, the consultant said. Yet still, Phase II candidates fail to reveal any hidden gems or billion-dollar sales potential, the second advisor and industry consultant agreed.

Actelion has highlighted Phase II dual orexin receptor antagonist (DORA) for insomnia with Phase II data due in 2H17. Yet BioPharm Insight data shows the insomnia market as crowded, with leading drugs like Astellas' (TYO:4503) Ambien (zolpidem) - DORA's comparator -- making USD 171m in 2015, whilst Merck's Belsomra (suvorexant) -- another drug of the same class -- made USD 93m in 2015. The spokesperson said DORA aims to tackle insomnia without the traditional "hangover" effects, and Actelion classes its rapid onset of action and short half-life as differentiators, yet the consultant said there is no clinical evidence that a short term DORA inhibition will be more safe and effective.

Phase II lupus drug cenerimod will be difficult to leverage given the efficacy/safety struggles GlaxoSmithKline's (LON:GSK) faced after its 2011 "breakthrough" approval of Benlysta (belimumab). Original peak sales forecasts of USD 1.7bn have since been revised and the drug only made USD 304m in global sales in 2015. Given this benchmark, at best, cenerimod might be able to command USD 100m-USD 200m, the consultant said.

Acetlion has a market cap of CHF 22.3bn (USD 22.1bn).