Sanofi to dangle $2bn pipeline prize to woo Actelion

Bloomberg

Actelion Ltd. Chief Executive Officer
Jean-Paul Clozel is known for his faith in the Swiss drugmaker’s experimental
medicines, an optimism that may have helped scuttle a deal with Johnson & Johnson. New suitor Sanofi has the perfect negotiating tool.
The French company’s takeover offer may include a contingent value right, or CVR, worth about $20 of the $275 price per Actelion share under negotiation, said two people familiar with the discussions. The financial tool, little-known in the pharma industry before Sanofi used it almost six years ago in the $20.1 billion acquisition of Genzyme Corp., lets an acquirer agree to a base price plus an additional amount only if experimental medicines work out.
Sanofi’s history with Genzyme suggests Actelion shareholders are unlikely to get the full dollar value of a CVR, even if the drugs are approved.
However, the mechanism would play to Clozel’s belief in the unproven drug candidates for multiple sclerosis, insomnia and cardiovascular disorders, in effect making the difference between Sanofi’s bid and J&J’s contingent on the company living up to its potential.
“I’ve never met a biotech CEO who doesn’t believe that his or her share price is worth more than what’s on the screen,” said Daniel Mahony, who helps oversee about 1 billion pounds of health-care assets at Polar Capital LLP, including shares of Sanofi and Actelion. “Whatever you bid, it’s never enough.”

ONE PILL
A spokesman for Actelion of Allschwil, Switzerland, declined to comment on any possible discussions with Sanofi. One for Paris-based Sanofi also wouldn’t comment. The CVR under discussion would be linked to products Actelion has in advanced testing, said the people, who asked not to be identified because the talks are private.
There’s no guarantee a deal will be reached and necould still fall apart.
Negotiations are focused on the structure of a CVR, and which drugs it would include, people with knowledge of the matter said last week.
Actelion’s ponesimod, an experimental multiple sclerosis pill, is among drug candidates that may be on the table for inclusion, they said.
Clozel’s optimism about the medicine shows why Sanofi might want to link the company’s purchase price to its future performance.
He argued in a November interview that the drug, combined with another, could “solve the issue of multiple sclerosis” by eliminating relapses. He also described Actelion’s insomnia medicine as “the best sleep drug on Earth.”
MONEY NOW
Outsiders are more skeptical. The drug works much like Novartis AG’s six-year-
old blockbuster Gilenya and may not
reach the market before the older medicine loses patent protection around the end of the decade.
It’s not without competitors, either.
Celgene Corp. is developing an experimental medicine in the same class that could be on the market sooner than Actelion’s, and Novartis is working on its own
Gilenya successor.
The Actelion drug’s one difference is its much shorter half-life, meaning the body gets rid of it swiftly, said Sibylle Bischofberger, an analyst for Zuercher Kantonalbank in Zurich. That could make it an attractive option for multiple sclerosis patients facing other diseases as well, a niche of 10 percent of the market at most, she said. For Genzyme, Sanofi agreed to a CVR of as much as $14 per share. None of the six milestones had been met as of a 2015 financial filing. In 2012, the company offered to buy back as much as 30 percent of the securities, which traded separately, for $1.50 to $1.75 each.
The CVR traded at about 40 cents in New York on Monday.
“If I were a shareholder of Actelion I’d want as much money as possible now,” said Bischofberger, who rates the stock the equivalent of neutral. A CVR, she said, is “like playing the lottery.”