Investors Grow Impatient With Sanofi and Actelion Over Acquisition and Possible Contingent Value Right

Investors Grow Impatient With Sanofi and Actelion Over Acquisition and Possible Contingent Value Right December 21, 2016
By Mark Terry, BioSpace.com Breaking News Staff

Since Johnson & Johnson abandoned an acquisition of Swiss-based Actelion Pharmaceuticals , Paris-based Sanofi is moving ahead with its own deal. Despite the apparent progress, a number of investors and hedge fund managers are concerned that after buying up shares of the stock, a deal isn’t going to happen.

J&J had been in talks with Actelion since late November, but apparently walked away primarily over price. There were also concerns over the deal structure, which would have involved J&J creating a biotech company that united Actelion with relevant parts of its own pharmaceutical business. J&J would have been a major shareholder in this new entity. Many analysts were skeptical, because it would have required J&J to give up control of some of its assets. Reportedly, J&J offered about $260 per share, or more than $28 billion, but Actelion was looking for as much as $285 per share.

Now it seems clear that Sanofi is in serious talks to acquire the company. Reuters writes, “The source said Actelion had now reached a point where the company needed to sign a deal and it could not call off negotiations with the French drugmaker without triggering an investor rebellion demanding the overthrow of its board.”

But investors are getting frustrated. “You can count us in to the growing camp of hedge fund discontent about this process,” Michael Wegener, managing partner at Hong Kong-based Case Equity Partners, told Reuters. “What is it that’s wrong?”

Bloomberg reports that the negotiations may involve a contingent value right, or CVR. A CVR allows a buyer to agree to a base price with an additional amount tacked on only if specific pipeline drugs meet various milestones. In the case of Sanofi and Actelion, inside sources are saying that there’s discussions of a CVR of about $20 as part of the $275 per share currently being negotiated. In the case of Actelion, this is likely to revolve around its Phase III drugs, Cadazolid for Clostridium difficile-associated diarrhea, Macitentan for Eisenmenger syndrome, Pediatric PAH and Portopulmonary hypertension (PoPH), but probably even more for its multiple sclerosis drug, Ponesimod.

Bloomberg writes, “Clozel’s (Actelion’s chief executive officer and co-founder) 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.’”

That drug is currently in Phase II trials and is a Dual Orexin Receptor Antagonist.

A CVR is unusual, but not unprecedented. When Sanofi acquired Genzyme, it had a CVR of as much as $14 per share. Bloomberg notes that a CVR can be a gamble, though, and that as of a 2015 financial filing, Genzyme had met none of the six milestones tied to the Genzyme-Sanofi CVR.

“If I were a shareholder of Actelion I’d want as much money as possible now,” said Sibylle Bischofberger, an analyst for Zuercher Kantonalbank in Zurich, to Bloomberg. She said that a CVR is “like playing the lottery.”

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