Actelion Dismisses Big Pharma Threat

Big drugmakers are trying to muscle in on smaller rival Actelion's market in treating a rare heart and lung disease, but they are not finding it that easy.

Analysts have long flagged Actelion's dependence on its billion-dollar seller Tracleer – for treating pulmonary arterial hypertension (PAH) – as a weak point. However, potential competitors are failing to gather a head of steam.

Novartis showed the perils facing those who fancy a piece of the PAH cake. The company reported that while its cancer drug Glivec had the potential to treat the disease, it had missed its main goal in a mid-stage clinical trial.

"It does expose Actelion to the fact that at the moment it is a one-trick pony," says Andrew Weiss, analyst at Swiss bank Vontobel.

"But right now Tracleer seems to be the only one on the market that is working. There is a long history of successful treatments with it and it is prolonging the lifespan of those patients that are treated with it."

Current treatments aim to control PAH, high blood pressure in the vessels connecting the lungs to the heart that can lead to heart failure and death, for which there is no known cure.

Actelion is Europe's biggest biotech company and was promoted to the Swiss blue chip index in September. It was only listed on the Zurich stock exchange in 2000 and won approval for Tracleer in the US a year later.

It has two other drugs on the market, each with sales of less than CHF100m ($88.73m) last year, and a clutch of medicines in late-stage trials.

Growing threats

The dependence on Tracleer means Actelion is at a discount to many of its biotechnology peers, despite its impressive growth record, defensive performance during the financial crisis and a lucrative partnership deal with Europe's biggest drugmaker GlaxoSmithKline.

Actelion trades at about 16 times forecast 2009 earnings and is cheaper than other European biotechs like Belgian UCB and Austria's Intercell.

Most analysts rate Actelion at "hold", but some see upside potential. Merrill Lynch, for example, recently upgraded the stock to "buy", citing stable cash flows and potential positive earnings surprises as reasons it could be an attractive investment in tough markets. Its shares are almost flat so far this year in extremely tough markets, performing much better than the traditionally defensive pharmaceutical stocks of its Swiss neighbours Novartis and Roche despite the Tracleer worries, and its pipeline makes it an attractive takeover target.

"For us it was always astonishing that no one ventured that step because of the value of the company and the potential that we see in this therapy area," says Daniel Koller, a fund manager at BB Biotech, which according to Thomson Reuters data owns more than 7% of Actelion.

"We basically believe that Actelion could be an attractive takeover target thanks to its valuation, the prospects for the business and for its pipeline."

Competition still disappoints

The top concern for Actelion has been a drug from Gilead Science and Glaxo called Letairis or Volibris, but the launch has so far proved underwhelming.

That prompted Piper Jaffray this month to revise its Tracleer forecasts up by 3.6% for 2008 and 7.2% for 2009. It has cited stronger growth outside the US and Actelion's impressive pricing power, even though expansion of the US market may be moderating.

Actelion also took a short-term hit in February when the world's biggest drugmaker Pfizer took aim at the PAH market and snapped up Encysive Pharmaceuticals, whose Thelin drug has repeatedly failed to win US approval.

While Actelion stock fell at the time on concerns that Pfizer's financial muscle could have a greater impact on the PAH market, it soon bounced back. Bayer and United Therapeutics also both have PAH drugs in development, though neither is yet approved.

Actelion's chief executive Jean-Paul Clozel, meanwhile, believes approval of Tracleer in a new indication to treat a fatal lung disease could double its sales. It raked in just over $1bn in 2007.

"Any worst case scenario of a rapid cannibalisation of Tracleer sales now looks unlikely," says Piper Jaffray analyst Richard Parkes, who upped 2009 sales and earnings per share estimates for Actelion by 8%.