CVR could be key weapon in battle for Actelion

LONDON/ZURICH (Reuters) - The battle for Swiss biotech group Actelion (ATLN.VX) could end up mirroring the one for Genzyme GENZ.O, with the potential use of a contingent value right to bridge differences, some analysts believe.

Activist hedge fund Elliott Advisors, Actelion's biggest shareholder, wants Europe's top biotech firm to consider selling itself and has turned up the heat by proposing a new chairman and five other board members.

But the problem for any acquirer is that buying Actelion today would expose it to huge uncertainty, pending key clinical trial data on the company's new heart and lung drug macitentan due at the end of this year or early next.

Adrian Howd, an analyst at Berenberg, says a solution could be to use a contingent value right (CVR) that pays out if macitentan succeeds, similar to the CVR used for Genzyme's Lemtrada drug in its deal with Sanofi-Aventis (SASY.PA).

"Our assumptions suggest that a cash bid of 60 Swiss francs per share and 12 Swiss francs per CVR could appeal to both Actelion shareholders and an acquirer, and could potentially bridge likely valuation gaps," he wrote in a research note.

Shares in Actelion, which is being advised by Credit Suisse and Goldman Sachs, are currently trading at around 51 francs.

Howd assumes a 60 percent probability of success for macitentan in pivotal Phase III testing but believes that without some sort of contingency structure there would be "close to zero chance" of an acquisition ahead of the data.

Evolution Securities analyst Simon Conway thinks a CVR would be high on the agenda of any company eyeing Actelion, although the determination of founder Jean-Paul Clozel and the existing board to stay independent remains a big obstacle.

"A CVR is probably the way to play it," he said.

"Everybody and their mother is going to be starting to use these instruments -- but I think the biggest issue is whether Actelion is willing to play ball and I suspect the answer will still be 'no'."

Conway added that Actelion would also want to see value attributed to selexipag, another treatment for pulmonary arterial hypertension (PAH) that will yield Phase III results in 2013.

Actelion and Elliott declined to comment on Wednesday.

No large drugmaker has yet come forward to express an interest in buying Actelion, although the group has been widely tipped as a potential target for cash-rich Amgen (AMGN.O), which has declined to comment on the talk.

PERSISTENT ACTIVISTS

CVRs have become more common in healthcare deals recently. Apart from the Genzyme deal, they were employed in Forest Laboratories's (FRX.N) planned purchase of Clinical Data CLDA.O last month, Celgene's (CELG.O) acquisition of Abraxis BioScience last year and Fresenius's FREG_p.DE buy of APP Pharmaceuticals in 2008.

Helvea analyst Olav Zilian forecasts macitentan peak sales of 1.275 billion Swiss francs ($1.41 billion), of which 75-78 percent could be operating profits.

But he added peak sales could double if the Phase III data is "stunning" and undisputedly superior to Tracleer's profile, the group's top-selling drug.

"Should Actelion be willing to sell at all, they definitely better wait for this set of data," Zilian said.

Last year, Actelion chalked up sales of 1.929 billion Swiss francs, with some 85 percent of that coming from Tracleer.

"The question is whether or not Actelion tries to use this (a CVR) option to get rid of Elliott. It is a possibility. With Actelion now under this much pressure, they might want to consider whether this might be an option for them," one analyst said.

"Elliott is making more and more noise and is now out at roadshows introducing their board candidates to investors. The threat is definitely getting bigger. Even if Actelion is able to defeat Elliott at the AGM, they are stuck with this investor who will not give up," the analyst said.

Actelion is due to hold its annual general meeting (AGM) on May 5, when Elliott's board candidates will be considered.

($1=.9032 Swiss Franc)

(Editing by Jon Loades-Carter)