ALIOY - Actelion

[fareastwarriors]

From


Deutsche Bank
Markets Research 1/31/17

Uptravi patient deaths; action likely
limited to label warnings in worst case

ANSM Dear Doctor letter on Uptravi

Actelion shares are trading down on news that the French drug agency (ANSM)
has recommended in a letter to physicians that new patients should not be
initiated on Actelion's drug Uptravi (~40% of 2020E sales) pending investigation
into reports of patient deaths on initiation of therapy. The relationship between
these deaths and Uptravi is unclear. The letter is believed to have been made
prior to the confirmed offer from J&J but has only now been picked up by the
market. We believe it is most likely that J&J was aware of the warning prior to its
confirmed offer to acquire the company but we are awaiting confirmation of this.
We believe the measure is likely to be precautionary and we remind investors that
Uptravi's efficacy and safety has been proven in a large randomised Phase III trial
and ~1500 patients were initiated on drug in the US as of the end of 3Q16 with no
similar action by the FDA. Given the seeming rarity of these events, it is likely to
lead to (at worst) tightened precautions and warnings when initiating patients on
therapy. This is unlikely to materially impact the drug's commercial opportunity
or conclusion of the transaction.

Likely a precautionary measure; tightened warnings in a worst case
We believe the ANSM's action is likely to be a precautionary measure and is
unlikely to lead to any drastic action such as withdrawal of drug from the market.
Uptravi has been rigorously tested in a large randomized Phase III trial (1,156
patients) and its risk benefit proven with a 40% reduction in risk of disease
progression. Investors may recall that a small imbalance in deaths as first event
was observed in the trial that favoured placebo (4.9% deaths on Uptravi vs 3.1%
on placebo). However, no increase in all cause mortality was seen in the overall
study and a numerically lower incidence of PAH related mortality was observed
vs placebo. We believe it is most likely that the decision of the ANSM is a
precautionary measure. We believe experience of treatment in France is likely to
be modest given restricted reimbursement and thus events are rare in the broader
context of the drug's use. If (in the unlikely event) these deaths are proven to
be related to the drug, it is likely to lead to (at worst) tightened precautions and
warnings when initiating patients on drug. We would expect the ANSM's decision
to lead to a broader assessment of the risks to patients when initiating treatment
by the EMA and FDA. However, the risk this leads to more draconian measures
such as severely restricted prescribing, our withdrawal from the market is very
small in our view.

[antao]

EMA panel recommends that use of Actelion's Uptravi may continue (http://www.reuters.com/article/us-actelion-johnson-johnson-uptravi-idUSKBN15P1KU)

[writser]

Some more details have been made available: link

- Tender offer will run from March 3 to March 30 with a possible extension. At least 67% has to be tendered.
- 500m reimbursement fee if the offer isn't succesful.
- R&D Newco will be financed by 420m CHF cash from Actelion, and a credit facility plus a convertible loan of 580m CHF from JNJ.
- first tranche of convertible loan (235m) will automatically convert in a 16% stake in R&D Newco. The remaining tranche (345m) is convertible in an additional 16% stake.

So R&D Newco starts out with ~655m cash and the second tranche of convertibles imply a valuation of ~2.1b. If you value the spinoff at $750m upside is roughly 7%. Looks great but I don't think I can handicap regulatory issues / medical trials very well so I only have a small position.

[netnet]

Article in the WSJ, Friday, March 3.

https://www.wsj.com/articles/actelions-founders-start-new-biotech-with-j-js-backing-1488456001

By Denise Roland
March 2, 2017 7:00 a.m. ET
0 COMMENTS

Jean-Paul and Martine Clozel had to sell their house and work out of a rented garage when they started biotech company Actelion Ltd.

Twenty years later, after selling the Swiss company to Johnson & Johnson in an unusual, $30 billion deal, the husband-and-wife team is starting over again. They are embarking on the creation of a new global biotech competitor—armed with nearly $1 billion in capital, a deep-pocketed partner in J&J and soon, a stock listing in Zurich.

Dr. Clozel, 61 years old, is slated to walk away with about $1.5 billion for his 5% stake in Actelion. Johnson & Johnson persuaded him to sell only after agreeing to let him strip out Actelion’s early-stage research and development to form a separate company.

I haven't looked it up, but WSJ says that the couple started and ran the firm, but the husband walked away with 1.5 billion, presumably they both walked away with the money, so it's a bit sexist.

[GatorCapital]

I believe JP Morgan is the custodian bank for the ALIOY ADR.  Does anybody know if they are automatically tendering the underlying shares?

[writser]

As far as I know it is Citigroup. They told me this a few weeks ago:

No formal announcement has been made with regard to the ALIOY ADR program. Typically, any spinoff share is sold and cash proceeds are paid the ADR holders.  In the event of a tender, you may cancel your ADRs and tender your shares (at your own expense and effort) at any time.  Once the offer becomes compulsory the depositary banks typically surrender their shares, distributing the cash proceeds to the respective ADR holders subject to a 5c cancellation fee.

I haven't seen any formal announcent since. I sold my ADR's and bought common stock. Worst case Citi does not tender the underlying shares and the ADR's will be illiquid and trade at a discount after the tender offer. Then you would have to wait a few months for a squeezeout but you'll still be fine.

I bought a couple of extra shares last week. Deal looks to good to be true but what do I know.

[GatorCapital]

writser,

Thanks for the reply.  So, by continuing to hold the ADR, I may not get ADR stub shares because the depository bank would sell any spin-off shares received?  I would need to own the Swiss shares directly to receive the stub shares?

Thanks again.

[writser]

Well, no formal announcement has been made afaik. Citi could either sell the spinoff in the market or spin off an ADR to exisiting ADR holders. If you want to know for sure you'd have to contact Citi again to see if they tell you anything new.

[indirect]

Market finally giving some value to spinout. ADR above buyout price of $70

[Grox]

Anyone following recent selloff in ADRs?  As far as I know (from Citi), ADRs will receive  $70/sh  (minus 0.05 fees) plus cash in lieu of Idorsia shares.  No one (Citi, IR) been able to articulate to me, though, whether anything funky happens due to merger closing/squeeze out issues.   

You can see that the non-tendered Swiss shares have also sold off (ATLN vs ATLNEE).

If it's just a matter of (possibly) delayed timing on ADR payout, then ~6% gross spread today is attractive