Actelion's top dollar deal leaves doubts, and little on the horizon

Actelion was probably hoping for a slightly more effusive reaction to its heavily trailed SFr3.3bn ($3.2bn) deal with GlaxoSmithKline for insomnia drug almorexant announced today, rather than the meagre 4% advance its share price notched up.

Despite the deal delivering exactly what the company was looking for, in terms of a primary care specialist partner, profits and cost sharing, and help setting up a GP-focused sales force, the market was clearly unimpressed. An upfront fee of just SFr150m was probably the first disappointment, considering almorexant is a phase III product addressing a huge market, and at the end of the day, the terms of the deal highlighted the risky nature of the product.

If Glaxo, and the other top pharmaceutical companies which Actelion said were interested, really thought almorexant had a good chance of becoming a blockbuster, would it really have agreed to give away 50% of future profits? The back-ended and opaque terms of the deal also raised suspicions that the remaining billions of “biodollars”, particularly the SFr2.74bn that relate to two further indications that will be investigated, might be mainly sales milestones.

That would mean unless the drug is a stellar success, Glaxo will not be spending too much money.

Another reason for the muted reaction is likely to be the lack of catalysts on the horizon. Now this key event has occurred, attention will turn back to struggling Tracleer and Ventavis, Actelion’s two marketed products. The next pivotal moment for the company will now not be until the end of 2009 when phase III data on almorexant becomes available, giving investors few reasons to hang around in the meantime.

First-in-class

Although it is risky, Almorexant is a novel, and potentially first-in-class treatment for insomnia. Phase II data was compelling, but in less than 200 patients, and the safety of the drug is still far from rigorously evaluated. A safety profile not far off placebo is likely to be required to get through regulators, and a number of promising CNS drugs have been derailed recently on safety concerns, the fate of Sanofi-Aventis’s Acomplia in the US being a significant example.

As well as safety, to compete in a field that is being flooded with cheap generic versions of Sanofi-Aventis’s Ambien, serious efficacy advantages must be displayed. Since the genericisation of Ambien in 2006, newer drugs belonging to the GABA agonist family have failed to make significant inroads, despite the huge amount of money Sepracor has spent on its first-to-market pill, Lunesta.

However, almorexant is an orexin receptor antagonist, which works in a completely different way to the GABA agonists, which shut down the brain completely. Orexins are neuropeptides produced in the brain, and which play an important role in maintaining wakefulness and regulating the sleep-wake-cycle. Thus almorexant offers the prospect of interfering in the sleep process more subtly, and stimulating more restful sleep.

Crucial data

Actelion has a series of phase III trials planned for almorexant, the first of which is called Restora I and will report at the end of 2009. It has four arms, comparing two strengths of the drug versus placebo and versus a GABA agonist.

If completed without a hitch the results will give the first indication of how big the drug might be, and how much of the SFr415m in milestones payable for the insomnia indication Actelion is likely to receive.

At the same time, news of the two further indications that the drug will be tested in, will be keenly awaited. Likely uses include insomnia related to depression and Alzheimer’s, and maybe obesity.

However, almorexant is going to have to produce staggeringly good data to hope to make significant inroads into the insomnia market, and Glaxo knows that. It might have promised $3.2bn, but the drug will have to become a mega-blockbuster before Actelion sees that much money.

Of course, if it does turn out that way, Actelion will be applauded for its foresight and negotiating skills. But events must continue to go well for Actelion and almorexant for the share price to truly reflect the value of this deal. To receive top dollar, Actelion has to deliver a top dollar product, and that is still far from certain.

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