Active Biotech climbs the ranks as expectations surge

Analysis

The remarkable surge in Active Biotech’s share price over the last couple of weeks has bestowed upon the Swedish company a somewhat surprising title, that of Scandinavia’s most valuable biotechnology company, a ranking it has claimed with a healthy market cap of SKr5.78bn, equivalent to about $800m (see table).

Highly encouraging data from a phase II prostate cancer candidate prompted the meteoric rise and lifted hopes of a substantial licensing deal; bountiful transactions secured by Norwegian neighbours Algeta and Clavis Pharma this year have no doubt helped to focus investors’ attention on promising candidates and top dollar deals emerging from this region. Still, considering Active’s share price has more than tripled this year, bringing a market value greater than better known names like Genmab and ALK-Abello, the company will start 2010 with the weight of great expectation on its shoulders.

Talks trigger

Data released early last week from a product called TASQ was certainly encouraging. A first analysis from a phase II trial, conducted in more than 200 patients with asymptomatic, castrate resistant, metastatic prostate cancer revealed that the primary endpoint, to show a difference in the number of patients with disease progression at six months, was reached.

In the TASQ arm 43% of patients showed disease progression, compared with 67% in the placebo group, and median progression free survival was 24.7 weeks compared with 12.9 weeks. The drug was also generally well tolerated.

Analysts believe these results compare very favourably with other novel prostate cancer treatments approaching the market, in particular Dendreon’s Provenge, and as Active’s strategy is to find a partner hopes are now high for a lucrative deal. The company is already on the search and these results could well provide the trigger for talks to get serious.

Cash call

Although Active has no plans to market the drug itself, except possibly within its home of Scandinavian or Baltic markets, the company has also made it clear that it will push on with phase III trials itself if a suitable deal cannot be struck in a timely manner.

Gustaf Vahlne, an analyst at SEB Enskilda, believes Active has enough cash to last until the middle 2010, and is expecting a share sale next year.

“They will not halt development to wait for a partner. They have really strong shareholders who will support them. The major shareholder holds 30% of the company, he has always made sure they’ve had money,” he says.

The shareholder in question is the company’s chairman, the billionaire businessman, Mats Arnhög, founder of MGA Holding. Another Swedish investment firm, Nordstjernan AB, controls a further 15% of the company, so it certainly appears that should cash be required to tide Active over until a deal can be signed, the funds will be made available.

Weighty expectations

So even with an equity sale on the horizon investors have shown no reluctance to jump on board the Active story. Shares in the company were trading at SKr91.50 today, up from SKr68 prior to the TASQ data, and SKr27 at the start of the year.

Another reason for this, according to Mr Vahlne, could be growing expectations that Teva Pharmaceutical Industries will chose to launch a takeover bid. This speculation is founded on the fact that Teva owns rights to Active’s phase III oral phase III MS drug, laquinimod, a product that many commentators believe is the generics giant’s next blockbuster in this space, after Copaxone. Because the same quinoline technology was used to create TASQ, the theory goes that Teva will chose to take it all in house rather than letting other players get access to this valuable know how.

However, these rumours have circled Active ever since the Teva deal was struck in 2004. The Israeli firm is certainly not averse to acquisitions, but considering the stratospheric rise of Active’s share price this would certainly be a relatively expensive time to get its cheque book out. Moving into branded cancer drugs would be quite a strategic leap, but it is something that Teva has fairly recently expressed an interest in (Teva's acquisition ambitions will continue to stoke speculation, August 27, 2009).

Data from two, large ongoing pivotal trials of laquinimod are not due until 2011, and in the meantime Teva will no doubt be keeping a close eye on other, late stage oral MS pills, to see how the competitive landscape develops (Merck’s second stumble causes targets to fall, December 1, 2009).

If laquinimod begins to emerge as a potential market leader, the huge opportunity would certainly warrant a takeout of Active, even at today’s lofty price. However, there appears no immediate need for Teva to swoop. Which means a deal over TASQ is the event investors should be most keenly anticipating next year.

Top 10 Scandinavian drug makers
Rank Company Market cap ($m) Latest share price (local currency Share price growth YTD 2008 Pharma sales $m
 1  Novo Nordisk (DKr)  34,743  340.50  14%  8,978
 2  Lundbeck (DKr)  3,709  95.00  (14%)  1,699
 3  Orion (€)  3,080  14.75  23%  618
 4  Meda (SKr)  2,845  65.50  26%  1,586
 5  Pronova BioPharma (NOK)  847  15.90  (31%)  2
 6  Active Biotech (SKr)  831  90.25  191%  -
 7  Genmab (DKr)  776  86.75  (57%)  -
 8  ALK-Abelló (DKr)  742  405.00  (20%)  352
 9  Q-Med (SKr)  700  49.00  101%  192
 10  Algeta (NOK)  474  68.00  761%  -

Source: EvaluatePharma

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