Event – Actelion Hoping New Data Will Build on Tracleer

January 13, 2010 Event – Actelion hoping new data will build on Tracleer

Amy Brown

Actelion is fast approaching the release of pivotal results from a trial of its biggest product, Tracleer, in a new indication, idiopathic pulmonary fibrosis (IPF). Data due this quarter could have a considerable impact on the future of the product, and the company as a whole.

Unfortunately, hopes for a successful outcome are not particularly high; some analysts are giving the trial a 50% chance of success, others even lower. These low expectations should shield the stock from substantial declines should the news be bad. However, with some predicting that a positive read out has the potential to double Actelion’s group revenue, good news will almost certainly prompt a jump in the Swiss company’s share price.

Product Name Tracleer

Company Actelion

Product NPV SFr3.78bn *

Mkt Cap SFr7.25bn *

%of Mkt Cap 53%

Event Summary Phase III data

Expected Decision Q1, 2010

Could also impact Gilead (Letairis/ambrisentan)

*as of 12/01/2010

Lung function

Tracleer, generically known as bosentan, is an oral dual endothelin receptor antagonist. Concentrations of the protein endothelin, which has potent vasoconstriction properties and is known to promote fibrosis and inflammation, are elevated in interstitial lung disease, hence the use and investigation of this drug in this area.

IPF is characterised by scarring of the lung; air sacs gradually become replaced by fibrotic tissue which irreversibly impedes their ability to transfer oxygen to the bloodstream. Nothing is yet approved to treat the condition, outside of Japan.

Tracleer is already on the market as a treatment for pulmonary arterial hypertension, a condition where the arteries connecting the lung and heart are restricted, causing damage to the organs and reducing life expectancy. It is also used as a treatment for digital ulcers resulting from scleroderma. The product currently accounts for the majority of the company’s revenues, and by 2014 will still be generating 80% of its top line. Sales are on track to reach €1.50bn ($1.39bn) this year, and the consensus forecast for 2014 currently sits at €2.18bn.

With hopes for success in IPF low, these forecasts are unlikely to include much of a contribution from sales in this use. It could potentially be a large market though; analysts at Raymond James believe that should the drug be approved in the US, Europe and Japan, sales in IPF alone could reach €1.64bn by 2015, whilst Morgan Stanley has penciled in peak sales of €1.20bn that year.

As such, the potential for big upgrades to consensus should Build-3 be positive is clear.

Glimmers of hope? The main reason for concern about the outcome of the study is that many products have tried and failed to show any efficacy in treating IPF. Over the last few years Novartis’ Gleevec, Wyeth’s Enbrel, Biogen Idec’s Avonex and MondoBiotech’s Actimmune were all tested but ultimately scrapped in this setting.

Build-3 enrolled more than 600 patients with early, biopsy-confirmed IPF. The primary endpoint is, however, fairly tough; the company is trying to demonstrate that Tracleer delays disease worsening or death in patients.

However, there are a number of reasons why some see glimmers of hope. Firstly, the trial has already passed two independent data safety monitoring board assessments for safety and futility, raising hopes that the data will at least point towards efficacy, if not establish it statistically. Plus, in 2008 Actelion increased enrolment from 390 to 600 subjects, which could possibly suggest that doctors were willing to enroll their patients in the trials, some analysts believe.

Additionally, a previous phase II trial called Build-1, whilst failing to improve walking ability, showed positive trends relating to mortality and morbidity in a subset of IPF patients with earlier stage disease. Because the patients recruited in Build-3 did not have very advanced disease, they too could prove more receptive to drug treatment.

Eagerly awaited

Still, a lot of this evidence is circumstantial, and analysts at best remain very cautious. The upside is clear though; should the trial be positive the lack of any available treatments for lung fibrosis is likely to mean off- label will ramp up very quickly, prior to any regulatory approvals.

This outcome would not only cause Actelion’s share price jump, sales and earnings could well be given a boost as early as this year. This would be very useful for the company, as the ongoing and expensive clinical programme for insomnia drug, almorexant, partnered with GlaxoSmithKline is going to drag on margins for some time.

A negative outcome, whilst not entirely unexpected, would certainly be disappointing, as it would remove a significant sales growth driver and pile pressure onto the remainder of the pipeline, which is also viewed as largely high risk.

As such, with the potential to significantly impact Actelion’s share price, sales and earnings, the results from the Build-3 study are eagerly awaited.