Talks between Actelion and Sanofi are making progress, despite investors' anxiety as to whether the Swiss biotech firm's chief executive really wants a deal, a person with direct knowledge of situation said on Tuesday.
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The source said Actelion had now reached a point where the company needed to sign a deal and it could not call off negotiations with the French drugmaker without triggering an investor rebellion demanding the overthrow of its board.
Actelion's share price has fallen more than 7 percent in the last two days as a hoped-for takeover valuing the Swiss biotech firm at up to $30 billion has failed to emerge, frustrating hedge funds that have bought heavily into the stock.
"You can count us in to the growing camp of hedge fund discontent about this process," said Michael Wegener, managing partner at Hong Kong-based Case Equity Partners. "What is it that's wrong?"
The silence in recent days has unnerved investors who had been looking for a deal before the Christmas break, but the source said it would be "neither impossible nor unusual" to see a big transaction coming between Christmas and New Year's Eve.
U.S. healthcare group Johnson & Johnson abandoned its efforts to buy Actelion last week and people familiar with the situation said Sanofi had stepped in with proposals for an offer that would include cash and a so-called contingent value right (CVR).
The CVR - similar to one that Sanofi provided when it bought U.S. rare diseases firm Genzyme for $20 billion in 2011 - would pay out if certain Actelion drugs live up to commercial expectations.
Investors said any offer where the CVR represented more than 20 percent of the overall value of the deal would not go down well with shareholders.
Sanofi and Actelion declined to comment.
After being trumped in August by Pfizer's $14 billion bid for U.S. cancer drug company Medivation, Sanofi remains hungry for deals to broaden its drug line-up as its key diabetes business comes under pressure.
Actelion's drugs for treating pulmonary arterial hypertension, a life-threatening form of high blood pressure in arteries connecting the heart and lungs, would dovetail with its Genzyme rare diseases unit, analysts believe.
The Swiss group was founded by its CEO Jean-Paul Clozel in 1997 and his long-term desire to retain independence has stalled takeover attempts in the past.
(Writing by Ben Hirschler; Editing by Greg Mahlich)