When Jean-Paul Clozel started Actelion Pharmaceuticals in a friend’s cellar in Allschwil, Switzerland over 12 years ago, he set out to create a “real company.” Clozel, who had cut his teeth at F Hoffman-La Roche, wanted to create a full-service operation that would discover drugs, develop them, and put them on the market. According to Institutional Investor’s 2011 All-Europe Executive Team awards -- Actelion was the second most honored company overall, and Clozel was named first amongst chief executives in the biotechnology sector -- he has certainly succeeded.
Actelion’s net income for 2010 rose by 25 percent to CHF 390.6 million; net revenues were up 13 percent to CHF 1.9 million; and product sales were up 12 percent to CHF 1.8 million, all in local currencies. Even more striking, the company had cash and cash equivalents valued at CHF 1.4 billion at the end of last year. As a result of these strong figures, the Board of Directors is planning to ask shareholder approval for the company’s first annual dividend payment, at CHF 0.8 per-share.
Clozel calls the 2010 growth “very significant,” particularly in light of an increasingly strong Swiss franc and a relatively weak US dollar. But Clozel, who has dreams of creating a European version of Genentech, also says that Actelion is in a transition phase. “We need to wait for the results of some key products,” he explains. “And,” he adds, “we have to look for shareholders who are going to go along with us, who are willing to build with us in a sustainable way.”
Actelion has ten possible drugs in clinical development at the moment and, according to Clozel, there will be 15 in the clinical stage by the end of this year. “The research organization [of Actelion] is discovering up to four-to-five products per-year sometimes,” Clozel says. He adds, “The organization is so productive and efficient.”
For Clozel, Actelion’s productivity is a function of a management structure that separates the business and the research arms of the operation. The business end is comprised of a sales and marketing team that chooses which drugs to put on the market. And while Clozel says the business side is “a very autonomous structure,” the research side is “also quite independent, and not obliged to justify every product to marketing.” The business and research divisions work together only when a product is close to being launched on the market.
By divorcing the research component from most business constraints, Clozel gives his scientists the freedom to experiment, and take risks. “This is an innovation business, so there is always more risk, but also more rewards,” Clozel says. “If you want to be innovative, you have to fail,” he adds. This is a philosophy that is reflected in how the company rewards its scientists. Incentives are not based on how successful a research project is, but rather based on the design, transparency and execution of the research, rather than the outcome.
Clozel, a former practicing cardiologist with training in pharmacology and physiology, understands that pharmaceutical research is a multi-disciplinary industry. As a result, the research wing is run by three co-heads, each specializing in one of the relevant scientific fields: chemistry, molecular biology, and pharmacology. “They all have to agree to drive a drug discovery,” Clozel says.
Clozel’s strong focus on independent -- and, often, risk-prone -- research, unencumbered by sales and marketing demands, is evidence that he is more concerned with creating long-term growth based on innovation, rather than short-term profits. “What’s on the balance sheet is not as important as a culture of innovation, and being able to bring something to patients which then creates value for everyone,” Clozel says.
But he acknowledges that not all of Actelion’s investors agree with this approach. “The market and shareholders don’t always understand this, but its the only way for our company,” Clozel insists.
Indeed, the chief executive’s remarks come amidst a concerted campaign by the hedge fund Elliott Advisers -- an Actelion shareholder with close to a 6 percent stake -- to restructure the company’s board and put it up for sale. Elliott Advisers has been critical of drug development setbacks over the past year, and argued that the company would be more profitable if sold. The hedge fund has called for the resignation of Clozel and Chairman Rob Cawthorn from the Board of Directors, claiming they are hindering potential bidders.
Meanwhile, Clozel and Cawthorn, who have argued that a standalone strategy will create more profit in the long-term, were boosted last week by the backing of one of Actelion’s largest independent shareholders, Swiss investor Rudolf Maag.
The issue will likely not be resolved ahead of the the annual shareholders’ meeting on May 5, but Clozel appears confident that Actelion can withstand the onslaught of activist investors.
“A part of the financial world will always try to make a short-term profit at any price,” Clozel says. “But, to push us to be acquired...does not make any sense, and goes against the culture of the this company.”
