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Actelion (ALIOF) is a step closer to acquiring privately-held Ceptaris Therapeutics as the latter’s drug Valchlor has been approved by the U.S. Food and Drug Administration (FDA), a significant precondition for the previously announced acquisition.

We note that in Jul 2013, Actelion had entered into an agreement with Ceptaris to acquire the latter, contingent upon the FDA’s approval of Valchlor.

Valchlor gained approval for the topical treatment of early-stage mycosis fungoides-type cutaneous T-cell lymphoma. It can be used in patients who have previously undergone skin-directed treatment. The New Drug Application (NDA) was submitted to the FDA in Feb 2013.

As per the terms of the agreement, Actelion paid $25 million to Ceptaris upon signing. An additional $225 million will be paid on the closure of the transaction. Moreover, Ceptaris' shareholders are entitled to milestone payments.

Valchlor enjoys orphan drug status in the U.S. We believe the acquisition will provide Actelion an opportunity to build a portfolio beyond its pulmonary arterial hypertension (PAH) franchise.

Actelion expects the transaction to become cash-accretive before the end of 2014. We remind investors that Actelion has drugs like Tracleer, Ventavis and Veletri in its portfolio for the treatment of PAH along with Zavesca for the treatment of Gaucher disease.

The diversification should bode well for Actelion, in our view. The upcoming acquisition is also a step forward in Actelion’s three pronged strategy of building a specialty franchise along with growing the PAH franchise. 

Actelion currently carries a Zacks Rank #1 (Strong Buy). Other stocks that look attractive include Biogen Idec Inc. (BIIB - Analyst Report), Gilead Sciences Inc. (GILD - Analyst Report) and Affymetrix Inc. (AFFX - Analyst Report). All three carry a Zacks Rank #1.

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