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(Bloomberg Gadfly) -- Investing in biotech is meant to be a romantic journey from years of cash-burning R&D to the launch of a drug and perhaps a takeover at a generous price by a big pharma company. But what if a takeover of Swiss pharma group Actelion Ltd gave investors a chance to repeat the painful first stage of the odyssey all over again?

Johnson & Johnson, the U.S. drugmaker that has been in on-off talks to buy Actelion for several months, is pondering a 28 billion Swiss franc ($27.3 billion) deal that would see it acquire the target’s established drugs and establish a separate listed company housing the group’s R&D operations, Reuters reported last week.

It’s not clear how this might be structured. In theory, Actelion could sell its mature products -- which treat pulmonary hypertension -- to J&J for cash, redistribute most of the proceeds to its shareholders and keep a bit over to carry on with its existing R&D projects. Or J&J could buy all of Actelion, paying investors partly in cash and partly in shares in a new biotech-like entity. Tax considerations would presumably determine the method.

What would the “new” Actelion look like? Few analysts see much value in the current R&D projects. There are two drugs in late-stage trials -- an antibiotic for c. difficile-associated diarrhea and a treatment for multiple sclerosis -- plus four in earlier trials, including an insomnia medicine. Kepler Cheuvreux analysts think the whole pipeline is worth only 1.5 billion Swiss francs, citing concerns about trial uncertainty, competition and the risk of antibiotic resistance.

If a biotech with this portfolio already existed it’s hard to see why J&J would want to buy even a stake in it. Most big pharma groups usually prefer to pay a premium for treatments with more certainty attached, and even then would want to own them outright. So a deal that left J&J with only Actelion's mature assets might therefore be attractive at the right price.

Would stock market investors be interested in owning the new bite-sized Actelion? One turn-off is that Actelion is spending about 500 million francs a year on R&D and the new entity would need to be well capitalized to handle years of cash burn. Even then, the more risky investment case might not suit all of Actelion’s current shareholders, who may balk at the prospect of cash calls down the line.

If J&J took a controlling stake in the reborn company, it might be willing and able to underwrite R&D over the long term. But in that case it would be more efficient just to own the enterprise outright.

Perhaps a biotech-style Actelion has a place in the pharma ecosystem. But before it is brought into the world, management and J&J need a plan for who its investors will be and how its likely high cash needs will be funded. It might be easier for J&J to just do a clean takeover.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Chris Hughes is a Bloomberg Gadfly columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.

To contact the author of this story: Chris Hughes in London at chughes89@bloomberg.net.

To contact the editor responsible for this story: James Boxell at jboxell@bloomberg.net.

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