Elliott Management Corp. is backing out of its investment in Actelion Ltd., Europe's largest biotech, four months after fellow investors rebuffed its campaign to replace members of the board and potentially spark a sale.

The New York-based hedge fund, through affiliate Elliott Advisors (U.K.) Ltd., disclosed this week that it has reduced its stake in Actelion to less than 3% from more than 6% of the company's holdings, according to information filed with the Swiss stock exchange. The move suggests that Elliott, which seemed keen on selling the biotech company, may have given up. Elliott has maintained that it was more interested in broad reform of the company, with a sale being only one of many options. Elliott is not commenting on the reduced stake.

Actelion could still be an acquisition target. But how attractive it is depends on the success of its pipeline drugs, such as Macitentan, Actelion's lead pulmonary arterial hypertension pipeline candidate. Data from a Phase 3 clinical trial, known as Seraphin, is expected in 2012.

Actelion hopes Macitentan could be a potential replacement for its best-selling hypertension drug Tracleer, which faces a patent cliff in 2015 and earned Actelion Sfr1.64 billion ($1.74 billion) in 2010. Analysts have said that Big Pharma may be interested in the blockbuster short-term revenue for Tracleer, but a buyer would want to see that Actelion can produce more than Tracleer as a successful drug. Waiting for that appears to be a position Elliott doesn't like.

"To me it suggests a sale of the company is not likely before the Seraphin data," said Andrew Weiss, head of pharma and biotech research for Swiss bank Vontobel. "Hence, Elliott would need to stick around for the results. Not their cup of tea."

Despite being shut down by shareholders, Elliott's campaign for change appears to have made some impact on Actelion. For example, Elliott had complained that the board was stagnant. Led by Chairman Robert Cawthorn, who held the position since Actelion's incorporation in 1997, Elliott said the board did not hold Actelion accountable for clinical trial failures and other pipeline problems during the past year that helped cause the company's stock to tank. In 2008, Actelion shares were trading as high as Sfr65 per share. They closed Thursday, Sept. 29, at Sfr30.48 per share.

At the company's annual meeting in May, shareholders voted to replace Cawthorn with Jean-Pierre Garnier, the first chief executive of GlaxoSmithKline plc, who took over as chairman of Actelion on Tuesday. Though he is stepping down as chairman, Cawthorn is keeping a position on the board.

Other pipeline candidates at Actelion could impact the possibility of a sale. Multiple sclerosis drug ponesimod may be particularly attractive to acquirers. The drug is an oral pill that tries to reduce brain lesions, thought to be a cause of relapsing-remitting MS. Additionally, oral treatments are the newest wave of drugs that companies are trying to get their hands on in the highly competitive MS market. Actelion released positive initial Phase 2b results in August, and is now working on a Phase 3 study.

Acquisition of Actelion is dependent on the success of these pipeline drugs, said Bhanu Singhal, an analyst with Nomura Securities Co. Ltd. Actelion's market cap is approximately $6 billion.

"The only unknown is whether they have something in their pipeline," Singhal said. "A large cap pharma is going to be more focused on data."