European biotechnology company Actelion Ltd. (ALIOF) reported second quarter earnings of 78 cents per American Depository Receipt (ADR), down 23% over prior-year earnings of $1.01 per ADR and also below the Zacks Consensus Estimate of 90 cents.
On a half yearly basis adjusted earnings were $1.77 per ADR, down 17% from $2.15 per ADR in the comparable period last year. The decline was due to lower revenues and the negative impact of currency.
On a reported basis, Actelion incurred a loss of $2.20 in the first half versus a gain of $2.10 in the prior-year period. With the Asahi Kasei lawsuit judgment not forthcoming, from the trial court, on the due date of June 28, 2011, Actelion made a provision of $577 million for compensatory and punitive damage in the second quarter. This resulted in a reported loss in the most recent quarter. If the judgment award remains unchanged at $577 million, Actelion is expected to incur an operating loss in 2011.
First Half Numbers
The company reported net revenue of $1,073 million in the first half of 2011, down 5% over the prior-year period due to negative currency impacts. However, in local currency terms, revenue was up 8%. The continued strong performance of the pulmonary arterial hypertension (PAH) franchise was offset by the decline in contract revenues in the first half. All growth rates below are in local currency and represent growth over the prior-year period.
Product sales were up 10% over the prior year driven by overall volume growth and price increases for Zavesca and Ventavis in the US. On a regional basis, 43% of product revenues came from the US which grew 4%, 39% from Europe which rose 10%, 9% from Japan which shot up 24% (despite impact of natural disaster) while the balance came from the rest of the world.
The company currently has four products in the market. Three of these, Tracleer, Ventavis and Veletri, are indicated for the treatment of PAH. The fourth drug, Zavesca, is indicated for the treatment of Gaucher’s disease.
Tracleer revenues were up 8% in the first half driven by continued increase in patient demand. Tracleer witnessed growth in Japan, Europe and the emerging markets. Tracleer revenue also benefited from switching of patients from Pfizer’s (NYSE:PFE)Thelin following the drug’s withdrawal from the market in December 2010.
Management is, however, expecting competition to increase going forward due to a removal of potential liver injury warning from the label of Gilead Inc’s (NASDAQ:GILD)PAH drug Letairis in the US. In conjunction with the label change, patients receiving Letairis will no longer require monthly monitoring of liver function through blood tests. The label change is expected to be a definite positive for Letairis and lend it a competitive edge over other PAH drugs like Tracleer.
Ventavis sales were also up 17% from the prior year driven by growth in price. Actelion markets Ventavis only in the US.
Veletri, launched in April 2010, also did well in the quarter due to continued expansion of the prescriber base. Zavesca sales were up 10% from the prior year due to double-digit volume growth. However, sales in Europe for Gaucher’s disease Type 1 patients are declining slightly due to patients being switched back to enzyme replacement therapy (ERT).
Contract revenue in the quarter was down approximately 12% from the prior year. The majority of the contract revenue in the quarter came from the accelerated recognition of the outstanding upfront payment from GlaxoSmithKline (NYSE:GSK)related to the terminated almorexant program (January 2011).
Actelion reported an 8% increase in adjusted EBIT (earnings before interest and tax), as the strong underlying commercial performance was offset by unfavorable currency impact, weak contract revenues and high legal expenses.
2011 Guidance
The company maintained its guidance for 2011. Actelion expects mid single-digit product sales growth for 2011 in local currency with operational expenditures remaining flat compared with 2010 levels. Adjusted EBIT is expected to grow in the low double-digit range in local currencies.
Pipeline Update
In the third quarter of 2011, Actelion intends to present data from a mid-stage study of Ponesimod (S1P1-agonist) for the treatment of multiple sclerosis. The data will enable the determination of the most appropriate dose for a late-stage study of the candidate.
By the end of 2011, Actelion also hopes to present data from a late stage trial of its aamyotrophic lateral sclerosis (ALS) treating compound, olesoxime. The trial is being conducted by privately held Trophos SA. Based on data from the late stage trial, Actelion can exercise the option of acquiring Trophos SA.
Actelion is expected to present phase III data (SERAPHIN) on macitentan, a follow-on compound to Tracleer, in the first half of 2012. Macitentan is also being studied in a mid-stage trial (MUSIC) for the treatment of idiopathic pulmonary fibrosis (IPF), data from which is expected in the second half of this year.
In late May 2011, Actelion announced data from a mid-stage study which assessed the efficacy and tolerability of various doses of CRTH2 antagonist in adult patients with seasonal allergic rhinitis (hay fever). The primary endpoint was met with statistical significance. CRTH2 is an anti-allergic compound with a novel mechanism of action on airway inflammation. The candidate is being studied in phase II trials for treating asthma and allergic rhinitis.
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