GILD Gilead Sciences Inc

European biotechnology company Actelion Ltd. (ALIOF) reported third quarter earnings of 83 cents per American Depository Receipt (ADR), down 2% over prior-year earnings of 84 cents per ADR. Earnings were however above the Zacks Consensus Estimate of 66 cents.

On a reported basis, Actelion incurred a loss of $2.19 in the nine months versus a gain of $2.78 in the prior-year period due to a litigation provision related to the Asahi Kasei lawsuit as well as the adverse currency impact.

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 first nine months. On July 29, 2011 Actelion announced the $577 million damages have been reduced by $70.4 million. Recently, the court granted Actelion's motion to reduce the jury award by a further $99.2 million, thus bringing down the final award to $407.3 million. Actelion intends to appeal the entire judgment in due course following entry of judgment and rulings on post-trial motions. If the judgment award remains unchanged, Actelion is expected to incur an operating loss in 2011.

Nine-Month Numbers

All growth rates below are in local currency and represent growth over the prior-year period.

The company reported net revenue growth of 7% in local currency. Product sales were up 8% over the prior year driven by overall volume growth and price increases for Zavesca and Ventavis in the US. However, in Swiss francs, revenues were down 7% due to negative currency impact.

On a regional basis, 41% of product revenues came from the US which grew 3%, 39% from Europe which rose 8%, 10% from Japan which shot up 20% 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 7% in the nine months. Tracleer revenue is beginning to see the impact of increasing competition due to a removal of potential liver injury warning from the label of Gilead’s (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. Tracleer however witnessed growth in Japan, Europe and the emerging markets. Ex-US Tracleer revenue also benefited from switching of patients from Pfizer’s (PFE) Thelin following the drug’s withdrawal from the market in early 2011. Outside US growth also benefitted from strong traction of the digital ulcer indication.

Ventavis sales were up 11% from the prior year driven by price hikes and lower rebates. 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 13% from the prior year due to double-digit volume growth. However, sales in Europe for type I Gaucher’s disease type 1 patients are declining slightly due to patients being switched back to enzyme replacement therapy (ERT).

Actelion reported an 11% increase in adjusted EBIT (earnings before interest and tax), as the strong underlying commercial performance was tempered by an 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. Adjusted EBIT is expected to grow in the low double-digit range in local currency.

Actelion instituted 2012 guidance. The company expects product sales to decline in 2012 to a low-to-mid, single-digit range in local currencies. Revenues are expected to be affected by pricing pressure worldwide, especially in Europe, and increased competition in the US. Actelion apprehends steep competition for both Tracleer and Ventavis.

Pipeline Update

In early August 2011, Actelion presented data from a mid-stage study of Ponesimod (S1P1-agonist) for the treatment of multiple sclerosis. The study evaluated the safety, effectiveness and tolerability of the candidate across three doses (administered for 24 weeks). The study met the primary endpoint (reduction of new active lesions on MRI scans from weeks 12 to 24) with high statistical significance. The company has decided to move the candidate into late stage trials in the first half of 2012.

In December 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 late stage data (SERAPHIN) on macitentan, a follow-on compound to Tracleer, in the first half of 2012. Macitentan was also being studied in a mid-stage trial (MUSIC) for the treatment of idiopathic pulmonary fibrosis (IPF). In late August 2011, Actelion announced that the trial failed to meet the primary endpoint of forced vital capacity (a measure of lung function). The study, however, showed that the safety and tolerability of macitentan was acceptable, particularly the liver enzyme elevations were no different in patients treated with macitentan from patients on placebo. Actelion will not initiate a late stage trial for the candidate for the IPF indication.

Our Take

The shares of Actelion carry a Zacks #2 Rank (short-term Buy rating). Actelion has a dominant position in the multi-billion dollar PAH market with drugs like Tracleer and Veletri in its product suite. We also like the company’s strong pipeline with abundant pipeline catalysts upcoming in 2012.

 
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