GILD Gilead Sciences Inc

European biotechnology company Actelion Ltd. (ALIOF) reported fourth quarter loss of 10 cents per American Depository Receipt (ADR), substantially below prior-year earnings of 13 cents per ADR. The poor bottom-line performance emerged from weak product sales in the quarter due to pricing pressure in Europe and competitive pressures in the US. Weak margins due to a negative currency impact also led to the shortfall. The bottom-line also fell significantly short of the Zacks Consensus Estimate of earnings of 84 cents.

In 2011, Actelion recorded earnings of $3.74, below $4.34 earned in 2010, again due to lower revenues and currency headwinds in the year. On a reported basis, Actelion incurred a loss of $1.23 in the full year versus a gain of $3.28 in the prior-year period, due to litigation provision related to the Asahi Kasei lawsuit.

Full Year Numbers

The company reported net revenue growth of 5% in local currency over the prior year. However, considering the Swiss franc terms, Actelion suffered a decline in both product as well as contract revenues in the quarter.

Product sales were up 7% (local currency) over the prior year. However, in Swiss francs, revenues were down 6%. Sales in the quarter were affected by the pricing pressures and the economic crisis in Europe and weak Tracleer sales in the US.

The company currently has four products in the market. Three of these, Tracleer, Ventavis and Veletri, are indicated for the treatment of pulmonary arterial hypertension (PAH). The fourth drug, Zavesca, is indicated for the treatment of Gaucher’s disease.

Tracleer revenues were up 5% (local currency) in 2011. Tracleer revenue in the US 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. Tracleer witnessed pricing pressure in Europe, but experienced growth in Japan and emerging markets. Ex-US Tracleer revenue also benefited from switching of patients from Pfizer’s (PFE) Thelin, following the latter’s withdrawal from the market in early 2011.

Ventavis sales were up 7% (local currency) from the prior year as benefits from price hikes and lower rebates were offset by low volume growth due to increased competition. Actelion markets Ventavis only in the US.

Zavesca sales were up 12% (local currency) from the prior year, buoyed by strong patient growth in Niemann-Pick type C disease. 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).

2012 Guidance

Actelion maintained the 2012 guidance that was announced previously. 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. Additionally, core earnings (product sales minus cash operating expenses) are expected to remain flat with 2011 levels.

Our Take

Actelion’s shares carry a Zacks #4 Rank (short-term ‘Sell’ rating). We like the company’s strong pipeline with abundant pipeline catalysts coming up in 2012. However, the poor fourth quarter and 2011 results justify the short term bearish outlook on the company.

 
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