Swiss biotech company Actelion AG (ATLN.VX) Tuesday reported a 10% rise in first-quarter net profit thanks to the last installment of a payment linked to a drug development pact with GlaxoSmithKline PLC (GSK), which offset a hit from higher legal expenses.

The Allschwil, Switzerland, based company is embroiled in a battle with New York hedge fund Elliott Advisors, which has criticized the board's lack of strategy, saying its drug development in particular is lacking focus. Elliott, which owns close to 6% of the company, wants to replace much of the Swiss company's current board and demanded the resignation of Chairman Robert Cawthorn. The fund also wants Actelion's founder and chief executive Jean-Paul Clozel to step down from the board.

Actelion said Tuesday it has received the support of BB Biotech, one of its long-term shareholders, and IVOX, a German-based independent proxy voting service, in advance of the Annual General Meeting on May 5. To counter Elliott's attack, Actelion has nominated former GlaxoSmithKline chief executive Jean-Pierre Garnier and Robert Bertolini, a former chief financial officer for Schering-Plough to the board.

Actelion derives nearly 90% of its income from one single drug, a treatment for pulmonary arterial hypertension called Tracleer. After several drugs failed in clinical trials last year, the Swiss company doesn't have a certain successor to offset an expected slump in revenue when Tracleer starts losing patent protection in 2015. Its hopes now rest with macitentan, a possible follow-up drug to Tracleer, for which key data from clinical testing should be published by early 2012. If macitentan succeeds in clinical testing, it may be launched in 2013.

First quarter earnings underlined Actelion's dependence on Tracleer.

Net profit rose 10% to 146.3 million Swiss francs ($164.4 million) from CHF132.8 million in 2010. Revenue increased 5% to CHF528.2 million. Product sales were stable at CHF450.1 million with the bulk of that coming from Tracleer. Sales of Tracleer declined 0.6% to CHF402.8 million due to the strong Swiss franc.

"First-quarter sales are in line, but underlying profits are weak on ongoing legal costs," said Peter Welford, analyst with Jefferies International in London, who has a hold rating on the stock.

Actelion received the last payment related to a drug collaboration with GlaxoSmithKline in the quarter, which helped boost revenue. Having received this payment, Actelion said it could now give a revenue estimate for the entire year.

"Unforeseen events excluded, product sales are expected to increase in the mid-single digit range in local currencies," Chief Financial Officer Andrew Oakley said.

Actelion, which is defending itself in ongoing litigation with Japanese drugmaker Asahi Kasei in relation to the Swiss company's acquisition of U.S. drug company CoTherix Inc., said higher legal expanses partially offset the increase in contract revenue.

"These legal expenses should scale back in the second half of the year," Oakley said in a statement.

CoTherix and Asahi Kasei struck a licensing agreement to develop the Japanese company's experimental drug fasudil, a potential treatment for pulmonary arterial hypertension, in 2006. Actelion bought CoTherix in early 2007, and decided not to develop fasudil and terminate the agreement with the Japanese firm.

Actelion shares closed Monday at CHF50.65. the stock has lost around 1.1% in value so far this year, giving it a market valuation of CHF6.55 billion.

-By Anita Greil, Dow Jones Newswires; +41 43 443 8044 ; anita.greil@dowjones.com
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