Actelion Ltd. (ALIOF) reported second-quarter earnings of $1.23 per American Depository Receipt (ADR), well above the Zacks Consensus Estimate of $1.03 and an 8% increase from the year-ago earnings per share of $1.13. Product sales increased 13% at constant exchange rates, with growth being driven by patient demand.
 
We were pleased to see contract revenues increase 151% during the second quarter, as against the year-ago quarter. The increase is attributable to the accelerated recognition of milestones from the collaboration with Roche Holdings Ltd. (RHHBY).
 
Product Performance
 
Second quarter pharmaceutical product sales were mostly driven by increased patient demand for the company’s products. Actelion’s products include Tracleer (up 11%) and Ventavis, whose sales were almost flat in the US compared with the year-ago quarter. Actelion markets Ventavis only in the US, Bayer Schering Pharma AG markets the drug in Europe, while it is manufactured by Merck & Co. Inc. (MRK).
 
Actelion’s product portfolio also consists of epoprostenol, indicated for the treatment of pulmonary arterial hypertension (PAH) and launched earlier this year in April; and Zavesca, whose sales increased 56% year over year in the second quarter, given continued product uptake in the US and Europe, and recent approvals in Australia, New Zealand, Columbia and Turkey.
 
Operating Expenses
 
Operating expenses increased 10% during the second quarter. The increase was mainly due to continued investments in pipeline development and increasing marketing expenses.
 
Second-quarter R&D and SG&A expenses were up a respective 2% and 11% year over year.
 
Outlook
 
Although Actelion reiterated its full year net revenue, local currency, growth rate of 10%, the company increased the rate of growth for its full year, non-GAAP earnings before interest and tax, on a local currency basis. The range shot up from 20% (guided earlier) to 21% to 24%.
 
Trophos Acquisition
 
Actelion also announced that, for €10 million, it got an option to acquire privately held Trophos SA. Trophos is a clinical stage company with a pipeline of molecular entities in development for amyotrophic lateral sclerosis (ALS) and spinal muscular atrophy as well as a novel compound for cardiac ischemia-reperfusion injury.
 
Trophos currently has an ALS treating compound, olesoxime, in a phase III trial. The study is expected to report data by the end of 2011. Based on the regulatory approvals and other clinical progress of Trophos’ pipeline, Actelion can exercise the option of acquiring the company for a price ranging between €125 million and €195 million in cash.
 
Our Take
 
We currently have a Zacks #3 Rank (Hold) on the company. Actelion is a leading European biotech company whose key growth driver, Tracleer is indicated for the treatment of PAH. However, we are concerned about the Tracleer patent cliff in 2015, as Actelion’s pipeline drugs selexipag and macitentan, are not expected to provide meaningful data until 2012/13 and, hence, may be unable to mitigate the loss in sales from genericization of Tracleer.
 
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