Actelion Ltd. (ALIOF) reported third-quarter earnings of $1.17 per American Depository Receipt (ADR), well above the Zacks Consensus Estimate of 86 cents and a 6.4% increase from the year-ago earnings per ADR of $1.10. Product sales increased 9% at constant exchange rates, with growth being driven by patient demand.
Contract revenues declined 65% during the third quarter, as against the year-ago quarter. The reduction is attributable to the completion of the recognition of milestones from the collaboration with Roche Holdings Ltd.(RHHBY).
Product Performance
Third quarter pharmaceutical product sales were mostly driven by increased patient demand. Actelion’s products include Tracleer (up 12%) and Ventavis, whose sales decreased 28%, as 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 Veletri, indicated for the treatment of pulmonary arterial hypertension (PAH) and launched earlier this year in April; and Zavesca, whose sales increased 11% year over year during the third quarter, given recent approvals in Australia, New Zealand, Columbia and Turkey.
Operating Expenses
Operating expenses increased 7% during the quarter. The increase was mainly due to continued investments in pipeline development and increasing marketing expenses.
Third-quarter research and development (R&D) and selling, general and administrative (SG&A) expenses were up 2.3% and 18.5% year over year, respectively.
Outlook
Actelion reiterated its full year net revenue, local currency, growth rate expectation of more than 10%. The company expects non-GAAP earnings before interest and tax to grow in the range of 21% to 24% (on a local currency basis).
The company also provided a peek into its expectations for fiscal 2011. It said that it expects product sales to experience mid-single digit range growth (in local currency). Further, non-GAAP earnings before interest and tax is expected to come in below 2010 levels.
Our Take
We currently have a Zacks #1 Rank (short-term Strong Buy rating) on Actelion. Actelion has a dominant position in the multi-billion dollar PAH market with drugs like Tracleer and Veletri in its product portfolio. This makes the company an attractive buyout target, as evidenced by the recent rounds of rumors regarding GlaxoSmithKline plc’s (GSK) interest in acquiring Actelion.
Actelion and Glaxo are currently in a partnership agreement for the development of almorexant, which is in late-stage trials for sleep disorder.
