Switzerland-based biotechnology company Actelion Ltd (ALIOF, Financial) recently released its earnings report for 2014, according to which the company’s net profit for the full-year grew to 549 million Swiss francs(CHF) (or $636 million) from last year’s CHF453 million (calculated as per U.S. accounting standards). While the company attributed the growth to robust sales of its latest drugs, product sales fell shy of expert projections of CHF1.99 billion to touch CHF1.96 billion, representing a 10% growth in sales. Concurrently, although earnings jumped 20% to CHF743 million (or $800 million), it missed the expert consensus estimate of CHF776 million. However, the Actelion stock dipped in the market following the company’s announcement towards trimming its 2015 earnings forecast and the impending patent expiry of its key drug –Tracleer.
New drug sales propel growth
Actelion announced basic EPS of CHF5.34 for fiscal 2014, compared to CHF4.06 in 2013, while diluted EPS grew 37% to CHF5.11 compared to the 2013 figures. The increase in EPS was driven mostly by the higher net income. However, the company’s core net income dipped 27% on the year to CHF648 million, in line with the expert consensus estimate. Although the fourth-quarter Tracleer sales at CHF328 million ($353 million) was below expectations of CHF356 million, Actelion logged in a consensus-beating core net income of CHF94 million.
The company attributed its performance to robust sales across all regions during 2014, with growth in demand for key products. Actelion witnessed a 16% growth in sales (at CER) in the U.S., in spite of unabated competitive pressures, driven by the successful launch of its new offering-Opsumit, a net impact of CHF42 million (at CER) in rebate accrual reversals associated with patient support programs and an increase in prices across the portfolio. Concurrently, sales in the European marketplace grew 10% at CER, on the back of Veletri and Opsumit launches in various markets in the region, along with the digital ulcer indication for Tracleer. The strong uptake of Veletri and robust sales for Tracleer drove sales in Japan, resulting in a 9% growth in sales. Sales in the rest of the world grew 8% at CER, on the back of new product launches (Veletri & Opsumit) in Australia and robust growth in emerging PAH markets including Mexico, Russia, Taiwan and China.
However, owing to the Swiss Franc emerging stronger against the U.S. dollar, Japanese yen and other major currencies in 2014 as compared to 2013, Actelion witnessed a negative currency variance to the tune of CHF51 million in fiscal year 2014.
Outlook for 2015
Actelion, the biggest biotech company in Europe, revealed a slightly less optimistic forecast with core earnings projected to grow by a low single-digit percentage point in 2015, excluding currency swings. The drugmaker already faces the patent expiration on its star drug Tracleer, which accounted for around 75% of product sales in 2014, in 2015.
Actelion’s revenue from Opsumit, the follow-up to Tracleer, amounted to CHF180 million in 2014, missing the consensus estimate of CHF190.4 million. However, the company plans to add around 1,300 new patients per quarter, after pricing Opsumit at the same level as the older treatment. Actelion also expects approval for another therapy, Uptravi, by the end of 2015, which is projected to add over CHF1 billion worth of sales by the year 2020.
However, the company, which is on the lookout for a suitable acquisition, announced an 8% dividend hike in 2015 along with plans to buy back 10 million shares, currently valued at about CHF1.05 billion, over the next three years. Moreover, the company’s projected dividend yield for the coming years is expected to beat industry averages with a strong payout ratio that would attract investors.
Final thoughts
With the Swiss franc strengthening around 9.6% against the U.S. dollar and 13% against the euro since the scrapping of the Swiss National Bank’s cap on the currency in January 2015, Actelion, along with most other Swiss exporters, expects to feel the negative impact on its earnings. Although the company loses patent protection for its bestselling medicine Tracleer in 2015, Actelion has a good pipeline of follow-up drugs to fight out generic competition.
The company also has a good track record in market performance over the last 52-week period. Consequently, experts peg the Actelion stock at a "buy" with a CHF122 target.
