Actelion's (ALIOF) CEO Jean-Paul Clozel on Q4 2015 Results - Earnings Call Transcript

| About: Actelion Ltd. (ALIOF)

Actelion Ltd. (OTCPK:ALIOF) Q4 2015 Earnings Conference Call February 9, 2016 8:00 AM ET

Executives

Andrew Weiss - Head, Investor Relations and Corporate Communications

Jean-Paul Clozel - Chief Executive Officer

Otto Schwarz - Chief Operating Officer

André Muller - Chief Financial Officer

Analysts

Sachin Jain - Bank of America

James Gordon - JPMorgan

Richard Parkes - Deutsche Bank

Olivia Capra - Barclays Capital

Peter Welford - Jefferies

Samir Devani - Rx Securities

Maurizio Bernasconi - Bank am Bellevue

Operator

Good afternoon. This is the Arkadin conference operator. Welcome to the Actelion’s Full Year 2015 Financial Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Andrew Weiss, Head, Investor Relations and Corporate Communications. Please go ahead, sir.

Andrew Weiss

Thank you very much. Good morning, good afternoon, everyone and thank you for joining in on this exciting event. The topic of today’s conference call is Actelion’s very strong 2015 performance, which we have announced this morning.

With me on the call today are our CEO, Jean-Paul Clozel; our COO, Otto Schwarz; and our CFO, André Muller. They are here to provide additional granularity on the press release published this morning at 7:00 a.m. CET.

Before handing over to Jean-Paul, I need to remind everybody that we will be making forward-looking statements today. You are therefore have been properly warned about the risks and opportunities of investing in Actelion shares.

With that, I hand over to Jean-Paul for his introductory comments.

Jean-Paul Clozel

Thank you, Andrew. Good afternoon or good morning to you and thank you for joining us today for the review of our results of 2015. After my introduction, Otto Schwarz, our Chief Operating Officer, will take you through our commercial performance. He will talk about the achievements of our products. Then our CFO, André Muller, will take you through the finances in detail.

Let me start with our key financial highlights. 2015 has been a fantastic year for us. We have had good news in all areas of our business and I am extremely pleased with our financial results. For this time – for the first time, we had over CHF2 billion in sales. This is a really impressive number and a big step for us, particularly in light of the strong Swiss franc. Core earnings were over CHF800 million and core EPS was CHF6.16. Thanks to this excellent financial performance we have been able to return almost CHF1 billion to our shareholders.

I am sure you will agree that this is an outstanding set of numbers. More importantly, for me, we have been also able to start the transformation of the company and we have done this while maintaining financial discipline and delivering outstanding results. Based on our capacity to innovate, we have already achieved a lot on our journey of transformation. If we look back a few years, we were a company which success was based on a single product, Tracleer. Over the past couple of years, in our first wave of growth, we were able to completely transact. We evolved our pulmonary hypertension franchise to include a unique and complementary line of PAH products. And in the coming years, I believe that our leadership in pulmonary hypertension will grow even stronger. On top of that, we want to grow beyond PAH.

In the past 15 years, we have worked very hard on our research and development efforts to build a pipeline of innovative products, which address a number of rare or severe diseases. These products will be the base of our second wave of growth. But first, let’s have a look at the transformation of our pulmonary hypertension franchise. We have moved from one very successful product to a portfolio of compounds. We started out with Tracleer and then added Veletri. More recently, we have expanded our offering to include Opsumit and Uptravi. I am very happy with the continued uptake of Opsumit and the approval and launch of Uptravi. Otto will cover this in much more detail shortly. All these products ensure the continuum of care for PAH patients from those early in the course of their disease in Functional Class II to the very severe patients in Functional Class IV. The first can now treat their PAH patients with at least one of our drugs or with a combination of our drugs through the entire course of the disease.

A differentiating aspect of our new treatment is that they have proven to delay disease progression. We have demonstrated an attack on the course of the disease and not only on the symptoms. The transformation of the pulmonary hypertension franchise I just described is very important for the future of Actelion as it has given a strong financial base. This in turn should enable us to invest in future innovation while still continuing to deliver and grow our profitability.

Due to the unique pharmacological characteristics and clinical activity, we are working with prescribers to better profile Opsumit and Uptravi. We are convinced that these drugs have a lot more potential and so we are conducting a number of Phase 3 and Phase 4 trials to maximize the impact of these drugs.

I would just like to highlight a few of these trials. We are finishing quality of life studies for macitentan called ORCHESTRA in EU and in the U.S. these studies are called SYMPHONY and SOPRANO. MAESTRO is a study for patients with Eisenmenger disease. For the first time in this type of cardiovascular trials, we are including in the trial patients with Down’s syndrome. MELODY is a study where patients with left ventricular dysfunction and abnormal pulmonary pressure were evaluated. In view of the very interesting data we are seeing, we are optimizing the program to address the high medical need in this patient population. MERIT is a study where we evaluate macitentan in patients with chronic thromboembolic pulmonary hypertension. We are close to finishing recruitment and results should be available later this year.

Now, I would like to highlight a few of our most promising compounds in the second wave of products and our second wave of growth. Cadazolid for the treatment of clostridium difficile associated diarrhea is expected to complete its enrollment in 2016. Clostridium difficile is a very severe disease. And this is why we are looking at the efficacy of cadazolid. We are also profiling and trying to differentiate this drug. We believe cadazolid is a unique drug as it is very selective for the clostridium difficile bug and leaves most of the other bacteria of the gut intact. We are running a Phase 3 trial with ponesimod in multiple sclerosis. It’s a large study. And here, we don’t compare ponesimod with placebo, we compare it to another oral drug, Aubagio. Recruitment of this trial should finish in 2016. Furthermore, we have made progress in our discussion with the regulators for an additional Phase 3 trial to further describe ponesimod’s unique medical utility in multiple sclerosis.

Clazosentan, an intravenous selective endothelin receptor antagonist, is starting in a limited study, evaluating whether it has an early effect in reversing established cerebral vasospasm. The Phase 3 program is being finalized in discussion with regulatory authorities. Actelion’s second S1P1 modulator, cenerimod, is also progressing well in patients with lupus.

Finally, we are performing a Phase 2 study with our new endothelin receptor antagonist, and we are further expanding our central nervous system franchise with two new chemical entities in different stage of Phase 1 evaluation. As you can see, an intense 15 years of research is paying off. We now have a very broad pipeline with many opportunities to develop drugs that make a real difference to patients’ lives. Personally, I find it remarkable that almost all of these drugs come from our own discovery effort.

Let me now hand over to Otto to look into more detail on how our products are doing.

Otto Schwarz

Thank you, Jean-Paul. Welcome to all of you joining us around the globe today and thanks for your continued interest in Actelion. I am very pleased to report an excellent commercial performance for the full year 2015.

2015 has been a landmark year from our global commercial team, because for the first time ever, we, Actelion, exceeded CHF2 billion in total annual sales. To be exact, delivering CHF2,042 million in net sales, representing a strong 11% local currency growth, excluding the reversal of the U.S. rebate accruals in the U.S. in 2014. This shift increase in geographic sales distribution within 2 years since 2013, namely the relative increase of the U.S. share to 50%, is the reflection of the successful Opsumit launch and the consequence of the different pricing levels and price dynamics across regions.

Let’s move to our PAH business, which is undergoing a major transformation in three dimensions. First, diversification from one to three products and from one blockbuster, Tracleer to potentially two blockbuster products, Opsumit and Uptravi. Second, globalization, today Tracleer is the only asset we sell globally, now we will sell all three PAH assets on a global basis. And third, treatment paradigm, moving to and providing outcome based therapies across the entire continuum of care. As you can see from the next chart, the transformation is going well, comparing full year 2013 pre-Opsumit with full year 2015 post-Opsumit, Veletri launches. While PAH still constitutes almost 94% of our total sales, within our PAH business Opsumit and Veletri together now constitute almost one-third of that PAH business.

Let’s start with Opsumit, the major engine behind our 2015 performance. Opsumit is now available in over 35 countries. The launch sequence in the multiple countries between 2013 and 2015 clearly demonstrates the fast rollout we were able to execute. Countries with our affiliate launching in 2015 have been Japan, Spain, Greece and Israel. We have a few countries left, such as Russia, South Korea, Brazil and Latin American markets, but the major job in terms of getting the product on the market is done, except, yet France. In our second submission to the Transparency Commission, they did not change its opinion. Opsumit received again an ASMR rating of 5, a decision difficult to understand, not only by us but also by the French PAH medical community. However, it is what it is, we need to deal with this reality and now discuss with the Pricing Commission to see if we can find, despite this ASMR rating, an acceptable price level for Opsumit. And at the end, that is what the whole exercise is all about anyway.

You can see here the strong and solid quarterly sales development, which resulted in total annual Opsumit sales of CHF516 million in 2015, just 2 years after the first launch in the U.S. We had by year end 2015, over 13,600 patients who have used Opsumit. About evenly split between the U.S. and ex-U.S., demonstrating the acceptance of the product across markets and healthcare systems. We added again around net 1,800 patients in Q4. The higher annual net sale share of the U.S., around two-third of total, is the reflection of the different price level. The uptake in Japan is as strong as the ones we saw in the U.S. or Germany. We also passed major milestones in some countries. In the U.S., Opsumit shipment, which is demand sales as well as patients on drug, surpassed Tracleer in the second half of 2015. And Opsumit is expected to surpass Tracleer in monthly net sales by March or April 2016. By the way, at the end of 2015, we had just over 5,800 patients on Tracleer in the U.S., a decline of 23% versus prior year.

Secondly, beyond the U.S., Opsumit sales passed Tracleer sales in Australia, Taiwan, Sweden and Norway. And in markets with Tracleer ATU business like Germany, Austria, Switzerland and Mexico, Opsumit sales surpassed Tracleer sales in the PAH indication. So summarizing the state of our Opsumit business as we go into 2016, we have a strong sustained trajectory across markets. We are gaining share more and earlier combination therapy with PDE5 expanse the ERA market between plus 6% to 8% in 2015. Also, we have no visible impact of the AMBITION data on the Opsumit dynamics with the recent label change for the Letairis/Volibris in the U.S. and Europe however, we will face full promotional efforts of Gilead and GSK. And we take this very seriously. We have therefore launched a special Opsumit communication campaign at raising Opsumit’s benefit in ERA-naïve patients. And last but not least, we will add countries to the launch roster. So I am very pleased where we are with Opsumit going into 2016.

Let’s move to the grand old lady, Tracleer, which still delivered sales of CHF1.212 million, an 11% decline in local currency, excluding the U.S. accrual reversals. With the remaining patient base of around 39,000 PAH patients minus 9% and around 7,000 digital ulcer patients growing with 9%. Taking Opsumit and Tracleer net sales together, our ERA top line grew 11% versus prior year in local currencies, excluding U.S. rebate reversals, mainly due to Opsumit and U.S.-Europe pricing. Looking at the Tracleer dynamics, we see the expected erosion due to Opsumit and an increase of the DU indication, supported by a very successful first few months of the digital ulcer indication launch in Japan. U.S. price increases were able to mitigate generic driven price erosions ex-U.S.

Other things you might need to consider for 2016 are the following. In March 2016, Tracleer will come up again for the usual biannual price decrease price review in Japan. We are negotiating diligently, especially at any ERA price adjustment will also impact Opsumit, where we have achieved a significant premium versus Tracleer on a daily revenue basis. Second, generic competition in Europe will increase in 2016. We have three generics launched in Spain in a very price aggressive manner. This will have an immediate impact on our end market pricing and also on our unit sales. We are preparing to launch Stayveer in Spain within the next few months, but the impact in 2016 will be material for the Spanish business. We have one local generic entry in Greece. It is a very complicated matter in Greece as loads are integrated in a very subjective manner. So far, we see limited impact on Tracleer, but in Greece now we have to take it a month at a time. In the U.S., the eight party negotiations to develop and agree on a shared REMS are ongoing.

So let’s move to Veletri, short and sweet, Veletri is doing well, CHF83 million in net sales in 2015, plus CHF37 million local currency growth, driven by the exceptional launch in France in mid-2015, which will also drive momentum in 2016. U.S. and most ex-U.S. markets are at around 80% new EPO market share. Japan, with just about 50% new patient market share is growing nicely, but it is anticipated to be affected by the regular biannual price cuts in March 2016. We will add a few markets in 2016 with Veletri, but in all of them, there is no significant slowdown market to switch. So this is strategic essence present for our future prostacyclin business. Ventavis, not much news, well managed asset delivering again about CHF100 million net sales minus 7% versus last year despite a 20% unit and 20% patient decline due to the competitive pressure. We have around 500 patients left on Ventavis and with the launch of Uptravi, this decline is anticipated to accelerate. Regarding generic competition, given our assumption that for generic to enter the inhaled iloprost market, we would expect to see activities with the distribution channel at least six months ahead of the launch, we do not foresee a generic to enter before late Q3 2016.

Now let’s move to the latest addition of our PAH portfolio, Uptravi, which will open the prostacyclin pathway as a treatment option to many more patients. Uptravi has been approved in the U.S. by the FDA on December 21 as an orally available selective IP prostacyclin receptor agonist. We launched the product in the U.S. on January 4, given the holiday season and the turn of the year quite a remarkable achievement for a company without manufacturing facilities in the U.S. At 11:50 a.m. on January 4, we received the first patient enrollment. First 4 weeks have gone well. We will update you in more detail in our Q1 2016 results call in April. We also communicated the approval in Canada on January 26 and 2 weeks ago, that the CHMP recommended Uptravi for approval in Europe. So, we expect the final commission decision by early April.

Looking at the PAH continuum of care, we have an early stage first-line base therapy ANCA ERA like Opsumit plus minus PDE-5 and as a late disease stage ANCA IV epoprostenol like Veletri. In between, there is a gap, which mainly results from the significant underutilization of prostacyclin due to the burden, the inconvenience and the demand on the individuals associated with their use. Despite around 4,000 patients on an inhaled/oral prostacyclin, still only 1 out of 2 patients in the U.S. received the prostacyclin prior to his or her PAH-associated death. In the EU-5, the situation is even more pronounced. Only 1 of the 5 patients will receive a prostacyclin prior to his or her PAH-related death, with less than 1,000 patients on an inhaled prostacyclin in the EU-5.

The underutilization is also reflected in the relatively small prostacyclin prescriber base. In the U.S., only 25% of PAH prescribers used prostacyclin therapy. In the EU-5, the number is even lower with just 14% of physicians. Uptravi can fill this gap. Due to its oral administration, its benign side effect profile and its unique long-term outcome data, especially in oral combination therapy together with an ERA plus a PDE-5. This positioning and the status of the market clearly defines our priority for commercialization, which will be in principal a market-building exercise.

First, we need to prepare the market for Uptravi by highlighting the opportunities the prostacyclin pathway holds. This is, or will be, implemented with the internally called power of three educational campaign. For the launch, we have defined three priorities, which will be implemented in different order in the U.S. and outside of the U.S. While for the U.S., due to the availability of Orenitram, established Uptravi as prostacyclin of first choice is the first priority. In Europe, it is to expand the prostacyclin patient base, which actually then is the number two priority in the U.S. After expanding the patient base in Europe, we need to expand the prostacyclin prescriber base. And last, prior to potential entry of Orenitram, ensure Uptravi status is first line choice product in Europe. In the U.S., after having achieved first choice status and increased the patient base among the thousand top prescriber of prostacyclins today, our priority is to go beyond this core prescriber segment.

Just one comment on pricing, we priced Uptravi in the U.S. so that annual costs are below Tyvaso and Ventavis drug costs. Also compared to Orenitram, costs for Uptravi are very predictable, as the dose adjustment does not entail a cost escalation. Regarding Europe, we will decide the final pricing close to the launch in Germany. However, we showed you the fast rollout of Opsumit at the beginning of this presentation. For Uptravi, this will be a slower market access pricing negotiation process in most markets as there is no true comparator available as an ANCA for the payer.

Summarizing the status of our PAH portfolio today. With Opsumit, we have paved the way for outcome-based therapies in PAH. Uptravi is the reality now as it will open the prostacyclin options to many more patients. All three molecules, macitentan, selexipag and epoprostenol have been designated and distinguished in the recently published ERS/ESC PAH guidelines as having outcome benefits. With Opsumit plus PDE-5 plus Uptravi, an all-oral combination therapy is now possible, harvesting the benefits of all three pathways.

Let’s move briefly to our non-PAH assets, namely first, Zavesca, which passed for the first time over 1,000 patients on drug, delivering sales of CHF92 million. The 3% decline in local currency is a pretty decent result, managing well the unit and pricing impact of GD1-approved generics in selected EU markets. A 16% growth in NP-C patients absorbed the unit impact of these generics, keeping total units flat versus prior year. With the current biomarker development for broader screening earlier detection, we expect the NP-C patient base to continue to growth. Two companies announced filing of generic miglustat, which given official PDUFA timelines would mean a potential generic entry in Q2 2017. However, there is one other potential generic filer which could enter already in Q3 2016 at the earliest.

Let’s move to Valchlor, which progresses consistently and in an encouraging manner. Here is shown in the quarterly patient evolution since the U.S. launch, delivering global sales of CHF27 million, of which just over CHF2 million are coming from the French ATU. We are making progress in shaping a first line space for Valchlor. And beyond that effort for 2016, we will focus on increasing the yield per patient. We have increased the gross price in January 2016 by 9%. We will work or work on compliance and therapy adherence, especially early on in treatment. And we focus on getting patients who discontinued due to disease remission back when they have disease flare up to be retreated.

So, concluding for today, our strategies work. Now, we need to continue executing with discipline and input. I don’t need to spell out our priorities line by line. You can all read them on the slide. Bottom line, our business is in pretty good shape. I am very pleased how far we have come in our unprecedented business transformation. And 2016 will be another important step forward.

With that, I now pass the baton on to André. André, please.

André Muller

Thank you, Otto. Good afternoon and good morning, ladies and gentlemen and thank you for joining us today. Let me start with a quick look at the key numbers. Product sales are up 11% at constant exchange rates and excluding prior year U.S. rebate reversals, for the first time, above CHF2 billion. This performance is particularly impressive as it’s happened during the time where we are transforming our portfolio and transitioning from Tracleer to Opsumit. Core earnings increased by 25% to reach CHF814 million, also at constant exchange rate and excluding 2014 rebate reversals. Again, this excellent performance is even more remarkable as it is from the high base set in 2014, where core earnings increased by 20%.

Core diluted EPS was up 26%, excluding 2014 rebate reversals, to reach CHF6.16 at constant exchange rates. U.S. GAAP operating income was up 21% to reach CHF656 million. And bottom line U.S. GAAP EPS was almost flat despite some significant one-offs in 2014 notably in deferred tax and in the U.S. rebate reversals.

We are looking forward to the quarterly 2016 reporting as we will no longer have to discuss U.S. rebate reversals or valuation allowances. So comparison to prior year will be much more straightforward. As usual, a full reconciliation of U.S. GAAP numbers to core numbers can be found in the financial review on the annual report and also on our website. Here, you can see the product sales growth in more detail. Excluding the already detailed 2014 rebate reversals, the intrinsic growth was CHF213 million at constant exchange rates. Opsumit of course was the main driver of this increase, with a contribution of CHF335 million at constant exchange rates, while Tracleer’s contribution was negative at CHF153 million, clearly demonstrating transformation of our ERA franchise. Veletri and Valchlor contributed CHF23 million and CHF16 million respectively to the sales increase. Ventavis and Zavesca contribution were negative at CHF7 million and CHF3 million, respectively. And lastly, the strong Swiss franc continued to negatively affect sales, with a negative impact of CHF55 million.

Here, you have the same analysis for core earnings. Intrinsic growth was CHF168 million, which translates into a 25% increase at constant exchange rate. The strong increase in core earnings was mainly driven by the excellent commercial performance, a more favorable product mix resulting in a lower cost of sales and slower OpEx growth, 6% in SG&A and 10% in R&D. Again, the strong Swiss franc continued to negatively affect core earnings with a negative impact of CHF32 million. As shown last year, we see 2014 full year results, here you have a visual overview of our sales and core OpEx distribution by currency, which explains our exposure to swings in the FX environment. Basically, 29% of our core operating expenses are denominated in Swiss francs, while 99% of sales are denominated in other currencies and the Swiss franc.

With this slide and the next one, I want also to give you more color on the FX environment during ‘15 and beginning of ‘16. Here, you see the impact of the average FX rates prevailing in 2015 on our sales and core earnings by currency. The U.S. dollar strength resulted in a positive impact while the other currencies weakened compared to the Swiss franc and resulted in an overall negative environment, with the main impact of euro after the Swiss National Bank decision mid-January 2015 to discontinue the 1.20 euro-Swiss franc floor. On this slide, you see the positive impact of the current FX environment, which is more favorable to a Swiss franc reported like Actelion. Should we have applied the average January 2016 FX rate for the full year 2015, the positive pro forma impact would have been 4% on sales and 7% on core earnings. The FX environment is still very volatile, but it could have a positive impact on reported numbers moving forward.

Okay. Let’s move on with the usual slide. This one is showing how core earnings came about. Core cost of sales were 16% lower despite higher sales. This is due to the mix of product as we pay a low single-digit royalty rate on Opsumit sales compared to a high single-digit rate on Tracleer sales. And the fact that, in mid-March 2015, we also stopped paying royalties on Ventavis sales. In late November, sales were not really material for 2015. We have stopped paying royalties on most U.S. Tracleer sales after the lost of patent protection. Core research and development expenses at CHF404 million were 10% higher at constant exchange rate. Jean-Paul has already outlined the progress we have made in both our late and earlier stage pipeline in order to assure mid to long-term growth. This investment has resulted in a slight increase in the ratio of core and the OpEx to product sales at 20%. Core SG&A expenses amounted to CHF648 million, an increase of 6% at constant exchange rates. The main driver of the continued launch activity for Opsumit and Veletri around the globe as well as preparations for the January 2016 launch of Uptravi in the U.S. and the anticipated launches in Europe. The G&A portion also increased by 6% as we expanded our global footprint.

Now, let us move on to U.S. GAAP numbers. This slide illustrates how we get from our core earnings measure to U.S. GAAP operating income. Total non-core operating expenses decreased by 8% at constant exchange rates to CHF162 million. This decrease was mainly driven by lower materialization expenses, lower milestone payments, with CHF11 million relating to the creation of Vaxxilon in 2015 compared to $20 million payment to Nippon Shinyaku relating to the U.S. filing of selexipag in 2014. As you are well aware of U.S. GAAP rules, the $20 million milestone payment to Nippon Shinyaku in December 2015, upon the U.S. approval of Uptravi, was capitalized and will be amortized over time.

Now let us have a look at how the U.S. GAAP net income came about. Financial expense of CHF20 million included the interest expense of CHF8 million, mainly related to the straight bond that was repaid in December 2015 and the net foreign exchange impact of CHF12 million. The tax expense of CHF80 million translated in an effective tax rate of 13.8% for U.S. GAAP numbers, a small increase due to higher profit in the U.S. The core effective tax rate is 12.7%. We are expecting both ETRs to stay around these levels for 2016 and beyond. Non-controlling interest relate to the 26% equity stake held by minority shareholders in Vaxxilon. The resulting net income amounted to CHF562 million, if we compare them with prior year, is skewed by the 2014 income tax benefit of CHF120 million due to releases of valuation allowances into U.S. and other jurisdictions and again by the net benefit of U.S. rebate reversals. As already said, moving forward, comparison to prior year for 2016 numbers will be much more straightforward.

Now let us move on to earnings per share. Diluted EPS are driven by net income that we just looked at as well as the average share count as the denominator. The average share count for basic EPS decreased by 2.9 million in connection with the second line share buyback program. The average share count for diluted EPS decreased by 3.7 million shares. As the average number of dilutive instruments decreased by 0.8 million shares despite an increase in the average share price from CHF100 in average in 2014 to CHF127 in average in 2015.

Let us have a look at our cash position now. We started the year with gross cash position of CHF1.2 billion. Operating cash flow for the year amounted to CHF658 million, which is a result of a strong operating performance with funds from operation of CHF671 million, an increase of CHF65 million of net working capital requirements, including higher trade receivables in connection, of course with higher sales and representing 57 days of sales outstanding, which brings our DSO to historical low levels. And also, deferred tax net positions decreased by CHF52 million, mostly driven by the utilization of net operating losses and tax credit in the U.S. at CHF26 million and the impact of stock-based compensation for CHF22 million.

We returned CHF927 million to shareholders during the year through the buyback of 6.1 million shares via the second line share buyback and the increased dividend. As you can see, we are following our commitment to return cash to shareholders. With the net cash outflow of CHF248 million, or CHF327 million minus CHF79 million, we have eliminated dilution that could have arisen from stock-based compensation. Potential dilutive instruments came down significantly with a maximum of 5.9 million shares at year end with 2.9 million stock options, 1.5 million restricted share units and 1.5 million performance share units. These potential dilutive instruments represent an equity overhang of 5.1% going down significantly over the last year. But we also hold, keep it in mind, 3 million first line treasury shares to offset such potential dilution.

Lastly, in December ‘15, we repaid the CHF235 million bonds and we are now debt free. All these movements, along with limited CapEx, resulted in a net cash position at year end of CHF405 million, a level we believe to be appropriate as we retained full financial flexibility to seize any strategic opportunities that would fit our strategy as well as our stringent financial criteria. And here you see how our net cash position of CHF405 million at the end of 2015 is distributed by currency. To be complete, this cash position does not include a negative mark-to-market value of CHF7 million of derivative instruments that aim to mitigate any P&L volatility in line with Actelion’s hedging policy.

Let me finish with our full year guidance, which involves a number of assumptions as Otto talked about in some detail earlier. To summarize, they include the Uptravi launch dynamics, continued Opsumit uptake, entry of generic bosentan in the U.S. as well as increasing generic competition and pricing pressure in Europe and Japan. In a year, with lots of moving parts and a number of challenges, we are committed to delivering core operating income growth in the low single-digit percentage range at constant exchange rates and of course varying unforeseen events.

And with that, I would like to thank you for your attention and hand back to Jean-Paul for his closing remarks.

Jean-Paul Clozel

Thank you, Otto and André for the detailed information on our performance. As you have heard, this has been an outstanding year for Actelion with significant achievement on all fronts. And I like to take this opportunity to thank all collaborators of Actelion who have made that possible. This has also been a very good year for our shareholders. Our share price has performed very well and we have been able to return a significant amount of money to shareholders, as André mentioned a few minutes ago.

Looking ahead, we will continue to return cash to shareholders for our share repurchase program. We still have more than 3 million shares remaining for the current program. The Board will also propose a 15% increase in the dividend as to CHF1.50 per share for shareholder approval at this year’s AGM.

For the first time, the vision we have for Actelion is within reach. We have the right products, we have the right people, we know how to develop and commercialize these products. We also have a fully integrated infrastructure with commercial organization in all major markets. Finally, the success in pulmonary hypertension provides us with the financial freedom to invest in the second wave of transformation while continuing to grow our profitability. Looking at the future, we have a very simple vision. We want to become the first European-born biopharma company to make it to the major league. I am confident that we are well underway. Thank you.

Andrew Weiss

Thank you very much. So with this, we have concluded our prepared remarks on the strong 2015 performance. Despite these detailed remarks, I am sure that you are all loaded with a bunch of questions. And operator, may you please compile the roster such that we can take questions?

Question-and-Answer Session

Operator

Yes, we will begin our question-and-answer session now. [Operator Instructions] The first question is from Sachin Jain of Bank of America. Your line is now open.

Sachin Jain

Hi, thanks for taking my questions. Just a few, please. First, could you clarify the key moving parts in the ‘16 guidance? You have obviously alluded to a couple of them. Tracleer U.S. generic timing, what is assumed there? And then any further details you can give on the pricing cuts in Japan you expect for Tracleer and Opsumit? And secondly, around cost base, the slides allude to – sorry, incremental sales being recognized at an 80% margin. So, I wonder if you could discuss the cost base flex around whatever generic Tracleer timing you assume, i.e., if it’s delayed relative to assumptions, will you spend the additional windfall, if it’s earlier, what cost base flex you have? And then the third question is around comments for slower market access for Uptravi. I wonder if you could just quantify that a little bit further. Where are you with payer coverage for Uptravi in the U.S. and what metrics is it best for us to track? Thank you.

Jean-Paul Clozel

Okay. Thank you, Sachin. So, I will take the first question. I will divert the second question on the cost base flexibility to André. And then Otto, if you can at the end take the comment on the slower market access and then provide maybe some color here. So, on clarification for 2016 guidance, as you point out there are lot of moving parts and this is uncertainties for 2016. It’s not a riddle that we are trying to have you solve here. So I mean, Opsumit and Uptravi are moving parts in terms of what do we expect of it. Ventavis generics entering in the third quarter; Zavesca in the United States, potential entrance of generics in the second half; and the Japanese price cut that I don’t think we will be able to provide much color on top of that. For the Tracleer generization process, what we can give you as indications is that from a process point of view, there is an independent project manager that has now taken over the lead. He has been put in place and agreed upon by the eight parties involved. And his primary tasks are to draft now the FDA documents and then file these documents with the FDA. So, the moving elements here that are out of our control are basically how long is his process going to take and then how long is the process, the review process, from the FDA going to take on top of that. So, those two dynamics are there and it provides us with the uncertainties and therefore spill into the guidance that we have issued today of low single-digit growth in local currency. André, could you provide us some guidance on the OpEx?

André Muller

Yes. On the OpEx, Sachin, we anticipate very limited growth in SG&A at constant exchange rates and slightly bigger R&D efforts. As you know and we tried to find the right balance between these R&D efforts, because it will fuel our mid to long-term growth and short-term core profitability, as Andrew said, where we are committed to deliver on our guidance. So in terms of execution, it will be really stop and go and to see what headroom we have to deliver on what is committed here.

Sachin Jain

Thank you. Otto, can you take the question on the Uptravi market?

Otto Schwarz

Yes. Just to be clear, maybe I kind of was not – obviously, maybe I was not clear enough. The comment regarding slower market access was referring to Europe not to the U.S. In Europe, we have to go through the full reimbursement pricing negotiation process with Uptravi as it is a new product and there is no reference product in this class. This was much easier for Opsumit because it was kind of Tracleer was there, you pay for Tracleer, now you pay for Opsumit. And we could have very short Opsumit processes. So compared to Opsumit, Uptravi will be a bit longer in Europe. And this is why in Europe, in terms of 2016, we will have a few launches, but except Germany, most of them in the second half of the year. So the performance this year will be driven by Germany and the U.S. In the U.S., we are going through the usual process. You know that this is 6 months to 9 months, 12 months process, depending on the account. And we are working on that process, but the important thing is that the patients we are getting now, that they get reimbursement even if the product is, by definition an extraordinary product. And as you can imagine, I think we understand this process pretty well and we need to make sure that the product is reimbursed. While it is not a formulary item, giving the product as fast as possible on the formulary and we might be able to give you a bit more color or more information in Q1. And we are now five weeks in the launch. So everything is just up and started to roll.

Andrew Weiss

Thank you, Otto. Sachin, I hope that answered your questions.

Sachin Jain

Thank you.

Andrew Weiss

Operator, next question please.

Operator

The next question is from James Gordon of JPMorgan. Your line is now open.

James Gordon

Hello. Thanks for taking my questions. One question was about the ERAs in the U.S. and the sequential development in terms of the sales. So the question was, I think Tracleer was down sequentially about CHF15 million; Opsumit up about CHF4 million and it looks like Gilead’s Letairis, up about CHF11 million, so it does seem like, if you are being simplistic and just looking at the sales, Letairis has take more of the Tracleer share than Opsumit has, so the question is, could that be the start of an AMBITION hit or is that not real reflective of what you are seeing in terms of actual patients in Opsumit, how is U.S. patients in Opsumit progressing. And then the second question was just around capital allocation, the buyback, should we expect the buyback to be completed this year. And then there were some recent comments that big M&A wasn’t on the agenda, but then I also heard comments just now about financial flexibility to seize strategic opportunities, so is M&A potentially on the agenda if there was a strategic opportunity or how is M&A being rolled out already for this year?

Andrew Weiss

Okay. Otto, may I ask you to take the first question on ERAs and how you are seeing patient developments between the three franchises in the United States, on the capital allocation and – we will give it to André and the M&A, Jean-Paul, please. Otto?

Otto Schwarz

I think the view is a bit – the math you make might be too simplistic because you need to look at also at some pricing. But there is – it’s very clear that the market in the U.S. is expanding. And of course Volibris or Letairis is benefiting from that expansion as well. And overall in 2015, I think the data we have, as much as we have the data, we can estimate the data because we don’t have hard Volibris patient data, is that Opsumit gained share. Opsumit gained new patient share, which is really the important metric. But it is very clear that AMBITION, the approval in the U.S will give Gilead and Letairis a new boost. And that as I mentioned before, it’s going to be the key challenge that we defend the market share we have regained with Opsumit and actually, pinned our market share even further. But that remains the key challenge for 2016.

Andrew Weiss

André, please?

André Muller

Yes. Relating, James to your question on buybacks, Actelion is not a bank. As you have seen in the cash flow of this year, going down from a net cash position of CHF917 million to CHF405 million. So we are committed to return cash generated by our strong cash flow from operation to our shareholders through the buyback. And as you have said, we still have flexibility with the current share buybacks, CHF6.1 million completed of the CHF10 million. So we have a CHF3.9 million remaining capacity. And actually, the base will also depend on M&A opportunities. We have not given up. But as I often say, we will remain disciplined because we can afford to be disciplined. We will be a long-term growth company with the marketed products. And on top and above of the marketed products, we have a very strong pipeline. So in an M&A front, we believe that the environment is really highly competitive. And you have competitors here who are maybe a little more desperate, but certainly who have deeper pockets than we have. So not sure that we will be able to seize a sizable acquisition, but with our strong balance sheet, we have captured financial flexibility.

Jean-Paul Clozel

I just wanted to add also that it’s not always – not only a question of money. I think that there is also – we are limited number of people in Actelion and really we have to really spend our energy for the best opportunities. And we have seen in the past that a lot of M&A was finally pushing the company to spend their time and energy to just reimburse their acquisitions and not really making money. So with our very strong pipeline, with the new products that we have and you will hear more of them in 2016, we believe that we have to be very careful before making a significant M&A acquisition.

Andrew Weiss

Thank you, Jean-Paul. Thank you, James.

James Gordon

Thank you.

Andrew Weiss

Next question please.

Operator

The next question is from Richard Parkes of Deutsche Bank. Your line is now open.

Richard Parkes

Hi. Thanks for taking my questions. And so have a couple for me, just to expand on James was asking about Opsumit in the U.S., Gilead’s claiming to be gaining close to 50% of new patients in the U.S. I am just wondering if you could update us on where you see the Opsumit share and whether that’s changed since the Ambition label of date. And then related to that, just wondered whether you could update us on where stocking levels were, wholesaler inventory levels were for Tracleer. And Opsumit, as you moved into the last quarter, given the relatively modest quarter-on-quarter increases or soft fourth quarter for both of those. And then third question, wondered if you could just discuss what we can expect in terms of patient access programs for Uptravi in the U.S. I know you are giving free drug away for Opsumit during the launch and whether there are any patients from clinical trials that will roll straight into being paying patients after the launch?

Andrew Weiss

Thank you, Richard. Otto, I think all three of them will be you today.

Otto Schwarz

Okay. So the first – let me start with this last one. Yes, there will be patients rolling over, but if I am correct, it’s only around 30 patients. So it’s not going to be a number which is driving forecast. On the inventories, we have commercially usual inventories, so if we had low levels going into ’15, we have now actually a bit higher levels, but they were very low end of ‘15. So the inventory levels are very appropriate across all brands. And we try to have them actually at the lower end with some higher end. The Opsumit versus Letairis data, we need to be – we need to see the potential impact of the AMBITION data now being promoted in the U.S. And we have, basically, one quarter in Q4. They have – they claim to have close to 50% market share. The question is, is that 49% or 45%, we still think we have – we have clearly a majority of the share of new patients with both products. Our math is that Opsumit has above 50% new patient share, of course that we need to defend. They have, I think – Ambition is getting more new patients, because the market is expanding. So, there is two dynamics. And again, yes, they have new momentum with the Ambition data in the label and this is why we have adjusted our communication strategy in the U.S. to be able to face that challenge.

André Muller

Just for the sake of completeness, I will tell you, you mentioned inventory which were lower at the end of ‘14, not ‘15, at the end of ’15….

Otto Schwarz

Yes, sorry. They were low going into ‘15, sorry.

André Muller

Yes, low at the end of ‘14, which explained by the way, you have Q1 increase in sales, which was 16% reporting. And we have healthy levels at the end of 2015 in all countries, including the U.S.

Richard Parkes

Thank you.

Andrew Weiss

Thank you, Richard. Operator, next question please.

Operator

The next question is from Olivia Capra of Barclays Capital. Your line is now open.

Olivia Capra

Yes, thanks very much. Olivia from Barclays. Just two questions please. And the first one is you talk about generics in Spain now for Tracleer. At what point does this kick off reference pricing and will that impact Opsumit? And the second one is you have talked about [indiscernible] factor to the Uptravi line, such as the nursing program to educate on titration and things like that. Can you give us an idea on when you will have completed all of these launch activities? Thank you.

André Muller

Otto, I think those are for you again.

Otto Schwarz

In Spain, the generics launched with around minus 30% official pricing. They are down now significantly below the levels in their offerings. There is a process in Spain in place, which at some point in time around the middle of this year we will be invited for price – official price negotiations with Tracleer. By that time, we plan to have launched Stayveer. And we will switch whatever business is left for Tracleer to Stayveer. And by that, we are going to protect the European price level of Tracleer, which is important. There is no direct link between the Tracleer price in Spain and the Opsumit price in Spain. Of course, it’s a competitive – it’s a kind of a market dynamic. It had some impact on the market dynamics, because the price difference now is significant. But there is no direct connection in terms of price setting between Tracleer and Opsumit. And on Uptravi, some of these programs in the U.S. are with the FDA for approval. As you know, we need to approve that. We have – the basic education materials are out there. And all these activities will be finished when the launch is finished and I can’t tell you when that is. It might be in 2 years or in 3 years. This is not a process which is done so quickly. Launching is an effort which takes some time. This is not done in a few weeks.

Olivia Capra

Yes. Okay, great. Thank you.

Otto Schwarz

Thank you.

André Muller

Again, on to the third question of Richard, patient access programs, there was no patient access program in the U.S. for Uptravi.

Otto Schwarz

No, there are. There are patient access programs. The usual is one we have co-pay support and all this stuff. What we don’t have for Uptravi, like what we had for Opsumit, we have not a special program for the first 1, 2, 3 months, which we had in place for Opsumit. We don’t have that for Uptravi, because it is not deemed necessary, but the usual patient support programs, co-pay programs are all in place, CVS and all these things.

Andrew Weiss

Very good. Thank you. Operator, next question please.

Operator

The next question is from Peter Welford of Jefferies. Your line is now open.

Peter Welford

Hi, thanks for taking my questions. Two left. Firstly, just sticking with Tracleer generics in the U.S. for a minute, I appreciate this is uncertain timing, but just so we can understand, so when the independent project manager has put together a report that is acceptable to all parties, how long typically would it then take to submit such a dossier and for the FDA to turn it around? I guess I am just trying to get some sort of idea at least on that part as to what sort of timing we could be looking at. And then secondly, just on the pipeline, I appreciate the clarity on ponesimod in multiple sclerosis being enrolled, hopefully, fully this year. I was wondering if you could provide just an update on when we might get initial headline data on the graft versus host. And also the cenerimod Phase 2 lupus study when we could perhaps see some data from that? Thank you.

Andrew Weiss

Okay. So, your first question on the Tracleer generics, so we cannot provide right now any additional color, because the timelines are not defined from our end. So, the independent project manager basically has to complete his documentation and then file with the FDA. To our understanding is that at the FDA there is no clear pathway that drives a certain clock. And therefore that is another uncertainty that is packed on top of the speed at which the independent project manager is able to turn out these documents. Number two, on the data for GVHD and the lupus trials, when we announced this last year on the April 15, we gave you the indications that it will take 18 and 22 months for the two trials to basically – to complete and the trials kicked off sometime in the second half of last year.

Otto Schwarz

Maybe just one thing to be clear on the generic, the project manager is managing a third-party who is providing the documents for the shared range to be filed then by each of the parties at the same time. And then they will be, by the FDA, approved together. It’s not that the project manager files. Each party files, but a shared commonly agreed document.

Jean-Paul Clozel

Thank you for the clarity, Otto. Just I think it will be difficult for me to answer the lupus because there are two parts of the study and I don’t know if we will release one part. I most likely will not get that public before we have a look. In fact, there are two dose level in the lupus trial and we will look for safety reasons if the first doses are safe and then we will increase the dose and I am not sure we will publish the data at this time. So, it would be next year we should get the result of both studies.

Peter Welford

Alright, thank you.

Andrew Weiss

Thank you, Peter.

Operator

The next question is from Samir Devani of Rx Securities. Your line is now open.

Samir Devani

Thanks for taking my questions. Most have been answered. Just one on cadazolid, you indicated that you are going to complete recruitment this year. I just want to know when you expect results those clinical trials are suggesting July this year. So can you confirm how recruitment is going?

Jean-Paul Clozel

Recruitment is going well. I think we have two studies and most likely, I would say we will wait until last study finishes to release data, because we don’t want to – there is a combined analysis and we do not want to compromise one study by releasing the data of the other one. So, we will wait at the two studies. So, it’s difficult for me to tell you, but I think that our assumption that we will finish recruitment at the end of the year is fine. And we will get them the results beginning of next year.

Samir Devani

Okay, thanks for the clarification.

Andrew Weiss

Thank you, Samir. Operator, next question please?

Operator

And the next question is from Maurizio Bernasconi from Bank am Bellevue. Your line is now open.

Maurizio Bernasconi

Thank you for taking my question. Some color on Tracleer U.S. pricing, how do you expect the price for Tracleer to develop in 2016? And then if I got it correctly, you mentioned that you stopped paying royalties on Tracleer after the patent cliff. And then last maybe, can you elaborate a little bit how many patients are left on Tracleer ex-U.S.? Thank you.

Otto Schwarz

The patient on ex-U.S., we have – as we have shown on the chart, 46,000 patients on Tracleer, 5,000 are in the U.S. So, the balance is left outside of the U.S.

Andrew Weiss

Okay. With regards to the pricing development, we don’t make forward-looking statements on pricing developments except for those that are have been already done in the past. With regards to the royalties, André, can you provide some clarity on that?

André Muller

Yes. When I said most of U.S. sales are no longer liable to royalties, it’s really an overwhelming proportion. We just have blister packs that actually will be subject to a royalty payment to the licensor.

Andrew Weiss

Thank you, Maurizio. Operator, next question please.

Operator

The next question is a follow-up question of Richard Parkes of Deutsche Bank. Your line is now open.

Richard Parkes

Thanks for taking my follow-ups. The first one was I just wondered if you could update us on when we should expect generics to launch for Tracleer in Japan. And then secondly, on R&D expense going-forward, I know you talked about 2016, you have obviously signaled your desire to have the opportunity to invest a little bit more aggressively. But it sounds like that’s going to be relatively modest in 2016, can you help us to understand how you think about that going forward, you talked about balancing the investment versus profitability, do you think about it as a percentage of sales going forward or do you think about it in terms of allowing a certain level of bottom line growth to come through and then balancing that by reinvestment? Thank you.

Andrew Weiss

Okay. Thank you, Richard. Otto, can you provide some clarity on Japanese generic exposure potentially coming in?

Otto Schwarz

I only can tell you one thing. Generics are able to file after the patent has expired, that was happening in June last year. So depending on what you assume for a generic approval, that gives you the time lines and then you have the pricing. And we have no visibility who filed when. But technically, they only can file after the patent has expired.

Andrew Weiss

And Jean-Paul, on R&D expense outlook?

Jean-Paul Clozel

I think that we have a very rich pipeline, but we have also a commitment to grow profitability. And of course, we will also adapt to the results of our clinical trials because you can never expect that everything will work, unfortunately. But that’s the reality. We are now just finished a big trial with the pulmonary hypertension franchise. And we are replacing it with MS large trials, in fact. And of course, the Cadazolid trial will be finishing this year. So frankly, in the coming 2 years to 3 years, we do not expect major changes, maybe a small increase but clearly major changes in our spending. And so I think that we would like to believe that we are seeing that, in fact our sales should increase quicker than our expenses quickly and we should be able – despite growing our pipeline, delivering new products, we should be able to increase our profitability. So and for 2018 and ‘19, we will see how many products make it. But I am not expecting frankly, in the next coming years major changes in spending.

Andrew Weiss

Excellent. Thank you, Jean-Paul. Operator we have time for one more question please.

Operator

There are no further questions now.

Andrew Weiss

How well that, that worked out for us. So thank you very much. I would like to end today’s call and thank all the speakers and participants for joining in today. I look forward to speaking to all of you again, latest at the first quarter results scheduled for the 21 April, 2016. Thank you very much for your continued interest in Actelion and have a nice rest of the day. Conference call, please close down the lines.

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