Actelion's (ALIOF) CEO Jean-Paul Clozel on Q1 2016 Results - Earnings Call Transcript

| About: Actelion Ltd. (ALIOF)

Actelion Ltd. (OTCPK:ALIOF) Q1 2016 Earnings Conference Call April 21, 2016 9:00 AM ET

Executives

Andrew Weiss - Head of Investor Relations and Corporate Communications

Jean-Paul Clozel - Chief Executive Officer

Otto Schwarz - Chief Operating Officer

André Muller - Chief Financial Officer

Analysts

James Gordon - JPMorgan Chase & Co.,

Richard Parkes - Deutsche Bank

Sachin Jain - Bank of America Merrill Lynch

Emmanuel Papadakis - MainFirst Bank AG.

Luisa Hector - Exane BNP Paribas

Michael Leuchten - Barclays Capital

Peter Welford - Jefferies & Company , Inc.

Operator

Good afternoon. This is the Arkadin conference operator. Welcome to the First Quarter 2016 Financial Results Conference Call. As a reminder all participants are in listen-only mode and the conference is being recorded. At the presentation there will be an opportunity to ask questions.

At this time, I would like to turn the conference over to Andrew Weiss, Head, Investor Relations and Corporate Communications. Please go ahead.

Andrew Weiss

Thank you very much. Good morning, good afternoon, everyone and thank you for joining in to today’s conference call. The topic of the day the great results being presented, or they were presented this morning.

With me on the call I’m delighted to have our CEO, Jean-Paul Clozel; our COO, Otto Schwarz; and our CFO, André Muller. They are here to provide you with additional granularity on the press release published this morning at 7:00 A.M. Swiss Time.

Before handing over to Jean-Paul, I need to remind everyone that we will be making forward-looking statements. You are therefore having appropriately warned about the risks and opportunities of investing in Actelion’s share.

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

Jean-Paul Clozel

Thank you very much Andrew. Good morning and good afternoon to all who are listening to this call. Actelion has indeed had a very strong start in 2016. Opsumit is continuing its outstanding launch trajectory and Otto will give you more details.

Uptravi was launched in January, it is therefore impossible to have a definitive view on this launch. The first three months of sales have, however been very impressive and the feedback from the prescriber and from the patients is very encouraging. In addition, to our two key products; Opsumit and Uptravi, our other products Veletri, Tracleer, Ventavis, Zavesca and Valchlor are also performing well.

On top of these outstanding commercial achievements our clinical pipeline is moving forward. This is true for both our projects in pulmonary arterial hypertension as well as outside the pulmonary hypertension field. This quarter I’ve also been delighted to observe how productive, our drug discovery organization has been. Three new product discoveries in Actelion have entered on clinical developments. These are very innovative products addressing high medical need. And we will give you more information when the assets progress into Phase II.

As we have explained previously, the first and crucial component of our strategy and to - is to consolidate and grow our pulmonary hypertension franchise. The basis for this strategy is Opsumit, owing to its high clinical utility demonstrated alone or in combination with phosphodiesterase inhibitors.

Thanks to its long-term benefits we are convinced that Opsumit will become the [first-line] treatment for pulmonary hypertension. We are also investing into extending the clinical utility of Opsumit beyond this current level with more than eight studies currently ongoing. The success of the Uptravi launch is clearly the second key aspect of our pulmonary hypertension strategy.

As with Opsumit the success of this launch is a result of our long-term view namely that we need to have a continuity of innovation. Not only is Uptravi an innovative drug discovered by Nippon Shinyaku, but the design and endpoint of the GRIPHON study are critical innovations as they capture the clinical - and demonstrate the clinical utility of the product.

The innovation continues through to the market with the next campaign. Otto will give you more details. But I can say that in my whole career within pharma. I have never seen such a level of awareness for a new drug before its launch.

Finally, I am convinced that our commercial strategy and the product branding of Uptravi, we fully described this potential into an area of attention. This is a clear demonstration that innovation has to be everywhere from the discovery to the commercial organization for a Company to be successful. We will apply this continuity of innovation approach to all our products currently in clinical development.

And these products are moving faster. Cadazolid recruitment should be completed this year and research should be available in the first half of 2017. Ponesimod Phase III is processing faster than expected. There is a high interest in this comparative study ponesimod versus teriflunomide. As far this first time there is a trial comparing two oral drugs.

We have started to treat patient with clazosentan to see whether it has an early effect in reversing angiographically-confirmed cerebral vasospasm in patient with aneurysmal subarachnoid hemorrhage. The first part of the Phase II study of cenerimod in systemic lupus erythematosus is now complete and we are analyzing the data in order to continue with the second part of the study. Many other projects, such as with the lucerastat compound, our CNS portfolio, and our cardiovascular products, are also progressing very well.

As you can see with all this progress 2016 is the year for Actelion to sign the fantastic opportunity we have created. With our pulmonary hypertension franchise with our pipeline and with our infrastructure, we can create one of the most successful biotechnology companies. We can do this while continuing to grow profit. André will give you more granularity on our financial numbers, but I am happy to report that we are upgrading our guidance from low single-digit to high single-digit percentage. Core operating income grows at constant exchange rates and barring unforeseen events.

I hope I have given you a good idea of how well is running today Actelion and to why today I am a very, very happy CEO. Now, Otto is going to give you more detail on the performance of the commercial organization under his leadership. Otto?

Otto Schwarz

Thank you, Jean-Paul. Good morning, good evening, good afternoon. Welcome to all of you around the globe. Thanks for calling in and your interest in Actelion. I am pleased to report to continue very decent progress in Q1 2016 in the successful execution of our strategic intent in transforming the Company.

With the local currency growth of 11% reaching net sales of CHF589 million in Q1, we continue to deliver a pretty strong performance. Based on the strength of the Opsumit performance and the launch of Uptravi, in Q1 56% of our sales have generated now in the U.S., a significant shift from one-year ago.

In Q1, our three strategic outcome-based PAH assets Opsumit, Veletri, and Uptravi generated 40% of total company sales and Tracleer for the first time contributed less than 50% of total company revenue. Demonstrating the progress we made in shifting the business away from the grand old lady in PAH Tracleer.

Let’s start the product to the horizon with Uptravi launched in the U.S. on January 4, 2016. Before we come to the Q1 results, let’s take a step back. In 2015, we initiated a medical education campaign in the U.S. describing the therapeutic opportunities to prostacyclin pathway hold in PAH called the power of three.

We also executed a diligent sequence of presentations of the Uptravi GRIPHON results at major medical Congress unfolding the clinical utility story of Uptravi, as well as reactive medial affair outreach program. And let me share what has been achieved through such a concerted action.

In December 2015, just before launch, 76% of physician surveys were aware of Uptravi unprompted, which compares for example to Opsumit with a 44% unprompted awareness at a similar point in time. Adding the aided awareness with 83, we have literally universal awareness for Uptravi prior to launch.

In addition, almost half of the physicians are very familiar or familiar with Uptravi, pretty remarkable. This also means proactive pool of information by the PAH physicians. This awareness in similarity translates in the high propensity to prescribe Uptravi. 80% of the physician survey indicate that they would consider prescribing Uptravi instead of another oral prostacyclin. 67% of physicians indicated that they would consider prescribing Uptravi instead of another inhaled prostacyclin. This data compare very, very well with benchmark data.

So let’s talk about Q1 results. In Q1 2016, Uptravi net sales are at CHF35 million of which approximately CHF50 million are demand sales and CHF20 million are related to the launch inventory buildup. Just one comment on the inventory. We supply Uptravi in 10 different presentations in the U.S. and just to remind you for Opsumit, we commercialized only one the 10 milligram presentation. This means even keeping inventories for Uptravi as low as possible, Uptravi will require an inventory of significant cash value corresponding to it increase in sales.

By the end of Q1, we had 650 patients on drug. However, you need to realize that given the fact it takes now on average 21 days to get a referred Uptravi patient on drug. The 650 patients reflect the states of patient referrals up to the first week of March. By the end of Q1, we had over 400 prescribers for Uptravi and numbers achieves by Orenitram only after 12 months. 50% of these prescribers had prescribed for more than one patient, 10% for more than five patients.

Around 80% of the patients are receiving Uptravi on top of an ERA still we assume that most patients are on an oral triple combination therapy. Also the level of weekly Uptravi referral indicate that we get patients on Uptravi who would not go on a prostacyclin prior to the Uptravi launch.

In summary, I am very pleased with the early dynamics of the U.S. Uptravi launch. We need a few more months to see how fast it can open the prostacyclin pathways to many more patients. Just one comment outside of the U.S. and France, a cohort ATU for Uptravi has been approved, which will commence in May for patients and sufficiently controlled on an ERA PDE-5 combination therapy.

So let’s move to the current engine of growth Opsumit. With sales of CHF178 million, the strong sales trajectory of Opsumit is sustained with solid year-to-date and quarter-over-quarter growth. In the U.S. the average weekly enrollments of new patients has not been visibly affected by Gilead’s promotion of the AMBITION data and the revised label.

However, we assume AMBITION has stopped the new ERA patients share erosion for ambrisentan. Japan provided 20% of the new patients on drugs gained in Q1 2016 with an exceptionally high share namely around 45% switched from Tracleer and even ambrisentan. By the way, we avoided the possible price cut in March for Opsumit in Japan. Comparing our total ERA patients on Opsumit in Tracleer at the end of Q1 2016 versus Q1 2015, we continue to observe a growth of our ERA patient base between 5% and 10% over 12 months depending on the market.

The growth comes from new patient market share gains as well as more and earlier combination therapy with PDE-5. One question we had when launching Opsumit was will the product benefit translate into more patients versus Tracleer staying on drug over time and/or longer treatment time. When we compare in the U.S., the number of patients stay on drug Opsumit versus Tracleer after 12 months. There is an absolute 11% point difference in favor of Opsumit which is sustainable as it widens to 14 percentage points after 24 months.

Let’s move to Veletri, the third strategic transformational asset in our PAH portfolio for Class IV patients. Veletri grew 20% in Q1 in local currencies to reach CHF24 million in sales driven by growth in France, Japan, Spain and UK. In Japan, the average price across the Veletri presentation has been cut by 12% as of March 1.

Room-temperature stable Flolan has been approved in Japan expected to be launched in late Q3. The diluent which makes Flolan room temperature stable has also been approved in the U.S. quite sometime ago, but has not been yet launched. In the U.S. our very successful Ready Sette Go program where the specialty pharmacy ships pre-filled cassettes for seven days to patients now cover 60% of our patient volume and we are further expanding the program in 2016 to more sites.

In the U.S. and Europe due to the high new Epo patient share we already have achieved, growth will mainly come from market expansion, which we expect to materialize mid-term due to the Uptravi launch.

Let’s move to Tracleer. Sales of CHF290 million in Q1 constitute at 18% decline in local currency sales versus prior year, which is the net result of three dynamics. First, erosion through the launch of Opsumit, second growth in the digital ulcer in Japan where we launched with a very strong uptick mid last year and we also grow in established markets like Germany and the UK.

And third, impact of generics in selected markets like in Spain, where the generics launched in early Q1 in a [indiscernible] aggressive way, leading to a 50% volume and price erosion of Tracleer resulting in a sharp decline of minus 70% in Q1 sales. We launched Stayveer in April to protect the Tracleer least price. Conversely, we won our court case against Zentiva in Portugal which means no generic entry there before the compound patent expiry in late 2017.

In the U.S. the collaboration of seven generic companies and ourselves in building a shared REMS is progressing depending on the duration of the FDA review and approval process it might take another six to nine months before generic Bosentan to enter the market. Last but not least despite Tracleer being off patent since mid last year we have no price cut in Japan which has a benefit even beyond 2016.

Ventavis delivered sales of CHF27 million in Q1, 18% local currency value and 24% unit decline versus prior year driven by competitive pressure. Since the launch of Uptravi, Ventavis new patient enrollments declined for 60%, we also observed some switches from Ventavis to Uptravi. But again we need a few more months to see how these dynamics will play out.

Moving to Zavesca. The 26% local currency growth resulting in Q1 sales of CHF25 million is driven by three effects. The major effect is a U.S. baseline effect versus 2015 as we reduced inventory in 2016. So 2016 growth is over expressed. Secondly, solid double-digit growth in NP-C patients by 15% which grows even in generically exposed countries.

And third, impact of generic miglustat launches mainly today in Sweden and Spain. Globally, the GD1 patient base declined by 30% versus Q1 2015 also due to a competitive ERT environment. In the U.S. generic miglustat entry is potentially possible at the earliest in Q3 2016, which would expose a bit over 20% of our global Zavesca sales.

For Valchlor, we saw CHF9 million in Q1 and 80% growth versus prior year of which CHF600,000 come from the French ATU. And we continue to make pretty decent consistent progress in the U.S. as shown in the graph, which represents monthly tube sales in the U.S.

Globally, we passed the 2000 patient threshold with around 240 patients coming from France. We pursue three strategic priorities in the U.S., first, grow our share of first and second-line treatment of MF-CTCL by emphasizing the clinical utility. We launched now in non-medication presentation to make physicians feel, touch, experience the benefit of our gel presentation.

Second, grow the market for Valchlor through disease education, and thirdly, grow therapy adherence with focus on lowering discontinuations due to dermatitis increase adherence and increase the retreatment rate. We also launched the product Valchlor in Israel in April and the EU regulatory process is ongoing.

So let me close by summarizing the state of our business end of Q1 and my priorities for the coming months. Continue Opsumit strong momentum and defend well against Gilead’s ambition with AMBITION. Built Uptravi momentum in the U.S. based on the strong early launch trajectory.

Third, prepare for Uptravi launches ex-U.S., and manage price pressures like we did in Japan and our generic exposures. Based on the state of the business in Q1, I am very confident with the upgrade of our guidance announced by Jean-Paul just a few minutes ago.

So thanks for your attention. With that, I hand over the baton on to André. André, please.

André Muller

Thank you, Otto. Good afternoon or good morning ladies and gentlemen, and thank you for joining us today. Let me start with the usual slide with the key numbers. Product sales are up 11% at constant exchange rates to reach CHF589 million. Core operating income previously named core earnings increased by 8% to reach CHF249 million, also at CER. U.S. GAAP operating income was up 3% to reach CHF208 million. And bottom line core EPS was up 11% to reach CHF1.64 at constant exchange rates.

As usual, the full reconciliation of U.S. GAAP numbers to core numbers can be found in the financial review as well as on our website. Here, you can see the product sales growth in more detail. This slide is now less busy as in previous quarters as we no longer have to measure the impact of U.S. rebate reversal as we consider that they have now normalized.

So Otto has already outlined the Actelion’s sales performance. The resulting intrinsic growth was CHF58 million at constant exchange rates. Uptravi and Opsumit, of course, are the main drivers of this increase, clearly demonstrating the transformation of our PAH franchise. After many years of negative FX impact, the tide has turned for Swiss Francs reported. The weakening Swiss Franc against the major currencies Actelion is exposed to resulted in a positive foreign exchange variance of CHF17 million.

And here you have the same analysis for core operating income. Intrinsic growth was CHF18 million, which translates into 8.5% increase at CER. The weakening Swiss Franc resulted in positive FX variance of CHF13 million.

Okay. Let’s move on. Here is the usual slide showing how core operating income came about. Core cost of sales were 12% lower despite higher sales. Main reason for the decrease is the U.S. patent expiry of Tracleer last November 2015, also we no longer pay royalties on Ventavis sales, and another driver is actually 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 where the product still has patent protection.

Just as a reminder, we started paying to Nippon Shinyaku in early January 2016, a mid-teen royalty rate on Uptravi sales. Core research and development expenses at CHF126 billion were 29% higher at constant exchange rate. The increase is mostly driven by this strong recruitment in the Phase III OPTIMUM study with Ponesimod in MS that we announced during the second quarter of last year.

Also we have accelerated the recruitment in the Phase III IMPACT study, Cadazolid Clostridium difficile-associated diarrhea in order to complete the enrollment before year-end. Additionally, a number of earlier stage compounds move forward in our pipeline. We will continue to focus on carefully balancing investments in order to ensure future growth and delivery of appropriate shareholder returns.

Core SG&A expenses amounted to CHF169 million, an increase of 11% at CR. The majority of this increase can be allocated to cost relating to the highly successful launch of Uptravi in the U.S. as well as preparation both the anticipated European launches. Additionally, we are continuing the rollout of Opsumit and Veletri in various markets around the globe. G&A expenses increased by 3%.

Let us move on to U.S. GAAP numbers. Here is the visual of how we get from our core operating income measure to U.S. GAAP operating income. Total non-core operating expenses increased by CHF12 million compared to last year. However, this increased is skewed as non-core operating expenses in Q1 2015 were reduced due to that creation benefit of CHF10 million relating to the contingent consideration for Valchlor. So excluding this prior year runoff, the increase in non-core OpEx is actually only CHF2 million related mostly to stock-based compensation.

Let’s have a look at how the U.S. GAAP net income came about. Financial expense of CHF1 million is basically the net FX impact of our hedging strategy. As we repaid CHF235 million bond in December 2015, we are now debt free and now are not incurring any interest expenses.

The tax expense of CHF29 million translated in an effective tax rate of 14% for U.S. GAAP numbers, a small increase due to higher profits in the U.S. The core ETR is 13%. We are expecting both of these rates to stay around this level for the current year. Non-controlling interest relate to the 26% equity stake held by minority shareholders in Vaxxilon. The resulting net income amounted to CHF178 million.

Let us move on to earnings per share. Diluted EPS are driven by net income that we just looked at as well as the number of share as the denominator. The average share count for basic EPS decreased by 6 billion shares due to the second line share repurchase program. And the average share count for diluted EPS decreased by 6.4 million shares. As the average number of dilutive instruments decreased by 0.4 million shares despite an increase in the average share price. CHF135 per share in Q1 2016 compared to CHF109 in Q1 2015.

Let us have a look now at our cash position. We started the year with the net cash position of CHF405 million. Operating cash flow for the quarter amounted to CHF172 million, which is a result of a strong operating performance with funds from operation of CHF206 million, an increase of CHF53 million of net working capital requirements, including higher trade receivables in connection with higher sales, but DSO remains at the historic low levels with 53 days. And last deferred tax net position decreased by CHF19 million, mostly driven by the utilization of net operating losses into U.S. and into Switzerland.

During the third quarter we also bought 0.4 million shares via the second line share buyback program for a total cash outflow of CHF69 million. We also bought 0.3 million first line of shares to offset dilution rising from stock based compensation for total consideration of CHF30 million. All these movements resulted in net cash position at the end of the first quarter of CHF472 million so slightly higher than at the end of 2015.

As we will pay mid-May 150 dividend per share so around CHF160 million, if approved of course, at the upcoming AGM on the May 4, 2016. We believe that these level of cash are appropriate as it allow us to retain full financial flexibility to seize any strategic opportunities that would fit our strategy as well as our stringent financial criteria.

Let me finish with our updated full-year guidance. The strong start to 2016, along with some clarity on a number of factors, which includes a strong Opsumit trajectory, the Uptravi launch dynamic and stable pricing in Japan for Opsumit and Tracleer enabled us now to increase the outlook for the full-year. Barring unforeseen events, we now expect high single-digit percentage gross in our core operating income, of course at constant exchange rates.

And with that, I would like to thank you for the attention and hand back to Andrew for the Q&A part of this presentation.

Andrew Weiss

Thank you, gentlemen for your presentations. We have now concluded our remarks and our performance during the first quarter. I would like to move over to the Q&A session now. Operator, please open the lines for the questions.

Question-and-Answer Session

Operator

We will now begin our question-and-answer session. [Operator Instructions] The first question is from James Gordon of JPMorgan. Please go ahead.

James Gordon

Hello. Thanks for taking my questions. Two questions, first one was just about Uptravi in the U.S. and where the patients are coming from. How much is it patients new to prostacyclins versus [in whole] switches? Could you mention some switches from Ventavis, are you seeing switches from Tyvaso? And also, are you seeing switches from Orenitram, or different prescriber base of population? And also, do you think there's a lot of patients that will warehouse before going on therapy, or do you think this is a relatively clean number in terms of the number of patients you've added to therapy, which looks really good?

And the second question was - launches seem to be going really well generally. If there was one area that was a little bit slower, maybe it's Opsumit in Europe, where there wasn't much sequential growth this quarter. And my question would just be, is it likely to stay the case that the U.S. is just going to be three times as bigger market for Opsumit as Europe and might not be the same thing for Uptravi, or do you think Europe is more of a slow burn eventually catches up?

Jean-Paul Clozel

Otto, I think those are for you.

Otto Schwarz

Just let’s start with - now with the first one. I can’t give you more granularity right now on the source of business than that we assume more than 80% of this patients are on triple oral combination therapy. Yes, we know there are some switches from Tyvaso. There are some switches from Ventavis. There is anecdotal switches from Orenitram. But I would not take that now too serious because the dynamics needs to play out.

And as we don’t have [RIMS] program for Uptravi, we e don’t have this fast visibility. It will take a bit more time. I think the important number is the patient number which is solid. I think it is a clean number but it has bolus or there might be bolus, as there was for Opsumit because the physicians were ready to basically put the patient on the product right after the product was commercially available, which I guess is more a testimony to our pre-marketing program and to the clinical utility of the program, but I wouldn’t call it warehousing.

The third thing is Europe versus the U.S., yes, Europe is a more difficult place. The price level of Opsumit in Europe versus the U.S. is very different. I guess you are aware of that. In Europe, we also – the impact in Spain hurts, yes. And we have some other price erosions for Tracleer in other markets, because we have generic competition in seven markets. We are doing relatively well, but it’s kind of eating away every quarter.

And Uptravi will be the same thing, because the price level will be different. The prostacyclin market needs to be established, so it will take a little bit longer than in the U.S. In principle, Europe is a much more difficult environment than the U.S., but that’s for everybody I guess, not only for us.

James Gordon

Thank you.

Andrew Weiss

Thank you Otto. Thank you James. Next question please.

Operator

The next question is from Richard Parkes of Deutsche Bank. Please go ahead.

Richard Parkes

Hi. Thanks for taking my questions. First one just for Otto, I just wondered whether you could give us any guidance on how we should think about gross to net for Uptravi in terms of list price versus revenue per patient. Is there some kind of ballpark number you can give us to guide us on sort of rebate levels versus the list price?

And then second question for André on the cost base. It looks like you've accelerated investment somewhat in the first quarter. I think you talked at the full-year results about relatively modest OpEx increases. I'm just wondering how much of the first quarter we should look at the cost as cost simply being brought forward as you accelerate the Phase III program recruitment, or do you think now you've got more room to invest more aggressively, given obviously the good – the strong start to the year?

And just – sorry, just one sort of third question. I just wondered when we could expect data from the TRANSIT-1 trial of Uptravi to be presented. That's the switch study.

Otto Schwarz

Let’s go to – let me start first with gross versus net. Unfortunately, Rich I can't give you a decent number now, because we have a couple of moving parts, we don't say rebates yet, because we have the first formulary wins. But we're starting to contract the product over the next couple of months as this product is BNT reviewed.

We have a very high number of paid shipments, so we're doing well in terms of getting the product paid. How gross versus net ultimately will pay out will take a bit of time. TRANSIT-1 is developing well and I hope we can present data next year.

André Muller

Second question Richard; you are right, 29% in R&D is not exactly a limited growth, as I commented in full-year results. But, actually 29% turns out to be CHF28 million, CHF29 million. Two-third of this increase is due also to some timing events of – we had to buy some competitor actually teriflunomide and vancomycin for the OPTIMUM and the IMPACT Phase III studies.

And we also increased the number of centers as we want to complete both – the enrollment for both studies by the end of the year. So if you take these two clinical trials into account, it’s roughly a 50% of this increase. And as you said, we are advancing the pipeline, it’s advancing well.

We have – we plan initially for an attrition and you can see the glass half empty or half full, but we it half full, because we are advancing all our compounds and we believe that they are promising compounds. So by the end of the year again OPTIMUM should be – enrollment should be competed as well for cadazolid with IMPACT.

Richard Parkes

Okay, great. Thank you very much.

Jean-Paul Clozel

Just to say – it’s Jean-Paul here, just to answer your question, we are not adjusting of expenses through our increase of sales, we want to gain some leverage when it’s possible and we are going to make – we are going to make really very big efforts to minimize and to control this cuts very carefully, because as contrary we do not want to spend more every time, we said more. That’s not our intension at all.

Richard Parkes

Thank you.

Andrew Weiss

Thank you, Jean-Paul. Thank you, Richard. Next question please.

Operator

The next question is from Sachin Jain of Bank of America. Please go ahead.

Sachin Jain

Hi, couple of questions please. Jean to clear could you confirm the U.S. jurisdiction now included in the guidance for 2016, it wasn’t really listed in your – list of things as we upgrade. And then just a bit more color on…

Jean-Paul Clozel

I was very clear, in the next six to nine months, we don’t expect a generic.

Sachin Jain

Okay, thank you. André is there a reason for the guidance upgrade I just want to check that. On the Tracleer RIMS, could you just clarify as the RIMS being decided an agreement submitted to regulators such that any delay from here is down to FDA there was any discussions going on around the RIMS?

André Muller

There is no delay on anything, we are all working diligently with the seven companies as a group. I am not going to give you because that I can’t do that there is one company out of seven give you specific milestones have we submitted and we have not submitted.

Sachin Jain

Okay. And second question was related to ponesimod, I think you’ve alluded to it before a new study aimed to finding the benefits of greater extend which is related to shorter half life, just any color us to where you are with that and can we expect any update soon. And then one clarification question on Opsumit, perhaps I misinterpreted. I think you referred to let’s how shares are stabilizing post AMBITION. So just to make sure understand it correctly most of your ERA growth is not coming from market growth longer-term at therapy? Thank you.

Jean-Paul Clozel

Maybe the last one – we are talking about new patient share and we will kind of see when AMBITION, although when Gilead keeps that Q1 results, but your interpretation is correct. That's what we think is the case currently.

André Muller

And then concerning the second study for ponesimod, we are still implementing this study, we are just submitting the protocol and things are just in the starting of – the starting phase of any trial.

Sachin Jain

Thank you.

Andrew Weiss

Thank you, Sachin. Operator, next question please.

Operator

The next question is from Emmanuel Papadakis of MainFirst. Please go ahead.

Emmanuel Papadakis

Hi, thanks for taking the question. First, I want to apologize if I missed that, did you give us an outside patient number exiting the quarter?

Jean-Paul Clozel

Yes. Can I respond? We will stop giving Opsumit quarterly numbers, because given the competitive situation now this is sensitive.

Emmanuel Papadakis

I understood.

Jean-Paul Clozel

And you have good models, right, Emman after eight quarters of patient numbers I guess, you have good models.

Emmanuel Papadakis

Theoretically. The second question would be to maybe just come back on the patient numbers you did very kindly provide, which was around Uptravi, the 650. You've clearly alluded to perhaps a certain proportion of that being a bolus. I don't know if we could push you to try and quantify a bit more what you think is the weekly patient add rates you're seeing presently?

Jean-Paul Clozel

The bolus - unfortunately or fortunately the bolus can only charge when I see my enrollments coming significantly down, which they have not done yet. So I think we have great good enrolments, the 650 is basically the enrollment number by the beginning of March, and given the enrollment number was at the market for prostacyclin. As oral doing very well I think all – so we are getting patients on drug which would not go on prostacyclin. And strategically that’s extremely important because we need to expand this marketplace happy.

Emmanuel Papadakis

Okay. Very helpful. And then perhaps a – sorry, excuse me, perhaps a last one from me around the - excuse me, I'm having some technical problems, the second study the clarification that we could expect from the middle of the year along with I know you said you give us further update on new Phase 1, Phase 2 would be potential expect that during second half of this year or is that likely to more 2017 when we get clarification in the nature of those assets.

Jean-Paul Clozel

No, I think we will get some - you will get some data this year we are [indiscernible] let see this big study. The company has really been focused on the launch of Uptravi on the successful and the company is also been focused to finish as we say recruitment of this big studies this is the limiting step for approval of these drugs being cadazolid being - ponesimod and we are also moving very well in some of the projects.

We try to keep as long as we can some type of competitive advantage because I think we try to be as I say innovations is everywhere but I think that – I have a feeling that people will start to take it seriously, because of goods results and therefore you know we do not intend to go earlier as well as we were expecting to explain what are we doing. So I don't think the reason you would need to do that. And but we do it I think part of it during this year, part of it in 2017, but I would say as late as we can.

Emmanuel Papadakis

Many thanks, very helpful.

Andrew Weiss

Thank you, Emmanuel. Operator, next question please.

Operator

The next question is from Luisa Hector of BNP Paribas. Please go ahead.

Luisa Hector

Oh, hi thank you for taking my questions. So on Uptravi I wonder if you could add any more color to the European situation - the clarifications that were requested and whether this has delayed your potential approval and you have the positive opinion but whether that the timing of that approval is significantly delayed. And then you mentioned the 21 days on average for the referred patients in the U.S. to access drug. Is this just the prior authorization and how soon could that time gap diminish? Please.

André Muller

Okay on the Uptravi Luisa, I mean we've got the re-adoption of the positive opinion on the April 1, which basically from a formalistic point of view, resets the clock for the European commission then to issue the marketing license. As indicated when this happen to you. It was a formalistic process the required some redacting of the assessment report and therefore that had to be as a whole package readopted as a positive opinion. So the clock is basically running as of the April 1 as it would have had as of the January 29.

Otto Schwarz

Just a comment on the 21 days, actually that’s a significant achievement just to give you a benchmark for Tracleer after 10 years in the well-oiled fully optimized process we are at 14 days average. So we're doing very well and there's a clear intention to bring that down to 14 days. But we need to get this machine fully running we need to know market excess is now a little bit more cumbersome, because we are off formulary. We are going – we’re getting exceptional reimbursement.

So there's a couple of factors, which show this seven days gap, but the 21 days are a phenomenal achievement of the whole U.S. organization. Again you know versus 14 days after whatever 12 years of Tracleer and I don’t know how many enrollments we have processed over these years. So we're in good shape here.

Luisa Hector

And Opsumit had a similar…

Otto Schwarz

I'm not going to give you an idea of Opsumit number because…

Luisa Hector

Is the Tracleer situation due to the RIMS?

Otto Schwarz

It’s not going to be below the Tracleer number?

Luisa Hector

And so, the delay is to do with the RIMS program.

Otto Schwarz

It is not about delays, this is how the U.S. system is setup to excess specialty drugs.

Luisa Hector

Okay.

Otto Schwarz

So don't buy them in the drug store yes, you have to access them through a system which is a bit more complicated when you have RIMS versus no RIMS so ultimately if Uptravi is getting as big as we all hope. Maybe because we don't have in RIMS I can report that ultimately Uptravi is faster than Opsumit.

Luisa Hector

Okay.

Otto Schwarz

But the 21 days is a great achievement at least in our world.

Luisa Hector

Thank you.

Andrew Weiss

Thank you Otto. Thank you Luisa. Operator, next question please.

Operator

The next question is from [Steven Macquarie] of HSBC. Please go ahead.

Unidentified Analyst

Hi there. Good afternoon, chaps. A few questions, please. Firstly, obviously, we're very concerned generally about US drug pricing. But, I think the general consensus is that rare disease short specialty products are going to be better protected in terms of price pressure over the long term. Could you tell us, in terms of your internal forecast when you look at the franchises for the US, continued price increases in the US, or have you factored in price decreases over the long term for your main franchises?

Secondly, on the R&D pipeline, one of the endothelin antagonists which you've listed as a specialty C for specialty cardiovascular disorders. I've got to clinicaltrials.gov. That's a hypertension trial against lisinopril. Can you tell us what the go/no-go criteria are for that trial to take it forward into a Phase III program? And given the current situation, what size of Phase III program would it need to be? And then finally just on the – also on the R&D pipeline, one of the NCEs in neurologicals, just a question, is that following [indiscernible] antagonist? Thank you.

Otto Schwarz

Okay. Regarding pricing, I think the first thing we priced Opsumit and we priced Uptravi as reasonable as possible. And from the response – from the payer response on both launches they were considered very reasonably priced. How the U.S. is going forward in terms of pricing, if I would know that definitively I would be in a consulting business and consult the entire pharmaceutical industry on that.

I think that the – it’s very clear that the market – that the pricing in the U.S. in the long run might not be the sustainable as it is, and we will be very careful in terms of price increases to make sure that we are acting responsible. That's the only thing I can do today. And then the political situation will decide where they're moving pricing in the U.S.

Andrew Weiss

Thank you Otto. Jean-Paul, do you want to take the ERA question?

Jean-Paul Clozel

Yes, the ERA. I think that we have always say that we really want to characterize the dose that this new endothelin receptor antagonist – the optimal dose for this drug. And I think that this is part of the study and also quick ways to look at the efficacy, the safety of such a trial. I think it's very clear, we do not intend to go to hypertension GP market.

So, we really try to select – after we have seen also the safety, the efficacy of this drug, we try to select a specialized indication where there is a very high medical need. And basically where we do not hit the competition in a way that we make – the need for a trial huge and/or the marketing needed for launching such a drug also huge. So it’s really a try for our size, so don’t really – we need to be very careful with the cost of such a try and an indication for our size. Now it’s never excluded that we can also find a partner. If really the drug is performing better than what we're expecting, everything is open for this drug.

Andrew Weiss

Thank you Jean-Paul. Thank you Steve. Operator, next question.

Operator

The next question is from Olivia Capra of Barclays Capital. Please go ahead.

Michael Leuchten

Sorry, it's actually Michael Leuchten, I'm afraid, at Barclays. Two questions, please, one on Opsumit in Europe just for Otto. The sequential revenue number for Opsumit Q1 over Q4, there was a small step up, much smaller than in prior quarters. Could you comment on whether that is just seasonality, phasing, or whether this is related to pricing and the generics that you mentioned on Tracleer?

And then a question for Andre on the royalties and the gross margin, if I look at your disclosure on the royalty in Q1, does that include the royalties payable on Uptravi? Is that booked in the same quarter, so I can sort of try to back out Tracleer versus Uptravi, or is that too simplistic if I look at it from a quarter-to-quarter perspective?

Andrew Weiss

Otto.

Otto Schwarz

I think you are kind of looking two seismographic into this quarterly upticks. There was actually only one quarter we just step change the rest of the quarters are going pretty consistently between CHF16 million and CHF20 million more and our patient recruitment numbers has been very solid. Of course as the patient base grows, we're going to – the DC rates are – the absolute DC numbers of discontinuations go up. But there is no change in the dynamics neither in Europe nor in the U.S. and actually Japan is doing very well.

Jean-Paul Clozel

André?

André Muller

And second question regarding cost of sales, yes of course the mid-teen royalty rates are paid to our partner Nippon Shinyaku is of course included on CHF35 million sales of Uptravi. And the royalty portion is main portion of cost of sales the other one is of course the cost of good sold, but we have here as explained the mix of products that help us and we are going down CHF5 million in cost of sales whereas we are going up 11% at CER in sales. So that’s a trend which is positive, but if moving forward with Uptravi, we pay a higher royalty rates in comparison to product now.

Michael Leuchten

Thank you.

Andrew Weiss

Thank you, André. Thank you, Michael. We have time for one last question. Operator, please.

Operator

The next question is from Peter Welford of Jefferies. Please go ahead.

Peter Welford

Hi. Yes, thanks for taking my questions. I'll keep it brief, but thanks for taking the last question. Firstly, just on Uptravi, I wondered if you could give us perhaps an update on what you're seeing with regarding to the dose titration. Has there been any differences in terms of both the speed or levels typically reached versus those that you saw in the Phase 3 program? And is there any feedback at all or any initial signs from doctors from the titration process that you're using?

And then secondly, just moving onto Opsumit, I wonder if you could give us an update on some of the European countries regards to pricing, I guess in particular if there's any updates hopefully maybe for France and also any other [indiscernible] regarding the UK and some of the Southern European countries, particular Spain I guess, given what we've seen with Tracleer. Thank you.

Otto Schwarz

So first Uptravi, basically 90% of our shipments today are titration packs, because the patients are getting on the drug. And to see a dosage pack they have converted very few open label patients and the patients are now really coming into the second titration phase or into the maintenance stores.

Before I can give you a meaningful answer here I ask for patients, I don’t think it’s going to be possible before the end of the year to give you a meaningful answer. Regarding Opsumit in Europe pricing – in France we are still negotiating, so we are kind of trying to find common ground, let see where that goes.

And in Spain, we keep the pricing for Opsumit where it is, it’s going to be a bit more difficult in terms of the uptick against a very price sensitive pharmacies. It’s not so much the physicians which we need to convince. It’s the pharmacist, but we are making progress in Spain.

So ultimately we’ll get there, but it makes a little bit more challenging if you go – if you launch against a generic Tracleer. In Europe, because we don’t have RIMS, we don’t have couple of other things. And Spain is a market where there is no close distribution, nothing so it’s a pretty open market.

End of Q&A

Andrew Weiss

Thank you, Otto. Thank you, Peter for your question. So that concludes our Q&A session. We have reached the top of the hour. I would like to thank everybody for participating and look forward to speaking to you latest at the first half results that are scheduled for the July 21. Thank you for your continued interest in Actelion and have a nice day. Operator, please close down the lines.

Operator

Ladies and gentlemen, thank you for your attendance. This call is being concluded. You may now disconnect.

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