Actelion's (ALIOF) CEO Jean-Paul Clozel on Q3 2016 Results - Earnings Call Transcript

| About: Actelion Ltd. (ALIOF)

Actelion Ltd. (OTCPK:ALIOF) Q3 2016 Earnings Conference Call October 20, 2016 7:00 AM ET

Executives

Andrew Weiss - Head, IR and Corporate Communications

Jean-Paul Clozel - CEO

Otto Schwarz - COO

André Muller - CFO

Guy Braunstein - Head of Global Clinical Development

Analysts

James Gordon - JPMorgan

Richard Parkes - Deutsche Bank

Sachin Jain - Bank of America

Michael Leuchten - UBS

Vincent Meunier - Morgan Stanley

Maurizio Bernasconi - Bellevue Asset Management

Peter Welford - Jefferies

Tim Woodward - Goldman Sachs

Luisa Hector - BNP Paribas

Operator

Good afternoon. This is the Arkadin conference operator. Welcome to the Actelion's Nine Months 2016 Financial Results Conference Call. As a reminder, all participants are in listen-only mode and a conference is being recorded. After 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, everybody and thank you for joining in. The topic of today's conference call is Actelion's outstanding performance during the first nine months of 2016 which we announced this morning. With me on the call to share these results are our CEO, Jean-Paul Clozel; our COO, Otto Schwarz; our CFO, André Muller; and our Head of Global Clinical Development, Guy Braunstein. They are all here to provide you with additional granularity on the press release published this morning at 7:00 AM Central European Standard Time.

Before handing over to Jean-Paul, I need to remind everybody that we will be making forward-looking statements. And that you’re therefore been appropriately warned about the risks and opportunities of investing in Actelion's shares.

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

Jean-Paul Clozel

Thank you, Andrew. Good morning or good afternoon to everyone. It’s my pleasure to present to you today our outstanding results for the first nine months of this year. Once again we had an excellent performance across all areas of our business. You will hear the details of the business performance from Otto and André, Guy is also with us today to give you an update on the substantial progress we have made with our development pipeline. What makes our achievement unique, is not just the outstanding results we have had over the past few months and years, it’s the fact that we do advance the company strategy and invest in future growth while we are continuing to deliver the outstanding operational and financial results that will be described to you in a few minutes. The cornerstone of our achievement has been our PAH franchise pulmonary hypertension franchise. And with our product, we have changed the treatment paradigms in pulmonary hypertension and we have also changed the long-term outcome for our patients.

We are indeed committed to pulmonary hypertension field and take our leadership role with great responsibility. However, we do not want to be limited by our success in one area alone, we want to diversify and build franchises in new therapeutic areas. Our strategy is bearing fruit and in a few years’ time you will see a different Actelion then what we have today. An Actelion which is built not just on one but on several therapeutic franchises. A company that has not only changed the way pulmonary hypertension is treated but instead has changed the way a number of disease are treated to the benefits of physicians and patients worldwide. We have invested substantially into our own research and development capabilities by building state-of-the-art laboratories to discover drugs and by building a clinical development engine which is able to disrupt and innovate the way we develop medicine. This investment is staying up; we now have a strong pipeline that will ensure the success of Actelion for many years to come.

Now let me talk about value creation. In the pharma industry there are a few ways in which we can drive the business. You can reformulate all drugs, you can sell generic, you can acquire company, but I believe the true value creation comes from the discovery of new drugs. It’s certainly the most difficult path to follow but I am confident that in the long term it’s the most rewarding, most rewarding for the company and its shareholders and certainly most rewarding for the patient. At Actelion, we have the capability to bring groundbreaking treatments that we discovered and developed in-house to thousands of patients around the globe through our own commercial capabilities. This is where our true strength lies and how we will continue to create and return value to our shareholders for many years to come.

Now let me pass to Otto who will tell you more about our strong commercial capabilities and our achievements.

Otto Schwarz

Thank you Jean-Paul, welcome also from my side to the Q3 discussion on the progress of the transformation of our PAH business from our grand old lady Tracleer away to our outcome based portfolio. I appreciate your continued interest in the Actelion affairs. As Jean-Paul already mentioned, we continue to deliver a strong commercial performance with September year-to-date growth at plus 14% in local currencies achieving year-to-date sales of CHF1.785 billion. The increased share to the US results stems from the Uptravi early launch uptick and US price levels while the excellent Opsumit performance in Europe was somewhat mitigated by the impact of generic bosentan. Japan holds its share on the strength of its super Opsumit performance. The PAH transformation proceeds very well. In Q3 2014, 11 months after the Opsumit launch in the US we had 15% of our sales coming from our outcome based portfolio. And in Q3 2016 was the first time we have over 50% of our sales with Opsumit plus Uptravi plus Veletri.

And this with the Q3 net sales increase from CHF480 million to CHF606 million over the last two years. So let's first move to Uptravi, which delivered Q3 net sales of CHF70 million of which CHF66 million are coming from the US and CHF3.2 million from Germany where we launched mid-June 2016. The balance of the CHF4 million ex-US sales comes from French from the French ATU around 200,000, Canada where we launched to the private market and Norway and the Netherlands where we launched through its full reimbursement in September. Global year-to-date sales reached a healthy CHF160 million. As you can see we had no incremental inventories build in the US in Q3. So, the CHF66 million demand sales compared to CHF45 million in Q2 and CHF50 million demand sales in Q1. By the end of September, we had slightly over 1,800 patients treated with Uptravi, of which 1,530 patients are coming from the US. From the balance of around 270 patients, the majority, a bit over 160 patients are coming from Germany and slightly more than 40 patients from the French APU.

The US Uptravi patients are generated year-to-date by over 800 prescribers which is very encouraging depths. Over 50% of the prescriber has more than one patient on drug over 25% have enrolled four or more patients so far. Saturation to the highest tolerated dose is going well. In the US, 70% of patients are on a dose of 800 microgram PID or higher. The share of the maintenance pack versus titration pack has increased from one third in Q1 to two-third in Q3. Just one comment on Germany, the launch is going very well, especially considering we are launching an accretive underdeveloped market in terms of prostacyclin usage. Early uptick especially in PAH center is strong, quantitative feedback shows we are on track, no red flags. So bottom line, the Uptravi launch is another very successful one for Actelion.

Let's move to Opsumit, which continued on its steady growth trajectory with Q3 sales of CHF218 million rendering year-to-date sales at CHF596 million. New patient gained in the quarter is very consistent with previous quarters despite growing absolutely discontinuation numbers as a result of the size of the growing Opsumit patients cohort. However, the mix of net new patients inflow is changing as the share of the US is declining while Japan is increasing its contribution due to a significant increase in new patient enrollment following the lifting of the two week prescription limit in June. Upgrades from existing era of provider on 50% of the new patient on Opsumit in Japan since then. I'm also happy to share that we are about to reach a major milestone, we assume that during October we will pass the threshold of 20,000 patient around the world treated with Opsumit.

While in the US, Letairis and AMBITION exerts significant competitive pressure, in Europe GSK with Volibris did not materially change its value share in the EU Five market according to IMS both AMBITION result and label change and remains with a total year of value share for Volibris below 20% year-to-date July. Maybe just one last comment on Opsumit regarding coverage in the US. We expect virtually unchanged formulary coverage in status in 2017. Except for the one decision you all know by CVS to restrict Opsumit access in the pretty small second commercial plan in 2017. We continue to work with CVS and we assume that this should not have any material impact on our business as Opsumit continues to be available by our special access approval procedures.

A short comment on Veletri delivering CHF21 million in sales by year-to-date Q3 driven by solid growth in France, Spain, Italy and UK. However, the growth plus 13% in local currencies year-to-date is slowing down as we have maxed in most markets our share of the epoprostenol market. Hence, as the flow line switch opportunity is exhausted, future growth will have to come from patient. As a new market, Germany will join in September our roaster of Veletri countries launched. Last but not least, our PAH universe Tracleer which sold CHF790 million year-to-date, a 18% decline in local currency. The decline is driven by the Opsumit impact, generic erosion in selected markets and I will talk about Spain in just a second. Lower US inventory versus prior year of CHF23 million and the decline is mitigated by US price increase, the growth of the EU indication especially in Japan where we are finishing the first year with the EU indication launch and we are doing very well with that indication. The comparable much smaller minus 9% in units versus prior year might be a bit misleading. Excluding China where we had a change in cooperation with China Charity Foundation and Greece where we had strong cash collection impact they more represented this volume decline on an ongoing basis is around minus 14%.

Two comments on the status of the generic bosentan, fierce pricing competition by generic bosentans in Spain has resulted in a decline of 82% of our Tracleer business year-to-date on minus CHF40 million. By September, the business is down minus 90 and our Tracleer average net saving price is down by 75% versus pre-LOE price. This battle is over. Just as a reminder with the success we have with six months, patient extension we will have loss of exclusivity in the still protected European markets by the end of August 2017. In the US, the shared ranks has been submitted by each of the applicants end of July, the file is under active review by the FDA considering standard review times we have to assume now generic bosentan could and I mention could enter Q1 2017 in the US market. Considering some early pre-approval setting activities by some generic manufacturers, we also have to assume an aggressive net pricing already at launch.

Just short to the horizon on our other assets, CHF58 million year-to-date sales minus 51% in local currency due to the Uptravi launch development and competition and limited sales force support. Zavesca with CHF78 million year-to-date and 13% sales growth in local currency. The product is doing extremely well despite generic completion in selected markets in Europe due to a strong 16% growth indication. The volume growth of 11% is generated by 13% growth in countries of generic exposure and the remarkable 7% growth in countries with generic exposure. This shows how well we can protect our NP-C business from generic erosion. Valchlor with CHF26 million year-to-date sales and 30% local currency growth we progressed steadily. France with ATU sales of 1.7 million and Israel where the product has been now reimbursed in Q2 are contributing to the overall sales with around CHF200,000.

So let me summarize, I’m very pleased where we are year-to-date September in the critical transition of our PAH portfolio and my priorities remain unchanged; sustain the Opsumit momentum despite strong competition by Letairis and AMBITION in the US. Maximize the US launch trajectory for Uptravi and further expand the prostacyclin market. Executed the Uptravi launch Ex-US, with Germany, we had the first solid entry beyond the US. And last but not least prepare as much as this possible for the Bosentan generic entries in the US, in Japan and the major EU markets in 2017.

With that, thanks for your attention and I’ll pass on the baton to André, so André please.

André Muller

Thank you Otto, good afternoon and good morning ladies and gentlemen and thank you for your joining us today. As you saw in this morning’s press release, a strong performance of the first half continued during the third quarter with the third-quarter sales at CHF606 million, 15% higher at CER, constant exchange rate compared to prior year. This brings year-to-date product sales to CHF1.785 billion, an increase of 14% again at CER. Operating income increased by 14% at CER to reach CHF781 million and a 20% increase at CER compared to Q3 last year. The US GAAP operating income was up 17% at CER to reach CHF650 million and a 26% increase at CER compared to Q3 2015.

Bottom line core EPS was up 23% for both the quarter and for the nine-months year-to-date and bottom-line US GAAP EPS was up 27% to reach CHF5.37, also 32% compared to Q3 last year both at CER. Looking at via Swiss francs variance, you see that foreign exchange tailwinds further increases performance. And as usual full reconciliation between the US GAAP and core numbers for nine months and for the Q3 performances can be found in the financial review and on our website. Otto has already detailed the strong commercial performance and the transformation of our PAH franchise. Intrinsic sales growth was 14% at CHF200 million mainly driven by Opsumit with an increase of CHF225 million and Uptravi with an increase of CHF156 million both at the CER. More than compensating the Tracleer sales declining by CHF170 million at CER. The CHF54 million positive FX variance mainly related to the weakening of the Swiss franc against the three major currencies that Actelion operate with an impact of CHF25 million for US dollar, CHF23 million for Japanese yen and CHF10 million stemming from the euro.

Here you have the same analysis for core operating income. Intrinsic growth was CHF92 million which translates into 14% increase at CER. As one-third of our operating expenses were denominated in Swiss francs during the reporting period, the foreign exchange tailwind resulted in net positive FX variance of CHF38 million. Again the strengthening of US dollar, Japanese yen and euro against Swiss francs had a positive impact on core operating income of CHF19 million, CHF13 million and CHF8 million respectively, all other currencies having a negative impact of roughly CHF2 million. Here is usual slide showing how core operating income came about. Core cost of sales were 6% higher, still favorable if you compare it to the 14% increase in sales. However. Q3 shows the front results all compared to prior quarters due to three factors that actually have one denominator, the license agreement with Nippon Shinyaku.

First, our product sales are subject to a higher royalty rate. Second, Uptravi carries a much high cost of goods. And last but not least, we pay royalties relating to a profit-sharing scheme in connection with the commercialization of Opsumit in Japan. Royalties relating to sales except the royalties relating to this profit-sharing are down 13% of the first nine months of 2016 but up 11% in Q3 due to favorable factors already discussed in our previous calls, we no longer pay royalties on US Tracleer sales in mid-November 2015 after US patent expiry, we no longer pay royalties on the Ventavis sales since mid-March 2015, ten years after launch into US, perhaps Ventavis sales are going down due to the cannibalization from a private and competition in the US. We also benefit from a favorable product mix with increasing Opsumit sales subject to a low single-digit royalty rate and decreasing Tracleer sales subject to high-single digit royalty rate in countries where the product still has patent protection.

Core research and development expenses at CHF361 million were 26% higher at CER. Main reason for this increase has not changed since the half-year call. They are mostly due to the ongoing strong recruitment into phase III OPTIMUM study with PONESIMOD in MS and the accelerated recruitment into phase III IMPACT study with Cadazolid in CDAD. Additionally we are preparing for phase II study for the Dual Orexin antagonist in insomnia as well as Actelion's new Endothelin receptor antagonist in special cardiovascular disorders. As Jean-Paul already mentioned it, we continue to firmly believe that advancing our own pipeline is the best way to enter mid-to-long term growth beyond PAHs in order to continuously create value for shareholders. That of course this comes with a higher expense in the short term.

Core SG&A expenses amounted to CHF499 million, an increase of 8% at CER. Marketing and selling expenses were also up 8% at CHF356 million, driven by the highly successful launch of Uptravi into US earlier this year, in Germany, Canada, the Netherlands and other markets during the second and third quarters as well as the preparation for other launches. We are also continuing to roll out Opsumit and Veletri in various markets around the globe. D&A expenses increased by 6% at CHF143 million, almost entirely [indiscernible]. Let's now switch from core to US GAAP numbers. Here you have a visual of how we get from our core operating income measure to US GAAP operating income. Total non-core operating expenses amounted to CHF126 million. D&A at CHF65 million is basically unchanged. Stock-based compensation at CHF48 million has increased by CHF6 million mainly driven by the performance of the stock and other non-core OpEx at CHF14 million is mainly related to the CHF10 million accretion expense of Valchlor compared to accretion benefit of CHF4 million during the first nine months of 2015. One exceptional item with CHF6 million contract revenue, the majority of which related to the return of the rights of XIAFLEX in Canada to Endo Pharmaceuticals. Therefore US GAAP operating income at CHF650 million grew by 17% or CHF89 million at CER.

Let us look now at how the US GAAP net income came about. Financial results was positive with CHF4 million, basically the net foreign exchange impact of our hedging activities as we are debt free since mid-December 2015, free tax expense of CHF84 million translated in an effective tax rate of 12.6% for US GAAP number, unchanged from last year nine month tax rate and the core ETR is 11.9%. We expect both effective tax rate to stay around this level for the current year. Non-controlling interest of CHF1 million relate to the 26% equity stake held by the minority shareholders in Vaxxilon. And hence the resulting net income amounted to CHF581 million, an increases at CER of 21% or CHF96 million compared to the first nine of last year.

Let’s have a quick look at the EPS, earnings per share. I just went through the numerator with net income which is up 17% at CER. The denominator i.e. the average share count has decreased by 5.1 million shares or minus 4.5% of outstanding equity, of which 4.1 million shares relate to the average number of basic shares due to the second line share repurchase program and 1 million shares relate to an average number of dilutive instrument despite the increase of CHF28 million in the average separate. We went from CHF124.65 during the first nine months of 2015 to an average CHF152.54 per share during the first nine months of 2016. Let's have a look at our cash position now. Actelion had cash position of CHF400 million at the end of September 2016, is in line with company policy, we continue to believe that this cash level of around CHF400 million are appropriate to retain full financial flexibility to seize any strategic opportunities.

The operating cash flow of CHF695 million is a result of the strong operating performance with CHF697 million generated from operations. Deferred tax net position decreasing by CHF38 million mostly driven by the utilization of net operating losses into US and Switzerland and net working capital requirements increasing by CHF40 million due to various factors including higher inventories relating to Uptravi, higher trade receivables in connection with higher sales, we have a slight increase in DSO at 58 [ph] days and partially compensated by higher accrued expenses. Operating cash flow of CHF695 million for the first nine months of 2016 was almost fully dedicated to return cash to shareholders and managed dilution arising from stock-based compensation. We paid an increased dividend of $1.50 per share or total consideration of CHF159 million. We purchased 1.3 million second line shares that will be cancelled at the next AGM for cash outflow of CHF211 million and we also purchased 2 million first line shares for CHF330 million.

At the end of September, we held $3 million first line shares which are being used to asset dilution from 4.6 million outstanding substantial dilutive instruments. Capital expenditure included the US$20 million milestone paid to Nippon shinyaku in connection with EMA approval in Q2, and usual items for R&D equipment and maintenance of our facilities mainly in H2. Our business development team is very active but we could not seize external opportunities that would fit our strategy and our financial criteria. Let me finish our upgraded full-year, we now expect core operating income to grow in the mid-teens percentage range at CER and barring unforeseen events of course. Our rational for the average remains the same, we have increased visibility on a number of factors which includes the strong Opsumit and Uptravi launch dynamics, the unlikely entry of generic bosentan into US before year end and the stable pricing in Japan for Opsumit and Tracleer.

And with that I would like to thank you for your attention and hand over to Guy, who will give you an update on our pipeline. So Guy, please?

Guy Braunstein

Thank you very much André. In the next few minutes I will indeed present the pipeline and I will particularly talk about DORA and give you a brief update on DORA as well as expand on the news on PONESIMOD. Next slide please. This is kinetic overview of key elements of not our PH contract focusing mainly on Macitentan with a number of studies in the current indication. The OPUS registry conducted in the US, the ORCHESTRA and the SYMPHONY study which are US and European validation of PRO instrument in PAH, the SOPRANO study conducted in the US in patients with [indiscernible]. The PORTICO study conducted in Europe in Portopulmonary hypertension as well as the TRITON study which is an important study for us combating triple therapy upfront in PAH. We also have the global trail in Eisenmenger syndrome, which is continuing and two studies MELODY and MERIT which are respectively in left ventricular dysfunction, the first one MELODY has been concluded earlier and the results have been reported and the MERIT study which we [indiscernible] which will deliver results later in this year.

Next slide please. Here we show the non-pipeline - non-PAH pipeline with Cadazolid and Ponesimod primarily which are the most advanced program. Cadazolid being close to a completion of planned for later - about later in the year and Ponesimod practically with the OPTIMUM study and I will come back to that later in the presentation. We also have visual of Cenerimod which is conducted in lupus in phase II. Clazosentan a study in reversal of vasospasm in phase II. DORA which we release later in in phase II in insomnia as well as Lucerastat which we will enter into phase III development in Fabry’s disease. In addition, as you can see here, there are two new chemical entities in cardiovascular, two new chemical entities in CNS disorder and one new chemical entity in inflammation. Today, our focus would be DORA and Ponesimod.

Next slide please. Our new dual orexin receptor antagonist or DORA is now entering into Phase II. Based on scientific profile from data collected with some patients in the Phase I, we believe that the product has the ideal profile for insomnia. It's a potent antagonist of the orexin receptor. Its PK profile [indiscernible] the duration of action appropriate for sleep maintenance with no next day performance problems. It has the potential to restore natural sleep architecture in particular regarding REM sleep. The regulatory pathway is pretty clear for development in insomnia and the Phase II has been initiated.

Next slide please. On this slide, you see the PK profile as collected in healthy volunteer in 5 days multiple dose study. It shows a quick absorption, short half-life on the very reducible profile a few days later with no accumulation of the product. This profile reports the fact on that and duration of action sufficient for sleep maintenance with no next day hangover effect. Pharmacodynamics and also in healthy volunteers with a battery of tests that allows to assess vigilance after drug administration.

Next slide please. On this slide, we see on the left - on the right hand side, a patient - our volunteer performing the test. The volunteer is asked to follow with a joystick moving the dot, red dot on the screen. On the left side, you see the results of the test. The graph shows a fast decrease of vigilance after drug administration followed by a gradual recovery of the next performance. And this illustrates the fact [indiscernible] as well as the duration of the effect to ensure maintenance of sleeps with the recipient of the effect at the time when the patient should wake up next day.

Next slide please. Here, we see an illustration of the absent of next day sleepiness using the Karolinska Scale score, assessed every morning after night time administration of placebo on the left side of 25 milligram of component on the right side in healthy volunteers during a week of therapy. As we see here, the placebo is, well, it’s nearing close to the 25 milligram care showing that there is no effect on next day performance.

Our Phase II program is now initiating with 2 studies, one in adult insomnia patients and the other one in elderly patients. The studies will assess sleep maintenance, sleep initiation and next day performance and residual effect. In the adult population, up to 300 patients will be treated for 4 weeks with doses of 5 to 50 milligram per day of placebo or zolpidem. In the study in elderly population, 50 patients will be treated in a placebo for two nights with the same dose levels.

Next slide please. Let's look now at ponesimod. I want to highlight a key property of our ponesimod compound, which make it different from anything else, it's short half-life and the short half-life also means the reversibility of the immunomodulation on treatment. Plus reversibility means flexibility in the management of the patients as opposed to products that have a long half-life or long effect on immunosuppression. Fast restoration of the immune system can be particularly useful in important delicate situations. In case of infections and partially in case of opportunistic infections, in case of need to our vaccination, for pregnant women as well as to use to the product concurrently with the MS product and we'll come back to that in a minute. The reversibility provides physicians with greater flexibility and better control of the treatment.

Next slide please. This is the illustration of the reversibility of the lymphocyte count on the vertical axis upon discontinuation of ponesimod in patients participated to the Phase II study and did not enter into the long term double blind extension. As we see, within a week of stopping ponesimod, the lymphocyte count came back to baseline.

Next slide please. Here, I want just to remind everyone of the Phase II results that we've delivered some years ago, which show a reduction of 43% of new ground lesions that is placebo on 10 milligram ponesimod, a reduction of 83% on ponesimod 20 milligram with no further reduction on 40 milligrams. This reported choice of the dose from the Phase II, the dose that we have carried on in the Phase III program, 20 milligram.

Next slide please. OPTIMUM was our first Phase III study. It's a multicenter, randomized, double-blind, parallel-group, active-controlled, superiority study to compare the efficacy and safety of ponesimod to teriflunomide in subjects with relapsing multiple sclerosis. Let's call it, globally in North America, Latin America, Eastern and Western Europe, more than 1,100 patients will be randomized in two groups, 1:1 to receive either ponesimod 20 milligram or teriflunomide 14 milligram. Slow titration scheme over 15 days has been implemented to minimize further effect. Recruitment is continuing with a plan to conclude by the end of this year.

With ponesimod, we believe we can have lot more opportunities to believe there are even more medical benefits to patients. At present, product asset is primarily on valuation and relapse rate as compared to placebo. Across that either and product, the reduction of relapse rate ranges between 30% to almost 70% depending on products. Although products are often compared using this unclassified in respect to the perceived efficacy on that basis, this can be quite misleading as the placebo resident that is used to calculate the reduction can greatly vary between studies.

Another way to look at it is to look at the annualized relapse rate on each of the different products in the different studies. And when you do that across all studies, the annualized relapse rate observed on any of the product is always around 0.2, which means that on average, one out of five patients will have a relapse or on average one patient will have a relapse every five years. This is not a satisfactory situation. And we believe that combination therapy could improve long term outcome in these patients and this is done in many disease, hypertension, asthma, rheumatoid arthritis, lupus, many patients are actually today treated with combination therapy and this is not yet the case for multiple sclerosis.

Of course, safety has to be considered first and this is where we think that ponezimod with its rapid reversibility is the ideal product to be tested in combination with another disease modifying drug. It allows to - the reversibility allows to control the safety better and give us the opportunity to take the hypothesis by combining products with two different mode of actions, we can actually do better, deliver better benefit to patients.

And this is the purpose of the POINT study, which we have recently announced. It will be the first oral combination therapy. Patients will be treated on top of Tecfidera, with either ponesimod or placebo. The primary objective is to determine whether add-on therapy reduces relapse frequency as compared to placebo in patients with active relapsing multiple sclerosis who are treated currently with Tecfidera. The primary endpoint is the annualized relapse rate.

Next slide please. The POINT study will be multicenter, randomized, double-blind, conducted in 600 patients randomized 1:1 to reach either placebo or ponesimod on top of the dose that they receive of dimethyl fumarate, Tecfidera. Patients will be treated until the last patient is randomized as we see at least 60 weeks of therapy with an expected average of 2 years of treatment and a maximum duration is estimated to be around 3 years. The study has been implemented and the first subject is expected to be included in the trial by the end of this year.

Next slide please. In conclusion, I'd summarize the pipeline with the focus today on DORA and ponesimod. We are planning especially the POINT study that is complementing our current program on ponesimod with OPTIMUM trial and we are planning for the communication cardiovascular pipeline as we have the results of the MERIT study in the next few weeks.

Thank you very much for your attention and back to Andrew.

Andrew Weiss

Thank you very much, Guy. Thank you gentlemen for all of your presentations. We now have concluded our prepared remarks on the nine-month presentation of our performance. I would like to move on to the Q&A session. Please when stating your question, mention your name and your affiliation and limit your questions to one and go back into the queue, so we can address as many questions as possible. Operator, please open the lines.

Question-and-Answer Session

Operator

[Operator Instructions] The first question is from James Gordon of JPMorgan. Please go ahead.

James Gordon

Hello. This is James Gordon from JPMorgan. Thanks for taking my question. My first one would be just on 2016 guidance. The upgrade looks like good news, but in light of the strong Q3 results, even outweighed the guidance, expect to be conservative, so my question is, what do you sort of allow in moving forward, whether you’re seeing something like a competition from the others, ambition could get worse and upsell in Q4 or very big step up in R&D, otherwise it looks pretty conservative?

Andrew Weiss

André, may I refer that question to you?

André Muller

Yes. Sure. Thank you, James for the questions. We believe that this guidance takes into account sort of various factors that I was mentioning. Steady growth in revenues and also higher Q4 quarter is in OpEx, including our R&D, because we know that we are advancing some pipeline assets and we have a few milestones here.

Andrew Weiss

Thank you, André. Next question please.

Operator

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

Richard Parkes

Hi, yes. It’s Richard Parkes from Deutsche bank. Firstly, I just wanted if Otto could clarify the comments that he made around the competitive environment for OPTIMUM in the US and your market share there. Just I’ve kind of missed that. So just a clarification, or maybe I still have the question, which was, I just wondered also if you could talk about US enrolments for Uptravi. I think you said that the second quarter, you are also stable, kind of level and that seems to be continued into the third quarter, maybe you could just discuss what you are experiencing in terms of patient retention versus experience in the clinical trials and where patients are coming on from in terms of switches or just the source of patients? Thanks.

Andrew Weiss

Thank you, Richard. Otto, please.

Otto Schwarz

Okay. I'm not sure I really fully understand your question because this was many, many questions. No, I’m going to give you specific numbers on the US enrolment, but they are very consistent and you know 20,000 patients, we are going to reach in October, the US has made significant contributions to that, yeah. On Uptravi, we are not going to talk about discontinuation rates until we have more and more months under the belt, still a moving target and we will only talk about that when we have a good sense of what the numbers is, because we don't want to change the communication just because we gain insight as we go.

We are only nine months on the market, it's a new therapy principle, so we need to just find that information. In terms of patient gains, when you compare the numbers, I think it was 590 in Q1, it was 1100 and then it is 1530 when you do the difference and assume that we had the dollars in Q1, I think the uptake is pretty consistent and shows a pretty decent trajectory. So I am very happy with that. I think interestingly for the uptake, also when you consider that the market for prostacyclin in the US has been expanding quite significantly with the introduction of Uptravi. So I don't know if you wanted to know anything more about submit, but I guess I would try to picture what you wanted to know.

Richard Parkes

I wanted you to basically just to repeat what you said in the introduction, because I didn’t quite catch it, you talked about the competitive environment with?

Otto Schwarz

Because the competitive environment in the US is dealing our difficult competitor and basically we have to fight it out. With ambition, they have a good data, we have very good data, we have good experience, there is experience with the data that is out there and patient, kind of gave them reason to be around again. So if we have a competitive situation in the US and we are fighting, overall, our market share of Opsumit is still increasing. Based on the enrolment dynamics currently in terms of new patients I would say this is pretty even between both companies and I don't think, not knowing the new patient only need to include, that we are not gaining market share right now, but we are not losing market share. So it's an even game right now, very different from the situation, which is in Europe and also very different from the situation, which is created in Japan. So we have a good competitor, which is not abnormal in many markets here, competitors.

Richard Parkes

Thank you very much.

Andrew Weiss

Thank you, Richard. Next question please.

Operator

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

Sachin Jain

Hi, thanks very much. Sachin Jain, Bank of America. Just a follow-on. You mentioned Opsumit contract for 17. Wondered if you could just expand on it, I know it is a long way out, but if you could just give us your thoughts on Opsumit contracting for ‘18 when the tariffs are exponentially available in light of the discussion around, I think you have been a good competitor in the US so specifically have you had conversations with payers and do they agree with your stance for tariff differentiated from AMBITION or are those conversations still to happen? Thank you.

Andrew Weiss

Otto, please?

Otto Schwarz

Number one, for the time being, we have pretty much secured 2017, because that's the process. Of course, in the course of this discussions, you have [indiscernible] which goes beyond one year. We are in discussion and of course we are kind of convenient of making the point that both products are differentiated. They are not interchangeable and I think from a data point of view, that is pretty obvious and pretty clear, and we are also working with organizations with payers and I think here there is a resonance in principle, positive that with the type of disease is extremely important. So that the physician and the patient get access to the therapy he needs. But for ‘17, we are fine and it doesn't look so bad, but again, we are kind of - 18 is still too far away to give you a contracting situation, but ‘17 is basically the same as ‘16, which is one little change here.

Andrew Weiss

Great, Otto. Thank you. Thank you, Sachin. Next question please.

Operator

The next question is from Michael Leuchten of UBS. Please go ahead.

Michael Leuchten

Thank you. It’s Michael Leuchten from UBS. The question for Otto, just going back to Uptravi, Otto, you were kind enough in Q2 to elaborate a little bit on the number of patients in the US coming from the inhaled pocket of patients as opposed to market expansion, I was just wondering if you could add color in Q3 as well?

Otto Schwarz

Yes, again. Yeah. This is again a bit, we need to be careful that you’re not going to hang me up on these numbers because this is basically - a lot of competitive intelligence, basically market intelligence. Yes, we are going to take and it’s very important. We are going to take patience on Uptravi, who would have gone on a prostacyclin, yeah, that’s very evident. We also have switches, based also on the result of our TRANSIT study, which shows that you can switch from Tyvaso to Uptravi that they have in the works the experience as well.

We have some patients, I’m a little bit reluctant to give you a specific number how many has been switched, but from my point of view, the Uptravi story it not the switch story, yeah. This is different from the whole market dynamics on Europe where we are very much looking initially at how much switch history we get, even if we were not promoting them and we are also not really promoting switches with Uptravi. The important opportunity is that many patients out there who are not under prostacyclin, who would not go on a prostacyclin without Uptravi and who should go on a prostacyclin with a product like Uptravi available and that's the trust of our clinical utility we have looking in the market, and that's the majority of the patients where we are getting that. Most of the patients are on, now on treatment combination, so we get kind of the business with the clinical utility of the product is and with the future growth opportunity. So switches, real switches from inhaled is nice to get them, if the patient does well, wonderful, but it’s not a strategic segment, which kind of determines the future of the brand.

Michael Leuchten

Thank you.

Andrew Weiss

Thank you, Michael. Next question please.

Operator

The next question is from Vincent Meunier of Morgan Stanley. Please go ahead.

Vincent Meunier

Thank you, gentlemen. Two questions, please. The first one is on financials, I mean the sales and the core operating income were growing in line at constant exchange rates in the first nine months of the year and so should we expect the stabilization of the margins going forward or maybe a slight decline because of the generics of Tracleer and also the pipeline in the events. And second question is very, very quick, you will communicate the results of MERIT for Opsumit, is this a label enhancing trial or do you need a Phase III?

Andrew Weiss

Okay, thank you, Vincent. With regards to very quickly to your first one, and the impact going forward, we have not formulated guidance for 2017 at present. So we will refer you to a later point in time on that one. On MERIT, Jean-Paul, may I refer that to you?

Jean-Paul Clozel

I think it all depend on the results. So let’s wait to the results and then we can discuss it with you afterwards.

Vincent Meunier

It means that you have the possibility to file.

Jean-Paul Clozel

And just let's look at the results and we will say, it depends on the results.

Vincent Meunier

Thank you.

Andrew Weiss

Thank you, Vincent. Next question please.

Operator

The next question is from Maurizio Bernasconi of Bellevue Asset Management. Please go ahead.

Maurizio Bernasconi

Hi. It’s Maurizio Bernasconi from Bank am Bellevue. On Opsumit, it looks like the sales development in Europe is somewhat slowing down comparing to other geographies, is this due to recent launches in low-priced European countries?

Andrew Weiss

Thank you Mauricio. Otto, do you want to take the European question?

Otto Schwarz

Yeah. I don't know how you can make that statement, that's as simple as that. Because when I look at my new patient gains in Q3, it’s very, very consistent with Q2 and with Q1. It’s going very well and I don't really know quite frankly how that can be interpreted that way. Europe is doing an excellent job. We don't see on the topical Europe performance because the impact of Spain is hurting total sales, but overall Opsumit is doing very, very well in Europe and we don't have any launches in low-priced markets yet. What you would call low-priced market. We have differences in prices, yeah, but the price levels, the price band of Opsumit is relatively narrow.

Andrew Weiss

Thank you, Maurizio. Thank you, Otto. Next question please.

Operator

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

Peter Welford

Hi, yes. I wondered if you could give us an update on how Uptravi price negotiates are going in Europe outside of Germany, in terms of what the major pushback you’ve had and what sort of receptivity is being on the regulators to the GRIPHON data, that will be great. Thank you.

Otto Schwarz

From a pricing - in Germany, we have filed, the product is in the end of process and we will negotiate the post price in basically for June next year. Netherlands, we got a very good price, higher price than in Germany and we've got a very good decent price in Norway reimbursed. The other countries are submitted, so UK is ongoing. France has been submitted. You know, we have an ATU there which is already a statement, so I am pretty positive on France. Italy goes well, it just takes time, so there is no significant pushback.

Of course we need to tell the clinical utility of this product, we need to make sure that they understand the value of the product and but I’m pretty confident that market access is not going to be significant issue here. But it just takes a bit of time and it takes a bit more time, which we’ve said already before at the end of Opsumit, because Opsumit, we were very able of sliding it into the era, in the established era category and this went extremely fast because actually, we think this was pretty well, which was mainly not so much recognized. Now, we are running standard process for a new product in a basically new category, so there are no shortcuts in getting reimbursement, we have to go through the whole process.

Andrew Weiss

Thank you, Peter. Next question please.

Operator

The next question is from Tim Woodward of Goldman Sachs. Please go ahead.

Tim Woodward

Hi. Tim Woodward from Goldman Sachs. Thanks for taking my question. Questions on Ponesimod. From your discussions with regulators, how are you thinking about the requirements for filing here? Are you expecting it to be sufficient and then point to unlock an extra commercial opportunity or do you think you will need both of them to follow? Thank you.

Jean-Paul Clozel

We currently have actually three studies going on. I only mentioned two, the OPTIMUM and the POINT study. We also need to remember that we have the long-term double-blind extension of the Phase II. This creates a very large package of information. Now telling you what we need for filing it will be a matter of decision with the idea of course, and so I just maybe won’t have any answer to give you, but I believe there is already substantial information if I combine the Phase II and the phase III extension and the OPTIMUM study.

Andrew Weiss

Thank you, Jean. Operator, how many questions do we have left in the queue? We have come to the top of the hour.

Operator

We have three more questions.

Andrew Weiss

Okay. Let's go through those and then we will conclude the call.

Operator

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

Luisa Hector

Thank you. Luisa Hector, Exane BNP Paribas. So I just wondered if we could go back to the reimbursement situation in the US and whether you could comment on the outlook for Uptravi for 2017, and then whether there is still a risk that when generics track - reaches the market, anything could change in ‘17 or whether you feel kind of fully locked in for Opsumit in ‘17? Thank you.

Otto Schwarz

Opsumit in ‘17 is basically done. I would say that so I think we have, as I said before, we will have the same coverage and we have to assume that the generics will come in ‘17. I think that's pretty clear. Yeah. So from that, we’re done. Uptravi, we're in the process of getting actually initial formulary - releasing of the formulary status. So and we are pretty confident. Currently, our payment rate, so pay shipment, so how much of the product is paid is actually very good. Yeah. So we don't really have any issue in getting reimbursement for the product on an exceptional basis, because the product is not on formulary in most of the plans, but we are very confident regarding coverage and status of the product in 2017. So I think about that.

Andrew Weiss

Thank you, Otto. Next question please.

Operator

The next question is from James Gordon of JP Morgan. Please go ahead.

James Gordon

Hello. Thanks for taking the follow-up. Just a question about the Tracleer and the REMS program, can you just comment about the economics? Are you actually going to get any significant economics from the administrative for the generics and does the prices of the generic companies participating in that say any sort of flow and how low that pricing can be, because they’ve got to be profitable? And also just clarify how many generics you think are actually going to come?

Otto Schwarz

Number one, we are not going to administer the REMS for the generics. We are building a share of the REMS, which will be run and administered through a third-party. The only role we will have is that we are responsible vis-à-vis the FDA getting the hold of the original product, so that responsibility stays with us, but in terms of the reigns, this is a collaborative effort of equal process. How many we launch, I don't know that. We are now, I think, 8 or 9, 8 in the process. I have no clue, but I would assume it is more than one or two.

Andrew Weiss

Thank you, Otto. Last question please.

Operator

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

Peter Welford

Hi, yes. Thanks for taking my follow-up. Just a quick one on the profit-sharing Japan with Opsumit. Obviously, we're seeing a big uptick in that. I guess, can you give us some sort of idea as to where we are in the profitability curve for that. I guess I'm just trying to consider how - what sort of proportion of Opsumit in Japan we should consider is paid out in the future and whether or not, we are now at a sort of state that we should regard as a steady state or whether there is still substantial leverage still to come? Thank you.

Andrew Weiss

Thank you, Peter. André, do you want to take that one.

André Muller

Yes, sure. Peter, I would refer to the financial review where you have the breakdown of the cost of sales, and you will see that for the first nine months, profit sharing is 11 million and it’s 5 million for the third quarter. So you can see the dynamics here. But what is very clear is that with this profit-sharing, we have exactly the same, but reverse of course for Uptravi that will be marketed by Nippon Shinyaku in Japan, but it’s not yet launched. So in the short-term future, but also mid-to long-term, it will have, it will come with a cost because we are extremely successful as Otto recalled it, with the uptake of Opsumit in Japan. This profit will go to a partner due to the initial license agreement with Nippon Shinyaku.

Andrew Weiss

Thank you, André. Thank you, Peter. So this comes to the end of our conference call. I would like to thank all speakers and participants for being in this call. I look forward to speaking to you again latest with our full-year results 2016, which is scheduled for the 14th of February on 2017. Thank you very much for your continued interest in Actelion and have a nice rest of your day. Conference call operator, please close down the lines.

Operator

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

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