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Actelion Ltd. (ALIOF) reported second quarter 2013 earnings of 93 cents per American Depository Receipt (ADR), down 19.9% from the prior-year earnings of $1.17 per ADR. Earnings, however, were marginally above the Zacks Consensus Estimate of 92 cents.

The company reported net revenue of $479.1 million, up 0.1% from $478.5 million reported in the second quarter of 2012. Revenues were above the Zacks Consensus Estimate of $438 million.

Research & development expenses (R&D) (excluding stock based compensation expenses) declined 0.5%. R&D expenses will rise in the latter half of this year because of the cadazolid phase III study and other development programs. Selling, general and administrative expenses (excluding stock based compensation expenses) were up 23.2% due to the launch activities related to Veletri and Opsumit.

We note that all growth rates below are in local currency and represent growth over the prior-year period.

The First Half in Detail

Product sales were up 3% from the prior-year period led by better-than-expected results from the company's Cost Savings Initiative (CSI), which was announced in mid 2012.

On a regional basis, 42% of product revenues came from the US, 38% from Europe, 10% from Japan and the balance from the rest of the world.

We note that Actelion has four marketed products – Tracleer, Ventavis, Veletri and Zavesca. Tracleer revenues were up 3% in the first half of 2013 mainly due to an increase in wholesaler inventory levels and higher prices. Ventavis sales were down 6% from the prior year. The decline was attributable to a competitive market. Veletri, launched in 2010, did very well in the quarter with sales soaring 28% due to higher units shipped and price increases. Zavesca sales were up 17% from the prior year. Strong sales of the drug for the Niemann-Pick Type C indication in ex-US markets contributed to its impressive showing.

Outlook

On the strength of its marketed products and benefits from the CSI program, Actelion expects to accelerate the growth previously projected for 2014 into 2013. Actelion thus expects to achieve double-digit core earnings growth in 2013.

For 2014, the company expects to maintain the same level of core earnings growth as seen in 2013 and at least single-digit growth in 2015.

Pipeline Update

In May 2013, selexipag, currently in the phase III GRIPHON study, successfully passed an interim analysis. The independent Data Monitoring Committee recommended that the study should continue as planned. Final results are expected in mid-14.

Meanwhile, the regulatory process for the approval of Opsumit in the US, EU and other markets is in progress with the first launch expected this year.

The phase III study of ponesimod in psoriasis will not start until the company fully assesses the phase I program on its second-generation compound.

Actelion’s novel antibiotic cadazolid, to treat Clostridium difficile associated diarrhea will move into a phase III study by year end.

We are pleased with the pipeline progress at Actelion. Actelion carries a Zacks Rank #4 (Sell). Right now, Jazz Pharmaceuticals plc (JAZZ - Analyst Report) carriesa ZacksRank #1 (Strong Buy). Vertex Pharmaceuticals Inc. (VRTX - Analyst Report) and Santarus, Inc. also look attractive with a ZacksRank #2 (Buy).

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