VALUE CREATION: THE ACTELION WAY.

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(1)Half-year Report 2015. VALUE CREATION: THE ACTELION WAY.. www.actelion.com. WorldReginfo - 23aae362-2aa1-4454-89c2-6b594f213300. THIS IS AN INTERACTIVE PDF, PRESS THE BUTTON TO BEGIN.

(2) KEY PERFORMANCE INDICATORS. FINANCIAL REVIEW. INTERIM CONSOLIDATED FINANCIAL STATEMENTS. PREVIOUS. NEXT. Actelion Ltd. is a leading biopharmaceutical company focused on the discovery, development and commercialization of innovative drugs for diseases with significant unmet medical needs. Actelion is a leader in the field of pulmonary arterial hypertension (PAH). Our portfolio of PAH treatments covers the spectrum of disease, from WHO functional class (FC) II through to FC IV, with oral, inhaled and intravenous medications. Although not available in all countries, Actelion has treatments approved by health authorities for a number of specialty diseases including type 1 Gaucher disease, NiemannPick type C disease, digital ulcers in patients suffering from systemic sclerosis, and mycosis fungoides-type cutaneous T-cell lymphoma.. WorldReginfo - 23aae362-2aa1-4454-89c2-6b594f213300. CONTENTS. LETTER FROM THE CEO. ACTELION HALF-YEAR REPORT 2015.. 2.

(3) CONTENTS. LETTER FROM THE CEO. KEY PERFORMANCE INDICATORS. FINANCIAL REVIEW. INTERIM CONSOLIDATED FINANCIAL STATEMENTS. PREVIOUS. NEXT. CONTENTS 04 Letter from the CEO. 09 Key Performance Indicators. 14 Financial Review. WorldReginfo - 23aae362-2aa1-4454-89c2-6b594f213300. 31 Interim Consolidated Financial Statements (including notes). ACTELION HALF-YEAR REPORT 2015.. 3.

(4) CONTENTS. LETTER FROM THE CEO. KEY PERFORMANCE INDICATORS. FINANCIAL REVIEW. INTERIM CONSOLIDATED FINANCIAL STATEMENTS. PREVIOUS. NEXT. WorldReginfo - 23aae362-2aa1-4454-89c2-6b594f213300. LETTER FROM THE CEO. ACTELION HALF-YEAR REPORT 2015.. 4.

(5) CONTENTS. LETTER FROM THE CEO. KEY PERFORMANCE INDICATORS. FINANCIAL REVIEW. INTERIM CONSOLIDATED FINANCIAL STATEMENTS. PREVIOUS. NEXT. Dear Shareholders, Once again, I am pleased to present an excellent progress report for Actelion. The first half of 2015 has seen continued strong demand for our pulmonary arterial hypertension (PAH) products. Growth has been driven by the strong uptake of Opsumit® (macitentan): the launch momentum has been sustained as the roll-out is extended to additional countries. Excitement is building as the registration process advances for our next big opportunity – selexipag (Uptravi®), the first selective oral IP prostacyclin receptor agonist. The first scientific presentations of results from the pivotal Phase III outcome study, GRIPHON, were met with great enthusiasm, which bodes well for the future growth of our PAH business.. WorldReginfo - 23aae362-2aa1-4454-89c2-6b594f213300. This year, we have made significant progress with our efforts to develop additional specialty franchises from our R&D pipeline, focusing on opportunities in the field of immunology and antibiotics. We have also been actively pursuing our share repurchase program so as to ensure continued value creation for shareholders.. ACTELION HALF-YEAR REPORT 2015.. 5.

(6) CONTENTS. LETTER FROM THE CEO. KEY PERFORMANCE INDICATORS. FINANCIAL REVIEW. INTERIM CONSOLIDATED FINANCIAL STATEMENTS. EXCELLENT FIRST HALF OF 2015 Our key financial performance indicators all demonstrate the strength of our business, with product sales rising to just over 1 billion Swiss francs (+11% at constant exchange rates (CER), excluding prior-year US rebate reversals). Core earnings increased to 423 million Swiss francs (+19% at CER, excluding prior-year US rebate reversals), resulting in core earnings per share (EPS) of 3.11 Swiss francs.. PREVIOUS. NEXT. AS PRODUCT SALES CONTINUE TO EXCEED OUR FORECASTS, WE ARE UPGRADING OUR FINANCIAL GUIDANCE FOR THE FULL YEAR 2015.. As product sales continue to exceed our forecasts, we are upgrading our financial guidance for the full year 2015. SUSTAINING AND GROWING THE PAH FRANCHISE With further launches of Opsumit – notably in Japan and Spain – our PAH portfolio continues to go from strength to strength. Just over 18 months after the first launch, at the end of June more than 9,800 patients were already profiting from the long-term outcome benefits of Opsumit, which generated sales of 208 million Swiss francs in the first half of 2015. This is a very strong performance in a competitive environment. At launch, one target group has been newly diagnosed (treatment-naive) patients, and in many countries Opsumit has achieved a leading share in this segment within the first 12 months on the market. A second target group has been patients already receiving PDE5 inhibitor monotherapy. Clearly, physicians are increasingly recognizing the outcome evidence from SERAPHIN and moving to combination therapy – Opsumit plus a PDE5 inhibitor. As a result, combination therapy is growing in many markets where Opsumit is available, with the US, Germany and the UK leading the way – driving overall growth of our endothelin receptor antagonist (ERA) business.. WorldReginfo - 23aae362-2aa1-4454-89c2-6b594f213300. Demand for Tracleer remains strong in markets where Opsumit is not yet available and also in Europe, thanks to the digital ulcer indication and the pediatric formulation. Sales for the first half of 2015 amounted to 645 million Swiss francs. Following the Pediatric Investigation Plan (PIP) compliance statement from the European Committee for Medicinal Products for Human Use (CHMP), applications for extension of the Supplementary Protection Certificate (SPC) were filed in 19 EU countries, and the first extensions of patent protection for Tracleer have already been granted. The last month of the first half of 2015 also saw the successful launch of Veletri in France – a very important market for i.v. epoprostenol. Overall, Veletri continues to grow strongly, increasing its share of the i.v. epoprostenol market in all countries where it is available. As announced last year, selexipag – discovered by our partners at Nippon Shinyaku – was shown to be effective in a large Phase III outcome study with PAH patients: the risk of a morbidity/mortality event was reduced by 40% (p<0.0001) versus placebo. The result is particularly impressive considering 80% of patients were already receiving an oral PAH treatment – with one third receiving an ERA combined with a PDE5 inhibitor. The tolerability of selexipag was consistent with therapies targeting the prostacyclin pathway.. ACTELION HALF-YEAR REPORT 2015.. 6.

(7) CONTENTS. LETTER FROM THE CEO. KEY PERFORMANCE INDICATORS. FINANCIAL REVIEW. INTERIM CONSOLIDATED FINANCIAL STATEMENTS. PREVIOUS. NEXT. In March 2015, data on selexipag from the GRIPHON study were presented at the American College of Cardiology congress, where they were enthusiastically received. Since then, scientific presentations have also been given at the International Society for Heart & Lung Transplantation meeting in Europe and at the American Thoracic Society conference. Feedback from clinicians on the data has been very encouraging. Regulatory dossiers for selexipag were filed with the EMA and the FDA at the end of 2014, and further filings have taken place this year. The regulatory procedures are on track for first marketing authorization decisions by the end of this year or early in 2016; all the necessary resources are being made available to support the regulatory process. We also aim to extend the clinical utility of both macitentan and selexipag beyond PAH into the broader pulmonary hypertension setting, as well as in other promising indications. The results from the Phase II study in combined preand post-capillary pulmonary hypertension due to left ventricular dysfunction (CpcPH-LVD) with macitentan are expected before the end of the year. While we were disappointed with the results of our exploratory study of selexipag in Raynaud’s phenomenon secondary to systemic sclerosis (the efficacy data do not support further pursuit of this indication), our search for other potential indications will continue. In the meantime, of course, we are focusing on the registration process for selexipag in PAH.. WorldReginfo - 23aae362-2aa1-4454-89c2-6b594f213300. BUILDING ADDITIONAL SPECIALTY FRANCHISES Our ongoing success in PAH has enabled us to make significant progress with the second element of our strategy. In particular, we have taken action to build an additional specialty franchise in immunology. Our thorough understanding of the clinical potential of selective S1P1 receptor modulation, together with advances in the field of immunology, has given us the confidence to advance two of our compounds into multiple therapeutic areas. Following a broad scientific, medical and commercial evaluation, we have initiated Phase III development of our lead compound ponesimod in patients with relapsing multiple sclerosis. In parallel, we have initiated a Phase II study with ponesimod in patients suffering from chronic graft-versus-host disease. In addition, a second selective S1P1 receptor modulator will advance into Phase II clinical development in patients with systemic lupus erythematosus. In the Phase III development program to assess the efficacy and safety of our novel antibiotic cadazolid in Clostridium difficile-associated diarrhea, patient recruitment has now surpassed a third of the planned total. With almost 200 sites on board around the world, the recruitment rate is increasing, which should make it possible to complete enrollment by the end of 2016. The promising innovations resulting from our R&D efforts make us confident that we can realize our ambition to build additional specialty franchises. Apart from organic growth opportunities, Actelion has clearly indicated its interest in acquisitions that would create further value for our shareholders. Should an. ACTELION HALF-YEAR REPORT 2015.. 7.

(8) CONTENTS. LETTER FROM THE CEO. KEY PERFORMANCE INDICATORS. FINANCIAL REVIEW. INTERIM CONSOLIDATED FINANCIAL STATEMENTS. opportunity be identified in the marketplace through our ongoing evaluation activities, the Actelion Board of Directors will not hesitate to act swiftly and decisively. Other approaches to value creation for shareholders are also being pursued. One example is the recent creation, together with the Max Planck Society, of a new company in the field of synthetic carbohydrate vaccines – an exciting opportunity with great potential, which could become a commercial reality within the next decade. This investment represents an innovative way of finding synergies between the worlds of academia and industry.. PREVIOUS. NEXT. IN RECENT YEARS, WE HAVE CREATED SIGNIFICANT VALUE AS AN INDEPENDENT COMPANY, BUT I BELIEVE WE ARE ONLY BEGINNING TO REALIZE ACTELION’S FULL POTENTIAL.. Our specialty products on the market continue to contribute to overall growth, with total specialty product sales amounting to 60 million Swiss francs. OPTIMIZING PROFITABILITY – UPGRADED GUIDANCE One result of our commitment to maintain and increase profitability is the substantial returns achieved for shareholders. At this year’s Annual General Meeting, you approved an increased dividend of CHF 1.30 per registered share, which was paid out in May. In addition to the ongoing first-line share purchase program designed to service employee stock ownership plans, we have been pursuing a new second-line share repurchase program (up to 10 million shares within three years); here, over 4 million shares have already been purchased. With a strong first-half sales performance, mainly driven by intrinsic growth, we expect to deliver higher profitability in 2015 than originally forecast; as a result, we are raising our full year guidance. Barring unforeseen events, we now expect 2015 core earnings growth to be in the mid- to high-teen percentage range (at CER, excluding the impact of 2014 US rebate reversals).. WorldReginfo - 23aae362-2aa1-4454-89c2-6b594f213300. VALUE CREATION In recent years, we have created significant value as an independent company, but I believe we are only beginning to realize Actelion’s full potential. Our leading PAH portfolio, our financial discipline, and the progress we have made in building additional specialty franchises all combine to paint a bright future for Actelion – for our patients and their physicians, for our employees, and for our shareholders. Thank you for joining us on this exciting journey, which is making a difference to so many people’s lives. Yours sincerely,. JEAN-PAUL CLOZEL CHIEF EXECUTIVE OFFICER. ACTELION HALF-YEAR REPORT 2015.. 8.

(9) KEY PERFORMANCE INDICATORS. FINANCIAL REVIEW. INTERIM CONSOLIDATED FINANCIAL STATEMENTS. PREVIOUS. NEXT. KEY PERFORMANCE INDICATORS. WorldReginfo - 23aae362-2aa1-4454-89c2-6b594f213300. CONTENTS. LETTER FROM THE CEO. ACTELION HALF-YEAR REPORT 2015.. 9.

(10) LETTER FROM THE CEO. CONTENTS. KEY PERFORMANCE INDICATORS. INTERIM CONSOLIDATED FINANCIAL STATEMENTS. FINANCIAL REVIEW. PREVIOUS. NEXT. FINANCIAL PERFORMANCE PRODUCT SALES. CORE EARNINGS. H1 2014. CHF 993 million. H1 2014 CHF 421 million. H1 2015. CHF 1,008 million. H1 2015. CHF 423 million. Actelion’s outstanding commercial performance in the first half of 2015 resulted in sales growth of 11% at constant exchange rates (CER), excluding the impact of prioryear US rebate reversals. This performance was driven by the continued strong launch momentum for Opsumit.. Strong sales performance and financial discipline resulted in core earnings growth of 19% at CER (excluding prior-year US rebate reversals), enabling increased guidance for the full year 2015.. CORE R&D EXPENDITURE. CORE EARNINGS PER SHARE. H1 2014. CHF 166 million. H1 2014 CHF 3.25. H1 2015. CHF 191 million. H1 2015. CHF 3.11. SHARE PRICE DEVELOPMENT OVER THE FIRST HALF OF 2015. Swiss SMI index. WorldReginfo - 23aae362-2aa1-4454-89c2-6b594f213300. Actelion remains committed to shareholder value creation and has been pursuing a new second-line share repurchase program (up to 10 million shares within three years).. Actelion’s investment in future growth opportunities is carefully balanced with delivery of appropriate shareholder returns.. Actelion. 150. 135. CHF. 120. 105. 90 Jan. Feb. Mar. Apr. May. June. 2015. ACTELION HALF-YEAR REPORT 2015.. 10.

(11) CONTENTS. LETTER FROM THE CEO. KEY PERFORMANCE INDICATORS. FINANCIAL REVIEW. INTERIM CONSOLIDATED FINANCIAL STATEMENTS. PREVIOUS. NEXT. ACTELION’S PRODUCT PORTFOLIO OUR PAH FRANCHISE Pulmonary arterial hypertension (PAH) is a chronic, life-threatening disorder characterized by abnormally high blood pressure in the arteries between the heart and lungs. Actelion’s PAH franchise encompasses oral, inhaled and intravenous formulations of compounds, for patients at various stages in the course of this disease (WHO functional classes II–IV), enabling us to deliver treatments across the entire continuum of care.. OPSUMIT® (MACITENTAN). TRACLEER® (BOSENTAN). Sales in H1 2014: CHF 53 million Sales in H1 2015: CHF 208 million. Sales in H1 2014: CHF 791 million Sales in H1 2015: CHF 645 million. 294% increase in Swiss francs 290% increase at CER. 19% decrease in Swiss francs 15% decrease at CER. Introduced in the US in November 2013, Opsumit has now been launched in 30 countries worldwide.. Tracleer, the first orally available ERA, is marketed in 60 countries worldwide.. Opsumit is an orally available endothelin receptor antagonist (ERA) that resulted from a tailored drug discovery process in Actelion’s laboratories.. Sales in H1 2014: CHF 31 million Sales in H1 2015: CHF 38 million 25% increase in Swiss francs 27% increase at CER Veletri, an intravenous prostacyclin, is available in 15 countries worldwide. Unlike other epoprostenol formulations approved for PAH, it is stable as solution ready for infusion at room temperature (77°F/25°C), removing the need for patients to carry ice packs.. VENTAVIS® (ILOPROST). WorldReginfo - 23aae362-2aa1-4454-89c2-6b594f213300. VELETRI® (EPOPROSTENOL FOR INJECTION). Sales in H1 2014: CHF 58 million Sales in H1 2015: CHF 57 million 2% decrease in Swiss francs 8% decrease at CER Ventavis is an inhaled formulation of iloprost, a synthetic compound structurally similar to prostacyclin (PGI2). It is marketed by Actelion in the US and by Bayer Healthcare elsewhere.. ACTELION HALF-YEAR REPORT 2015.. 11.

(12) CONTENTS. LETTER FROM THE CEO. KEY PERFORMANCE INDICATORS. FINANCIAL REVIEW. INTERIM CONSOLIDATED FINANCIAL STATEMENTS. PREVIOUS. NEXT. OUR SPECIALTY PRODUCTS Actelion is creating specialty franchises alongside PAH – discovering, developing and/or in-licensing/acquiring products in new therapeutic areas.. Sales in H1 2014: CHF 3 million Sales in H1 2015: CHF 12 million 285% increase in Swiss francs 272% increase at CER Valchlor gel 0.016% is applied topically once a day and dries on the skin. The active substance mechlorethamine is a chemotherapeutic agent previously approved for intravenous treatment of mycosis fungoides, the most common type of cutaneous T-cell lymphoma.. ZAVESCA® (MIGLUSTAT) Sales in H1 2014: CHF 54 million Sales in H1 2015: CHF 44 million 18% decrease in Swiss francs 12% decrease at CER Zavesca is a low-molecular-weight competitive, reversible inhibitor of glucosylceramide synthase. Zavesca is approved for the treatment of Niemann-Pick type C disease in 45 countries, including the EU since 2009 and in Japan since 2012 (under the trade name Brazaves®).. In the US, Valchlor gel 0.016% is indicated for the treatment of stage IA and IB mycosis fungoides-type cutaneous T-cell lymphoma (MF-CTCL) in patients who have received prior skin directed therapy.. Zavesca is approved for the treatment of mild to moderate type 1 Gaucher disease in 47 countries, including the US and the EU since 2003.. In the EU, regulatory review is ongoing (under the trade name Ledaga®).. More details on the availability of our. WorldReginfo - 23aae362-2aa1-4454-89c2-6b594f213300. VALCHLOR® (MECHLORETHAMINE). products can be found on www.actelion.com/investors/products. ACTELION HALF-YEAR REPORT 2015.. 12.

(13) CONTENTS. KEY PERFORMANCE INDICATORS. LETTER FROM THE CEO. FINANCIAL REVIEW. INTERIM CONSOLIDATED FINANCIAL STATEMENTS. PREVIOUS. NEXT. ACTELION’S DEVELOPMENT PIPELINE Phase. Compound. Indication. Study. Status. Registration. Selexipag. PAH. GRIPHON. Submissions ongoing. III. Cadazolid. Clostridium difficile-associated diarrhea. IMPACT. Ongoing. III. Macitentan. Eisenmenger syndrome. MAESTRO. Ongoing. III. Ponesimod. Multiple sclerosis. OPTIMUM. Ongoing. II. Macitentan. Chronic thromboembolic pulmonary hypertension. MERIT. Ongoing. II. Macitentan. Combined pre- and post-capillary pulmonary hypertension. MELODY. Ongoing. II. Ponesimod. Graft-versus-host disease. -. Ongoing. II. S1P1 modulator. Systematic lupus erythematosus. -. Ongoing. Ib. Lucerastat. Fabry disease. -. Ongoing. I. Macitentan. Glioblastoma. -. Ongoing. I. NCE. Cardiovascular disorders. -. Ongoing. I. NCE. Neurological disorders. -. Ongoing. NCE = New Chemical Entity Status as of end of June 2015. WorldReginfo - 23aae362-2aa1-4454-89c2-6b594f213300. EMPLOYEES EMPLOYEES BY REGION. EMPLOYEES BY FUNCTION. Japan Support functions. 431. 370. TOTAL 2,495 Marketing & Sales. 1,079. Drug Discovery. EU. 486. US. 615. 478. 249 232. RoW. TOTAL 2,495. Development. 1,050. Switzerland. ACTELION HALF-YEAR REPORT 2015.. 13.

(14) KEY PERFORMANCE INDICATORS. FINANCIAL REVIEW. INTERIM CONSOLIDATED FINANCIAL STATEMENTS. PREVIOUS. NEXT. FINANCIAL REVIEW. WorldReginfo - 23aae362-2aa1-4454-89c2-6b594f213300. CONTENTS. LETTER FROM THE CEO. ACTELION HALF-YEAR REPORT 2015.. 14.

(15) CONTENTS. LETTER FROM THE CEO. KEY PERFORMANCE INDICATORS. INTERIM CONSOLIDATED FINANCIAL STATEMENTS. FINANCIAL REVIEW. PREVIOUS. NEXT. 1. P&L. (in CHF millions, except % variance and EPS). 2015. Half year 2014. CER %. Second quarter 2015 CER %. First quarter 2015 CER %. Sales Product sales Product sales excluding US rebate reversals Opsumit Tracleer Other. 1,008 1,008 208 645 155. 993 934 53 741 141. 4% 11% nm -9% 10%. 493 493 113 301 79. -3% 6% nm -14% 6%. 515 515 95 344 77. 12% 16% nm -4% 13%. Core results Operating income Operating income excluding US rebate reversals Net income Diluted EPS. 423 423 357 3.11. 421 368 378 3.25. 4% 19% 0% 1%. 205 205 172 1.51. -7% 10% -12% -10%. 218 218 185 1.61. 18% 29% 11% 12%. US GAAP Results Operating income Net income Diluted EPS. 344 287 2.50. 347 420 3.62. 4% -28% -27%. 154 128 1.12. -15% -53% -53%. 190 159 1.38. 28% 29% 30%. CASH FLOW, CASH AND SHARE COUNT. Cash flow Operating cash flow Capital expenditure Free cash flow Cash position Gross cash Net cash Share count (million shares) Issued common shares Treasury shares held Outstanding equity instruments. June 30, 2015. March 31, December 31, 2015 2014. 278 (11) (540). 94 (6) (57). 616 (31) 327. 665 430. 1,148 913. 1,205 970. 114.1 7.1 6.4. 114.1 3.0 6.2. 114.1 3.0 7.7. WorldReginfo - 23aae362-2aa1-4454-89c2-6b594f213300. (in CHF millions). Disclaimer and notes to this financial report: Actelion continues to measure, report and issue guidance on its core operating performance, which management believes more accurately reflects the underlying business performance. The Group believes that these non-GAAP financial measurements provide useful supplementary information to investors. These non-GAAP measures are reported in addition to, not as a substitute for, US GAAP financial results. Constant exchange rate (CER) percentage changes are calculated by reconsolidating both the H1 2014 and H1 2015 results at constant currencies (the average monthly exchange rates for H1 2014). nm = not meaningful Rounding differences may occur. ACTELION HALF-YEAR REPORT 2015.. 15.

(16) CONTENTS. LETTER FROM THE CEO. KEY PERFORMANCE INDICATORS. FINANCIAL REVIEW. INTERIM CONSOLIDATED FINANCIAL STATEMENTS. PREVIOUS. NEXT. 2. During the first six months of 2015, Actelion delivered strong financial results through excellent execution across the commercial organization and disciplined management of the business. This strong performance resulted in operational leverage, with 19% core operating income growth and 11% sales growth, both at CER and excluding the impact of prioryear US rebate reversals. The reversal of these extraordinary rebates is now completed, and no additional meaningful reversals occurred during the first half of 2015, or are expected to occur going forward. Due to this continued strong performance, Actelion is upgrading its full-year 2015 outlook: the company is now confident that, barring unforeseen events, core earnings growth will be in the mid- to high-teen percentage range, again at CER and excluding prior-year US rebate reversals. As committed by the Board of Directors, Actelion has returned significant capital to shareholders through the increased dividend payment of 142 million Swiss francs and the repurchase of 4.1 million shares, representing 41% of the total share buyback program, for a consideration of 538 million Swiss francs. Despite this substantial cash outflow, Actelion retains full financial flexibility with a net cash position of 430 million Swiss francs at the end of June 2015. Product sales rose 11% at CER to 1,008 million Swiss francs, excluding the impact of prior-year US rebate reversals, mainly driven by the continued growth of our ERA franchise led by the strong uptake of Opsumit that gained over 3,400 patients during the first half of 2015 to reach over 9,800 patients on drug in total. Core operating income increased by 19% at CER to 423 million Swiss francs, excluding the impact of prior-year US rebate reversals. The strong sales performance was supported by increased investment, as the commercial organization launched Opsumit and Veletri in markets around the globe and prepared for the anticipated launch of Uptravi. Core R&D expenses remained at the same level as full year 2014 at 19% of sales, while G&A expenses remained flat. Core net income amounted to 357 million Swiss francs resulting in core diluted earnings per share (EPS) of 3.11 Swiss francs. Core net income and core EPS remained almost unchanged at CER compared to the first half of 2014, a strong performance considering the positive impact of US rebate reversals in 2014. US GAAP operating income amounted to 344 million Swiss francs compared to 347 million Swiss francs in the first half of 2014, despite the continued negative currency environment and the impact of prior-year US rebate reversals.. ACTELION HALF-YEAR REPORT 2015.. WorldReginfo - 23aae362-2aa1-4454-89c2-6b594f213300. US GAAP net income amounted to 287 million Swiss francs resulting in diluted earnings per share (EPS) of 2.50 Swiss francs. US GAAP net income and EPS decreased by 28% and 27% at CER respectively as the first half of 2014 net income was inflated by an income tax benefit of CHF 121 million due to releases of valuation allowances in the US and other jurisdictions and the afore mentioned US rebate reversals.. 16.

(17) CONTENTS. LETTER FROM THE CEO. KEY PERFORMANCE INDICATORS. INTERIM CONSOLIDATED FINANCIAL STATEMENTS. FINANCIAL REVIEW. PREVIOUS. NEXT. 3. SALES Sales by product (in CHF millions, except % variance). Product sales Opsumit® Tracleer® Veletri® Ventavis® Valchlor® Zavesca® Others Product sales excluding US rebate reversals US rebate reversals* Total product sales. Six months ended June 30, 2015 2014. 208 645 38 57 12 44 3 1,008 1,008. 53 741 30 54 3 52 2 934 58 993. variance CHF. CER. nm -13% 29% 6% nm -15% 50% 8%. nm -9% 32% 0% nm -9% 59% 11%. 2%. 4%. *To allow meaningful comparison to the first half year 2014, the reversals of rebate accruals reported in 2014 have been disclosed separately in the sales tables where relevant.. Actelion’s commercial performance in the first six months of 2015 was strong, driven by the continued successful uptake of Opsumit, consistently strong recruitment of new patients across markets and ERA market expansion due to increased combination therapy with PDE5 inhibitors. In the US, sales increased by 21% at CER (excluding 2014 rebate reversals), driven by Opsumit momentum and ERA market share gains, as well as price increases across major products. European sales increased by 1% at CER, driven mostly by Opsumit launches and Tracleer growth in the digital ulcer indication and negatively impacted by some price erosion. Sales in Japan increased by 3% at CER, driven by sales of Veletri and Zavesca (marketed as Brazaves®). Sales in the rest of the world increased by 12% at CER, driven by strong growth in emerging PAH markets such as the Middle East, China, Taiwan and the successful launch of Opsumit in Australia. Comparing average exchange rates for the first half of 2015 to the first half of 2014, the Swiss franc appreciated against most major currencies except the US dollar, resulting in a negative currency variance of 26 million Swiss francs.. (in CHF millions, except % variance). Product sales by region United States Europe Japan Rest of the world Product sales excluding US rebate reversals US rebate reversals* Total product sales. Six months ended June 30, 2015 2014. 495 329 86 97 1,008 1,008. 383 368 92 91 934 58 993. variance CHF. WorldReginfo - 23aae362-2aa1-4454-89c2-6b594f213300. Sales by region CER. 29% -11% -6% 8% 8%. 21% 1% 3% 12% 11%. 2%. 4%. ACTELION HALF-YEAR REPORT 2015.. 17.

(18) CONTENTS. LETTER FROM THE CEO. KEY PERFORMANCE INDICATORS. INTERIM CONSOLIDATED FINANCIAL STATEMENTS. FINANCIAL REVIEW. PREVIOUS. NEXT. 4. PAH FRANCHISE Opsumit® (in CHF millions, except % variance). Sales by region United States Europe Japan Rest of the world Total. Six months ended June 30, 2015 2014. 149 47 1 11 208. 42 10 0 53. variance CHF. nm nm nm nm nm. CER. nm nm nm nm nm. Sales of Opsumit (macitentan) amounted to 208 million Swiss francs for the first half of 2015, reflecting the continued highly successful launch. The strong patient recruitment trend continued during the first half of 2015 with just over 9,800 patients on drug at the end of June with the contribution from Tracleer patient switches in early launch markets decreasing. The strong enrollment is driven by a significant market share of ERA naïve patients combined with early combination with PDE5 inhibitors. In June 2015, Opsumit was launched in Japan (where it is co-promoted with Nippon Shinyaku) and Spain. As per June 30, 2015 Opsumit was available to patients in 30 countries around the globe. Tracleer® (in CHF millions, except % variance). Sales by region United States Europe Japan Rest of the world Sales excluding US rebate reversals US rebate reversals* Total. Six months ended June 30, 2015 2014. 249 250 74 73 645 645. 253 328 83 77 741 51 791. variance CHF. CER. -2% -24% -11% -6% -13%. -8% -14% -2% -3% -9%. -19%. -15%. ACTELION HALF-YEAR REPORT 2015.. WorldReginfo - 23aae362-2aa1-4454-89c2-6b594f213300. Sales of Tracleer (bosentan) amounted to 645 million Swiss francs for the first half of 2015, a decrease of 9% at CER compared to the first half of 2014 excluding the impact of prior-year US rebate reversals. This decrease is mainly due to erosion in markets where Opsumit is available, as well as pricing pressure in Europe, increased generic bosentan competition and growing competitive pressures in Japan. Tracleer sales were supported by price increases in the US, the digital ulcer indication in Europe and continued solid demand in markets where Opsumit is not yet available. Underlying units sold globally decreased by 7%.. 18.

(19) CONTENTS. LETTER FROM THE CEO. KEY PERFORMANCE INDICATORS. INTERIM CONSOLIDATED FINANCIAL STATEMENTS. FINANCIAL REVIEW. PREVIOUS. NEXT. 5. Veletri® (in CHF millions, except % variance). Sales by region United States Europe Japan Rest of the world Sales excluding US rebate reversals US rebate reversals* Total. Six months ended June 30, 2015 2014. 20 6 10 2 38 38. 19 2 8 1 30 1 31. variance CHF. CER. 4% nm 32% nm 29%. -2% nm 45% nm 32%. 25%. 27%. Sales of Veletri (epoprostenol for injection) amounted to 38 million Swiss francs for the first half of 2015, an increase of 32% at CER compared to the first half of 2014 excluding the impact of prior-year US rebate reversals. The increase was mostly driven by increased market penetration, successful launches in additional markets and continued growth in Japan despite a price cut of 5% on March 1, 2014. In June 2015, Veletri became available to patients in France, the biggest European i.v. epoprostenol market in terms of prostacyclin patients. At the end of June 2015, Veletri was available in 15 countries around the globe. Ventavis® (in CHF millions, except % variance). Sales by region United States Europe Japan Rest of the world Sales excluding US rebate reversals US rebate reversals* Total. Six months ended June 30, 2015 2014. 57 57 57. 54 54 5 58. variance CHF. CER. 6% nm nm nm 6%. 0% nm nm nm 0%. -2%. -8%. WorldReginfo - 23aae362-2aa1-4454-89c2-6b594f213300. Sales of Ventavis (iloprost) amounted to 57 million Swiss francs for the first half of 2015, unchanged at CER compared to the first half of 2014 excluding the impact of prior-year US rebate reversals. The underlying unit decrease of 20% due to continued competitive pressure was offset by price increases.. ACTELION HALF-YEAR REPORT 2015.. 19.

(20) CONTENTS. LETTER FROM THE CEO. KEY PERFORMANCE INDICATORS. INTERIM CONSOLIDATED FINANCIAL STATEMENTS. FINANCIAL REVIEW. PREVIOUS. NEXT. 6. SPECIALTY PRODUCTS Valchlor® (in CHF millions, except % variance). Sales by region United States Europe Japan Rest of the world Total. Six months ended June 30, 2015 2014. 11 1 12. 3 3. variance CHF. nm nm nm nm nm. CER. nm nm nm nm nm. Sales of Valchlor (mechlorethamine) for the first half of 2015 amounted to 12 million Swiss francs. The company is continuing its efforts to establish Valchlor as an option in the treatment algorithm for early-stage MF-CTCL. In France almost 200 patients benefitted from the drug under a temporary authorization for use (‘ATU’) program initiated during the second half of 2014. In addition, in the second quarter of 2015, the company filed the dossier for Valchlor (under the trade name Ledaga®) with the EMA. The dossier has been accepted and is under review. Zavesca® (in CHF millions, except % variance). Sales by region United States Europe Japan Rest of the world Sales excluding US rebate reversals US rebate reversals* Total. Six months ended June 30, 2015 2014. 10 25 1 8 44 44. 13 28 1 10 52 2 54. variance CHF. CER. -23% -11% 21% -21% -15%. -27% 1% 33% -16% -9%. -18%. -12%. ACTELION HALF-YEAR REPORT 2015.. WorldReginfo - 23aae362-2aa1-4454-89c2-6b594f213300. Sales of Zavesca (miglustat) amounted to 44 million Swiss francs for the first half of 2015, a decrease of 9% at CER compared to the first half of 2014 excluding the impact of prior-year rebate reversals. Underlying units sold decreased by 4%. Sales in the US were lower mainly due to competitive pressure in type 1 Gaucher disease. Outside the US, Zavesca sales were almost stable with increased patient demand in the Niemann-Pick type C indication (particularly in Japan where it is marketed as Brazaves®), offset by the launch of generic miglustat in Spain and the Czech Republic in type 1 Gaucher disease indication only.. 20.

(21) CONTENTS. LETTER FROM THE CEO. KEY PERFORMANCE INDICATORS. INTERIM CONSOLIDATED FINANCIAL STATEMENTS. FINANCIAL REVIEW. PREVIOUS. NEXT. 7. OPERATING EXPENSES Operating expenses break down as follows: (in CHF millions, except % variance). Operating expenses Core cost of sales Core research and development Core selling, general and administration Core operating expenses Depreciation of assets Amortization of acquired intangible assets Stock-based compensation Milestone payment Doubtful debt movements Accretion expenses (benefits) Other expenses Non-core operating expenses US GAAP operating expenses. Six months ended June 30, 2015 2014. 94 191 300 585 18 27 27 11 5 (7) 0 82 667. 104 166 301 571 19 30 25 (1) 2 0 75 646. variance CHF. -10% 15% 0% 2% -5% -12% 9% nm nm nm nm 9% 3%. CER. -9% 16% 3% 4% -5% -12% 9% nm nm nm nm 9% 5%. Cost of sales (in CHF millions, except % variance). Cost of sales Royalty expenses Cost of goods sold Core cost of sales Non-core cost of sales US GAAP cost of sales. Six months ended June 30, 2015 2014. 63 31 94 (7) 88. 77 27 104 2 106. variance CHF. -19% 17% -10% nm -17%. CER. -18% 18% -9% nm -18%. Core cost of sales decreased by 9% at CER to 94 million Swiss francs despite a sales increase of 4% at CER for the first half of 2015 compared to the first half of 2014. This decrease was driven by lower royalty expenses due to the product mix as the company pays a low single-digit royalty rate on sales of Opsumit and a high single-digit rate for Tracleer and no longer pays royalty on Ventavis since mid March 2015.. ACTELION HALF-YEAR REPORT 2015.. WorldReginfo - 23aae362-2aa1-4454-89c2-6b594f213300. Non-core cost of sales relates to the accretion expense for the contingent consideration for Valchlor, which was reduced to reflect adjusted sales projections. This translates into a net accretion benefit of 7 million Swiss francs.. 21.

(22) CONTENTS. LETTER FROM THE CEO. KEY PERFORMANCE INDICATORS. INTERIM CONSOLIDATED FINANCIAL STATEMENTS. FINANCIAL REVIEW. PREVIOUS. NEXT. 8. Research and development (“R&D”) expenses (in CHF millions, except % variance). Core R&D expenses Depreciation Stock-based compensation Milestone payment US GAAP R&D expenses1 Amortization of acquired intangible assets US GAAP R&D expenses. Six months ended June 30, 2015 2014 191 13 12 11 227 1 228. 166 14 11 190 1 191. variance CHF. CER. 15% -7% 9% nm 19% -9% 19%. 16% -7% 9% nm 19% -7% 19%. As reported in the consolidated income statements, excluding amortization of acquired intangible assets.. 1. Core R&D expenses amounted to 191 million Swiss francs for the first half of 2015, an increase of 16% at CER compared to the first half of 2014. This increase was driven by continued investment in the earlier-stage pipeline and a small increase in clinical trial expenses, as the company is beginning to advance its specialty immunology portfolio. Core R&D expenditure represented 19% of product sales for the first half of 2015, unchanged from full year 2014 levels. Actelion will continue to focus on carefully balancing investments so as to ensure future growth and delivery of appropriate shareholder returns. US GAAP R&D expenses include depreciation of 13 million Swiss francs, relating to the research building and laboratory equipment, stock-based compensation expenses of 12 million Swiss francs and a license issuance fee of 11 million Swiss francs in connection with the creation of Vaxxilon, a joint collaborative venture in the field of synthetic carbohydrate vaccines between Actelion, Max Planck Society and Seeberger Science GmbH. Selling, general and administrative (“SG&A”) expenses. SG&A expenses Marketing, selling and distribution expenses General and administrative expenses Core SG&A expenses Depreciation Stock-based compensation Doubtful debt movements US GAAP SG&A expenses1 Amortization of acquired intangible assets US GAAP SG&A expenses 1. Six months ended June 30, 2015 2014. 210 90 300 6 15 5 326 26 351. 210 91 301 6 14 (1) 320 29 349. variance CHF. 0% -2% 0% -1% 10% nm 2% -12% 1%. CER. 3% 1% 3% -1% 10% nm 5% -12% 3%. WorldReginfo - 23aae362-2aa1-4454-89c2-6b594f213300. (in CHF millions, except % variance). As reported in the consolidated income statements, excluding amortization of acquired intangible assets.. Core SG&A amounted to 300 million Swiss francs for the first half of 2015, an increase of 3% at CER compared to the first half of 2014. This increase was driven mostly by costs relating to the continuing launches of Opsumit and Veletri in various markets around the globe, as well as preparations for the anticipated launch of selexipag (Uptravi®) whilst G&A expenses remained almost flat. US GAAP SG&A amounted to 351 million Swiss francs for the first half of 2015, an increase of 3% at CER compared to the first half of 2014. This increase was mainly driven by doubtful debt provisions related to the Middle East. Other items are almost unchanged with depreciation expenses of 6 million Swiss francs, stock-based compensation expenses of 15 million Swiss francs and the amortization of acquired intangible assets of 26 million Swiss francs.. ACTELION HALF-YEAR REPORT 2015.. 22.

(23) CONTENTS. LETTER FROM THE CEO. KEY PERFORMANCE INDICATORS. INTERIM CONSOLIDATED FINANCIAL STATEMENTS. FINANCIAL REVIEW. PREVIOUS. NEXT. 9. OPERATING RESULTS. (in CHF millions, except % variance). Six months ended June 30, 2015 2014. variance CHF. Operating results Product sales Core operating expenses Core operating results Contract revenue Non core operating expenses US GAAP operating results. 1,008 (585) 423 3 (82) 344. 2% 2% 0% nm 9% -1%. 993 (571) 421 1 (75) 347. CER. 4% 4% 4% nm 9% 4%. Core operating results amounted to 423 million Swiss francs for the first half of 2015, an increase of 4% at CER compared to the first half of 2014. Excluding the impact of prior-year rebate reversals, core operating results increased by 19% at CER. The strength of the Swiss franc against most currencies except the US dollar had a negative impact of 16 million Swiss francs on core operating income. US GAAP operating results amounted to 344 million Swiss francs for the first half of 2015, an increase of 4% at CER compared to the first half of 2014. Non core operating expenses increased to 82 million Swiss francs mainly driven by the milestone payment in connection with the creation of Vaxxilon, higher doubtful debt movements and partly offset by the accretion benefit in connection with Valchlor.. NET RESULTS. (in CHF millions, except % variance). Net results Core operating results Core financial results Core income tax Core net results. Six months ended June 30, 2015 2014. 423 (17) (48) 357. 421 (1) (43) 378. variance CHF. 0% nm nm -5%. CER. 4% nm nm 0%. WorldReginfo - 23aae362-2aa1-4454-89c2-6b594f213300. Core net results amounted to 357 million Swiss francs for the first half of 2015, unchanged at CER compared to the first half of 2014. Core financial expense of 17 million Swiss francs included the interest expense of 6 million Swiss francs related to the straight bond and the foreign exchange loss net of hedging of 12 million Swiss francs. The strengthening of the Swiss franc against major currencies except US dollar had a negative impact of 43 million Swiss francs which was mitigated by a gain of 31 million Swiss francs in connection with the hedging programs. Core tax expense of 48 million Swiss francs was composed of a current tax expense of 16 million Swiss francs and a deferred tax expense of 32 million Swiss francs. The effective core tax rate increased slightly to 12% due to a higher profit in the US which could result in a slight increase of the core tax rate for the full year.. ACTELION HALF-YEAR REPORT 2015.. 23.

(24) CONTENTS. LETTER FROM THE CEO. KEY PERFORMANCE INDICATORS. INTERIM CONSOLIDATED FINANCIAL STATEMENTS. FINANCIAL REVIEW. PREVIOUS. NEXT. 10. (in CHF millions, except % variance). Net results Operating results Financial results Income tax Net income Net loss attributable to the noncontrolling interests US GAAP net income. Six months ended June 30, 2015 2014. 344 (17) (42) 284 3 287. variance CHF. 347 (11) 84 420 420. -1% 56% nm -32% nm -32%. CER. 4% 56% nm -29% nm -28%. US GAAP tax expense of 42 million Swiss francs was composed of a current tax expense of 10 million Swiss francs and a deferred tax expense of 32 million Swiss francs, resulting in an effective tax rate of 13%. US GAAP net results amounted to 287 million Swiss francs for the first half of 2015, a decrease of 28% at CER compared to the first half of 2014 as the first half of 2014 net income was inflated by an income tax benefit of CHF 121 million due to releases of valuation allowances in the US and other jurisdictions. Noncontrolling interests relate to the 26% equity stake held by minority shareholders in Vaxxilon.. EARNINGS PER SHARE (EPS). (in CHF millions, unless otherwise indicated). Net results Core net results US GAAP net results. Six months ended June 30, 2015 2014. variance CHF. CER. 357 287. 378 420. -5% -32%. 0% -28%. Basic earnings per share Weighted number of shares (in millions) Core basic EPS (in CHF) US GAAP basic EPS (in CHF). 110.5 3.23 2.60. 111.2 3.39 3.78. nm -5% -31%. nm 1% -28%. Diluted earnings per share Weighted number of shares (in millions) Core diluted EPS (in CHF) US GAAP diluted EPS (in CHF). 114.7 3.11 2.50. 116.2 3.25 3.62. nm -4% -31%. nm 1% -27%. WorldReginfo - 23aae362-2aa1-4454-89c2-6b594f213300. The decrease in earnings per share was driven mostly by the lower net income as described above. The average share count for basic earnings per share decreased by 0.7 million shares reflecting purchases related to the second line repurchase program. The average share count for diluted earnings per share decreased by 1.5 million shares, as the average number of outstanding instruments decreased by 3.7 million shares, partially offset by an increase of 30 Swiss francs of the average share price (119 Swiss francs per share during the first half 2015 compared to 89 Swiss francs during the first half 2014).. ACTELION HALF-YEAR REPORT 2015.. 24.

(25) CONTENTS. LETTER FROM THE CEO. KEY PERFORMANCE INDICATORS. INTERIM CONSOLIDATED FINANCIAL STATEMENTS. FINANCIAL REVIEW. PREVIOUS. NEXT. 11. IMPACT OF FOREIGN EXCHANGE RATES ON SALES AND OPERATING RESULTS Actelion’s exposure to foreign currency movements affecting its sales and operating results as expressed in Swiss francs is summarized in the following tables. (in CHF millions, except % variance). Six months ended June 30, 2015 CHF % CER % CHF. Reported growth versus prior year Product sales Core operating results US GAAP operating results Core net results US GAAP net results. Exchange rates against Swiss franc US dollar Euro Japanese yen. 2% 0% -1% -5% -32%. 1 USD 1 EUR 100 JPY. 4% 4% 4% 0% -28%. 15 1 (3) (20) (133). CER. 42 17 13 (0) (119). Six months ended June 30, 2014 CHF % CER % CHF. 12% 27% 32% 40% 111%. 17% 35% 42% 48% 126%. 109 91 85 108 221. CER. 154 117 110 130 252. Closing rate June 30, 2015. Average rate Half year 2015. Closing rate June 30, 2014. Average rate Half year 2014. 0.931 1.041 0.760. 0.948 1.059 0.789. 0.890 1.216 0.878. 0.891 1.222 0.869. IMPACT OF OTHER EVENTS ON SALES AND OPERATING RESULTS. WorldReginfo - 23aae362-2aa1-4454-89c2-6b594f213300. The Group recognizes revenue from product sales when there is persuasive evidence that a sales arrangement exists, delivery has occurred, the price is fixed or determinable, and collectibility is reasonably assured. Provisions for rebates and discounts granted to government agencies, wholesalers, retail pharmacies, managed care organizations and other customers are recorded as a reduction of revenue at the time the related revenues are recognized or when the incentives are offered. They are calculated on the basis of historical experience and the specific terms in the individual agreements. Estimating such rebate accruals is a complex process and requires significant judgment, especially for rebates granted in the context of US reimbursement programs (mainly governmental programs such as Medicaid and Managed Medicaid), due to the time lag between the date of sale and the actual settlement of the liability, changes in regulations for the various rebate programs, and changing utilization rates and patient populations. In 2014, the company adjusted its estimates of US rebate accruals for 2013 and 2014, which resulted in a positive impact both on sales and on core operating income. The reversal of these extraordinary rebates is now completed, and no additional meaningful reversals occurred during the first half of 2015, or are expected to occur going forward. The table below shows Actelion’s first half 2015 performance compared to the prior year where rebate reversals were excluded: (in CHF millions, except % variance). Product sales performance Product sales – as reported Impact of US rebate reversals Product sales excluding US rebate reversals Core operating performance Core operating results – as reported Impact of US rebate reversals Core operating results excluding US rebate reversals. Six months ended June 30, 2015 2014. variance CHF CHF %. variance CER CER %. 1,008 1,008. 993 (58) 934. 15 58 73. 2% 8%. 42 58 100. 4% 11%. 423 423. 421 (53) 368. 1 53 54. 0% 15%. 17 53 70. 4% 19%. ACTELION HALF-YEAR REPORT 2015.. 25.

(26) CONTENTS. LETTER FROM THE CEO. KEY PERFORMANCE INDICATORS. FINANCIAL REVIEW. INTERIM CONSOLIDATED FINANCIAL STATEMENTS. PREVIOUS. NEXT. 12. CASH FLOW AND CASH POSITION Operating cash flow (in CHF millions). Six months ended June 30, 2015 2014. Operating cash flow Net results Depreciation and amortization Stock-based compensation Other non cash items Funds from operations1. 287 45 27 (44) 316. 420 50 25 25 521. Net change in trade and other receivables Net change in trade and other payables Net change in deferred tax assets and liabilities Net change in other operating assets and liabilities Decrease (increase) in operating working capital Operating cash flow1. (58) (10) 32 (2) (39) 278. (26) (22) (113) (101) (262) 259. 1. Excluding litigation settlement.. Operating cash flow amounted to 278 million Swiss francs for the first half of 2015. The strong underlying business performance resulted in funds from operations of 316 million Swiss francs despite a negative impact of other non cash items driven by foreign exchange movements. Changes in net working capital requirements increased by 39 million Swiss francs for the first half of 2015, driven by an increase of 58 million Swiss francs in trade receivables due to the strong level of sales. Cash collection remains solid, with days sales outstanding (DSO) at 65 days. Free cash flow. Free cash flow Operating cash flow Acquisition of tangible, intangible and other assets Acquisition of businesses Operating free cash flow. Six months ended June 30, 2015 2014. 278 (11) (1) 266. 259 (12) (0) 246. Second-line share buy back Dividend First-line share purchase Proceeds from exercise of stock options Litigation payment Cash released from (restricted for) litigation Other items. (454) (142) (261) 61 (10). (133) (392) 187 (458) 609 3. Free cash flow. (540). 63. WorldReginfo - 23aae362-2aa1-4454-89c2-6b594f213300. (in CHF millions). Operating free cash flow of 266 million Swiss francs was driven by the strong operating performance and limited capital expenditure. Free cash flow reconciles the net cash positions between the opening and closing period. Free cash flow was negative at 540 million Swiss francs for the first half of 2015 due to the company’s share purchase program, the buyback program and the dividend payment.. ACTELION HALF-YEAR REPORT 2015.. 26.

(27) CONTENTS. LETTER FROM THE CEO. KEY PERFORMANCE INDICATORS. FINANCIAL REVIEW. INTERIM CONSOLIDATED FINANCIAL STATEMENTS. PREVIOUS. NEXT. 13. During the first half of 2015, Actelion purchased 2.2 million shares for a total consideration of 261 million Swiss francs via the first trading line on the SIX Swiss Exchange in order to mitigate dilution arising from 1.0 million vested Restricted Share Units and 1.2 million exercised stock options resulting in proceeds of 61 million Swiss francs. On June 30, 2015, 84% of the 10 million share purchase program initiated in December 2013 was completed. On April 9, 2015, Actelion commenced a new share repurchase program of up to 10 million shares of common stock. This share repurchase program is being carried out via a new second trading line on the SIX Swiss Exchange over 3 years and the Board will propose cancellation of these shares at subsequent annual general meetings. During the second quarter of 2015, Actelion repurchased 4.1 million shares for a total consideration of 538 million Swiss francs of which 454 million Swiss francs were paid by the end of June 2015. The remainder of 84 million Swiss francs relating to Swiss withholding tax was paid in July 2015. Gross cash position The gross cash position amounted to 665 million Swiss francs on June 30, 2015 and breaks down by currency as follows: (CHF millions unless otherwise indicated). Gross cash position by currency Swiss franc US dollar Euro Japanese yen Other foreign currencies Total gross cash position. June 30, 2015. in %. Closing rate against CHF. 356 154 70 35 50 665. 54% 23% 11% 5% 8% 100%. 1 USD = 0.93 1 EUR = 1.04 100 JPY = 0.76 -. The net cash position amounted to 430 million Swiss francs at the end of the first half of 2015, taking into account the straight bond of 235 million Swiss francs repayable in December 2015.. WorldReginfo - 23aae362-2aa1-4454-89c2-6b594f213300. Actelion has been consistently applying a hedging policy by using derivative instruments, mainly forward contracts, in order to limit volatility in its financial results. Such derivative instruments aim to compensate for potential gains or losses on the assets and liabilities denominated in foreign currencies held by Swiss entities of Actelion. At the end of the first half of 2015, the derivative instruments had a value of CHF 7 million, which is not included in the above cash position.. ACTELION HALF-YEAR REPORT 2015.. 27.

(28) CONTENTS. LETTER FROM THE CEO. KEY PERFORMANCE INDICATORS. FINANCIAL REVIEW. INTERIM CONSOLIDATED FINANCIAL STATEMENTS. PREVIOUS. NEXT. 14. BALANCE SHEET June 30, 2015. December 31, 2014. variance. 665 423 112 354 415 133 55 2,157. 1,205 400 121 368 441 134 78 2,748. (540) 23 (9) (14) (25) (2) (24) (591). 430 235 161 826. 429 235 163 827. 0 (0) (2) (1). Share capital and accumulated reserves Treasury shares Total Actelion's shareholders equity. 2,194 (861) 1,332. 2,208 (288) 1,920. (14) (574) (588). Noncontrolling interests Equity attributable to noncontrolling interests Total equity. (2) 1,331. 1,920. (2) (590). Total liabilities and equity. 2,157. 2,748. (591). (in CHF millions). Assets Gross cash position1 Trade and other receivables, net Other current assets Tangible assets Intangible assets Goodwill Other non-current assets Total assets Liabilities and shareholders' equity Other current liabilities Financial debt Other non-current liabilities Total liabilities. 1. Gross cash position includes cash, cash equivalents and short-term deposits.. The company continues to have a strong balance sheet, ensuring full financial flexibility.. WorldReginfo - 23aae362-2aa1-4454-89c2-6b594f213300. The decrease of 540 million Swiss francs of the gross cash position was mainly due to an increase to 7.1 million treasury shares held at the end of June 2015, of which 3.0 million are first-line and 4.1 million are second-line treasury shares.. ACTELION HALF-YEAR REPORT 2015.. 28.

(29) CONTENTS. LETTER FROM THE CEO. KEY PERFORMANCE INDICATORS. FINANCIAL REVIEW. INTERIM CONSOLIDATED FINANCIAL STATEMENTS. PREVIOUS. NEXT. 15. Treasury shares (in thousands). Average price (in CHF). Treasury shares (in CHF million). 3,000 2,207 (1,177) (1,036) (4) 2,990. 95.90 118.05 103.26 99.37 102.17 108.14. 288 261 (122) (103) (0) 323. Second-line treasury shares December 31, 2014 Shares repurchased June 30, 2015. 4,126 4,126. 130.36 130.36. 538 538. Treasury shares - total December 31, 2014 Change in first-line treasury shares Change in second-line treasury shares June 30, 2015. 3,000 (10) 4,126 7,116. 95.90 nm nm 121.03. 288 36 538 861. First-line treasury shares December 31, 2014 Purchase of treasury shares Exercise of options by employees Vesting of Restricted Stock Units Other share allocations June 30, 2015. (in CHF millions). Core operating results Product sales Operating expenses Operating results Financial results Income tax results Net results Operating results US GAAP Net revenue Operating expenses Operating results Financial results Income tax results Noncontrolling interest Net results. Q3 2014 three months. Q4 2014 three months. Q1 2015 three months. Q2 2015 three months. 496 (287) 209 (8) (24) 176. 468 (355) 113 (8) (10) 94. 515 (297) 218 (7) (26) 185. 493 (288) 205 (10) (22) 172. 496 (324) 172 (8) (18). 468 (417) 51 (14) (9). 515 (326) 190 (7) (24). 146. 28. 159. 495 (341) 154 (10) (18) 3 128. ACTELION HALF-YEAR REPORT 2015.. WorldReginfo - 23aae362-2aa1-4454-89c2-6b594f213300. QUARTERLY RESULTS. 29.

(30) CONTENTS. LETTER FROM THE CEO. KEY PERFORMANCE INDICATORS. FINANCIAL REVIEW. INTERIM CONSOLIDATED FINANCIAL STATEMENTS. PREVIOUS. NEXT. 16. RECONCILIATION US GAAP TO CORE RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 2015 Depreciation, (in CHF millions, except per share amounts). US GAAP amortization and Stock-based Doubtful debt Milestones or results impairment compensation movements contract. Accretion expense Core results. 1,008 3 1,011. -. -. -. (3) (3). -. 1,008 1,008. Operating (expenses) Cost of sales Research and development Selling, general and administration Amortization of acquired intangible assets Total operating (expenses) Operating results. (88) (227) (326) (27) (667) 344. 13 6 27 45 45. 12 15 27 27. 5 5 5. 11 11 8. (7) (7) (7). (94) (191) (300) (585) 423. Total financial results. (17). -. -. -. -. -. (17). Income before income tax benefit (expense). 326. 45. 27. 5. 8. (7). 405. Income tax benefit (expense) Noncontrolling interest Net results. (42) 3 287. (5). (1). (0). (0). (48). 40. 26. 4. 0 (3) 6. (7). 357. 2.50 114.741. 0.35 -. 0.23 -. 0.04 -. 0.05 -. (0.06) -. 3.11 114.741. Diluted net income (loss) per share Weighted-average number of common shares. WorldReginfo - 23aae362-2aa1-4454-89c2-6b594f213300. Net revenue Product sales Contract revenue Total net revenue. ACTELION HALF-YEAR REPORT 2015.. 30.

(31) KEY PERFORMANCE INDICATORS. FINANCIAL REVIEW. INTERIM CONSOLIDATED FINANCIAL STATEMENTS. PREVIOUS. NEXT. INTERIM CONSOLIDATED FINANCIAL STATEMENTS WorldReginfo - 23aae362-2aa1-4454-89c2-6b594f213300. CONTENTS. LETTER FROM THE CEO. ACTELION HALF-YEAR REPORT 2015.. 31.

(32) CONTENTS. LETTER FROM THE CEO. KEY PERFORMANCE INDICATORS. FINANCIAL REVIEW. INTERIM CONSOLIDATED FINANCIAL STATEMENTS. PREVIOUS. NEXT. 32. INTERIM CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED INCOME STATEMENTS Notes. Six months ended June 30, 2015 2014 (unaudited). (unaudited). 1,007,883 2,723 1,010,606. 992,588 772 993,360. (87,725) (226,503) (325,699) (26,827) (666,754) 343,852. (106,017) (190,280) (319,516) (30,412) (646,225) 347,135. (5,545) (11,838) (17,383). (9,814) (4,842) 3,532 (11,124). Income before income tax benefit (expense). 326,469. 336,011. Income tax benefit (expense) Net income. (41,977) 284,492. 84,387 420,398. Less: Net loss attributable to the noncontrolling interests Net income attributable to Actelion's shareholders. 2,933 287,425. 420,398. Net revenue Product sales Contract revenue Total net revenue. 15 15. Operating (expenses)1 Cost of sales2 Research and development Selling, general and administration Amortization of acquired intangible assets Total operating (expenses) Operating income Interest on litigation Interest income (expense), net Other financial income (expense), net Total financial income (expense). 8/9 8. Basic net income per share attributable to Actelion's shareholders Weighted-average number of common shares (in thousands). 6. 2.60 110,480. 3.78 111,229. Diluted net income per share attributable to Actelion's shareholders Weighted-average number of common shares (in thousands). 6. 2.50 114,741. 3.62 116,192. WorldReginfo - 23aae362-2aa1-4454-89c2-6b594f213300. (in CHF thousands, except per share amounts). Includes stock-based compensation as follows:. 1. Research and development. (11,587). (10,679). Selling, general and administration. (15,390). (13,988). Total stock-based compensation. (26,977). (24,667). 2. Excludes amortization of intangible assets as presented separately.. The accompanying notes form an integral part of these consolidated financial statements.. ACTELION HALF-YEAR REPORT 2015.. 32.

(33) CONTENTS. LETTER FROM THE CEO. KEY PERFORMANCE INDICATORS. FINANCIAL REVIEW. INTERIM CONSOLIDATED FINANCIAL STATEMENTS. PREVIOUS. 33. NEXT. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME. (in CHF thousands). Six months ended June 30, 2015 2014 (unaudited). (unaudited). 284,492. 420,398. (28,633) (5,482) 947 (33,168). 865 865. Comprehensive income. 251,324. 421,263. Less: Comprehensive loss attributable to noncontrolling interests Comprehensive income attributable to Actelion's shareholders. 2,933 254,257. 421,263. Net income Other comprehensive income (loss), net of tax: Foreign currency translation adjustments Estimated effect of pension plans' merger Amortization of components of net periodic benefit costs Other comprehensive income (loss), net of tax. WorldReginfo - 23aae362-2aa1-4454-89c2-6b594f213300. The accompanying notes form an integral part of these consolidated financial statements.. ACTELION INTERIM FINANCIAL REPORT2015. 2015 ACTELION HALF-YEAR REPORT. 33.

(34) CONTENTS. LETTER FROM THE CEO. KEY PERFORMANCE INDICATORS. FINANCIAL REVIEW. INTERIM CONSOLIDATED FINANCIAL STATEMENTS. PREVIOUS. 34. NEXT. CONSOLIDATED BALANCE SHEETS (in CHF thousands, except number of shares). Notes. June 30, 2015. December 31, 2014. (unaudited). (audited). 664,762 7,802 422,808 54,542 49,757 1,199,671. 1,204,958 2,894 400,291 60,879 57,316 1,726,338. 353,890 415,442 132,870 39,507 15,154 956,863 2,156,534. 367,755 440,899 134,497 62,648 15,684 1,021,483 2,747,821. 145,638 275,950 235,064 8,186 664,838. 74,140 302,360 235,137 52,950 664,587. 59,957 78,794 22,351 161,102 825,940. 61,807 87,007 13,997 162,811 827,398. 57,064 2,378,249 (861,241) (241,681) 1,332,391. 57,064 2,359,573 (287,701) (208,513) 1,920,423. (1,797) 1,330,594 2,156,534. 1,920,423 2,747,821. Assets Current assets Cash and cash equivalents Derivative instruments Trade and other receivables, net Inventories Other current assets Total current assets. 7 8/14. Noncurrent assets Property, plant and equipment, net Intangible assets, net Goodwill Deferred tax assets Other noncurrent assets Total noncurrent assets Total assets Liabilities and equity. Noncurrent liabilities Pension liability Contingent considerations Other noncurrent liabilities Total noncurrent liabilities Total liabilities Shareholders' equity Common shares (par value CHF 0.50 per share, authorized 154,125,927 and issued 114,128,427 shares in 2015 and 2014, respectively) Accumulated profit Treasury shares, at cost Accumulated other comprehensive income (loss) Total Actelion's shareholders equity Noncontrolling interests Equity attributable to noncontrolling interests Total equity Total liabilities and equity. 9 8. 11 2. 12. 13. WorldReginfo - 23aae362-2aa1-4454-89c2-6b594f213300. Current liabilities Trade and other payables Accrued expenses Short-term financial debt Other current liabilities Total current liabilities. The accompanying notes form an integral part of these consolidated financial statements.. ACTELION INTERIM FINANCIAL REPORT2015. 2015 ACTELION HALF-YEAR REPORT. 34.

(35) CONTENTS. LETTER FROM THE CEO. KEY PERFORMANCE INDICATORS. FINANCIAL REVIEW. INTERIM CONSOLIDATED FINANCIAL STATEMENTS. PREVIOUS. NEXT. 35. CONSOLIDATED STATEMENTS OF CASH FLOWS Six months ended June 30, 2015 2014 (unaudited). (unaudited). 284,492. 420,398. 45,177 27,441 (10,538) 31,661 (778) (39,229) 5,987 (6,658). 49,745 25,114 (8,090) (104,891) (776) 8,484 15,801 1,812. (58,376) 5,953 (9,696) (16,834) 18,990 277,592. (457,700) (26,196) (6,939) (21,543) (108,922) 14,548 (199,155). (8,303) (2,222) (1,095) (11,620). 608,698 (100,000) 350,747 (9,689) (2,191) (1,794) (169) 845,602. Cash flow from financing activities Dividend payment Payments on capital leases Proceeds from exercise of stock options, net of expense Purchase of treasury shares Excess tax benefits from share-based payment arrangements Contributions from noncontrolling interests' owners Net cash flow provided by (used in) financing activities. (142,429) (3) 60,776 (714,339) 10,538 1,136 (784,321). (133,389) (30) 187,493 (391,607) 8,090 (329,443). Net effect of exchange rates on cash and cash equivalents Net change in cash and cash equivalents. (21,847) (540,196). 2,557 319,561. Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period. 1,204,958 664,762. 627,640 947,201. Cash flow from operating activities Net income Adjustments to reconcile net income to net cash provided from operating activities: Depreciation and amortization Stock-based compensation, incl. treasury shares to members of Board of Directors Excess tax benefits from share-based payment arrangements Deferred taxes Deferred revenue (Gains) Losses on derivative instruments Interest expense on bonds and litigation Accretion expense (benefit) on contingent considerations Changes in operating assets and liabilities: Litigation provision Trade and other receivables Inventories Trade and other payables Accrued expenses Changes in other operating cash flow items Net cash flow provided by (used in) operating activities Cash flow from investing activities Cash and cash equivalents released from litigation Purchase of short-term and long-term deposits Proceeds from short-term and long-term deposits Purchase of property, plant and equipment Purchase of intangible assets Purchase of other noncurrent assets Acquisition of a business, incl. contingent consideration payments Net cash flow provided by (used in) investing activities. WorldReginfo - 23aae362-2aa1-4454-89c2-6b594f213300. (in CHF thousands). The accompanying notes form an integral part of these consolidated financial statements.. ACTELION HALF-YEAR REPORT 2015. ACTELION INTERIM FINANCIAL REPORT 2015. 35.

(36) CONTENTS. LETTER FROM THE CEO. KEY PERFORMANCE INDICATORS. INTERIM CONSOLIDATED FINANCIAL STATEMENTS. FINANCIAL REVIEW. PREVIOUS. NEXT. 36. CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY. At January 1, 2014 Comprehensive income (loss)1: Net income Other comprehensive income (loss) Comprehensive income (loss)1 Excess tax benefits from share-based payments Transactions in treasury shares Stock-based comp. expense Dividend payment At June 30, 2014 (unaudited) Comprehensive income (loss)1: Net income Other comprehensive income (loss) Comprehensive income (loss)1 Excess tax benefits from share-based payments Transactions in treasury shares Stock-based comp. expense Cancelation of treasury shares At December 31, 2014 (audited) Comprehensive income (loss)1: Net income Other comprehensive income (loss) Comprehensive income (loss)1 Excess tax benefits from share-based payments Transactions in treasury shares Stock-based comp. expense Dividend payment Contributions from owners At June 30, 2015 (unaudited) 1. 111,128,427. 60,138. -. -. 181,570 111,309,997. 60,138. -. -. (181,570) 111,128,427. (3,074) 57,064. -. -. (4,116,146) 107,012,281. 57,064. 500,502 1,882,266. (542,558). (191,345). 420,398 420,398. -. 865 865. 8,081 (153,752) 24,427 (133,389) 245,869 2,302,664. (49,915) (592,473). (190,480). 173,398 173,398. -. (18,033) (18,033). 4,322 (48,597) 27,907 (229,501) (116,489) - 2,359,573. (44,292) 349,064 (287,701). (208,513). 287,425 287,425. -. (33,168) (33,168). 10,538 105,095 (268,749) 26,796 (142,429) - 2,378,249. (573,540) (861,241). (241,681). -. -. -. Total equity. - 1,709,003. -. 420,398 865 421,263. 8,081 - (203,667) 24,427 - (133,389) - 1,825,718. -. 173,398 (18,033) 155,365. 4,322 - (92,889) 27,907 - 1,920,423. (2,933) (2,933). 284,492 (33,168) 251,324. 10,538 - (737,194) 26,796 - (142,429) 1,136 1,136 (1,797) 1,330,594. WorldReginfo - 23aae362-2aa1-4454-89c2-6b594f213300. (in CHF thousands, except number of shares). Noncontrolling Actelion's shareholders interests Common shares Additional Accum. other Equity attrib. to paid-in Accum. Treasury comprehensive noncontrolling Shares Amount capital profit shares income (loss) interests. Comprehensive income (loss) is presented net of tax.. The accompanying notes form an integral part of these consolidated financial statements.. ACTELION HALF-YEAR REPORT 2015. ACTELION INTERIM FINANCIAL REPORT 2015. 36.

(37) CONTENTS. LETTER FROM THE CEO. KEY PERFORMANCE INDICATORS. FINANCIAL REVIEW. INTERIM CONSOLIDATED FINANCIAL STATEMENTS. PREVIOUS. NEXT. 37. NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CHF thousands, except share and per share amounts). NOTE 1. BASIS OF PRESENTATION The unaudited interim consolidated financial statements for Actelion Ltd (“Actelion” or the “Group”) have been prepared under Generally Accepted Accounting Principles in the United States (“US GAAP”) for interim financial information. Accordingly, such financial statements do not include all the information and footnotes required by US GAAP for annual financial statements. These interim financial statements should be read in conjunction with the audited consolidated financial statements of the Group for the year ended December 31, 2014. All US GAAP references relate to the Accounting Standards Codification (“ASC” or “Codification”) established by the Financial Accounting Standards Board (“FASB”) as the single authoritative source of US GAAP to be applied by non-governmental entities. All amounts are presented in Swiss francs (“CHF”), unless otherwise indicated. Use of estimates The preparation of financial statements in conformity with US GAAP requires management to make judgments, assumptions and estimates that affect the amounts and disclosures reported in the consolidated financial statements and accompanying notes. On an on-going basis, management evaluates its estimates, including those related to revenue recognition for contract revenue, allowance for doubtful accounts, stock-based compensation, intangible assets, clinical trial and rebate accruals, impairment of indefinite lived intangibles including goodwill, provisions, contingent considerations arising from acquisitions, loss contingencies and income taxes. The Group bases its estimates on historical experience and on various market-specific and other relevant assumptions that are believed to be reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ significantly from these estimates.. WorldReginfo - 23aae362-2aa1-4454-89c2-6b594f213300. NOTE 2. ACQUISITIONS AND GOODWILL Ceptaris In 2013, the Group acquired 100 percent of privately-held Ceptaris Therapeutics, Inc. (“Ceptaris”), a specialty pharmaceutical company based in Malvern, Pennsylvania, US. The transaction was recorded as a business combination in compliance with the requirements of the Business Combinations Topic of FASB ASC (“ASC 805”). In conjunction with the acquisition, the Group assumed contingent considerations related to achievement of future performance and commercialization milestones for a maximum undiscounted amount of US dollar (“USD”) 515 million as well as a contingent consideration related to future royalty stream payments. Since arising from the acquisition, the contingent considerations are remeasured at fair value at each reporting date using Level 3 inputs. The resulting fair value adjustments of the royalty contingency are included in costs of sales and of the performance milestones’ contingencies in selling, general and administration (“SG&A”) expenses. Since denominated in USD, the contingent considerations are revalued at each reporting date.. ACTELION HALF-YEAR REPORT 2015.. 37.

(38) CONTENTS. LETTER FROM THE CEO. KEY PERFORMANCE INDICATORS. FINANCIAL REVIEW. INTERIM CONSOLIDATED FINANCIAL STATEMENTS. PREVIOUS. NEXT. 38. As of June 30, 2015, the fair value of the contingent considerations amounts to CHF 77.4 million (USD 83.2 million). Thereof, CHF 2.9 million (USD 3.1 million) are included in other current liabilities and CHF 74.5 million (USD 80.1 million) are disclosed as contingent considerations in the consolidated balance sheets. The table below states the changes in the contingent considerations for the six months ended June 30, 2015: December 31, 2014 USD CHF 91,006 90,129. Contingent consideration expense USD CHF (6,683) (6,508). Settlements USD CHF (1,143) (1,095). Foreign currency translation CHF (5,115). USD 83,180. June 30, 2015 CHF 77,411. In determining the fair value of the contingent considerations the Group evaluates probabilities and timing of milestone events’ occurrence. Further, management develops cash flow projections on expected net revenues and royalty payments, which are then deferred, probability-weighted and adjusted for the time value of money in order to derive their reporting date fair value. As of June 30, 2015, the Group applied a discount rate of 9% for the contingent consideration arising from the royalty streams. This rate corresponds to the weighted-average costs of capital (“WACC”) and is calculated by weighting the required returns for interest-bearing debt and common equity capital in proportion to their estimated percentages in an expected capital structure. Management believes that the WACC appropriately captures a market participant’s view of the risk associated with the expected contingent consideration payments because such payments are impacted by broader, non-diversifiable industry and business risks which are not completely captured in developing the probability weighted-payment estimates. The following table provides the significant unobservable inputs applied on the fair value measurement of the contingent considerations for the periods presented: Assumptions Level 3 fair value measurement Contingent considerations arising from acquisitions. Valuation technique. Discounted cash flows. Unobservable input Probability of performance milestones' payments Probability of royalty payments Expected period of payments Discount rate. June 30, 2015 December 31, 2014 0% 0% 100% 100% 2015-2028 2015-2028 9% 9%. WorldReginfo - 23aae362-2aa1-4454-89c2-6b594f213300. If projections are not successfully developed, the sales and profitability of the Group may be adversely affected in future periods. In addition, an increase in the probability of performance milestone payments or a significant decrease in the discount rate could lead to a significantly higher fair value measurement of the contingent considerations in the period of revaluation. None of the changes in the unobservable inputs would lead to a change of the maximum undiscounted amount of the performance milestones’ contingencies of USD 515 million. If the performance based milestone for 2015 is not achieved the maximum undiscounted amount of the performance milestones’ contingencies would be decreased to USD 440 million as of December 31, 2015. As of June 30, 2015, further contingencies arising from business combinations exist. Payment of these contingencies will not have a significant impact on the Group’s financial position, results of operations and cash flows. Goodwill Except for the effect of foreign currency translation, the net carrying amount of goodwill has not been adjusted in the current reporting period: Balance at January 1 134,497. Translation effects (1,627). Balance at June 30 132,870. ACTELION HALF-YEAR REPORT 2015.. 38.