FINANCIAL
`REPORT.
`
`FINANCIAL
`REPORT.
`ANNUAL REPORT 2015
`
`CONTENTS
`
`FINANCE
`IN BRIEF
`
`FINANCIAL
`REVIEW
`
`CONSOLIDATED
`FINANCIAL
`STATEMENTS
`
`HOLDING COMPANY
`1
`FINANCIAL
`This is an interactive pdf,
`STATEMENTS
`press the button to begin
`
`WATSON LABORATORIES, INC. , IPR2017-01621, Ex. 1072, p. 1 of 88
`
`

`

`ACTELION’S MISSION:
`TREAT MORE PATIENTS WITH
`GROUNDBREAKING MEDICINES
`
`CONTENTS
`
`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
`also has treatments approved by health authorities
`for a number of specialist diseases including Type
`1 Gaucher disease, Niemann-Pick type C disease,
`Digital Ulcers in patients suffering from systemic
`sclerosis, and mycosis fungoides type cutaneous
`T-cell lymphoma.
`
`03 Finance in Brief
`
`06 Financial Review
`
`23 Consolidated
`
`Financial Statements
`
`74 Holding Company
`
`Statements
`
`
`
`FINANCIAL
`REPORT.
`
`CONTENTS
`
`FINANCE
`IN BRIEF
`
`FINANCIAL
`REVIEW
`
`CONSOLIDATED
`FINANCIAL
`STATEMENTS
`
`HOLDING COMPANY
`FINANCIAL
`STATEMENTS
`
`2
`
`WATSON LABORATORIES, INC. , IPR2017-01621, Ex. 1072, p. 2 of 88
`
`

`

`FINANCE IN BRIEF
`
`FINANCIAL
`REPORT.
`
`CONTENTS
`
`FINANCE
`IN BRIEF
`
`FINANCIAL
`REVIEW
`
`CONSOLIDATED
`FINANCIAL
`STATEMENTS
`
`HOLDING COMPANY
`FINANCIAL
`STATEMENTS
`
`3
`
`WATSON LABORATORIES, INC. , IPR2017-01621, Ex. 1072, p. 3 of 88
`
`

`

`PROFIT AND LOSS
`
`
`(in CHF millions, except % variance and EPS)
`
`
`Sales
`Product sales
`Product sales excluding US rebate reversals
`Opsumit(cid:147)
`Tracleer(cid:147)
`Other
`
`
`Core results
`Operating income
`Operating income excluding US rebate reversals
`Net income
`Diluted EPS
`
`
`US GAAP results
`Operating income
`Net income
`Diluted EPS
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`2015
`
`
`
`
`2,042
`2,042
`516
`1,212
`314
`
`
`814
`814
`693
`6.16
`
`
`656
`552
`4.91
`
`2014
`
`
`1,956
`1,883
`179
`1,418
`286
`
`
`743
`677
`648
`5.58
`
`
`570
`594
`5.11
`
`variance
`CHF
`
`
`CER
`
`in % of sales
`2015
`
`
`4%
`8%
`nm
`-15%
`10%
`
`
`9%
`20%
`7%
`10%
`
`
`
`15%
`-7%
`-4%
`
`
`7%
`11%
`nm
`-11%
`11%
`
`
`14%
`25%
`11%
`15%
`
`21%
`-3%
`1%
`
`
`100%
`100%
`25%
`59%
`15%
`
`
`40%
`40%
`34%
`nm
`
`32%
`27%
`nm
`
`2014
`
`
`100%
`96%
`9%
`72%
`15%
`
`
`38%
`35%
`33%
`nm
`
`29%
`30%
`nm
`
`CASH FLOW, CASH POSITION AND SHARE COUNT
`
`
`(in CHF millions)
`
`
`Cash flow
`Operating cash flow
`Capital expenditure
`Cash returned to shareholders
`Free cash flow
`
`
`Cash position
`Gross cash
`Net cash
`
`
`Share count (million shares)
`Issued common shares
`Treasury shares held
`Outstanding equity instruments
`
`
`
`
`
`
`
`
` December 31, December 31,
`
`2015
`2014
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`658
`(44)
`(927)
`(800)
`
`
`405
`405
`
`
`114.1
`9.1
`5.9
`
`
`616
`(31)
`(133)
`327
`
`
`1,205
`970
`
`
`114.1
`3.0
`7.7
`
`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 December 2014 year to date and December 2015 year to date
`results at constant currencies (the average monthly exchange rates for December 2014 year to date).
`nm = not meaningful
`Rounding differences may occur
`
`
`FINANCIAL
`REPORT.
`
`CONTENTS
`
`FINANCE
`IN BRIEF
`
`FINANCIAL
`REVIEW
`
`CONSOLIDATED
`FINANCIAL
`STATEMENTS
`
`HOLDING COMPANY
`FINANCIAL
`STATEMENTS
`
`4
`
`WATSON LABORATORIES, INC. , IPR2017-01621, Ex. 1072, p. 4 of 88
`
`

`

`Actelion in 2015
`
`Product sales
`
`Operating results
`
`Actelion delivered a strong operational performance in 2015. Core operating income, excluding the
`impact of prior-year US rebate reversals, grew more than twice as fast as sales, demonstrating the
`organization’s earnings power, as well as Actelion’s commitment to optimize short-term profitability
`while carefully balancing investment in R&D programs to ensure mid- to long-term growth.
`
`Product sales rose to 2,042 million Swiss francs, an increase of 7% at constant exchange rates (CER)
`or 11% excluding the impact of prior-year US rebate reversals. This strong growth was mainly driven
`by the sustained uptake of Opsumit (macitentan), the continued roll-out of Veletri(cid:147) (epoprostenol for
`injection) and the solid performance of all other products around the globe – including Tracleer
`(bosentan), which is still growing in countries where Opsumit has not yet been launched.
`
`Core operating income rose to 814 million Swiss francs, an increase of 14% at CER or 25% excluding
`the impact of prior-year US rebate reversals.
`
`Core SG&A increased by 6% at CER, as the strong sales performance was supported by increased
`investment, with the commercial organization continuing the global roll-out of Opsumit and Veletri
`and expanding
`its global footprint. Core R&D expenses
`increased by 10%, with several
`exciting early- and late-stage compounds advancing through the pipeline.
`
`US GAAP operating income increased by 21% at CER to 656 million Swiss francs.
`
`Net results and EPS Core net income rose by 11% at CER to 693 million Swiss francs, and core diluted earnings per share
`(EPS) rose by 15% at CER to 6.16 Swiss francs. These increases do not fully reflect the strong
`operating performance, as 2014 had been positively impacted by US rebate reversals. Excluding this
`impact, core net income and core diluted EPS would have increased at CER by 22% and 26%
`respectively.
`
`US GAAP net income amounted to 552 million Swiss francs, and US GAAP diluted earnings per share
`amounted to 4.91 Swiss francs. The comparison with the prior-year was skewed by the 2014 release
`of valuation allowances on deferred tax assets and the above-mentioned rebate reversals.
`
`Operating cash flow amounted to 658 million Swiss francs, driven by the strong operating
`performance and limited capital expenditure, which included the milestone payment for the FDA
`approval of Uptravi® (selexipag).
`
`The strong operating performance and the solid cash position have enabled Actelion to return almost
`1 billion Swiss francs to shareholders through the repurchase of 6.1 million second-line shares and
`an
`increased dividend. In addition – to offset potential dilution arising from stock-based
`compensation – Actelion purchased 2.7 million first-line shares for a net cash consideration of 248
`million Swiss francs. Lastly, Actelion repaid 235 million Swiss francs to bond-holders. This resulted
`in a decrease of the gross cash position (or negative net free cash flow) of 800 million Swiss francs.
`
`Shareholders’ equity was reduced by 603 million Swiss francs as the Company decided to return
`substantial cash to shareholders. Actelion’s gross and net cash position amounted to 405 million
`Swiss francs at December 31, 2015, a level the company deems appropriate to retain full financial
`flexibility.
`
`Actelion’s share price rose by 21%, making it one of the best performing stocks on the Swiss Market
`Index, resulting in a total shareholder return (including dividend payment) of 22% in 2015.
`
`
`
`
`
`
`
`
`Cash flows
`
`
`
`Balance sheet and
`cash position
`
`Total shareholder
`return
`
`
`
`
`
`FINANCIAL
`REPORT.
`
`CONTENTS
`
`FINANCE
`IN BRIEF
`
`FINANCIAL
`REVIEW
`
`CONSOLIDATED
`FINANCIAL
`STATEMENTS
`
`HOLDING COMPANY
`FINANCIAL
`STATEMENTS
`
`5
`
`WATSON LABORATORIES, INC. , IPR2017-01621, Ex. 1072, p. 5 of 88
`
`

`

`FINANCIAL REVIEW
`
`FINANCIAL
`REPORT.
`
`CONTENTS
`
`FINANCE
`IN BRIEF
`
`FINANCIAL
`REVIEW
`
`CONSOLIDATED
`FINANCIAL
`STATEMENTS
`
`HOLDING COMPANY
`FINANCIAL
`STATEMENTS
`
`6
`
`WATSON LABORATORIES, INC. , IPR2017-01621, Ex. 1072, p. 6 of 88
`
`

`

`2015 was another remarkable year for Actelion. The company continued to expand its leadership in pulmonary arterial
`hypertension (PAH) with the continued strong uptake of Opsumit in markets around the globe. In addition, the US approval
`of Uptravi (selexipag) represents an opportunity for Actelion to further transform its PAH franchise and leverage its global
`infrastructure. The company delivered a strong financial performance through excellent execution across its commercial
`organization, while advancing its pipeline and continuing to focus on financial discipline. Actelion also returned almost
`1 billion Swiss francs to shareholders.
`
`In 2015, product sales rose by 11% at CER to reach 2,042 million Swiss francs, following a 10% increase in 2014, excluding
`the impact of US rebate reversals. The unique clinical utility of Opsumit has been recognized by the medical community and
`as a result, the company is successfully transitioning its ERA market from Tracleer to Opsumit, with sales of the latter
`totaling 516 million Swiss francs in 2015.
`
`The excellent commercial performance in 2015, coupled with financial discipline, translated into a 25% increase in core
`operating income (at CER) to 814 million Swiss francs, following a 20% increase in 2014, excluding the impact of US rebate
`reversals. This impressive performance demonstrates the company’s earnings power: Actelion increased its core
`profitability while continuing to advance its specialty immunology portfolio, macitentan life cycle management activities and
`other late-stage pipeline assets, as well as investing in the earlier-stage pipeline.
`
`With 99% of sales denominated in foreign currencies and 29% of core operating expenses incurred in Swiss francs, Actelion
`continued to experience negative impacts of the strong Swiss franc both on sales (3%) and core operating income (5%).
`
`During 2015, Actelion returned substantial cash to shareholders, with 801 million Swiss francs through a new second-line
`share repurchase program and 142 million Swiss francs through an increased dividend. The resulting net cash position of
`405 million Swiss francs at year-end, along with the authorized and conditional capital, ensures full flexibility to seize any
`external opportunities that would fit Actelion’s strategy while meeting its strict financial criteria.
`
`After delivering 55% total shareholder return (TSR) in 2014, Actelion was once again a top performer in the SMI, with a TSR
`of 22%.
`
`The Board of Directors will propose an increased dividend payment of 1.50 Swiss franc for approval by shareholders at the
`upcoming Annual General Meeting of Shareholders in May.
`
`Looking ahead, the company expects core operating income growth in the low single-digit percentage range for 2016, at
`CER and barring unforeseen events. This expectation involves a number of assumptions, including Opsumit and Uptravi
`launch dynamics, generic pressures mainly in the US and pricing pressure in Europe and Japan.
`
`
`
`
`
`FINANCIAL
`REPORT.
`
`CONTENTS
`
`FINANCE
`IN BRIEF
`
`FINANCIAL
`REVIEW
`
`CONSOLIDATED
`FINANCIAL
`STATEMENTS
`
`HOLDING COMPANY
`FINANCIAL
`STATEMENTS
`
`7
`
`WATSON LABORATORIES, INC. , IPR2017-01621, Ex. 1072, p. 7 of 88
`
`

`

`SALES
`
`
`
`
`
`
`
`
`
`2015
`
`
`2014
`
`variance
`CHF
`
`Sales by product
`
`(in CHF millions, except % variance)
`
`
`
`
`
`Product sales
`Opsumit®
`nm
`179
`516
`-15%
`1,418
`1,212
`Tracleer®
`34%
`62
`83
`Veletri®
`-2%
`106
`105
`Ventavis®
`nm
`11
`27
`Valchlor®
`-9%
`102
`92
`Zavesca®
`29%
`6
`7
`Others
`8%
`1,883
`2,042
`Product sales excluding US rebate reversals
`
`73
`-
`US rebate reversals*
`4%
`1,956
`2,042
`
`Total product sales
`*To allow meaningful comparison to the full year 2014, the reversals of rebate accruals reported in 2014 have been disclosed separately in the sales tables where relevant.
`
`CER
`
`
`nm
`-11%
`37%
`-7%
`nm
`-3%
`43%
`11%
`
`7%
`
`Actelion’s excellent commercial performance during 2015 was mainly due to the continued strong uptake of Opsumit,
`driven by consistently strong recruitment of new patients across markets and the expansion of the endothelin receptor
`antagonist (ERA) market due to increased combination therapy with PDE-5 inhibitors.
`
`In the US, sales increased by 21% at CER, excluding prior-year rebate reversals, and were driven by Opsumit uptake, ERA
`market share gains and ERA market expansion, as well as price increases across the portfolio. European sales increased
`by 3% at CER despite continued pricing pressure and market erosion from generics, with growth driven mostly by new
`Opsumit markets and use of Tracleer in the digital ulcer indication.
`
`Sales in Japan increased by 11% at CER in a competitive environment. Growth was driven by sales of Opsumit (launched in
`late June 2015), Tracleer in the digital ulcer indication (launched in September 2015), Veletri and Zavesca (miglustat)
`(Japanese trade name Brazaves®).
`
`Comparing average exchange rates for 2015 with 2014, the Swiss franc appreciated against most major currencies except
`the US dollar, resulting in a negative currency variance of 55 million Swiss francs.
`
`Sales by region
`
`(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
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`2015
`
`
`1,026
`658
`190
`168
`2,042
`-
`2,042
`
`
`2014
`
`
`806
`717
`185
`175
`1,883
`73
`1,956
`
`variance
`CHF
`
`
`27%
`-8%
`3%
`-4%
`8%
`
`4%
`
`CER
`
`
`21%
`3%
`11%
`2%
`11%
`
`7%
`
`FINANCIAL
`REPORT.
`
`CONTENTS
`
`FINANCE
`IN BRIEF
`
`FINANCIAL
`REVIEW
`
`CONSOLIDATED
`FINANCIAL
`STATEMENTS
`
`HOLDING COMPANY
`FINANCIAL
`STATEMENTS
`
`8
`
`WATSON LABORATORIES, INC. , IPR2017-01621, Ex. 1072, p. 8 of 88
`
`

`

`PAH FRANCHISE
`
`Opsumit®
`
`(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
`
`
`
`
`
`
`
`
`
`
`
`2015
`
`
`362
`115
`12
`27
`516
`-
`516
`
`
`2014
`
`
`132
`42
`-
`5
`179
`1
`180
`
`variance
`CHF
`
`
`nm
`nm
`nm
`nm
`nm
`
`nm
`
`CER
`
`
`nm
`nm
`nm
`nm
`nm
`
`nm
`
`Sales of Opsumit (macitentan) amounted to 516 million Swiss francs, reflecting a sustained highly successful launch.
`Opsumit is now available to patients in over 35 countries and gaining ERA market share in all geographies. Strong patient
`demand continued, with more than 13,600 patients on therapy at the end of December 2015 (almost 50% from the US).
`Patient growth was driven by an increasing market share in the ERA-naive patient segment and increased combination with
`PDE-5 inhibitors, as well as new market launches (e.g. Japan, Israel).
`
`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
`
`
`
`
`
`
`
`
`
`
`
`
`
`2015
`
`
`470
`477
`153
`113
`1,212
`-
`1,212
`
`
`2014
`
`
`499
`612
`164
`143
`1,418
`63
`1,481
`
`variance
`CHF
`
`
`-6%
`-22%
`-7%
`-21%
`-15%
`
`-18%
`
`CER
`
`
`-11%
`-12%
`1%
`-18%
`-11%
`
`-15%
`
`Sales of Tracleer (bosentan) amounted to 1,212 million Swiss francs, a decrease of 11% at CER excluding prior-year US
`rebate reversals. This decrease is mostly attributed to lower volumes in countries where Opsumit is available, due to
`sharply decreased enrollment of new patients. Sales were further impacted by continued pricing pressure in Europe and
`increased generic bosentan competition. Underlying units sold globally decreased by 6%.
`
`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. Extensions of patent protection for Tracleer have now been granted in Belgium, Denmark, Finland, France,
`Italy, Ireland, Luxembourg, the Netherlands, Spain and Sweden.
`
`Tracleer sales were positively supported by the digital ulcer (DU) indication in Europe and Japan (launched in September
`2015), a price increase in the US and continued solid demand in markets where Opsumit is not yet available. Overall, more
`than 46,000 patients were receiving the drug globally at the end of 2015 (a decrease of 9% versus prior year).
`
`
`
`FINANCIAL
`REPORT.
`
`CONTENTS
`
`FINANCE
`IN BRIEF
`
`FINANCIAL
`REVIEW
`
`CONSOLIDATED
`FINANCIAL
`STATEMENTS
`
`HOLDING COMPANY
`FINANCIAL
`STATEMENTS
`
`9
`
`WATSON LABORATORIES, INC. , IPR2017-01621, Ex. 1072, p. 9 of 88
`
`

`

`
`
`
`
`
`
`
`
`
`
`2015
`
`
`39
`16
`23
`4
`83
`-
`83
`
`
`2014
`
`
`34
`7
`19
`2
`62
`3
`64
`
`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
`
`
`Sales of Veletri (epoprostenol for injection) amounted to 83 million Swiss francs, an increase of 37% at CER, excluding
`prior-year US rebate reversals, with over 1,900 patients receiving the drug at the end of 2015. The increase was mostly
`driven by increased market penetration, successful launches in additional markets – notably in France, Europe’s biggest i.v.
`epoprostenol market – and continued growth in Japan. At the end of December 2015, Veletri was available in 15 countries
`worldwide.
`
`variance
`CHF
`
`
`17%
`nm
`21%
`nm
`34%
`
`28%
`
`CER
`
`
`12%
`nm
`32%
`nm
`37%
`
`32%
`
`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
`
`
`
`
`
`
`
`
`
`
`
`2015
`
`
`105
`-
`-
`-
`105
`-
`105
`
`
`2014
`
`
`106
`-
`-
`-
`106
`6
`112
`
`variance
`CHF
`
`
`-2%
`
`
`
`-2%
`
`-7%
`
`CER
`
`
`-7%
`
`
`
`-7%
`
`-11%
`
`Sales of Ventavis (iloprost) amounted to 105 million Swiss francs, a decrease of 7% at CER, excluding the impact of prior-
`year US rebate reversals. The underlying 20% unit decrease due to continued competitive pressure was mitigated by price
`increases.
`
`
`
`FINANCIAL
`REPORT.
`
`CONTENTS
`
`FINANCE
`IN BRIEF
`
`FINANCIAL
`REVIEW
`
`CONSOLIDATED
`FINANCIAL
`STATEMENTS
`
`HOLDING COMPANY
`FINANCIAL
`STATEMENTS
`
`10
`
`WATSON LABORATORIES, INC. , IPR2017-01621, Ex. 1072, p. 10 of 88
`
`

`

`SPECIALTY PRODUCTS
`
`Valchlor®
`
`(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
`
`
`
`
`
`
`
`
`
`
`
`2015
`
`
`25
`2
`-
`-
`27
`-
`27
`
`
`2014
`
`
`10
`0
`-
`-
`11
`0
`11
`
`variance
`CHF
`
`
`nm
`nm
`
`
`nm
`
`nm
`
`CER
`
`
`nm
`nm
`
`
`nm
`
`nm
`
`Sales of Valchlor (mechlorethamine) amounted to 27 million Swiss francs. In the US, the company is continuing its efforts to
`establish Valchlor as a first-line option in the treatment algorithm for early-stage mycosis fungoides-type cutaneous T-cell
`lymphoma (MF-CTCL).
`
`In France, patients benefited from the drug under a temporary authorization for use (“ATU”) program initiated during the
`second half of 2014. The dossier for Valchlor (under the trade name Ledaga®) was accepted by the European Medicines
`Agency during the second quarter of 2015 and is currently 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
`
`
`
`
`
`
`
`
`
`
`
`
`2015
`
`
`25
`48
`3
`17
`92
`-
`92
`
`
`2014
`
`
`25
`55
`2
`20
`102
`2
`103
`
`variance
`CHF
`
`
`-1%
`-13%
`19%
`-15%
`-9%
`
`-11%
`
`CER
`
`
`-5%
`-2%
`29%
`-6%
`-3%
`
`-5%
`
`Sales of Zavesca (miglustat) amounted to 92 million Swiss francs, a decrease of 3% at CER, excluding the impact of prior-
`year US rebate reversals. Underlying unit sales were flat compared to the prior year.
`
`Sales in the US declined mainly as a result of competitive pressure from alternative enzyme replacement therapy (ERT)
`options for the type 1 Gaucher disease (GD1) indication. In Europe, a decline in the GD1 business due to generic competition
`in selected markets was mitigated by increased patient demand in the Niemann-Pick type C indication, driven by Japan
`(where it is marketed as Brazaves), Italy, France and Russia. At the end of 2015, generic miglustat (approved for GD1 only)
`was commercially available in Spain, Sweden, Germany and the Czech Republic.
`
`
`FINANCIAL
`REPORT.
`
`CONTENTS
`
`FINANCE
`IN BRIEF
`
`FINANCIAL
`REVIEW
`
`CONSOLIDATED
`FINANCIAL
`STATEMENTS
`
`HOLDING COMPANY
`FINANCIAL
`STATEMENTS
`
`11
`
`WATSON LABORATORIES, INC. , IPR2017-01621, Ex. 1072, p. 11 of 88
`
`

`

`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
`
`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
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`2015
`
`
`176
`404
`648
`1,228
`36
`53
`57
`11
`4
`0
`0
`162
`1,389
`
`2015
`
`
`113
`63
`176
`0
`176
`
`
`2014
`
`
`212
`369
`631
`1,213
`38
`63
`53
`19
`(1)
`3
`0
`175
`1,388
`
`
`2014
`
`
`156
`57
`212
`3
`215
`
`variance
`CHF
`
`
`-17%
`10%
`3%
`1%
`-5%
`-16%
`8%
`nm
`nm
`nm
`nm
`-8%
`0%
`
`variance
`CHF
`
`
`-28%
`11%
`-17%
`nm
`-18%
`
`CER
`
`
`-16%
`10%
`6%
`3%
`-5%
`-16%
`8%
`nm
`nm
`nm
`nm
`-8%
`2%
`
`CER
`
`
`-26%
`12%
`-16%
`nm
`-19%
`
`Core cost of sales decreased by 16% at CER to 176 million Swiss francs, despite an increase in sales of 11% at CER,
`excluding prior-year US rebate reversals. The decrease was driven by lower royalty expenses (the company no longer pays
`royalties on Ventavis sales since mid-March 2015) and a favorable product mix, with a low single-digit royalty rate paid on
`Opsumit sales compared to a high single-digit rate paid on Tracleer sales. Also, due to the patent expiry in the US in late
`November, Actelion has ceased royalty payments on almost all US Tracleer sales.
`
`
`
`FINANCIAL
`REPORT.
`
`CONTENTS
`
`FINANCE
`IN BRIEF
`
`FINANCIAL
`REVIEW
`
`CONSOLIDATED
`FINANCIAL
`STATEMENTS
`
`HOLDING COMPANY
`FINANCIAL
`STATEMENTS
`
`12
`
`WATSON LABORATORIES, INC. , IPR2017-01621, Ex. 1072, p. 12 of 88
`
`

`

`2015
`
`Research and development (“R&D”) expenses
`
`
`
`(in CHF millions, except % variance)
`
`
`404
`Core R&D expenses
`25
`Depreciation
`24
`Stock-based compensation
`11
`Milestone payment
`464
`US GAAP R&D expenses1
`2
`Amortization of acquired intangible assets
`466
`
`US GAAP R&D expenses
` 1As reported in the consolidated income statements, excluding amortization of acquired intangible assets.
`
`
`
`
`
`
`
`2014
`
`369
`27
`22
`19
`437
`2
`440
`
`variance
`CHF
`
`10%
`-6%
`5%
`nm
`6%
`-12%
`6%
`
`CER
`
`10%
`-6%
`5%
`nm
`7%
`-11%
`6%
`
`Core R&D expenses amounted to 404 million Swiss francs, an increase of 10% at CER. This increase was driven by higher
`clinical trial expenses, as the company is advancing its specialty immunology portfolio, macitentan life-cycle management
`activities and other late-stage pipeline assets, as well as continued investment in the earlier-stage pipeline. Core R&D
`expenditure represented 20% of product sales, slightly higher than in 2014. 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 included depreciation of 25 million Swiss francs (relating to the research building and laboratory
`equipment), stock-based compensation expenses of 24 million Swiss francs, and a license issuance fee of 11 million Swiss
`francs in connection with the creation of Vaxxilon, a joint venture in the field of synthetic carbohydrate vaccines involving
`collaboration between Actelion, the Max Planck Society and Seeberger Science GmbH.
`
`2015
`
`Selling, general and administrative (“SG&A”) expenses
`
`
`
`(in CHF millions, except % variance)
`
`
`
`SG&A expenses
`459
`Marketing, selling and distribution expenses
`189
`General and administrative expenses
`648
`Core SG&A expenses
`11
`Depreciation
`33
`Stock-based compensation
`4
`Doubtful debt movements
`697
`US GAAP SG&A expenses1
`51
`Amortization of acquired intangible assets
`748
`
`US GAAP SG&A expenses
` 1 As reported in the consolidated income statements, excluding amortization of acquired intangible assets.
`
`
`
`
`
`
`
`
`2014
`
`
`450
`181
`631
`12
`30
`(1)
`672
`61
`733
`
`variance
`CHF
`
`
`2%
`4%
`3%
`-2%
`10%
`nm
`4%
`-16%
`2%
`
`CER
`
`
`5%
`6%
`6%
`-1%
`10%
`nm
`6%
`-16%
`5%
`
`Core SG&A expenses amounted to 648 million Swiss francs, an increase of 6% at CER. This increase was driven mostly by
`costs relating to the continuing launch activities of Opsumit and Veletri in various markets around the globe. A portion of
`the increase is also attributable to preparations for the US launch of Uptravi, which was made available to patients in early
`January 2016, as well as preparations for the anticipated European launches. G&A expenses increased by 6% as Actelion
`continues to expand its global footprint.
`
`US GAAP SG&A expenses included depreciation of 11 million Swiss francs, stock-based compensation expenses of
`33 million Swiss francs, movements in doubtful debt provisions and the amortization of acquired intangible assets of
`51 million Swiss francs (10 million Swiss francs lower than in 2014, as Ventavis was fully amortized in February 2015).
`
`
`
`FINANCIAL
`REPORT.
`
`CONTENTS
`
`FINANCE
`IN BRIEF
`
`FINANCIAL
`REVIEW
`
`CONSOLIDATED
`FINANCIAL
`STATEMENTS
`
`HOLDING COMPANY
`FINANCIAL
`STATEMENTS
`
`13
`
`WATSON LABORATORIES, INC. , IPR2017-01621, Ex. 1072, p. 13 of 88
`
`

`

`OPERATING RESULTS
`
`
`(in CHF millions, except % variance)
`
`
`Operating results
`Product sales
`Core operating expenses
`Core operating results
`Contract revenue
`Non core operating expenses
`US GAAP operating results
`
`
`
`
`
`
`
`
`
`
`
`
`2015
`
`
`2,042
`(1,228)
`814
`4
`(162)
`656
`
`
`2014
`
`
`1,956
`(1,213)
`743
`2
`(175)
`570
`
`variance
`CHF
`
`
`4%
`1%
`9%
`nm
`-8%
`15%
`
`CER
`
`
`7%
`3%
`14%
`nm
`-8%
`21%
`
`Core operating results amounted to 814 million Swiss francs, an increase of 14% at CER. Excluding the impact of prior-year
`US rebate reversals, core operating results increased by 25% at CER. The strength of the Swiss franc against most
`currencies except the US dollar had a negative impact of 32 million Swiss francs on core operating income.
`
`Non-core operating expenses decreased to 162 million Swiss francs. The decrease was mainly driven by lower amortization
`expenses, a 2014 milestone payment to Nippon Shinyaku relating to the filing of Uptravi (selexipag) with the US FDA and the
`accretion benefit in connection with Valchlor, but was partly offset by milestone payments relating to the creation of
`Vaxxilon and by higher doubtful debt movements.
`
`US GAAP operating results amounted to 656 million Swiss francs, an increase of 21% at CER.
`
`NET RESULTS
`
`
`(in CHF millions, except % variance)
`
`
`Net results
`Core operating results
`Core financial results
`Core income tax
`Core net results
`
`
`
`
`
`
`
`
`
`2015
`
`
`814
`(20)
`(100)
`693
`
`
`2014
`
`
`743
`(18)
`(77)
`648
`
`variance
`CHF
`
`
`9%
`nm
`nm
`7%
`
`CER
`
`
`14%
`nm
`nm
`11%
`
`Core net results amounted to 693 million Swiss francs, an increase of 11% at CER.
`
`Core financial expense amounted to 20 million Swiss francs, mainly related to the net interest expense of 8 million Swiss
`francs – arising mostly from the straight bond which matured in December 2015 – and foreign exchange losses (net of
`hedging) of 12 million Swiss francs. Actelion aims to minimize the volatility of the company’s financial results and uses
`forward contracts to hedge transaction exposures arising from foreign currency cash flows and cash positions held in
`foreign currencies.
`
`Core tax expense amounted to 100 million Swiss francs, which translates into an effective core tax rate of 12.7%. This core
`tax rate is slightly higher than in 2014 due to higher profits in the US and is expected to remain around this level going
`forward.
`
`
`
`FINANCIAL
`REPORT.
`
`CONTENTS
`
`FINANCE
`IN BRIEF
`
`FINANCIAL
`REVIEW
`
`CONSOLIDATED
`FINANCIAL
`STATEMENTS
`
`HOLDING COMPANY
`FINANCIAL
`STATEMENTS
`
`14
`
`WATSON LABORATORIES, INC. , IPR2017-01621, Ex. 1072, p. 14 of 88
`
`

`

`
`
`
`
`
`(in CHF millions, except % variance)
`
`
`Net results
`Operating results
`Financial results
`Income tax
`Net results
`Net loss attributable to the noncontrolling interests
`US GAAP net results
`
`
`
`
`
`
`
`
`
`
`
`2015
`
`
`656
`(20)
`(88)
`548
`4
`552
`
`
`2014
`
`
`570
`(33)
`57
`594
`-
`594
`
`variance
`CHF
`
`
`15%
`nm
`nm
`-8%
`nm
`-7%
`
`11
`
`CER
`
`
`21%
`nm
`nm
`-3%
`nm
`-3%
`
`US GAAP tax expense amounted to 88 million Swiss francs resulting in an effective tax rate of 13.8%. This US GAAP effective
`tax rate is normalized compared to the prior year, as 2014 included releases of valuation allowances in the US and other
`jurisdictions of 121 million Swiss francs.
`
`US GAAP net results amounted to 552 million Swiss francs for the full year 2015, a decrease of 3% at CER, as the prior-year
`net income was inflated by the above-mentioned income tax benefit.
`
`Noncontrolling interests relate mainly 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
`
`
`Basic earnings per share
`Weighted average number of shares (in millions)
`Core basic EPS (in CHF)
`US GAAP basic EPS (in CHF)
`
`
`Diluted earnings per share
`Weighted average number of shares (in millions)
`Core diluted EPS (in CHF)
`US GAAP diluted EPS (in CHF)
`
`
`
`
`
`
`
`
`
`
`
`
`
`2015
`
`
`693
`552
`
`
`108.3
`6.40
`5.09
`
`
`112.5
`6.16
`4.91
`
`
`2014
`
`
`648
`594
`
`
`111.2
`5.83
`5.34
`
`
`116.2
`5.58
`5.11
`
`variance
`CHF
`
`
`7%
`-7%
`
`
`nm
`10%
`-5%
`
`
`nm
`10%
`-4%
`
`CER
`
`
`11%
`-3%
`
`
`nm
`14%
`0%
`
`
`nm
`15%
`1%
`
`The decrease in US GAAP EPS was driven mostly by the lower net income, as described in the table above.
`
`The average share count for basic EPS decreased by 2.9 million shares, reflecting purchases related to the second-line
`share repurchase program.
`
`The average share count for diluted EPS decreased by 3.7 million shares, as the average number of dilutive instruments
`decreased by 0.8 million shares despite an increase in the average share price (127 Swiss francs per share compared to 100
`Swiss francs in 2014).
`
`FINANCIAL
`REPORT.
`
`CONTENTS
`
`FINANCE
`IN BRIEF
`
`FINANCIAL
`REVIEW
`
`CONSOLIDATED
`FINANCIAL
`STATEMENTS
`
`HOLDING COMPANY
`FINANCIAL
`STATEMENTS
`
`15
`
`WATSON LABORATORIES, INC. , IPR2017-01621, Ex. 1072, p. 15 of 88
`
`

`

`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)
`
`
`Reported growth versus prior year
`Product sales
`Core operating results
`US GAAP operating results
`Core net results
`US GAAP net results
`
`Twelve months ended December 31, 2015
`CHF %
`CER %
`CHF
`
`
`CER
`
`Twelve months ended December 31, 2014
`CHF %
`CER %
`CHF
`CER
`
`
`4%
`9%
`15%
`7%
`-7%
`
`
`7%
`14%
`21%
`11%
`-3%
`
`
`85
`70
`86
`45
`(42)
`
`
`140
`102
`117
`72
`(15)
`
`
`10%
`20%
`18%
`27%
`31%
`
`
`12%
`25%
`24%
`34%
`38%
`
`
`172
`124
`87
`139
`141
`
`
`223
`154
`116
`173
`173
`
`On January 15, 2015 the Swiss National Bank announced that it was discontinuing the minimum exchange rate of 1.20 Swiss
`franc per euro. This announcement resulted in an immediate appreciation of the Swiss franc against all currencies and a
`sharp drop in the Swiss stock market. Since Actelion reports and presents