ANNUAL
`REPORT
`2012
`
`ADVANCING KNOWLEDGE.
`HARNESSING OPPORTUNITY.
`
`WATSON LABORATORIES, INC. , IPR2017-01622, Ex. 1069, Ex. 1 of 136
`
`

`

`DELIVERING
`ON OUR
`STRATEGY.
`
`ACTELION TODAY
`Actelion is a biopharmaceutical company with four products on the market. We
`are proud of our rich product pipeline which compares favorably to pharmaceutical
`companies of comparable size. Our team of more than 2,400 committed
`professionals around the world is passionate about transforming innovation into
`novel medicines that treat diseases with significant unmet medical need. We
`will continue to invest in innovation to create lasting value for all, patients and
`shareholders alike.
`
`WATSON LABORATORIES, INC. , IPR2017-01622, Ex. 1069, Ex. 2 of 136
`
`

`

`contents
` Actelion AnnuAl report 2012
`
` Actelion
`toDAY
`
`reseArcH AnD
`DeVelopMent
`
`Business strAteGY
`AnD operAtions
`
`02
`
`02
`03
`
`08
`
`08
`
` Milestones 2012
` Key Performance
`Indicators
` Letter to the
`Shareholders
` Financial Summary
`
`12
`
`12
`
`16
`
`18
`20
`
` The Next Steps
`in Meeting Patients
`needs in PAH
` Transforming
`Knowledge into
`Medicines
` Our Pipeline
` In it for the Long Term
`
`24
`
`24
`
`26
`28
`
` Strong and Effective
`Commercial
`Organization
` Our Products
` Maintaining Market
`Leadership with
`a New Portfolio
`
`corporAte sociAl
`responsiBilitY
`
`corporAte
`GoVernAnce
`
`coMpensAtion
`report
`
`34
`
`34
`
` Group Structure and
`Shareholders
` Board of Directors
` Management Board
` Shareholders’
`Participation Rights
` Auditors
` Information Policy
`
`46
`
`46
`
`47
`
`48
`
`49
`
`50
`
` Rewarding Value
`Creation
` Letter from
`the Compensation
`Committee
` Response to
`Say-on-Pay Vote 2012
` Compensation
`Principles
` Remuneration
`
`32
`
`32
`
` Inspiring innovation
`for the Future
`
`36
`42
`43
`
`44
`44
`
`
`FinAnciAl report
`
`65
`
`66
`
`71
`
`111
`
` Consolidated
`Financial Statements
` Notes to the
`Consolidated
`Financial Statements
` Report of Actelion
`Management
`
`112 Auditors’ Reports
`116 Holding Company
`Statements
`118 Notes to the Financial
`Statements 2012
`130 Auditors’ Reports
`132 Contacts
`
`WATSON LABORATORIES, INC. , IPR2017-01622, Ex. 1069, Ex. 3 of 136
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`

`

`2
`
`MILESTONES
`
`VALUE CREATION STRATEGY IMPLEMENTED
`The key components of Actelion’s strategy are:
`– Sustain and grow our PAH franchise
`– Build an additional specialty franchise
`– Maintain and grow profitability
`
`STRONG SALES PERFORMANCE IN CHALLENGING
`ENVIRONMENT
`Product sales for 2012 were CHF 1,722.1 million, a
`decrease of 2% in local currencies, reflecting the difficult
`global economic situation and challenging competitive
`environment in the United States.
`
`CORE EARNINGS GROWTH IN 2012
`Following tight cost control efforts, Actelion’s 2012 core
`earnings, excluding the impact of doubtful debt provisions,
`increased by 6% in local currencies to CHF 537.0 million.
`
`COMMITMENT TO DOUBLE-DIGIT CORE EARNINGS
`GROWTH IN 2015
`The execution of Actelion’s value creation strategy is
`expected – barring unforeseen events – to produce stable
`core earnings in 2013 (in local currencies), followed by a
`return to growth in 2014 and an acceleration to double-
`digit growth in 2015.
`
`PRIMARY ENDPOINT MET IN MACITENTAN STUDY
`The first long-term outcome study in PAH met its primary
`endpoint by demonstrating that 10 mg macitentan
`(Opsumit®) once daily reduced the risk of morbidity/
`mortality by 45% compared to placebo (p<0.0001),
`providing a strong and sustained benefit to patients
`suffering from PAH.
`
`MACITENTAN RESULTS PRESENTED AT CHEST 2012
`Lewis Rubin, MD, Emeritus Professor of Medicine at the
`University of California, commented: “The SERAPHIN
`study clearly has shown that treatment with macitentan
`results in an improved outcome of patients with PAH, and
`macitentan has the potential to change the course of the
`disease.”
`
`Actelion Annual Report 2012
`
`REGULATORY FILINGS FOR MACITENTAN
`The registration dossier seeking approval for macitentan
`(Opsumit®) for the treatment of patients with PAH was
`submitted to health authorities including the US Food and
`Drug Administration (FDA) and the European Medicines
`Agency (EMA).
`
`PROGRESS WITH MID-STAGE CLINICAL ASSETS
`Positive results achieved with the company’s mid-stage
`development compounds ponesimod in psoriasis and
`cadazolid
`in Clostridium difficile associated diarrhea
`contribute to Actelion’s mid-term objective of building
`additional specialty franchises to augment growth and
`diversify risk.
`
`PARTNERSHIP WITH AUXILIUM
`Actelion entered into a long-term partnership with Auxilium
`Pharmaceuticals, Inc. for the development, supply and
`commercialization of XIAFLEX® (collagenase clostridium
`histolyticum), a novel, first-in-class biologic for the potential
`treatment of Dupuytren’s contracture and Peyronie’s
`disease in Canada, Australia, Brazil and Mexico.
`
`COLLABORATION WITH ECHOSENSE
`Actelion entered into a collaboration with privately held
`EchoSense, Inc., a medical device company which develops
`novel non-invasive and non-imaging ultrasound Doppler
`and signal processing technologies.
`
`FIRST NP-C TREATMENT AVAILABLE IN JAPAN
`Following approval from Japan’s Ministry of Health,
`Labour and Welfare, miglustat was launched in Japan
`under the trade name Brazaves® for the treatment of
`Niemann-Pick type C disease.
`
`RENEWED DIVIDEND PAYOUT
`At the company’s 2012 Annual General Meeting, Actelion
`shareholders approved the payment of a dividend of CHF
`0.80 per registered share.
`
`NEW BOARD MEMBER ELECTED
`At the company’s 2012 Annual General Meeting, Actelion
`shareholders elected Professor Peter Gruss, President
`of the Max Planck Society, to the Board of Directors for
`a term of three years, bringing additional outstanding
`scientific and managerial expertise to Actelion’s Board.
`
`WATSON LABORATORIES, INC. , IPR2017-01622, Ex. 1069, Ex. 4 of 136
`
`

`

`3
`
`Financial Report
`Compensation Report
`Corporate Governance
`Responsibility
`Corporate Social
` Operations
`Business Strategy &
`Research & Development
`Actelion today
`
` 1,428.9
`
`in CHF million
`
` 1,698.0
`
` 1,826.3
` 1,713.0
` 1,722.1
`
` 996.8
`
`in CHF million
`
` 1,204.6
` 1,300.4
` 1,232.4
` 1,185.1
`
`
`
`in CHF million
`
`432.1
`
` 493.4
` 525.9
`
` 480.6
`
` 537.0
`
`KEY PERFORMANCE INDICATORS
`
`PRODUCT SALES
`
`2008
`2009
`2010
`2011
`2012
`
`CORE OPEX
`
`2008
`2009
`2010
`2011
`2012
`
`CORE EARNINGS (EXCLUDING DDP) *
`
`2008
`2009
`2010
`2011
`2012
`
`* excludes impact of doubtful debt provisions
`
`EMPLOYEES
`
`EMPLOYEES PER FUNCTION
`
`EMPLOYEES PER REGION
`
`Support functions
`
`Drug Discovery
`
`Clinical Development
`
`Markteting & Sales
`
`Total
`
`425
`
`389
`
`610
`
`1,009
`
`2,433
`
`CH
`RoW
`Japan
`
`EU
`
`US
`
`Total
`
`1,080
`226
`240
`
`459
`
`428
`
`2,433
`
`Actelion Annual Report 2012
`
`WATSON LABORATORIES, INC. , IPR2017-01622, Ex. 1069, Ex. 5 of 136
`
`

`

`4
`
`DEAR
`SHAREHOLDERS
`
`2012 was a landmark year for Actelion. In April, we
`announced positive results for macitentan (Opsumit®), the
`latest addition to our pulmonary arterial hypertension
`(PAH) portfolio. Macitentan – the result of a tailored,
`in-house drug discovery process – was evaluated in the
`largest morbidity/mortality study ever conducted in PAH.
`This long-term outcome study, SERAPHIN, which began in
`2007 and lasted over four years, demonstrated that
`macitentan provides a significant and clinically relevant
`reduction in the risk of morbidity/mortality. This novel and
`differentiated dual endothelin receptor antagonist (ERA) is
`an excellent example of how value in the pharmaceutical
`industry is best created through innovation.
`
`Following the announcement of the results of the
`SERAPHIN study, the management and Board took imme-
`diate steps to shape the future direction of your company.
`In May, we announced our strategy for long-term share-
`holder value creation, built around three key elements. We
`are focusing our efforts on sustaining and growing our
`PAH franchise in the short-term and on building a second
`
`specialty franchise as a mid-term goal. These two ele-
`ments will allow us to deliver on the third element of our
`strategy – increasing profitability. By the end of 2012 rapid
`progress had already been made with its implementation.
`
`SUSTAINING GLOBAL LEADERSHIP IN PAH THERAPY
`Actelion is sustaining its leadership in the PAH market
`with its broad range of products. In 2012, Tracleer® contin-
`ued to be the ERA of choice for prescribing physicians,
`even in regions with strong competition. Our strategy of
`treating PAH with the aim of improving symptoms to, or
`maintaining patients at, Functional Class II enabled Tracleer
`to remain the gold standard in PAH treatment, with over
`44,000 PAH patients currently receiving therapy. Ventavis®,
`which is formulated for optimized inhalation time, contin-
`ued to be an important source of revenue for our US
`operations.
`
`intravenous
`improved formulation of
`is an
`Veletri®
`epoprostenol. Unlike other epoprostenol formulations ap-
`proved for PAH, Veletri has greater stability. This provides
`
`Actelion Annual Report 2012
`
`WATSON LABORATORIES, INC. , IPR2017-01622, Ex. 1069, Ex. 6 of 136
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`

`

`5
`
`Financial Report
`Compensation Report
`Corporate Governance
`Responsibility
`Corporate Social
` Operations
`Business Strategy &
`Research & Development
`Actelion today
`
`unique benefits, such as a more flexible preparation of the
`medication and infusion of the product without the need for
`constant cooling with ice-packs. During 2012, Actelion
`received approval to market a further improved formulation
`of Veletri in the US, Switzerland and Canada, with regulatory
`reviews advancing in Japan and the EU. Access to these ad-
`ditional markets will bring further opportunity for growth.
`
`This leading position in the PAH market is now set to
`continue thanks to our pipeline compounds. Following
`the positive study results, the registration dossier for
`macitentan was submitted to the US Food & Drug Admin-
`istration (FDA), the European Medicines Agency (EMA) and
`other health authorities during the fourth quarter of 2012.
`With the combination of an effective worldwide commer-
`cial organization and this novel and differentiated ERA,
`Actelion will enable the medical community to reshape the
`treatment paradigm for patients with PAH.
`
`In parallel, Actelion has advanced selexipag, potentially
`the first oral prostacyclin-based therapy for the treatment
`
`of PAH, which is currently in Phase III. At the end of 2012,
`we had enrolled more than 1,000 patients into the pivotal
`study. As with our evaluation of macitentan, this outcome
`study is designed to demonstrate a reduction in the risk
`of morbidity/mortality events.
`
`BUILDING AN ADDITIONAL SPECIALTY FRANCHISE
`The second part of our strategy for long-term value crea-
`tion is to build an additional specialty franchise alongside
`PAH. We have focused our research and development
`(R&D) efforts on orphan and specialty indications, sup-
`ported by ongoing business development activities; the
`aim is to utilize our expertise to find differentiated com-
`mercial assets that a company of our size can success-
`fully bring to market.
`
`Choosing to concentrate our efforts on orphan and spe-
`cialty indications will lead to more targeted R&D spending.
`Following a portfolio review, those projects not aligned
`with this strategy have been discontinued or are being
`prepared for partnership or out-licensing.
`
`Actelion Annual Report 2012
`
`WATSON LABORATORIES, INC. , IPR2017-01622, Ex. 1069, Ex. 7 of 136
`
`

`

`6
`
`CREATING VALUE THROUGH
`SCIENTIFIC INNOVATION
`
`At the end of 2012, excellent progress was reported for two
`of Actelion’s mid-stage clinical studies. First we announced
`positive results with ponesimod, an S1P1 modulator, in pso-
`riasis, a chronic and relapsing skin disease affecting up to
`3% of the population worldwide. The findings were particu-
`larly encouraging since this is the first time that this mode of
`action has been effective for psoriasis patients. This news
`was shortly followed by the positive results for our novel
`antibiotic, cadazolid, in Clostridium difficile associated diar-
`rhea (CDAD). The bacterium Clostridium difficile is the lead-
`ing cause of hospital acquired diarrhea and CDAD can be
`severe, even life-threatening. This is the first time cadazolid
`has been used to treat patients and has delivered very en-
`couraging clinical data. Based on the excellent progress,
`Actelion has decided to proceed with the development of
`both compounds in Phase III, providing the foundation for our
`mid-term goal of building an additional specialty franchise.
`
`MAINTAINING AND GROWING PROFITABILITY
`In 2012, Actelion delivered core earnings of CHF 537.0
`million, an increase of 12% in Swiss Francs or 6% in local
`
`currencies (excluding the impact of provisions for doubtful
`debts). This result – achieved in spite of a challenging
`economic environment – is a direct consequence of our
`cost-saving initiative and underscores our commitment
`to optimize the company’s profitability.
`
`The cost-saving initiative implemented in the second half
`of 2012 addressed several ongoing external challenges,
`including the continued strength of the Swiss Franc,
`increased competition in the US, and the difficult pricing
`environment in Europe. In parallel, we adapted the size of
`our R&D organization to match our new focus on specialty
`medicines. Importantly, this initiative left our commercial
`capabilities unchanged and will ensure the availability of
`sufficient investment capacity to leverage the opportunities
`we have created in the field of PAH.
`
`We strongly believe that, thanks to the measures imple-
`mented in 2012, your company is well positioned for sus-
`tainable core earnings growth and enhanced shareholder
`returns. For 2013, we expect to maintain local currency
`
`Actelion Annual Report 2012
`
`WATSON LABORATORIES, INC. , IPR2017-01622, Ex. 1069, Ex. 8 of 136
`
`

`

`7
`
`Financial Report
`Compensation Report
`Corporate Governance
`Responsibility
`Corporate Social
` Operations
`Business Strategy &
`Research & Development
`Actelion today
`
`Jean-Paul Clozel and Jean-Pierre Garnier
`
`core earnings at the 2012 level, barring unforeseen events.
`We then expect single-digit core earnings growth in 2014
`and double-digit growth by 2015.
`
`based medicine. We have also made our drugs for spe-
`cialty indications available worldwide.
`
`Our commitment goes beyond performance forecasts:
`Actelion’s balance sheet, strong cash generation and the
`exceptional pipeline newsflow in 2012 gives us confidence
`in our future. Therefore the Board will propose a 25%
`increase in the dividend payment for your approval at the
`2013 Annual General Meeting. In addition, we will manage
`capital allocation so as to continue to return value to
`our shareholders through timely completion of the
`CHF 800 million share repurchase program by the end
`of 2013.
`
`COMMITMENT TO GROWTH
`Since the company was established some fifteen years
`ago, Actelion has been committed to discovering innova-
`tive drugs that change the lives of patients. We have dem-
`onstrated the benefits of those drugs through innovative
`clinical development, laying the foundations for evidence-
`
`We are confident in our ability to innovate, and we believe
`that, through organizational discipline and a commitment
`to quality, innovation can be translated into benefits for
`patients and long-term value creation for shareholders.
`This is an exciting time for the company, and we hope you
`will share our enthusiasm as you read about what we have
`achieved in 2012 and our plans for the future.
`
`Jean-Pierre Garnier
`Chairman of the Board of Directors
`
`Jean-Paul Clozel
`Chief Executive Officer
`
`Actelion Annual Report 2012
`
`WATSON LABORATORIES, INC. , IPR2017-01622, Ex. 1069, Ex. 9 of 136
`
`

`

`8
`
`FINANCIAL SUMMARY
`
`FINANCIAL RESULTS OVERVIEW
`
`in CHF/shares millions
`
`Product sales
`Operating expenses
`Operating income
`Core earnings (excl. DDP)
`Net income (loss)
`Diluted EPS in CHF
`No. of shares in calculation
`Gross cash
`Total assets
`Cash from operations
`Shareholders’ equity
`Treasury shares
`
`2012
`
`2011
`
`1,722.1
`1,306.9
`421.5
`537.0
`303.2
`2.57
`118.1
`1,491.8
`2,694.3
`572.4
`1,518.6
`13.8
`
`1,713.0
`1,783.9
`12.2
`480.6
`(146.3)
`(1.23)
`118.8
`1,331.0
`2,732.1
`404.9
`1,510.5
`13.3
`
`The European debt crisis and slower global economic
`growth continued to impact the business landscape in
`2012. Pressure on government budgets weighed heavily
`on healthcare markets around the globe. Additionally, the
`competitive environment continued to adversely affect
`sales in the United States. Amid these challenges Actelion
`posted a solid top line performance with benefits from
`cost reductions seeing core earnings growing by 6% in
`local currencies, thereby delivering significant operational
`leverage.
`
`NET REVENUES
`Actelion’s commercial organization delivered a strong
`sales performance in 2012, despite intensified price pres-
`sure and continued competition. Total product sales for
`the full year were CHF 1,722.1 million. This represents an
`increase of 1% in Swiss Francs and a decrease of 2% in
`local currencies.
`
`Contract revenues for 2012 amounted to CHF 6.3 million.
`In 2011, contract revenues included the remaining de-
`ferred revenue from the terminated orexin collaboration
`with GlaxoSmithKline.
`
`OPERATING EXPENSES
`Actelion is focusing its resources on commercial efforts
`and pipeline programs that have the greatest potential to
`deliver meaningful benefits for patients. For 2012, total
`operating expenses were CHF 1,306.9 million compared
`to CHF 1,783.9 million during 2011. The main driver of the
`decrease is the impact in 2011 of the Asahi Kasei litigation
`award of CHF 340.6 million as well as a reduction in provi-
`sions made for doubtful debts in southern Europe, mainly
`as a result of improved cash collection. Expenses in 2012
`also included a restructuring charge of CHF 6.9 million
`related to the cost saving initiative executed during the
`second half of the year.
`
`Cost of sales amounted to CHF 196.3 million, or 11% of
`sales, unchanged from the previous reporting period.
`
`Research and development (R&D) expenses increased by
`1%, to CHF 460.5 million, compared to CHF 457.7 million in
`2011. These expenses include the USD 10 million milestone
`payment to Auxilium Pharmaceuticals, Inc. in relation to
`our collaboration on XIAFLEX® in certain territories. The
`lower R&D expenditure net of the Auxilium payment is the
`result of the refocusing of Actelion’s pipeline, announced
`as part of the company’s strategic review in May 2012,
`which is expected to continue to reduce R&D expenditure
`in the coming year.
`
`Selling, general and administration (SG&A) expenses for
`2012 amounted to CHF 610.9 million, a decrease of 19% in
`Swiss Francs and 20% in local currencies. Part of this de-
`crease can be attributed to the reduction in the allowance
`for doubtful debt on receivables in southern Europe.
`
`Core operating expenses (includes cost of sales) for the
`full year were CHF 1,185.1 million, a decrease of 5% in
`local currencies compared to the previous year. Core op-
`erating expenses exclude all charges related to employee
`stock options; depreciation and amortization; and one-off
`items that distort comparative analysis, such as the legal
`provision of CHF 340.6 million or the restructuring charge
`of CHF 6.9 million and provisions for doubtful debts. Core
`R&D expenses amounted to CHF 398.5 million, down 1%
`compared to the previous year in local currencies while
`core SG&A expenses decreased by 9% to CHF 590.2 mil-
`lion, also in local currencies.
`
`Actelion Annual Report 2012
`
`WATSON LABORATORIES, INC. , IPR2017-01622, Ex. 1069, Ex. 10 of 136
`
`

`

`9
`
`Financial Report
`Compensation Report
`Corporate Governance
`Responsibility
`Corporate Social
` Operations
`Business Strategy &
`Research & Development
`Actelion today
`
` 1,474
`
`in CHF million
`
` 1,773
`
` 1,929
` 1,796
` 1,728
`
` 3.05
`
` 3.04
`
`in CHF
`
` 3.82
` 3.85
`
` 3.69
`
`in CHF million
`
` 513.7
`
` 316.4
`
` 424.2
`
` 404.9
`
` 572.4
`
`in CHF million
`
` 357.9
`
`Actelion Annual Report 2012
`
`TOTAL REVENUES
`
`2008
`2009
`2010
`2011
`2012
`
`CORE EPS
`
`2008
`2009
`2010
`2011
`2012
`
`CASH FROM OPERATIONS
`
`2008
`2009
`2010
`2011
`2012
`
`CASH RETURNED TO SHAREHOLDERS
`
`2008
`2009
`2010
`2011
`2012
`
` 35.0
`
` 115.9
`
` 212.6
`
` 204.6
`
`WATSON LABORATORIES, INC. , IPR2017-01622, Ex. 1069, Ex. 11 of 136
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`

`

`10
`
`OPERATING INCOME
`The result of all of the above is a reported operating
`income of CHF 421.5 million for 2012, compared with
`CHF 12.2 million in 2011.
`
`Better reflecting the actual operating performance of
`the business is the core earnings measure amounting to
`CHF 537.0 million, an increase of 6% in local currency
`terms which represents an 8% improvement in operating
`margin. Core earnings exclude movements in doubtful
`debt provisions and other one-time items such as the
`Asahi litigation provision in 2011.
`
`NON-OPERATING RESULTS AND TAXES
`Interest income for 2012 amounted to CHF 2.1 million com-
`pared to CHF 6.2 million in 2011.
`
`The interest provision on the Asahi litigation award, which
`accrues at an annual rate of 10% and is payable only if the
`appeal is not successful, amounted to CHF 41.6 million for
`2012, compared to CHF 19.7 million during 2011. Interest
`expense (including issuance costs) on the CHF 235 million
`bond was CHF 12.0 million, impairment on financial assets
`amounted to CHF 0.3 million and other interest expense,
`relating mostly to deferred consideration in connection
`with the acquisition of epoprostenol sodium with improved
`thermal stability from GeneraMedix, amounted to CHF 0.5
`million.
`
`Other financial expenses for the year amounted to
`CHF 10.6 million, compared to CHF 22.9 million in 2011.
`
`Income tax expense for the period under review amounted
`to CHF 55.2 million, compared with CHF 77.0 million in
`2011. The tax rate for the year is 15.4% compared to a
`litigation provision adjusted tax rate of 17.3% for the previ-
`ous year.
`
`NET INCOME AND EARNINGS PER SHARE
`Net income for the full year of 2012 amounted to
`CHF 303.2 million compared to a loss of CHF 146.3 million
`in 2011.
`
`This translates into fully diluted earnings per share of
`CHF 2.57. Core earnings per share were CHF 3.69, an
`increase of 22%.
`
`BALANCE SHEET AND CASH FLOW
`Our cash generation remains strong, enabling us to invest
`for future growth and value by funding investment in R&D,
`while also providing CHF 357.9 million in net cash distri-
`butions to shareholders by way of dividends and share
`repurchases.
`
`Cash from operations for the period under review amount-
`ed to CHF 572.4 million, compared with CHF 404.9 million
`in 2011. The company’s gross cash position at 31 Decem-
`ber 2012 amounted to CHF 1.5 billion, of which CHF 368.7
`million is restricted due to the ongoing Asahi litigation in
`the California courts.
`
`Despite continuing difficult economic conditions in south-
`ern Europe, trade and other receivables decreased from
`CHF 536.5 million at the end of December 2011 to
`CHF 412.9 million at the end of the year. Days sales out-
`standing (DSO) decreased from 103 days to 78 days.
`
`During the first quarter of 2012, Actelion Spain enrolled in
`the Montorro plan, which is designed to inject cash into the
`Spanish economy through settlement of local authorities’
`commercial debt. Through this arrangement, late in the
`second quarter, we collected over CHF 100 million from
`government customers in Spain resulting in a partial re-
`versal of doubtful debt provisions. For the full year 2012,
`the total reduction in doubtful debt provisions was
`CHF 22.6 million, compared to an increase in the provision
`of CHF 43.2 million in 2011.
`
`Investment in property, plant and equipment decreased to
`CHF 33.7 million in 2012, compared with CHF 89.4 million
`in 2011. The majority of this investment relates to the
`construction of a research and development building.
`Total property, plant and equipment at year-end was
`CHF 402.6 million, compared to CHF 424.7 million at the
`end of 2011.
`
`Total shareholders’ funds amounted to CHF 1,518.6 million
`at the end of 2012 compared to CHF 1,510.5 million at
`the end of 2011.
`
`Actelion Annual Report 2012
`
`WATSON LABORATORIES, INC. , IPR2017-01622, Ex. 1069, Ex. 12 of 136
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`11
`
`Financial Report
`Compensation Report
`Corporate Governance
`Responsibility
`Corporate Social
` Operations
`Business Strategy &
`Research & Development
`Actelion today
`
`Actelion Annual Report 2012
`
`SHAREHOLDER VALUE
`Retaining an appropriate balance between attractive
`shareholder returns, investment in the business and a
`strong capital structure will remain a priority in the future.
`Actelion’s Board proposes to increase the dividend pay-
`ment to CHF 1.00 from CHF 0.80 per share and will ask
`for shareholder approval to do so at the upcoming Annual
`General Meeting on 18 April 2013.
`
`During 2012, the company bought back 6.4 million shares
`at a total cost of CHF 264.2 million on the second trading
`line as part of the CHF 800 million share repurchase pro-
`gram announced in October 2010. This brings the number
`of treasury shares held to 13.8 million, or 11% of the total
`issued share capital. The Board is committed to complet-
`ing the current repurchase program by the fourth quarter
`of 2013.
`
`INTERNAL CONTROL OVER FINANCIAL REPORTING
`Actelion is committed to maintaining strict oversight of its
`financial reporting. In keeping with that commitment, for
`the seventh consecutive year, the internal controls over
`financial reporting were certified as meeting the require-
`ments of SOX 404 (Sarbanes-Oxley Act 2002, section 404)
`at 31 December 2012.
`
`CORE EARNINGS TO US GAAP OPERATING
`INCOME RECONCILIATION
`
`in CHF million
`
`Core earnings excluding impact of DDP
`Movement in doubtful debt provision
`Contract revenues
`Stock option expenses
`Amortization and depreciation
`Litigation provision
`Auxilium milestone payment
`Restructuring charge
`US GAAP Operating Income
`
`FY 2012
`
`FY 2011
`
`537.0
`22.6
`6.3
`(46.6)
`(81.9)
`-
`(9.1)
`(6.9)
`421.5
`
`480.6
`(43.2)
`83.1
`(84.9)
`(82.9)
`(340.6)
`-
`-
`12.2
`
`WATSON LABORATORIES, INC. , IPR2017-01622, Ex. 1069, Ex. 13 of 136
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`

`

`reseArcH
`
`THE NEXT STEP IN
`MEETING PATIENTS’
`NEEDS IN PAH.
`
`Actelion has made a new breakthrough in the treatment of
`pulmonary arterial hypertension (PAH). Patients and physicians
`wanted a drug capable of providing more long term benefit.
`With its extensive expertise in endothelin science, Actelion
`established a tailored program to discover a new endothelin
`receptor antagonist (ERA) with optimized efficacy and
`safety. Actelion researchers synthesized and characterized
`approximately 2,500 novel compounds before selecting
`macitentan – a dual ERA with unique sustained endothelin
`receptor-binding properties and enhanced tissue penetration.
`
`Actelion Annual Report 2012
`
`WATSON LABORATORIES, INC. , IPR2017-01622, Ex. 1069, Ex. 14 of 136
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`

`

`Actelion Annual report 2012
`
`WATSON LABORATORIES, INC. , IPR2017-01622, Ex. 1069, Ex. 15 of 136
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`

`

`COMPREHENSIVE SCIENCE
`SHAPES A TAILORED
`DISCOVERY PROCESS
`
`The discovery of the endothelin sys-
`tem in the late 1980s was the spark
`that ignited the comprehensive sci-
`ence Actelion is known for today.
`At Hoffmann-La Roche, the future
`founders of Actelion were among the
`world leaders in the science of the
`endothelin system, discovering the
`first oral endothelin receptor antago-
`nist (ERA), bosentan. Within a year
`after its foundation, Actelion had
`in-licensed bosentan from Hoffmann-
`La Roche, initiated a clinical develop-
`ment program for the treatment of
`pulmonary arterial hypertension
`(PAH), and established a tailored drug
`discovery program to find novel ERAs
`with improved efficacy and safety. In
`2001, Tracleer® (bosentan) became
`the first oral drug to be approved
`for the treatment of PAH. In 2002,
`macitentan was discovered.
`
`A SCIENTIFIC VISION
`Actelion’s knowledge in the field of
`endothelin and ERAs continued to
`expand, thanks to its founders’ exten-
`sive 25-year research experience and
`their academic collaborations, and to
`the company’s clinical programs. In
`parallel, Actelion developed a deeper
`
`understanding of PAH – and of the
`still unmet medical needs in this se-
`vere life-threatening condition.
`
`The initial discovery of bosentan, an
`ERA indicated for the treatment of
`pulmonary arterial hypertension
`(PAH), inspired the vision to seek an
`ERA which would be able to impact
`long-term morbidity and mortality,
`with a good tolerability profile.
`
`A TAILORED DISCOVERY PROCESS
`The goal of Actelion’s drug discovery
`program was to find a potent and
`efficacious dual ERA which could be
`given at dosages not limited by safety
`signals. Actelion’s medicinal chemists
`synthesized
`approximately
`2,500
`novel chemical structures, which
`were all tested for affinity to both
`endothelin receptors. The most potent
`compounds were then tested in a
`selection cascade
`that
`included
`functional inhibition assays and in vivo
`models. A total of 380 compounds
`were assessed for oral efficacy in
`pathological models of hypertension
`or pulmonary hypertension, and 40
`compounds were also tested in a
`model relevant for hepatic safety. At
`
`the end of this process, one compound
`with the required characteristics was
`selected
`for progression
`toward
`clinical development – macitentan.
`
`UNIqUE FEATURES
`Endothelin is produced and acts in
`tissues, not in the blood. In PAH, the
`expression of endothelin and of ETA
`and ETB receptors, which mediate the
`detrimental effects of endothelin, is
`enhanced in the pulmonary arteries
`and in the heart. Actelion’s discovery
`program was designed to address
`these peculiar features of the en-
`dothelin system in pathology: the
`novel ERA had to penetrate well into
`the tissue, bind to the receptors with
`high affinity and durability and exert
`beneficial structural effects, which
`would be fundamental to
`impact
`morbidity/mortality in PAH.
`
` Macitentan was ideally suited to meet
`these requirements, as it displays
`enhanced tissue penetration and sus-
`tained receptor binding, independent
`of local endothelin concentrations.
`As a result, macitentan showed in-
`creased in vivo preclinical efficacy
`compared to other ERAs in several
`
`Actelion Annual Report 2012
`
`WATSON LABORATORIES, INC. , IPR2017-01622, Ex. 1069, Ex. 16 of 136
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`

`

`preclinical models of hypertension
`and pulmonary hypertension. Follow-
`ing recognition of these results by the
`European Medicines Agency’s Com-
`mittee for Orphan Medicinal Prod-
`ucts, macitentan was granted orphan
`drug status in 2011. Two years earlier,
`macitentan had also been granted
`orphan drug designation in the US.
`
`In addition, these preclinical models
`have shown a favorable safety profile
`for macitentan. Macitentan is well
`absorbed, with a pharmacokinetic
`profile allowing for once-daily treat-
`ment in PAH, and with a low propen-
`sity for drug-drug interactions and
`therefore a potential for combination
`therapy.
`
`The unique properties of macitentan
`should allow Actelion to exploit its
`full therapeutic potential, opening the
`door for new indications beyond the
`PAH field.
`
`Actelion Annual report 2012
`
`WATSON LABORATORIES, INC. , IPR2017-01622, Ex. 1069, Ex. 17 of 136
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`

`

`RESEARCH &
`DEVELOPMENT
`TRANSFORMING
`KNOWLEDGE
`INTO MEDICINES.
`
`COMMITMENT TO
`INNOVATION
`
`In April 2012, Actelion announced positive results from
`SERAPHIN, the pivotal study with macitentan (Opsumit®)
`in patients with pulmonary arterial hypertension (PAH).
`This long-term outcome study demonstrated a 45% re-
`duction in the risk of morbidity/mortality for patients
`treated once daily with 10 mg macitentan (p<0.0001).
`
`Macitentan builds on everything Actelion has learned
`about the fundamental mechanisms of PAH and dual en-
`
`dothelin receptor antagonists (ERAs) – both areas where
`the company is an acknowledged global leader. Using this
`expert knowledge, the discovery group set out to tailor
`the optimal ERA specifically for PAH patients. Having dis-
`covered macitentan, Actelion then conducted SERAPHIN
`in an effort to provide comprehensive clinical evidence
`that its innovation translates into meaningful clinical
`benefits for patients.
`
`The discovery and development of macitentan perfectly
`encapsulates Actelion’s approach – a fundamental convic-
`tion that evidence-based scientific innovation is the only
`route to value creation in the pharmaceutical industry.
`
`Actelion Annual Report 2012
`
`WATSON LABORATORIES, INC. , IPR2017-01622, Ex. 1069, Ex. 18 of 136
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`

`17
`
`Financial Report
`Compensation Report
`Corporate Governance
`Responsibility
`Corporate Social
` Operations
`Business Strategy &
`research & Development
`Actelion Today
`
`SHAPING A SPECIALTY PIPELINE
`In May 2012, Actelion announced its intention to focus
`its