Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Message to Shareholders 04 Year 2001 Highlights 06 Entering a New ERA 08 Launch of Tracleer™ 10 Development 14 Drug Discovery Research 18 CFO’s Letter 22 Consolidated Financial Statements 24 Holding Company Statements 43 Shareholder Information 48 Bring to the physician and patient innovative treatments for diseases related to the endothelium through creative science. Launch of Tracleer™ in US and Canada Message to Shareholders 04 Year 2001 Highlights 06 Entering a New ERA 08 Launch of Tracleer™ 10 Development 14 Drug Discovery Research 18 CFO’s Letter 22 Consolidated Financial Statements 24 Holding Company Statements 43 Shareholder Information 48 ready Message to Shareholders Robert E. Cawthorn Chairman of the Board Jean-Paul Clozel Chief Executive Officer Dear Shareholders, The year 2001 marked the beginning of a new era for Actelion. Tracleer™, a dual endothelin receptor antagonist and the first oral product for the treatment of pulmonary arterial hypertension (PAH) was introduced to markets in the US and Canada in December 2001. This landmark in our company history has been achieved only 4 years after Actelion’s founding in December 1997. During 2001, Actelion faced a delay in the development of Veletri™ for the treatment of acute heart failure (AHF). In early 2002, a registration study in chronic heart failure with Tracleer™ did not meet its primary endpoint, but confirmed the safety profile of the drug. Thus, in 2002, Actelion will focus its energy on successfully launching Tracleer™ in PAH, for which the company owns the commercial rights worldwide, while expanding its development and discovery pipeline. Our Initial Public Offering of shares at the Swiss New Market in April 2000 provided us with the necessary capital to invest substantially in drug discovery, drug development, regulatory affairs and our marketing and sales forces. Actelion is now a fully fledged biopharmaceutical company, with 04 | Actelion Annual Report 2001 subsidiaries in the major markets. With our business strategy in place, Actelion is well prepared to make Tracleer™ the “standard” treatment for PAH. Expansion into new areas – whether on our own or through strategic partnerships – will help secure our long-term presence worldwide. Raising awareness through global marketing and sales efforts Tracleer™ tablets for PAH are a revolutionary advance in the treatment of this severely debilitating disease. This is a big step for the more than 100,000 PAH patients worldwide who previously only had the option of permanent intravenous therapy. Marketing approval also marks a big step forward for the company, as Tracleer™ demonstrates that endothelin receptor antagonism has useful medical applications. Tracleer™ tablets represent a therapeutic breakthrough. Many patients with PAH currently go undiagnosed. Continuous physician and patient education, combined with the promotion of Tracleer™, will change this situation as our marketing and sales teams raise awareness about the disease and communicate the benefits of screening and early diagnosis. for launch Substantial investments made in our marketing and sales infrastructure during 2001 fully prepared our US and Canadian subsidiaries to market Tracleer™ immediately after its approval. Our subsidiaries in the European Union, Switzerland and Australia are ready to move as soon as regulatory approval has been obtained, expected during 2002. In 2001 our new subsidiary in Japan started the process of preparing for clinical development and registration procedures. On a global level, we are reaching out to thousands of physicians in specific medical specializations. Through these efforts and a dedicated medical marketing department, we will make Actelion the partner of choice for the medical community for Tracleer™ in PAH and other indications, and for products to come. Approval of Tracleer™, several months ahead of schedule, was the result of three factors. First, well-designed and executed clinical studies, with BREATHE-1 (Tracleer™ pivotal registration trial) successfully concluded in early May 2001. Second, the professionalism and dedication displayed daily by our development and regulatory staff in their interaction with the scientific, medical and regulatory community. Third, the integration two years ago of the clinical research organization Hesperion Ltd, and the addition of a strong biometrics department in 2000 proved crucial in shortening development timelines. Tracleer™ evaluated in chronic heart failure In addition to PAH, we also evaluated Tracleer™ in another indication. The trial program ENABLE that came to an end in early February 2002 does not support an indication in severe chronic heart failure. On the other hand, the ENABLE program confirmed the existing safety profile of Tracleer™, this time in long-term use. This safety finding strengthens the use of Tracleer™ in PAH. It also supports our strategy to explore further indications for Tracleer™ in other promising areas with high unmet medical need. Clinical development programs planned in 2001 in chronic obstructive pulmonary disease and idiopathic pulmonary fibrosis are now ready for implementation during 2002. Other programs with Tracleer™ are still in the exploratory phase. Further studies for Veletri™ With a powerful concept and the right teams now in place, Actelion continues to explore further stud- ies for its late-stage product Veletri™. Our medical and scientific staff have analyzed fully the two studies of Veletri™ in AHF that were concluded in spring 2001. We have identified high doses as the major reason that only one, but not both studies showed a positive outcome. A new dose optimization study was initiated in late 2001 to be followed by a new registration study in AHF. Going forward – drug discovery research Actelion is the first biopharmaceutical company to focus on the organ endothelium as a major source of its drug discovery projects. Major progress has been made in five of our own projects. One new compound, discovered inhouse, is now on track to enter human clinical trials in the coming months. Actelion has expanded its research infrastructure substantially, both in terms of laboratory space, but even more importantly in people. With its research focus, dedicated employees and growing infrastructure, Actelion is in the process of building one of the most innovative drug pipelines in the industry. employing more than 400 highlevel professionals as well as young talent. We hope you share our pride in the progress made. Despite some setbacks, we remain confident that these investments are the best way to create value. Unforeseen events excluded, these investments will result in sustained, long-term value creation. We appreciate and thank you for your continued support as we grow and fortify our new position as the global leader in endotheliumrelated medicine. Yours sincerely, Robert E. Cawthorn Chairman of the Board Jean-Paul Clozel Chief Executive Officer In 2001, Actelion made substantial investments to nurture the company into a fully operational biopharmaceutical firm with global reach Actelion Annual Report 2001 | 05 Message to Shareholders 04 Year 2001 Highlights 06 Entering a New ERA 08 Launch of Tracleer™ 10 Development 14 Drug Discovery Research 18 CFO’s Letter 22 Consolidated Financial Statements 24 Holding Company Statements 43 Shareholder Information 48 keeping Year 2001 Highlights Total Employees Actelion Group Actelion Pharmaceuticals (incl. Subsidiaries) Hesperion (incl. Subsidiaries) Clinical Research Organization 74 Research & Development 134 Management & 66 Administration 51 Clinical Development 85 Sales & Marketing Big steps keep the momentum going Now entering its fifth year of operations, Actelion’s founding business strategy – pursued with ever more vigor – is to discover, develop and market pharmaceutical products for endothelium-related diseases. During 2001, Actelion strengthened its teams globally with highly qualified and experienced pharmaceutical personnel in all functional areas from drug discovery and development to market- ing and sales. Our in-house expertise enabled us to take a big step in 2001 and put our first product on the market, Tracleer™, the first oral endothelin receptor antagonist. Actelion’s progress in 2001 will fuel our growth momentum, driven by empowered individuals and teams and fostered by a dynamic, open culture based on the pioneering spirit of scientific discovery. Tracleer™ (bosentan) in PAH and beyond February Start of regulatory review in Canada / Priority evaluation granted Orphan Drug Designation obtained in European Union and Australia European Union Marketing Authorization Application submitted / Start of centralized reviewed procedure May BREATHE-1 study completed – meets primary endpoints US NDA supplementary submission New drug application filed with Swiss regulatory authority BREATHE-2 clinical trial began enrollment BREATHE-3 clinical trial began enrollment August FDA Advisory Committee voted unanimously 9:0 to recommend approval September Start of regulatory review in Australia Initial pilot study 351 published in The Lancet Tracleer™ for PAH received ”approvable” letter from US FDA November RAPIDS clinical trial in patients with digital ulceration secondary to scleroderma began patient enrollment 06 | Actelion Annual Report 2001 the momentum Speed and efficiency Our teams in clinical development, regulatory affairs and clinical operations report a long list of achievements, including: • on-time completion of seven major multi-center clinical studies. • obtaining orphan drug designation for Tracleer™ in pulmonary arterial hypertension (PAH), in the US, European Union and Australia. • filing of new drug applications for Tracleer™ in PAH, resulting in a US and Canadian marketing launch and ongoing regulatory review processes in the European Union, Switzerland and Australia. Global presence As a fully fledged biopharmaceutical company with global reach, Actelion is uniquely positioned to retain value for the shareholders by realizing the potential of US FDA approved Tracleer™ for the treatment of PAH, including primary pulmonary hypertension and PAH secondary to various diseases (refer to PAH definition on page 10). December Canadian health authorities approved Tracleer™ for the treatment of PAH Commercial launch in US Actelion granted commercial license to Neopharm Ltd to market Tracleer™ in Israel Veletri™ (tezosentan) in acute heart failure March RITZ-2 clinical trial completed – meets primary endpoints April RITZ-1 clinical trial completed – fails to meet primary endpoints Late fall New dose optimization study initiated; results expected by Q3 2002 Growth and global expansion January Management team strengthened – new appointments include: Konrad P. Wirz, André J. Mueller, Christian Chavy, Simon Buckingham and Roland Haefeli Tracleer™ in PAH and other indications, and of products to come. We are committed to making our products available worldwide – whether on our own or through strategic partnerships. In 2001, we opened subsidiaries in the UK, Italy, Canada, Australia, Japan, Greece and Spain in anticipation of upcoming market launches. Dedication to discovery Our continuing investments in research scientists, modern labora- April June September November December tories and equipment and strategic partnering reflect Actelion’s firm commitment to fuel its future growth through its own drug discovery efforts. During 2001, the efforts made to advance our own pipeline included: • concentrating on five drug discovery projects. • doubling our existing laboratory space. • attracting experienced, highlevel professionals as well as young talent. Italian subsidiary opened in Imola Canadian subsidiary opened in Laval First Annual General Meeting of Actelion’s Shareholders held in Basel Australian subsidiary opened in New South Wales Actelion four-to-one stock split effective R.W. Johnson Pharmaceutical Research Institute (Johnson & Johnson) research collaboration agreement extended with Actelion for an additional year Japanese subsidiary opened in Tokyo Medical statistics company A.S.C. Srl merged into Actelion Pharmaceutical Italia Spanish subsidiary opened in Barcelona Greek subsidiary opened in Athens Tracleer™ in chronic heart failure 2002 7 February ENABLE results – phase III study in chronic heart failure does not meet primary efficacy objective but confirms safety profile in long-term use Actelion Annual Report 2001 | 07 Message to Shareholders 04 Year 2001 Highlights 06 Entering a New ERA 08 Launch of Tracleer™ 10 Development 14 Drug Discovery Research 18 CFO’s Letter 22 Consolidated Financial Statements 24 Holding Company Statements 43 Shareholder Information 48 build Entering a New ERA Endothelin Fibrosis Vasoconstriction Neurohormonal Activation Inflammation Disorders of the endothelin system are a major cause of cardiopulmonary diseases, and represent a comprehensive target for the treatment of cardiovascular disorders. As characterized here by an octopus, ERA investigations have already shown ways to treat or ”loosen the grip” of PAH, with further efforts underway to evaluate ERAs in the treatment of other disease forms. 08 | Actelion Annual Report 2001 Pathologic Hypertrophy Entering a new ERA – new insights and building awareness During 2001, clinical development of the first endothelin receptor antagonist (ERA) Tracleer™ secured for Actelion a leading position in a new era of medicine. ERAs are a new pharmaceutical class (new molecular entity) offering a revolutionary approach for the treatment of the endothelinrelated disorder, pulmonary arterial hypertension (PAH). Endothelin receptor antagonism also has substantial potential in other cardiopulmonary indications including heart failure, as well as fibrosis and cancer. In the past, earlier discoveries of the renin-angiotensin-aldosterone system and the sympathetic nervous system brought new understanding to the field of cardiovascular science. Today the exploration of ERAs has demonstrated that the potent neurohormone, endothelin-1 (ET-1), provides another target for therapeutic intervention and disease modification. ing awareness Endothelin plays an important role in PAH Research has established that blood concentrations of ET-1, one of the most potent vasoconstrictors known, are significantly raised in PAH, suggesting a pathogenic role for endothelin in the progression of this condition. The first oral ERA Tracleer™ works by blocking the binding of endothelin to its receptors, thereby preventing the harmful effects of endothelin upon blood vessels. Before Tracleer™ became available, treatment options were limited. Physicians could prescribe either high doses of calcium channel blockers or the only approved treatment option, intravenous epoprostenol, which requires an indwelling central intravenous line and a continuous-infusion pump. Patients diagnosed with PAH were usually placed on a heart transplant list. This very poor prognosis emphasizes the need for earlier detection through education and awareness and prompter implementation of new treatments. Now that Tracleer™ offers an oral treatment for PAH, early diagnosis becomes even more important. Global pre-marketing prepares awareness for launch As the first ERA approved by regulatory agencies worldwide, the US and Canadian launch of Tracleer™ for the treatment of PAH in late 2001 was the culmination of an active year for the Actelion global development and marketing teams. Actelion prepared for approval and marketing of Tracleer™ by: • establishing and/or reinforcing our global infrastructure from medical marketing and marketing and sales through to distribution and drug safety. • identifying key physicians treating PAH and scleroderma, and PAH and scleroderma patient organizations; once identified, interdisciplinary working groups were formed to increase awareness of PAH as well as PAH in scleroderma by communicating the benefits of screening and early diagnosis. • sponsoring continuing medical education courses, company symposia and scientific session presentations of two Tracleer™ studies in PAH – study 351 and BREATHE-1 – at many key international congresses, including the American Heart Association, European Society of Cardiology, Norepinephrine Angiotensin II Endothelin (ET) Cytokines Hypertrophy, Apoptosis, Ischemia, Arrhythmias, Remodeling, Fibrosis American Thoracic Society, European Respiratory Society, American College of Cardiology, CHEST and American College of Rheumatology. • launching an educational website designed for US physicians to describe the role of endothelin in PAH: www.endothelinscience.com • producing patient brochures in collaboration with the Pulmonary Hypertension Patient Association. Actelion Annual Report 2001 | 09 Message to Shareholders 04 Year 2001 Highlights 06 Entering a New ERA 08 Launch of Tracleer™ 10 Development 14 Drug Discovery Research 18 CFO’s Letter 22 Consolidated Financial Statements 24 Holding Company Statements 43 Shareholder Information 48 patient Launch of Tracleer™ Sarah Ing PAH patient in the US taking Tracleer™ PAH Classification by the World Health Organization Pulmonary Arterial Hypertension (PAH): • Primary Pulmonary Hypertension (PPH) • PAH Secondary to: 1. Connective Tissue Disease (i.e., Scleroderma) 2. Congenital Systemic to Pulmonary Shunts 3. Portal Hypertension 4. HIV Infection 5. Drugs/Toxins 6. Persistent Pulmonary Hypertension of the Newborn 7. Other Pulmonary arterial hypertension (PAH) is a rare and severely debilitating disease. According to the US FDA, PAH is defined as abnormally high blood pressure in the arteries between the heart and lungs. PAH significantly reduces the ability of patients to exert themselves physically without becoming short of breath. The US and Canadian marketing approval of Tracleer™ now offers PAH patients, for the first time, an oral treatment to help improve their exercise ability and slow their rate of clinical worsening. Previously approved treatment options were limited to intravenous epoprostenol that requires patients to have an indwelling central intravenous line and carry a continuous-infusion pump at all times. thing was wrong. The doctor diagnosed me with pneumonia, but that wasn’t it. Finally, after many tests, they suspected I had a pulmonary embolism and sent me to the hospital. The test was negative, so they sent me to a specialist in Houston. I was lucky to have a pulmonary medicine expert recommended immediately. First I was given a heart catheter, followed by a dose of calcium channel blockers. Both failed to work as they often do. Only then was I finally diagnosed with PAH.” A patient’s story Twenty-four-year-old Sarah was pursuing her dream – acting, dancing and stand-up comedy – when something started going very wrong. Actelion wins US FDA and Canadian approval of Tracleer™ in PAH In August 2001, the Cardiovascular Renal Advisory Committee, appointed by the US FDA, voted unanimously 9:0 to recommend that the US FDA approve Tracleer™ for the treatment of PAH. By early December – only 1 year after its initial regulatory filing – and just 26 months after the first patient was enrolled in the first pivotal phase III study 351 – the US and “I was in a play with a very active role, and I couldn’t keep up with the dancers. I had danced all my life and, suddenly, I was wheezing and out of breath and my heart was just going a thousand miles an hour. So then I knew that someNYHA/WHO Functional Assessment of Pulmonary Arterial Hypertension Class I Class II Class III Class IV Symptoms do not limit physical activity. Ordinary physical activity does not cause undue discomfort. Slight limitation of physical activity. The patient is comfortable at rest, yet experiences symptoms with ordinary physical activity. Marked limitation of physical activity. The patient is comfortable at rest, yet experiences symptoms with minimal physical activity. Inability to carry out any physical activity. The patient may experience symptoms even at rest. Discomfort is increased by any physical activity. These patients manifest signs of right heart failure. Rich et al., WHO Symposium on PPH, Evian, France,1998. 10 | Actelion Annual Report 2001 After Sarah’s diagnosis, she entered the BREATHE-1 trial and has been taking Tracleer™ for over a year. Sarah, who works as a freelance writer, is now back to actively pursuing her acting career. focused Canadian authorities approved Tracleer™ for the treatment of PAH. Orphan indication – pending regulatory filings Tracleer™ has orphan drug designation in the US, the European Union and Australia. The regulatory review process is ongoing in the European Union, Switzerland and Australia. Tracleer™ in PAH – clinical trials The approval of Tracleer™ by the US FDA is based on two successfully concluded pivotal trials. The results of the first study, based on 32 patients, were published in the prestigious British medical journal, The Lancet. Both studies demonstrated that PAH patients receiving Tracleer™ benefited significantly from treatment. Additionally, the two studies demonstrated improvements in patients with PPH and PAH secondary to the connective tissue disease, scleroderma. Overall, the measured treatment effect was a 44-meter improvement in walking distance as measured by a 6minute walk test, compared to placebo. This improvement was maintained for up to 7 months. Tracleer™ showed a significant improvement in functional status and breathlessness as well as a significant delay in the time to clinical worsening defined as death, hospitalization, worsening PAH or initiation of intravenous therapy (p=0.0015). tor antagonism. The continued success of Tracleer™ in PAH is based on our ongoing ability to build awareness and understanding of this rare and severely debilitating disease. In 2001, US launch efforts were focused heavily on physician and patient education. In the US, Tracleer™ is indicated for PAH patients with WHO class III or IV symptoms (please refer to the charts at left), to improve exercise ability and decrease the rate of clinical worsening. Clinical studies have indicated that there are potential risks associated with taking Tracleer™. Approximately 11% of patients receiving Tracleer™ experienced abnormal but reversible liver enzyme elevations. It is therefore important that patients undergo monthly liver function monitoring. Due to the risk of birth defects, women who are pregnant, or could become pregnant, cannot take Tracleer™. While receiving Tracleer™, monthly pregnancy tests are required for women of childbearing potential. In cooperation with the US FDA, Actelion developed a unique ongoing patient registration program to facilitate prescribing, and to assist with drug reimbursement issues. To receive Tracleer™, physicians must enroll patients in the Tracleer™ Access Program, coordinated from our US subsidiary in South San Francisco. Tracleer™ is provided through a closed network of specialty pharmacy distributors selected by Actelion. Once a patient is enrolled in the program, the distributor’s role is: • to provide a Medication Guide for Tracleer™ with each new prescription shipment of Tracleer™. • to have on file a statement from the prescribing physician committing him/her to provide patients with monthly reminders for liver function testing and to ensure pregnancy prevention. • to provide patients with information about drug reimbursement programs. Risk reduction through awareness and controlled distribution Actelion’s first product launch in 2001 ensured our position as the global leader in endothelin recep- Special efforts during 2001 included high visibility at international medical congresses attended by specialists who treat PAH and scleroderma. We continue to be active at scientific sessions by sponsoring continuing medical education courses and company symposia, as well as conducting meetings and consulting with key opinion leaders and experts in the area of PAH and scleroderma. To ensure that Actelion’s US and Canadian sales professionals can competently assist physicians with their task of screening, diagnosing and treating patients with PAH, extensive internal training was conducted prior to launch. Actelion US provided unrestricted educational support to pulmonary hypertension patient organizations. Two websites, www.endothelinscience.com and www.tracleer.com, continue to provide useful information about ERAs and Tracleer™. “I had danced all my life and, suddenly, I was wheezing and out of breath and my heart was just going a thousand miles an hour.” Sarah Ing, PAH patient in the US taking Tracleer™ Actelion Annual Report 2001 | 11 Message to Shareholders 04 Year 2001 Highlights 06 Entering a New ERA 08 Launch of Tracleer™ 10 Development 14 Drug Discovery Research 18 CFO’s Letter 22 Consolidated Financial Statements 24 Holding Company Statements 43 Shareholder Information 48 12 | Actelion Annual Report 2001 revolut ionary advance Fully fledged biopharmaceutical company As a successful biopharmaceutical company, Actelion’s business strategy focuses on applying the most modern biotechnology tools to discover, develop and market low-molecularweight compounds. Chemical manufacturing and final production, while equally important to Actelion’s strategy, are managed in close collaboration with contract partners. Our technical team works closely with these partners to ensure that the highest-quality supply of Tracleer™ is maintained for sales and ongoing clinical trials. Rigorous quality assurance procedures are in place to ensure that both Actelion and its partners comply with manufacturing regulations, deliver products of consistent quality and provide an adequate supply. In 2001, prior to the launch approvals in the US and Canada, Actelion and its manufacturing partners passed multiple preapproval quality inspections for Tracleer™ performed by the US FDA and other regulatory authorities. Going forward – new studies ahead We are further exploring the benefits and safety of Tracleer™ in PAH to expand its market potential. Two additional phase IIIb clinical trials have been underway since May 2001. • BREATHE-2 is evaluating the effects of Tracleer™ on hemodynamics when combined with intravenous epoprostenol treatment in patients with severe primary pulmonary hypertension or pulmonary hypertension due to scleroderma. • BREATHE-3 is investigating the pharmacokinetics of Tracleer™ in pediatric patients with PAH after administration of single and multiple oral doses. Keeping the momentum going for Tracleer™ Tracleer™ tablets will become an important new therapy in PAH. The successful launch of Tracleer™ in the US is making Actelion a new leader in cardiopulmonary medicine. In 2002 and beyond, Actelion’s objectives are to: • establish and enhance awareness of PAH globally (i.e., patient and care-giver support associations, medical community). • encourage earlier screening and diagnosis of patients. • position Tracleer™ as first-line therapy through completion of ongoing trials as well as future clinical trials. • evaluate other indications for Tracleer™. Actelion Annual Report 2001 | 13 Message to Shareholders 04 Year 2001 Highlights 06 Entering a New ERA 08 Launch of Tracleer™ 10 Development 14 Drug Discovery Research 18 CFO’s Letter 22 Consolidated Financial Statements 24 Holding Company Statements 43 Shareholder Information 48 strong Development In 2001, Actelion established itself as the global leader in endothelin receptor antagonism. This developmental focus has led to both achievements and delays. The US and Canadian marketing approvals for our first product, Tracleer™ in pulmonary arterial hypertension (PAH), are our most visible achievements. The ENABLE program that evaluated Tracleer™ in severe chronic heart failure did not demonstrate the level of effectiveness we had hoped. The program did support, however, the safety profile in long-term use. A delay occurred in the RITZ program evaluating Veletri™ in acute heart failure, where one of two trials did not meet its primary objective. Life cycle management – looking ahead Beyond the initial indication in PAH, we have an impressive life cycle management program for Tracleer™ with five projects underway and two additional projects planned for 2002 and early 2003. Actelion’s research and development results show that endothelin plays a significant role in the underlying pathophysiological condition of PAH. As part of our ongoing development strategy, we hope also to show that ERAs play a significant role in other disease 14 | Actelion Annual Report 2001 conditions such as: • severe vasculopathy • fibrosis • inflammation • cancer Promoting awareness for rare diseases PAH is a rare disease with limited therapeutic alternatives. To promote awareness for the development of therapies for such rare diseases, Actelion was one of the sponsors for the second European Platform for Patient’s Organisations, Science and Industry (EPPOSI) workshop on “Rare Disease Therapy Development Partnering” which took place on 16 and 17 October 2001 in Paris. EPPOSI provides a forum for dialogue between stakeholders interested in developing therapies for rare diseases. In the US, Actelion worked closely as a contributing sponsor with the National Organization of Rare Diseases. Endothelin may play an important role in digital ulceration secondary to scleroderma In the fall of 2001, Actelion launched a pilot study to evaluate the prevention and treatment of digital ulcers in patients with scleroderma. development Life cycle management for Tracleer™ (bosentan) Indication Status PAH • Registered in the US and Canada • Pending regulatory approval in Switzerland, Australia and the European Union BREATHE-2 – Combination Phase IIIb Ongoing intravenous epoprostenol in patients with severe PPH or PAH due to scleroderma BREATHE-3 – PAH Phase IIIb Ongoing (WHO class III/IV) in pediatric patients Digital ulceration secondary Pilot Study Ongoing to scleroderma Early PAH patients Phase III In preparation (WHO class I/II) secondary to scleroderma Idiopathic pulmonary fibrosis Phase II Safety Ongoing Pulmonary hypertension Phase II Safety Ongoing secondary to chronic obstructive pulmonary disease Other indications In preparation Ischemic digital ulcers often occur in patients with scleroderma. Ulcers can occur on the tips of the fingers and toes and are caused by disorders of the small blood vessels, one of the underlying disease processes involved in scleroderma. Digital ulcers are intensively painful, slow to heal (3 – 15 months), leave depressed scars and adversely impact the ability to perform work and daily activities. Endothelin may play an important role in scleroderma From the results of our two pivotal studies in WHO class III/IV patients with PAH, including PPH and PAH secondary to connective tissue disease (i.e., scleroderma), we were able to demonstrate that Tracleer™ is effective in this patient population. Based on these findings, we are now preparing to launch a new phase III clinical study to evaluate prevention and treatment in patients with early stage PAH (WHO class I/II symptoms) secondary to scleroderma. Recruitment for this trial is planned to start later in 2002. Conservative figures estimate that approximately 90,000 persons in the US have scleroderma while the Scleroderma Foundation estimates this figure at 300,000. Approximately one-third of this population suffers from PAH. Women are approximately four times as likely to develop scleroderma as men. Scleroderma is an autoimmune disease causing chronic hardening and shrinking of the connective tissue and is generally classified as one of the rheumatic diseases. In many cases, scleroderma may lead to severe disability and lifethreatening complications. Tracleer evaluated in chronic heart failure In addition to PAH, we evaluated Tracleer™ in another indication, severe chronic heart failure (CHF). On 7 February 2002, Actelion announced that the phase III ENABLE program (ENdothelin Antagonist Bosentan for Lowering cardiac Events) evaluating Tracleer™ in 1,613 patients with severe CHF (NYHA class IIIb/IV) did not reach statistical significance in the two pre-defined primary endpoints: risk reduction in time to death or hospitalization due to CHF, and improvement in clinical status at nine months of treatment. Consequently, the program does not support an indication for Tracleer™ in severe CHF. On the other hand, the ENABLE program did generate long-term data about safety in this large patient population receiving Tracleer™ for up to 30 months. The ENABLE program confirmed the safety profile as observed in earlier clinical trials. These important safety findings supplement and strengthen the original safety information submitted in our initial new drug application for Tracleer™ in PAH. The confirmed safety profile for Tracleer™ supports our life cycle management strategy to explore additional indications for Tracleer™. With our increased confidence and added vigor, Actelion is exploring new indications for clinical development programs, for which preparations started in 2001. Actelion Annual Report 2001 | 15 Message to Shareholders 04 Year 2001 Highlights 06 Entering a New ERA 08 Launch of Tracleer™ 10 Development 14 Drug Discovery Research 18 CFO’s Letter 22 Consolidated Financial Statements 24 Holding Company Statements 43 Shareholder Information 48 continu Going forward – new studies ahead Chronic obstructive pulmonary disease (COPD) and idiopathic pulmonary fibrosis (IPF) are progressive diseases characterized by airflow limitation (reduction in lung capacity). Clinical and experimental studies suggest that Tracleer™ could potentially alleviate the symptoms observed in pulmonary hypertension secondary to COPD and in IPF. Two phase II safety studies began patient enrollment in early 2002. The preliminary results should be available by mid2002 and are expected to lead to the initiation of larger, multi-center efficacy studies. Knowledge gained leads to new solutions – Veletri™ in acute heart failure During 2001, our clinical development, clinical operations and biometrics teams invested considerable time and effort in completing and analyzing data from the RITZ trial program in patients with acute heart failure (AHF). The RITZ 16 | Actelion Annual Report 2001 (Randomized Intravenous TeZosentan) program consisted of two pivotal phase III trials – RITZ-1 and 2, and two supportive studies, RITZ-4 and 5. RITZ-4 evaluated Veletri™ – an intravenous dual ERA – in AHF patients with acute coronary syndromes, and RITZ-5 evaluated the therapy in patients with pulmonary edema. In RITZ-2, a multi-center trial of 292 patients hospitalized for AHF, the hemodynamic (blood circulation) effects of two doses of Veletri™ (50 and 100 mg/h) were compared to placebo on top of conventional therapy. In early 2001, we announced that the primary endpoint was achieved with a statistically and clinically significant change from baseline in cardiac index at 6 hours with both doses of Veletri™ compared to placebo. An increase in this parameter is understood to improve the efficiency of the heart in patients with heart failure. Clinical outcomes, worsening of heart failure or death within 28 days of follow-up, were improved in patients treated with ing momentum Life cycle management for Veletri™ (tezosentan) Indication Status Optimized dose regimen Phase II Ongoing in acute heart failure patients Acute heart failure Phase III In preparation 50 mg/h compared to those treated with placebo (40% versus 29%). While the study was not designed to demonstrate a statistically significant difference in terms of clinical outcomes, this result represents very encouraging and clinically relevant information. However, one month later, the second pivotal trial had a neutral outcome based on its primary objective to show significant improvement in symptoms (dyspnea, or shortness of breath) associated with AHF. RITZ-1, with 675 patients enrolled, was designed to evaluate the ability of 50 mg/h of Veletri™ plus standard treatment to reduce the clinical symptoms of AHF, based on the patient’s subjective assessment of dyspnea in the absence of hemodynamic evaluation. Outcome of the RITZ program In terms of tolerability and safety, we have learned much from the combined RITZ clinical trial program results: Veletri™ was associated with dose-dependent adverse events explained by excess vasodilation. While these drug-related adverse events are expected with a vasodilator drug in patients suffering from AHF, their increased incidence is likely to be explained by the high doses of Veletri™ administered in the RITZ program. RITZ-1 results highlighted for us the challenges faced in demonstrating clinical improvements with new therapeutic agents in patients with AHF beyond those observed with objective central hemodynamic monitoring. Lower doses are likely to be associated with fewer side effects. The favorable risk/benefit ratio shown in the earlier phase II studies, together with those of RITZ-2, suggest that doses lower than 50 mg/h might be as effective in improving cardiac hemodynamics. Consequently, we started a new dose-finding study that began enrollment in late 2001 with lower doses than those used in the RITZ program. Our aim from this study will be to identify an optimal dose or dose regimen while achieving a significant hemodynamic effect with fewer and/or less severe drug-related adverse events. After evaluating the results of this new dosing optimization study we expect to start a larger phase III registration trial by the end of 2002. • continue comprehensive phase III clinical trial initiatives to evaluate the safety and efficacy of Tracleer™ in other indications. • continue clinical studies of Veletri™ in AHF. • continue our close US marketing partnership with Genentech for Veletri™ in AHF. Continuing the momentum From Actelion’s development record it is clear that the ERA drug class offers great promise for cardiopulmonary diseases and for heart failure. Actelion’s strategic objectives now are to: Actelion Annual Report 2001 | 17 Message to Shareholders 04 Year 2001 Highlights 06 Entering a New ERA 08 Launch of Tracleer™ 10 Development 14 Drug Discovery Research 18 CFO’s Letter 22 Consolidated Financial Statements 24 Holding Company Statements 43 Shareholder Information 48 growth Drug Discovery Research Year of progress and growth Year 2001 was an important year of maturation and expansion for Actelion’s drug discovery operations. Five of our six projects have made important advances during the past year. In the most advanced of these projects, we have brought our first compound into preclinical development. This compound is the first of a completely novel therapeutic class. We are now initiating preclinical studies with the goal of preparing this compound for human clinical trials. In a separate project, the R. W. Johnson Pharmaceutical Research Institute (Johnson & Johnson) extended their research agreement Area Project Rights Lead Discovery with us for a third year after expressing their satisfaction with our progress. The success of our projects is the result of our ongoing investment in people and the tools of drug discovery. We have expanded our project teams with both young talent and experienced pharmaceutical personnel. Our research laboratory infrastructure underwent a major upgrade as we doubled our existing laboratory space. We also implemented several advanced technologies to further support our existing projects and to ensure that new and innovative drug targets continue to flow into our future drug discovery pipeline. Lead Preclinical Optimization Cardiovascular J&J Collaboration J&J/Actelion CNS Project 2 Actelion Project 3 Actelion Project 4 Actelion Project 5 Actelion Oncology Exploratory Actelion Malaria Partner Actelion Actelion’s drug discovery pipeline grew to five fully staffed projects in 2001. Actelion wholly owns the rights to these projects with the exception of one that is partnered with Johnson & Johnson (J&J). 18 | Actelion Annual Report 2001 and progress Our progress in 2001 demonstrates Actelion’s commitment and ability to fuel the future growth of the company by means of its own research. Important foundations have been laid for the future growth of Actelion’s drug discovery efforts. Project progress in 2001 First-in-class compound enters preclinical development. Actelion’s research projects seek to identify low-molecular-weight compounds with sufficient pharmacological potency, selectivity and bioavailability. Stringent criteria are applied before selection of a compound for development. In 2001, compounds that satisfy these requirements were identified in one of our projects in the cardiovascular field. We have a strong intellectual property position with respect to this research project and the rights to the patent family reside entirely with Actelion. One preclinical development candidate has been selected from among the best compounds. It has shown impressive efficacy in pharmacological models of cardiovascular disease, and is now on track to enter human clinical trials in 2002. It promises to be first-in-class therapy for certain cardiovascular diseases with a large unmet medical need. Johnson & Johnson collaboration renewed for third year. In June 2001, Johnson & Johnson expressed its satisfaction with the progress of its research collaboration agreement with Actelion that began in July 1999, and extended it for an additional year. Under the terms of the agreement, Actelion combines its unique knowledge of the biology of the vascular endothelium with expertise in medicinal chemistry to discover and characterize compounds targeting this tissue. Johnson & Johnson will develop and commercialize new drugs arising from this project. Actelion will receive additional research funding and will be entitled to receive development milestones and royalties on future worldwide sales. We have delivered several development candidates for their selection. Project successes on the horizon. Our five projects have all progressed substantially in the past year, and we continue to invest in these projects with full-fledged medicinal chemistry optimization efforts. The fact that our efforts are paying off is reflected in 6 new patent applications filed in the past year, bringing the total to 23. We expect one or more additional preclinical development candidates to emerge from these projects by the end of 2002. Together with the Swiss Tropical Institute and the University of Cardiff, Actelion is seeking external funding to staff a partnership project in the field of malaria. All of our projects represent novel approaches. Each may lead to novel classes of drugs in the therapeutic areas of cardiovascular diseases, central nervous system (CNS) diseases and oncology. These projects have potential in major indications such as renal failure, sleep disorders, Alzheimer’s disease and obesity. Strength in people The energy and enthusiasm that our people bring to their work at Actelion is a decisive factor in the success of our projects. We deliberately cultivate a dynamic environment in project teams, where pioneering ideas can flourish and turn into discoveries. Drawing from the extensive pharmaceutical industry talent pool in the Basel region, Actelion can provide new employees with a refreshingly open atmosphere. This has been particularly important during Actelion’s rapid growth phase. Actelion’s drug discovery organization grew from 50 to 70 people in the past year. To support our maturing projects, and lay the foundations for future growth, we predominantly increased our chemistry staffing and pharmacology capabilities in the cardiovascular and CNS areas. This year marked the addition of an experienced preclinical formulation group that specializes in the physicochemical characterization and formulation of drug candidates. We also increased the staffing in our drug metabolism and pharmacokinetic laboratories. The team’s combined experience proved essential in our projects’ progress. More space, new tools During 2001, we made substantial improvements in our drug discovery and development infrastructure, including a major expansion of our Allschwil research facilities to 3600 m2. These new laboratories are equipped with the latest and most advanced technologies, including robot-assisted highthroughput screening systems (HTS), compound storage facilities, protein crystallization equipment and parallel synthesis and automated purification stations. Computer-assisted drug discovery. Our newly added macromolecular modeling and three-dimensional visualization capabilities became an important component of our research projects in 2001. These capabilities are providing important insights into the design of our drug candidates on both our G-protein-coupled receptor and aspartyl Actelion Annual Report 2001 | 19 Message to Shareholders 04 Year 2001 Highlights 06 Entering a New ERA 08 Launch of Tracleer™ 10 Development 14 Drug Discovery Research 18 CFO’s Letter 22 Consolidated Financial Statements 24 Holding Company Statements 43 Shareholder Information 48 Actelion relies on a combination of custom-made and commercial components for the HTS system. A plate storage and retrieval system is integrated by a robotic arm with 96- and 384-well liquid-handling, 8-channel-pipetting, dispensing, plate-washing and other functional units. inno protease platforms (see next page). Actelion’s research computing infrastructure has been largely developed in-house, and allows for capturing and tracking screening results from our screening assays and in vivo experiments. In the past year, we have added important new computing tools, designed and implemented by us which we can use to manage our growing chemical libraries and register large series of new chemical entities into our compound repository. Postgenomic tools identifying future drug targets. In 2001, we established a proprietary genearray system that allows simultaneous, reliable gene expression profiling of hundreds of possible gene products. Used in combination with our expertise in the biology of the vascular endothelium, new drug targets are emerging. The research collaboration agreement signed with Axovan Ltd for 20 | Actelion Annual Report 2001 certain orphan receptors is another approach for identifying future targets in our drug discovery efforts. Integrated approach to discovery and clinical development At Actelion, the experience and talent of our people enable a smooth and rapid transition of our projects from preclinical to clinical development activities. In vitro and in vivo pharmacology studies, pharmacokinetic assessments and metabolism investigations are all performed in our own laboratories, and we develop our own dosage forms. Actelion’s project management coordinates all the preclinical and clinical development activities – in-house – from planning the early clinical studies through to execution. This integrated approach to drug discovery and drug development ensures the efficient and timely advance of our inhouse drug discovery efforts. vative science Actelion’s Research Focus Actelion is a leading player in innovative science related to the endothelium – an organ within every organ of the body, a single layer of cells covering every surface that comes in contact with blood. The endothelium forms a thin protective layer to prevent blood clotting. It also synthesizes and releases substances that constrict or relax blood vessels, thereby regulating blood flow. The endothelium produces and secretes growth factors that regulate the formation of new blood vessels. Dysfunction of the endothelium is associated with common diseases, such as hypertension, heart failure and atherosclerosis, and with rare disorders, such as pulmonary arterial hypertension. The ability of the endothelium to regulate and guide new blood vessel formation can be very desirable, for instance in the formation of new blood vessels in chronically oxygen deprived tissues or it can be very detrimental, such as when it contributes to the nourishment and growth of solid tumors. For Actelion, the endothelium serves as a rich source of ideas for novel therapeutic interventions. We focus our efforts on two proven categories of drug targets: G-protein-coupled receptors (GPCRs) and aspartyl protease enzymes. The GPCRs are a family of cell-wall-resident proteins that bind hormones, and transmit the resulting signal to the cell interior by means of a cascade of protein-protein interactions. More than 100 such receptors are known in humans. Aspartyl proteases (or acid proteases) comprise a family of enzymes with more than 50 known members. Eight such aspartyl proteases are currently known in humans (pepsin, gastricsin, napsin, renin, cathepsin D and E, BACE 1 and 2). Their physiological roles are emerging, as are their links to pathophysiological states such as cancer, inflammation, and cardiovascular and neurological diseases. Actelion Annual Report 2001 | 21 Message to Shareholders 04 Year 2001 Highlights 06 Entering a New ERA 08 Launch of Tracleer™ 10 Development 14 Drug Discovery Research 18 CFO’s Letter 22 Consolidated Financial Statements 24 Holding Company Statements 43 Shareholder Information 48 invest CFO’s Letter Foundation laid for future growth In its fourth year of operations, Actelion increased expenditures in core functions of the business to ensure a rapid and successful market introduction of its first product, Tracleer™ for the treatment of pulmonary arterial hypertension. These efforts resulted in the launch and first revenues from Tracleer™ in the US, only days after receiving regulatory approval in November. The market launch of Tracleer™ was initiated in Canada following regulatory approval in December 2001. Konrad P. Wirz Chief Financial Officer Evolution of headcount Headcount 450 400 350 300 250 200 Jan Apr Jul Sep Dec Evolution of Net Liquid Assets Liquid Assets 300 250 200 In the year under review, overall operating expenditures amounted to CHF 129.3 million. These controlled expenses that concern all areas of our fully fledged biopharmaceutical operations have to be considered strategic start-up investments. A distinct focus for new expenditures was placed on marketing and sales. Although the operating expenses exceeded the prior year by CHF 44 million, the additional net loss was kept to CHF 16 million, essentially as the result of substantially increased revenues. 150 100 50 0 Dec Mar Jun 22 | Actelion Annual Report 2001 Sep Dec The beginning of 2002 will show a further increase in operating losses on a quarterly basis, as the company intends to maintain its momentum to establish and market Tracleer™ worldwide. Actelion will also increase expenditures in research to fuel drug discovery efforts and in development activities for both Tracleer™ line extensions and the forthcoming registration study for Veletri™. Funding of these efforts is made possible by the company’s cash position amounting to CHF 152.2 million at 31 December 2001 and rising income from product sales throughout the year, first in North America and later in other markets, notably the European Union. Furthermore, the company is prepared to explore other opportunities in the market to finance additional projects if necessary. With its focus on further expanding its business in the near-term future, and unforeseen events excluded, Actelion expects the company to be profitable – on an annualized basis – by the year 2004. This would represent a unique achievement for a biopharmaceutical company only 4 years after its Initial Public Offering in the spring of 2000 and only 8 years after its founding in late 1997. Operating statement – higher revenues partially offset increased operating expenses For the year under review, Actelion reports net revenues of CHF 64.1 million, an increase of CHF 32.6 for growth million over 2000. Contributing to this increase in revenues were: • recognition of a milestone payment of CHF 57 million (USD 35 million), of which approximately CHF 6 million have been deferred into 2002. • research contribution of CHF 5.3 million (USD 3.2 million) derived from a research agreement with R. W. Johnson Pharmaceutical Research Institute (J & J). • higher business with third parties of the company’s majorityowned affiliate Hesperion Ltd, a clinical research organization. • initial sales revenues from Tracleer™ of approximately CHF 3 million. Operating expenses amount to CHF 129.3 million, up from CHF 85.1 million in the previous year. The increase in expenses of CHF 44.2 million is driven by the Group’s controlled and focused growth strategy. The major part of the higher operating expense, however, reflects our efforts to establish the infrastructure for the successful launch of our first product, Tracleer™. New subsidiaries were established in the UK, Japan, Australia, Greece and Spain, complementing the ones already operating in Switzerland, US, Canada, France and Germany. Research and development activities continued at a high level. The Group’s headcount increased accordingly, pri- marily in marketing and sales, exceeding 400 by year end, up from 227 at the beginning of the year. As a consequence, marketing and sales and management and general expenses experienced the most significant increase in 2001, amounting to CHF 51.6 million as opposed to CHF 15.6 million in 2000. The resulting operating loss of CHF 69.5 million (previous year: CHF 54.5 million) is in line with Actelion’s policy to bear significant start-up costs in view of both optimizing the Group’s capabilities in its core areas of activities as well as maximizing the potential of Tracleer™ and other products to come. Financial income in 2001 amounts to CHF 4.7 million, which reflects a 2.4% return based on average net liquid assets of approximately CHF 200 million. As in prior years, the negative pre-tax result determined an income tax benefit (CHF 10.8 million), resulting in a net loss after tax of CHF 54.6 million, or CHF 2.65 per share. Balance sheet, capital investments, liquidity / funding principles Investments in equipment for laboratories and offices amounted to CHF 9.4 million, CHF 1.9 million above capital expenditures of CHF 7.5 million in 2000. As a result, Actelion has some of the latest and most advanced laboratory equipment. This brings the total of the Group’s non-current assets to CHF 56.3 million net of depreciation. Simultaneous to the launch of Tracleer™, Actelion invested in working capital. Inventories increased from CHF 3.1 million to CHF 6.2 million and accounts receivable from Tracleer™ sales and Hesperion services amounted to CHF 4.5 million as of 31 December 2001. Nonetheless, the remaining net liquid asset position at year end of CHF 152.2 million provides a solid base to finance the Group’s future activities until the phase of more sizeable sales revenues. In 2001, as in prior years, the Group did not carry any interest-bearing liabilities on its balance sheet, neither was it involved in any off-balance sheet financing mechanism. At this stage, subsidiaries are funded through inter-company loans in their respective local currency. The holding company, Actelion Ltd, provides this funding. In the course of the year, most of our subsidiaries were recapitalized in order to restore their capital base and to comply with local regulations. Consequently, the investment value in the holding company books increased from CHF 41 million as of 31 December 2000 to CHF 72.2 million at year end 2001. Stock market, shareholder information As a consequence of the four-toone stock split effective 20 June 2001 and resulting from exercised options, the number of outstanding shares reached 21,134,380 at year end 2001. Actelion’s capital is now held by over 5,100 shareholders worldwide. As part of our continued commitment to provide timely and transparent information to both shareholders and the investment community at large, we now have more than 15 research departments of major banks regularly reporting on our progress. By 31 December 2001, the four major initial venture capital investors had reduced their stake in the company from close to 30% at the beginning of 2001 to 5.3%. As of mid-February 2002, Deutsche Bank, BB Biotech and Orbimed Advisors held more than 5% each of the outstanding shares of the company, marking a general trend toward institutional investors. Management, board and related party ownership exceeded 20%. Actelion Annual Report 2001 | 23 Consolidated Financial Statements 24 Report of the Group Auditors 24 Consolidated Income Statement 25 Consolidated Balance Sheet 26 Consolidated Statement of Cash Flows 27 Consolidated Statement of Shareholders’ Equity 28 Notes to the Consolidated Financial Statements 30 Report of the Group Auditors To the Annual General Meeting of Actelion Ltd Allschwil, Switzerland As auditors of the Group, we have audited the consolidated financial statements (balance sheet, income statement, statement of cash flows, statement of changes in equity and notes) of Actelion Ltd for the year ended December 31, 2001. These consolidated financial statements are the responsibility of the Board of Directors. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We confirm that we meet the legal requirements concerning professional qualification and independence. Our audit was conducted in accordance with auditing standards promulgated by the Swiss profession and with the International Standards on Auditing issued by the International Federation of Accountants (IFAC), which require that an audit be planned and performed to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. We have examined on a test basis evidence supporting the amounts and disclosures in the consolidated financial statements. We have also assessed the accounting principles used, significant estimates made and the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements give a true and fair view of the financial position, the results of operations and the cash flows in accordance with the International Accounting Standards (IAS) and comply with Swiss law. We recommend that the consolidated financial statements submitted to you be approved. PricewaterhouseCoopers AG Thomas Brüderlin Basel, February 26, 2002 24 | Actelion Annual Report 2001 Alex Villiger Consolidated Income Statement [CHF] Fees from cooperations Net sales Revenues Cost of sales Operating expenses Research and development Marketing and sales Management and general Total operating expenses Operating loss Financial income, net Net loss before taxes and minority interests Income tax benefit Net loss before minority interests Net income attributable to minority shareholders Net loss Actelion Ltd Basic loss per share Note 1 2 3 4 5 6 7 12 Months Ended December 31, 2001 2000* 55,822,642 30,405,312 8,251,983 1,118,123 64,074,625 31,523,435 4,275,815 894,498 77,680,374 32,896,266 18,752,089 129,328,729 (69,529,919) 69,472,479 5,814,864 9,812,356 85,099,698 (54,470,762) 4,652,602 (64,877,317) 10,842,632 (54,034,685) (538,460) (54,573,145) (2.65) 8,171,816 (46,298,946) 8,096,171 (38,202,775) (407,804) (38,610,579) (2.13) *Restated for sales of clinical services The accompanying Notes form an integral part of these Consolidated Financial Statements. Actelion Annual Report 2001 | 25 Consolidated Financial Statements 24 Report of the Group Auditors 24 Consolidated Income Statement 25 Consolidated Balance Sheet 26 Cons. Statement of Cash Flows 27 Consolidated Statement of Shareholders’ Equity 28 Notes to the Consolidated Financial Statements 30 Consolidated Balance Sheet Assets [CHF] Noncurrent assets Plant and equipment, net Investment Goodwill and other intangible assets Other assets Deferred tax assets Total noncurrent assets Current assets Inventories Accounts receivable Other current assets Marketable securities Cash and cash equivalents Total current assets Total assets December 31, 2001 Note 8 11 9, 10 5 12 13 14 14 2000 16,036,652 1,700,000 9,692,778 3,079,659 25,776,426 56,285,515 10,409,465 950,000 6,516,725 1,806,511 14,828,493 34,511,194 6,246,211 11,337,979 2,240,174 65,177,791 87,012,826 172,014,981 228,300,496 3,058,827 62,414,582 522,617 63,502,272 156,324,100 285,822,399 320,333,593 52,837,150 258,777,733 (115,303,373) 196,311,510 48,676,900 258,597,127 (60,730,228) 246,543,799 1,209,521 671,061 – 187,982 533,751 721,733 377,431 110,562 1,089,869 1,577,862 9,025,720 12,222,481 8,072,911 736,620 30,057,732 228,300,496 56,406,000 8,362,653 5,417,950 1,354,268 71,540,871 320,333,593 Equity and liabilities Shareholders’ equity Share capital Share premium and other reserves Accumulated loss Total shareholders’ equity Minority interest Noncurrent liabilities Provisions Other noncurrent liabilities Capital leases, less current portion Total noncurrent liabilities Current liabilities Deferred income Trade and other payables Accrued expenses Current portion of capital leases Total current liabilities Total equity and liabilities 15 6 18 19 20 18 The accompanying Notes form an integral part of these Consolidated Financial Statements. 26 | Actelion Annual Report 2001 Consolidated Statement of Cash Flows [CHF] Operating activity Net loss Adjustments to reconcile net income to net cash – Change in minority interest – Cumulative translation adjustment – Deferred tax variation – Depreciation and amortization – Provisions – Change in noncurrent liabilities – Changes in the composition of working capital – – Increase/(decrease) in current liabilities – – Decrease/(increase) in current assets Net cash provided by operations Note 12 Months Ended December 31, 2001 2000 (54,573,145) (38,610,579) 538,460 201,398 (10,947,934) 4,640,309 (377,431) 77,420 (1,876,779) (260,589) (9,227,224) 2,126,375 (125,813) 110,562 (41,716,672) 47,011,359 (55,146,235) 63,656,880 (63,154,256) (47,361,424) (750,000) (9,255,211) (1,642,246) (2,334,764) (1,675,518) (1,273,148) (16,930,887) (950,000) (5,924,851) (292,714) – (63,502,273) (1,773,976) (72,443,814) (1,373,610) 137,284 4,002,174 2,765,848 (1,066,947) – 247,171,208 246,104,261 Net change in cash position (69,311,274) 126,299,023 Net increase in cash and cash equivalents Cash and equivalents, beginning of period Cash and equivalents, end of period 156,324,100 87,012,826 30,025,077 156,324,100 Investing activities Increase in investments Purchase of equipment Purchase of intangibles Acquisition of subsidiary Marketable securities Deposits and others Net cash used in investing activity Financing activities Net payments on capital leases Transactions in treasury shares Issuance of shares, net of formation expenses Total cash provided by financing activity 6 10 The accompanying Notes form an integral part of these Consolidated Financial Statements. Actelion Annual Report 2001 | 27 Consolidated Financial Statements 24 Report of the Group Auditors 24 Consolidated Income Statement 25 Consolidated Balance Sheet 26 Consolidated Statement of Cash Flows 27 Consolidated Statement of Shareholders’ Equity 28 Notes to the Consolidated Financial Statements 30 Consolidated Statement of Shareholders’ Equity [CHF except share data] Common At December 31, 1999 Conversion of minority interest (6.33%) into preferred B shares Conversion of preferred shares into common shares Capital increase Exercise of stock options and warrants Loss for the period Translation adjustments At December 31, 2000 Exercise of stock options and warrant Loss for the period Transactions in treasury shares Translation adjustments At December 31, 2001 2,584,800 Number of shares Preferred 12,350,640 4,000,000 535,320 – – 19,470,760 11,417,040 933,600 (12,350,640) – – – – – 14,001,840 933,600 – 4,000,000 535,320 – – 19,470,760 1,664,100 – – – 21,134,860 – – – – 21,134,860 1,664,100 – – – 21,134,860 The accompanying Notes form an integral part of these Consolidated Financial Statements. 28 | Actelion Annual Report 2001 Total Share capital Capital account Share premium 35,004,600 2,334,000 – 10,000,000 1,338,300 – – 48,676,900 4,160,250 – – – 52,837,150 Cumulative translation adjustments 4,595 – – – – – (260,589) (255,994) Accumulated loss 25,354,213 – – 232,713,686 785,222 – – 258,853,121 Total capital paid in 60,358,813 2,334,000 – 242,713,686 2,123,522 – – 307,530,021 (22,119,649) – – – – (38,610,579) – (60,730,228) Total shareholders' equity 38,243,759 2,334,000 – 242,713,686 2,123,522 (38,610,579) (260,589) 246,543,799 (158,076) – 137,284 – 258,832,329 4,002,174 – 137,284 – 311,669,479 – – – 201,398 (54,596) – (54,573,145) – – (115,303,373) 4,002,174 (54,573,145) 137,284 201,398 196,311,510 Actelion Annual Report 2001 | 29 Consolidated Financial Statements 24 Report of the Group Auditors 24 Consolidated Income Statement 25 Consolidated Balance Sheet 26 Consolidated Statement of Cash Flows 27 Consolidated Statement of Shareholders’ Equity 28 Notes to the Consolidated Financial Statements 30 Notes to the Consolidated Financial Statements Summary of significant accounting policies Basis of accounting The consolidated financial statements of the Group have been prepared under the historical cost convention and in accordance with International Accounting Standards (IAS) as issued by the International Accounting Standards Committee (IASC) as explained below and in conformity with the legal provisions of the Swiss Code of Obligations. Individual items from the previous year have been reclassified in the consolidated income statement to ensure comparability with the 2001 presentation. The consolidated financial statements are presented in Swiss francs (CHF). Principles of consolidation Subsidiary undertakings, which are those companies in which the Parent Company, directly or indirectly, has an interest of more than 50% of the voting rights or otherwise has power to exercise control over the operations, have been consolidated. Subsidiaries are consolidated from the date on which effective control is transferred to the Parent Company. All inter-company transactions, balances and unrealized surpluses and deficits on transactions between Group companies have been eliminated. Separate disclosure is made of minority interests. Cash and cash equivalents For the purpose of the cash flow statement, the Group considers all time deposits with an initial maturity of three months or less to be cash equivalents. Cash balances are accounted for on a gross basis, bank overdrafts would be included in current liabilities. Financial instruments The Group adopted IAS 39 “Financial Instruments: Recognition and Measurement,” on January 1, 2001. The effects of adopting this standard are immaterial with respect to the consolidated statement of shareholders’ equity. Further information is disclosed in the accounting policies for marketable securities and available for sale investments. Available-for-sale securities (marketable securities and investment) On January 1, 2001, the Group adopted IAS 39 “Financial Instruments: Recognition and Measurement” and classified its marketable securities and investments as avail- 30 | Actelion Annual Report 2001 able-for-sale. These are included in noncurrent assets unless management has the expressed intention of holding the investment for less than 12 months from the balance sheet date or unless they will need to be sold to raise operating capital, in which case they are included in current assets. Marketable securities and investments that are deemed to be available-for-sale are stated at fair value. Any changes in their fair value will be recorded in the income statement. Marketable securities consist of equity and debt securities that are traded in liquid markets. Prior to the adoption of IAS 39 “Financial Instruments: Recognition and Measurement,” marketable securities were recorded at the lower of cost or market, valued on an individual basis. Foreign exchange risk A significant portion of the Group’s operations are denominated in foreign currencies, mainly in U.S. Dollars. The inherent exposure may adversely impact the Group’s net income and net assets. Currency exposure is not being hedged. Interest rate risk Interest rate risk arises from movements in interest rates, which could have adverse effects on the Group’s net income or financial position. Changes in interest rates cause variations in interest income and expenses on interest-bearing assets and liabilities. In addition, they can affect the market value of certain financial assets, liabilities and instruments. Foreign currencies The income statements of foreign subsidiaries are translated into the Group’s reporting currency at monthly average exchange rates and the corresponding balance sheets are translated at the period-end exchange rate. Exchange differences arising from the translation of the net investment in foreign subsidiaries are taken to “Cumulative Translation Adjustment” in shareholders’ equity. Foreign currency transactions are accounted for at the exchange rates prevailing at the date of the transactions. Gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies are recognized in the statement of operations in the corresponding period. Accounts receivable Accounts receivable are carried at anticipated realizable value. An estimate is made for doubtful receivables based upon periodic review of all outstanding amounts. Bad debts are written off when identified. Inventories Inventories are stated at the lower of cost and net realizable value. Cost is determined by the first-in first-out method. Where necessary, provision is made for obsolete, slow-moving or defective inventory. Property, plant and equipment Property, plant and equipment are recorded at cost and are stated at historical cost less accumulated depreciation. Depreciation expense is recorded utilizing the straight-line method over the estimated useful life of the assets. Assets are written down to their estimated residual value. The useful lives are summarized as follows: Group of assets Useful life [years] Laboratory furniture and installations Laboratory equipment Office furniture Data-processing equipment and software 7–10 5 5 3 The costs of repairs and maintenance are capitalized only if they improve the related asset or extend its useful life. Leases Leases of property, plant and equipment where the Group assumes a substantial part of benefits and risks of ownership are classified as finance leases. Finance leases are capitalized at the estimated present value of the underlying lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate of interest on the balance outstanding. The corresponding rental obligations, net of finance charges, are included in short- and long-term debt. The interest element of the finance charge is recorded as interest expense in the income statement over the lease period. The plant and equipment acquired under finance leasing contracts are depreciated over the useful life of the asset. Leases of assets under which the lessor effectively retains all the risks and benefits of ownership are classified as operating leases. Payments made under operating leases are charged to the income statement on a straight-line basis over the period of the lease. Patents and trademarks – change in accounting policy In the prior year, costs associated with the filing and registration of patents and trademarks were capitalized and amortized using the straight-line method over their estimated useful lives, not exceeding 20 years. In the current year, the policy has been changed so that all such costs are fully expensed in the period in which they occur. Had this policy been in effect in the prior year, the results of operations would not have been materially different. Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of net assets of the acquired company undertaking at the date of acquisition. The Group amortizes goodwill on a straight-line basis over a period of 20 years from the date of acquisition, in line with IAS 22 (revised). The carrying amount of goodwill is reviewed annually and written down for permanent impairment where it is considered necessary. Provisions The Group recognizes provisions when it has a present legal or constructive obligation to transfer economic benefits as a result of past events and a reasonable estimate of the obligation can be made. Employee entitlements to annual leave are recognized when they accrue to employees. A provision is made for annual leave as a result of services rendered by employees up to the balance sheet date. Retirement benefits The Group maintains retirement plans covering all of its employees including its executive officers. In addition to retirement benefits, the Group provides benefits on the death or long-term disability of its employees. The plans are considered defined benefit plans. See also note 22 “Employee benefits.” The Swiss retirement plans are structured according to the principles of the Swiss Occupational Benefits Law (BVG) and are substantially identical to the BVG program except that the Group plan also covers salaries above the salary limit of the BVG. The Group and its employees pay retirement contributions, which are defined as a percentage of the employees’ covered salaries, to a collective pension fund operated by an insurance company. Interest is credited to the employees’ accounts at the minimum rate provided in the plan, payment of which is guaranteed by the insurance contract. The contributions, which the Group is called upon to pay in respect of a particular period, are recorded as expense in that period. Actelion Annual Report 2001 | 31 Consolidated Financial Statements 24 Report of the Group Auditors 24 Consolidated Income Statement 25 Consolidated Balance Sheet 26 Consolidated Statement of Cash Flows 27 Consolidated Statement of Shareholders’ Equity 28 Notes to the Consolidated Financial Statements 30 Revenue recognition Revenue arising from multi-element development and copromotion agreements is recognized on the basis of cost of efforts up to the reporting date, divided by the total expected research and development costs, multiplied by the total expected contractual payments under the arrangement. However, revenue is limited to the amount of nonrefundable cash payments received and the subsequent milestone payments that have become due and payable at the reporting date. Sales are recognized on delivery or on providing services to third parties. Cost of sales Cost of sales comprises manufacturing costs and related production overhead measured at standard costs, royalty expenses directly related to product sales and costs for conduct of clinical services. Research and development Research and development costs are expensed as incurred. 32 | Actelion Annual Report 2001 Deferred income taxes Deferred taxes are provided, using the liability method, for all temporary differences between the tax bases of assets and liabilities and their carrying values for financial reporting purposes. Deferred tax assets relating to the carryforward of unused tax losses are recognized to the extent that future taxable profit is expected to be available against which the unused tax losses can be utilized. To determine deferred tax, currently enacted tax rates are used net of the beneficial effect of specific agreements to which the Group is a party. Impairment The Group periodically reviews the recoverability of fixed assets and capitalized intangibles through discounting estimated expected future cash flows (without interest charges) of these assets. An impairment loss is recorded only if the carrying amount of the asset exceeds the higher of its fair value and its value in use. Earnings/(loss) per share Basic earnings/(loss) per share is calculated by dividing the net profit/(loss) attributable to the shareholders by the weighted average shares outstanding during the period. 1. Fees from cooperations [CHF] Genentech down payments Fees from other cooperation agreements and services Total fees Year ended December 31, 2001 2000 50,000,000 24,675,000 5,822,642 5,730,312 55,822,642 30,405,312 In January 2001, Genentech made a down payment of total CHF 56.4 million (USD 35 million) of which CHF 6.4 million is not reflected in the 2001 income statement. In accordance with the applied revenue recognition policy, the remaining amount of CHF 6.4 million is deferred and will be recorded as revenue in 2002. 2. Net sales Reflect product sales of TracleerTM and sales of clinical services. 3. Employee costs [CHF] Wages and salaries Social security costs Pension costs – employer contribution Other employee-related costs Total employee-related costs Number of employees expressed as average full time equivalents Year ended December 31, 2001 2000 38,347,797 16,411,764 2,639,708 2,144,517 2,951,690 1,464,125 6,411,328 2,641,368 50,350,523 22,661,774 329 146 4. Financial income, net [CHF] Interest income Interest (expense) Net foreign exchange gains Net gain/(loss) on marketable securities and other income Total financial income, net Year ended December 31, 2001 2000 7,434,750 7,315,455 (218,917) (200,847) 1,899,909 1,787,116 (4,463,140) (729,908) 4,652,602 8,171,816 Actelion Annual Report 2001 | 33 Consolidated Financial Statements 24 Report of the Group Auditors 24 Consolidated Income Statement 25 Consolidated Balance Sheet 26 Consolidated Statement of Cash Flows 27 Consolidated Statement of Shareholders’ Equity 28 Notes to the Consolidated Financial Statements 30 5. Taxes The income tax benefit credited to the income statement comprises: Year ended December 31, 2001 2000 (378,420) (480,332) 11,221,052 8,576,503 10,842,632 8,096,171 16.7% 17.5% [CHF] Current tax Deferred tax Total Effective tax rate Deferred income taxes debited to the share premium in respect of formation expenses comprise: [CHF] Deferred tax 2001 293,118 2000 (650,721) 2001 23,330,357 2,446,069 25,776,426 2000 12,783,561 2,044,932 14,828,493 Deferred income tax asset at December 31 comprises: [CHF] Tax loss carryforwards Temporary differences Total At December 31, 2001, the Group had unused tax losses of CHF 113,062,522. If not used, these tax losses will expire as follows: [CHF] After 4 years After 5 years After more than 5 years Total 4,531,209 19,313,707 89,217,606 113,062,522 Based on expected future profit, the Group is of the opinion that it is more likely than not that all tax losses will be used before they expire. Therefore a deferred tax asset was recognized in the amount of CHF 23,330,357 relating to all tax loss carryforwards. At December 31, 2001, the Group had deductible temporary differences in the amount of CHF 23,145,848 for which a deferred tax asset of CHF 2,446,069 was recognized. 34 | Actelion Annual Report 2001 6. Minority interests [CHF] January 1 Purchase of minority interest in Actelion Pharmaceuticals Ltd Change in minority interest due to capital increase Change in minority interest due to result of the year December 31 2001 671,061 – – 538,460 1,209,521 2000 2,547,840 (2,334,000) 49,417 407,804 671,061 On March 6, 2000, the minority shareholders of Actelion Pharmaceuticals Ltd converted their shares (6.33%) of Actelion Pharmaceuticals Ltd into 933,600 shares of Actelion Ltd. The Group’s share in Hesperion Ltd was reduced in October 2000 from 70% to 64.17% as a result of the issue of additional shares to an employee foundation. Minority interests at December 31, 2001 consist of 35.83% of Hesperion Ltd and are held by management and employees of that company. 7. Earnings per share Basic loss per share is calculated by dividing the net loss attributable to shareholders by the weighted average number of shares outstanding during the year. [CHF except share data] Net loss attributable to shareholders Weighted average number of shares outstanding Basic loss per share Year ended December 31, 2001 2000 (54,573,145) (38,610,579) 20,561,372 18,094,552 (2.65) (2.13) Actelion Annual Report 2001 | 35 Consolidated Financial Statements 24 Report of the Group Auditors 24 Consolidated Income Statement 25 Consolidated Balance Sheet 26 Consolidated Statement of Cash Flows 27 Consolidated Statement of Shareholders’ Equity 28 Notes to the Consolidated Financial Statements 30 8. Plant and equipment Office equipment Laboratory equipment Other Total December 31, 1999 Additions Depreciation charge 1,111,999 4,189,913 (825,144) 3,559,625 3,232,113 (956,670) 39,869 65,660 (7,901) 4,711,493 7,487,686 (1,789,715) December 31, 2000 4,476,768 5,835,068 97,628 10,409,464 23,604 4,404,723 64,029 (2,160,244) – 4,758,220 – (1,670,595) – 268,504 – (61,054) 23,604 9,431,447 64,029 (3,891,892) 6,808,880 8,922,693 305,079 16,036,652 5,526,895 (1,050,127) 7,440,660 (1,605,592) 109,274 (11,646) 13,076,829 (2,667,365) 4,476,768 5,835,068 97,628 10,409,464 10,019,251 (3,210,371) 12,198,880 (3,276,187) 377,778 (72,699) 22,595,909 (6,559,257) 6,808,880 8,922,693 305,079 16,036,652 [CHF] Exchange differences Additions Acquisitions Depreciation charge December 31, 2001 December 31, 2000 Historical cost Accumulated depreciation Net book value December 31, 2001 Historical cost Accumulated depreciation Net book value Additions include CHF 199,840 and CHF 1,562,834 assets leased under capital leases for the years ended December 31, 2001 and 2000, respectively. Depreciation charged on assets leased under capital leases is CHF 858,419 and CHF 682,573 for the years ended December 31, 2001 and 2000, respectively. Accumulated depreciation for assets leased under capital leases is CHF 2,096,460 and CHF 1,238,041 at December 31, 2001 and 2000, respectively. 9. Goodwill and other intangible assets 36 | Actelion Annual Report 2001 [CHF] Goodwill Other intangible assets Total December 31, 1999 Additions Depreciation charge 6,501,040 – (325,052) 59,631 292,714 (11,608) 6,560,671 292,714 (336,660) December 31, 2000 6,175,988 340,737 6,516,725 Additions Depreciation charge 2,282,224 (441,380) 1,642,246 (307,037) 3,924,470 (748,417) December 31, 2001 8,016,832 1,675,946 9,692,778 December 31, 2000 Historical cost Accumulated depreciation 6,501,040 (325,052) 355,127 (14,390) 6,856,167 (339,442) Net book value 6,175,988 340,737 6,516,725 December 31, 2001 Historical cost Accumulated depreciation 8,783,264 (766,432) 1,997,373 (321,427) 10,780,637 (1,087,859) Net book value 8,016,832 1,675,946 9,692,778 10. Acquisition of subsidiary 13. Accounts receivable On January 1, 2001, the Group acquired 100% of the outstanding voting common stock of ASC S.r.l. ASC is conducting biometrical research in the context of new medicines’ trials. The acquisition was accounted for under the purchase method and the operating results of ASC S.r.l. have been included in the Group’s consolidated financial statements with effect from January 1, 2001. [CHF] Trade receivables Accounts receivable from cooperations Other accounts receivable Down payment Genentech Total accounts receivable Year ended December 31, 2001 2000 4,509,382 – 4,061,173 150,000 2,767,424 5,858,582 – 56,406,000 11,337,979 62,414,582 Details of net assets acquired are as follows: Fair value of net assets acquired 2,334,764 (52,540) Goodwill 2,282,224 Purchase price [CHF] 14. Cash and cash equivalents/ marketable securities [CHF] The assets and liabilities arising from the acquisition that are included in the consolidated balance sheet of the Group at January 1, 2001 were as follows: Marketable securities Cash at bank and in hand Short-term bank deposits Total liquid funds Year ended December 31, 2001 2000 65,177,791 63,502,273 51,823,989 13,900,900 35,188,837 142,423,200 152,190,617 219,826,373 [CHF] Accounts receivable Accounts receivable from Actelion Fixed assets Other assets Trade payables Accrued expenses Fair value of net assets acquired (100%) 76,704 760,856 64,029 2,133 (333,182) (518,000) 52,540 Short-term deposits denominated in USD amount to CHF 10 million and CHF 3.2 million in 2001 and 2000, respectively, in EUR to CHF 8 million at December 31, 2001. The weighted average effective interest rates obtained on short-term bank deposits were 3.6% and 3.1% in 2001 and 2000, respectively. In October 2001, ASC S.r.l. was merged with Actelion Pharmaceuticals Italia S.r.l. 15. Share capital 11. Investment [CHF] Axovan Ltd Year ended December 31, 2001 2000 1,700,000 950,000 At December 31, 2001, the issued share capital amounts to CHF 52,837,150 consisting of 21,134,860 common shares with a nominal value of CHF 2.50 each. The shares are registered and fully paid-up. 12. Inventories [CHF] Intermediates Finished products Total inventories Year ended December 31, 2001 2000 5,566,571 3,058,827 679,640 6,246,211 3,058,827 Actelion Annual Report 2001 | 37 Consolidated Financial Statements 24 Report of the Group Auditors 24 Consolidated Income Statement 25 Consolidated Balance Sheet 26 Consolidated Statement of Cash Flows 27 Consolidated Statement of Shareholders’ Equity 28 Notes to the Consolidated Financial Statements 30 16. Conditional capital Since inception, the Company has created conditional capital for the establishment of stock option plans, convertible bonds as well as for the potential issuance of shares in relation with certain credit facilities. At December 31, 2001, the Company has conditional capital of CHF 9,434,450. Movements in conditional capital are as follows: [CHF] January 1, 2000 Creation of conditional capital for convertible bonds/loans Creation of conditional capital for employee stock option plans Exercise of options and warrant 8,553,000 2,100,000 3,000,000 (1,338,300) December 31, 2000 12,314,700 Creation of conditional capital for Employee Stock Option Plans Creation of conditional capital for convertible bonds/loans Exercise of options and warrant 500,000 780,000 (4,160,250) December 31, 2001 9,434,450 17. Authorized capital 19. Deferred income The Annual General Meeting of April 9, 2001 authorized the Company to create capital to be used for strategic purposes. The Board of Directors is authorized to increase until April 9, 2003 the share capital by an amount of not more than CHF 5,000,000 by issuance of not more than 2,000,000 fully paid-in registered shares with a nominal value of CHF 2.50 per share. Deferred income consists of the amounts received at year end under multi-element licensing and co-promotion agreements that had not yet been recognized as revenue in the income statement. 18. Financing arrangements [CHF] Capital Leases At December 31, 2001 and 2000, the Group had obligations outstanding under capital lease commitments. The commitments are as follows: [CHF] Within one year Later than one year and not more than 5 years Total 38 | Actelion Annual Report 2001 2001 736,620 2000 1,354,268 533,751 1,270,371 1,089,869 2,444,137 20. Accrued expenses Accrued expenses Accrued compensation expenses Total receivables Year ended December 31, 2001 2000 4,467,842 3,445,128 3,605,069 8,072,911 1,972,822 5,417,950 21. Commitments and contingencies Licensing-in agreements with Roche The Group has acquired the license for the use of tezosentan and bosentan. In consideration for obtaining these rights and following certain events (“milestones”), the Group has made cash payments in the amount of CHF 3,500,000 and CHF 4,000,000 for the years ended December 31, 2001 and 2000, respectively. The payments have been recorded as research and development expense in the income statement. The Group is required to make further payments if further milestones are achieved in the development and commercialization of the licensed compounds. In 2002, the Group expects to make payments of about CHF 6 million for achievement of further milestones. Furthermore, under the agreements, the Group is required to pay royalties related to net sales of the products, consistent with industry standards. Research and development agreement In June 1999, the Group concluded a research, development and commercialization agreement with Johnson & Johnson. The agreement has a two-year term expiring on June 30, 2001, with an option for a third year at the discretion of Johnson & Johnson. Johnson & Johnson elected for the third year ending on June 30, 2002. Under the agreement, the Group has agreed to employ a minimum number of scientists to conduct research. Johnson & Johnson has paid the Group on a quarterly basis in connection with this research agreement. Operating lease commitments At December 31, 2001, the future minimum lease payments under noncancelable operating leases were: [CHF] Within one year Later than one year and not more than 5 years Later than five years Total Year ended December 31, 2001 2000 3,940,116 3,003,530 14,502,695 11,608,412 1,374,902 1,430,056 19,817,713 16,041,998 Operating lease commitments comprise mainly future rental payments for offices and laboratories. Capital commitments At December 31, 2001, capital commitments which have not been recognized in the financial statements amounted to: [CHF] Research equipment Building 591,000 8,650,000 Actelion Annual Report 2001 | 39 Consolidated Financial Statements 24 Report of the Group Auditors 24 Consolidated Income Statement 25 Consolidated Balance Sheet 26 Consolidated Statement of Cash Flows 27 Consolidated Statement of Shareholders’ Equity 28 Notes to the Consolidated Financial Statements 30 22. Employee benefits Pension costs in Switzerland amounted to CHF 2,901,000 and CHF 2,194,000 in 2001 and 2000, respectively, excluding company contributions to state plans. The Group funds these plans with amounts in compliance with funding requirements, laws and regulations. The costs of the defined benefit plans are based upon actuarial valuations of the plans made during 2001. The unrecognized liability/(asset) consists of: [CHF] Present value of funded obligations Fair value of plan assets Total (excess)/deficit Unrecognized actuarial (gains)/losses Unrecognized liability/(asset) Liability in the balance sheet Year ended December 31, 2001 2000 18,993,000 10,453,000 18,612,000 10,456,000 381,000 (3,000) (358,000) (975,000) 23,000 (978,000) – – The amounts recognized in the income statement are as follows: [CHF] Current service costs Interest costs Expected return on plan assets Change in unrecognized assets Total pension expense/(income) Year ended December 31, 2001 2000 3,004,000 1,005,000 631,000 256,000 (734,000) (272,000) – 1,205,000 2,901,000 2,194,000 The Group has not recognized any assets or liabilities in connection with the information provided above. The principal weighted average actuarial assumptions used for accounting purposes were: Discount rate Expected return on plan assets Future salary increases Future pension increase 40 | Actelion Annual Report 2001 2001 4.0% 5.0% 3.0% 1.5% 2000 4.0% 5.0% 3.0% 1.5% 23. Employee stock option plans There are six separate stock option plans: the Founders’ Plan, the Chairman’s Plan, and the 2001, 2000, 1999 and 1998 Employee Plans. They are administered by the Board of Directors. No compensation expense has been recognized for options granted under any of these plans except to the extent that the social security costs related to the issuance of options has been expensed. Founders’ plan A total of 1,200,000 shares are authorized for issuance under this plan. At December 31, 2001 and 2000, all options had been granted and vested. 2001, 2000, 1999 and 1998 employee plans Options under the Employee Plans are granted at the beginning of employment or service. The options vest on a pro-rata basis quarterly 4 years from the date of grant, with a one-year initial cliff vesting. All options expire no later than ten years from the date of grant. A total of 200,000, 960,000, 720,000 and 1,200,000 shares are authorized for issuance under the 2001, 2000, 1999 and 1998 Plans, respectively. At December 31, 2001 and 2000, there are 99,032 and 513,408 options, respectively, available for grant under these Plans. At December 31, 2001 and 2000, 1,364,321 and 715,352 shares, respectively, are vested under these Plans. Chairman’s plan A total of 120,000 shares were authorized for issuance under this plan. At December 31, 2001 and 2000, all options had been granted and vested. Summary of option plans Share options outstanding at the end of the year have the following terms: Exercise Price [CHF] Up to 25 From 25.1 to 50.0 From 50.1 to 75.0 From 75.1 to 100.0 From 100.1 to 150.0 From 150.1 to 250.0 Total Weighted average price of options outstanding December 31, 2001 1,215,160 80,160 489,464 – 287,788 210,176 2,282,748 December 31, 2000 50.10 18.48 2001 3,284,472 653,624 (1,616,100) (39,248) 2,282,748 2000 2,984,160 721,632 (402,120) (19,200) 3,284,472 2,835,480 – 155,680 – 204,480 88,832 3,284,472 Movements in the number of share options outstanding are as follows: [Share options] January 1 Granted Exercised Cancelled December 31 Actelion Annual Report 2001 | 41 Holding Company Statements 43 Report of the Statutory Auditors 43 Holding Company Balance Sheet 44 Holding Company Income Statement 45 Notes to the Financial Statements 46 24. Stock warrant On March 4, 1999, the Group obtained an irrevocable credit facility from Basler Kantonalbank in the amount of CHF 10,000,000 and issued a warrant in connection thereto. Basler Kantonalbank received the right to buy 133,200 shares at an exercise price of CHF 7.50, and 48,000 shares at an exercise price of CHF 10.42. The warrant was fully vested on the date of the initial public offering. In 2001 and 2000, Basler Kantonalbank exercised its right to buy 48,000 shares and 133,200 shares, respectively. At December 31, 2001, the warrant was fully exercised. 25. Significant subsidiaries Company Country Location Actelion Pharmaceuticals Australia Pty Ltd Actelion Pharmaceuticals Canada Inc Actelion Pharmaceuticals France SAS Actelion Pharmaceuticals Deutschland GmbH Actelion Pharmaceuticals Hellas MEPE Actelion Pharmaceuticals Italia S.r.l. Actelion Pharmaceuticals Japan Ltd Actelion Pharmaceuticals España S.L. Actelion Pharmaceuticals Ltd Actelion Pharmaceuticals UK Ltd Actelion Registration Ltd Actelion Pharmaceuticals US, Inc Hesperion Ltd Australia Canada France Germany Greece Italy Japan Spain Switzerland United Kingdom United Kingdom United States Switzerland Sydney Laval Paris Freiburg Athens Milan Tokyo Barcelona Allschwil London London South San Francisco Allschwil 26. Related party transactions Senior executive and board compensation Total remuneration for senior executives of the Group amounted to CHF 2,241,959 (9 members) and CHF 1,566,252 (6 members) in 2001 and 2000, respectively. In 2001, Board members excluding executives of the Company (6 members) received total monetary compensation of CHF 90,000 and total grants of 5,000 share options under the employee stock option plan. 42 | Actelion Annual Report 2001 Ownership interest 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 64% Consolidation method Full Full Full Full Full Full Full Full Full Full Full Full Full Report of the statutory auditors To the Annual General Meeting of Actelion Ltd Allschwil, Switzerland As statutory auditors, we have audited the accounting records and the financial statements (balance sheet, income statement and notes) of Actelion Ltd for the year ended December 31, 2001. These financial statements are the responsibility of the Board of Directors. Our responsibility is to express an opinion on these financial statements based on our audit. We confirm that we meet the legal requirements concerning professional qualification and independence. Our audit was conducted in accordance with auditing standards promulgated by the Swiss profession, which require that an audit be planned and performed to obtain reasonable assurance about whether the financial statements are free from material misstatement. We have examined on a test basis evidence supporting the amounts and disclosures in the financial statements. We have also assessed the accounting principles used, significant estimates made and the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the accounting records and financial statements and the proposed appropriation of available earnings comply with Swiss law and the company's articles of incorporation. We recommend that the financial statements submitted to you be approved. PricewaterhouseCoopers AG Thomas Brüderlin Alex Villiger Basel, February 26, 2002 Actelion Annual Report 2001 | 43 Holding Company Statements 43 Report of the Statutory Auditors 43 Holding Company Balance Sheet 44 Holding Company Income Statement 45 Notes to the Financial Statements 46 Balance Sheet Assets [CHF] Current assets Liquid funds Marketable securities Accounts receivable from – subsidiaries – others Prepayments and accrued income Total current assets Noncurrent assets Financial assets: – Investments in subsidiaries – Other investment – Long-term loans to subsidiaries Intangible assets: – Incorporation and capital increase costs Total noncurrent assets Total assets December 31, 2001 2000 38,635,228 59,083,781 142,937,756 63,502,273 – 230,443 931,721 98,881,173 34,609,269 – 3,472,506 244,521,804 72,156,405 1,700,000 118,091,271 41,041,621 950,000 – 11,708,474 203,656,150 302,537,323 15,311,082 57,302,703 301,824,507 421,005 421,005 190,887 190,887 52,837,150 251,049,804 (1,770,636) 302,116,318 302,537,323 48,676,900 250,785,222 2,171,498 301,633,620 301,824,507 Equity and liabilities Current liabilities Accounts payable and accrued liabilities Total current liabilities Shareholders’ equity Share capital Legal reserves – share premium Retained earnings Total shareholders’ equity Total liabilities and shareholders’ equity 44 | Actelion Annual Report 2001 Income Statement [CHF] Financial income Total income Year ended December 31, 2001 2000 9,480,339 6,170,405 9,480,339 6,170,405 Administrative expenses Financial expenses Amortization of incorporation and capital increase costs Changes in value of financial assets Total expenditure 923,401 5,777,081 3,602,608 3,119,383 13,422,473 378,328 734,917 2,701,956 – 3,815,201 Profit before tax (3,942,134) 2,355,204 Income taxes Net income for the year – (3,942,134) (183,706) 2,171,498 Actelion Annual Report 2001 | 45 Holding Company Statements 43 Report of the Statutory Auditors 43 Holding Company Balance Sheet 44 Holding Company Income Statement 45 Notes to the Financial Statements 46 Notes to the Financial Statements 2001 1. Accounting principles The financial statements of Actelion Ltd have been prepared in accordance with the accounting principles as prescribed by Swiss Company Law. 2. Material investments Company Country Location Actelion Pharmaceuticals Australia Pty Ltd Actelion Pharmaceuticals Canada Inc Actelion Pharmaceuticals France SAS Actelion Pharmaceuticals Deutschland GmbH Actelion Pharmaceuticals Hellas MEPE Actelion Pharmaceuticals Italia S.r.l. Actelion Pharmaceuticals Japan Ltd Actelion Pharmaceuticals España S.L. Actelion Pharmaceuticals Ltd Actelion Pharmaceuticals UK Ltd Actelion Registration Ltd Actelion Pharmaceuticals US, Inc Hesperion Ltd Axovan Ltd Australia Canada France Germany Greece Italy Japan Spain Switzerland United Kingdom United Kingdom United States Switzerland Switzerland Sydney Laval Paris Freiburg Athens Milan Tokyo Barcelona Allschwil London London South San Francisco Allschwil Allschwil Ownership Interest 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 64% 23% 3. Share capital At December 31, 2001, the issued share capital amounts to CHF 52,837,150 consisting of 21,134,860 common shares with a nominal value of CHF 2.50 each. The shares are registered and fully paid-up. 4. Conditional capital Since inception, the Company has created conditional capital for the establishment of stock option plans, convertible bonds as well as for the potential issuance of shares in relation with certain credit facilities. At December 31, 2001, the Company has conditional capital of CHF 9,434,450. Movements in conditional capital are as follows: [CHF] January 1, 2000 Creation of conditional capital for convertible bonds/loans Creation of conditional capital for Employee Stock Option Plans Exercise of options and warrant 8,553,000 2,100,000 3,000,000 (1,338,300) December 31, 2000 12,314,700 Creation of conditional capital for Employee Stock Option Plans Creation of conditional capital for convertible bonds/loans Exercise of options and warrant 500,000 780,000 (4,160,250) December 31, 2001 46 | Actelion Annual Report 2001 9,434,450 5. Authorized capital The Annual General Meeting of April 9, 2001 has authorized the Company to create capital to be used for strategic purposes. The Board of Directors is authorized to increase until April 9, 2003 the share capital by an amount of not more than CHF 5,000,000 by issuance of not more than 2,000,000 fully paid-in registered shares with a nominal value of CHF 2.50 per share. 6. Treasury shares During 2001, the Group traded 38,290 own shares with an average purchase price of CHF 52.35 and average sales price of CHF 55.94. At December 31, 2001, the Group had no holdings in own shares. 7. Significant shareholders at December 31, 2001 According to the information available to the Board of Directors, the following shareholders held a significant percentage of shares: Name 2001 Percentage of share capital Management and Directors* 20.3% Deutsche Bank 6.2% Chase Nominees 6.2% OrbiMed Advisors 5.2% Biotech Invest 5.2% Atlas Venture Fund III L.P. – TVM Technoventure Management III GmbH & Co. KG – 2000 Percentage of voting rights Percentage of share capital Percentage of voting rights 20.3% 5.0% 5.0% 5.2% 5.2% – 14.3% – – – – 7.88% 14.3% – – – – 7.88% – 6.16% 6.16% *No individual has holdings exceeding 5%. Proposed appropriation of available earnings Available earnings Retained earnings at the beginning of the year Net income/(loss) for the year Total available earnings/(loss carried forward) Appropriation to general legal reserve Balance to be carried forward 2001 2000 2,061,498 (3,942,134) (1,880,636) 2,171,498 2,171,498 – (1,880,636) – (110,000) 2,061,498 Actelion Annual Report 2001 | 47 Message to Shareholders 04 Year 2001 Highlights 06 Entering a New ERA 08 Launch of Tracleer™ 10 Development 14 Drug Discovery Research 18 CFO’s Letter 22 Consolidated Financial Statements 24 Holding Company Statements 43 Shareholder Information 48 share Shareholder Information Share price The following table shows the reported high and low quarterly closing share price of the Actelion shares on the SWX New Market during the year 2001. Actelion Ltd Actelion Pharmaceuticals Australia Pty Ltd Australia (100%) Actelion Pharmaceuticals Canada Inc Canada (100%) First Quarter * Second Quarter Third Quarter Fourth Quarter High 186.25 145 56.75 78 Low 117.50 49 37 44.45 On 31 December 2001, the last reported closing share price was CHF 78 and market capitalization of Actelion Ltd was CHF 1.6 billion, compared with a share price (*) of CHF 184 and market capitalization of CHF 3.6 billion the previous year. The total number of shareholders on 31 December 2001 was 5,115. * Share price reflects the adjusted four-to-one stock split that took effect on 20 June 2001. Actelion Pharmaceuticals Deutschland GmbH Germany (100%) Actelion Pharmaceuticals España S.L. Spain (100%) Actelion Pharmaceuticals France SAS France (100%) Actelion Pharmaceuticals Hellas MEPE Greece (100%) Actelion Pharmaceuticals Italia S.r.l. Italy (100%) Actelion Pharmaceuticals Japan Ltd Japan (100%) Actelion Pharmaceuticals Ltd Switzerland (100%) Actelion Pharmaceuticals UK Ltd UK (100%) Actelion Pharmaceuticals US, Inc USA (100%) Hesperion Ltd Clinical Research Organization Switzerland (64%) US IL NL 48 | Actelion Annual Report 2001 Listing Actelion Ltd is organized under Swiss law and is the holding company of the Actelion Group. The company’s initial equity funding was provided in 1998 and 1999 in two separate rounds of financing totaling CHF 66 million. The registered shares of Actelion Ltd have been listed on the SWX New Market since 6 April 2000 (symbol: ATLN). A total of 1,000,000 primary shares were placed at the company’s Initial Public Offering (IPO), at a price of CHF 260 per share. Actelion’s IPO was effected through an international banking syndicate led by Credit Suisse First Boston and constituted one of the largest ever for a biopharmaceutical company, raising CHF 246.6 million. On 20 June 2001, Actelion Ltd announced a four-to-one split in its shares. As of this day, there were 21,001,580 shares outstanding with a new nominal value of CHF 2.50. The number of outstanding shares reached 21,134,380 at year end 2001. Investor Relations Calendar 2002 March 27 Media/Analyst Conference April 19 Annual General Meeting of Shareholders May 8 Q1 Results June 5 R & D Day August 7 Q2 Results November 7 Q3 Results holder value Board of Directors Back row (standing pictured left to right) Werner Henrich Fred J. Meyer Front row (seated pictured left to right) Robert E. Cawthorn Chairman Retired Vice Chairman, Omnicom Group Jane Royston Senior Vice President, F. Hoffman La-Roche (Pharmaceuticals Division) André J. Mueller Rudolf Maag Senior Vice President, Head of Strategic Development Branco Weiss Professor of Entrepreneurship & Innovation, Swiss Federal Institute of Technology, Lausanne Thomas Widmann Vice-Chairman Jean-Paul Clozel Founder, Senior Vice President, Head of Business Development Former CEO, Synthes-Stratec, Inc. Joël Besse Retired Chairman and CEO, Rhône-PoulencRorer Founder, Chief Executive Officer Senior Principal, Atlas Venture Scientific Advisory Board Business Executive Board Joël Ménard Professor of Public Health, University Pierre et Marie Curie, Paris Donald Hilvert Professor of Chemistry at the Swiss Federal Institute of Technology (ETH), Zürich Richard Tsien Professor of the Department of Molecular and Cellular Physiology, Stanford University, Palo Alto Jean-Paul Clozel Konrad P. Wirz Isaac Kobrin Founder, Chief Executive Officer Senior Vice President, Chief Financial Officer Senior Vice President, Head of Clinical Development Simon Buckingham Christian Chavy Louis de Lassence President, Head of US, Canada, Asia Pacific President, Head of Europe, Middle East, Latin America Vice President, Head of Corporate Operations Craig Pratt Professor of Medicine and Cardiology, Baylor College of Medicine, Houston Actelion Annual Report 2001 | 49