FINANCIAL REPORT. FINANCIAL STATEMENTS REPORT. press the button to begin ANNUAL REPORT 2015 CONTENTS HOLDING COMPANY FINANCIAL FINANCE IN BRIEF

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1 ANNUAL REPORT 2015 This 1 is an interactive pdf, press the button to begin

2 ACTELION S MISSION: TREAT MORE PATIENTS WITH GROUNDBREAKING MEDICINES 03 Finance in Brief Actelion Ltd. is a leading biopharmaceutical company focused on the discovery, development and commercialization of innovative drugs for diseases with significant unmet medical needs. Actelion is a leader in the field of pulmonary arterial hypertension (PAH). Our portfolio of PAH treatments covers the spectrum of disease, from WHO Functional Class (FC) II through to FC IV, with oral, inhaled and intravenous medications. Although not available in all countries, Actelion also has treatments approved by health authorities for a number of specialist diseases including Type 1 Gaucher disease, Niemann-Pick type C disease, Digital Ulcers in patients suffering from systemic sclerosis, and mycosis fungoides type cutaneous T-cell lymphoma. 06 Financial Review 23 Consolidated Financial Statements 74 Holding Company Statements 2

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4 PROFIT AND LOSS variance in % of sales (in CHF millions, except % variance and EPS) CHF CER Sales Product sales 2,042 1,956 4% 7% 100% 100% Product sales excluding US rebate reversals 2,042 1,883 8% 11% 100% 96% Opsumit nm nm 25% 9% Tracleer 1,212 1,418-15% -11% 59% 72% Other % 11% 15% 15% Core results Operating income % 14% 40% 38% Operating income excluding US rebate reversals % 25% 40% 35% Net income % 11% 34% 33% Diluted EPS % 15% nm nm US GAAP results Operating income % 21% 32% 29% Net income % -3% 27% 30% Diluted EPS % 1% nm nm CASH FLOW, CASH POSITION AND SHARE COUNT December 31, December 31, (in CHF millions) Cash flow Operating cash flow Capital expenditure (44) (31) Cash returned to shareholders (927) (133) Free cash flow (800) 327 Cash position Gross cash 405 1,205 Net cash Share count (million shares) Issued common shares Treasury shares held Outstanding equity instruments Disclaimer and notes to this financial report: Actelion continues to measure, report and issue guidance on its core operating performance, which management believes more accurately reflects the underlying business performance. The Group believes that these non-gaap financial measurements provide useful supplementary information to investors. These non-gaap measures are reported in addition to, not as a substitute for, US GAAP financial results. Constant exchange rate (CER) percentage changes are calculated by reconsolidating both the December 2014 year to date and December 2015 year to date results at constant currencies (the average monthly exchange rates for December 2014 year to date). nm = not meaningful Rounding differences may occur 4

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

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

8 SALES Sales by product variance (in CHF millions, except % variance) CHF CER Product sales Opsumit nm nm Tracleer 1,212 1,418-15% -11% Veletri % 37% Ventavis % -7% Valchlor nm nm Zavesca % -3% Others % 43% Product sales excluding US rebate reversals 2,042 1,883 8% 11% US rebate reversals* - 73 Total product sales 2,042 1,956 4% 7% *To allow meaningful comparison to the full year 2014, the reversals of rebate accruals reported in 2014 have been disclosed separately in the sales tables where relevant. Actelion s excellent commercial performance during 2015 was mainly due to the continued strong uptake of Opsumit, driven by consistently strong recruitment of new patients across markets and the expansion of the endothelin receptor antagonist (ERA) market due to increased combination therapy with PDE-5 inhibitors. In the US, sales increased by 21% at CER, excluding prior-year rebate reversals, and were driven by Opsumit uptake, ERA market share gains and ERA market expansion, as well as price increases across the portfolio. European sales increased by 3% at CER despite continued pricing pressure and market erosion from generics, with growth driven mostly by new Opsumit markets and use of Tracleer in the digital ulcer indication. Sales in Japan increased by 11% at CER in a competitive environment. Growth was driven by sales of Opsumit (launched in late June 2015), Tracleer in the digital ulcer indication (launched in September 2015), Veletri and Zavesca (miglustat) (Japanese trade name Brazaves ). Comparing average exchange rates for 2015 with 2014, the Swiss franc appreciated against most major currencies except the US dollar, resulting in a negative currency variance of 55 million Swiss francs. Sales by region variance (in CHF millions, except % variance) CHF CER Product sales by region United States 1, % 21% Europe % 3% Japan % 11% Rest of the world % 2% Product sales excluding US rebate reversals 2,042 1,883 8% 11% US rebate reversals* - 73 Total product sales 2,042 1,956 4% 7% 8

9 PAH FRANCHISE Opsumit variance (in CHF millions, except % variance) CHF CER Sales by region United States nm nm Europe nm nm Japan 12 - nm nm Rest of the world 27 5 nm nm Sales excluding US rebate reversals nm nm US rebate reversals* - 1 Total nm nm Sales of Opsumit (macitentan) amounted to 516 million Swiss francs, reflecting a sustained highly successful launch. Opsumit is now available to patients in over 35 countries and gaining ERA market share in all geographies. Strong patient demand continued, with more than 13,600 patients on therapy at the end of December 2015 (almost 50% from the US). Patient growth was driven by an increasing market share in the ERA-naive patient segment and increased combination with PDE-5 inhibitors, as well as new market launches (e.g. Japan, Israel). Tracleer variance (in CHF millions, except % variance) CHF CER Sales by region United States % -11% Europe % -12% Japan % 1% Rest of the world % -18% Sales excluding US rebate reversals 1,212 1,418-15% -11% US rebate reversals* - 63 Total 1,212 1,481-18% -15% Sales of Tracleer (bosentan) amounted to 1,212 million Swiss francs, a decrease of 11% at CER excluding prior-year US rebate reversals. This decrease is mostly attributed to lower volumes in countries where Opsumit is available, due to sharply decreased enrollment of new patients. Sales were further impacted by continued pricing pressure in Europe and increased generic bosentan competition. Underlying units sold globally decreased by 6%. Following the Pediatric Investigation Plan (PIP) compliance statement from the European Committee for Medicinal Products for Human Use (CHMP), applications for extension of the Supplementary Protection Certificate (SPC) were filed in 19 EU countries. Extensions of patent protection for Tracleer have now been granted in Belgium, Denmark, Finland, France, Italy, Ireland, Luxembourg, the Netherlands, Spain and Sweden. Tracleer sales were positively supported by the digital ulcer (DU) indication in Europe and Japan (launched in September 2015), a price increase in the US and continued solid demand in markets where Opsumit is not yet available. Overall, more than 46,000 patients were receiving the drug globally at the end of 2015 (a decrease of 9% versus prior year). 9

10 Veletri variance (in CHF millions, except % variance) CHF CER Sales by region United States % 12% Europe 16 7 nm nm Japan % 32% Rest of the world 4 2 nm nm Sales excluding US rebate reversals % 37% US rebate reversals* - 3 Total % 32% Sales of Veletri (epoprostenol for injection) amounted to 83 million Swiss francs, an increase of 37% at CER, excluding prior-year US rebate reversals, with over 1,900 patients receiving the drug at the end of The increase was mostly driven by increased market penetration, successful launches in additional markets notably in France, Europe s biggest i.v. epoprostenol market and continued growth in Japan. At the end of December 2015, Veletri was available in 15 countries worldwide. Ventavis variance (in CHF millions, except % variance) CHF CER Sales by region United States % -7% Europe - - Japan - - Rest of the world - - Sales excluding US rebate reversals % -7% US rebate reversals* - 6 Total % -11% Sales of Ventavis (iloprost) amounted to 105 million Swiss francs, a decrease of 7% at CER, excluding the impact of prioryear US rebate reversals. The underlying 20% unit decrease due to continued competitive pressure was mitigated by price increases. 10

11 SPECIALTY PRODUCTS Valchlor variance (in CHF millions, except % variance) CHF CER Sales by region United States nm nm Europe 2 0 nm nm Japan - - Rest of the world - - Sales excluding US rebate reversals nm nm US rebate reversals* - 0 Total nm nm Sales of Valchlor (mechlorethamine) amounted to 27 million Swiss francs. In the US, the company is continuing its efforts to establish Valchlor as a first-line option in the treatment algorithm for early-stage mycosis fungoides-type cutaneous T-cell lymphoma (MF-CTCL). In France, patients benefited from the drug under a temporary authorization for use ( ATU ) program initiated during the second half of The dossier for Valchlor (under the trade name Ledaga ) was accepted by the European Medicines Agency during the second quarter of 2015 and is currently under review. Zavesca variance (in CHF millions, except % variance) CHF CER Sales by region United States % -5% Europe % -2% Japan % 29% Rest of the world % -6% Sales excluding US rebate reversals % -3% US rebate reversals* - 2 Total % -5% Sales of Zavesca (miglustat) amounted to 92 million Swiss francs, a decrease of 3% at CER, excluding the impact of prioryear US rebate reversals. Underlying unit sales were flat compared to the prior year. Sales in the US declined mainly as a result of competitive pressure from alternative enzyme replacement therapy (ERT) options for the type 1 Gaucher disease (GD1) indication. In Europe, a decline in the GD1 business due to generic competition in selected markets was mitigated by increased patient demand in the Niemann-Pick type C indication, driven by Japan (where it is marketed as Brazaves), Italy, France and Russia. At the end of 2015, generic miglustat (approved for GD1 only) was commercially available in Spain, Sweden, Germany and the Czech Republic. 11

12 OPERATING EXPENSES Operating expenses break down as follows: variance (in CHF millions, except % variance) CHF CER Operating expenses Core cost of sales % -16% Core research and development % 10% Core selling, general and administration % 6% Core operating expenses 1,228 1,213 1% 3% Depreciation of assets % -5% Amortization of acquired intangible assets % -16% Stock-based compensation % 8% Milestone payment nm nm Doubtful debt movements 4 (1) nm nm Accretion expenses (benefits) 0 3 nm nm Other expenses 0 0 nm nm Non-core operating expenses % -8% US GAAP operating expenses 1,389 1,388 0% 2% Cost of sales variance (in CHF millions, except % variance) CHF CER Cost of sales Royalty expenses % -26% Cost of goods sold % 12% Core cost of sales % -16% Non-core cost of sales 0 3 nm nm US GAAP cost of sales % -19% Core cost of sales decreased by 16% at CER to 176 million Swiss francs, despite an increase in sales of 11% at CER, excluding prior-year US rebate reversals. The decrease was driven by lower royalty expenses (the company no longer pays royalties on Ventavis sales since mid-march 2015) and a favorable product mix, with a low single-digit royalty rate paid on Opsumit sales compared to a high single-digit rate paid on Tracleer sales. Also, due to the patent expiry in the US in late November, Actelion has ceased royalty payments on almost all US Tracleer sales. 12

13 Research and development ( R&D ) expenses variance (in CHF millions, except % variance) CHF CER Core R&D expenses % 10% Depreciation % -6% Stock-based compensation % 5% Milestone payment nm nm US GAAP R&D expenses % 7% Amortization of acquired intangible assets % -11% US GAAP R&D expenses % 6% 1 As reported in the consolidated income statements, excluding amortization of acquired intangible assets. Core R&D expenses amounted to 404 million Swiss francs, an increase of 10% at CER. This increase was driven by higher clinical trial expenses, as the company is advancing its specialty immunology portfolio, macitentan life-cycle management activities and other late-stage pipeline assets, as well as continued investment in the earlier-stage pipeline. Core R&D expenditure represented 20% of product sales, slightly higher than in Actelion will continue to focus on carefully balancing investments so as to ensure future growth and delivery of appropriate shareholder returns. US GAAP R&D expenses included depreciation of 25 million Swiss francs (relating to the research building and laboratory equipment), stock-based compensation expenses of 24 million Swiss francs, and a license issuance fee of 11 million Swiss francs in connection with the creation of Vaxxilon, a joint venture in the field of synthetic carbohydrate vaccines involving collaboration between Actelion, the Max Planck Society and Seeberger Science GmbH. Selling, general and administrative ( SG&A ) expenses variance (in CHF millions, except % variance) CHF CER SG&A expenses Marketing, selling and distribution expenses % 5% General and administrative expenses % 6% Core SG&A expenses % 6% Depreciation % -1% Stock-based compensation % 10% Doubtful debt movements 4 (1) nm nm US GAAP SG&A expenses % 6% Amortization of acquired intangible assets % -16% US GAAP SG&A expenses % 5% 1 As reported in the consolidated income statements, excluding amortization of acquired intangible assets. Core SG&A expenses amounted to 648 million Swiss francs, an increase of 6% at CER. This increase was driven mostly by costs relating to the continuing launch activities of Opsumit and Veletri in various markets around the globe. A portion of the increase is also attributable to preparations for the US launch of Uptravi, which was made available to patients in early January 2016, as well as preparations for the anticipated European launches. G&A expenses increased by 6% as Actelion continues to expand its global footprint. US GAAP SG&A expenses included depreciation of 11 million Swiss francs, stock-based compensation expenses of 33 million Swiss francs, movements in doubtful debt provisions and the amortization of acquired intangible assets of 51 million Swiss francs (10 million Swiss francs lower than in 2014, as Ventavis was fully amortized in February 2015). 13

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

15 variance (in CHF millions, except % variance) CHF CER Net results Operating results % 21% Financial results (20) (33) nm nm Income tax (88) 57 nm nm Net results % -3% Net loss attributable to the noncontrolling interests 4 - nm nm US GAAP net results % -3% 11 US GAAP tax expense amounted to 88 million Swiss francs resulting in an effective tax rate of 13.8%. This US GAAP effective tax rate is normalized compared to the prior year, as 2014 included releases of valuation allowances in the US and other jurisdictions of 121 million Swiss francs. US GAAP net results amounted to 552 million Swiss francs for the full year 2015, a decrease of 3% at CER, as the prior-year net income was inflated by the above-mentioned income tax benefit. Noncontrolling interests relate mainly to the 26% equity stake held by minority shareholders in Vaxxilon. EARNINGS PER SHARE (EPS) variance (in CHF millions, unless otherwise indicated) CHF CER Net results Core net results % 11% US GAAP net results % -3% Basic earnings per share Weighted average number of shares (in millions) nm nm Core basic EPS (in CHF) % 14% US GAAP basic EPS (in CHF) % 0% Diluted earnings per share Weighted average number of shares (in millions) nm nm Core diluted EPS (in CHF) % 15% US GAAP diluted EPS (in CHF) % 1% The decrease in US GAAP EPS was driven mostly by the lower net income, as described in the table above. The average share count for basic EPS decreased by 2.9 million shares, reflecting purchases related to the second-line share repurchase program. The average share count for diluted EPS decreased by 3.7 million shares, as the average number of dilutive instruments decreased by 0.8 million shares despite an increase in the average share price (127 Swiss francs per share compared to 100 Swiss francs in 2014). 15

16 IMPACT OF FOREIGN EXCHANGE RATES ON SALES AND OPERATING RESULTS Actelion s exposure to foreign currency movements affecting its sales and operating results as expressed in Swiss francs is summarized in the following tables. Twelve months ended December 31, 2015 Twelve months ended December 31, 2014 (in CHF millions, except % variance) CHF % CER % CHF CER CHF % CER % CHF CER Reported growth versus prior year Product sales 4% 7% % 12% Core operating results 9% 14% % 25% US GAAP operating results 15% 21% % 24% Core net results 7% 11% % 34% US GAAP net results -7% -3% (42) (15) 31% 38% On January 15, 2015 the Swiss National Bank announced that it was discontinuing the minimum exchange rate of 1.20 Swiss franc per euro. This announcement resulted in an immediate appreciation of the Swiss franc against all currencies and a sharp drop in the Swiss stock market. Since Actelion reports and presents its consolidated results in Swiss francs, the ongoing weakness of foreign currencies against the Swiss franc continues to negatively impact Actelion s sales and core operating results. For 2015, Actelion reported core operating income of 814 million Swiss francs, with: net sales of 2,042 million Swiss francs, of which 99% are denominated in foreign currencies converted at the average exchange rates shown above (52% in US dollars, 27% in euros, 9% in Japanese yen and 12% in other foreign currencies) and core operating expenses of 1,228 million Swiss francs, of which 29% are incurred in Swiss francs at our headquarters (mainly R&D organization, headquarter activities with strategic and support functions) and 71% in foreign currencies at our affiliates in the US, Europe, Japan and the rest of the world. Some of the adverse impact of foreign currency movements against the Swiss franc is naturally hedged, as 99% of sales and 71% of core operating expenses are denominated in foreign currencies. The table below shows the currency translation sensitivity for each 1% adverse change in average exchange rates against the Swiss franc: Average rate Net sales Core operating Core operating (in CHF millions, except % and fx rates) 2015 minus 1 % CHF expenses results Exchange rates against Swiss franc US dollar 1 USD (10) (3) (7) Euro 1 EUR (5) (1) (4) Japanese yen 100 JPY (2) (1) (1) All other foreign currencies (2) (1) (1) Total impact (20) (7) (13) -1.0% -0.5% -1.6% 16

17 IMPACT OF OTHER EVENTS ON SALES AND OPERATING RESULTS The Group recognizes revenue from product sales when there is persuasive evidence that a sales arrangement exists, delivery has occurred, the price is fixed or determinable, and collectibility is reasonably assured. Provisions for rebates and discounts granted to government agencies, wholesalers, retail pharmacies, managed care organizations and other customers are recorded as a reduction of revenue at the time the related revenues are recognized or when the incentives are offered. They are calculated on the basis of historical experience and the specific terms in the individual agreements. Estimating such rebate accruals is a complex process and requires significant judgment, especially for rebates granted in the context of US reimbursement programs (mainly governmental programs such as Medicaid and Managed Medicaid), due to the time lag between the date of sale and the actual settlement of the liability, changes in regulations for the various rebate programs and changing utilization rates and patient populations. In 2014, the company adjusted its estimates of US rebate accruals for 2013 and 2014, which resulted in a positive impact both on sales and on core operating income. The reversal of these extraordinary rebates is now completed and no additional meaningful reversals occurred in 2015 or are expected to occur going forward. The table below shows Actelion s 2015 performance compared to the prior year with US rebate reversals were excluded: variance variance (in CHF millions, except % variance) CHF CHF % CER CER % Product sales performance Product sales as reported 2,042 1, % 140 7% Impact of US rebate reversals - (73) 73 nm 73 nm Product sales excluding US rebate reversals 2,042 1, % % Core operating performance Core operating results as reported % % Impact of US rebate reversals - (66) 66 nm 66 nm Core operating results excluding US rebate reversals % % 17

18 CASH FLOW AND CASH POSITION Operating cash flow (in CHF millions) Operating cash flow Net results Depreciation and amortization Stock-based compensation Other non cash items (28) 55 Funds from operations Net change in trade and other receivables (31) 10 Net change in trade and other payables (5) (29) Net change in other operating assets and liabilities (29) (69) Decrease (increase) in net working capital (65) (88) Decrease (increase) in deferred taxes 52 (99) Operating cash flow Excluding litigation settlement. Operating cash flow amounted to 658 million Swiss francs for The strong underlying business performance resulted in funds from operations of 671 million Swiss francs. Working capital requirements increased by 65 million Swiss francs, driven by an increase of 31 million Swiss francs in trade receivables due to strong sales. Cash collection remained solid with days sales outstanding (DSO) at 57 days. Deferred tax net positions decreased by 52 million Swiss francs, driven mostly by 26 million Swiss francs related to the utilization of net operating losses and tax credits in the US and 22 million Swiss francs related to stock-based compensation. Free cash flow (in CHF millions) Free cash flow Operating cash flow Acquisition of tangible, intangible and other assets (44) (31) Acquisition of businesses (8) (1) Operating free cash flow Second-line share repurchase (785) - Dividend (142) (133) First-line share purchase (327) (546) Proceeds from exercise of stock options Debt repayment (235) - Litigation settlement - (458) Cash released from (restricted for) litigation Other items 5 22 Free cash flow (800) 327 Operating free cash flow of 606 million Swiss francs was driven by the strong operating performance and limited capital expenditure, which includes the milestone payment of 20 million US dollars to Nippon Shinyaku triggered by the FDA approval of Uptravi in December

19 Free cash flow reconciles the net cash positions between the opening and closing period. Free cash flow for 2015 was negative at 800 million Swiss francs, as the company returned substantial cash to shareholders. In May 2015, Actelion paid 142 million Swiss francs in dividends to its shareholders. The company also bought 6.1 million shares for a total consideration of 801 million Swiss francs through the second-line share repurchase program, of which 785 million Swiss francs was paid at the end of December and 16 million Swiss francs relating to Swiss withholding tax was paid in January In addition, Actelion also purchased 2.7 million first-line shares as part of its dilution management program for a total consideration of 327 million Swiss francs. During 2015, Actelion employees exercised 1.6 million stock options, resulting in proceeds of 79 million Swiss francs. In December 2015 Actelion repaid the 235 million Swiss francs bond. The company currently has no outstanding debt. Net cash position The net cash position amounted to 405 million Swiss francs on December 31, 2015 and breaks down by currency as follows: December 31, Closing rate (CHF millions unless otherwise indicated) 2015 in % against CHF Cash position by currency Swiss franc % - US dollar % 1 USD = 0.99 Euro 95 23% 1 EUR = 1.08 Japanese yen 31 8% 100 JPY = 0.83 Other foreign currencies 41 10% - Total net cash position % - BALANCE SHEET (in CHF millions) December 31, 2015 December 31, 2014 variance Assets Cash position ,205 (800) Trade and other receivables, net Other current assets Tangible assets (19) Intangible assets (27) Goodwill (0) Other non-current assets (23) Total assets 1,915 2,748 (833) Liabilities and shareholders' equity Other current liabilities (8) Financial debt (235) Other non-current liabilities Total liabilities (227) Share capital and accumulated reserves 2,455 2, Treasury shares (1,137) (288) (850) Total Actelion's shareholders equity 1,318 1,920 (603) Noncontrolling interests Equity attributable to noncontrolling interests (3) - (3) Total equity 1,315 1,920 (605) Total liabilities and equity 1,915 2,748 (833) 1 Cash position includes cash, cash equivalents and short-term deposits. The company continues to have a strong balance sheet, ensuring full financial flexibility. 19

20 ACTELION SHARES Actelion uses equity instruments as part of its long-term compensation. As the company has matured, the numbers of instruments issued annually has decreased. Actelion is committed to mitigating dilution arising from both older and newly issued instruments. During 2015, the company bought 2.7 million shares for a consideration of 327 million Swiss francs. The equity overhang has thus decreased from 6.7% as of December 31, 2014, to 5.1% on December 31, In April 2015, in keeping with its commitment to maximize shareholder value, Actelion commenced a new second-line share repurchase program of up to 10 million shares, subject to market conditions and strategic opportunities. At subsequent General Meetings of Shareholders, Actelion s Board of Directors will propose that the shares bought through this program be canceled and the issued share capital reduced accordingly. During 2015, the company repurchased 6.1 million shares for a consideration of 801 million Swiss francs. The movement of Actelion shares is shown in the table below: First-line Second-line Total Average price Treasury shares (numbers in thousands, except where indicated) treasury shares treasury shares treasury shares (in CHF) (in CHF million) Treasury shares - total December 31, ,000-3, Acquisition of treasury shares 2,687 6,072 8, ,128 Outgoing shares (2,700) (2,700) (278) December 31, ,988 6,072 9, ,137 The change in outstanding dilutive instruments is shown in the table below: ESOP RSU PSU Total Issued Equity (numbers in thousands, except %) shares Overhang Dilutive instruments and equity overhang Outstanding dilutive instruments Dec. 31, ,332 2, , , % Outstanding dilutive instruments Dec. 31, ,538 1,981 1,155 7, , % Grants , Exercised / Vesting 2015 (1,648) (1,043) - (2,691) - - Forfeited 2015 (5) (53) (62) (120) - - Outstanding dilutive instruments Dec. 31, ,884 1,523 1,454 5, , % 20

21 ACTELION S COMMITMENT TO VALUE CREATION FOR SHAREHOLDERS Actelion has made further significant progress in delivering on its strategy for value creation. The year s highlights include the continued highly successful Opsumit launch and the FDA approval of Uptravi. The strong commercial performance, combined with tight financial oversight, is reflected in Actelion s share price: with an increase of 21%, the company was one of the top performers on the Swiss Market Index (SMI). Including the dividend, total shareholder return amounted to 22%. Market capitalization at the end of 2015 was 15.9 billion Swiss francs. Variance in % Share price CHF Closing December 31, % High Low VWAP % Market Capitalization CHF millions) 15,932 13,159 21% Average daily volume (thousands) In 2012, Actelion made a commitment to return significant capital to shareholders. The company has fulfilled that promise, with over 2 billion Swiss francs being returned to shareholders in the form of dividends and share repurchase programs over the past four years. The Board of Directors will also propose an increased dividend payment of CHF 1.50 for approval by shareholders at the upcoming General Meeting of Shareholders in May

22 RECONCILIATION US GAAP TO CORE RESULTS FOR THE FULL YEAR 2015 (in CHF millions, except per share amounts) Depreciation, US GAAP amortization and results impairment Stock-based Doubtful debt Milestones or compensation movements contract Accretion expense Core results Net revenue Product sales 2, ,042 Contract revenue (4) - - Total net revenue 2, (4) - 2,042 Operating (expenses) Cost of sales (176) (176) Research and development (464) (404) Selling, general and administration (697) (648) Amortization of acquired intangible assets (53) Total operating (expenses) (1,389) (1,228) Operating results Total financial results (20) (20) Income before income tax benefit (expense) Income tax benefit (expense) (88) (9) (4) (100) Noncontrolling interest (4) - - Net results Diluted net income (loss) per share Weighted-average number of common shares QUARTERLY RESULTS Q Q Q Q (in CHF millions) three months three months three months three months Core operating results Product sales Operating expenses (297) (288) (286) (357) Operating results Financial results (7) (10) (2) (1) Income tax results (26) (22) (24) (28) Net results US GAAP Operating results Net revenue Operating expenses (326) (341) (325) (397) Operating results Financial results (7) (10) (2) (1) Income tax results (24) (18) (23) (22) Noncontrolling interest Net results

23 23

24 INCOME Twelve months ended December 31, (in CHF thousands, except per share amounts) Notes Net revenue Product sales 24 2,041,515 1,956,333 Contract revenue 4/5/24 3,547 1,542 Total net revenue 2,045,062 1,957,875 Operating (expenses) 1 Cost of sales 2 (175,794) (215,465) Research and development (463,842) (437,442) Selling, general and administration (696,650) (672,141) Amortization of acquired intangible assets 13 (53,131) (62,896) Total operating (expenses) (1,389,417) (1,387,944) Operating income 655, ,931 Interest on litigation - (9,814) Interest income (expense), net 9/16 (8,186) (11,768) Other financial income (expense), net 9 (11,977) (11,601) Total financial income (expense) (20,163) (33,183) Income before income tax benefit (expense) 635, ,748 Income tax benefit (expense) 6 (87,547) 57,048 Net income 547, ,796 Less: Net loss attributable to the noncontrolling interests 3,924 - Net income attributable to Actelion's shareholders 551, ,796 Basic net income per share attributable to Actelion's shareholders Weighted-average number of common shares (in thousands) 108, ,208 Diluted net income per share attributable to Actelion's shareholders Weighted-average number of common shares (in thousands) 112, ,228 1 Includes stock-based compensation as follows: Research and development (23,561) (22,470) Selling, general and administration (33,235) (30,258) Total stock-based compensation (56,796) (52,728) 2 Excludes amortization of intangible assets as presented separately. The accompanying notes form an integral part of these consolidated financial statements. 24

25 OF COMPREHENSIVE INCOME Twelve months ended December 31, (in CHF thousands) Net income 547, ,796 Other comprehensive income (loss), net of tax: Foreign currency translation adjustments (28,485) 8,539 Change of unrecognized components of net periodic benefit costs (3,672) (28,340) Reclassification to net income due to settlement of pension plans - 2,633 Amortization of components of net periodic benefit costs 1,875 - Other comprehensive income (loss), net of tax (30,282) (17,168) Comprehensive income 517, ,628 Less: Comprehensive loss attributable to noncontrolling interests 3,924 - Comprehensive income attributable to Actelion's shareholders 521, ,628 The accompanying notes form an integral part of these consolidated financial statements. 25

26 BALANCE SHEETS (in CHF thousands, except number of shares) Notes December 31, 2015 December 31, 2014 ASSETS Current assets Cash and cash equivalents 8/9 404,892 1,204,958 Trade and other receivables, net , ,291 Inventories 11 62,107 60,879 Other current assets 6/9/12 68,828 60,210 Total current assets 963,050 1,726,338 Noncurrent assets Property, plant and equipment, net , ,755 Intangible assets, net , ,899 Goodwill , ,497 Deferred tax assets 6 39,159 62,648 Other noncurrent assets 16,415 15,684 Total noncurrent assets 951,887 1,021,483 TOTAL ASSETS 1,914,937 2,747,821 LIABILITIES Current liabilities Trade and other payables 83,878 74,140 Accrued expenses , ,360 Short-term financial debt ,137 Other current liabilities 2/6/9 34,375 52,950 Total current liabilities 420, ,587 Noncurrent liabilities Pension liability 19 67,204 61,807 Contingent consideration 2 83,759 87,007 Other noncurrent liabilities 6 27,979 13,997 Total noncurrent liabilities 178, ,811 Total liabilities 599, ,398 EQUITY Actelion's shareholders' equity 20 Common shares (par value CHF 0.50 per share, authorized 154,120,627 and 154,125,927; issued 114,128,427 shares in 2015 and 2014, respectively) 57,064 57,064 Accumulated profit 2,636,931 2,359,573 Treasury shares, at cost (1,137,399) (287,701) Accumulated other comprehensive income (loss) 22 (238,795) (208,513) Total Actelion's shareholders' equity 1,317,801 1,920,423 Equity attributable to noncontrolling interests (2,788) - Total equity 1,315,013 1,920,423 TOTAL LIABILITIES AND EQUITY 1,914,937 2,747,821 The accompanying notes form an integral part of these consolidated financial statements. 26

27 OF CASH FLOWS Twelve months ended December 31, (in CHF thousands) Cash flow from operating activities Net income 547, ,796 Adjustments to reconcile net income to net cash provided from operating activities: Depreciation and amortization 89, ,081 Stock-based compensation, incl. treasury shares to members of Board of Directors 57,753 53,608 Excess tax benefits from share-based payment arrangements (13,415) (12,417) Deferred taxes 52,068 (86,570) Deferred revenue (527) (1,552) (Gains) Losses on derivative instruments (24,759) 42,618 Interest expense on bonds and litigation ,398 Accretion expense (benefit) on contingent considerations 387 3,061 Changes in operating assets and liabilities: Litigation provision - (457,700) Trade and other receivables (31,371) 9,958 Inventories (1,609) (7,407) Trade and other payables (5,190) (28,966) Accrued expenses 328 (67,776) Changes in other operating cash flow items (13,967) 6,445 Net cash flow provided by (used in) operating activities 657, ,577 Cash flow from investing activities Cash and cash equivalents released from litigation - 608,698 Purchase of short-term and long-term deposits - (200,000) Proceeds from short-term and long-term deposits - 450,747 Purchase of property, plant and equipment (18,703) (25,039) Purchase of intangible assets (25,277) (4,198) Purchase of other noncurrent assets - (1,794) Acquisition of a business, incl. contingent consideration payments (8,015) (895) Net cash flow provided by (used in) investing activities (51,995) 827,519 Cash flow from financing activities Debt repayment (235,000) - Dividend payment (142,390) (133,389) Payments on capital leases (3) (61) Proceeds from exercise of stock options, net of expense 78, ,710 Purchase of treasury shares (1,111,918) (546,145) Excess tax benefits from share-based payment arrangements 13,415 12,417 Contributions from noncontrolling interests' owners 1,136 - Net cash flow provided by (used in) financing activities (1,395,824) (418,468) Net effect of exchange rates on cash and cash equivalents (9,925) 9,690 Net change in cash and cash equivalents (800,066) 577,318 Cash and cash equivalents at beginning of period 1,204, ,640 Cash and cash equivalents at end of period 404,892 1,204,958 Supplemental disclosures of cash flow information Cash paid during the year for: Interest 11, ,491 Taxes 26,876 40,395 The accompanying notes form an integral part of these consolidated financial statements. 27

28 OF CHANGES IN EQUITY Noncontrolling Actelion's shareholders interests Common shares Additional Accum. other Equity attrib. to (in CHF thousands, except number of shares) Shares Amount paid-in capital Accum. profit Treasury shares comprehensive income (loss) noncontrolling interests Total equity At January 1, ,128,427 60, ,502 1,882,266 (542,558) (191,345) - 1,709,003 Comprehensive income (loss) 1 : Net income , ,796 Other comprehensive income (loss) (17,168) - (17,168) Comprehensive income (loss) ,796 - (17,168) - 576,628 Excess tax benefits from share-based payments , ,403 Transactions in treasury shares (184,414) (17,935) (94,207) - - (296,556) Stock-based compensation expense , ,334 Cancelation of treasury shares 2 - (3,074) (247,436) (98,554) 349, Dividend payment - - (133,389) (133,389) At December 31, ,128,427 57,064-2,359,573 (287,701) (208,513) - 1,920,423 Comprehensive income (loss) 1 : Net income , (3,924) 547,935 Other comprehensive income (loss) (30,282) - (30,282) Comprehensive income (loss) ,859 - (30,282) (3,924) 517,653 Excess tax benefits from share-based payments , ,065 Transactions in treasury shares (6,059,510) - 75,989 (274,501) (849,698) - - (1,048,210) Stock-based compensation expense , ,336 Dividend payment - - (142,390) (142,390) Contributions from owners ,136 1,136 At December 31, ,068,917 57,064-2,636,931 (1,137,399) (238,795) (2,788) 1,315,013 1 Comprehensive income (loss) is presented net of tax. 2 Amounts re-classified to conform with current presentation. The accompanying notes form an integral part of these consolidated financial statements. 28

29 NOTES TO THE (CHF thousands, except share and per share amounts) NOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Actelion Ltd ( Actelion or the Group ), a biopharmaceutical company headquartered in Allschwil, Switzerland, discovers, develops and commercializes innovative low molecular weight drugs for high unmet medical needs. Basis of presentation The Group s consolidated financial statements have been prepared under Generally Accepted Accounting Principles in the United States ( US GAAP ). All US GAAP references relate to the Accounting Standards Codification ( ASC or Codification ) established by the Financial Accounting Standards Board ( FASB ) as the single authoritative source of US GAAP to be applied by non-governmental entities. All amounts are presented in Swiss francs ( CHF ), unless otherwise indicated. In addition, certain prior period amounts within the consolidated financial statements and related notes have been reclassified to conform to the current presentation. Scope of consolidation The consolidated financial statements include the accounts of the Group and its affiliated companies in which the Group has a direct or indirect controlling financial interest and exercises control over their operations (generally more than 50% of the voting rights). Investments in common stock of entities other than subsidiaries where the Group has the ability to exercise significant influence over the operations of the investee (generally between 20%-50% of the voting rights) are accounted for under the equity method Variable interest entities ( VIE ), irrespective of their legal structure, are consolidated if the Group has determined to be the primary beneficiary as defined in the Variable Interest Entities Subsection of FASB ASC ( ASC to 59 ) and thus has the power to direct the activities that most significantly impact the VIE s economic performance and will also absorb the majority of the VIE s expected losses or receive the majority of the VIE s expected residual returns, or both. For determination whether or not an entity is a VIE, the Group considers if the equity at risk for the entity is sufficient to support its operations, if the voting rights of the equity holders are in disproportion to their risk and rewards or if substantially all of the entity s activities are conducted on behalf of the Group. Ownership interests not attributable, directly or indirectly, to the Group and related to entities where the Group exercises control through majority of the voting rights or through contract, is allocated to noncontrolling interests holders and presented separately within the consolidated balance sheets and the consolidated statements of shareholders equity. Net income (loss) and other comprehensive income (loss) of such entities are attributed to the Group and to the noncontrolling interests in proportion to their ownership rights even if that attribution results in a deficit noncontrolling interest balance. Principles of consolidation Businesses acquired or disposed of during the year are included in the consolidated financial statements from the date of acquisition or until the date of disposal. The acquisition method of accounting follows the guidance codified in the Business Combinations Topic of the FASB ASC ( ASC 805 ). Intercompany transactions and balances are eliminated. 29