Analyst Conference Summary


Alexion Pharmaceuticals

conference date: January 30, 2014 @ 7:00 AM Pacific Time
for quarter ending: December 31, 2013 (fourth quarter 2013, Q4)

Forward-looking statements

Overview: Very nice revenue and profit traction, if you exclude the income tax provision.

Basic data (GAAP):

Revenue was $441.9 million, up 10% sequentially from $400.4 million and up 38% from $320.5 million in the year-earlier quarter.

Net income was negative $19.0 million, down sequentially from $93.8 million, and down from $81.0 million year-earlier.

EPS (earnings per share) was negative $0.10, down sequentially from $0.47 and down from $0.40 year-earlier.


Full 2014 product sales are expected between $2.0 and $2.02 billion. Non-GAAP EPS expected between $3.70 and $3.80.

R&D expense for 2014 between $360 and $380 million to pursue the broadest pipeline in Alexion's history.

Sequential growth in Q1 is likely to be less than sequential growth in Q4. In Q1 GAAP will include $100 million related to Moderna, which will be excluded from non-GAAP.

Non-GAAP tax rate 10% to 11% in 2014. Once tax credits are used the rate will rise to 16% to 18% by 2016.

Conference Highlights:

Soliris sales were $441.9 million, up 38% from $320.5 million in Q4 2012, reflecting steady additions of PNH (paroxysmal nocturnal hemoglobinuria) and aHUS (atypical hemolytic uremic syndrome) patients. Turkey, Russia and Brazil are the current focus of new patient adds. Believes aHUS number of patients should be at least as high as the number of PNH patients. Japan will launch for aHUS in 2014.

Non-GAAP numbers: net income was $177.7 million, up 5% sequentially from $167.9 million and up 45% from $122.3 million year-earlier. EPS $0.87, up 45% from $0.60 year-earlier. Excludes $19.8 million in share-based compensation, $33.5 million impairment of early-stage assets, $145.3 million in non-cash taxes, and $2 million in acquisition and amortization costs.

Cash and equivalents balance $1.5 billion, up sequentially from $1.3 billion.

Alexion continues to develop therapies with Soliris for AMR (Antibody-Mediated Rejection), DGF (Delayed Graft Function), NMO (Neuromyelitis Optica) and MG (Myasthenia Gravis). All are enrolling patients in studies.

Alexion is also developing three other treatments for ultra-rare diseases: Asfotase Alfa for HPP (pediatric-onset hypophosphatasia), which should file for marketing approval in 2014; ALXN 1101 for MoCD (Molybdenum Cofactor Deficiency) Type A; and ALXN 1007 for inflammatory diseases.

Two next-generation Soliris derivatives should start trials in 2014.

Between 2014 and 2018 Alexion could have as many as 7 product approvals.

After the quarter ended Alexion announced it is establishing messenger RNA (mRNA) research capabilities through an exclusive research agreement with Moderna Therapeutics.

GAAP cost of sales was $51.6 million. R&D expense was $85.8 million. Sales, General & Administrative expense was $134.8 million. Acquisition benefit of $1.9 million. Impairment of intangible assets $33.5 million. Amortization was $0.1 million. Total operating expenses were $252.3 million, leaving operating income of $138.1 million. Interest and other expense was $0.1 million. Income tax provision was $157.0 million.

The income tax chunk, included in GAAP but excluded from non-GAAP net income, resulted from consolidation of global supply chain and business operations to Ireland. This should result in long-term benefits.


Transfer to Ireland, will you be domiciled there? Over 20 years the focus has been on patient care. As a worldwide organization we need operational facility. We developed our supply chain facility in Ireland in 2013. Now business operations also moved to Irish affiliate. Increased efficiency will allow us to expand our research. The tax guidance reflects the changes we made. The Irish affiliate will hold certain of our IP rights. At the end of 2013 we have just $9 million in NOLs (net outstanding losses, for tax reduction purposes) and $190 million in foreign tax credits remaining. The cash can be domiciled in Ireland, but for stock buybacks we will have adequate cash in the U.S.

Asfotase manufacturing process? We have made a fair amount of progress on manufacturing.

aHUS as a percent of sales? The bump up in US sales between 2011 and 2012 could be used as a proxy for aHUS vs. PNH. Outside the U.S. we have not had a full year of sales for aHUS in any given country. We believe the incidence of aHUS is higher than the incidence of PNH.

mRNA delivery? Most rare diseases are related to defective proteins, so the mRNA platform is a good fit for Alexion. There are scores of ultra-rare diseases that might be subject to this. It is all very testable. The mRNA is injected. It is a very exciting technology.

FX in 2014? From Q3 to Q4 there was pressure on the yen, offset by the euro. Q4 to Q1 we will see pressure from the commodity currencies.

aHUS education? Our compliance rate is solid, but less than for PNH. We released 3 year data at ASH, which gives doctors comfort on keeping patients TMA free and with good renal function.

There are not that many aHUS adults, they typically die young. But in any 12 months period there would be more new patients with symptoms of aHUS than with PNH. It does not necessarilly mean the disease or their symptoms are new; it is being newly-identified. The long term outcomes with Soliris are good, the outcome is not death, so the number of patients will start rising.

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Disclaimer: My analyst call summaries may include both our condensations of statements made by company representatives and my own analysis. They are not covered by any warranty. I cannot guarantee anything said by company representatives is true. I try not to make errors, but it is possible. Before making or terminating an investment you should always verify any factual basis of your decision.

Copyright 2014 William P. Meyers