Analyst Conference Summary


Alexion Pharmaceuticals

conference date: April 28, 2016 @ 7:00 AM Pacific Time
for quarter ending: March 31, 2016 (first quarter 2016, Q1)

Forward-looking statements

Overview: Slow launches of Strensiq and Kanuma caused margin deterioration. Nudged 2016 guidance towards low end of prior range. Exchange rates added hurt. Share count increase hurt EPS.

Basic data (GAAP):

Revenue was $701.0 million, flat sequentially from $700.9 million and up 17% from $600.3 million in the year-earlier quarter.

Net income was $92.2 million, up 38% sequentially from $66.6 million, and up 1% from $91.3 million year-earlier.

EPS (diluted earnings per share) was $0.41, up 41% sequentially from $0.29 and down 9% from $0.45 year-earlier.


Slight shift in full year 2016 revenue guidance to low end of $3.05 billion to $3.1 billion as expects slightly less Soliris and more metabolic revenue. Also sees high end of prior operating expense range. Non-GAAP EPS range now seen at low end of $5.00 to $5.20.

Q2 2016 revenue is expected between $735 to $745 million. Q2 expenses will be higher sequentially. Non-GAAP EPS $1.12 to $1.15.

Conference Highlights:

Kanuma launched in the U.S. in January. Received Japanese marketing authorization; first patients in Q3. Except for Germany, first European patients will be in H2.

Foreign exchange rates had a negative 5% effect on y/y revenue growth. Unit volume increased by 24%.

Soliris (eculizumab) sales were $664.7 million, down 4% sequentially from $689 million and up 11% y/y from $600.3 million. Volume was up 23% y/y, but there was a negative impact from currency exchange rates. AHUS rollout continued, but new PNH adds continued as well. Core business growth was offset by weakness in Latin America.

Strensiq (Asfotase Alfa) for HPP (pediatric-onset hypophosphatasia) was approved for sale in the U.S., EU, Japan and Canada. The label is broad. Strensiq generated $33.2 million in revenue in the quarter, up sequentially from $11.6 million. Given the low incidence and high mortality from HPP, the build will be relatively slow and country by country, starting with Germany in Europe. Working to get faster and more accurate diagnosis.

Kanuma (sebelipase alfa) for LAL-D (lysosomal acid lipase deficiency) was approved by the FDA in Q4 and in the EU in Q3. It generated $2.5 million, up sequentially from $0.3 million. Identifying patients required improving diagnostics; is already getting a higher rate of diagnosis. Believes most patients will be in the U.S. and Germany in 2016. Believes there are 8 to 12 patients per million in the general population.

Non-GAAP numbers: net income was $253.8 million, down 2% sequentially from $259.9 million and down 3% from $262.0 million year-earlier. Diluted EPS $1.11, down 2% sequentially from $1.13, and down 13% from $1.28 year-earlier. Excludes $56.9 million in share-based compensation, $1.3 million acquisition related costs, $80.1 million in amortization of purchased intangibles, $0.7 million for restructuring,$15.5 million in upfront and milestone payments, $14.8 million change in fair value of contingent consideration benefit, and $33.8 million in non-cash taxes.

Cash and equivalents balance $1.3 billion, down sequentially from $1.385 billion.Debt $3.3 billion. 2 million shares were bought back. Cash flow from operations was not stated.

Alexion continues to develop therapies with Soliris. Soliris for AMR (Antibody-Mediated Rejection) enrollment is complete for both living donors and deceased donors. Preliminary data will be reported at the American Transplant Congress.

Soliris for DGF (Delayed Graft Function) trial is enrollment is complete with data expected before the end of 2016.

NMO (Neuromyelitis Optica) continues dosing in a registrational trial with complete enrollment expected in 2016.

The registrational study for refractory MG (Myasthenia Gravis) is has completed enrollment, with data due in mid-2016.

Alexion is also developing other treatments for ultra-rare diseases. ALXN 1101 for MoCD (Molybdenum Cofactor Deficiency) Type A Phase 3 registrational study is in progress.

ALXN1007 for inflammatory diseases continued a Phase 2 study in patients with APS (antiphospholipid syndrome). A Phase 2 study for graft-versus-host disease involving the GI tract (GI-GVHD), released interim data in Q4 showing an overall response rate of 80%.

ALXN1210 for PNH completed enrollment in a Phase 1/2 trial and reported rapid reduction of free C5. More detailed data later this year. Hopes for approval in 2018.

Next generation Soliris therapies ALXN 1210 completed a Phase 1 study. A proof of concept study for PNH should initiate this quarter.

SBC-103 enrollment continued in a Phase 1/2 trial of SBC-103, an enzyme replacement therapy for patients with mucopolysaccharidosis IIIB, or MPS IIIB. Preliminary data in Q4 of 2015 showed dose-dependent reduction in heparan sulfate levels.. Enrollment in a natural history study was also completed. Data released showed the drug could pass the blood brain barrier after IV injection.

cPMP Replacement Therapy (ALXN 1101) completed enrollment in the synthetic cPMP bridging study in patients with molybdenum cofactor deficiency (MoCD) Type A and enrollment in a natural history study is ongoing. The Company initiated a pivotal study with ALXN 1101.

There are now 30 programs in the pre-clinical stage. Seven Moderna mRNA programs are part of that. All programs target devastating and rare diseases. The first of these programs should enter the clinic in 2016.

See also Alexion pipeline.

GAAP cost of sales was $59.0 million. R&D expense was $176.3 million. Sales, General & Administrative expense was $232.6 million. Acquisition related expense $1.3 million. Amortization of purchased intangibles $80.1 million. Restructuring expense $0.7 million. Change in fair value of contingent consideration benefit of $14.8 million. Total operating expenses were $476.2 million, leaving operating income of $165.8 million. Interest and other expense was $22.2 million. Income tax provision was $51.4 million.

Believes that after 2016 EPS growth will accelerate driven by current therapies and expanding operating margins to 48% to 49% by 2018.


Quantify Latin America impact? New patient starts and patient interruptions were clearly caused by macroeconomic situation. Earlier weakness in Brazil broadened to other countries and continues to trend that way. Also FX is affected by weakness there.

Is 1210 recruitment hurting you with Soliris? Most PNH patients have not been diagnosed, much less initiated treatment. We want to develop 1210 as rapidly as possible.

Long term R&D spending plans? This year we are guiding to the upper end of the range, by 2018 we want to be down to 18% to 19% of revenue. Part of the effect is from FX.

Has the low end of 2016 guidance captured all the potential downside in Latin America? We see risk in Brazil and Argentina, which has a major currency revaluation. We are assuming no new patients in Brazil, and some ongoing patient interruptions. But political issues are beyond are ability to forecast. All in all took 2% to 3% off our y/y overall growth rate.

Myasthenia Gravis, if you get approval would uptake be steeper since the patients are identifiable by definition? MG in general is a more common disease (but still ultra-rare), we are targetting the more severely affected patients. So the dynamics of uptake might be different. We have to see the data first.

From Q4 to Q1 we had a negative FX effect of about $6 million.

Strensiq uptake is driven by patients. First conversions from clinical trials to commercial supply. Second, patients identified prior to approval. Third, new diagnoses from our new initiatives. It is early days and initial countries. Most clinical trial patients for Strensiq were outside the U.S. 2015 we did not get a price increase, usually is 2% to 3%. This year we will get a 2% price increase.

Strensiq potential patient numbers? In Japan there might be less of a prevalent pool because the HPP mutation has been mostly lethal there. But there are some children and even adults with pediatric onset HPP. We are extending our disease awareness and diagnostic initiatives.

Kanuma launch strategy? We have a single metabolic field team which we expanded before the two launches. We want to reach more physicians and promote the diagnostic pathway. We are recruiting diagnostic specialists to add to the team for the individual diseases. There is an opportunity to reach far more patients, for both diseases.

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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. This is financial journalism, not advice.

Copyright 2016 William P. Meyers