Analyst Conference Summary


Alexion Pharmaceuticals

conference date: July 28, 2016 @ 7:00 AM Pacific Time
for quarter ending: June 30, 2016 (second quarter 2016, Q2)

Forward-looking statements

Overview: Solid revenue growth, with Soliris slowing down but Strensiq picking up the slack. Lowered non-GAAP EPS guidance and had lower non-GAAP EPS in the quarter because of a new accounting rule for non-cash tax treatment.

Basic data (GAAP):

Revenue was $753.1 million, up 7% sequentially from $701.0 million and up 18% from $636.2 million in the year-earlier quarter.

Net income was $114.9 million, up 25% sequentially from $92.2 million, but down 32% from $170.2 million year-earlier.

EPS (diluted earnings per share) was $0.51, up 24% sequentially from $0.41 and down 39% from $0.83 year-earlier.


Tweaked guidance, mainly upped metabolic revenue to $200 to $220 million. Left total 2016 revenue at $3.05 to $3.10 billion, but removed the adjective "low end of." Non-GAAP EPS lowered to $4.50 to $4.65, mainly due to a higher effective tax rate, and gave GAAP EPS as $1.91 to $2.26.

$1.14 to $1.18 non-GAAP diluted EPS expected in Q3.

Conference Highlights:

Kanuma received Japanese marketing authorization; first patients in Q3. Except for Germany, first European patients will be in H2.

23% volume growth y/y.

The lower non-GAAP EPS for the quarter and in guidance results from a new accounting rule about non-cash taxes. The amount of cash taxes paid will not change. The amount no longer includes NOLs and tax credits. 16% non-GAAP income tax rate, up from about 7%, entirely due to the accounting change.

Soliris (eculizumab) sales were $701 million, up 5% sequentially from $664.7 million and up 10% y/y from $636 million. Volume was up 15% y/y, but there was a negative impact from currency exchange rates. AHUS rollout continued, but new PNH adds continued as well. Revenue growth was driven by volume, not price increases. FX had a negative effect, so volume was up more than revenue.

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 $45.1 million in revenue in the quarter, up 36% sequentially from $33.2 million. Given the low incidence and high mortality from HPP, the build will be relatively slow and country by country, starting with Germany and then France. Working to get faster and more accurate diagnosis.

Kanuma (sebelipase alfa) for LAL-D (lysosomal acid lipase deficiency) generated $6.4 million, up sequentially from $2.5 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 $257.8 million, up 2% sequentially from $253.8 million and down 4% from $268.8 million year-earlier. Diluted EPS $1.13*, up 2% sequentially from $1.11, and down 13% from $1.30 year-earlier. Excludes $48 million in share-based compensation, $2.2 million acquisition related costs, $80 million in amortization of purchased intangibles, $0.5 million for restructuring, $0 million in upfront and milestone payments, $5.2 million change in fair value of contingent consideration benefit, and $6.8 million in non-cash taxes. *under the prior accounting rule, would have been $1.25 per share.

Cash and equivalents balance $1.18 billion, down sequentially from $1.3 billion. Debt $3.3 billion. Did not state how much stock was bought back in the quarter, but that 3.8 million shares have been purchased in the current program, and $425 million in authorization remains.

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 data described as leaving open the possibility of approval, "despite the narrow primary endpoint miss." 18 of the 22 prespecified analysis had passable P-values.

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 at EHA showing an overall response rate of 77%.

ALXN1210 for PNH completed enrollment in a Phase 1/2 trial and reported rapid reduction of free C5 and LDH. More detailed data later this year. 2 studies are now ongoing. 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.

Dosing continued in a Phase 1/2 trial of SBC-103, an enzyme replacement therapy for patients with mucopolysaccharidosis IIIB, or MPS IIIB.

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 continued a pivotal study with ALXN 1101.

There are now 30 programs in the pre-clinical stage, 4 of which are expected to enter the clinic this year. Seven Moderna mRNA programs are part of that. All programs target devastating and rare diseases.

See also Alexion pipeline.

GAAP cost of sales was $60.6 million. R&D expense was $179.3 million. Sales, General & Administrative expense was $231.8 million. Acquisition related expense $1 million. Amortization of purchased intangibles $80 million. Restructuring expense $0.5 million. Change in fair value of contingent consideration benefit of $5.2 million. Total operating expenses were $497.8 million, leaving operating income of $194.7 million. Interest and other expense was $24.8 million. Income tax provision was $55.0 million.

By 2018 plans to expand the operating margin to 48% to 49%.


ALXN1210 when will pivotal trial design be known, and will it take patients from Soliris? We have almost 40 patients in the current PNH studies. The target for approval is 2018. When we know the size and scope of the pivotal trial we can estimate how many Soliris customers we might switch to it.

Reaching 2018 margin goals? That is largely from the growth of revenue while keep costs growing at a lower rate. We will do it one quarter at a time. We expanded the margin 2% from Q1 to Q2. We already created the organization to sell the two new products, so we should get leverage as sales ramp.

C5 patent recently issued? 2020 expiration of Soliris patent? We have a strong position in Soliris IP, we continue to file for additional patents for manufacturing, new indications, etc. We believe we are in a strong position in the decade and well into the next. 1210 is a highly-innovative molecule.

1210 longer treatment intervals, maximum of that? We see the half life of 1210 to be about 3x Soliris. At monthly dosing 100% of patients had a strong response to 1210. We think it can be a longer interval, towards the end of 2016 we should have an update.

We should be able to give an update on DGF before the end of the year. Timing for Europe and the U.S. may differ. We think the data is compelling, so it is too early to talk about a possible additional trial.

Strensiq patient add rate going forward? Pleased so far. Q2 adds came from out emphasis on detection. Almost all U.S., Japan, and Germany so far. As more countries add funding, we should see further growth. France looks like it is on track.

Small molecules for C5 complement? We have 8 complement inhibitors in various stages of development. C5 blockade chemistry knowledge is critical. Pathways are important; Soliris leaves immune pathways intact. You need safety and efficacy, so the hurdle is high for new molecules.

Strensiq reimbursement conversations? We are seeing consistent patient identification. We believe we will get funding in additional countries the second half of this year and then in 2017. We have strong labels, the ASMR2 rating in France, which should help us win reimbursement.

PNH patients being enrolled in so many competitors' trials, especially beyond 2018? Could be, we take it seriously, but we know where the patients are and the doctors who treat them. So that also helps us with 1210 patient recruitment. We believe there are many more global PNH and aHUS patients who are not being treated. 1210 will drive because of its ease of treatment. 1210 is suitable for subcutaneous development.

NMO size of opportunity? We are going for the severe subset of the NMO population. The study should complete in the end of 2016 with results out in 2017.

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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