Analyst Conference Summary


Alexion Pharmaceuticals

conference date: February 16, 2017 @ 7:00 AM Pacific Time
for quarter ending: December 31, 2016 (fourth quarter 2016, Q4)

Forward-looking statements

Overview: Good revenue growth while continuing to develop its pipeline. Authorized a $1 billion stock repurchase plan (which is not what I would do at this point, given the debt and P/E).

Basic data (GAAP):

Revenue was $831 million, up 4% sequentially from $799.1 million and up 19% from $701 million in the year-earlier quarter.

Net income was $93 million, down 1% sequentially from $94.3 million, but up 39% from $67 million year-earlier.

EPS (diluted earnings per share) was $0.41, down 2% sequentially from $0.42 and up 41% from $0.29 year-earlier.


Full year 2017 revenue is expected between $3.4 and $3.5 billion. Of that $3.025 to $3.1 billion will be from Soliris. R&D expense: GAAP 24% to 27% of total revenue; non-GAAP 22% to 23%. SG&A expense 29% to 30% GAAP, 25% to 26% non-GAAP. Operating margin 25% to 28% GAAP, 43% to 44% non-GAAP. EPS GAAP 2.55 to $3.05, non-GAAP $5.00 to $5.25.

Sequential revenue growth to Q1 2017 is expected to be limited.

Conference Highlights:

David Hallal, CEO, said "Our 2017 guidance reflects double-digit revenue and EPS growth as we continue to grow our complement and metabolic franchises, prepare for the potential launches of Soliris in refractory gMG, and focus on our highest priority R&D programs."

Alexion is still searching for a permanent CEO.

Regulatory submissions were filed for Soliris for refractory gMG in Europe and the U.S.

Soliris (eculizumab) sales were $749 million, up 3% sequentially from $728.9 million and up 9% y/y from $689 million year-earlier. The increases were driven by unit volume growth. Believes the majorrity of the global population with PNH have not been diagnosed.

Strensiq (Asfotase Alfa) for HPP (pediatric-onset hypophosphatasia) is approved for sale in the U.S., EU, Japan and Canada. Working towards reimbursement in France, England, and Canada. Strensiq generated $71 million in revenue in the quarter, up 17% sequentially from $60.5 million and up from $12 million year-earlier.

Kanuma (sebelipase alfa) for LAL-D (lysosomal acid lipase deficiency) generated $11 million, up 21% sequentially from $9.1 million. Diagnostic testing is increasing.

There continues to be some negative FX effect.

Non-GAAP numbers: net income was $287 million, up 2% sequentially from $281.3 million and 29% from $240 million year-earlier. Diluted EPS $1.26, up 2% sequentially from $1.23, and 21% from $1.04 year-earlier. Excludes $42 million in share-based compensation, $ million acquisition related costs, $80 million in amortization of purchased intangibles, $85 million for impairment of intangible assets, and other non-cash costs. 42% operating margin.

Cash and equivalents balance $1.29 billion, sequentially from $1.3 billion. Debt $2.9 billion.

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) registrational trial data, presented in December, did not meet its primary endpoint.

NMOSD (Neuromyelitis Optica) continues dosing in a registrational trial with complete enrollment expected in 2017.

The registrational study for Soliris for refractory generalized MG (Myasthenia Gravis) is filing for regulatory approvals in the U.S. and Europe in Q1 2017. The trial had P-values of less than 0.05 in 18 of the 22 pre-specified endpoints, so discussions with the FDA were basically positive.

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

ALXN1007 for inflammatory diseases continued a Phase 2 study for graft-versus-host disease involving the GI tract (GI-GVHD), and now has orphan drug status.

Next generation Soliris therapy ALXN 1210 has begun Phase 3 registrational trials in both PNH and aHUS with dosing every 8 weeks. It is a 26 week study. A subcutaneous formulation is also being tested in healthy volunteers.

The SBC-103 program will be discontinued, resulting in the impairment charge. Dosing escalation completed 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) continued a pivotal study for Molybdenum Cofactor Deficiency Type A (MoCD). The primary endpoint is patient survival and able to sit upright independently for at least 30 seconds at 12 months.

Samalizumab (ALXN6000), an antibody to checkpoint protein CD200, is one arm in a multi-arm trial for acute myeloid leukemia (AML) conducted by the Leukemia and Lymphoma Society. Alexion also started a Phase 1 study for advanced solid tumors.

There are now 10 programs in the clinical stage, All programs target devastating and rare diseases.

See also Alexion pipeline.

GAAP cost of sales was $68 million. R&D expense was $206 million. Sales, General & Administrative expense was $259 million. Amortization of purchased intangibles $80 million. Restructuring expense $1 million. Change in fair value of contingent consideration expense of $5 million. Impairment $85 million for SBC-103. Total operating expenses were $636 million, leaving operating income of $127 million. Interest and other expense was $23 million. Income tax provision was $11 million.


48 to 49% predecessor guidance for 2018 margins? Margin expansion will be driven by te long-term double-digit revenue growth. It is mostly leverage from SG&A, but our R&D spend will depend on opportunities. ALXN1210 is the primary investment, and will be a headwind in 2018.

Effective tax rate? That is hard for anyone to project right now.

1210 IV program will have a robust data set from Phase 2. We will then speak to regulators about a path forward from there.

SBC-103 decision, product specific or for the platform? It was a prioritization decision, we will evaluate the data as we follow the patients. PPU platform has a preclinical pipeline we will continue to look at over the next few years. We saw good heparin sulfate reductions, we don't know how they will affect cognition and brain structure. When we understand that better, it will be possible to prioritize the therapy properly.

Refractory gMG revenue in guidance? We expect to have very little revenue contribution from Soliris for gMG in 2017.

ALXN6000, rational for moving forward? Samalizumab did have an earlier Phase 2 study. CD200 is a key checkpoint protein. We were approached by people from outside the company. We reviewed the data and saw it could play a role in cancer, but the future will be guided by the results of the two Phase 1 studies now in progress.

Kanuma reimbursement in Europe is a country by country process. We did well with this process with Soliris, but it took over a year.

Are Kanuma patients staying on drug? Strensiq patients have a very low dropout rate. Kanuma we are not satisfied with the launch uptake, there needs to be more routine testing, including the DBS test. We are seeing improvement in liver fibrosis with patients.

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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 2017 William P. Meyers