Analyst Conference Summary

Biotechnology

conference date: April 23, 2015 @ 7:00 AM Pacific Time
for quarter ending: March 31, 2015 (first quarter 2015, Q1)

Forward-looking statements

Overview: Revenues continue to ramp, but profits down from increased operating costs.

Basic data (GAAP):

Revenue was $600.3 million, up slightly sequentially from $599.5 million and up 6% from $566.6 million in the year-earlier quarter.

Net income was $91.3 million, down 40% sequentially from $153.3 million, and down 43% from $159.4 million year-earlier.

EPS (diluted earnings per share) was $0.45, down 41% sequentially from $0.76 and down 43% from $0.79 year-earlier.

Guidance:

Full 2015 product sales are expected between $2.55 and $2.6 billion despite an approximately 6% negative impact from foreign exchange rates. This includes a small contribution from Strensiq.

Non-GAAP earnings per share estimated at $5.60 to $5.80.

Guidance assumes current exchange rates will be stable for the rest of the year.

For Q2 2015 revenue is expected between $625 and $630 million.

Conference Highlights:

Soliris (eculizumab) sales were $600.3 million, flat sequentially from $599.5 million and up 6% from year-earlier. However, excluding revenue recognized in Q1 2014 related to earlier sales, sales were up 25% y/y. In Q1 continued to identify new, previously undiagnosed PNH patients. The aHUS global launch continues. The Soliris label for aHUS was strengthened in Europe.

Strensiq (Asfotase Alfa) for HPP (pediatric-onset hypophosphatasia) is under regulatory review in the U.S.A., Europe and Japan; launches are possible this year, possibly as early as Q2, with FDA approval likely in second half of 2015. A Strensiq manufacturing campaign added $24.4 million to operating costs in the quarter.

In addition "we are developing the broadest pipeline in our history, with three ongoing registration trials with eculizumab, four additional highly innovative molecules in clinical development, and our recently strengthened portfolio of seven complement inhibitors progressing through research and development,” according to CEO David Hallal.

There were unusual expenses in the quarter of $112.0 million related to three strategic license agreements.

Non-GAAP numbers: net income was $262.0 million, down 2% sequentially from $266.0 million and down 16% from $312.6 million year-earlier. Diluted EPS $1.28, down 2% sequentially from $1.30, and down 16% from $1.53 year-earlier. Excludes $42.8 million in share-based compensation, $12.0 million acquisition related costs, the $112.5 million milestone expense, $7 million for restructuring, and a benefit of $3.8 million in non-cash taxes. Non-GAAP numbers did include the $24.4 million expense for Strensiq manufacturing.

Cash and equivalents balance $1.92 billion, down sequentially from $1.96 billion. Long term debt $45 million. Cash flow from operations was positive, but offset by the upfront payments totaling $112.0 million. $60.0 million was used to repurchase shares in the quarter.

Alexion continues to develop therapies with Soliris. Soliris for AMR (Antibody-Mediated Rejection) with enrollment 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 enrolling. NMO (Neuromyelitis Optica) continues dosing in a registrational trial. The registrational study for refractory MG (Myasthenia Gravis) is enrolling.

Alexion is also developing other treatments for ultra-rare diseases. ALXN 1101 for MoCD (Molybdenum Cofactor Deficiency) Type A natural history study and synthetic cPMP bridging study are ongoing, with completion of enrollment expected in 2015.

ALXN 1007 for inflammatory diseases continued a Phase 2 study in patients with APS (antiphospholipid syndrome). 1007 is also in a Phase 2 study for graft-versus-host disease involving the GI tract (GI-GVHD), which should have interim data this year.

Next generation Soliris therapies ALXN1210 and ALXN5500 were advanced into Phase 1 studies.

There are now 17 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.

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

GAAP cost of sales was $69.4 million. R&D expense was $221.1 million. Sales, General & Administrative expense was $187.1 million. Acquisition related expense $12.0 million. Restructuring expense $7.0 million. Total operating expenses were $427.2 million, leaving operating income of $103.7 million. Interest and other income was $3.2 million. Income tax provision was $15.6 million.

Q&A:

Strensiq timeline? We have completed the rolling BLA submission, and were granted priority review last month. We have an ongoing and productive discussion with the FDA. We expect a very strong label. The FDA has made it known to us that they do not expect to have a panel. Adding data is part of the normal process.

Differentiation of new complement-mediated therapies? We had a 100% objective response to Soliris in trials. Thinking about many different patients with many different disorders, we want to provide optionality for them.

Strensiq diagnostics and early access programs? Teams are in place and ready to go in the U.S., Japan and Germany. We are educating doctors about HPP. There is a simple test to identify the patients. Our 1010 trial for children is still open, which helps us give access to patients.

PNH identification ratio in U.S.? We are approaching the point of identifying about half the patients in the U.S., less globally. PNH symptoms resemble other bone-marrow disorders, so there are still unidentified patients. We see a continued slow build in numbers of patients.

aHUS discontinuation rate? For those confirmed with a aHUS diagnosis the consistency has been good, but not as good as the continuation rate in PNH. A key part of our education is that aHUS is a genetic lifetime disease, not an episodic one like some varieties of HUS. We have data showing that patient who stop Soliris can have severe outcomes. We would expect some increase in utilization in PHN and aHUS due to the label expansions.

Three strategic license therapies? Just gave generalizations about fitting into the Alexion strategy.

$24.4 million for manufacturing Strensiq? We do not expect that to repeat. Normally we would have put it in R&D, but it is investment post-submission. It resulted from a problem, we fixed it and took the write-off.

Pricing in 2015 guidance? We had a 1% pricing increase in Q1, from a pricing increase in the U.S. less a decrease in the U. K. But we normally take a 2% to 3% decline y/y.

Balance sheet? Our main objective is to strengthen the pipeline. We buy back stock to keep dilution in check. We have no plans to buy back a large number of shares.

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