Analyst Conference Summary

Biotechnology

Alexion Pharmaceuticals
ALXN

conference date: February 4, 2019 @ 5:00 AM Pacific Time
for quarter ending: December 31, 2018 (fourth quarter 2018, Q4)


Forward-looking statements

Overview: Strong y/y revenue growth, fair 2019 guidance. But a GAAP loss due to a $379 million acquired R&D expense charge.

Basic data (GAAP):

Revenue was $1.13 billion, up 10% sequentially from $1.03 billion and up 24% from $910 million in the year-earlier quarter.

Net income was negative $45 million, up sequentially from negative $331 million, and down from $30 million year-earlier.

EPS (diluted earnings per share) was negative $0.20, up sequentially from negative $1.47 but down from $0.35 year-earlier.

Guidance:

Full year 2019 revenue expected between $4.63 and $4.70 billion. R&D expense 17% to 18% GAAP, 16% to 17% non-GAAP. SG&A expense 23% to 24% GAAP, 20% to 21% non-GAAP. Operating margin $36% to 43% GAAP, 54% to 55% non-GAAP. EPS diluted $6.14 to $7.26 GAAP, $9.10 to $9.30 non-GAAP.

Conference Highlights:

Ludwig N. Hantson, Ph.D., CEO, said: "I am proud of our many accomplishments, including entering rare neurology and making Soliris for gMG Alexion's best launch ever, completing the Phase 3 program and launching Ultomiris for PNH in the U.S., delivering groundbreaking Phase 3 data and submitting regulatory filings for Soliris in NMOSD and rebuilding our pipeline through disciplined business development, all while continuing to grow our base business. As we look at 2019 and beyond, I am confident that this strong foundation positions us well to achieve our Four Pillars of growth, building durable, blockbuster franchises in PNH/aHUS, metabolics, neurology and FcRn."

The company delivere on key objectives for 2018: growing income in established lines, launching Soliris for gMG, ultomiris development and first approval, advancing the pipeline, and achieving over 50% non-GAAP operating margin. Prices declined 5% y/y for Q4.

Key objectives for 2019 are: Ultomiris conversion in PNH; ALXN1210 aHUS filing; neurology pipeline acceleration; metabolic portfolio development; general pipeline expansion; hit financial goals.

The Syntimmune agreement, announced in September, would add SYNT001 in Phase 1b/2a for WAIHA (warm autoimmune hemolytic anemia), PV pemphigus vlugaris, and PF (pemphigus foliaceus). Pivotal trials should be initiated in 2019.

In January 2019, Alexion entered into a collaboration with Caelum Biosciences to develop CAEL101 for AL amyloidosis. CAEL101 is a first-in-class amyloid fibril targeted therapy designed to improve organ function by reducing or eliminating amyloid deposits in patients with AL amyloidosis. In a Phase 1a/1b study, CAEL101 demonstrated improved organ function, including cardiac and renal function.

Soliris (eculizumab) for PNH, gMG, and aHUS sales were $977 million, up 10% sequentially from $888 million and up 23% y/y from $792 million year-earlier. gMG is best Soliris launch to date.

Strensiq (Asfotase Alfa) for HPP (pediatric-onset hypophosphatasia) generated $126 million in revenue in the quarter, up 12% sequentially from $113 million and up 31% from $96 million year-earlier.

Kanuma (sebelipase alfa) for LAL-D (lysosomal acid lipase deficiency) generated $26 million, up 4% sequentially from $25 million and up 18% from $22 million year-earlier.

Non-GAAP numbers: net income was $486 million, up 6% sequentially from $460 million and up 44% from $338 million year-earlier. Diluted EPS $2.14, up 6% sequentially from $2.02, and up 45% from $1.48 year-earlier.

Cash and equivalents balance $1.6 billion, up sequentially from $1.53 billion. Debt $2.5 billion. Not Stated free cash flow.

Full year 2018 revenue was $4.13 billion, up from $3.55 billion in 2017. GAAP net income was $78 million, down from $443 million, with EPS of $0.35, down from $1.97. Non-GAAP EPS wss $7.92, up from $5.86 in 2017.

NMOSD (Neuromyelitis Optica) Soliris Phase 3 trial reported postive results in September.

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 continues a Phase 2 study for graft-versus-host disease involving the GI tract (GI-GVHD). It has orphan drug status.

Next generation "crown jewel" therapy Ultomiris, formerly ALXN 1210 (ravulizumab-cwvz): In December 2018, the FDA approved Ultomiris for adults with PNH (Paroxysmal Nocturnal Hemoglobinuria). Applications in the EU and Japan are under review. A Phase 3 study of Ultomiris in children and adolescents with PNH is currently underway.In January 2019, Alexion announced positive topline results from a Phase 3 study of Ultomiris in complement inhibitor naïve patients with aHUS. The study met its primary objective with 53.6 percent of patients demonstrating complete thrombotic microangiopathy (TMA) response. The safety profile was good. Alexion plans to file for regulatory approval in the U.S. in the first half of 2019 followed by the EU and Japan. In addition, a Phase 3 study of Ultomiris in adolescents and children with aHUS is currently underway. In late 2018,Alexion initiated a single, PK-based Phase 3 study of ULTOMIRIS delivered subcutaneously once per week to support registration in PNH and aHUS. Data are expected in early 2020. Alexion plans to initiate a Phase 3 study of Ultomiris in gMG in the first quarter of 2019. Alexion plans to initiate a Phase 3 study of Ultomiris in NMOSD.

Alexion believes 70% of patients can be converted to Ultomiris within 2 years of launch.

ALXN1840 (formerly WTX101) for Wilson disease is in Phase 3. There are about 10,000 potential patients in both the U.S. and in Europe.

ALXN1810 is in Phase 1. It is ALXN1210 delivered subcutaneously.

See also Alexion pipeline.

GAAP cost of sales was $97 million. R&D expense was $206 million. Sales, General & Administrative expense was $319 million. Amortization of purchased intangibles $80 million. Acquired R∓D expense $379 million. Change in fair value of contingent consideration expense of $6 million. Total operating expenses were $988 million, leaving operating income of $44 million. Interest and other expense was $76 million. Income tax was $12 million.

Q&A summary:

Merger and acquisition environment? In 2017 we changed our strategy, and we have overdelivered on that. We are moving from ultra-rare to rare. 2018 shows how we think about M&A. We will continue to focus on clinical stage assets.

Strensiq price effect? This has been evolving about 14 months. We are looking for a sustainable pricing strategy for adults, putting some rebates in place. We have a 2% price headwind for the company overall.

Guidance, Soliris, competitors? There is the price impact. Foreign exchange could be a $60 million headwind, depending. We have an estimate of the impact of competitor trials, but we don't give a number. We are switching to distributors for some smaller international markets, so a $25 million headwind. We expect steady growth in mg.

EU Soliris sales by nation? Germany is the lion's share. The big five make up north of 2/3 of the business. We have penetration in other companies. Our launch goals for Ultomiris are the same as in the U.S., with Germany being the only launch in 2019.

1210 aHUS patient characteristics? We were pleased with the data. These are very sick patients. It is difficult to make cross-study comparisons. The Soliris trials were done a decade ago. The new trials were older and sicker, including biomarkers.

Pricing Ultomiris in Europe? We maintain a narrow pricing band globally, near Soliris pricing. We need to wait for the EU approval.

Biosmilar competition? We don't see that within 3 years, by then we will be mostly converted to Ultomiris.

NMOSD number in U.S.? 4 to 5 thousand addressable patients. They have active disease, tested positive for the antibody, and already in some form of treatment. It is all about the relapse, which terrorizes patients. Most are in NMOSD centers of excellence.

Ultomiris payer discussion in US? Quite encouraging so far, but will take longer to get policy determination. Recognizes value at the payer level, and they like our pricing decision.

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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 2019 William P. Meyers