Analyst Conference Summary

Biotechnology

conference date: October 23, 2014 @ 7:00 AM Pacific Time
for quarter ending: September 30, 2014 (third quarter 2014, Q3)

Forward-looking statements

Overview: Continued strong y/y revenue growth, with new products on their way.

Basic data (GAAP):

Revenue was $555.1 million, up 8% sequentially from $512.5 million and up 39% from $400.4 million in the year-earlier quarter.

Net income was $177.7 million, up 7% sequentially from $166.5 million, and up 89% from $93.8 million year-earlier.

EPS (diluted earnings per share) was $0.88, up 6% sequentially from $0.83 and up 87% from $0.47 year-earlier.

Guidance:

Full 2014 guidance was revised upward. Revenue now expected between $2.220 and $2.225 billion. Non-GAAP EPS $5.15 to $5.20. Tax rate about 7.5%.

Conference Highlights:

Soliris (eculizumab) sales were $551.1 million, up 8% sequentially from $512.2 million and up 39% from Q3 2013. There have been stead additions of both PNH (paroxysmal nocturnal hemoglobinuria) and aHUS (atypical hemolytic uremic syndrome) patients.

Believes can continue to drive PNH and aHUS patient additions by educating physicians worldwide on recognizing the diseases. A majority of patients have not been diagnosed. Believes aHUS patients will be eventually enrolled than PNH.

In England NICE finally recommended funding for aHUS. Expects Italian reimbursement process to complete by the end of the year. Progress is good in Turkey and Russia.

The juvenile-onset HPP natural history study was completed in the quarter, enabling a BLA submission to the FDA. Asfotase Alfa for HPP (pediatric-onset hypophosphatasia) launches should occur in 2015. The HPP sales team has already begun education efforts. NDA for asfotase alpha was filed in Japan.

Non-GAAP numbers: net income was $258.3 million, up 13% sequentially from $229.1 million and up 54% from $167.9 million year-earlier. Diluted EPS $1.27, up 13% sequentially from $1.12, and up 53% from $0.83 year-earlier. Excludes $28.4 million in share-based compensation, $8.3 million acquisition related costs, and $43.9 million in non-cash taxes.

Cash and equivalents balance $1.78 billion, up sequentially from $1.59 billion. Long term debt $22 million. Cash flow from operations was . $104.6 million was used to repurchase shares in the quarter.

Alexion continues to develop therapies with Soliris for AMR (Antibody-Mediated Rejection) with enrollment complete for both living donors and deceased donors. DGF (Delayed Graft Function) trial is enrolling. NMO (Neuromyelitis Optica) continues dosing in a registrational trial. The registrational study for refractory MG (Myasthenia Gravis) was 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.

ALXN 1007 for inflammatory diseases commenced a Phase 2 study in patients with APS (antiphospholipid syndrome). Also starting a graft-versus-host disease involving the GI tract (GI-GVHD) before the end of the year.

See also Alexion pipeline.

Two next-generation Soliris derivatives have finished pre-clinical development programs and are initiating clinical programs.

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

GAAP cost of sales was $51.9 million. R&D expense was $100.7 million. Sales, General & Administrative expense was $157.7 million. Acquisition related expense $8.3 million. Total operating expenses were $266.6 million, leaving operating income of $236.7 million. Interest and other expense was $0.5 million. Income tax provision was $58.5 million.

SG&A and R&D expense in Q4 are expected to be up sequentially due to seasonal effects. This is reflected in full year 2014 guidance. In 2015 the pre-tax operating margin should be relatively flat from 2014.

After 2014, with the exhaustion of tax credits, the tax rate will increase to 13 to 14% in 2015, and gradually rise through 2016.

Q&A:

Next gen Soliris candidates? Not at clinicaltrials.gov yet. These are voluntary trials. We will give updates as that becomes possible.

Asfotase timing of natural history study data release? Study confirmed what we had seen before, the serious morbidity associated with HPP, including physical dysfunction. We will release this and other HPP trial data at the usual conferences.

Finding unidentified HPP patients? It is a broad audience that would see patients with HPP. We are studying the various specialties (listed many).

aHUS patients, continuous use vs. gaps? Compliance is good, but less than we had observed with PNH. But the ramp numbers have been higher than PNH, despite the lower retention rates.

We are hiring and training our metabolic teams for HPP in the U.S. and Europe to prepare to serve patients.

We are seeing some pressure in Russia due to the economy there. There have been exchange rate effects, but we have hedged against the Euro and Yen.

Physicians are not realizing that low alfos can be an HPP indicator as well as high alfos.

Companionate use program in Japan for HPP? We analyzed data from the 1010 study. To maintain access for pediatric patients we increased the number of sites. The enrolled patients are about one-third of what we had in the PNH program.

The hurdles are high for conducting trials on transplant neurology. But we hope to be able to provide treatment options.

Phase II 1007 study for acute GI-GVHD, could you speak about the epidemiology and current treatment paradigm? It is a rare disease, but devastating, found after transplants including cells and stem cells. It is a very nasty disease when it hits the GI tract. Whether we can go straight to a Phase III trial depends on the data from Phase II.

Extent of low alfos in adults with HPP? There are several symptoms that might prompt testing. We currently don't know the % of patients where low alfos would point to HPP.

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