Analyst Conference Summary

Biotechnology

conference date: July 30, 2015 @ 7:00 AM Pacific Time
for quarter ending: June 30, 2015 (second quarter 2015, Q2)

Forward-looking statements

Overview: Good revenue growth offset by increased R&D, SG&A, and acquisition-related costs. Increased guidance for revenue, but decreased for EPS due to Synageva acquisition.

Basic data (GAAP):

Revenue was $636.2 million, up 6% sequentially from $600.3 million and up 24% from $512.5 million in the year-earlier quarter.

Net income was $170.2 million, up 86% sequentially from $91.3 million, and up 2% from $166.5 million year-earlier.

EPS (diluted earnings per share) was $0.83, up 84% sequentially from $0.45 and flat from $0.83 year-earlier.

Guidance:

Including acquisition of Synageva:

Revenue for full 2015 between $2.6 and $2.62 billion, including a negative foreign exchange impact.

Non-GAAP: Cost of sales 8% to 9% of product sales. R&D $520 to $540 million. SG&A $690 to $710 million. $55 million interest expense. 3% to 4% effective tax rate.

Diluted shares outstanding 219 million.

EPS $4.70 to $4.80, down from prior guidance of $5.60 to $5.80.

For Q3 revenue guidance $662 to $665 million. $0.90 to $0.95 non-GAAP EPS due to Synageva impact.

Conference Highlights:

Strong quarter with many milestones reached. Claims "the most robust rare disease portfolio in biotech."

Synageva acquisition closed on June 22, and Strensiq and Kanuma (acquired with Synageva) were recommended for approval in Europe by the CHMP. Tax rate reduction from use of Synageva operating losses.

Soliris (eculizumab) sales were $636.0 million, up 6% sequentially from $600.3 million and up 24% from $512.5 million year-earlier. Believe majority of PNH patients have not yet been diagnosed. aHUS new patient additions were strong.

Strensiq (Asfotase Alfa) for HPP (pediatric-onset hypophosphatasia) advanced towards commercialization with approval in Japan and CHMP recommendation in Europe in late June. Launch later this year will be slow and steady, with little revenue contribution in 2015. Believes label proposed by CHMP is very positive.

Kanuma for LAL-D (lysosomal acid lipase deficiency) is under review by the FDA with a decision expected this year. It was recommended for EU authorization by the CHMP in late June, with a final decision likely in Q3. Japan decision expected in first half of 2016.

Non-GAAP numbers: net income was $297.7 million, up 14% sequentially from $262.0 million and up 30% from $229.1 million year-earlier. Diluted EPS $1.44, up 12.5% sequentially from $1.28, and up 29% from $1.12 year-earlier. Excludes $67 million in share-based compensation, $34 million acquisition related costs, the $2 million milestone expense, $16 million for restructuring, and $9 million in non-cash taxes.

Cash and equivalents balance $1.49 billion, down sequentially from $1.92 billion. Long term debt $3.5 billion. Cash flow from operations was million. $ 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 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 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 are in Phase 1 studies.

SBC-103 enrollment was completed in a Phase 1/2 trial of SBC-103, an enzyme replacement therapy for patients with mucopolysaccharidosis IIIB, or MPS IIIB. Preliminary data are expected in the second half of 2015.

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 plans to initiate a pivotal study with ALXN 1101 by the end of 2015.

There are now 30 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 $52.0 million. R&D expense was $131.7 million. Sales, General & Administrative expense was $221.4 million. Acquisition related expense $33.8 million. Restructuring expense $16.2 million. Total operating expenses were $403.1 million, leaving operating income of $181.1 million. Interest and other expense was $3.8 million. Income tax provision was $7.1 million.

Building a production facility in Ireland.

Analyst Day will be on December 10.

Q&A:

1210 is an IV product? Complement inhibitors objective is not to just have one enter the market behind Soliris. We want to offer different treatment options. There is subcutaneous optionality for the product.

Recent missing earnings expectations last two quarters? Last quarter we had a cancelled manufacturing campaign. In Q2 we executed on an enourmous number of objectives. We would have done well on the EPS side if the acquisition were not in. We had some costs from analyzing products and acquisition. We are working on improving operating margins from 43% now to 48% in 2018. Current costs are from the simultaneous product launches.

Strensiq approval timeline? We were more optimistic on timing earlier. We did get the positive CHMP opinion and Japan improval. We expect a good outcome in the U.S. with the label including patients who had HPP symptoms of disease before the age of 18. We will be ready for the U.S. launch later this year.

FX impact on P&L and hedging? We try to hedge 50% on the major currencies. We spend in the currencies too, which reduces the effects. We are taking a long-term view.

Increased revenue guidance, Kanuma and Strensiq contributions? January guidance anticipated a 1H launch in U.S. and Europe, which has been delayed. It takes time to build up patients on rare diseases. Even adding in Kanuma the contribution will be less, but is being made up for by Soliris sales increases. Meaningful Kanuma and Strensiq revenues will begin in 2016.

1210 complete inhibition data vs. competitor? Suffice it to say, from years of data, you need 100% effectiveness hemolysis, which our products have.

Synageva platform? We now have over 30 programs in preclinical stages. We are being careful in terms of costs, which means being selective in what we develop. We plan to progress 4 into the clinic in 2016. Our scientists are excited about the potential of the new platform.

HPP adult study? Still plan to initiate the study before the end of this year.

1007 interim data? Open label study, looking for interim data by the end of this year.

Share repurchase plans are secondary to building our drug portfolio. We will look at repurchases opportunistically.

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