Analyst Conference Summary

Biotechnology

conference date: October 29, 2015 @ 7:00 AM Pacific Time
for quarter ending: September 30, 2015 (third quarter 2015, Q3)

Forward-looking statements

Overview: strong revenue growth continues. Large GAAP net loss due to acquisition and taxes. Lowered guidance for revenue but raised it for non-GAAP EPS.

Ha ha! During the live webcast background music was played instead of the conference, and when I tried to dial in with a land line it said the number was not in service! In the recording, just before Q&A, they mentioned "technical difficulties."

Basic data (GAAP):

Revenue was $666.6 million, up 5% sequentially from $636.2 million and up 20% from $555.1 million in the year-earlier quarter.

Net income was negative $183.8 million, down sequentially from $170.2 million, and down from $177.7 million year-earlier.

EPS (diluted earnings per share) was negative $0.81, down sequentially from $0.83 and down from $0.88 year-earlier.

Guidance:

Full 2015 revenue not expected at the lower end of previous range of $2.6 to $2.62 billion. This is the result of government budget restraints in Latin America.

2015 non-GAAP EPS guidance increased to $4.92 to $4.97.

Q4 2015 non-GAAP EPS expectation $1.07 to $1.12 as expenses ramp for new therapy launches. Revenue $697 to $702 million.

Conference Highlights:

Q4 focus will be on launches of Strensiq and Kanuma and Alexion "will report on several R&D catalysts that are expected in the fourth quarter.” In the quarter Alexion established its leadership in the rare disease therapy market.

Synageva acquisition closed on June 22. Q3 is the first quarter including Synageva expenses. GAAP results were affected by a $315.6 million non-cash deferred income tax expense due to acquisition of Synageva.

Soliris (eculizumab) sales were $665.4 million, up 5% sequentially from $636.0 million and up 27% y/y. Volume was up 29% y/y, but there was a negative impact from currency exchange rates. AHUS rollout continued, but new PNH adds continued.

Strensiq (Asfotase Alfa) for HPP (pediatric-onset hypophosphatasia) was approved for sale in the U.S., EU, Japan and Canada. The label is broad. Strensiq generated $0.4 million in revenue in the quarter. Given the low incidence and high mortality from HPP, the build will be relatively slow and country by country, starting with Germany in Europe.

Kanuma for LAL-D (lysosomal acid lipase deficiency) was approved in the EU for patients of all ages. PDUFA in U.S. is December 8.

Soliris registrational trial in refractory MG completed enrollment.

Non-GAAP numbers: net income was $268.9 million, down 10% sequentially from $297.7 million and up 4% from $258.3 million year-earlier. Diluted EPS $1.16, down 19% sequentially from $1.44, and down 8% from $1.27 year-earlier. Excludes $51.1 million in share-based compensation, $35.8 million acquisition related costs, $36.6 million in amortization of purchased intangibles, $7.6 million for restructuring, and $321.8 million in non-cash taxes.

Cash and equivalents balance $1.5 billion, sequentially from $1.49 billion. Long term debt $3.5 billion. Cash flow from operations was not stated. $? million was used to repurchase shares in the quarter. But has a $1 billion share buy back program.

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) trial is progressing. 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 ALXN 1210 completed a Phase 1 study. A proof of concept study for PNH should initiate this quarter.

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 Q4 of 2015. Enrollment in a natural history study was also completed.

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 2015 and 2018 Alexion could have as many as 6 more product approvals.

GAAP cost of sales was $54.1 million. R&D expense was $165.7 million. Sales, General & Administrative expense was $212.5 million. Acquisition related expense $35.8 million. Amortization of purchased intangibles $36.6 million. Restructuring expense $7.5 million. Total operating expenses were $458.0 million, leaving operating income of $154.6 million. Interest and other expense was $15.1 million. Income tax provision was $323.8 million.

Analyst Day will be on December 10.

Q&A:

Any chance of getting Kanuma approval in U.S. before the December 8 PDUFA date? That was a 90 day extension of the date, we are working diligently with the agency.

Kanuma diagnostic pathway? Lipid and liver abnormalities that are consistent with the disease. We are working to educate specialists because misdiagnosis is possible. We want to indicate who should be tested, how to test, and the right interpretation. Pediatrics is especially important because the morality is high.

Strategic pricing, are governments looking at individual drugs, or Alexion as a whole? We are treating highly challenging diseases that had not had much attention. Orphan diseases have 200,000 patients or less. Ultra-orphan is under 6,500, and the diseases we look at are often significantly lower. Our targets have high mortality rates. Our benefits are truly transformative. Our reimbursement discussions have so far been ultimately successful, and we expect the same for Strensiq and Kanuma.

Latin America color? The macro-economic situation had a major currency impact in Q3 and that is flowing into Q4. We sell in U.S. dollars, but their budgets are in local currencies. In the past it has happened in different countries, like Russia in 2014. We hedge about 50% of currency. We will say more about exchange rate impacts on analyst day.

Kanuma launch pricing in Germany? Looking at annual costs similar to Strensiq. [Which just moves us to: How much does Strensiq cost? Apparently Soliris may cost up to $500,000 per year. -- WPM]

Alexion 5500 status? It part of our set of complement inhibitors. It is behind 1210 in development.

Net revenue per patient for aHUS? Adult dose is higher than for PNH, and is by weight, and children are lower. Blended per patient is about the same as PNH.

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