Analyst Conference Summary

Biotechnology

conference date: October 27, 2016 @ 7:00 AM Pacific Time
for quarter ending: September 30, 2016 (third quarter 2016, Q3)

Forward-looking statements

Overview: Strong revenue ramp continues, based on volume, not price increases.

Basic data (GAAP):

Revenue was $799.1 million, up 6% sequentially from $753.1 million and up 20% from $666.6 million in the year-earlier quarter.

Net income was $94.3 million, down 18% sequentially from $114.9 million, but up from negative $183.8 million year-earlier.

EPS (diluted earnings per share) was $0.42, down 18% sequentially from $0.51 and down from negative $0.81 year-earlier.

Guidance:

Updated 2016 guidance to revenue nearly $3.1 billion, GAAP EPS $1.79 to $2.09, non-GAAP EPS upper end of $4.50 to $4.65. Essentially up slightly non-GAAP, down more substantially GAAP on higher expenses.

Conference Highlights:

David Hallal, CEO, said volume growth of 23% exceeded revenue growth of 20%. Rapidly identifying new patients with improved diagnostics.

Soliris (eculizumab) sales were $728.9 million, up 8% sequentially from $701 million and up 10% y/y from $665.4 million.

Strensiq (Asfotase Alfa) for HPP (pediatric-onset hypophosphatasia) is approved for sale in the U.S., EU, Japan and Canada. Reached a funding agreement in Germany, working towards reimbursement in France, England, and Canada. Strensiq generated $60.5 million in revenue in the quarter, up 34% sequentially from $45.1 million and up from $0.4 million year-earlier.

Kanuma (sebelipase alfa) for LAL-D (lysosomal acid lipase deficiency) generated $9.1 million, up 42% sequentially from $6.4 million. Germany reached a funding agreement for all patients. Diagnostic testing is increasing.

There continues to be some negative FX effect.

Non-GAAP numbers: net income was $281.3 million, up 9% sequentially from $257.8 million and 13% from $249.4 million year-earlier. Diluted EPS $1.23, up 9% sequentially from $1.13, and 15% from $1.08 year-earlier. Excludes $47 million in share-based compensation, $7 million acquisition related costs, $82 million in amortization of purchased intangibles, $0.6 million for restructuring, $1.5 million in upfront and milestone payments, $40.3 million change in fair value of contingent consideration benefit, and $10 million in non-cash taxes. 45% operating margin.

Cash and equivalents balance $1.3 billion, up sequentially from $1.18 billion. Debt $3.3 billion. $325 million remains in share buyback 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) registrational trial data expected before the end of 2016.

NMO (Neuromyelitis Optica) continues dosing in a registrational trial with complete enrollment expected in 2016 and data expected in 2017.

The registrational study for refractory MG (Myasthenia Gravis) is filing for regulatory approvals in the U.S. and Europe in Q1 2017. The trial had P-values of less than 0.05 in 18 of the 22 pre-specified endpoints, so discussions with the FDA were basically positive.

Alexion is also developing other treatments for ultra-rare diseases. ALXN 1101 for MoCD (Molybdenum Cofactor Deficiency) Type A Phase 3 registrational study is in progress.

ALXN1007 for inflammatory diseases continued a Phase 2 study for graft-versus-host disease involving the GI tract (GI-GVHD), and now has orphan drug status.

Next generation Soliris therapy ALXN 1210 is beginning registrational trials in both PNH and aHUS with dosing every 8 weeks. It is a 26 week study. A subcutaneous formulation is also being tested in healthy volunteers.

Dosing escalation completed in a Phase 1/2 trial of SBC-103, an enzyme replacement therapy for patients with mucopolysaccharidosis IIIB, or MPS IIIB.

cPMP Replacement Therapy (ALXN 1101) continued a pivotal study for Molybdenum Cofactor Deficiency Type A (MoCD). The primary endpoint is patient survival and able to sit upright independently for at least 30 seconds at 12 months.

Samalizumab (ALXN6000), an antibody to checkpoint protein CD200, is one arm in a multi-arm trial for acute myeloid leukemia (AML) conducted by the Leukemia and Lymphoma Society.

There are now 30 programs in the pre-clinical stage, 4 of which are expected to enter the clinic this year. Seven Moderna mRNA programs are part of that. All programs target devastating and rare diseases.

See also Alexion pipeline.

GAAP cost of sales was $71.1 million. R&D expense was $195.7 million. Sales, General & Administrative expense was $230.1 million. Acquisition related expense $0 million. Amortization of purchased intangibles $82.0 million. Restructuring expense $0.6 million. Change in fair value of contingent consideration expense of $40.3 million. Total operating expenses were $548.7 million, leaving operating income of $179.3 million. Interest and other expense was $25 million. Income tax provision was $63.8 million.

Q&A:

No switch study for 1210? We did take that into consideration. There will be 214 eculizumab patients who are switched to 1210.

Why single arm trial for aHUS vs. a controlled trial for PNH? For aHUS we have empirical data for 40 patients, plus the difficulty of having a control arm given the presentation of aHUS. We also had feedback from regulators on this and the dosing interval. We also ran open-label aHUS trials with soliris. 1210 will be compared to the high bar set by soliris.

Quantification of number of patients 1210 might extend beyond Soliris? PNH and aHUS are chronic diseases requiring chronic treatment. Some patients decide to forego or delay treatment. An 8-week interval means only 6 infusions a year, which could be meaningful to keeping patients on treatment. A visit to a clinic may not be simple. We believe the majority of PNH patients are still in front of us. There are also other complement-mediated diseases to be treated.

MG program FDA feedback? We were confident going in, and we have the extension study ongoing. The refractory patient population is a really severe one. Many patients had failed 3 or more treatments. We were pleased with the positive outcome of those meetings. The important thing is the extremely strong data. The EU meetings were similar.

Competitors with subcutaneous formulation? Can't comment on them, but we are addressing PNH and aHUS, extending short lifespans to near normal lifespans. Hopefully 1210 will build on what we have achieved with Soliris.

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