Analyst Conference Summary

Biotechnology

conference date: April 27, 2017 @ 7:00 AM Pacific Time
for quarter ending: March 31, 2017 (first quarter 2017, Q1)

Forward-looking statements

Overview: Great y/y revenue increase. Raised 2017 EPS guidance.

Basic data (GAAP):

Revenue was $870 million, up 5% sequentially from $831 million and up 24% from $701 million in the year-earlier quarter.

Net income was $170 million, up 83% sequentially from $93 million, and up 85% from $92 million year-earlier.

EPS (diluted earnings per share) was $0.75, up 83% sequentially from $0.41 and up 83% from $0.41 year-earlier.

Guidance:

Raised 2017 guidance to EPS GAAP $2.80 to $3.20; non-GAAP $5.10 to $5.30 due to a lower tax rate (13.5% to 14.5%). But left revenue and margin guidance unchanged.

But for Q2 Soliris revenue and total revenue expected down sequentially due to revenue recognition impact on Q1 and ALXN1210 enrollment impact.

Conference Highlights:

Ludwig N. Hantson, Ph.D., the new CEO of Alexion, said: "We delivered continued double-digit revenue growth in the quarter from our complement and metabolic portfolios and achieved important regulatory milestones towards the potential approval of Soliris as a treatment for patients with refractory gMG in the U.S., Europe and Japan. We also demonstrated strong commercial execution for Soliris while simultaneously enrolling patients with PNH and aHUS into the ALXN1210 Phase 3 trials."

Also developing a strategic business plan to leverage on Alexion's strengths. "Not satisfied with Kanuma performance." Also wants R&D to be more productive. Will try to improve margins, including SG&A expenses.

Restructuring in Q1 should help with expense reductions going forward.

Soliris (eculizumab) sales were $783 million, up 5% sequentially from $749 million and up 18% y/y from $665 million year-earlier. The increases were driven by unit volume growth and a change in revenue recognition of $29 million. This shifted revenue forward but did not change the outlook for the full year.

Strensiq (Asfotase Alfa) for HPP (pediatric-onset hypophosphatasia) is working towards reimbursement in France, England, and Canada. Strensiq generated $74 million in revenue in the quarter, up 4% sequentially from $71 million and up 124% from $33 million year-earlier.

Kanuma (sebelipase alfa) for LAL-D (lysosomal acid lipase deficiency) generated $12 million, up 8% sequentially from $11.1 million and up from $2 million year-earlier. Diagnostic testing is increasing. Alexion management was disappointed with Q1 sales.

Non-GAAP numbers: net income was $316 million, up 10% sequentially from $287 million and up 39% from $227 million year-earlier. Diluted EPS $1.38, up 10% sequentially from $1.26, and 39% from $0.99 year-earlier. Excludes $54 million in share-based compensation, $ million acquisition related costs, $80 million in amortization of purchased intangibles, related tax adjustments, and other costs.

Cash and equivalents balance $1.46 billion, up sequentially from $1.29 billion. Debt $3.0 billion. $230 million free cash flow. 555,000 shares repurchased.

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.

NMOSD (Neuromyelitis Optica) continues dosing in a registrational trial with complete enrollment expected in 2017. Data is expected in 2018.

The registrational study for Soliris for refractory generalized MG (Myasthenia Gravis) was filed for regulatory approvals in the U.S. and Europe. The trial had P-values of less than 0.05 in 18 of the 22 pre-specified endpoints, but discussions with the FDA and EMA were basically positive. PDUFA date is October 23, 2017.

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 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 continued Phase 3 registrational trials in both PNH and aHUS with dosing every 8 weeks. It is a 26 week study. A subcutaneous formulation Phase 1 study completed enrollment.

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. Alexion also started a Phase 1 study for advanced solid tumors.

There are now 10 programs in the clinical stage, All programs target devastating and rare diseases.

See also Alexion pipeline.

GAAP cost of sales was $69 million. R&D expense was $219 million. Sales, General & Administrative expense was $262 million. Amortization of purchased intangibles $80 million. Restructuring expense $24 million. Change in fair value of contingent consideration expense of $4 million. Total operating expenses were $589 million, leaving operating income of $212 million. Interest and other expense was $18 million. Income tax provision was $24 million.

Q&A:

Soliris sales trends, aHUS new starts, Latin America? Q1 tends to be seasonally lower, and we expected the 1210 recruitment of patients. No one item drove Q1 performance, it was global identification of patients and getting on therapy. Except Latin America was a problem and that is expected to continue through 2017.

Variability from new revenue recognition? Short term it is hard to predict. We will give you our best judgment in guidance, but it is a judgment.

Subcutaneous 1210 dosing? 42 day half-life. Could be monthly or shorter. Will need to talk to regulators.

MG, why no priority review? This is a clinically relevant effect, it is an enigma whether you get priority review from the FDA.

Other complement targets? Still focussed on 1210. Will review R&D in Q2.

MG, panel expected? Don't know if FDA will want an advisory panel. They will inform us three months in advance if they decide they need one.

Pricing? There is increased pressure on pricing across geographies, but we believe our model is sustainable. There is no competition for our current therapies. We are growing revenue through volumes, not price increases.

Tax rate guidance? It is from a changing geographic mix.

Longer term operating margins? Working on it, will have a better answer at the second quarter earnings call.

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