Analyst Conference Summary

Biotechnology

conference date: July 27, 2017 @ 7:00 AM Pacific Time
for quarter ending: June 30, 2017 (second quarter 2017, Q2)

Forward-looking statements

Overview: Continued strong revenue growth and increased guidance.

Basic data (GAAP):

Revenue was $912 million, up 5% sequentially from $870 million and up 21% from $753 million in the year-earlier quarter.

Net income was $165 million, down 3% sequentially from $170 million, and up 38% from $120 million year-earlier.

EPS (diluted earnings per share) was $0.73, down 3% sequentially from $0.75 and up 38% from $0.53 year-earlier.

Guidance:

Total 2017 revenue expected betwee $3.45 and $3.525 billion. That would consist of $3.075 to $3.125 billion in soliris revenue and $375 to $400 million in metabolic revenue. Earnings per share range narrowed to $2.82 to $3.12 GAAP, raised to $5.40 to $5.55 non-GAAP.

Pricing is expected to be relatively flat y/y.

Conference Highlights:

Ludwig N. Hantson, Ph.D., CEO, said: "Our strategy for the next phase of growth will focus on our strengths to deliver sustainable long-term performance and increased value for shareholders. We will achieve this by growing our rare disease business, leveraging our expertise in complement, pursuing disciplined business development to expand the pipeline, and taking steps to optimize our infrastructure and operating model."

Revenue in the quarter was boosted by $35 million due to favorable timing or orders versus the prior forecast.

Geographic expansion continues to be a key growth drivers. Strensiq funding agreement was reached with NICE and NHS in England.

R&D therapeutic areas of docus will be hematology, nephrology, and neurology. Alexion has evaluated over 90 complement mediated disorders. Several programs outside the strategic focus have been or will be discontinued, incluing the Moderna partnership.

Soliris (eculizumab) sales were $814 million, up 4% sequentially from $783 million and up 16% y/y from $701 million year-earlier.

Strensiq (Asfotase Alfa) for HPP (pediatric-onset hypophosphatasia) is working towards reimbursement in France, England, and Canada. Strensiq generated $83 million in revenue in the quarter, up 12% sequentially from $74 million and up 84% from $45 million year-earlier.

Kanuma (sebelipase alfa) for LAL-D (lysosomal acid lipase deficiency) generated $15 million, up 25% sequentially from $12 million and up from $7 million year-earlier.

Non-GAAP numbers: net income was $355 million, up 12% sequentially from $316 million and up 38% from $258 million year-earlier. Diluted EPS $1.56, up 13% sequentially from $1.38, and 38% from $1.13 year-earlier. Excludes $61 million in share-based compensation, $80 million in amortization of purchased intangibles, $31 million impairment of intangible assts, related tax adjustments, and other costs.

Cash and equivalents balance $1.44 billion, down sequentially from $1.46 billion. Debt $2.8 billion.

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 a Phase 3 registrational trial in aHUS with dosing every 8 weeks. The PNH study enrollment completed in July. Expects an approval in the first half of 2019.

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 $84 million. R&D expense was $199 million. Sales, General & Administrative expense was $265 million. Amortization of purchased intangibles $80 million. Restructuring expense $3 million. Change in fair value of contingent consideration expense of $24 million. Total operating expenses were $602 million, leaving operating income of $226 million. Interest and other expense was $20 million. Income tax provision was $41 million.

Q&A:

Type and scale of R&D pipeline you think you should have? We have pruned the pipeline to create the space to bring in clinical stage assets, which will diversify risk. We are targeting 18% to 19% of revenue for R&D spend, which includes in-licensing opportunities.

Discontinued partnership decisions? Driven by new strategy to focus on complement and other areas. It does not say anything about our assessment of those technologies.

1210 an opportunity to reset with payers? 1210 is an exciting product. Our ambition is to make it the new standard of care, moving from 2 week treatment to 8 week treatment. We believe patients, doctors and payers will see the value.

Tax rate going forward? 13% to 14% non-GAAP over the next few years.

Latin American component of guidance? We have experienced moderate revenue growth in Q2 in Latin America, but there are underlying problems like access. We did see some timing benefit in Q2. We expect 2H to not repeat the larger orders, so back to the end of 2016 run rate, so no extra contribution from Latin America in Q2.

New complement areas examples, and are they all orphan? We will stay within orphan diseases in the areas of focus we have outlined. We are looking at other targets than C5.

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