Analyst Conference Summary

Biotechnology

conference date: February 8, 2018 @ 7:00 AM Pacific Time
for quarter ending: December 31, 2017 (fourth quarter 2017, Q4)

Forward-looking statements

Overview: Revenue growth is healthy, but guidance is for slower growth in 2018 than in 2017.

Basic data (GAAP):

Revenue was $910 million, up 6% sequentially from $859 million and up 10% from $831 million in the year-earlier quarter.

Net income was $30 million, down 61% sequentially from $78 million, and down 68% from $92.8 million year-earlier.

EPS (diluted earnings per share) was $0.13, down 63% sequentially from $0.35 and down 68% from $0.41 year-earlier.

Guidance:

Full year 2018 revenue expected between $3.85 and $3.95 billion. EPS $4.35 to $4.75 GAAP or $6.60 to $6.80 non-GAAP.

However, y/y growth in revenue in 1H will be in low single digits, while that should accelerate to high teens growth in 2H.

Conference Highlights:

Ludwig N. Hantson, Ph.D., CEO, said: "We enter 2018 with a well-defined strategy to build long-term sustainable value for shareholders. I look forward to providing updates on our progress throughout the year." Alexion has prioritized its pipeline with a focus on complement and rare diseases.

Soliris patent protection has been extended to 2027 in the US and Japan.

In 2017 added four independent directors to the board.

Looking at expanding from ultra-rare diseases to rare diseases.

Volume grew slightly faster than revenue in 2017.

Alexion hopes to achieve annual restructuring savings by 2019.

Competitor clinical trials and 1210 trials together had about a $37 million negative impact on Soliris revenue in the quarter.

Soliris (eculizumab) for PNH and aHUS sales were $792 million, up 5% sequentially from $756 million and up 6% y/y from $749 million year-earlier. Soliris for gMG (Myasthenia Gravis) was approved in Japan in the quarter.

Strensiq (Asfotase Alfa) for HPP (pediatric-onset hypophosphatasia) generated $96 million in revenue in the quarter, up 10% sequentially from $87 million and up 35% from $71 million year-earlier.

Kanuma (sebelipase alfa) for LAL-D (lysosomal acid lipase deficiency) generated $22 million, up 38% sequentially from $16 million and up 100% from $11 million year-earlier.

Non-GAAP numbers: net income was $338 million, up 3% sequentially from $328 million and up 48% from $288 million year-earlier. Diluted EPS $1.48, up 3% sequentially from $1.44, and up 17% from $1.26 year-earlier.

Cash and equivalents balance $1.47 billion, down sequentially from $1.53 billion. Debt $2.72 billion. Full year $758 million free cash flow.

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 and completed enrollment. Data is expected in 2018.

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 "crown jewel" therapy ALXN 1210 continued a Phase 3 registrational trial in aHUS with dosing every 8 weeks and should complete enrollment in Q2 2018. The PNH study enrollment completed in July. The Expects an approval in the first half of 2019. A Phase 3 subcutaneous study is also planned to start in 2018. In PNH a Phase 3 trial comparing 1210 to Soliris completed enrollment with data expected Q2 2018. Regulatory submissions for ALXN1210 could start as early as Q3 2018.

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 $145 million. R&D expense was $265 million. Sales, General & Administrative expense was $296 million. Amortization of purchased intangibles $80 million. Restructuring expense $6 million. Change in fair value of contingent consideration expense of $9 million. Total operating expenses were $657 million, leaving operating income of $109 million. Interest and other expense was $19 million. Income tax was $59 million.

Q&A:

Volume guidance in 2018? In Q4 in PNH & aHUS we had the same level of volume growth. It is mainly that we are growing on top of a larger base, so % increases are declining.

Pricing declines in 2018? We see a 3% reduction, a little bit more than we have seen in the past. In the U.S. we like to stay under CPI. In some countries the price points are a bit lower. In soliris the rest of world markets and some in Europe will contribute most of the price decrease.

We still see continued growth ahead in both PNH and aHUS, plus the new gMG label.

Meningitis risk, Soliris vs. 1210 in PNH? So far we have 3 cases in 200 patient years of exposure. We don't think there will be any material differences in the risk, as C5 levels would need to be knocked down more for that.

You grew revenue more last year than in 2018 guidance, help to understand? Your guidance seems super-conservative? There are a lot of puts and takes, including trials that take patients out of the paid pool. gMG is in early days, it will be a big focus for us in 2018.

Numerical difference in 1210 data, rather than non-inferiority, effect on doctors and patients? Soliris already sets a high bar. The 1210 objective is to make it the new standard of care. The improvement is greatly enlarging the interval of treatment, which is a big benefit for patients. So non-inferiority is success.

Free cash flow in 2018? No number, but organically, excluding deployment above base plan, cash flow should move to $2.4 to $2.5 billion range. But we hope to deploy it for acquisitions or return to shareholders. Cap ex for manufacturing should be trending lower.

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