Analyst Conference Summary

Biotechnology

conference date: April 26, 2018 @ 7:00 AM Pacific Time
for quarter ending: March 31, 2018 (first quarter 2018, Q1)

Forward-looking statements

Overview: Modest y/y revenue growth; positive Phase 3 data for ALXN1210. Increased 2018 guidance.

Basic data (GAAP):

Revenue was $930.9 million, up 2% sequentially from $910 million and up 7% from $869.6 million in the year-earlier quarter.

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

EPS (diluted earnings per share) was $1.11, down % sequentially from $0.13 and up 48% from $ year-earlier.

Guidance:

Increased 2018 guidance to: revenue $3.925 to $3.985 billion. EPS $1.35 to $1.75 GAAP; $6.75 to $6.90 non-GAAP.

Conference Highlights:

Ludwig N. Hantson, Ph.D., CEO, said: "In the first quarter of 2018 we had strong momentum in our complement and metabolic portfolios. We continue to see robust underlying growth of Soliris and I am particularly pleased with the U.S. launch in patients with gMG. In addition, Strensiq remains a key driver of growth as we continue to serve new patients with HPP." Will continue to invest in building the pipeline.

Alexion reported positive topline data from ALXN1210 Phase 3 PNH Naive and Switch Studies. Regulatory submissions planned in the U.S. and EU for mid-2018. [ALXN1210 would replace Soliris, and improve on it, but also have a longer patent lifetime -- WPM]

In April Alexion announced it plans to acquire Wilson Therapeutics for its copper-mediated disorder therapies, including a Phase 3 product, WTX101 for Wilson disease.

R&D expense was unusually low in Q1, but will increase again as pipeline is rebuilt.

Soliris (eculizumab) for PNH, gMG, and aHUS sales were $800.1 million, up1 % sequentially from $792 million and up 2% y/y from $783.5 million year-earlier. Soliris for gMG (Myasthenia Gravis) was approved in Japan in Q4. Reported a strong Launch for Soliris in Patients with AchR Antibody-Positive Generalized Myasthenia Gravis.

Strensiq (Asfotase Alfa) for HPP (pediatric-onset hypophosphatasia) generated $110.7 million in revenue in the quarter, up 15% sequentially from $96 million and up 50% from $73.6 million year-earlier.

Kanuma (sebelipase alfa) for LAL-D (lysosomal acid lipase deficiency) generated $19.6 million, down 11% sequentially from $22 million and up 63% from $12.0 million year-earlier.

Non-GAAP numbers: net income was $380.6 million, up 13% sequentially from $338 million and up 21% from $315.8 million year-earlier. Diluted EPS $1.68, up 14% sequentially from $1.48, and up 22% from $1.38 year-earlier. Operating margin 50%.

Cash and equivalents balance $1.59 billion, up sequentially from $1.47 billion. Debt $2.679 billion. $233 million free cash flow. $85 million was used to repurchase shares. About half of cash will be used for the Wilson acquisition, which should close in Q2.

NMOSD (Neuromyelitis Optica) Soliris continues dosing in a registrational trial and completed enrollment. Data is expected in late 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 continues 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 positive results reported in April. Regulatory submissions for ALXN1210 could start as early as Q3 2018.

Believes is developing a compelling value proposition for 1210, which doses less often than Soliris.

See also Alexion pipeline.

GAAP cost of sales was $91.6 million. R&D expense was $176.6 million. Sales, General & Administrative expense was 257.1$ million. Amortization of purchased intangibles $80.0 million. Restructuring expense $5.5 million. Change in fair value of contingent consideration expense of $52.7 million. Total operating expenses were $571.9 million, leaving operating income of $267.4 million. Interest and other income was $84.2 million. Income tax was $102.5 million.

Q&A:

Soliris softness regions? Q1 2017 was high due to revenue deferal and tender orders. In Q1 2018 lower number of tender orders, particularly in Latin America.

We do not need a superiority claim for 1210 to have a successful launch and replace Soliris.

Timeline for conversion to 1210? No forced conversions. Objective is to be best in class in the segment. Payers and physicians seem positive. Well positioned, no timeline. Objective to "become market leader in PNH in a short period of time."

We have three new patents issued in the U.S. in 2017 for 1210. We have patents pending in Europe. These are for composition.

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