Analyst Conference Summary

Biotechnology

conference date: July 26, 2018 @ 5:00 AM Pacific Time
for quarter ending: June 30, 2018 (second quarter 2018, Q2)

Forward-looking statements

Overview: continued strong revenue growth, but GAAP earnings loss. Increased guidance.

Basic data (GAAP):

Revenue was $1.05 billion, up 13% sequentially from $930.9 million and up 14% from $913 million in the year-earlier quarter.

Net income was negative $457 million, down sequentially from $30 million, and down % from $165 million year-earlier.

EPS (diluted earnings per share) was negative $2.05, down sequentially from $1.11 and down from $0.73 year-earlier.

Guidance:

Increased estimated 2018 revenue to $3.98 to $4.01 billion. RandD as % of total revenue: GAAP 20% to 21%, non-GAAP 18% to 19%. SGandA as % of total revenue: GAAP 26% to 27%, non-GAAP 22% to 23%. Operating margin GAAP 11% to 14%, non-GAAP 49% to 50%. EPS GAAP $1.25 to $1.50, non-GAAP $7.00 to $7.15.

Conference Highlights:

Ludwig N. Hantson, Ph.D., CEO, said: "We see continued momentum from both our in-line business and our gMG launch. We have advanced our ALXN1210 programs with the goal of improving the standard of care for patients and have filed regulatory submissions for PNH in the U.S. and EU, and pending regulatory approval, plan to launch next year. We also completed the Wilson Therapeutics acquisition and began a collaboration with Complement Pharma, important initial steps in building out our clinical pipeline. In light of our financial performance, we have updated guidance to reflect the strength of our business."

Plans to have a non-GAAP 50% operating maring in 2019. Revenue was driven by unit growth, with prices down 2%.

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.

Alexion began a collaboration with Complement Pharma to co-develop CP010, a preclinical C6 inhibitor for multiple neurological disorders in the second quarter.

Soliris (eculizumab) for PNH, gMG, and aHUS sales were $898 million, up 12% sequentially from $800.1 million and up % y/y from $813 million year-earlier. Launch for generalized myasthernia gravis is going well.

Strensiq (Asfotase Alfa) for HPP (pediatric-onset hypophosphatasia) generated $125 million in revenue in the quarter, up 13% sequentially from $110.7 million and up 49% from $84 million year-earlier.

Kanuma (sebelipase alfa) for LAL-D (lysosomal acid lipase deficiency) generated $21.4 million, up 9% sequentially from $19.6 million and up 40% from $15.3 million year-earlier.

Non-GAAP numbers: net income was $471.4 million, up 24% sequentially from $380.6 million and up 32% from $355.8 million year-earlier. Diluted EPS $2.07, up 23% sequentially from $1.68, and up 33% from $1.56 year-earlier. The main difference between GAAP and non-GAAP numbers was an $804 million expense for RandD assets of Wilson Therapeutics acquisition.

Cash and equivalents balance $1.18 billion, down sequentially from $1.59 billion. Debt $2.8 billion. $358 million free cash flow, excluding cash paid for Wilson.

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 completed enrollment in May 2018. The PNH submissions were made to FDA and EU, and expects an approval in the first half of 2019. A Phase 3 subcutaneous study is also planned to start in 2018. [ALXN1210 would replace Soliris, and improve on it, but also have a longer patent lifetime -- WPM]

WTX101 for Wilson Disease is in Phase 3. There are about 10,000 potential patients in both the U.S. and in Europe.

See also Alexion pipeline.

GAAP cost of sales was $95 million. R&D expense was $173 million. Sales, General & Administrative expense was $277 million. Amortization of purchased intangibles $80 million. Restructuring expense $11 million. Change in fair value of contingent consideration expense of $5 million. Total operating expenses were $1.35 billion, leaving operating loss of $400 million. Interest and other expense was $18 million. Income tax was $39 million.

Q&A:

1210 transfusion time reduction goal? current is 2 hours every 8 weeks, could be less than 1 hour, maybe 45 minutes.

MG revenue contribution? 375 patients in U.S. Implied underlaying growth for PNH and aHUS in high single digits for Q2. Also, our base gets bigger each quarter, [so the growth rate would tend down].

Wilson trial enrollment? The primary change is increasing the sample size from 100 to 150 or more patients. Other endpoints kept the same. For regulators we need one-year data, the extra data will help with payers.

Payer discussinos with 1210? We are having positive talks, we hope to set a high bar, a standard of care, to keep out potential competition.

Converstion rate, soliris to 1210? We are not providing targets. We are ramping up for launch and believe 1210 will support rapid market conversion.

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