Analyst Conference Summary

Biotechnology

conference date: October 24, 2018 @ 5:00 AM Pacific Time
for quarter ending: September 30, 2018 (third quarter 2018, Q3)

Forward-looking statements

Overview: Rapid y/y revenue ramp; acquiring Syntimmune. But dip Q2 to Q3.

Basic data (GAAP):

Revenue was $1.03 billion, down 2% sequentially from $1.05 billion and up 20% from $859 million in the year-earlier quarter.

Net income was $331 million, up sequentially from negative $457 million, and up 324% from $78 million year-earlier.

EPS (diluted earnings per share) was $1.47, up sequentially from negative $2.05 and up from $0.35 year-earlier.

Guidance:

Revised guidance slighly upward to Full year 2018 revenue of $4.02 to $4.05 billion. R&D as % of revenue to decrease to 18% to 19% GAAP or 16% to 17% non-GAAP. That should increase EPS to: GAAP $-0.08 to $0.26; non-GAAP $7.45 to $7.60.

Conference Highlights:

Ludwig N. Hantson, Ph.D., CEO, said: "Following the groundbreaking Phase 3 results of eculizumab in NMOSD, we are moving quickly to prepare global regulatory submissions, which could make it the first approved therapy for patients with this devastating disease. Our teams continue to demonstrate launch excellence with sustained growth of Soliris in gMG. In addition, we made significant progress diversifying our portfolio with the anticipated acquisition of Syntimmune and our collaboration with Dicerna."

Foreign currency exchange rates had a 1% negative impact on revenue. Volume grew 26%, but prices decreased 5%, notably in Brazil and Turkey.

The Syntimmune agreement, announced in September, would add SYNT001 in Phase 1b/2a for WAIHA (warm autoimmune hemolytic anemia), PV pemphigus vlugaris, and PF (pemphigus foliaceus). Pivotal trials should be initiated in 2019.

Docerna collaboration is for RNAi based complement targets.

Advancing and rebuilding the pipeline remains a key objective.

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

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.

Soliris (eculizumab) for PNH, gMG, and aHUS sales were $888 million, down 1% sequentially from $898 million and up 18% y/y from $755 million year-earlier. gMG is best Soliris launch to date.

Strensiq (Asfotase Alfa) for HPP (pediatric-onset hypophosphatasia) generated $113 million in revenue in the quarter, down 10% sequentially from $125 million and up 30% from $87 million year-earlier.

Kanuma (sebelipase alfa) for LAL-D (lysosomal acid lipase deficiency) generated $25 million, up 17% sequentially from $21.4 million and up 52% from $16.4 million year-earlier.

Non-GAAP numbers: net income was $460 million, down 2% sequentially from $471.4 million and up 40% from $328 million year-earlier. Diluted EPS $2.02, down 2% sequentially from $2.07, and up 40% from $1.44 year-earlier. 54% operating margin, up from 45% year-earlier.

Cash and equivalents balance $1.53 billion, up sequentially from $1.18 billion. Debt $2.53 billion. $ million free cash flow.

NMOSD (Neuromyelitis Optica) Soliris Phase 3 trial reported postive results in September.

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 Ultomiris, formerly ALXN 1210 PNH submissions were made to FDA and EU and accepted by them. FDA PDUFA date February 18, 2019. A further Phase 3 study in children and adolescents continues. The Phase 3 trial in aHUS results are expected in early 2019. Subcutaneous version Phase 3 trial planned to support both PNH and aHUS.

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

New in Phase 1 is ALXN1810 which is ALXN1210 delivered subcutaneously.

See also Alexion pipeline.

GAAP cost of sales was $91 million. R&D expense was $175 million. Sales, General & Administrative expense was $259 million. Amortization of purchased intangibles $80 million. Restructuring expense $10 million. Change in fair value of contingent consideration expense of $54 million. Total operating expenses were $577 million, leaving operating income of $359 million. Interest and other expense was $17 million. Income tax was $11 million.

Q&A summary:

Operating margin improvement v. future investments? We are committed to the 50% operating margin. We see it as earning the trust back from our investors that is so critical. In 2020 the dynamics for margin expansion will not be as strong because of our expanded pipeline. We are committed to top and bottom line leverage, just not at the pace of 2018.

Competing products to Soliris at ASH? Our ASH data will raise the bar. 1210 approval will make us first to market. No speculation on what competitors will show at ASH, but they are targetting a different epitope.

Business development plans? We do not think we are at capacity yet.

MG competition for earlier stage in disease? 60 to 80K patients in U.S. 5% to 10% are within out-of-options label. We only have 550 patients on drug, so room to expand. Delivery method, soliris by infusion, may be preferred to having a copay for an injection.

RNAi competitor problems with knocking down C5? We are not targetting C5 with Dicerna. We are looking at additional targets in the complement cascade.

RNAi vs. antibodies for complement diseases? Technology has been derisked by Dicerna, and Alnylam has a successful RNAi product. It gives us options that may work best for some particular targets.

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