Analyst Conference Summary

Biotechnology

conference date: April 25, 2019 @ 5:00 AM Pacific Time
for quarter ending: March 31, 2019 (first quarter 2019, Q1)

Forward-looking statements

Overview: Strong y/y revenue growth. Increased 2019 guidance.

Basic data (GAAP):

Revenue was $1.14 billion, up 1% sequentially from $1.13 billion and up 22% from $931 million in the year-earlier quarter.

Net income was $588 million, way up sequentially from $45 million, and up 136% from $249 million year-earlier.

EPS (diluted earnings per share) was $2.61, up sequentially from negative $0.20 and up 135% from $1.11 year-earlier.

Guidance:

Full year 2019 revenue between $4,675 and $4,750 million. As a percent of revenue: R&D 19% to 20% GAAP or 16% to 17% non GAAP. SG&A 23% to 24% GAAP or 20% to 21% non-GAAP. EPS $6.76 to $7.96 GAAP, $9.25 to $9.45 non-GAAP.

Conference Highlights:

Ludwig N. Hantson, Ph.D., CEO, said: "We had a great start to 2019, with a strong launch in Ultomoris first full quarter since FDA approval. We've also made significant progress executing and expanding our pipeline. This progress includes three business development deals, multiple filings under regulatory review and having begun dosing patients in two new ULTOMIRIS Phase 3 programs."

Hopes to file for Ultomiris in Japan and Germany this year. Hopes to convert most (70%) Soliris patients to Ultomiris in the next 2 years.

Key objectives for 2019 are: Ultomiris conversion in PNH; ALXN1210 aHUS filing; neurology pipeline acceleration; metabolic portfolio development; general pipeline expansion; hit financial goals.

Average prices were lower, mainly from a lower price for Soliris in Turkey. In April 2019 a Soliris biosimilar was approved in Russia.

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.

Soliris (eculizumab) for PNH, gMG, and aHUS sales were $962 million, down 2% sequentially from $977 million and up 20% y/y from $800 million year-earlier. gMG is best Soliris launch to date.

Strensiq (Asfotase Alfa) for HPP (pediatric-onset hypophosphatasia) generated $130 million in revenue in the quarter, up 3% sequentially from $126 million and up 17% from $111 million year-earlier.

Kanuma (sebelipase alfa) for LAL-D (lysosomal acid lipase deficiency) generated $24 million, down 8% sequentially from $26 million and up 2-% from $20 million year-earlier.

Ultomiris revenue was $25 million.

Non-GAAP numbers: net income was $ million, up % sequentially from $486 million and up % from $ million year-earlier. Diluted EPS $2.39, up 12% sequentially from $2.14, and up 42% from $1.68 year-earlier.

Cash and equivalents balance $1.66 billion, up sequentially from $1.6 billion. Debt $2.47 billion. $(not stated) free cash flow.

In January 2019, Alexion entered into a collaboration with Caelum Biosciences to develop CAEL-101 for AL amyloidosis, a rare systemic disorder that causes misfolded immunoglobulin light chain protein to build up in and around tissues. CAEL-101 is designed to improve organ function by reducing or eliminating amyloid deposits in patients with AL amyloidosis. In a Phase 1a/1b study, CAEL-101 demonstrated improved organ function, including cardiac and renal function, in patients with relapsed and refractory AL amyloidosis. Pending regulatory feedback, a Phase 2/3 study investigating CAEL-101 as an add-on to current standard-of-care therapy is planned to begin in early 2020.

In March 2019, Alexion announced a partnership with Affibody AB to co-develop ABY-039 for rare Immunoglobulin G (IgG)-mediated autoimmune diseases. The transaction is expected to close in the second quarter of 2019. Currently in Phase 1 development, ABY-039 is a bivalent antibody-mimetic that targets the neonatal Fc receptor (FcRn).

In February 2019 the FDA granted Priority Review for SOLIRIS in NMOSD and set a PDUFA action date of June 28, 2019. Alexion also filed for regulatory approval in the EU and Japan, and orphan drug priority review has been granted in Japan. These filings are based on previously announced positive results from the Phase 3 PREVENT study.

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). It has orphan drug status.

Next generation "crown jewel" therapy Ultomiris, formerly ALXN 1210 (ravulizumab-cwvz): In December 2018, the FDA approved Ultomiris for adults with PNH (Paroxysmal Nocturnal Hemoglobinuria). Applications in the EU and Japan are under review. A Phase 3 study of Ultomiris in children and adolescents with PNH is currently underway.In January 2019, Alexion announced positive topline results from a Phase 3 study of Ultomiris in complement inhibitor naïve patients with aHUS. The study met its primary objective with 53.6 percent of patients demonstrating complete thrombotic microangiopathy (TMA) response. The safety profile was good. Alexion plans to file for regulatory approval in the U.S. in the first half of 2019 followed by the EU and Japan. In addition, a Phase 3 study of Ultomiris in adolescents and children with aHUS is currently underway. In late 2018,Alexion initiated a single, PK-based Phase 3 study of ULTOMIRIS delivered subcutaneously once per week to support registration in PNH and aHUS. Data are expected in early 2020. Alexion plans to initiate a Phase 3 study of Ultomiris in gMG in the first quarter of 2019. Alexion plans to initiate a Phase 3 study of Ultomiris in NMOSD.

Alexion believes 70% of patients can be converted to Ultomiris within 2 years of launch.

ALXN1840 (formerly WTX101) for Wilson disease is in Phase 3. There are about 10,000 potential patients in both the U.S. and in Europe.

ALXN1810 is in Phase 1. It is ALXN1210 delivered subcutaneously.

See also Alexion pipeline.

GAAP cost of sales was $86 million. R&D expense was $196 million. Sales, General & Administrative expense was $282 million. Amortization of purchased intangibles $80 million. Change in fair value of contingent consideration benefit of $29 million. Restructuring $9 million. Total operating expenses were $538 million, leaving operating income of $517 million. Interest and other income net was $25 million. Income tax benefit was $46 million.

Q&A summary:

Gating factor for switching to Ultomiris? 60% covered lives now. In the U.S. price and timing of payer reviews are the main gaiting factors. Also formulary list. Ex-US pricing and value plus single-payer determinations. For 2019 the focus is Germany, then Japan for reimbursement approvals.

Russian biosimilar? Limited to Russia, we incorporated it into our guidance. For the EU there are clinical trials required and we have IP protection in Europe.

NMS/NMOSD launch prep, population? The data is strong, especially prevention of relapse. We see 4 to 5 thousand patients in the U.S., but a subset of them in the early days. There are no approved therapies in NMOSD, but rituxan is used off-label. There is competition possible soon, but with a different mechanism of action.

Operating margins next year? What we would love to see is growing R&D driven by a growing pipeline. Also some dollars for research from business development. But we do see SG&A leverage, flat spend against growing revenue. The combination could increase margins.

We have strong 1830 product data. We did pause the studies. We are still positive on these programs.

Hemoglobin changes with Soliris and Ultomiris? 301/302 study showed meme stabilization high. Competition results had a different patient group, represents less than 10% of the overall population.

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