Analyst Conference Summary

Biotechnology

conference date: July 24, 2019 @ 5:00 AM Pacific Time
for quarter ending: June 30, 2019 (second quarter 2019, Q2)

Forward-looking statements

Overview: 15% revenue growth and 23% volume growth y/y.

Basic data (GAAP):

Revenue was $1.20 billion, up 5% sequentially from $1.14 billion and up 15% from $1.04 million in the year-earlier quarter.

Net income was $460 million, down 22% sequentially from $588 million, but way up from negative $457 million year-earlier.

EPS (diluted earnings per share) was $2.04, up sequentially from negative $2.61 and up from negative $2.05 year-earlier.

Guidance:

Increased 2019 revenue guidance slightly to $4.75 to $4.80 billion. Raised operating margins to 42% to 43% GAAP, 55% to 56% non-GAAP. Resulting in a significant increase in EPS guidance to $8.13 to $8.41 GAAP, $9.65 to $9.85 non-GAAP.

Conference Highlights:

Ludwig N. Hantson, PhD, CEO, said: "We delivered another strong quarter, with continued growth driven by the successful U.S. launches of Ultomiris in PNH and Soliris in gMG. We received three regulatory approvals over the last month, including Soliris for NMOSD in the U.S., and Ultomiris for PNH in Japan and the EU. In addition, the FDA granted priority review for Ultomiris in atypical HUS. We are well positioned to continue our momentum in the second half of 2019, strengthening our four durable franchises in hematology and nephrology, neurology, metabolics and FcRn, advancing and expanding our pipeline, and serving more people living with rare diseases than ever before."

Hopes to convert most (70%) Soliris patients to Ultomiris in the next 2 years.

Estimated $5 million headwind per quarter due to the Canadian pricing judgment. Overall sees a 3% pricing headwind in the remainder of 2019. Made a strategic reduction in Strensiq in the U.S. to maintain market momentum.

In April 2019 a Soliris biosimilar was approved in Russia.

Soliris (eculizumab) for PNH, gMG, and aHUS sales were $980.8 million, up 2% sequentially from $962 million and up 9% y/y from $898.2 million year-earlier. Soliris volume increased 17% y/y, but pricing was down due to a $32 million judgment in Canada covering 2 years of sales.

Strensiq (Asfotase Alfa) for HPP (pediatric-onset hypophosphatasia) generated $141.3 million in revenue in the quarter, up 9% sequentially from $130 million and up 13% from $125.1 million year-earlier.

Kanuma (sebelipase alfa) for LAL-D (lysosomal acid lipase deficiency) generated $26.2 million, up 9% sequentially from $24 million and up 22% from $21.4 million year-earlier.

Ultomiris revenue was $54.2 million, up sequentially from $25 million. Was not available year-earlier.

Non-GAAP numbers: net income was $605 million, up % sequentially from $ million and up 28% from $471 million year-earlier. Diluted EPS $2.64, up 10% sequentially from $2.39, and up 28% from $2.07 year-earlier.

Cash and equivalents balance $2.09 billion, up sequentially from $1.66 billion. Debt $2.44 billion. $ 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. 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.

In June 2019 the FDA approved Soliris for NMOSD. 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. This is the first approved drug for NMOSD.

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). Approved in the EU and Japan in Q2 2019. Studies in other indications are underway. Plans a Phase 3 study in HSCT-TMA in 2020. Also plans a proof-of-concept trial in ALS in 2020.

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.

The Syntimmune agreement, announced in September 2019, added 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.

See also Alexion pipeline.

GAAP cost of sales was $99 million. R&D expense was $188 million. SG&A expense was $299 million. Amortization of purchased intangibles $80 million. Change in fair value of contingent consideration benefit of $6 million. Restructuring $3 million. Total operating expenses were $572 million, leaving operating income of $533 million. Interest and other expense net was $33 million. Income tax benefit was $40 million.

Q&A summary:

Share price flat for 3 years despite execution? We are executing on our strategic plan. Ultomiris is set to lead the business. Will continue to strengthen the pipeline.

EU patent appeal? Converting to Ultomiris will make Soliris IP less consequential. No new news on the patent issue, maybe later in the year.

Manufacturing process issues delaying trials? We identified an impurity and can restart the program later this year.

Could lower Canada price result in other countries wanting price breaks? What is the current pricing band? The Canada situation goes back to 2017, we believe it is localized, the issue is what is the appropriate comparison, we are appealing it. We are not quantifying the Soliris global pricing brands. With Ultomiris we want to maintain a similar pricing range. After the first two years in Germany there is a discount for Ultomiris compared to Soliris.

Is September 5 the date for the patent ruling? Yes, about 2 patent applications, we believe we will know the outcome at the end of the hearing. We have an appeals process ongoing that keeps the patent with us for 3 to 5 years.

Could a Soliris biosimilar put pressure on Ultomiris pricing? Earliest EU biosimilar to Soliris three years away, by then most patienst will be converted to Ultomiris.

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