Analyst Conference Summary

Biotechnology

conference date: October 23, 2019 @ 5:00 AM Pacific Time
for quarter ending: September 30, 2019 (third quarter 2019, Q3)

Forward-looking statements

Overview: Continued strong revenue growth, increased guidance, plus new regulatory approvals, decision to acquire Achillion.

Basic data (GAAP):

Revenue was $1.26 billion, up 5% sequentially from $1.20 billion and up 23% from $1.03 million in the year-earlier quarter.

Net income was $468 million, up 2% sequentially from $460 million, and up 41% from $331 million year-earlier.

EPS (diluted earnings per share) was $2.08, up 2% sequentially from negative $2.04 and up 41% from $1.47 year-earlier.

Guidance:

Increased for full year 2019. Revenue $4.86 to $4.89 bilion. R&D expense 17% to 18% of revenue(GAAP) or 14% to 15% non-GAAP. SG&A expense 24% to 25% GAAP or 21% to 22% non-GAAP. Operating margin 41% to 42% GAAP, 55% to 56% non-GAAP. EPS $8.58 to $8.78 GAAP, 4$10.25 to $10.40 non-GAAP.

Conference Highlights:

Ludwig N. Hantson, PhD, CEO, said: "We have delivered another record performance in the third quarter, building on our momentum from the first half of 2019. Our teams continued to demonstrate launch excellence across the globe, with very rapid starts to the German and Japanese Ultomiris PNH launches, where conversion is progressing ahead of the best-in-class U.S. launch at the same time points, as well as a strong start to the Soliris NMOSD launch in the U.S.. We also continued to expand our portfolio with two additional approvals - Ultomiris for atypical HUS in the U.S. and Soliris for NMOSD in the EU - and three new business development transactions that further diversify our pipeline, including an agreement to acquire Achillion." Conversion to Ultomiris is rapid, with a majority of PNH patients converted.

On October 16, Alexion announced it would acquire Achillion. The deal should close in the first half of 2020.

In October 2019, the DA approved Ultomiris for the treatment of aHUS to inhibit complement-mediated thrombotic microangiopathy (TMA) for adults and children one month and older. Applications for approval in the EU and Japan are under review. A Phase 3 study in children and adolescents with aHUS is underway.

In August 2019, the European Commission approved Soliris for adults with anti-aquaporin-4 (AQP4) auto antibody-positive NMOSD. An application for approval in Japan is under review. Alexion plans to initiate a Phase 3 study in children and adolescents with NMOSD by the end of 2019.

Alexion is collaborating with Caelum Biosciences to develop CAEL-101 for light chain (AL) amyloidosis, a rare systemic disorder that causes misfolded immunoglobulin light chain protein to build up in and around tissues, resulting in progressive and widespread organ damage. A pivotal Phase 2/3 study investigating CAEL-101 as an add-on to current standard-of-care therapy is planned to begin in the first half of 2020. In October 2019, the European Commission granted orphan drug designation to CAEL-101 for the treatment of AL amyloidosis.

In September 2019, Alexion announced an agreement with Eidos for an exclusive license to develop and commercialize AG10 in Japan. AG10 is a small molecule designed to treat the root cause of transthyretin amyloidosis (ATTR) – destabilized and misfolded transthyretin (TTR) protein – by binding and stabilizing TTR in the blood. Eidos is currently evaluating AG10 in a Phase 3 study in the U.S. and Europe for ATTR cardiomyopathy (ATTR-CM) and plans to begin a Phase 3 study in ATTR polyneuropathy (ATTR-PN). Alexion plans to expand the AG10 program into Japan in 2020, pending regulatory feedback.

In October 2019, Alexion announced an agreement with Stealth BioTherapeutics for an option to co-develop and commercialize elamipretide for mitochondrial diseases. Currently being evaluated in a Phase 3 study in people with primary mitochondrial myopathy (PMM) - a genetic mitochondrial disease - elamipretide is a novel, potential first-in-class therapy that targets mitochondrial dysfunction. Alexion will have the opportunity to exercise the option following the delivery of results from the Phase 3 PMM study, which are expected in the first quarter of 2020. If exercised, the option also provides for co-development and commercialization of elamipretide in Barth syndrome, Leber’s hereditary optic neuropathy (LHON) and geographic atrophy associated with dry age-related macular degeneration (GA).

Non-GAAP numbers: net income was $636 million, up 5% sequentially from $605 million and up 38% from $460 million year-earlier. Diluted EPS $2.79, up 6% sequentially from $2.64, and up 38% from $2.02 year-earlier.

Cash and equivalents balance $2.22 billion, up sequentially from $2.09 billion. Debt $2.41 billion. $ free cash flow. In October 2019, approved a new share repurchase authorization of $1 billion.

Alexion is collaborating 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

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 is collaborating with Dicerna Pharmaceuticals to jointly discover and develop up to four subcutaneously delivered GalXC RNA interference (RNAi) candidates, currently in pre-clinical development, for the treatment of complement-mediated diseases.

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 $95 million. R&D expense was $233 million. SG&A expense was $299 million. Amortization of purchased intangibles $76 million. Change in fair value of contingent consideration $30 million. Restructuring $0.3 million. Total operating expenses were $638 million, leaving operating income of $530 million. Interest and other expense net was $5 million. Income tax was $68 million.

Q&A summary:

gMG, myasthenia gravis, launch in U.S? Launch is going well, at two year aniversary, did not expect a bolus. Helped prepare for NMOSD launch. gMG population is over 1,500 in U.S., but believes could actually be 60K to 80K.

NMOSD metrics? Strong launch so far, some physicians need to differentiate from MS relapses. There is off label Rituxan use for NMOSD.

Soliris projectory while Ultomiris launches? Our neurology business is disproportionately U.S. and Japan. But we expect conversion to Ultomiris around the world, long term, with further indication approvals. We believe orphan drug designation offers some protection from biosimilar competition, and in any case don't see patients backtracking to Soliris once converted to Ultomiris.

Discussed advantages of sub-cutaneous of Ultomiris. Has a special injector, and the volume injected is very low.

The opportunities available push us to increase research expense and continue with bringing in external assets.

Achillion C3G? We have only annecdotal reports of Soliris use for C3G. Achillion is expecting Phase 2 data next year.

We are seeking guidance on Soliris for ALS function and survival. We are waiting for the final design approval by regulators.

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