CHESHIRE Feb 5, 2020 (Thomson StreetEvents) -- Edited Transcript of Alexion Pharmaceuticals Inc earnings conference call or presentation Thursday, January 30, 2020 at 12:30:00pm GMT

Alexion Pharmaceuticals, Inc. - Executive VP & CFO

* Brian M. Goff

Alexion Pharmaceuticals, Inc. - Executive VP & Chief Commercial and Global Operations Officer

* John J. Orloff

Alexion Pharmaceuticals, Inc. - Executive VP and Head of Research & Development

* Ludwig N. Hantson

Alexion Pharmaceuticals, Inc. - CEO & Director

SVB Leerink LLC, Research Division - Director of Therapeutics Research, MD & Senior Biotechnology Analyst

Evercore ISI Institutional Equities, Research Division - Senior MD & Equity Analyst

* Kennen B. MacKay

RBC Capital Markets, Research Division - MD & Co-Head of US Biotechnology Research

Ladies and gentlemen, thank you for standing by. And welcome to the Alexion Pharmaceuticals Fourth Quarter and Full Year 2019 Results Conference Call. (Operator Instructions) Please be advised that today's conference may be recorded.

I would now like to hand the conference over to Morgan Sanford, Director, Investor Relations. Please go ahead, ma'am.

Thank you, operator. Good morning. Thank you for joining us on today's call to discuss Alexion's performance for the fourth quarter and full year 2019.

Today's call will be led by Ludwig Hantson, our CEO. Ludwig will be joined by Aradhana Sarin, our Chief Financial Officer; John Orloff, our Global Head of R&D; and Brian Goff, our Chief Commercial and Global Operations Officer.

You can access the webcast slides that will be presented on this call by going to the Events section of our Investor Relations page on our website.

Before we begin, I would like to point out that we will be making forward-looking statements, and these statements involve certain risks and uncertainties that could cause our actual results to differ materially. Please take a look at the risk factors discussed in our SEC filings for additional detail.

These forward-looking statements apply only as of today, and we undertake no duty to update any of the statements after the call, except as required by law.

I'd also like to remind you that we will be using non-GAAP financial measures, which we believe provide useful information for the understanding of our ongoing business performance. Reconciliations of our financial results and financial guidance are included in our press release. These non-GAAP financial measures should be considered, in addition to but not as a substitute for our GAAP results.

Thank you. Ludwig?

Ludwig N. Hantson, Alexion Pharmaceuticals, Inc. - CEO & Director [3]

Thank you, Morgan, and good morning, everyone. Before we review our fourth quarter and 2019 full year performance, I would like to take a brief moment to announce that we have successfully closed on our acquisition of Achillion Pharmaceuticals, which represents an important step in diversifying our business. Through this acquisition, we add 2 clinical stage assets to our portfolio with danicopan and 5228. We are thrilled to welcome our Achillion colleagues to Alexion and excited about the opportunity to collaborate on the development of these Factor D assets for a broad range of rare diseases.

Turning now to our 2019 performance. We delivered on all of our key objectives, and in many cases, have surpassed our goals. ULTOMIRIS is now the market leader in PNH in our 3 largest markets: the U.S., Germany and Japan. The ULTOMIRIS' aHUS conversion is progressing well in the U.S. and we anticipate launching in the EU and Japan this year. We are also very pleased with the uptake of our neurology franchise, with continued growth of SOLIRIS and gMG and the launch in NMOSD. In just over 2 years, neurology has become our largest franchise in the U.S. by patient volumes. Our ambition is to quadruple the number of MG and NMOSD patients treated by SOLIRIS and eventually ULTOMIRIS in the U.S. by 2025.

Our metabolics portfolio continues to deliver strong growth as we work to expand access for HPP, LAL-D patients. Importantly, we have made great progress on our pipeline, and have an ambition for 10 launches from now until the end of 2023 through a combination of new assets, new formulations and new indications, and once again, have delivered on our financials with 21% revenue growth and 33% non-GAAP earnings growth in 2019.

Turning to Slide 6. We have a clear strategy for long-term value creation. First, we will move past SOLIRIS and establish ULTOMIRIS as market leader in PNH and aHUS in our 3 key geographies. Secondly, we will expand our C5 franchise beyond PNH and aHUS into larger rare diseases. We have ULTOMIRIS programs planned in 6 new indications, including 4 neurology and 2 nephrology indications. In parallel, we will continue to innovate with patients with new formulations and subcu treatment options.

Finally, we will diversify our portfolio beyond C5. Achillion is the most recent example of this effort. With Factor D, we have the opportunity to pursue development in a broad range of indications. Outside of this transaction, we have built a robust rare disease pipeline over the past few years and have clear line of sight to multiple potential blockbuster launches, including treatments for Wilson disease and AL amyloidosis. We have significant financial capacity to continue to diversify our pipeline in the future.

In addition to bringing in external assets to diversify our business, we are evolving our leadership in complement to expand our addressable patient population.

On Slide 7, you can see our business is rapidly moving beyond SOLIRIS. ULTOMIRIS is approved for 2 indications.

(technical difficulty)

This is Ludwig Hantson again. We had a technical issue. I hope that you guys can hear us okay. So what I will do is instead of restarting, we're going to start on Slide 6, and then we'll take it from there.

So turning to Slide 6. We have a clear strategy for long-term value creation. First, we will move past SOLIRIS and establish ULTOMIRIS as market leader in PNH and aHUS in our 3 key geographies. Secondly, we'll expand our C5 franchise beyond PNH and aHUS into larger rare diseases. We have ULTOMIRIS programs planned in 6 new indications, including 4 neurology and 2 nephrology indications. In parallel, we will continue to innovate for patients with new formulations and subcu treatment options.

Finally, we will diversify our portfolio beyond C5. Achillion is the most recent example of this effort. With Factor D, we have the opportunity to pursue development in a broad range of indications. Outside of this transaction, we have built a robust rare disease pipeline over the past few years and have clear line of sight to multiple potential blockbuster launches, including treatments for Wilson disease, and AL amyloidosis. We have significant financial capacity to continue to diversify our pipeline in the future.

In addition to bringing in external assets to diversify our business, we are evolving our leadership in complement to expand our addressable patient population.

On Slide 7, you can see our business is rapidly moving beyond SOLIRIS. ULTOMIRIS is approved for 2 indications and in development for 6 additional indications across neurology and nephrology. This year, we will transition to a high concentration formulation, which will shorten infusions to only 45 minutes. Next year, we plan to launch our once-weekly, on-body, subcu ULTOMIRIS formulation, offering patients a home-based self-administration option.

Our next-generation subcu assets, 1810 and 1720, offer improved patient dosing regimens. And we have significant optionality for indication selection with each of these assets. From there, we will expand with Achillion's Factor D platform. We see immense opportunity for all proximal complement treatments to transform standard of care in many complement-mediated diseases.

On Slide 8, you see that once again, we have delivered strong top and bottom line growth for the fourth quarter and the full year, which provides a solid foundation to continue to deliver on our value creation strategy. Again, I'm very pleased with our strong execution against our 2019 priorities and excited for 2020 as we build on our successes.

With that, I will now turn the call over to Rana.

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Aradhana Sarin, Alexion Pharmaceuticals, Inc. - Executive VP & CFO [4]

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Thank you, Ludwig. Starting with Slide 10, we reported fourth quarter total revenues of approximately $1.4 billion, an increase of 23% year-over-year. This was driven by strength in our neurology franchise, continued growth in the core businesses and ULTOMIRIS launch. Our non-GAAP operating margin was 51%, a reduction of 155 basis points versus prior year, driven by increased R&D spend as we advanced and further build our development portfolio. Non-GAAP EPS was $2.71, representing 27% growth year-over-year, driven primarily by strong top line growth and lower effective tax rate.

Moving to Slide 11. Fourth quarter total net product sales were primarily driven by patient volume growth in our key markets.

Turning to Slide 12. SOLIRIS revenues in the fourth quarter were approximately $1 billion, with year-over-year growth of 4%. SOLIRIS revenue growth was driven primarily by gMG revenues, partially offset by ULTOMIRIS' conversion dynamics. ULTOMIRIS revenues in the fourth quarter were $170 million, which now includes contributions from atypical HUS in the United States.

Metabolics revenues in the fourth quarter were $201 million, representing 32% year-over-year growth.

Turning to the P&L, on Slide 13. During the quarter, non-GAAP R&D expense was $227 million or 16% of revenues. Non-GAAP SG&A expense was $340 million or 25% of revenues. The non-GAAP effective tax rate in the quarter was approximately 12% and continued to benefit from certain onetime events, including the release of state income tax reserves related to the conclusion of an audit.

We reported fourth quarter non-GAAP EPS of $2.71, growing 27% year-over-year. GAAP earnings per share were $4. We ended the fourth quarter with approximately $2.7 billion in cash and marketable securities. This is not adjusted for the Achillion transaction.

I'll now turn to Slide 14 for our 2020 financial guidance. We are guiding to total revenues between $5.5 billion and $5.56 billion. This represents 11% growth year-over-year at the midpoint of the range. For SOLIRIS and ULTOMIRIS, our revenue guidance is $4.755 billion to $4.800 billion. This assumes continued momentum for SOLIRIS in gMG, our ongoing launch of SOLIRIS in NMOSD and the launches of ULTOMIRIS for PNH and atypical HUS.

Turning to metabolics. Our revenue guidance is $745 million to $760 million for both STRENSIQ and KANUMA. This includes the impact of the strategic pricing decision for STRENSIQ in the U.S. to support sustainability and access given weight-based dosing.

In 2020 and beyond, it is important to consider the dynamics associated with conversion from SOLIRIS to ULTOMIRIS, as it relates to the annual cost per patient. There's a revenue benefit when each patient starts ULTOMIRIS' PNH treatment due to the increased number of vials consumed during the loading dose. We benefited from this loading dose dynamic having converted 60-plus percent of patients in PNH to ULTOMIRIS over the course of 2019. We now expect to be impacted by lower annual treatment cost per patient, as the majority of patients move to maintenance dosing.

In atypical HUS and other indications in development, we will see a lower annual cost per patient compared to SOLIRIS for both loading dose and maintenance dosing. It is also important to consider quarter-over-quarter variability due to every 8-week dosing for ULTOMIRIS. However, this quarterly fluctuation will even out on an annual basis.

We have included a slide in the Appendix of this presentation to provide a summary of this dynamic and to serve as a reference going forward.

Non-GAAP operating margin is expected to be between 53.5% and 54.5% of revenues. Non-GAAP R&D expense is expected to be between 17.5% and 18.5% of revenues and represents a step-up of approximately $270 million versus prior year, consistent with our intention to further build out and progress the pipeline.

Clinical program spend, particularly for late-stage development, is planned to increase in 2020. R&D expense also includes program costs and potential milestones for previously-announced BD transactions and collaborations.

Non-GAAP SG&A spend is expected to be between 19.5% and 20.5% of revenues for the full year 2020 and reflects increased leverage from top line growth. We expect the non-GAAP effective tax rate to be between 16% and 17%.

In 2019, the non-GAAP effective tax rate benefited from certain onetime items. Absent these onetime benefits, our 2019 non-GAAP tax rate would have been approximately 15%. We expect our non-GAAP effective tax rate to increase in the future as a result of tax regulation changes outside the U.S.

GAAP EPS is expected to be between $7.91 and $8.71. Non-GAAP EPS is expected to be between $10.65 and $10.85. The midpoint of the non-GAAP EPS is approximately 2% growth year-over-year as a result of increased R&D spend and an increased tax rate compared to prior year. This guidance reflects the financial impact of our recently closed Achillion acquisition, but does not reflect any future M&A that we may pursue.

As you can see on Slide 15, we have established a track record of strong financial execution. Since 2017, we have delivered double-digit total revenue and non-GAAP EPS growth, while maintaining a competitive non-GAAP operating margin. We continue to invest in our R&D programs and have increased our non-GAAP R&D spend as a percentage of revenues to within 16% to 19%, in line with our biotech peers. With the current momentum of the business, we are well positioned to deliver on our 2020 financial goals.

I'll now turn the call over to John to provide an update on R&D.

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John J. Orloff, Alexion Pharmaceuticals, Inc. - Executive VP and Head of Research & Development [5]

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Thank you, Aradhana. On Slide 17, you can see our current development portfolio. We now have 19 planned clinical stage development programs for 2020. In the coming weeks and months, we expect to report interim data from our Phase III once-weekly, on-body, subcutaneous ULTOMIRIS program; an update on our anti-FcRn studies; and interim data from the Phase II study of danicopan and C3G. We're excited about the acquisition of Achillion and look forward to providing additional detail in the coming months as we embark on the integration.

Just a few weeks ago, we reiterated our ambition to execute 10 launches by 2023 from our current portfolio. On Slide 18, you can see our R&D highlights, which summarized these programs, including stage in clinical development and the estimated addressable population. We are expanding our C5 presence well beyond the PNH and atypical HUS business and are advancing ULTOMIRIS into 5 additional indications across neurology and nephrology. Together, the ULTOMIRIS programs present an opportunity to expand our treated patient population by tens of thousands of patients. We believe in the compelling value proposition of ULTOMIRIS, which has been received well by patients, physicians and other key stakeholders, and are continuing to innovate with a high-dose concentration, reducing infusion time to 45 minutes and a once-weekly, on-body ULTOMIRIS subcutaneous formulation.

In addition to ULTOMIRIS indication expansion programs, we see opportunity to diversify our business beyond C5, with 4 additional late-stage novel assets. Our Phase III Superiority Trial for ALXN1840 in Wilson's disease remains ongoing. 1840 is an oral, once-daily therapy, with 10,000-fold higher affinity for copper than current standard of care chelators, which have core compliance rates due to burdensome dosing regimens. We're on the verge of completing enrollment and expect a top line readout in the first half of next year.

We plan to initiate a Phase II/III program for CAEL-101 in AL amyloidosis in the coming months. We see potential for this late-stage asset to transform the treatment of AL amyloidosis, a disease characterized by misfolded kappa and lambda light chains, resulting in abnormal deposits of amyloid, which can lead to organ failure. Patients are currently treated with chemotherapeutic agents not approved for amyloidosis, and median survival rates are only 18 months post-diagnosis.

Clinical data supporting our rationale for the collaboration showed a 63% overall organ response rate in addition to efficacy on cardiac and renal endpoints. Our Phase II/III program will look at an overall survival primary endpoint with patient function, quality of life and cardiac imaging serving as secondary endpoints.

Last year, we announced a license agreement with Eidos, to develop and commercialize AG10 for ATTR cardiomyopathy in Japan. AG10 is a small molecule designed to address destabilized and misfolded transthyretin protein, which is the root cause of ATTR. We believe AG10 has potential to stabilize TTR and halt disease progression. Pending regulatory discussions, we plan to extend the AG10 development program into Japan later this year.

Finally, we are excited about our acquisition of Achillion and its Factor D platform. Achillion reported positive Phase II data for danicopan in PNH patients with extravascular hemolysis at a medical conference last year. We see opportunity for danicopan in a small subset of PNH patients with extravascular hemolysis. We see additional opportunity for danicopan and C3G, and expect interim Phase II data in the coming weeks, and we see great potential for ACH-5228, as twice daily, best-in-class Factor D oral treatment in PNH and a broad range of rare diseases.

We are excited about the opportunity for these 10 potential launches to significantly expand the number of treated patients and look forward to providing you with updates as we progress through the year.

Moving to Slide 19. We have plans to further expand and diversify our C5 leadership with our next-generation assets. Starting on the left, our weekly subcutaneous formulation of ULTOMIRIS for use in PNH and atypical HUS is in an ongoing Phase III PK-based trial. Leveraging the West Gen on-body device, we believe this will provide patients with the flexibility to choose how they wish to manage their disease within their lifestyle. We are expecting interim PK data in the second quarter of this year with a potential launch in 2021.

Next, we have the opportunity to evolve our terminal complement subcutaneous treatment options with ALXN1720 and 1810. 1720 is our internally-designed bi-specific C5 inhibitor. At only 25 kilodaltons, 1720 is a unique mini-body tailor-made for convenient subcutaneous administration. We see opportunity for this asset in a number of larger rare disease indications, and we look to initiate a proof-of-concept study in the first half of next year.

Finally, 1810 is our co-formulation of ULTOMIRIS in Halozyme's PH20 hyaluronidase, which allows for biweekly subcutaneous dosing. We've recently disclosed our plans to start a Phase II renal basket trial with 1810 and look forward to providing additional updates as this program progresses.

Together, these 3 assets represent an opportunity for Alexion to expand our offerings for patients living with complement-mediated rare disease. Our development portfolio has grown significantly in the last 2.5 years, and I'm incredibly proud of all the hard work undertaken by the entire R&D organization.

With that, I'll turn the call over to Brian to provide commercial highlights for the quarter. Brian?

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Brian M. Goff, Alexion Pharmaceuticals, Inc. - Executive VP & Chief Commercial and Global Operations Officer [6]

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Thank you, John. Turning first to Slide 22. We've seen unprecedented progress in establishing ULTOMIRIS as the market leader in PNH. This is due in large part to the compelling value proposition, which includes strong data from the largest and most inclusive PNH clinical program ever conducted. The broad inclusion criteria in the 2 Phase III trials ensure their study patient population would be representative of the real-world PNH population.

Specifically, we enrolled transfusion-independent and transfusion-dependent patients, with no baseline hemoglobin or absolute reticulocyte count requirements. We also included patients with prior history of bone marrow failure, which is critical because roughly 40% to 50% of PNH patients have a history of bone marrow failure or aplastic anemia.

As of Monday of this week, we've converted 60% of PNH patients to ULTOMIRIS in the U.S., 62% in Germany and 53% in Japan, making ULTOMIRIS the PNH market leader in our 3 largest volume countries.

Our latest launch of ULTOMIRIS in atypical HUS in the U.S. is also off to a strong start. While it's still early days, conversion is tracking in line with the PNH conversion curve at the same time point since launch.

Our neurology business is now our largest franchise by patient volume, and this was achieved in just 2 years since launch. On Slide 23, you can see we exited the fourth quarter with 1,885 patients on treatment with SOLIRIS for gMG and NMOSD in the U.S. We've made significant progress advancing our presence in gMG and with our NMOSD launch. gMG patients continue to have broad access to SOLIRIS. Our strong NMOSD launch is underpinned by our remarkable Phase III data, showing 98% of patients relapse-free at 48 weeks, with sustained efficacy out to 3 years. We're making progress educating payers on the severity of NMOSD attacks, the objective of preventing all relapses and the difference between NMOSD and MS. As a result of these efforts, payer adoption of coverage policies for NMOSD has been rapid, and we're seeing strong adherence to SOLIRIS therapy in both gMG and NMOSD.

Looking ahead, we're well positioned to deliver on our ambition of quadrupling our U.S. gMG and NMOSD-treated patient population within the next 5 years, with potential for ULTOMIRIS to launch in late 2022 or early 2023 as an every 8-week infusion. Our once-weekly, on-body subcutaneous formulation plan to launch simultaneously with the IV formulation will provide another important treatment option for patients who prefer self or home-based administration.

Our target gMG population represents more severe, uncontrolled patients, and we believe this is a unique space where SOLIRIS, and then ULTOMIRIS, can serve as a highly effective treatment option. In NMOSD, our target patient population mirrors inclusion criteria in our Phase III SOLIRIS PREVENT trial. With our dedicated neurology team, we believe our commercial organization is well positioned to deliver on our 2025 ambitions.

I'd like to take a brief moment to thank both our global commercial and global operations organizations for their hard work and dedication, which has enabled us to excel with multiple launches and continue to bring hope to the rare disease patients we serve.

I'll now turn the call back to Ludwig for closing comments. Ludwig?

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Ludwig N. Hantson, Alexion Pharmaceuticals, Inc. - CEO & Director [7]

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Thank you, Brian. Once again, I'm very proud of what the team delivered in 2019. We're well positioned to further build on our momentum in 2020, and there is much to look forward to this year. We have laid out a clear strategy to deliver long-term shareholder value by establishing ULTOMIRIS as market leader in PNH and aHUS, expanding our presence in C5, including planned programs in neurology and nephrology and continue to look for opportunities to diversify our business beyond C5.

Importantly, we maintain our unwavering focus on patients and our commitment to advance our mission to deliver life-changing therapies to people living with rare diseases.

With that, we will now open the call to questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Cory Kasimov of JPMorgan.

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