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Alexion Pharmaceuticals (NASDAQ:ALXN)

Q1 2013 Earnings Call

April 25, 2013 10:00 am ET

Executives

Irving Adler - Executive Director of Corporate Communications

Leonard Bell - Co-Founder, Chief Executive Officer, Treasurer and Director

Vikas Sinha - Chief Financial Officer and Executive Vice President

David L. Hallal - Chief Commercial Officer and Executive Vice President

Stephen P. Squinto - Co-Founder, Chief Global Operations Officer and Executive Vice President

Analysts

Eric Schmidt - Cowen and Company, LLC, Research Division

Rachel L. McMinn - BofA Merrill Lynch, Research Division

Geoffrey C. Meacham - JP Morgan Chase & Co, Research Division

Salveen J. Richter - Canaccord Genuity, Research Division

David Friedman - Morgan Stanley, Research Division

Robyn Karnauskas - Deutsche Bank AG, Research Division

Shin Kang - Wells Fargo Securities, LLC, Research Division

Matthew Roden - UBS Investment Bank, Research Division

Terence C. Flynn - Goldman Sachs Group Inc., Research Division

Ying Huang - Barclays Capital, Research Division

Geoffrey C. Porges - Sanford C. Bernstein & Co., LLC., Research Division

Joshua Schimmer - Lazard Capital Markets LLC, Research Division

Richard Reznick

Stephen D. Willey - Stifel, Nicolaus & Co., Inc., Research Division

Operator

Good morning, and welcome to the Alexion Pharmaceuticals, Inc. First Quarter 2013 Results Conference Call. Today's call is being recorded.

For opening remarks and introduction, I would like to turn the conference over to Irving Adler, Executive Director, Corporate Communications. Please go ahead, sir.

Irving Adler

Thank you, operator, and good morning. Thank you for joining us on today's call to discuss Alexion's performance for the first quarter of 2013 and our outlook for the year.

Today's call will be led by Dr. Leonard Bell, our Chief Executive Officer. Lenny will be joined by members of Alexion management: Dr. Steve Squinto, Executive Vice President and Head of Research and Development; Vikas Sinha, Executive Vice President and Chief Financial Officer; and David Hallal, Executive Vice President and Chief Commercial Officer.

Before we begin, I'd like to note that during this call, we will make forward-looking statements, all of which involve certain assumptions, risks and uncertainties that are beyond our control and could cause our actual results to differ materially from these statements. A description of these risks can be found in our most recent 10-Q and 10-K reports on file with the SEC. Any forward-looking statements speak only as of today's date and we undertake no duty to update any of these statements after this call.

I'd also like to remind you that our reported non-GAAP operating results are adjusted from our U.S. GAAP operating results for certain adjustments that were described in our press release issued this morning. A reconciliation of our GAAP to non-GAAP results is included in the release. Thank you. Lenny?

Leonard Bell

Thank you, Irving. In the first quarter of 2013, Alexion maintained our strong momentum in our mission to develop and deliver life-transforming therapies for patients with severe and life-threatening disorders that are also ultra-rare. During the quarter, we also received a warning letter from the FDA, which I will briefly address later in my remarks. In his section of the call, Steve will provide a comprehensive review of the letter, our submitted response and our ongoing actions.

During Q1, we significantly progressed our 3 primary commercial and product development initiatives. First, our global rollout in PNH proceeded with a steady addition of new patients commencing Soliris therapy across our nearly 50-patient global commercial platform. Second, we continue to observe a steady addition of new patients with aHUS receiving Soliris therapy in the United States and have now started to increase our operations to serve an increasing number of patients in Western Europe. Third, Q1 was an especially noteworthy quarter across the breadth of our R&D pipeline.

I am pleased to announce that we completed enrollment in the multinational deceased donor kidney transplant trial ahead of schedule, recently agreed with regulators on conducting a single pivotal registration trial in myasthenia gravis, completed enrollment in the natural history study of hypophosphatasia in infants, initiated a retrospective clinical study of cPMP and MoCD and following positive discussions with regulators, are now also planning to initiate the first study with our newly manufactured synthetic cPMP.

Looking more closely at PNH, in Q1, a significant number of new patients, again, commenced Soliris therapy in our core territories in the United Estates, Western Europe and Japan, augmented by steady contributions from Turkey, Brazil and Russia and other countries across our global operations.

Turning to aHUS. In the United States, during Q1, we again observed a steady increase in the number of patients commencing Soliris therapy. Our aHUS performance in Q1 continued to reinforce our belief that over time, we have the opportunity to serve a similar or greater number of aHUS patients compared to PNH across our nearly 50-country platform.

In our aHUS operations in Western Europe, we continue to progress the reimbursement processes in key countries and anticipate additional commercial launches in the second half of this year. In England, the government has very recently clarified to Alexion and patient groups its process for providing access to Soliris for patients with aHUS. To begin, it will now fund Soliris for any newly arising case of aHUS. NHS England will subsequently develop our policies specific to aHUS, which in turn will be expected to be operative until the NICE recommendation.

Turning to our increased 2013 guidance. With continued strength in serving a growing number of patients with PNH globally, together with the newly increased visibility to serve additional aHUS patients in the latter part of this year, we announced today that we have raised our revenue and earnings forecast for the year.

I would now like to briefly discuss the warning letter from the FDA that we received in March regarding compliance with current GMPs for Soliris in our Rhode Island manufacturing facility. Earlier this month, we submitted our comprehensive response to the FDA. I would also remind you that in his section of the call, Steve will provide a comprehensive review of the letter, our submitted response and our ongoing actions.

We are taking observations detailed in the warning letter very seriously with a substantial amount of focus and attention at the highest levels of the company, including our board. As we work diligently to improve our performance and to address the agency's concerns, our overall objectives are to broadly review and to raise the bar in all aspects of our manufacturing quality operations, even beyond the requirements of the FDA and other regulatory authorities.

Before I briefly review our response to the letter, I note 2 important points regarding supply. First, our release lots have met our rigorous specifications for final product, which are approved by the FDA as well as other regulatory agencies. And second, in light of the multiple layers of supply chain redundancy we have established in recent years, we believe that the supply of Soliris to patients will not be interrupted. We note that the warning letter does not restrict production of Soliris or shipment of Soliris from the Rhode Island facility and we continue to manufacture Soliris in this facility.

In addition, a second and independent facility, in this case a contract manufacturer, is also currently approved worldwide for production of Soliris. Further, a third independent facility, also a contract manufacturer, was validated in 2012 for production of Soliris, and we are currently completing our regulatory submissions for this independent facility. We anticipate that the first approval for this additional Soliris manufacturing facility will occur in the fourth quarter of 2013.

While we continue to build additional inventory, with further manufacturing runs scheduled at all 3 Soliris facilities later this year, we estimate that our current inventory of Soliris approved for commercial sale is sufficient for at least 4,000 patient years of treatment. Importantly, our expectations for BLA filings relating to new indications for Soliris and for new products remain unchanged in light of our multiple supply sources.

The letter focuses on 2 sets of observations. The first, regard the adequacy of our investigation of bacterial contaminations in selected batches during the earliest pre-purification steps of the manufacturing process. And second, regarding the robustness of our quality systems. In regard to the previously observed bacterial contaminations in the earliest pre-purification steps, we believe that they were caused by environmental sources inside the plant. During the latter part of 2012, we addressed these root causes by making physical corrections in the facility to prevent potential recurrence of bacterial contamination and by having improved our equipment cleaning procedures. Also regarding the first observation, we are currently developing assays to specifically demonstrate effectiveness of the current initial pre-purification steps to eliminate any bacterial contaminant.

Importantly, and turning to the FDA's second observation, we are also working with several independent industry experts to comprehensively review, test and improve our quality system procedures and programs to prevent future recurrences in the early process steps and to strengthen our overall control processes. Beyond the anticipated resolution of the warning letter, we are committed to a business model in which we are constantly seeking to improve our performance across our manufacturing and quality operations through ongoing self-critical analysis augmented by independent experts.

Finally, and as we announced this morning, we're also directly increasing the senior talent level overall in the R&D and manufacturing organizations with an important objective being a higher level of senior focus, specifically on the manufacturing quality areas. As I noted, in his section of the call, Steve will provide a comprehensive review of the letter, our submitted response and our ongoing actions.

Turning to R&D. Q1 was especially noteworthy across the breadth of our development pipeline. I'd like to highlight 4 key milestones that were achieved in the quarter. First, we completed enrollment in the deceased donor kidney transplant trial ahead of schedule, and we expect data to be presented by year end. Second, as an NMO and following recent and positive discussions with regulators, we now plan to conduct a single pivotal registration trial in myasthenia gravis. We are now finalizing clinical protocols for this study and plan to commence enrollment in the second half of this year. Third, in our hypophosphatasia program, we have now completed enrollment in the interim natural history study, which is a key component of our pediatric clinical program. We remain on track for a pediatric filing for asfotase alfa in the United States and Europe in 2014. And fourth, we have now initiated a retrospective study of cPMP and MoCD patients. And following positive discussions with regulators, we are now also planning to initiate the first study with our synthetic cPMP as well as to initiate a natural history study in patients with MoCD Type A.

Finally, in our press release this morning, we announced important additions and enhancements to our executive leadership team as we continue to strengthen and broaden our talent at all levels. I am particularly pleased to announce that Steve Squinto, a co-founder of Alexion with me, is being promoted to the newly created position of Executive Vice President and Chief Global Operations Officer. In his new role, Steve will increasingly focus his activities on leadership of our critical technical operations and quality organizations. As Steve steps into his new position, we are pleased that Martin Mackay will be joining Alexion in mid-May as Executive Vice President and Global Head of R&D, from his previous position as President, Research and Development at AstraZeneca. I am excited to work with Martin as together, we drive to serve more patients with severe and ultra-rare disorders.

I am also pleased that Saqib Islam has joined us as Senior Vice President, Chief Strategy and Portfolio Officer from his previous position as Managing Director, Head of Health Care Capital Markets at Credit Suisse. In his new position, Saqib will focus on accelerating and executing our current corporate growth strategies.

At this point, I'll turn the call over to Vikas. Vikas?

Vikas Sinha

Thanks, Lenny. Q1 2013 was another period of strong financial performance by Alexion. During the quarter, we achieved continued steady growth in revenues and profits, and cash flow was again robust. Details of our financial performance are included in this morning's press release. I'd like to highlight a few points regarding Q1 and then look ahead to some key considerations for the remaining of the year.

Soliris sales in Q1 were $338.9 million, a 38% increase compared to Q1 2012. During the quarter, we continued to grow our global PNH business in our existing territories. And in Q1, we achieved steady growth in our aHUS revenues in the U.S. and also saw an early positive impact from Western Europe. Importantly, we expect to increasingly leverage our investments in our commercial operations, which are now in place to serve patients with severe and life-threatening disorders in nearly 50 countries.

As we executed strongly on patient-centered initiatives in Q1, we continued to control both SG&A and R&D expenses well within our guided ranges. Likewise, SG&A in the quarter was 29% of revenues and R&D was 19%, again, within our targets. Strong top line performance, combined with control of other key financial parameters, resulted in a 49% increase in non-GAAP net income to $131 million or $0.65 per share in Q1 2013. Non-GAAP net income excludes upfront and milestone payments related to technology acquisition, which had a favorable impact of approximately $0.01 on EPS in Q1.

Turning to our balance sheet. Cash and cash equivalents at quarter end were just over $1 billion. This reflects positive cash flow from our business during the quarter, offset by our share repurchase program and payment of accrued taxes related to the Enobia acquisition. Turning to our guidance, we are now raising our 2013 revenue guidance from the previous range of $1,490,000,000 to $1,505,000,000 now to the higher range of $1,505,000,000 to $1,520,000,000. This improved revenue performance, coupled with continued discipline in our operating and manufacturing expenses, is enabling us to meaningfully improve our 2013 non-GAAP EPS guidance from the previous range of $2.82 to $2.92, now to the higher range of $2.87 to $2.97.

We are reiterating all other aspects of our previously announced 2013 financial guidance. I would like to note some key considerations regarding our new 2013 guidance. In Q1, we experienced a negative currency impact on revenues of $1 million net of hedging compared to Q4, driven by weakness in Japanese yen. Despite the further weakening of the yen, particularly in Q2, and the expected impact on our business results in Japan toward the remainder of the year, we are able to increase our global revenue guidance.

With regard to operating expenses, and as in past years, we expect that SG&A in Q2 and Q4 will be higher than in Q1, reflecting our participation in a growing number of major medical conferences. We also expect that R&D expenses will increase in the remaining quarters of this year, as we continue to accelerate our 9 lead development programs. These expense expectations are likewise within our reiterated expense guidance.

We are pleased with our progress in the first quarter of the year and look forward to serving more patients across our operations in coming quarters.

At this point, I'll turn the call over to David. David?

David L. Hallal

Thanks, Vikas. In the first quarter of 2013, global revenues from our Soliris operations increased by a robust 38% compared to the first quarter of 2012, reflecting continued growth in PNH globally, a steady addition of new patients with aHUS in the U.S. and a small contribution from Western Europe. As we continue to grow our PNH operations by achieving deeper penetration in the nearly 50 countries in which we serve patients, we are also serving an increasing number of patients with aHUS in the U.S. At the same time, we also expect to serve an increasing number of aHUS patients in Western Europe as we progress through the reimbursement processes in major EU countries throughout the year.

Looking more closely at PNH in Q1, our diagnostic and disease awareness initiatives are resulting in high levels of identification of new patients with PNH in our core territories of the U.S., Western Europe and Japan. As in prior quarters, the majority of PNH patients newly starting on Soliris during Q1 were also newly diagnosed, indicating the strong potential for further growth in PNH. Beyond our core territories, we continue to expand our operations in additional large countries. In Turkey, Brazil and Russia, we are in the early stages of expanding our disease awareness and diagnostic initiatives and expect that we will see a steady rate of new patient identification and Soliris treatment initiation in these countries over time.

We are also now focusing on Korea as the next major country in our global PNH rollout, commencing later in 2013. In addition, we see a significant opportunity to serve patients with PNH in multiple countries in Latin America, specifically Argentina, Colombia and Mexico, also commencing later in 2013 and growing further in 2014. Our goal is to optimize patient care broadly over our 50-country commercial platform. As we enter the seventh year since our initial PNH launch, we continue to grow in our existing territories and to serve PNH patients in new countries. We remain acutely aware that worldwide, the majority of patients with PNH have not yet received an accurate diagnosis, let alone commenced appropriate treatment.

Turning now to aHUS and looking first at the U.S. In Q1, we again observed a steady increase in the number of new patients with aHUS commenting Soliris therapy. Also we continue to observe that the majority of patients who are newly starting on Soliris treatment are newly diagnosed, presenting urgently with this life-threatening condition.

As we progress with our aHUS launch, we are confident that 4 drivers will contribute to our long-term growth. First, an increasing number of patients with PMA will be tested for aHUS. Second, a shorter turnaround time for a higher proportion of ADAMTS13 tests. Third, once diagnosed with aHUS, a higher proportion of patients will be rapidly started on Soliris treatment. And finally, over time, physicians will more fully appreciate the genetic and lifelong nature of aHUS.

Our U.S. performance in aHUS provides a solid foundation for a strong global rollout for patients around the world. In Western Europe, as we begin to serve initial patients, our teams are planning for their individual country launches. And we are making meaningful progress with the reimbursement processes in key countries. In England, since the government has very recently clarified to Alexion and patient groups its process for providing access to Soliris, a small but increasing number of initial aHUS patients are beginning to receive Soliris. In line with this new access program, our field team is now commencing our aHUS disease awareness and diagnostic initiatives to support serving more patients. We would expect in England, as we have observed in the U.S., that over time, the majority of patients who newly start on Soliris treatment will be newly diagnosed, presenting urgently with this life-threatening condition.

In Germany, at the end of Q1 and as anticipated, hospitals obtained inpatient reimbursement for aHUS. Soliris is now funded in both outpatient and inpatient settings, and our German field team is proceeding to launch our aHUS initiatives. In France, we are continuing reimbursement discussions with the government, following the very high ASMR II rating that Soliris received for aHUS late last year. We expect that the strong recognition of the clinical benefits of Soliris will support broad access to therapy in France, and we expect these discussions to progress through midyear.

In Italy, during Q1, the government continued to provide Soliris through an early access program for patients with aHUS, as we advanced through the reimbursement process to cover all patients with aHUS. In Spain, selected initial aHUS patients are starting to receive access to Soliris locally, as we progress through the national government reimbursement process. And in the Netherlands, a small number of initial patients with aHUS now have access to Soliris therapy, following the add-on status granted last year by the CVZ authority of the Dutch government. Outside of Europe and based on our recent aHUS registration filing in Japan, our in-country commercial team is now laying the foundation for our anticipated launch in 2014.

Beyond our current Soliris indications in PNH and aHUS, we are building our global commercial operations to prepare for the launches of a series of new indications for Soliris as well as in 2014, the anticipated launch of our next product, asfotase alfa, as a treatment for patients with HPP. Our metabolic team continues to identify the medical needs of the HPP community, mindful that diagnoses can be missed and the natural history of the disease may be misunderstood. With the progress of our transplant development programs, our Nephrology team is continuing to develop our early commercial plans for a potential launch in kidney transplant. They are also continuing their efforts to better understand the disease and diagnostic patterns of STEC-HUS. Importantly, as our development teams are now planning single pivotal registration trials in our 2 lead neurology indications for Soliris, we are starting to develop our plans on how best to serve patients with NMO and MG to severe, life-threatening and ultra-rare disorders.

In closing, we look forward to serving more patients with PNH and aHUS in more countries in 2013, and to expanding our commercial platform to serve patients with additional severe and life-threatening ultra-rare disorders in the years ahead.

Now, I'll turn the call over to Steve, who will review our expanding pipeline initiatives. Steve?

Stephen P. Squinto

Thanks, David. The first quarter of 2013 was especially noteworthy across the breadth of our R&D programs, which are now focused on 5 highly innovative therapeutic candidates, including eculizumab, at various stages of development across 9 severe and life-threatening disorders that are also ultra-rare. As Lenny noted, we are pleased to announce that during the quarter, we completed enrollment ahead of schedule in the multinational deceased donor kidney transplant trial and are expecting data to be presented later this year.

Following recent and positive discussions with regulators, we now plan to conduct a single pivotal registration trial in myasthenia gravis. We completed enrollment in the natural history study of hypophosphatasia in infants. Finally, we initiated a retrospective study of cPMP and MoCD. And following positive discussions with regulators, are now also planning to initiate the first clinical study with our synthetic cPMP. In addition, we plan to initiate a natural history study in patients with MoCD Type A near midyear.

Before looking at our progress in individual programs, I would like to address some key points regarding the FDA warning letter and our response. As noted, our previously released lots have met all regulatory specifications for final product. And we further believe that the supply of Soliris to patients will not be interrupted, given our multiple layers of supply chain redundancy. Furthermore, and equally important from a development perspective, given our multiple production sites and systems, our expectations remain unchanged for BLA filings related to new indications for Soliris and for new products.

On April 16 -- our April 16 response to the FDA was prepared and critically reviewed by a team of senior internal management and external experts. The response documented changes that have already been completed, improvements under way and commitments and timelines for further improvements. As I indicated, we believe we have already addressed many of the FDA's observations in the original Form 483, since it was issued in August of 2012. Looking first at root causes, in regard to the previously observed bacterial contaminations in the earliest pre-purification steps, we believe that they were caused by environmental sources inside the plant.

I would highlight several improvements identified in our response to the FDA. First, we have reengineered and made physical corrections in the facility as well as improvements to prevent potential recurrence of bacterial contamination as well as improvements in the bioreactor cleaning procedures. Second, we are currently developing an assay to specifically demonstrate effectiveness of the current initial pre-purification steps to eliminate any bacterial contaminant. Third, we have already updated specific elements of our quality systems since the FDA inspection this past summer, and are continuing to further improve identified procedures. Fourth and perhaps most importantly, a particular role for our retained industry experts will be to comprehensively review and test all of our quality procedures and programs, a broad gap analysis across all of our system procedures. While this analysis will be important in order to fully resolve the FDA's concerns in an efficient and effective manner and to prevent further recurrences, it is equally important to strengthen our overall quality processes.

Overall, our objectives are to broadly review and to raise the bar in all aspects of our manufacturing and quality operations, even beyond the requirements of the FDA and other regulatory authorities. Beyond the anticipated resolution of the warning letter, we are committed to a business model in which we are constantly seeking to improve our performance across our manufacturing and quality operations through ongoing self-critical analysis, augmented by independent experts.

I would now like to discuss the progress of our R&D programs, beginning with eculizumab and looking first at neurology. We continue to accelerate our program in severe and relapsing neuromyelitis optica or NMO as we prepare to commence a single pivotal multinational registration trial in the second half of 2013. In addition, data from the previous investigator-initiated NMO study are expected to be published later this year. Importantly, we are also pleased to announce that as in NMO, following recent and positive discussions with regulators, we now plan to conduct a single pivotal registration trial in myasthenia gravis, which we expect to begin in the second half of 2013. We are currently finalizing the clinical protocol for this prospective controlled study in patients with severe refractory MG.

In kidney transplant, we are pleased to announce that we have recently completed enrollment ahead of schedule in our company-sponsored multinational deceased donor trial in patients at elevated risk of antibody mediated rejection or AMR. Data from this study are expected to be presented at a medical congress towards the end of this year.

I would like to point out that our deceased donor study will also evaluate delayed graft function or DGF as a key prospective secondary endpoint. We expect to discuss these DGF data with regulators as well as data from a separate investigator-initiated trial in DGF in the second half of the year in order to accelerate an Alexion-sponsored multinational DGF registration program. Enrollment in our company-sponsored multinational living donor transplant trial in patients with elevated risk of AMR is ongoing, and we expect to continue enrollment through 2013.

Turning to STEC-HUS. We are continuing to obtain and analyze additional and longer-term controlled clinical outcome data from an epidemiologic study in approximately 400 STEC-HUS patients who receive only best supportive care. We believe these longer-term data, when combined with the positive data from our company-sponsored 28-week single-arm eculizumab STEC-HUS trial in Germany, will strengthen our regulatory submission. We expect to apply for marketing authorization for eculizumab in the treatment of STEC-HUS near year end.

I will now turn to our lead development programs with highly innovative therapeutic candidates beyond eculizumab and starting with asfotase alfa. In Q1, we completed enrollment in the natural history study of hypophosphatasia in infants, which will supplement the existing open label asfotase alfa trials in infants. We are also planning to initiate enrollment in a 6-month placebo-controlled study of asfotase alfa in juveniles with HPP in the second half of the year. We remain on track for a pediatric filing for asfotase alfa in HPP in the U.S. and Europe in 2014. In addition, enrollment is ongoing in our clinical trial for asfotase alfa in Japan, and we expect to complete dosing in 2014.

Beyond asfotase alfa, we are evaluating 3 additional highly innovative therapeutic candidates as treatment for patients with severe and life-threatening disorders that are also ultra-rare across a wide range of therapeutic areas. In our metabolic disease area, were accelerating the development of our cPMP replacement therapy for the treatment of patients with molybdenum cofactor deficiency Type A, a severe, ultra-rare and genetic metabolic disorder that is fatal in newborns. Recently, we met with regulators to discuss the cPMP program and now plan to initiate a trial of our synthetic cPMP in normal volunteers near midyear. Additionally, we have also started a retrospective data collection from a small number of individual newborns with MoCD, who have been treated with an earlier form of the cPMP Replacement Therapy. Finally, we plan to initiate a natural history study in patients with MoCD Type A near midyear.

Also enrollment continues in a Phase I study of ALXN1102 and 1103, IV and subcu versions, respectively, of our novel, alternative pathway complement inhibitor. We are on track to complete these Phase I studies in the first half of this year and to meet with regulators to discuss trial data and the development program later in the year. And finally, after completing dosing in our single-dose Phase I clinical study of ALXN1007, our novel anti-inflammatory antibody, we plan to discuss the initiation of a multi-dose Phase I study with regulators near midyear. And following these discussions, we expect to explore development of ALXN1007 in multiple severe, life-threatening and ultra-rare conditions.

After a quarter of particularly noteworthy progress across the breadth of our development platform, Alexion's R&D team is focused on further accelerating our pipeline programs. All of our 9 lead programs are on track to reach important milestones this year. These milestones include registration trial initiations in both NMO and MG; in Japan, completion of clinical development in the aHUS study and enrollment in the HPP study; key data publications or presentations in NMO, MG, STEC-HUS, kidney transplant, HPP and aHUS; and trial enrollment completion across several lead programs.

In closing, our RD team will continue to drive our programs forward with urgency, as we plan to achieve these milestones this year to help patients and families suffering with severe and life-threatening, ultra-rare disorders. I will now turn the call back to Lenny. Lenny?

Leonard Bell

Thanks, Steve. We look forward to building on our achievements in the first quarter of the year to serve even more patients with more disorders in more countries in 2013 and beyond. We thank all those who make our work possible, our employees, researchers and physicians around the world, and of course, patients and their families.

Operator, we will now take questions.

Question-and-Answer Session

Operator

[Operator Instructions] We'll go first to Eric Schmidt with Cowen and Company.

Eric Schmidt - Cowen and Company, LLC, Research Division

Just a quick one for Steve on the root cause of the contamination. You mentioned you had identified an environmental source. Is that something that was introduced via a person or raw material or the airway supply? Any help you could give us there. And if Vikas could comment on any gross margin impact from all of your remediation efforts. I noticed that cost of goods were a little higher than expected in Q1.

Stephen P. Squinto

Yes, thanks, Eric. Let me start by saying, yes, we have identified the microbial agents that were the contaminating factors. They're soil-based organisms. We believe that they were probably introduced from someone's shoes, clothing, hair and probably related to an improperly functioning floor drain that has now been reengineered. And as I mentioned also on the call, we've also changed the way we clean and store our bioreactor equipment. And I think we have now -- we believe we've adequately addressed both of those issues.

Vikas Sinha

Eric, addressing the gross margin percentages. The expenses related to the FDA warning letter is not significant enough that it – and plus it'll not go into the cost of goods also. It'll probably be expensed within the R&D side. So it's not material. It's within the guidance. The gross margin for the full year, we'll stick with the guidance of 10%. And Stephen…

Stephen P. Squinto

Yes, Eric, I just want to make one further note. Actually, since all those changes have been made, we've really not had any early-in-process bioburden excursions since the changes were made. And actually, we've had a number now of substantial batches run successfully without any of these excursions.

Eric Schmidt - Cowen and Company, LLC, Research Division

Great. Vikas, is there any reason that COGS were a little higher in Q1?

Vikas Sinha

Yes, so 10.1% was in Q1. And Eric, because of the country mixes, because the revenues come in different currencies and the expenses are in U.S. dollars for COGS. Sometimes, we do see up and down, but over the year, we'll be okay.

Operator

We'll go next to Rachel McMinn with Bank of America Merrill Lynch.

Rachel L. McMinn - BofA Merrill Lynch, Research Division

Yes, I'm wondering if you could talk a little bit more about aHUS and, I guess, specifically, the idea that there is a higher incident population than maybe even PNH based on the U.S. run rate. I'm wondering, I guess, 2 points on that. One is how confident are you that you're seeing only aHUS and not getting some kind of more standard, more common HUS in there as well? And then do you have any visibility, I know it's early, but into the duration on Soliris at this point? They're somewhat connected, but I guess what I'm wondering is how should we think about this base? Are patients going to be coming off of therapy earlier because there's some HUS mix in there?

David L. Hallal

Yes. Sure, Rachel. So regarding the incidence, obviously, it's hard to tell what the specific incidence is. But we do think, and we've obviously been communicating since launch, that given the severity of aHUS, we didn't necessarily expect there to be a large prevalent pool of patients since half of them either die, progress to dialysis or have permanent renal damage. So what we are seeing on an ongoing basis is that the majority of patients coming in are newly diagnosed with an initial TMA. Historically, physicians would, typically, by their background, might diagnose the patient. For example, we've discussed this, hematologist would typically diagnosed a TMA patient as TTP without any differential diagnosis at all. And in fact, when you dig a little bit deeper on that and recognize that a diagnosis for TTP really does require an ADAMTS13 level that is severely deficient, that is generally below 5% or 10%, you recognize that a lot of these patients may be misdiagnosed. So incidence is hard to tell. We think that physicians, through education, are starting a differential diagnosis process that's helping them to rule in aHUS a little bit more. And so that's helpful, but we would see as one of the growth drivers more appreciation for that. Regarding compliance, as we anticipated, it's generally good in patients with a confirmed diagnosis with aHUS, but does appear to be a little bit less than we've come to expect with PNH. I think it's important that both the U.S. and European labels do have very strong warnings about the risks associated with discontinuation of treatment, missed doses. And in fact, even in the European label, they're recommending treatment for a lifetime. As I was alluding to on the call, we're spending a significant amount of time educating physicians about the genetic and lifelong nature of aHUS, so that they can gain a little bit more of an appreciation for the fact that it is not a disease that would be marked by a shorter-term event but the complement is always overactive in these patients and that's why Soliris would be used chronically. And so it's a critical component of our educational efforts.

Operator

We'll go next to Geoff Meacham with JPMorgan.

Geoffrey C. Meacham - JP Morgan Chase & Co, Research Division

I got a couple. So last quarter, you guys gave a geographic breakdown of growth for 2012. Can you give us that same level of detail or at least help us directionally with the trends for the first quarter of this year? And then the second question is, can you talk about your initial experience with aHUS in Germany? How is it different from the experience in the U.S. when you think about things like screening identifications, speed to getting therapy, et cetera?

Vikas Sinha

So I'll start with the geographical breakdown. Geoff, we only try to do that once a year during our K, so we will not be providing that on a quarterly basis.

David L. Hallal

Yes. Regarding Germany, Geoff, we thought it was pretty important to have the, and as we anticipated, hospitals to actually have in-patient reimbursement for Soliris for aHUS. As I'm describing, we see a higher proportion of patients coming in urgently in a state of thrombotic microangiopathy, physicians are trying to make a rapid diagnosis. And so we are seeing that, that is having an impact. In terms of differences in Germany, I think it's just too early to tell whether or not there are significant differences in that country versus the U.S. We'll be tracking very closely that over time.

Geoffrey C. Meacham - JP Morgan Chase & Co, Research Division

Got you. And then a quick follow-up on asfotase alfa. What inning are you guys in with respect to optimizing the manufacturing? When you file next year, will that be on the old versus an improved manufacturing process?

Stephen P. Squinto

Well, to start right there, it'll be on the initial process that was developed.

Leonard Bell

The initial cell line improvements.

Stephen P. Squinto

Yes, yes. That's different.

Operator

[Operator Instructions] We'll take our next question from Salveen Richter with Canaccord Genuity.

Salveen J. Richter - Canaccord Genuity, Research Division

I'm just wondering, as you've been talking to the 5 EU plus Netherlands on reimbursement processes, I'm just curious on how pricing discussions are progressing with each of these countries.

David L. Hallal

Yes, Salveen, as we've described in the past, we look at Soliris now approved for both PNH and aHUS, 2 ultra-rare, life-threatening conditions where, with PNH, a 35% death rate for untreated patients at 5 years. Then aHUS, as I just mentioned in my response to Rachel, half the patients either die, progress to ESRD and are on dialysis or have permanent renal damage after 12 months. So obviously, that sets up for the governments the need of their citizens. And then you look at the transformative benefits that are well characterized in our labels in that in Europe. And I think as governments, as we progress through reimbursement processes, they have choices to make. And obviously, they -- as we have these discussions with them, they can see the ultimate value that Soliris will have for their citizens. And so it's certainly very helpful in those discussions.

Salveen J. Richter - Canaccord Genuity, Research Division

Okay. And then just a follow-up. In terms of the transplant data that's being released, are we -- are you going to file on the deceased donor study? Or are you going to wait for living donor, as well as DGF before you do a filing?

Stephen P. Squinto

Yes, it's a great question. So I think as we said this morning on the call, we've now just completed enrollment, which was great. It was ahead of schedule. I think at this point, we'll have to see kind of what the data teaches us about where we are with the deceased donor. I would say if the data is highly positive, I think that's something that we will consider, whether or not we want to drive forward with the deceased donor program first.

Operator

We'll go next to David Friedman with Morgan Stanley.

David Friedman - Morgan Stanley, Research Division

Just one quick one on the transplant data, which is, what will the maturity of the data be when we see it versus what the ultimate data will be? And then also just quickly on these natural history studies. What is the sort of goal of them vis-a-vis filing, meaning at what maturity does a natural history study need to be to be part of a filing? Or is that not a gating issue at all?

Stephen P. Squinto

Let's start with the transplant data. So again, as I said, we just literally completed enrollment. I'm -- we're hoping that data will be presented at a transplant congress later in the year. Of course, it's very important in our discussions with regulators. Not only is the primary endpoint, which is a 9-week endpoint looking at AMR critical, but I think we're going to want to take a look at what happens long term with these patients, 1-year outcomes. So you'll see an interim look at the data this -- later this year, but it will not be final data from that trial. Regarding the natural history study, particularly the one that we've just completed enrollment around for asfotase alfa, we expect that to be part of the BLA filing for asfotase alfa. So the data will need to be absolutely mature for that filing.

David Friedman - Morgan Stanley, Research Division

Okay. And sorry, just a quick follow-up for the asfotase alfa. The finishing enrolling now with a plan to file next year, that time delta is enough for maturity?

Stephen P. Squinto

Yes.

Operator

We'll go next to Robyn Karnauskas with Deutsche Bank.

Robyn Karnauskas - Deutsche Bank AG, Research Division

I guess I just have a big picture question. So regarding the third manufacturing facility that you're going to get approved, can you help us understand, is that really just to support global production? Will it have an impact on tax rate over time? And you've talked a lot about the new studies you're starting, like NMO and MG, big picture, what have your thoughts been regarding regulatory discussions? Is there a difference you've seen this year versus previous years, as far as breakthrough designation or the bar for doing clinical trials and getting things approved?

Leonard Bell

Steve, you want me to start and you'll kind of go from there?

Stephen P. Squinto

Sure.

Leonard Bell

So, Robyn, first -- it's Lenny. Regarding manufacturing, certainly, we actually purchased our Rhode Island facility, which was a previous owner's facility that we started renovating in 2006 before we actually submitted our first BLA or MAA for Soliris. So that approach, obviously, that we telegraphed at the time was regarding redundancy. As we've grown to servicing patients and serving patients across 50 countries around the world, obviously, we've established operations across the globe at this point. And as we have now and over the last several years been planning for this third independent manufacturing facility, it provides us redundancy, which is very important, of course. It provides us new state-of-the-art facilities and access to those facilities. In addition to that also, there are certainly some important incentives that we have and returns we anticipate to maximize overtime regarding our expenses and how we review them regarding our overall operating expenses. So I think it hits all of those buttons. I would say looking back from our PNH discussions, and I think that they were in 2002 to 2004, prior to starting TRIUMPH and then SHEPHERD and so forth and going all the way forward to now, obviously, we've moved across different divisions in -- from the U.S. perspective, which is obviously very, very important in that hematology, oncology versus neurology and so forth. And so that gives different personnel and different views and perspectives. In Europe, on the other hand, generally speaking, we've stayed within the relatively similar system because the design of the European regulatory system being very different than the U.S. So it's, by and large, the same overview that it has been before. Steve, you want to comment on the current discussions?

Stephen P. Squinto

Yes, I will. We've had actually very, very productive discussions with the regulators, of course, as I mentioned on the call regarding both NMO and MG. This is known to be in a division within the FDA that's actually relatively conservative. So when we went into those discussions, we really didn't know how well the FDA would perceive the earlier studies that we conducted. I think that they were very pleased with what they saw. And I think were convinced that both the IIT study and NMO and the Phase II study that we conducted in myasthenia gravis were both very strong hypothesis-generating studies. And I think that allowed them to agree with us to move towards the single pivotal program for registration. So we're pretty pleased with the outcome from those discussions.

Operator

We'll go next to Brian Abrahams with Wells Fargo.

Shin Kang - Wells Fargo Securities, LLC, Research Division

This is Shin calling in for Brian. I have a couple of questions on your early pipeline. Your new synthetic cPMP, could you remind us what the difference is between the old and the new version and -- or some of the issues that might have made you change the manufacturing process, if any? And related to that, along with the natural history study on MOC deficiency, it looks like you guys might be looking at sulfite oxidase deficiency, which also seems to be related to MOC deficiency. Could you comment on the rationale behind the indication and about the opportunity there? And lastly, when should we expect to hear more about the 1007 program, what it targets and potential indication?

Stephen P. Squinto

Sure. Thanks with all those questions. So let's start with cPMP. Initially, that was in the hands of a company called Orphatec. And their production was using bacteria, a bacterial production system to make cPMP. When we looked at that, we were very, very excited about the drug and excited about what was being seen in a handful of patients that did receive that form of cPMP. Some of that has actually been published in top-notch medical journals, so you can refer to that as well. We decided to take a different approach. We decided for the commercialization of this product, it would be better to develop a synthetic route. So this is actually our first entrée into small-molecule chemistry, but we've had a lot of success already and are making GMP form of cPMP through a synthetic route. And as we mentioned on the call this morning, we'll be moving that form of cPMP into clinical development very, very soon. In terms of MoCD, as I said, there's a fair amount of data out there on a small number of patients that receive that bacterial form. And we believe that cPMP can, in fact, be a life-saving drug for these infants. It's a very, very devastating disease. Patients build up very high levels of sulfite, which is a very potent neurotoxic agent, and this drug helps to reduce that and attenuate that. And then as far as ALXN1007, I would expect that perhaps on future calls, maybe even this year, we'll hear a little bit more about where we are with 1007.

Operator

We'll go next to Matthew Roden with UBS.

Matthew Roden - UBS Investment Bank, Research Division

Sort of a bigger picture organizational and strategy question. I appreciate seeing the increasing depth of the senior management team here. And with the additions of Dr. Mackay and Mr. Islam, I was wondering, Lenny and Steve, if you could sort of add to your perspective on what this means to Alexion in terms of the capacity to advance objectives not only in R&D, but also in business development? I was wondering if you can give us any sense for what the right expectation should be in terms of business development going forward, any tactical shifts or time line shifts, as well as on the R&D side. I appreciate it.

Leonard Bell

This very much reminds me of the very long series of questions in Back to School with Rodney Dangerfield. Well, thanks very much for that question. So I think generally, obviously, Alexion continues to grow, particularly over the last decade. And we have grown substantially across a variety of geographies both -- so therefore in breadth and depth. And we recognized all along that the key opportunity for us to accelerate our growth actually is by broadening and strengthening talent at all roles of the company. And certainly, it's a very important signal and indication to put that as direct reports to me as the CEO. I think that, first of all, I'd just point out it's Dr. Mackay. So as Martin joins us, it provides really 2 opportunities. First of all, it allows the shouldering of a lot of the activities to be shared, frankly, so that Steve can increasingly focus on technical operations and quality, which is important to us going backwards and certainly quite important, if not more so, going forward. It also allows a very strong, globally well-respected, well-regarded R&D leader to come and really commit his passion to develop and deliver transformative therapies for patients with severe and devastating disorders, something for which I know Martin is extremely excited about. At the same time, Saqib joining us today -- or yesterday, I suppose, is very exciting. Saqib and I have known each other for quite a while and I have enormously high regard for his strategic thinking advice. And Saqib will play a very important role, not only from a strategic positioning development so that we can really build on the enormous success we've had to date in business development and developing our strategies. We've been very, very successful. And it's an indication of our ambition really to reach for higher levels, as we've been telegraphing for some time. And I think it's a tremendous opportunity that Saqib joins from a strategic perspective. But at the same time, Saqib will have important responsibilities across the company by helping to manage a variety of operations.

Matthew Roden - UBS Investment Bank, Research Division

Just to elaborate. Should we expect that this may help your capacity in order to achieve some of the pipeline diversification goals that you have?

Leonard Bell

Actually, we're not looking to achieve pipeline diversification in any way. We are actually firmly focused on a filter that we've set, which is to identify the most severe and disabling disorders and then to identify, develop and deliver therapies that will transform the lives of these patients. And frankly, what it really indicates is not diversification, but more faster of what we've already been doing.

Operator

We'll go next to Terence Flynn with Goldman Sachs.

Terence C. Flynn - Goldman Sachs Group Inc., Research Division

First one on asfotase alfa. I was just wondering in terms of the gating factor to filing, was just wondering if that's the juvenile trial? And can you walk us through timelines on enrollment for that? I know you mentioned it's going to be a 6-month trial. And then separately, I'd heard at a conference recently that there's some new legislation working its way through in Brazil to help improve access to orphan drugs there in that country. I was wondering if you guys had any comments. And should that be a tailwind for you guys in Brazil on the PNH side?

Stephen P. Squinto

So regarding asfotase alfa, I think -- before we lay out a timeline, I think 2014 is still very realistic for us. And I think we probably will have a very important meeting with regulators sometime midyear this year, which will help clarify things a little bit. But -- so it's hard to say at this moment whether the juvenile trial will be required. We think it's going to be a part of the program. We certainly know that the natural history study, based on conversations that Enobia had with regulators prior to the acquisition, was considered very, very important. So we're very pleased that we have finished enrollment in that trial and will now be looking to collect and clean up and get the data from that trial as well.

David L. Hallal

Regarding Brazil, we -- really globally, we work very closely with all governments. And Brazil has a strong track record, partially due to their constitution for their citizens' rights to life-saving therapies. And we are constantly tracking any changes in any country that may in some way impact a patient's access to treatment. But Brazil continues to be an important part of our growth plans moving forward in that region and in other large countries around the world.

Operator

We'll take our next question from Christina Zhang from Barclays.

Ying Huang - Barclays Capital, Research Division

Actually, it's Ying Huang dialing from Amsterdam here. So the first question I have is on the manufacturing side. Can you clarify to us whether the clinical supplies for the cPMP program and also for the asfotase program, they are also being manufactured in your Rhode Island facility only? And then secondly, in terms of the reimbursement for aHUS in the U.K., would you expect any other country might follow this same model that is reimbursed for aHUS for Soliris only when the patients are presented with symptoms here?

Stephen P. Squinto

So regarding cPMP and asfotase alfa manufacturing, neither of those products are being manufactured in Rhode Island. Both are being manufactured -- as I said, cPMP is a synthetic route. It's a synthetic chemistry route of manufacturing, which is being done by a third party, as well as asfotase alfa is also being manufactured by a third party. David?

David L. Hallal

Yes, regarding the U.K., obviously, we were pleased to see the very recent clarification for access to some patients with aHUS. But as we've observed in the U.S., the majority of patients that are commencing treatment are patients with newly presenting TMA, usually in a very urgent medical state of the life-threatening disorder. We obviously look forward to continuing to work on efforts so that in all countries, patients with aHUS will have access to treatment.

Operator

We'll take our next question from Geoffrey Porges with Bernstein.

Geoffrey C. Porges - Sanford C. Bernstein & Co., LLC., Research Division

A couple quick financial items. First, Vikas, could you confirm that you're headed towards -- still headed towards full federal taxation in 2014? And then just for Steve on the manufacturing inventory, has the 4,000 patient years of inventory been fully tested, completely released? Have you gone back and confirmed that there's no evidence of the same contaminants in those lots? It's absolutely certain it can be supplied? Could you confirm that?

Stephen P. Squinto

Yes, I think we can confirm that. As I said on the call, anything that's been released has met very, very stringent release criteria. The contamination that occurred happened very early in the process, even before purification, even before the material entered a protein A column. By the time it gets all the way through the process and it's actually finally filled and finished, it meets all of our release specs.

Vikas Sinha

And Geoff, this is Vikas. On the tax front, when we left 2012 with more than $400 million NOLs really in United States, we're looking at that to getting absorbed this year, in 2013. And based on that, our next year's guidance is around 28%. If there's something left on the NOLs at the end of this year, we will be able to utilize that next year. And I probably will be able to give you much better guidance when we get towards Q4.

Irving Adler

As we're running over the hour, any remaining questions we can take, please limit yourself to one.

Operator

We'll take our next question from Josh Schimmer with Lazard Capital Markets.

Joshua Schimmer - Lazard Capital Markets LLC, Research Division

Just a question on the aHUS population who are on dialysis. Maybe can you give us a sense of the size of that opportunity relative to patients not on dialysis, as well as any progress you're making diagnosing and accessing this pool and how we should think about this going forward?

David L. Hallal

Yes, yes, it's a great question. And again, dating back to our call when we were first approved in September of 2011, as we described, we expected the dynamics in aHUS to be very different from that of PNH. That is, given the devastation of aHUS, that there would be a proportion of patients that were either on -- awaiting a transplant, having dialysis. And it could potentially be a longer process for those patients to actually access a transplant and access Soliris. There clearly is data that is suggestive, though, that those patients, while perhaps not having a renal function, they can have extrarenal TMA, which is very dangerous to other organs and we've seen that. And so it's an important population that we are working on. But what we've seen is, over time, the new patients that are starting are the earlier patients. The majority of the patients starting are those earlier patients that are coming in with their first or second clinical manifestations of thrombotic microangiopathy. And those dynamics are what we're really seeing in the U.S. Lenny?

Leonard Bell

And Josh, just putting David's description in other terms, I think it's important at times to step back. This is less something that should be seen in my view, and I know David's view as well, as a commercial opportunity as opposed to philosophical right to treatment as well. And so we don't look at it as an opportunity, as you phrase it. It's really, quite frankly, more of a consideration of whether all citizens have equal access to therapy.

Operator

We'll go next to Richard Reznick with William Blair.

Richard Reznick

This is Rich Reznick for John Sonnier. Just a quick one on STEC-HUS. I was wondering if you could talk a little bit more about the regulatory strategy with Soliris. Specifically, are you going to submit in Europe and the U.S. by year end or just Europe? And then any thoughts on when you may do a submission in Japan?

Stephen P. Squinto

Yes. I think the attempt would be to submit both in the U.S. and in Europe. And as I mentioned on the call this morning, we think a key aspect of that filing will be to continue to collect data around this controlled population of patients that came from this epidemiological study where we collected a lot of early laboratory data and now we're going back and collecting some longer-term clinical outcome data, particularly renal function and CNS function. We think will that -- that will strengthen the overall package.

Operator

We'll go next to Stephen Willey with Stifel.

Stephen D. Willey - Stifel, Nicolaus & Co., Inc., Research Division

Just wondering if there's any kind of regulatory feedback you can share with us thus far on the myasthenia in the NMO studies? Specifically, in NMO, if you have confirmation that, that will be an event-driven study, and in MG, if that's going to be a 1-year study?

Stephen P. Squinto

Yes, so let me just make a little -- a few comments. As I said earlier to another question, similar question, I think we went into a very tough division of the FDA known to be a very conservative division. I think what pleased us quite a bit is that they looked at our -- in NMO, the IIT study and then myasthenia, the Phase II study that we conducted. They looked at both of those studies as very strong hypothesis-generating studies, which I think then led to a conversation around what would be next. And as we reported this morning, we have single pivotal trials for both. I think we're still working through some of the elements of the final protocol for both of NMO and MG so I can't, at this moment, comment on the definitive endpoints for those trials. We think the myasthenia trial is likely to be a 6-month trial and not a 1-year trial.

Operator

And that concludes our question-and-answer session and our call for today. Thank you for your participation.

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