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Alexion Pharmaceuticals (NASDAQ:ALXN)

Q2 2014 Earnings Call

July 24, 2014 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

Martin MacKay - Global Head of Research & Development and Executive Vice President

Analysts

Eric Schmidt - Cowen and Company, LLC, Research Division

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

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

Robyn Karnauskas - Deutsche Bank AG, Research Division

Christopher J. Raymond - Robert W. Baird & Co. Incorporated, Research Division

Matthew Roden - UBS Investment Bank, Research Division

David Friedman - Morgan Stanley, Research Division

Howard Liang - Leerink Swann LLC, Research Division

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

M. Ian Somaiya - Nomura Securities Co. Ltd., Research Division

Brian Corey Abrahams - Wells Fargo Securities, LLC, Research Division

Yaron Werber - Citigroup Inc, Research Division

Operator

Good morning, and welcome to the Alexion Pharmaceuticals, Incorporated Second Quarter 2014 Results Conference Call. Today's call is being recorded.

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

Irving Adler

Thank you, operator. Good morning, and thank you, all, for joining us on today's call to discuss Alexion's performance for the second quarter of 2014 and our outlook for the rest of 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: Vikas Sinha, Executive Vice President and Chief Financial Officer; David Hallal, Executive Vice President and Chief Commercial Officer; Martin MacKay, Executive Vice President and Global Head of R&D; Steve Squinto, Executive Vice President and Chief Global Operations Officer; and Saqib Islam, Senior Vice President and Chief Strategy and Portfolio 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. Description of these risks can be found in our most recent 10-Q and 10-K filings with the SEC. Any forward-looking statements apply 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 items that we 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 second quarter, the global Alexion team continued to advance our commercial, clinical and operational objectives for 2014. During the quarter, our commercial organization provided Soliris to an increasing number of new patients across our operations in both PNH and aHUS worldwide. Our development teams continue to reach significant milestones in our lead programs, highlighted by particular progress with our next product, asfotase alfa. In Europe, our marketing application for asfotase alfa was accepted and granted accelerated assessment. In the United States, where we have already received breakthrough therapy designation, we have now submitted 2 of the 3 components of our rolling BLA. And as reflected in our financial performance during the second quarter and the upward revisions in our guidance announced today, we continue to execute on our initiatives to achieve long-term operational and financial efficiencies.

Turning first to our global commercial operation. We continue to see the majority of our growth ahead of us in both PNH and aHUS as our disease education initiatives help physicians to optimize patient care worldwide.

In PNH, newly diagnosed patients continue to make up the majority of patients newly starting on Soliris across our territories. In aHUS, we continue to add new patients in United States and Europe, as well as in Japan where we are in our first full year of our launch. The ongoing strength of the early stages of the global launch in aHUS further reinforces our confidence that our opportunity to serve patients with aHUS is at least as large as our opportunity to serve patients with PNH and perhaps larger.

As we consistently serve more patients with Soliris in our 2 current therapeutic areas, we are also rapidly building our capabilities to support a multiproduct portfolio. In parallel with our current registration activities with asfotase alfa, we are simultaneously driving our initiatives to support robust launches in United States and Europe in early 2015. In Q2, we deployed initial field-based medical teams in the U.S. and Western Europe to start educating physicians on the signs and symptoms of HPP.

We continue to make progress toward our anticipated series of as many as 7 new indication or product approvals through 2018. In addition to our next product, asfotase alfa, Soliris for AMR and DGF in kidney transplant and for both NMO and MG; our third product, cPMP, for infants with MoCD Type A; and we expect approval of one or more of our next-generation follow-on products to Soliris within the same period.

Turning briefly to manufacturing and following our continued improvements in our Rhode Island manufacturing and quality operations, earlier this year, we submitted our request for inspection to the FDA and we are awaiting their reinspection.

Looking at our financial performance. We are pleased that we achieved strong 38% growth in revenues in Q2 compared to the year ago quarter. We also continue to demonstrate strong operational leverage as we reported 53% growth in non-GAAP EPS in this quarter compared to the year ago quarter.

Looking forward, and based on our strong revenue performance anticipated for the year, we are raising our revenue guidance from the previous range of $2.15 billion to $2.17 billion now to the higher range of $2.18 billion $2.2 billion. And we are also now raising our 2014 guidance for non-GAAP EPS from the previous range of $4.75 to $4.85 now to the higher range of $4.90 to $5.05.

At this point, I'll turn the call over to Vikas for a closer look at our financial performance in Q2, as well as our expectations for the remainder of 2014. Vikas?

Vikas Sinha

Thanks, Lenny. The second quarter was another period of profitable growth and continued operating leverage. In Q2, net sales increased to $512.5 million or 38% above the year ago quarter despite an unfavorable currency headwind of approximately $5 million year-on-year and $3 million sequentially. Our sales performance reflects strong volume growth across all our territory. Non-GAAP EPS in Q2 increased 53% to $1.12, reflecting the efficiencies we are experiencing as we continue the global introduction of Soliris in 2 indications on our existing global platform.

As a reminder, to compare sequential quarter growth, our Q1 2014 revenues were $479 million excluding $88 million in revenue associated with shipments of Soliris in France before 2014.

Looking at the balance sheet. We ended the quarter with $1.59 billion in cash and cash equivalents. During Q2, we experienced strong positive cash flow from operations, primarily offset by a approximately $156 million in share repurchases. The primary objective of our ongoing stock repurchase program is to mitigate the natural pace of stock dilution from equity grant.

Turning to guidance. We are pleased to be increasing our 2014 forecast for both sales and EPS as announced this morning. Strong performance in both PNH and aHUS across our territories enables us to raise sales guidance from the previous range of $2.15 billion to $2.17 billion, now to the higher range of $2.18 billion to $2.2 billion.

With this increase in revenue guidance, we are maintaining our current expense guidance in the areas of COGS, R&D, SG&A and taxes. Within this unchanged expense guidance, we expect to experience higher expenses in the second half compared to the first half due to the ramp-up of development programs and our ongoing infrastructure buildup as we prepare for the launch of HPP.

With increased revenue -- revenues and tightly controlled expenses, we have raised 2014 guidance for non-GAAP EPS from the previous range of $4.75 to $4.85, now to the higher range of $4.95 to $5.05.

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

David L. Hallal

Thanks, Vikas. During Q2, we achieved strong Soliris in-quarter revenue growth of 38% over the year ago quarter. This reflects continued steady growth in PNH globally and the early progress of our ongoing aHUS launch.

Looking first at PNH during Q2. We were pleased with our steady performance in our core territories of the U.S., Western Europe and Japan, and we also continue to observe consistent growth in serving new patients in Turkey, Brazil and Russia. In all territories, including those where we have operated the longest, we consistently observe that the majority of patients with PNH newly starting on Soliris were also newly diagnosed. The steady identification of newly diagnosed patients and the ongoing uptake of Soliris in PNH reflect the ongoing positive impact of our disease awareness and diagnostic initiative. While awareness of PNH has increased significantly over time, more education is required to further enhance the understanding of PNH and appropriate testing of higher-risk patients. Our experience supports our belief that, on a global basis, the majority of patients with PNH have yet to receive an accurate diagnosis, let alone commence appropriate treatment.

In aHUS, the transformative clinical benefits of Soliris for patients with this devastating disease are reflected in the ongoing steady uptake of Soliris in the early stages of our launch.

The overall value proposition with Soliris is clearly recognized by public and private reimbursement authorities in the U.S., Western Europe and Japan. During Q2, we were very pleased with important updates in U.S. and EU Soliris labels with regard to aHUS.

In the U.S., the FDA converted our accelerated approval in aHUS to a full regular approval. The revised U.S. and European labels now specify important longer-term clinical benefits associated with chronic and sustained Soliris treatment with inclusion of results from 2 years of ongoing treatment, which will enhance and broaden our educational initiatives.

I would like to highlight a few key points from the revised labels. First, the longer-term data from our original registration trial, now 2 years, demonstrated that sustained Soliris treatment resulted in significant and continuous improvements in renal function over time. Second, the data from our original registration studies show that 28% of patients who deviated from the approved Soliris dosing experienced life-threatening TMA within 12 weeks of their first missed dose. In contrast, the patients who remained on sustained therapy through 2 years had complete inhibition of complement-mediated TMA. Third, with the addition of the new prospective trials, the updated labels now include positive data with Soliris as first-line intervention in adult and pediatric patients with aHUS. Fourth, we now have data in our label from the first prospective clinical trial in pediatric aHUS patients. Of 22 patients in this trial, 11 were on dialysis prior to treatment with Soliris and 9 of them or 82% were able to eliminate dialysis. And finally, across the 5 trials now included in the labels, responses to Soliris treatment were transformative in patients with or without mutations.

The additional clinical data in our U.S. and European labels will significantly enhance our commercial efforts over time as we educate physicians on the immediate and long-term benefits of sustained Soliris treatment.

We also continue to make strong progress in Western European countries and remain confident that we will further extend our aHUS launch across the EMEA region in 2014. Following the agreement with France earlier this year, we now look forward to completing the reimbursement process in England and Italy. In the interim, both countries continue to provide funded access to treatment for patients with aHUS.

Beyond the U.S. and EMEA, we made steady progress in our Japan aHUS launch in Q2. We continued to ramp up our disease education and diagnostic initiatives to hematologists and nephrologists and look forward to a steady uptake of Soliris for aHUS patients in Japan as the first year of launch progresses.

Globally, the ongoing strength in the early stages of our aHUS launch confirms our view that our opportunity to serve patients with aHUS is, at least, as large as our opportunity to serve patients with PNH and perhaps larger. As one measure, we continue to observe that, matched for time since their respective approvals, more patients in the U.S. are currently receiving Soliris for aHUS than there had been for PNH. In Europe, we are starting to observe a similar trend in the earlier stages of our aHUS launch. These results in the U.S. and Europe support our belief that the incidence of aHUS is higher than the incidence of PNH.

Beyond our current commercial operations, I would like to now turn to our preparations for the launch of our next product, asfotase alfa, for patients with hypophosphatasia or HPP. Importantly, in addition to the FDA's breakthrough therapy designation, feedback from the physician community confirms our view that there is a strong need for a transformative therapy for patients with HPP.

In Q2, we continued to deploy our initial field-based medical teams in the U.S. and Western Europe, and we are now hiring our in-country metabolic commercial teams. We are leveraging our learnings and expertise in PNH and aHUS to best serve patients with HPP, and our initial market research suggests that low disease awareness typically results in misdiagnosis. Thus, HPP patients often go for years without receiving an accurate diagnosis.

An early goal of our commercial plan will be to optimize patient care by educating physicians on the signs and symptoms of HPP and appropriate pathways for rapid and accurate diagnosis.

Beyond planning for the launch of asfotase alfa, we continue to establish commercial teams to assess and plan for our opportunities in AMR, DGF, NMO, MG and the next-generation Soliris molecules. These teams will work closely with our R&D colleagues as they advance these programs through the development process.

At this point, I'll turn the call over to Martin for a look at our research and development programs. Martin?

Martin MacKay

Thanks, David. I am pleased to provide an update on our lead development programs as we drive toward our goal of achieving up to 7 new indications or product approvals through 2018.

Looking first at asfotase alfa in the U.S. We filed the second of the 3 components of our rolling BLA submission. We remain on track to complete the submission in the fall as we look to build a strong label to serve patients with HPP. In Europe, our MAA was accepted and granted accelerated assessment by the European Medicines Agency. In Japan, we expect to file our dossier for asfotase alfa before year end. We are pleased with our discussions with regulators in the U.S., Europe and Japan. Our goal in all territories is to work collaboratively with regulatory authorities to obtain marketing authorization for asfotase alfa as quickly as possible.

As we proceed with our regulatory filings, we continue to build the growing body of clinical data reflecting the devastating nature of HPP and the potentially transformative impact of asfotase alfa for patients. In May, researchers presented new data from a large retrospective natural history study of patients with perinatal and infantile HPP that showed approximately 70% mortality with supportive care reported at 3 years.

Additionally, data from the extension phase of 2 ongoing Phase II clinical studies showed early and sustained improvement in all outcome measures in infants, children and juveniles with HPP receiving asfotase alfa for up to 3 years. These additional long-term safety and efficacy data support the life-transforming potential of asfotase alfa for HPP patients. And finally, the natural history study in juveniles with HPP is ongoing and is expected to be completed in the fall, which will enable us to finalize our rolling submission for the U.S. BLA.

Turning to our development programs with eculizumab, I would like to look first at antibody-mediated rejection or AMR in kidney transplant patients. We have now completed enrollment and dosing in both our living-donor and deceased-donor studies. In our program in delayed graft function, or DGF, we expect to enroll the first patient in a single multinational registration trial in the third quarter. This will be a randomized double-blind, placebo-controlled study of eculizumab for the prevention of DGF after kidney transplantation in adults at increased risk of DGF.

In our neurology programs with eculizumab, enrollment and dosing is ongoing in our registration trial in relapsing neuromyelitis optica or NMO, a life-threatening ultra-rare neurologic disorder. We have also now started dosing patients in our registration study in refractory myasthenia gravis or MG, a rare debilitating neurologic disorder caused by uncontrolled complement activation. In Q2, the FDA granted orphan drug designation to eculizumab for the treatment of patients with MG. And in Europe, the Committee for Orphan Medicinal Products issued a positive opinion on the ODD for eculizumab in MG.

Finally, with regard to life cycle management of Soliris. We expect to initiate clinical studies with 2 next-generation Soliris molecules in 2014 with another molecule at an earlier stage of development.

Beyond eculizumab and asfotase alfa, we also have lead development programs with 2 additional highly innovative therapies, cPMP and ALXN1007. In our metabolic disease area, we continue to accelerate the development of our cPMP replacement therapy for the treatment of patients with molybdenum cofactor deficiency Type A. The synthetic cPMP switch study in patients with MoCD is ongoing. We are also continuing our retrospective data collection and enrollment in our natural history study.

With regard to ALXN1007, our novel anti-inflammatory antibody, we have commenced screening in a Phase 2 proof-of-concept study in patients with a rare autoimmune disorder called antiphospholipid syndrome or APS. This open-label Phase II study is designed to evaluate the safety and tolerability of ALXN1007. As previously announced, we also expect to commence the next proof-of-concept clinical study in another severe and ultra-rare disorder later this year.

Beyond our current late-stage clinical development program, we continue to make progress on the first 2 targeted early-stage preclinical projects as part of our exclusive strategic agreement with Moderna for the discovery and development of messenger RNA therapeutics to treat patients with rare diseases.

As we look to the second half of 2014, we are well on the way toward the 10 or more development milestones we expect to reach in our programs this year. To achieve these clinical development goals, a seasoned team leader is assigned to each program with a dedicated core team made up of all the necessary functions to ensure parallel progress of our programs in a timely and effective fashion.

We plan to continue enhancing our R&D capabilities through disciplined research collaborations, licensing and acquisitions. Our focus remains on developing therapeutic candidates with life-transforming potential for patients with severe and life-threatening diseases.

I will now turn the call back to Lenny. Lenny?

Leonard Bell

Thanks, Martin. Throughout the remainder of 2014, we will build on our accomplishments to date as we seek to transform the lives of more patients with PNH and aHUS and advance the global registration for asfotase alfa in HPP. As always, we thank our employees for their dedication to our mission as we work to transform the lives of patients.

Operator?

Question-and-Answer Session

Operator

[Operator Instructions] We will now turn the question-and-answer portion of our call over. [Operator Instructions] And our first question comes from Eric Schmidt of Cowen and Company.

Eric Schmidt - Cowen and Company, LLC, Research Division

Maybe for Martin. With the 2 kidney transplant trials complete, looking at AMR -- complete in terms of their enrollment, when might we expect the data? And what do you think are the next steps post receipt of those results?

Martin MacKay

Thank you, Eric. As you know, the primary endpoint is treatment failure at 9 weeks at post transplantation, looking at number of endpoints. Clearly, the key piece here for the trial will be 12 months' results and we will get those towards the second half of 2015. As you may imagine, we're in regular discussions now with regulatory authorities and that will help inform the next step once we see the data from those studies.

Eric Schmidt - Cowen and Company, LLC, Research Division

Is there, do you think, a hurdle that you need to surpass in order to potentially file on these studies [ph]?

Martin MacKay

I don't see it so much a hurdle, Eric, as it will be dependent on the results that we achieve from the studies. Clearly, the 9-week point will be informative. It will be only after we see the 1-year data that we'll really know how to proceed.

Eric Schmidt - Cowen and Company, LLC, Research Division

But at 1 year, do you think you need to hit a certain efficacy level and what might that be?

Martin MacKay

We certainly need to hit on efficacy level. I wouldn't describe that particularly at this time, but yes, we do expect to hit on efficacy level. As you know, post transplantation, we're looking at antibody-mediated rejection, graft loss, patient death and then lost to follow-up. So key endpoints will help inform the progress here.

Operator

And we'll take our next question from Geoff Meacham of JPMorgan.

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

On asfotase, I know you guys have talked about in the U.S, the regulatory -- the FDA seems the one agnostic to age when you look at the potential label. So a couple of questions: one, would you expect the EU and Japanese regulators to have a similar view? And then two, what would be some of the reimbursement challenges when you look at sort of adult versus peds for asfotase?

Leonard Bell

Martin?

Martin MacKay

Yes, I'll take the first part of the question, Geoff, and then pass on to David. I wouldn't actually describe it as agnostic to age. Onset is very important here and that was an outcome of continuing discussions with the regulators as we understand the development and the pathophysiology of hypophosphatasia better. As you know, the breakthrough designation is for perinatal, infants and juvenile, which span the pediatric population. David?

David L. Hallal

Yes, I would just say, Geoff, when I think about reimbursement, I think the implications of the approach that we're taking is -- what will be key for funding is when patients had their first symptoms of disease as opposed to how old they are. And I think that, that was what was particularly pleasing for us when we look at the progress that we were making. So we think that, that will be important. And then in terms of reimbursement, in general, for asfotase in HPP, it will be similar to PNH and aHUS and that will be reimbursement authorities having a clear understanding of the devastating nature of the disease and then the value proposition of our product, in this case, asfotase.

Operator

Our next question comes from Geoffrey Porges of Bernstein.

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

David, could you talk a little bit more about the aHUS indication? First, your comments about the label were very interesting, and what do you think is the incremental potential in either patients or adoption from the changes in the label? And then could you comment a little bit more detail about where you are in the European launches? And then are you well at this point to start talking about nearly diagnosed proportions of patients, so is it virtually all the patients going on aHUS are newly diagnosed? Related questions.

David L. Hallal

No, no. They're very good questions, Geoff. So first in terms of the label, both the label updates in the U.S. and Europe, we would expect to see impact over time. We don't think it's necessarily an immediate turn on, but it is an important part of our commercial approach. If you think about the 5 points that I mentioned during the call, it really helps us upstream in terms of helping to achieve a more rapid diagnosis for patients as I was reflecting the impact of patients with or without a mutation is very important, as well as the new prospective trials that included patients that went right to Soliris before even receiving one session of plasma exchange. And then more importantly, the labels initially only had 6 months of efficacy data in them. And now to demonstrate the complete inhibition of TMA through a 2-year treatment period and continued and sustained improvements in renal function over that time is going to make a meaningful impact for us. As physicians, were looking toward that longer-term data. In terms of Europe, we really made a lot of progress, as you know, beginning second half of last year. Early in 2013, we brought in full reimbursement for all of Germany. Second half of the year, we started to see the interim program in England, funding for patients in Belgium and the Netherlands and then the interim program in Italy. National funding in Spain now translating into regional funding on an individual level slowly over time. So we're very pleased with the progress. And as I mentioned during the call, we're now seeing the same dynamic in Europe as we've observed in the U.S. when we look at -- matching for time, with the respective launches of aHUS and PNH, it's confirming our belief in the size of that opportunity. The final piece -- I'm sorry, Geoff, the final piece about newly diagnosed patients? This is an incidence-based disease. We continue to see that the majority of patients we add are generally rapidly and newly diagnosed.

Operator

And we'll take our next question from Robyn Karnauskas of Deutsche Bank.

Robyn Karnauskas - Deutsche Bank AG, Research Division

So I'm just going to ask a little bit about 1007. So you started your trial in antiphospholipid syndrome. Just can you help me understand why was the indication selected? How big is the opportunity? I mean, when can we see data from this trial? And I guess, you commented that we'll be hearing more about other indications.

Martin MacKay

Okay. Thank you, Robyn. I counted out 2 or 3 questions in there. Clearly, this is a proof-of-concept study of this novel, anti-inflammatory antibody, which we feel the mechanism is suited to APS. Hence, doing the study, and as you correctly see, we are preparing to launch another study with this antibody in another severe disease shortly, actually, over the next period where we'll be looking at that. Does that capture 2 of your questions?

Robyn Karnauskas - Deutsche Bank AG, Research Division

Well, how many indications of APS -- like do you have any -- give us any details on the market, I'm just not that familiar with the indications.

Martin MacKay

I'll say a little bit about the indication and then pass to David to say something. In terms of those indications, what we do know is it's a devastating -- a rare disease, which is very much coincident with our strategy in research and development as will be the next indication that we take actually with this novel antibody. David?

David L. Hallal

Yes, I would just say, Robyn, APS, in general, is a bit larger than what we focus on. But we're looking at those patients, for example, that are anticoagulant-resistant APS patients. And there has been some experience out there with those patients with the catastrophic form of the disease as well.

Robyn Karnauskas - Deutsche Bank AG, Research Division

Okay, great. And do you know when we could get data? Any sense of, I guess, if there are more patients needed to enroll?

Martin MacKay

Really a little early to say, Robyn. We've started screening in the program now, a site activation. And we'll have a better idea when we start recruiting patients, but it will not be anytime soon.

Operator

We'll take our next question from Chris Raymond of Robert Baird.

Christopher J. Raymond - Robert W. Baird & Co. Incorporated, Research Division

Just to follow up on one of the previous ones. Clearly, these additions to the label and I got what you were saying about how the duration of treatment in aHUS is going to sort of contribute over time. But there has been a lot of dust, I think, kicked up recently about really what the duration is. I think, there's some anecdotal reports of patients coming off therapy perhaps prematurely. Can you maybe give us what you're seeing explicitly, the dynamics maybe overall in terms of duration in aHUS and these discontinuations? And then also maybe on the COGS line, I know last quarter was a little bit of an anomaly. You had some inventory adjustments that's helped COGS, but this quarter was also, I think, much better than we anticipated. Can you sort of talk about what's going on there?

Leonard Bell

David?

David L. Hallal

Yes. Thanks, Chris. So as we've noted in past calls, generally the compliance for patients with a confirmed diagnosis of aHUS is typically good, but less than what we've historically observed with PNH. And as I mentioned during the call, and you certainly did in your question, the new 2-year clinical data in the labels we think really provides physicians greater visibility into not just the immediate, and I think that, that is what you're pertaining to. The patients are presenting in an urgent medical state and physicians are actually looking to almost pull those patients out of that state to save them and not necessarily thinking about long-term impact of continuous improvement in renal function. And as I've stated, in our label -- and actually I think there's a few series that corroborate that. Somewhere between 28% and 33% of patients, very rapidly have a return of life-threatening TMA. And what we do know from the data is that there is a 33% to 40% risk of ESRD or death in patients with their very first TMA. So each one is truly feared. I think what physicians are asking, however, is because other TMAs, whether or not it's STEC-HUS or TTP, have typically have been viewed as shorter-term diseases. Our educational efforts are really focused on the genetic, lifelong nature of aHUS, and it is a distinctly different TMA that requires sustained treatment. So we see it evolving over time and we do think that these updated data in the labels are going to help us quite a bit. Vikas?

Vikas Sinha

Chris, on the question on COGS, we feel that 8% would be more sustainable at this time. Because as we established our operations in Ireland and validated our x U.S. production last -- late last year, we have benefit on the royalty payments that led to reduction in the COGS in Q2 and also in Q1. Q1 also had onetime impact from a settlement, but Q2 was more of a clean quarter. So taking 8% going forward is more reasonable.

Operator

Our next question comes from Matt Roden of UBS.

Matthew Roden - UBS Investment Bank, Research Division

I'm going to ask you question that I doubt you can give a direct comment to, but if you can sort of shed some light on your thinking it would be helpful. If you look at the clinical benefit you guys have with Soliris in both PNH and aHUS, obviously, very significant, particularly as it pertains to the impact you have on the natural history of those diseases. You've now generated that type of data, as well, in HPP. And so the question is, do you think that the HPP asfotase alfa confers as much value to the health care systems as you have with Soliris in your existing segment?

Leonard Bell

David?

David L. Hallal

Yes -- no. It's a really, really good question. Like PNH and aHUS, HPP, clearly, is a severe ultra-rare life-threatening condition. We recently presented new data that detail the devastating nature of HPP and treatment effect of asfotase alfa in infants, young children and juveniles at the Pediatric Academic Societies meeting up in Vancouver. The natural history study in infants and young children really details the devastating nature of the disease with a 29% survival rate at 3 years from diagnosis and median time to death was less than one year. And yet, in the separate, single arm investigational trial with asfotase in infants and young children, approximately 90% of the clinical subject actually survived at 3 years. So you just juxtapose natural history of disease and the absence of asfotase and then our infantile onset trial, I think that actually highlights quite a bit how we'll be leveraging the data once we're approved and seeking reimbursement from government authorities.

Operator

Our next question comes from David Friedman of Morgan Stanley.

David Friedman - Morgan Stanley, Research Division

Just on -- in terms of work that you guys are doing on follow-on complement programs, the TT30 study -- clinical trials was listed as terminated due to inability to reach enrollment a little bit to go. But just wondering if you can discuss what was going on in that study and, as you think about developing follow-on programs, is the strategy to head into indications that you're already in? Or is it to look beyond to other complement-related disease?

Leonard Bell

Martin?

Martin MacKay

Okay. Thank you, David. I'll comment on the broader part of your question first and then get back briefly to TT30. As you may imagine, our objective here is to outcompete ourselves. Soliris is a terrific medicine and hence our plans in terms of next-generation molecules we will start 2 clinical studies with these next-generation molecules this year, and in fact, we have a third coming up on the reels [ph] of it were also as part of this next generation. It's fair to say that we're looking at a number of other approaches so that we can satisfy patients, satisfy the indications that we care about that are ultra-rare and devastating. And I really think our next-generation programs are on track to do this. Specifically around, TT30, any program and any molecule needs to be looked as a single case and to what that molecule can do in the indications that you're interested in. And hence, in this case, with TT30, as you correctly say, from ClinicalTrials.gov, we've stopped that program. But please know the other programs are moving ahead with gusto.

David Friedman - Morgan Stanley, Research Division

Okay. And just any color as to was the enrollment related to, I guess, the perceived efficacy of that molecule in that indication? Or there is something more broadly about trying to enroll studies in indications that are already well served with a good drug.

Martin MacKay

Yes, in any development program, David, there's always multiple things going on, as you know, to come up with a medicine, whether it's dosage, whether it's the right indication, whether it's access to the target, mechanism and so on and so forth, and you weigh all of those up in any decision whether to progress with molecules or to terminate, as the case in TT30.

Operator

Our next question comes from Howard Liang of Leerink.

Howard Liang - Leerink Swann LLC, Research Division

Can you talk about the differences between the packages that you're submitting to the EU and the U.S. regulatory authorities for AA and whether that could result in a different scope for the label?

Martin MacKay

Just briefly, Howard, as you know, the U.S. and EU regulatory authorities are different and often demand different things into the submissions that you work on. I think it's fair to say in all the cases to date with hypophosphatasia and asfotase alfa, we've really been very pleased with our discussions in the EU. And as you know, from this morning, the MAA has been submitted and accepted with acceleration granted and will now follow EMA time lines. In the U.S., 2 of the 3 of the rolling BLA sections were submitted in March and June and the final clinical section will be in the fall, and obviously, we have the juvenile natural history study, which is still running and will be part of that submission. So really going ahead with good progress in both of those, and of course, I wouldn't leave out Japan also, which we expect to file by year end. In terms of the actual details of the submissions, I'll just say in different authorities, they often ask for different aspects of any disease.

Operator

Our next question comes from Terence Flynn of Goldman Sachs.

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

Maybe just a follow-up on that. Can you tell us the dose and schedule that you filed for in Europe? And then will that be the same in the U.S.?

Martin MacKay

We don't normally give that information, Terence, but just to say that it will be the same in both jurisdictions.

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

Okay. Then maybe just one follow-up. Would love your latest thinking on the dry AMD opportunity and anything you guys can say there about the path forward.

Martin MacKay

This is an area that, I think, we've said on the phone before is obviously of interest to us. We think some of the mechanisms and the pathologies that we'd be looking at could be of interest to our molecules. And I think it's fair to say that we're considering all aspects of this area at the moment.

Operator

Our next question comes from Ian Somaiya of Nomura.

M. Ian Somaiya - Nomura Securities Co. Ltd., Research Division

Just 2 quick questions, one on asfotase alfa. Any thoughts on evaluating in utero administration of asfotase alfa and maybe just thoughts on how different outcomes could be different if you were try that delivery strategy? And then just a financial question for Vikas. As you sort of model out the next 10 years and these levels of free cash flow generation that you're likely to sort of enjoy, can you just help us think about the tax strategy that is now in place? And whether it limits your ability to either, A, buy back stock; or pay dividend; and how you might need to potentially finance around it?

Leonard Bell

Martin, you want to take the tax? Or you want to take the development...

Martin MacKay

I think I'll go for the in utero question, if you don't mind, Lenny, and I'll leave the tax to Vikas. It's a really very good question about in utero treatment. The risk of stating the obvious, a really key thing with hypophosphatasia is diagnosis and early diagnosis. And certainly, we have the test available with very young perinatal and infants to be able to do that test and know when the appropriate use of hyper phosphatase occurs. As you, I guess, also know from your question, there are ways to diagnose in utero and it's something that clearly we're interested in. The treatment in utero provides some significant hurdles, but it certainly should be considered given the devastating nature of this disease. It's going to be absolutely key for us that we diagnose patients early and can start them on asfotase. Some of the data that David alluded to in the abstracts really highlight the potential benefit of asfotase alfa in these critically ill infants. Vikas?

Vikas Sinha

Yes, and your second question was on the tax strategy. I think on the cash generation, I have to say that our first and foremost objective is to invest wisely into our future pipeline to build our shareholder value, right. And secondly, we'll continue to buy back shares to match the dilution factor as we go forward. So those are the 2 key uses of our cash.

Operator

Our next question comes from Brian Abrahams of Wells Fargo.

Brian Corey Abrahams - Wells Fargo Securities, LLC, Research Division

Question on HPP. Now that you've deployed your new field-based team, was hoping you could talk in little bit more detail about what you're seeing as you pursue these educational efforts around signs and symptoms? How well recognized is the disease? Do you have any sense of the proportion of patients out there with HPP who are identified versus misdiagnosed versus under the radar? And how does the landscape here look relative -- in terms of disease awareness and diagnosis and understanding relative to PNH at the time when you launch Soliris in that indication?

David L. Hallal

Thanks, Brian. The incidents and prevalence of disease is really hard to determine at this point, as I alluded to, given the high mortality rates and low awareness levels. To your point, though, what we are seeing with the early education programs and we're focusing on a variety of different specialties, whether or not you're a pediatric endocrinologist, endocrinologist, geneticist, pediatric nephrologist, rheumatologist, orthopods, we run a pretty broad group of physicians through some of our early education programs. And I think the common takeaway, as I alluded to in the call, is that they kind of walk into the program thinking that they hadn't managed a patient with HPP historically and I think they walk away from the program thinking perhaps they did and they just didn't know it. And so we're hopeful and we think that, that does follow a similar pattern from both our introductions of Soliris into PNH and most recently with aHUS. And so there's a lot of work to be done. And I would anticipate, given the early positive feedback that physicians are providing, about the opportunity to identify -- diagnose, identify and treat patients that it should support a very successful launch.

Operator

And we'll take our final question from Yaron Werber of Citi.

Yaron Werber - Citigroup Inc, Research Division

If you just don't mind, just a couple of questions. One is one of the key things with HPP, as we all know, is diagnosis and there's a potential to use the low alk phos assay to diagnose patients. And I know there's efforts underway, so I just wanted to get an update there. And then to Vikas, to you, you guys typically sort of raise guidance 3 times a year, those in other ways now. Would you just give us a little bit of the metrics or what sort of you're seeing in the second half for us to think about a potential further uptake more than expected in terms of demand?

David L. Hallal

Yes, just very quickly on diagnosis, I'll take that, Yaron, and then I'll hand it over to Vikas. So we recognize, first and foremost, many physicians don't even know what they're looking for is low alk phos. Some -- most diseases, they're trying to look at elevated levels of alk phos. So that's number one. And number two, how it's reported out is very important. Because what is a normal level of alk phos or a low level of alk phos varies by both gender and age. And so those are cornerstones in our pathway initiatives to help enable physicians to diagnose accurately and rapidly.

Vikas Sinha

And Yaron, regarding the guidance, right, we weigh in our risk and opportunities when we provide the guidance every quarter and we look at what's ahead of us. It's very difficult to know everything and forecast accurately in the future. But if we weigh in risk and opportunity, we kind of get to a number and then we kind of give for the next quarter. And if you look at where we are headed towards, with the significant headwind on the commodity currencies right now, that's what have weighed in right now.

Irving Adler

I'm sorry. Operator, go ahead. That's all the time we do have today. So please go ahead.

Operator

That was our final question, and this concludes today's conference call. Thank you for your participation. You may now disconnect.

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