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Alexion Pharmaceuticals Inc. (NASDAQ:ALXN)

Q2 2011 Earnings Call

July 21, 2011 10:00 am ET

Executives

Lenny Bell – CEO

Tom Dubin – SVP and Chief Legal Officer

Vikas Sinha – SVP and CFO

David Hallal – SVP, Global Commercial Operations

Steve Squinto – EVP and Head of Research & Development

Analysts

Rachel McMinn – Bank of America-Merrill Lynch

David Friedman – Morgan Stanley

Sapna Srivastava

Eric Schmidt – Cowen & Company

Salveen Richter – Collins Stewart

Brian Abrahams – Wells Fargo Securities

Geoff Porges – Bernstein

Ian Somaiya – Piper Jaffray

Matt Roden – UBS

Howard Liang – Leerink Swann

Mark Monane – Needham & Company

Operator

Good day and welcome everyone to the Alexion Pharmaceuticals Incorporated Second Quarter 2011 Results Conference Call. Today’s call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to Dr. Leonard Bell. Please go ahead, sir.

Lenny Bell

Thank you, operator. Good morning. Thank you for joining us on today’s call to discuss Alexion’s performance for the second quarter of 2011. I’m joined today by other members of Alexion Management. Steve Squinto, Executive Vice President and Head of R&D; Vikas Sinha, Senior Vice President and Chief Financial Officer; David Hallal, Senior Vice President, Global Commercial Operations; and Tom Dubin, Senior Vice President and Chief Legal Officer. We also welcome our Alexion team working around the world. Vikas, David and Steve will join me on today’s call to report on our financial, commercial and clinical accomplishments in the second quarter and to discuss our strategic initiatives and accelerated execution plans for the remainder of 2011. Before we begin, Tom will apprise you of our potential to make forward-looking statements. Tom?

Tom Dubin

Thanks, Lenny. During this call, we may make forward-looking statements such as expected financial results, medical benefits, regulatory milestones, and commercial potential of Soliris in PNH, aHUS, transplant and other indications in the U.S. and other territories, plans for clinical trials with Soliris in aHUS, transplant, STEC-HUS and other indications, as well as development plans for other products, and operations, reimbursement, price approval and funding processes in different territories.

Forward-looking statements are subject to factors that may cause our results and plans to differ from those expected, including decisions of regulatory authorities regarding approval or limitations on the marketing of Soliris for various indications, the possibility that results of clinical trials are not predictive of the safety and efficacy of Soliris in broader patient populations in the disease studied or in other diseases, the risk that third parties won’t agree to license any necessary intellectual property to us on their terms or at all, the possibility that initial results of commercialization are not predictive of future results, the risk that third-party payers will not continue to reimburse for the use of Soliris at acceptable rates or at all, and a variety of other risks set forth from time to time in our filings with the SEC, including our 10-Q for the quarter-ended March 31, 2011.We do not intend to update any of these forward-looking statements after this call except when a duty arises under law.

I’d like to remind you that our reported non-GAAP numbers conform to US GAAP except in three respects. First, our non-GAAP number excludes share-based compensation. Second, we exclude non-cash tax expense associated with using our U.S. net operating losses. Third, with completion of two acquisitions during Q1, we now also exclude amortization of acquired intangible assets and costs associated with the acquisitions. A reconciliation of our GAAP and non-GAAP results are included in the press release we issued this morning. As a further reminder, earnings per share discussed in today’s call reflected two-for-one stock split effected during the second quarter. Thank you. Lenny?

Lenny Bell

Thank you, Tom. In the second quarter of 2011, Alexion made strong progress on our core clinical and commercial objectives on behalf of patients with severe life threatening and ultra rare disorders. We significantly advanced our key pipeline projects and achieved strong operating results.

On today’s call we would like to highlight four areas of our progress during the quarter. First, we grew our PNH operations robustly in Q2, as we again served an increasing number of new patients with PNH in the United States and Western Europe as well as in Japan.

Second, following the FDA decision during Q2 to grant priority review to our sBLA, we advanced our preparations for our potential US launch of Soliris in aHUS in the fourth quarter of this year.

Third, we progress key development programs with eculizumab and our other highly innovative compound and what is now the most robust pipeline in the Alexion history.

And fourth, during Q2, we played a significant leadership role in responding to the unprecedented STEC-HUS public health crisis in Germany. First, by providing access to eculizumab through one of the largest compassionate used programs ever conducted in a developed country. And more recently, in collaboration with the German regulatory authorities and leading physicians, we have commenced clinical study to evaluate eculizumab as a potential future treatment for patients with STEC-HUS.

To begin I’d like to briefly review our PNH operations in core territories. Q2 marks the start of the fifth year in which we have consistently provided the clinical benefits of Soliris to a growing number of patients each quarter in the United States and Western Europe, and now most recently in Japan. Since the US new launch of the Soliris in 2007, we have understood that majority of patients with PNH typically waited years before attending a correct diagnosis, and that’s where high risk from a progressive and life threatening manifestation of the disorder.

Our consistent focus has been to overcome low levels of PNH disease awareness and inadequate approaches to diagnosis. Through these education initiatives in Q2, we continue to identify significant numbers of new patients in the United States and Western Europe, and we observed in a large proportion of patients newly started on Soliris are also newly diagnosed.

I’d also like to point out that importantly following the national disaster in Japan in Q1, we’re pleased to report in Q2 our Japan team resumed a strong case of our Japan Soliris launch. Likewise I note in Germany that while respond (inaudible) to the public health crisis in our country, our Germany team also continued to serve increasing numbers of patients with PNH.

Beyond our four territories, we are especially focused on establishing operations in three major countries. Turkey, Brazil and Russia, where we have now begun to assemble our leadership teams. We’re likewise focused on the opportunities to serve increasing numbers of patients with PNH in a series of additional smaller countries.

Our efforts in all countries are supported by a growing body of data regarding PNH and the clinical benefits that Soliris provides to patients. These data now include recent presentations at the European Hematology Association Congress just last month, which Dave will describe in more detail.

As we continue to achieve steady and long-term growth in PNH, we are now also well into the regulatory process for Soliris as a potential treatment for patients, suffering with aHUS. After submitting our US and EU market applications for aHUS, we announced in early June FDA will review our sBLA on a priority review basis. With priority review in the United States, we can expect a decision from the FDA as early in the fourth quarter of this year with an anticipated US launch during Q4.

In the EU, as we have previously noted, a decision from European Commission is not expected before the first quarter of 2012. With approval at that time, we would then begin the reimbursement process on a country-by-country basis with the launch in the first country is potentially beginning as early as mid-2012.

I would now like to discuss our new clinical development initiatives, focus on patients suffering with STEC-HUS or Shiga-toxin producing E. coli hemolytic uremic syndrome. STEC-HUS is a severe and life threatening (inaudible) ultra rare disorder that results from exposure to bacteria known as Enterohemorrhagic E. coli or EHEC.

As we have described, this program is out of our response and assistance through the joint medical community since May. Our special concern throughout the crisis has been the high proportion of EHEC patients that rapidly progressed to the deadly STEC-HUS. I think several other severe complement mediated conditions, in atypical HUS complement activation and STEC-HUS results in thrombotic microangiopathy or TMA, blood clots in the small vessels of the brain, kidneys and other organs.

Although similar in their life-threatening TMA manifestation, atypical HUS and STEC-HUS are different disorders. Atypical HUS is a life-long genetic disease of uncontrolled complement activation while STEC-HUS is not a genetic disorder and the uncontrolled complement activation typically follows an episode of bacterial infection.

STEC-HUS is an ultra rare disorder comprising only a small subset of the already rare population of patients with EHEC. As the number of severe cases of STEC-HUS is growing during the early days of crisis in Germany, the New England Journal of Medicine expedited the publication of report of the previously successfully use of eculizumab in treating three children with STEC-HUS. This and other literature prompted multiple requests for access to eculizumab from physicians in Germany.

We responded to these unsolicited requests in the midst of this emerging public health crisis with the immediate decision to provide eculizumab free of charge. We also quickly engaged in a robust exchange of scientific information with physicians and with the Paul Ehrlich Institute or PEI, the German drug regulatory body.

While they are typically very small number of STEC-HUS cases reported annually worldwide, the outbreak in Germany in contrast has grown to historic proportions, ultimately resulting in approximately 800 patients with STEC-HUS, approximately one-third of them received eculizumab. In response, high leading physicians in Germany and Alexion have agreed that a controlled clinical trial will be the best environment to help the patients in urgent need of treatment during the current crisis as well as to optimize outcomes for patients suffering from STEC-HUS in the future.

Steve will speak about the design and status of this trial later in the call.

In order to maintain our strong financial discipline in the context of this new research program in STEC-HUS, we have adjusted aspects of our R&D program to accommodate the incremental expense. Additionally, we have increased our manufacturing volume in order to address the new demand for clinical supply, while continuing to maintain our typically robust inventory of Soliris.

Turning to our financial performance in Q2, revenues increased 48% over the year ago quarter to $185.7 million reflecting the growing strength of our core operations, specifically in United States and in Western Europe, and most recently in Japan.

In addition, Q2 results benefited from three other factors, the first full quarter of revenues in Australia, an extra infusion day and a small positive impact from FX. Non-GAAP net income increased 54% year-on-year to $56.8 million, as we maintained financial discipline while expanding our initiatives.

Along with strong results for the quarter, as an indication of the strength of our underlying operations, we announced this morning that we have raised our 2011 revenue forecasts for the second time this year. The upward revision in revenue guidance takes into account continued growth of Soliris for PNH and in the United States the potential for an earlier than expected initial launch of Soliris for aHUS inQ4.

Guidance for EPS has also been raised reflecting our sustained commitment to financial discipline, as we take our new initiatives. Vikas will provide more details on our guidance.

As a final note, I’d like to point out that the situations in Japan and Germany have created the need to respond to two major crisis, each different in nature and just the first few months of this year. Our ability to do this successfully while continuing to expand our service to patient and our core PNH operation and also prepare for the HUS launch reflects the extraordinary talent and passion of our Alexion colleagues to serve patients worldwide.

At this point I’ll turn the call over to Vikas for more detailed look at our financial results. Vikas?

Vikas Sinha

Thanks, Lenny. As we reported in this morning’s press release, Q2 was a quarter of strong sales growth in the US, in Western Europe and also in Japan, with continued profitability and solid cash flow. Looking first at revenues, net product sales of Soliris were $185.7 million in Q2 2011, an increase of 48% compared to Q2 2010, which reflects continued strong growth in the US and in Western Europe.

Q2 2011 results also include revenues from Japan and Australia that were not present inQ2 2010. Following the natural disaster in Japan, we are pleased to report that in Q2 our Japan team resumed the strong pace of the Soliris launch in that country. Likewise, our colleagues in Germany also continued to serve increasing number of patients with PNH while responding to the emerging public health crisis in that country.

Our Q1 to Q2 sequential results also benefited from strong growth in our core territories of the US, Western Europe and Japan, as well as three additional factors; the first full quarter of revenues in Australia, one extra infusion day, and a small positive impact from FX.

Non-GAAP SG&A expenses in Q2 were $69.2 million, which was in line with our expectations. Non-GAAP R&D costs were $33.4 million in the quarter also in line with our expectations. Q2 2011 non-GAAP EPS was $0.29, an increase of 45% compared to the year-ago quarter. This number is based on 193.2 million diluted shares outstanding in Q2 following a stock split in May.

Turning to our balance sheet, during Q2 we repaid all of our 60 million in short-term loans incurred in connection with the two acquisitions in Q1. Nonetheless, cash, cash equivalents and marketable securities continued to grow to $368 million at the end of the second quarter reflecting our growing ability to generate strong cash flow.

Now, turning to our 2011 guidance, we have now raised our 2011 revenue forecast for the second time this year from the previous range of $720 million to $740 million now to the higher range of $745 million to $755million. Upward revision takes into account several factors, including continued global growth of Soliris for PNH, the rapid resumption of normal operations in Japan and the potential for an earlier-than-expected initial aHUS launch in the United States in Q4.

Further, we have narrowed our 2011 SG&A guidance to $275 million to $280 million. SG&A expenses will grow in the third quarter and fourth quarter as we continue to ramp up for the anticipated aHUS launch and will include the expenses normally associated with medical conferences. We now expect 2011 SG&A to be decreased as a percentage of sales to less than 37%, 1% reduction from our previous forecast of 38%.

R&D is now expected to be within the range of $138 million to $143 million compared to the previously provided range of $128 million to $138 million. We have adjusted aspects of our R&D operating budget to accommodate the incremental expense associated with our new STEC-HUS development program.

Regarding the second half of the year, I know that for Q3 we anticipate a significant and transient increase in R&D of approximately $6 million to $8 million compared to Q2. In addition, we do not expect R&D expenses in Q4 to increase from Q3. Overall, 2011 R&D is expected to be slightly above 18% of sales.

As announced this morning, we are raising our 2011 non-GAAP EPS guidance from the previous range of $1.05 to $1.12 now to the higher range of $1.10 to $1.15. We are pleased with our financial performance in the first half of 2011 and we are committed to maintaining a high level of financial discipline as we continue to invest in better health for patients in the future.

At this point, I’ll turn the call over to David, who will provide an update of our global commercial operations. David?

David Hallal

Thanks, Vikas. In the second quarter of 2011, we continued to grow our Soliris PNH business. Our performance reflects consistent additions of new patients with PNH driven by our diagnostic initiatives and increasing physician demand for Soliris in the US, Western Europe and Japan. The 48% increase in Q2 revenue year-on-year reflects continued strong growth in the US and Western Europe. Our results also include revenues from Japan and Australia in Q2 2011 that were not present in Q2 2010.

Importantly, our efforts in our core territories, as well as in emerging markets continued to be grounded in our ongoing disease awareness and diagnostic program. Through these educational initiatives in Q2 as in prior quarters, we continue to observe in the US and Western Europe that a large proportion of patients newly started on Soliris were also newly diagnosed. This further demonstrates that broad education about PNH as well as PNH diagnostics positively influences the entire cycle of care from a patient newly diagnosed with PNH to a patient newly starting an appropriate treatment.

As part of this dynamic, we are seeing testing continue to increase for patients who are at an elevated risk of having PNH. And the ongoing positive impact of more flow cytometry labs conforming to the ICCS guidelines published last year.

Further, hematologists and oncologists around the world continue to gain a better understanding of the severe and life threatening nature of PNH. This is largely driven by our initiatives to educate physicians on data from clinical trials and international PNH registries. For example, research presented at the EHA conference in June provided further insight into the clinical consequences of PNH and the positive impact of Soliris therapy on long-term outcomes.

I would like to highlight two of the presentations of EHA. First, in one study researchers found that patients with PNH who have late stage renal impairment had a significantly worse overall survival compared to PNH patients without renal impairment. The study suggests a strong rational for the effective treatment of hemolysis, which is the underlying cause of organ damage in patients with PNH.

Second, in a multinational study, evaluating the long-term outcomes of patients with PNH, researchers found that overall survival on eculizumab was 97.6% at three years and was maintained for 5.5 years. Collectively, the results presented from this study support data published earlier this year from single center study that long-term treatment with eculizumab was associated with normalization of survival compared to a controlled population. As it relates to further global expansion, the addition of Turkey, Brazil and Russia remain a focus, and we continue to assemble operational leadership in each of these countries.

We are pleased to announce that Jose Miguel Bermudez has joined Alexion as the Vice President and General Manager of Alexion Latin America. Jose Miguel will be responsible for our overall operations in Latin America and is establishing our regional headquarters in Mexico City. Jose Miguel brings more than 20 years of biotech and pharmaceutical experience in the region. And prior to joining Alexion, he was the General Manager for Shire of Latin America, where he was responsible for their ultra orphan disease businesses.

Turning now to aHUS, we announced on June 1, that the FDA granted priority review for our sBLA. If approval is granted, we will be prepared to launch Soliris in aHUS in the United States in the fourth quarter of 2011.

In Europe, a decision from the European commission is not expected before the first part of 2012.With a positive decision at that time we would begin the reimbursement process on a country-by-country basis with a launch in the first country potentially beginning as early as mid-2012.

As we prepare to launch Soliris and aHUS, our global nephrology franchise is leveraging the experience that led to the successful Soliris launch in PNH. In the second quarter, our teams have continued to prepare for the commercial launch by focusing on several initiatives.

First, based upon extensive global market research, we have developed a disease awareness campaign to help educate physicians that chronic uncontrolled complement activation is the underlying cause of the morbidities and mortality and aHUS and that is ongoing Thrombotic Microangiopathy or TMA is the cause of life threatening damage to vital organs including the kidney.

Second, our global medical affairs organization has initiated the deployment of US Medical Science Liaison team focused on nephrology. The MSLs are beginning to educate physicians about the nature of aHUS and which patients are at higher likelihood for having the disease. Through these efforts, in Q3, the MSL team will identify physicians who are currently treating patients with aHUS.

Third, we are initiating the expansion of the US sales team and preparing to cross train our new and existing sales representatives to launch Soliris and aHUS and continue to grow our PNH business. The sales team expansion will be complete in Q4.

With the alignment of our commercial operations into distinct therapeutic areas in both hematology and nephrology, we are able to prepare for the launch of Soliris and aHUS in the US while we are increasing our focus on PNH globally, as we recognize that worldwide most patients with PNH have still not received an accurate diagnosis nor received appropriate treatment.

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

Steve Squinto

Thanks, David. Alexion is now pursuing the most robust development pipeline in the company’s history. And during Q2, our R&D team advanced a number of key programs in severe and ultra rare disorders. I would like to highlight our development programs with eculizumab and three of our unique drug candidates beyond eculizumab; TT30, cPMP, and a novel anti-inflammatory antibody.

To begin, I’d like to discuss our lead eculizumab programs, starting with aHUS. Final data from the pivotal Phase II clinical trials in adult and adolescent patients with aHUS were presented at the EHA Congress in June. The final data from both studies were clinically and statistically meaningful and highly consistent with previously reported data. We continue to enroll patients in a separate prospective, open label, single arm clinical trial in pediatric aHUS patients and enrolment is expected to continue through the end of 2011.

Also, in nephrology, enrolment is now complete in the investigator initiated AHR kidney transplant study at the Mayo Clinic, and we are pleased to report that the FDA has authorized the protocol for our company sponsored multi-national living donor kidney transplant trial. We expect that this trial will be initiated in the fall of this year, and a deceased donor study will be initiated near year-end.

I would now like to turn to our new eculizumab development program in STEC-HUS. Driven by the urgent needs of patients and working together with the German authorities and leading physicians, we have initiated a clinical trial with eculizumab. This multicenter, open label study is designed to evaluate the safety and efficacy of eculizumab in patients with STEC-HUS.

In line with our strong understanding of the capabilities of eculizumab in settings of uncontrolled complement activation, the protocol calls for patients to receive eight weeks of treatment with an option for additional treatment and observation. All patients will be observed for up to 28 weeks.

While we were aware of the interest of some investigators in using eculizumab to treat patients with STEC-HUS, we had not previously planned for development program in this disorder. We are now pleading the partner with the Paul Ehrlich Institute and the medical community in Germany to learn more about the potential role of eculizumab in this ultra rare disease. Our goal of course is to help the patients in urgent need of treatment during the current crisis, as well as to optimize outcomes for patients suffering from STEC-HUS in the future.

We are very proud of the work of our Alexion colleagues worldwide and particularly, in Germany during the STEC-HUS crisis. Across the company these individuals and the team as a whole immediately put the needs of patients first, working relentlessly in a rapidly evolving and highly fluid situation and in a diseased state in which we had no prior development program.

Finally, within nephrology, we remained focused on those disorders like aHUS, STEC-HUS and AHR that are clearly organ and life threatening disorders. Within the ultra rare diseases of dense deposit disease and C3 nephropathy, we are continuing to evaluate whether there are subpopulations of patients would meet this disease threshold.

Moving to our rare disease programs of eculizumab in neurology, we expect to present preliminary data from the Phase II study evaluating eculizumab in patients with a rare and severe form of myasthenia gravis at a Medical Conference by year-end. Also enrolment has been completed in the Phase II investigated initiated trial of eculizumab in patients with neuromyelitis optica dosing ongoing through 2011 and data expected early in 2012.

Finally, in our hematology therapeutic area enrolment and dosing are continuing in the investigator initiated Phase II study of eculizumab in patients with Cold Agglutinin Disease. In our rare disease pipeline programs beyond eculizumab, we continue to focus on accelerating development of three of our additional unique drug candidates, TT30, cPMP, and a novel anti-inflammatory antibody.

First, the initial human dosing of TT30, a unique inhibitor of the alternative component pathway with a mechanism of action different from Soliris is beginning this year. The focus of the trial will be to characterize TT30s mechanism of action and to develop initial safety data. Once we have the data from the study we can better evaluate the overall therapeutic potential of TT30 for various disease targets.

Second, since Q1 we have made substantial progress on our GMP manufacturing process for our cPMP replacement therapy and we remain on target to have initial supply of cPMP towards the end of the year. As noted in our February call, once we have clinical supply we will begin ING [ph] enabling studies with an eye toward commencing clinical trials later in 2012. As a reminder, cPMP is a potential treatment for infants with Molybdenum Cofactor Deficiency, a devastating and ultra rare disorder which new borns typically survive only a few weeks or months.

In regard to our third new drug candidate, targeting rare and life threatening disorders we remain on track to enter clinical trials in the second half of 2011 with the novel anti-inflammatory antibody and we’ll discuss more details on this program upon trial initiation.

Turning to Ophthalmology, we are driving forward in distinct and severe ophthalmic disorders with the goal of developing the optimal form of complement inhibition for local ophthalmic use. We will do so by accelerating the investigation of our unique alternative pathway complement inhibitors, while also completing our proof of concept studies with systemic eculizumab.

We are pleased to now report that enrolment is complete in the investigator initiated Phase II study of IV eculizumab in patients with the dry form of AMD with preliminary data expected by early 2012.

In closing, I would like to thank our global R&D team for managing the broadest range of pipeline programs in Alexion’s history while continuing to respond to extraordinary patient needs. Lenny?

Lenny Bell

Thanks, Steve. In the second quarter of 2011, we continue to grow our PNH business, prepare for the aHUS launch, made significant progress in the most robust development pipeline in Alexion’s history and also demonstrated our leadership and medical innovation by quickly responding to the public health crisis in Germany. We executed on all of these objectives while maintaining our financial discipline. Our efforts continue to be guided by an enormous fashion that transformed the lives of patients suffering with severe and ultra rare disorders. As always, we thank all those who make our work possible, our employees, researchers and physicians around the world, and of course, patients and their families. At this point we will take questions. Operator?

Question-and-Answer Session

Operator

Thank you. (Operator instructions). Our first question comes from Rachel McMinn with Bank of America-Merrill Lynch. Please go ahead.

Rachel McMinn – Bank of America-Merrill Lynch

Thanks very much and congratulations on a great quarter. Just wanted to ask a little bit more about the aHUS application. Can you remind us whether you have a regular or accelerated approval and what the FDA feedback was on the end points in your (inaudible) meeting? Thanks.

Steve Squinto

Yes, thanks very much. Just a reminder, we filed for regular approval. We had never had an interest or an intent to consider a solid approval. And in addition, the FDA not only accepted our submission for filing, but accepted with prior review, indicating the seriousness of the disease and importance.

Operator

Our next question comes from David Friedman with Morgan Stanley. Please go ahead.

David Friedman – Morgan Stanley

Hi, thanks a lot for taking my question. So, I was just wondering if you could talk a little bit about the type of testing that’s going on in the STEC-HUS patient population both from the people that were treated with free drug and sort of going forward as you’re monitoring things. Were the physicians testing at all for genetic mutations, given that there can be some, some overlap between atypical HUS and what appears to be infectious HUS? And is there any sense of the population that may end up needing to stay on the drug more chronically, given that may be they were susceptible from a genetic perspective or not?

Lenny Bell

So the answer actually is that as we gain more experience in Germany and elsewhere in the world with STEC-HUS, the first thing of course that’s quite striking is that in Germany and unfortunately elsewhere as well now, the strain of Enterohaemorrhagic E. coli responsible for the disease was what was considered to be an extremely atypical strain some time ago, strain 104. And that has been grouped into the non-157 STEC-HUS strain. So, there is a lot of testing that’s undergone obviously in Germany and now in other countries in Europe and US to identify patients with the strain 104. And the reason for it is that it appears to have a much higher proportion of patients who go on to severe deadly STEC-HUS from the EHEC infection.

In addition, for a variety of reasons that are unclear at this point, it also as opposed to the157 strains affects a significant proportion of adults as opposed to children. And we also are aware that in patients, as you are as well with STEC-HUS, sometimes they can be confused for patients with aHUS. They are both obviously quite rare disorders. And, in fact, they are ultra rare disorders. They have in common, of course, that neither one has an effective treatment and each one appears to be meted by severe and uncontrolled complement activation. There are patients with STEC-HUS who are (inaudible) identified through patient analysis to have atypical HUS and the patients with STEC-HUS who are presumed to have aHUS because they actually turn out not to have a positive STEC infection quite frankly. And so those are two modes.

Now, the duration of complement activation in STEC-HUS has been published to run from eight weeks to as long as nine months or longer quite frankly, following the initial episode. And so that gives you a sense on the relationship between STEC-HUS and aHUS, aHUS is genetic, STEC-HUS following a bacterial infection, and typically, of course, the genetic disorder, it’s a life-long complement activation of uncontrolled and with following bacterial infection of STEC-HUS, it can run from eight weeks to as long as nine months.

David Friedman – Morgan Stanley Thank you.

Lenny Bell

Thanks, Dave.

Operator

Our next question comes from Sapna Srivastava. Please go ahead.

Sapna Srivastava

Yes, hi, thank you so much for taking the question and congratulations on a good quarter. I have a couple of quick questions; one was just if you could help quantify the FX impact in this quarter. I know you said there’s a small benefit but how should we think about it this quarter and potentially with the change in the currency, potentially for next quarter, you guys could give us some color. And also could you just help us walk through the tax rate, what are you expecting for the remainder of the year?

Vikas Sinha

Yes, Sapna, this is Vikas here. Regarding the FX benefit I think we have to look at it in two ways; one is Q2 2010 compared to Q2 2011 and the other sequential. But let’s take the first part, Q2 2010 to Q2 2011, as you know we have a hedging program in place which allows us to reduce the validity of the FX impact and hence the year-over-year the few percentages impact on the sales line. But more importantly, quarter-over-quarter, if I look at Q1 to Q2, despite further strengthening of the euro, the Q2 rates are higher than Q1. Our hedging program in Q2 help us mitigate the validity limiting the FX gain closer to a couple of million dollars. The other one was the tax rate, right?

Sapna Srivastava

Yes.

Vikas Sinha

On the GAAP tax rate side, we benefited from the orphan drug credit that we took this quarter. And so we expect the rates to be in the range of 30% to 32% for the year. For the non-GAAP rate this quarter was 8.5% so does see a little bit ups and downs compared to Q1 of 9.5. So we expect to be within our guided range of 10-11%.

Sapna Srivastava

Okay, thank you.

Operator

And our next question comes from Eric Schmidt with Cowen & Company.

Eric Schmidt – Cowen & Company

Just a question pertaining to various regulatory timelines for the aHUS filing. Lenny, would you disclose for us what the PDUFA date is? I assume its early October. And second part to my first question, the European timelines that you’ve lined out for us, does that assume no accelerated approval or no priority review and do you know that you’re not eligible today for priority review? And third part of question, same question, Japan. I’m just wondering if you have thoughts on if and when you can file on the existing data in Japan?

Lenny Bell

Thanks, Eric. So first question as you said, I would anticipate as you mentioned very early Q4 with regard to the US. And that would be of course that we understand that it’s all do that the FDA is obviously swamp with efforts and so forth and work obviously as they are extremely well focused I’m sure on this particular review. But that would be our current expectation just reiterating what you’ve said as well in terms of timing. In terms of Europe, the second indication for an approved product actually is not eligible for the assessment procedure, which is similar to priority review procedure in the United States. So we have not been eligible for that.

As you also know there’s an effort to get to a certain timing in the European review process, which involves clock starts and clock stops, so we provided our guidance for when we anticipate that to complete, but it ought to be longer than it was for the (inaudible) assessment procedure. In regard to the question one, Part C, Japan, we anticipate discussions over the next three months to four months with PMDA to look to work out a joint approach to bring aHUS future plan and we expect towards the end of this year to be able to provide further insight on the timing of that.

Eric Schmidt

Thanks a lot

Lenny Bell

Thanks, Eric.

Operator

Our next question comes from Salveen Richter with Collins Stewart.

Salveen Richter – Collins Stewart

Thanks, again. Congrats on a great quarter. So as the sales force began identifying aHUS patients outside of those in trials, and also (inaudible) convert over to commercial patients on approval and how many are there right now?

David Hallal

Yes, it’s David, I will take that. So as I indicated during the call we have deployed a small MSL team that’s focused on nephrology and it really is this quarter one of their key objectives in implementing our disease awareness campaign. They are also identifying physicians who are actively treating patients with PNH. As it relates to the clinical trial patients, I think one thing that kind of keep in mind is that unlike PNH, where we had approximately globally 195 patients in our clinical trials, aHUS, we only have 37 patients. And frankly, the vast majority of those patients were outside of the US. So, we wouldn’t necessarily anticipate a significant number of patients transitioning over from clinical trial on to commercial supply.

Salveen Richter – Collins Stewart

Thank you.

Operator

Our next question comes from Brian Abrahams with Wells Fargo Securities.

Brian Abrahams – Wells Fargo Securities

Hi, thanks for taking my question. A question on STEC-HUS. Congrats on being able to respond so quickly to the crisis in Germany. It sounds like it makes sense to invest in that area. I’m just wondering from a commercial perspective, if you can maybe talk to how you might expect to deal with some of the practical challenges in this market, and particularly, not knowing when or where an outbreak might occur. And just wondering whether you foresee stockpiling as a potential way to ensure rapid distribution in response to another crisis?

Lenny Bell

Thanks very much, Brian. I’ll take the first shot. Anyone else like to clean up, they may feel free. The first comment I would make is that we distinguished clearly between atypical Hemolytic Uremic Syndrome and STEC-HUS. And what we distinguished is that the aHUS, in particular, distinction would be the genetic life-long disorder and the STEC-HUS is less likely to be. But it’s probably equally important is what they have in common, which is that both actually can come on like a train on fire and be so rapidly deadly to the affected patient, requiring extremely rapid action.

And really for those reasons, we are well along in our planning in the United States, and certainly elsewhere in our co-operations around the world focused on how to be able to deliver rapidly in any case for patients who really have their lives imminently threatening and acquire long-term or a life-long therapy depending on the situation. So, I think that our planning for aHUS I think will be well aligned in that regard as it would be for STEC-HUS.

The next point I’d make actually is that what’s quite important is that certainly the STEC-HUS crisis in Germany appropriately drew worldwide attention on the matter. But on the other hand, STEC-HUS occurs in a regularly irregular way around the world all the time. So it’s less characterized by massive outbreaks than it is sort of a steady low level of new outcomes that occur, and in that case, the German situation really was the outlier.

And then the last point to make actually is that I think that the clear issue is that we’ve done is to use this in working with the Paul Ehrlich Institute and with the leading German physicians, which has been quite ordeal I would say within the company certainly over the last few months to develop a (inaudible) rapidly in real-time how to address this should it recur. And so we are not looking for it to be stockpiled. We certainly don’t favor that. And we would put ourselves in a situation after we have the clinical data to be able to respond in an appropriate way.

I also mentioned that we noted in the earlier part of the call today proactively that we had actually increased our manufacturing in order to account for any future episodes like this so that we will be able to maintain our typical and routine robust long-term Soliris inventory at the same time respond should something like Germany occur again.

Brian Abrahams – Wells Fargo Securities

Thanks very much.

Lenny Bell

Thanks.

Operator

Our next question comes from Geoff Porges with Bernstein. Please go ahead.

Geoff Porges – Bernstein

Thanks for much. Unfortunately, Lenny, I continue the line of questioning on STEC-HUS. It’s interesting because it’s been out there for quite a while. I mean we’ve known about E. coli associated with HUS. So why hasn’t Alexion pursued it before? And then now you’ve been treating patients since May, can you tell us about the responses that you’re seeing and is there any way of identifying who is likely to benefit because there are multiple different components to the disease process. So do you have a sense at this point of how widespread the benefit is perhaps by comparison with aHUS where I think you see pretty much everybody about this. Thanks.

Steve Squinto

Maybe I can take the first part of your question, Geoff. This is Steve. Good question. Why haven’t we thought about this in the past? I think one of the reasons would be and I think Lenny pointed to in his answer to a previous question, the literature has been fairly recent and is now fairly compelling demonstrating clear role of complement activation particularly alternative complement pathway activation that occurs with the Shiga-toxin induced infection. And so we know now that complement is uncontrolled in these patients, as Lenny pointed out earlier for somewhere between eight weeks and nine months. In addition, the toxin itself actually has an effect on certain complement regulatory factors and minimizes their ability to block complement. This is all fairly recent literature that has emerged which gives us a lot more enthusiasm and certainly gave the German physicians a lot of enthusiasm about attempting to look at a terminal complement blocking drug in the disease.

Lenny Bell

The only additional comment or color I’ll provide to Steve’s discussion which my response I gave what Steve responded is much more substantially than I would have said but I think that’s a much better response. The other comment I would provide though is that I think we and certainly the physicians in Germany and even more so than us and other European countries as well as elsewhere have been struck by the enormous ability of the STEC-HUS disease to accelerate very fast. And I think it accelerates because I think it’s been described in the popular media or the media that we read all the time in various different countries focusing on not only the kidney but also on the brain. And I think that from a medical perspective that always is humbling that if you know something is going to address and quite frankly just in a vicious way, one would anticipate that it would be prudent to start to intervene earlier rather than later. And I think that’s probably a fair amount of the experience that eventually will next year or so will be shared out of the German experience which is that there’s a lot more to do to intervene, and like most things if you can get (inaudible) something before it’s truly everything on fire, lot easier to put that fire out, has some one walk away. I think that will be the sort of lesson that comes out of this.

Geoff Porges – Bernstein

Thank you very much.

Lenny Bell

Thanks, Jeff.

Operator

Our next question comes from Ian Somaiya with Piper Jaffray. Please go ahead.

Ian Somaiya – Piper Jaffray

Thanks, and let me add my congratulations, it was one heck of a quarter and I guess we are all looking forward to pretty remarkable period of next six months to nine months. The question I had for you was on the next round of data set for Soliris. Just looking at the half or so clinical settings where we will start to get data, how would you prioritize future development of Soliris in those different indications, obviously the caveat is positive data will support moving forward, but just give us a sense of how quickly you can move forward those different settings and what the regulatory path is, is there a potential for type opportunity in the mix where you can move forward on Phase II data?

Lenny Bell

I think we’ll probably have a few folks weigh in on this one, but maybe they can take the lead in answering the question. I think our priorities remained focused on our nephrology and hematology therapeutic areas. So I think as we said on the call we are expecting to see some data in a number of different settings. We highlighted a couple. We highlighted our myasthenia gravis program actually, which as I mentioned will expect to see some data coming out towards later in the year. We’ve completed enrolment in the NMO trial, we completed enrolment in the AMB trial, data expected in both of those sort of early in 2012, and data drives decision-making regarding prioritizing these programs in terms of which to move forward. But, also in terms of the prioritization somewhat dependent upon what we can do with that data in terms of our discussions with regulators on how to move forward for the next phase of development in these programs.

Operator

Our next question comes from Matt Roden with UBS. Please go ahead.

Matt Roden – UBS

Great, good morning, and hats off to you guys for a very nice quarter. So I wanted to ask a question on the transplant program. And I think last quarter you guys had talked about wrapping up the discussions with the regulators on moving forward into those trials. So I was wondering if you could sort of comment on the steps you’re going through to get those trials underway and what you continue to go through. And secondly, I wonder if you could maybe help us think about what these trials could look like in terms of maybe sample size, duration of therapy and follow-up time? Thanks a lot.

Lenny Bell

Yeah. So I think as we said on the call, we were very pleased with the outcome of our discussions with the FDA and the FDA having now authorized us to move forward with our IND filing for the living donor transplant trial, and we expect that trial to be enrolling later this year. We will also be looking to initiate the deceased donor trial, which will be largely European trial versus US at the end of the year as well. I think the trial design is very similar to what we’ve done with the Mayo Clinic, where patients are dosed for about nine weeks, and it will be designed as a Phase II trial.

Matt Roden – UBS

Okay, thanks a lot.

Operator

Our next question comes from Howard Liang with Leerink Swann.

Howard Liang – Leerink Swann

Thanks very much. In your opening remarks, if I heard it correctly, I think you mentioned that for dense deposit disease and C3 nephropathy you are exploring potentially subpopulation that may be more life threatening. Can you just elaborate on your thoughts there? Thanks.

Vikas Sinha

Yes, I think there is a wide range of clinical outcomes in patients with dense deposit disease and C3 nephropathy, and they tend to be very slow progressing diseases. I think in certain subpopulations of patients, it’s a much more of a life threatening and organ destroying disease and I think it’s those patients that we want to focus on, we continue to enroll patients in our studies and will probably have some data coming out as well towards the end of the year. But I think we hone in on those patients that sort of meet that criteria for eculizumab therapy.

Howard Liang – Leerink Swann

Thank you.

Operator

Our next question comes from Mark Monane with Needham & Company.

Mark Monane – Needham & Company

Thanks very much for taking my question. I think what you’re training on prior analogy. It seems that the STEC-HUS and aHUS is more of an incident disease, while the PNH is more of a prevalent disease. Did I get that right? And how does that affect your strategy around marketing and sales in thinking about these disorders?

Lenny Bell

I think the way to look at it is every disease has an incidence and every disease has prevalence. That the first comes incidence, of course, with a number of new cases within a time typically in a year and prevalence is number of patients who have the disease at a single point in time. And what distinguishes the difference in incidence and prevalence frequently, once one understands that every disease has an incidence is a combination of the lethality of the disease and the chronicity of the disease. So in the case of PNH, about a third of patients will die in five years. They have a mutation in their bone marrow. They got the disease for their lives if they survive.

In the case of aHUS, unfortunately more than half of the patients will die or kidney failure or dialysis within 12 months of their initial presentation. All the patients of mutation have a genetic life-long disease. In the case of STEC-HUS, as we described, it’s a very high lethality depending on what strain it is. But it could be 10%, 20% in days or weeks. And so obviously the number of incident cases will go down very quickly after that. And typically as Steve mentioned, I had mentioned as well, the disease has been demonstrated to show uncontrolled complement activation for roughly eight weeks to nine months. So I think that’s actually the way the data lays out and hopefully that provides you clarity.

Mark Monane – Needham & Company

Thank you.

Operator

This concludes today’s question and answer session. At this time, Dr. Bell, I’ll turn the conference back over to you for any additional or closing remarks.

Lenny Bell

Thank you, operator. We’re done.

Operator

This concludes today’s conference. Thank you for your participation.

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