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Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN)

Q4 2011 Earnings Call

February 9, 2012 10:00 am ET

Executives

Leonard Bell – Chief Executive Officer

Thomas Dubin – Senior Vice President and Chief Legal Officer

Vikas Sinha – Senior Vice President and Chief Financial Officer

David Hallal – Senior Vice President, Global Commercial Operations

Stephen Squinto – Executive Vice President and Head of Research & Development

Analysts

Rachel McMinn – Bank of America-Merrill Lynch

Eric Schmidt – Cowen and Company

Geoff Meacham – JPMorgan

Yogesh Ahuja – Goldman Sachs & Co.

David Friedman – Morgan Stanley

Salveen Richter – Collins Stewart Llc

Geoffrey Porges – Sanford C. Bernstein & Co. LLC

Matt M. Roden – UBS Securities LLC

Brian Abrahams – Wells Fargo Securities

M Ian Somaiya – Piper Jaffray

Howard Liang – Leerink Swann Llc

Bret Holley – Oppenheimer & Co.

Operator

Good day, ladies and gentlemen, and welcome to the Alexion Pharmaceutical’s Fourth Quarter 2011 Results Conference Call. My name is Alisha and I will be your operator for today. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of your conference. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I’d now like to introduce Dr. Leonard Bell. Please proceed, sir.

Leonard Bell

Thank you, Alisha. Good morning. Thank you for joining us on today’s call to discuss Alexion’s performance for the fourth quarter and full year 2011.

I’m joined by 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 entire Alexion team working around the world including our new colleagues in Cambridge and Montreal who have joined us just this week from Enobia. Vikas, David, and Steve will join me on today's call to report on our financial, commercial, and R&D accomplishments in the fourth quarter and the year and to discuss our strategic initiatives and accelerated execution plans for 2011.

Before we begin, Tom will apprise you of our potential to make forward-looking statements. Tom?

Thomas 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, Asfotase Alfa and our other product candidates in the U.S. and other territories. Plans for development and clinical trials of Soliris, Asfotase Alfa in our other product candidates 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 and our product candidates for various indications, the possibility that results of clinical trials are not predictive of the safety and efficacy of Soliris or our product candidates in broader patient populations in the disease studied or other diseases; the risks that third parties won’t agree to license any necessary intellectual property to us on reasonable 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 or 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 September 30, 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 U.S. GAAP except in three respects. First, our non-GAAP numbers exclude share-based compensation. Second, we exclude non-cash tax adjustments associated with utilization of our U.S. net operating losses, and third with completion of three recent acquisitions, we also exclude amortization of acquired intangible assets and costs associated with acquisitions. A reconciliation of our GAAP to non-GAAP results is included in the press release we issued this morning. Thanks, very much. Lenny?

Leonard Bell

Thanks, Tom. In the fourth quarter and full-year 2011 Alexion exceeded its objectives and significantly advanced our mission to provide life transforming therapies for patients with severe, ultra-rare and life-threatening disorders. Our continued progress expand three major growth initiatives. First, during Q4 we continued the strong Soliris growth trajectory, serving a substantial number of new patients with PNH, primarily in our core territories of United States, Western Europe and Japan.

Second, we significantly progress our mission to serve patients with aHUS. In late September, following FDA approval, we began to serve initial patients with aHUS in United States. And in November Soliris received European commission approval for patients with aHUS. With these regulatory steps now completed, we look forward to transforming the lives in the increasing number of patients with this life-threatening ultra-rare disorder in 2012 and beyond.

And third, as we expand our initiative to serve more patients with more disorders that are severe and ultra-rare, we have progressed our lead development programs, which now include four other highly innovative compounds in addition to Soliris. In all, our five novel compounds are currently being investigated across eight severe and ultra-rare disorders in addition to PNH and aHUS.

As we enter 2012, Alexion has the widest commercial operation and the deepest development pipeline in the company’s history. Importantly, as we expand our commercial and clinical initiatives, with a focus on sustainable long-term growth, we remain tightly focused in areas that we know well and do well.

Developing and commercializing first-in-class high value therapies that transform the lives of patients with disorders of extreme severity and rarity. With our proven skills and severe and ultra-rate disorders combined with our sense of urgency regarding patients who lack other treatment option. We're on track to pursue our growth strategy throughout this decade and into the 2020s.

As we look ahead to 2012, I would like to turn first to our work with Soliris, the world’s only approved terminal complement inhibitor. Our goal is to maximize the potential of Soliris in current and future indications. First, by accelerating the global rollout of Soliris in PNH and now aHUS, our two currently approved indications. And simultaneously, by driving forward to investigate the use of Soliris in four additional severe and ultra-rate complement EDA disorders.

In PNH, Soliris is providing life transforming benefit, and the potential for a normal lifespan to patients around the world. In Q4, we again achieved steady quarter-on-quarter growth in our four territories of United States, Western Europe and Japan. In U.S. in particular, revenue growth from Q3 and Q4 was positively impacted by the initial effect of the expanded U.S. field team, and the more rapid identification of previously identified, unidentified PNH patients in Q4 compared to Q3.

As we expect the rate of patient identification in Q1 to be similar to Q4, we do not expect to see the same incremental rise in revenue in Q1 over Q4. Separately in Europe, I would point out that despite the near-daily news headlines on the macroeconomic environment; we continue to see steady demand in our core Western Europe countries.

However, even with our success today, we know that the majority of PNH patients who can benefit from Soliris in the United States, a country in which we have been operating the longest, are still not receiving appropriate treatment.

On a global basis, the number of PNH patients not yet diagnosed or receiving appropriate treatment is even greater. We look forward to expanding our presence in our core territories, while serving more patients in additional countries.

In aHUS, we’re at the very early stages of beginning to serve patients in United States and are on track to service steadily growing number of U.S. patients throughout 2012. In Europe, we expect to complete the reimbursement procedures for aHUS in initial countries during 2012, in further European countries through mid-2013. As we complete these reimbursement discussions, we’ll be able to begin individual launches in aHUS on a country-by-country basis.

As we have noted before, we expect that the use of Soliris in aHUS in United States and in Europe, was first grow only gradually due to the low prevalence and low awareness of the disorder.

Due to the life transforming impact of Soliris in PNH and aHUS, we are increasingly committed to the development of Soliris in other severe and ultra-rare disorders of uncontrolled complement activation.

We’re currently focused on clinical programs in four such disorders, acute humoral transplant rejection STEC-HUS, neuromyelitis optica and myasthenia gravis. And we will drive these programs forward throughout 2012.

As we look to expand our ultra-orphan product portfolio beyond Soliris, we’re moving on parallel tracks. First, we’re applying our world-class expertise to expand our portfolio of complement inhibition therapeutics. In addition, beyond our core focus on complement inhibition, we are simultaneously expanding our development efforts to target other sever and other ultra-rare disorders including those caused by inborn errors of metabolism.

In 2012, we will progress development programs in four highly innovative first-in-class therapies beyond Soliris. These include ALXN1007, our anti-inflammatory antibody and importantly three other innovative compounds added to our pipelines through our highly selective acquisitions in 2011. Asfotase alfa, investigational target enzyme replacement therapy with strong Phase II data as a potential treatment for patients with hyperphosphatasia a severe ultra-rare genetic and life threatening metabolic disorder.

cPMP replacement therapy which has shown dramatic early results in treating newborns with MoCD Type A, an ultra-rare genetic and fatal metabolic disorder, and TT30, a unique targeted inhibitor of the alternative complement pathway. Steve will provide update of our development work with these four additional compounds and Soliris later in the call.

Turning to our financial performance, our core regional businesses each performed well and revenues in Q4 grew to $228 million, bringing our revenues for 2011 to $783 million, which was an increase of 45% compared to 2010.

That showed an increasing number of patients while maintaining a rigorous financial discipline and control, we achieved 2011 non-GAAP net income of $1.38 per share or $266 million, a 59% increase year-over-year.

Turning to our 2012 guidance which was tale in this morning’s press release, we’re forecasting 2012 revenues in the range of $1,040,000,000 to $1,070,000,000 an increase of approximately 35% over 2011.

We expect continued strong gains in revenue in each quarter. I would note, however, that Q4 to Q1 revenue growth will occur at a somewhat slower rate due to fewer days in Q1, and in part to the already apparent negative impact of European exchange rates.

As we grow the scope of both our commercial and clinical operations and prepare for continued expansion over the course of many years, we are also strongly focused on maintaining our financial discipline.

Despite our increasing global growth in investment, we expect to continue to reduce non-GAAP SG&A, as a percent of sales from 35% in 2011 to approximately 33% in 2012. This indicates our growing operational efficiency as we serve more patients with additional severe and ultra-rare disorders.

As previously described, 2012 R&D is forecasted approximately 21% of sales reflecting the additional investment related to asfotase alfa drug development, and largely related to initial drug inventory production. Following this trends in one year increase in 2012, we expect R&D to return to our target levels of 17% to 18% of sales in 2013. Strong revenue growth and continued financial discipline are expected to result in 2012 non-GAAP EPS in the range of $1.60 to $1.70.

I would also note, as we look forward, we expect to realize substantial financial benefits from the structuring of our organization as we integrate Enobia. A long-term positive impact on our operating results will follow from our one-time GAAP tax charge of approximately $80 million to $100 million during 2012, which is not reflected in our GAAP tax guidance.

In 2011, we set and reached our goal of accelerating all of Alexion’s key growth initiatives. Our sense of urgency as we enter 2012 is just as great. We are constantly mindful of the number of patients with PNH and aHUS worldwide who are still not receiving the life transforming benefit of Soliris. And we're likewise driven by the exciting potential of the eight lead programs under development in our pipeline, and the need to accelerate these initiatives as we prepare to serve patients throughout this decade and into the next.

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

Vikas Sinha

Thanks, Lenny. We concluded 2011 with another quarter of strong sales profitability and cash flow. Looking first at revenues, we achieved steady top line growth during Q4 primarily in our core geographies of the U.S., Western Europe and Japan augmented by serving small number of patients in other countries. Net product sales of Soliris was $228 million in Q4, 2011, an increase of 46% compared to Q4, 2010.

PNH contribution to Q4 revenues was higher than our expectations in all of our core regions, while the aHUS launch in the U.S. was inline with our expectations. For the full-year 2011, we recorded sales of $783 million, an increase of 45% compared to 2010.

The U.S. represented 34% of sales, Europe 43%, and ROW 23%. In the fifth year of the Soliris launch, the U.S. again achieved a high growth rate, primarily due to continued addition of new PNH patients and a small contribution from the initial few months of the aHUS launch. Turning to Europe, despite the recent macroeconomic issues and observing the full-year impact of the 2010 increase in the industrywide, government-mandated discounts in Germany and Spain; European revenue growth also remained strong.

Turning to operating expenses, non-GAAP SG&A was reduced by 3% from 38% of sales in 2010 to approximately 35% of sales in 2011. R&D expenses for 2011 was $128 million as we re-prioritize certain programs following the initiation of our STEC-HUS study in Germany.

Turning briefly to taxes, our GAAP tax rate for 2011 was approximately 24%, and our non-GAAP tax rate was 8% each of which included the benefit of foreign and orphan tax credit that we recognized in Q3.

As a result of exceeding our revenue targets while maintaining financial discipline, we were able to report 2011 non-GAAP EPS of $1.38 per diluted share. This was an increase of 55% year-on-year.

Turning to our balance sheet, cash, cash equivalents and marketable securities grew from $362 million at the end of 2010 to $541 million at the end of 2011. The year-end balance does not reflect the purchase price for the Enobia acquisition, which will be paid for through a combination of cash and debt to be reflected in our Q1 results.

We will incur expenses related to the Enobia acquisition and integration of approximately $20 million to $25 million in 2012. These costs will be recorded in various amounts throughout the year, and will be excluded from our non-GAAP results.

Looking further at the balance sheet, we continue to have strong cash collections and global DSOs remain consistent.

With regard to our 2012 guidance, I’d like to highlight some key points. First, we are again guiding strong top line year-on-year revenue growth. Revenues for 2012 are forecasted in a range of $1.04 billion to $1.07 billion, an increase of approximately 35% compared to 2011.

PNH will be the primary source of revenues with a small, but growing contribution from aHUS. We expect continued strong gains in revenue in each quarter, I would note, however, that Q4 to Q1 revenue growth will occur at a somewhat slower rate due in part to fewer days in Q1, and the already apparent negative impact of European exchange rates.

Second, as the global operations continue to become more efficient, our forecasted SG&A of $345 million to $355 million will be approximately 33% of sales of further improvement from our level of nearly 35% of sales experienced in 2011.

Third, 2012 R&D is forecasted at $220 million to $230 million, which will be approximately 21% of sales reflecting additional expenses related to asfotase alfa drug development and largely related to the initial manufacturing of drug development.

Following these trends into one year increase in 2012, we expect R&D to return to our target levels of 17% to 18% of sales in 2013, despite a significant increase in our pipeline activities.

Fourth, the forecasted 2012 GAAP effective tax rate of 32% to 34% excludes the tax impact of the integration and structuring of the Enobia acquisition that we will undertake throughout 2012. We expect to realize substantial financial benefits from the structuring of our organization as we integrate Enobia. A long-term positive impact on our operating results will follow from a one-time tax charge of approximately $80 million to $100 million during 2012, which is not reflected in our GAAP tax guidance. We are guiding a non-GAAP tax rate of approximately 8% to 10%.

Finally, by growing revenues strongly and maintaining a financial discipline, we're guiding 2012 non-GAAP EPS of $1.60 to $1.70 per share. This forecast is based on 197 million average shares outstanding during the year.

Overall, we’re very pleased with our financial performance in 2011. We’re especially gratified to have accomplished three strategic acquisitions, each well within our conservative financial parameters. We expect that these patient-centered investments will contribution significantly to our performance as the decade proceeds.

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. During 2011, we achieved Soliris growth of 45% compared to 2010, driven by continued strong performance in our global PNH operations, and an initial small contribution from aHUS, which was in line with our expectations.

Q4 capped the solid performance of our commercial operations during the year with a 46% increase over Q4, 2010; reflecting steady and continued growth in PNH in our core territories of the U.S., Western Europe and Japan augmented by small contributions from a number of other countries, which are in the earlier stages of our disease awareness and diagnostic efforts.

In our 19th quarter of PNH commercialization, we continue to observe the same strong update across each of our core territories that we have experienced since 2007. In Q4, as in previous quarters, a significant number of patients in the U.S., Europe and Japan who were newly started on Soliris were also newly diagnosed.

More patients are being tested for PNH, and we know that once patients with PNH have received an accurate diagnosis, physicians are more likely to rapidly start them on Soliris. Thus patient care is being optimized as treatment decisions are increasingly based on the growing body of clinical data regarding the morbidities, and premature mortality associated with PNH, as well as the positive long-term outcomes demonstrated with Soliris therapy.

Our education initiatives continue to be supported by new data that underscore the severity of PNH, and the impact of Soliris on survival. New data presented at the ASH conference in December show that hemolysis is a strong and independent predictor of severe complications in PNH including early death. The analysis of over 300 patients in the South Korean national registry show that any patient with elevated LDH is at risk for serious complications due to uncontrolled complement activation, reinforcing the need for early intervention.

Separately, a diagnostic study presented at ASH confirm the frequency of PNH clones in high-risk patient populations with various other diseases. This aligns well with emerging clinical practice in the PNH diagnostic pathway.

Looking forward in our PNH operations, despite our substantial progress over the past five years, we continue to observe that the majority of patients with PNH are not yet receiving appropriate treatment even in those countries where we have been operating the longest. As we continue to expand our diagnostic and education efforts, we look forward to serving an increasing number of patients with PNH around the world.

Turning to our aHUS launch with Soliris, in the United States, we are pleased with the dynamics we are observing thus far, which is in line with our expectations. In these very early stages, I note three factors in particular

First, as in PNH, our early focus in aHUS is on disease and treatment education. Among both nephrologists and hematologists, these programs are focused on the morbidities and mortality of aHUS, the role of chronic uncontrolled complement activation which causes TMA in these patients, and the compelling clinical benefits that Soliris can provide the patients with aHUS by inhibiting complement mediated TMA. We are observing both interest and receptivity as we conduct our disease awareness programs.

Second, we are benefiting from our decision to have a single unified sales team in the United States, cross trained in both PNH and aHUS. Because the overall team is larger, each represent and manages a smaller territory than in the past, and is able to call on more hematologists for both PNH and aHUS, while also calling on adult in pediatric nephrologists to educate them on aHUS.

In the United States, revenue growth from Q3 to Q4 was positively impacted by the initial effect of the expanded U.S. field team and the more rapid identification of previously unidentified PNH patients in Q4 compared to Q3. As we expect the rate of patient identification in Q1 to be similar to Q4, we do not expect to see the same incremental rise in revenue in Q1 over Q4.

And third regarding aHUS, we’re observing that thus far, nearly half of the new prescribers of Soliris for patients with aHUS our hematologists indicating that this specialty is indeed managing a substantial number of aHUS patients.

Significantly, the ASH Hematology Conference in December included important disease presentations on aHUS as well as a presentation of final data from one of our prospective studies further reflecting strong interest in this disorder in the hematology community.

As we have discussed, we are confident that we will serve an increasing number of patients with aHUS overtime; however, we continue to expect that the initial use of Soliris and aHUS will grow only gradually due to the low prevalence and low awareness of the disease.

Turning now to Europe, in November, the European commission granted marketing authorization for Soliris to treat pediatric and adult patients with aHUS. Like the label in the United States, the SmPC in Europe supports broad use of Soliris in patients with aHUS regardless of age, clinical profile, presence of genetic mutations or history of supportive care.

In addition, recognizing the life long risk of severe complications due to the uncontrolled compliment activation in aHUS, the EU label specifically states Soliris treatment is recommended to continue for the patient’s lifetime.

Our next step in Europe is to begin reimbursement discussions with healthcare authorities in major European countries as we expect to start serving patients with aHUS in the initial European countries during 2012 with additional countries commencing through mid-2013.

While we are confident that we will serve an increasing number of European patients with aHUS over time, we expect that as in the U.S., the initial use of Soliris and aHUS, will grow only gradually due to the low prevalence and low awareness of the disease.

To prepare for the EU launch, we are now expanding our European field teams on a country-by-country basis with professionals who have experience in rare disorders and relevant medical specialties.

These European country teams will be fully cross trained in both PNH and aHUS. As we enter 2012, we remain focused on expanding our PNH initiatives around the world while we want Soliris for aHUS, for both children and adults by executing our plans to meet the needs of patients who suffer from these severe ultra-rare and life-threatening diseases.

Our global commercial organization has the experience, skill and talent to achieve our objectives with Soliris, and our four other highly innovative compounds including most recently asfotase alfa for hyperphosphatasia. I look forward to updating you on our progress on future calls.

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

Stephen Squinto

Thanks, David. In 2011, in addition to supporting our PNH and aHUS operations Alexion’s R&D team made significant progress on behalf of patients suffering with a number of other severe, ultra-rare and life-threatening disorders. We entered 2012 with the most robust and innovative pipeline in Alexion’s history with Soliris and four additional highly innovative compounds currently being investigated at various stages of development across eight severe and ultra-rare indications beyond PNH and aHUS.

I would like to update each of these programs, starting with the four disorders under development with Soliris or eculizumab and starting first with STEC-HUS. During Q4, Dr. Rolf Stahl, lead investigator of the STEC-HUS study reported interim data at the ASM meeting in Philadelphia.

The interim results were very encouraging showing the eculizumab treatment for eight weeks substantially improved serious morbidities in STEC-HUS patients. 95% of patients in this study achieved a global response, 94% of patients improved their kidney function, 85% of patients improved neurologic function, and 100% of patient eliminated dialysis.

A rapid large and sustained reduction in thrombotic microangiopathy or TMA in reversal of organ damage with Soliris supports the central role of uncontrolled compliment activation in the TMA process, which contributes to sever morbidities in patients with STEC-HUS.

Patients in this study will be observed for 28 weeks. We expect final data from the STEC-HUS later this year, and if consistent with the interim, we then expect to have discussions with regulators regarding a regulatory pathway of profiling in sBLA.

In our kidney transplant program with eculizumab, we have now commenced enrolling initial patients in our company sponsored multi-national living donor kidney transplant trial, in patients at elevated risk of antibody mediated rejection. Patients in this study will be dosed with eculizumab for nine weeks post transplant, and then we observe for 52 weeks following transplant. In addition, we expect to initiate a disease donor study in the first half of 2012.

Finally with eculizumab, we have two neurology clinical development programs ongoing in severe and refractory neuromyelitis optica and in myasthenia gravis. Data from the investigator initiated space to clinical trail of eculizumab in severe refectory NMO is expected later this year.

With regard to myasthenia gravis, data from our company sponsored Phase II study was presented in the fall of 2011. The data showed a strong disease improvement signal in a group of 14 patients with severe and refractory myasthenia gravis, an ultra-rare debilitating form of the disease. We expect to discuss the plans for a larger prospective placebo controlled study with regulators in 2012.

Turning to our rare-disease pipeline programs beyond eculizumab, I know that these programs are evaluating new highly innovative compounds that build on our world-class expertise in complement inhibition, as well as other novel compounds that target disease mechanisms outside of complement. With the acquisition of Enobia, we’ve added asfotase alfa, a highly promising and innovative late stage product candidate to our pipeline.

Asfotase alfa is a first-in-class targeted enzyme replacement therapy in Phase II clinical trials for patients with hypophosphatasia or HPP, an ultra-rare genetic and life-threatening metabolic disease with no effective treatment options. Asfotase alfa directly addresses the morbidities and mortality of hypophosphatasia by targeting alkaline phosphatase directly to the deficient tissue. In this way asfotase alfa is designed to normalize the genetically defected metabolic process, and prevent or reverse the severe crippling and life-threatening complications of this regulated mineral metabolism in patients with HPP.

Based on a highly encouraging Phase II data, seem thus far with asfotase alfa in children, we will focus our efforts on the following key areas to accelerate the development program as rapidly as possible. First, optimizing the commercial scale manufacturing process for asfotase alfa, second, completing the clinical development program in children prior to an anticipated regulatory filing for pediatric patients in 2014, and third, expanding the development program in adults. I look forward to updating you on our asfotase alfa program on future calls.

We are also accelerating the development of cPMP for the treatment of patients with Molybdenum Cofactor Deficiency Type A, another severe ultra-rare and genetic metabolic disorder that is fatal in newborns.

In 2011, we made substantial progress on our GMP manufacturing process for our cPMP replacement therapy. With material now in hand, we are currently conducting IND enabling studies, and will also be collecting retrospective data from patients already receiving cPMP therapy.

Our third pipeline candidate beyond eculizumab is TT30, a unique inhibitor of the alternative complement pathway with a mechanism of action distinct from Soliris. We are now enrolling patients in a Phase I study to characterize TT30’s mechanism of action, and to develop initial safety data.

Once we have the data from this study, we can better evaluate the overall therapeutic potential of TT30 for various disease targets. Lastly, we have also started clinical studies with the novel anti-inflammatory antibody know as ALXN1007, which is a product of our antibody discovery technology.

Our Phase I study of ALXN1007 is underway to evaluate the safety, tolerability, pharmacokinetics and pharmacodynamics of this compound in healthy volunteers. Before closing, I would like to acknowledge the innovative and diligent work of the colleagues who have joined us from Enobia. I’ve had the opportunity to meet with most members of the Enobia team, and they display the same passion and drive that is part of the Alexion culture; allowing us to do whatever it takes to bring a life transforming therapy to patients.

2011 was indeed a noteworthy year for our R&D team, and I want to thank each member for his or her contribution given the breadth of our activities, our potential in 2012 is even greater. I look forward to updating our progress on upcoming conference calls.

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

Leonard Bell

Thanks, Steve. In 2011, we continue to grow our global PNH operation, received United States and European approvals for Soliris and aHUS, advanced key R&D programs and executed three business development initiatives that are highly focused on bringing life transforming innovation to patients.

We entered 2012 with the widest commercial operation, and the deepest development pipeline in the company's history. We’ll now drive forward with the same passion and commitment we’ve demonstrated over the years to transform the lives of more patients and families suffering with more disorders that are severe, devastating and ultra-rare.

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.

Operator, we will now take questions.

Question-and-Answer Session

Operator

(Operator Instructions) The first question comes from the line of Rachel McMinn with Bank of America-Merrill Lynch. Please proceed.

Rachel McMinn – Bank of America-Merrill Lynch

Hi. Yeah, thanks very much, and congratulations on another fantastic quarter. Just on the guidance, maybe you can give us a little bit more color, your average quarterly increase in Soliris sales in 2011 was about $18 million, and your guidance implies kind of a $13 million to $16 million average quarterly increase.

So I mean, it just seems pretty conservative, and maybe you can just take a step back, and also talk a little bit about the aHUS launch compared to where you were at the same time in PNH, and whether we should be thinking about demand increasing overtime with aHUS, kind of being steady from current levels? Thanks.

Leonard Bell

Thanks very much, Rachael. I'll take the first part, and then David will fill the second part, then will bounce around the table. So in regard to our guidance, as Vikas and I each said, we recognize that certainly as we move from Q4 to Q1 as we identified, there really are three pieces that we have identified, that in each one in part will pen result in a slightly lower increase, Q1 over Q4 as oppose to Q4 over Q3. And those three pieces are, first, as David mentioned, and I mentioned as well, in the United States, we saw a higher increase from Q3 to Q4 due to the increased patient identification from the immediate effect of the increased sales force, but we don’t expect that same quarter-on-quarter increment to occur in Q4 moving to Q1.

Second as we mentioned, there are fewer days in our markets around the world, in Q1 as always are compared to Q4. And third, although we are hedged we recognize strongly the impact of the very negative euro weakness on our revenues in Q1 to date and anticipate continued effect of that throughout the quarter.

Given that as you know, we always examine and forecast our revenues and expenses based on our interpretations of risk and opportunities as we see them at that time and that show in that result.

David, do you want to talk about aHUS?

David Hallal

Yeah, Rachel, so as expected the uptick of Soliris and aHUS in the U.S. was slower than what we experienced in PNH really given the fact that there is lower prevalence of the disease. We do see that, as I mentioned during the call that, treating physicians are really at the earlier stages are becoming more aware of the signs and symptoms of the disease and even which patients might be higher likely for having the diseases. So clearly through our efforts in reaching more physicians, we think it will ultimately lead to more diagnostic evaluations and treatment for Soliris, but again as mentioned during the call, we see it being slow and gradual due to the fact that it is certainly a lower prevalent population out there.

Rachel McMinn – Bank of America-Merrill Lynch

Fair enough.

Leonard Bell

Thank you.

Operator

The next question comes from the line of Eric Schmidt with Cowen and Company. Please proceed.

Eric Schmidt – Cowen and Company

Hello, thanks for taking my question. Another one on the launch in aHUS, I know that you’re seeing only slow gradual very limited early adoption. But I was wondering if you can comment on whether the clinical patients have been transitioned successfully in the U.S. at least two commercial drug whether you can see and actually track the number of new patients who are diagnosed. And then in terms of the additions that you’ve had under the drug, are they coming more from new diagnoses or old, lets say, more earlier diagnosed patients?

Leonard Bell

David.

David Hallal

Yes. So Eric, yes we did transition the clinical trial patients in the U.S. over to commercial supply. And I think that again is something that I observed is one of the reasons for our nice quarter-on-quarter growth that we won’t necessarily think that we would see obviously moving forward.

As far as the patients that are being treated, again, given the fact that there is a lower population of prevalent patients, what we are seeing obviously is patients with a variety of clinical profiles, younger patients, some adult patients and with the signs and symptoms of TMA, physicians making diagnostic and treatment decisions and moving those patients on to ultimately the Soliris therapy.

Leonard Bell

Eric, is that a healthy answer.

Eric Schmidt – Cowen and Company

That’s terrific, but since you prompted me, Lenny, I’d loved this, the cost might come in on the longer-term outlook for non-GAAP taxes. They continue to be lower than we have modeled at least in 2012.

Leonard Bell

It was a good experience (inaudible) conference on the phone like that. Non-GAAP gliding towards 8% to 10% and the reason is that, as we continue to absorb more of the U.S. NOLs, the GAAP tax, whenever it goes up, there’s a counter impact on non-GAAP going down, primarily because the U.S. still has a significant NOL. So as we’re guiding a little bit higher on the GAAP tax rate you saw that, you will see that impact of the benefit in the non-GAAP. Does that help?

Eric Schmidt – Cowen and Company

Yes, I was specifically interested after 2012, whether that non-GAAP rate can stay low or when we’ll see a transition upward?

Leonard Bell

It was two thing, I think two three years, we will still be at our 8%, 10% ranges. And I’ll give you a better guidance of that, there’s still a $450 million of NOLs still there.

Eric Schmidt – Cowen and Company

Thanks very much.

Leonard Bell

Very good, thank you.

Operator

Next question comes from the line of Geoff Meacham with JPMorgan. Please proceed.

Geoff Meacham – JPMorgan

Hey guys, thanks for taking the question. A couple for you, so the model, first data at ASH, I know docs already use this as one of the predictors of PNH, but I’m curious to what degree you guys can leverage these data, and maybe some of the newer launch countries? And then the second question on NMO, I know we’ll get Phase II data soon, but may be help us out with how you guys give the registration trials, and how they could look with respect to things like compare it or if any dose duration endpoint things like that?

Leonard Bell

Yes. So I’ll take the first part of the question. Obviously, the South Korea national registry data that was presented at ASH was very important and is helping us in our global rollout of our PNH initiatives.

When I think about the earlier stages of the launch back in ’07, ’08, we didn’t have this type of data that obviously suggested that those elevated levels of hemolysis were clearly aligned with higher risk of premature death. So it is aiding us in our efforts in educating physicians around, which patients can most benefit from treatment. And as I stated, I think that more so over stagnalis when patients are diagnosed with PNH, there were generally more rapid treatment decisions that were being made.

David Hallal

Scott, regarding the NMO question, probably laid out, I think last patient, last visible probably occurs sometime this first quarter and then of course know as we would do for any clinical trail have to collect the data, clean the data, lock the database essentially then evaluate the final data. And I would hope that it would be positive enough then for submission to appear at a medical conference probably later in the year.

As you probably recall, we are looking at a decrease in exacerbation rate, comparing the rate of exacerbations prior to eculizumab therapy to the rate on eculizumab therapy for one year. And I think we would expect and hopefully see a pretty dramatic change in exacerbation rate to be encouraged to go forward.

Geoff Meacham – JPMorgan

In your sense is that from your discussions with FDA on this, is that a reasonable end point you think for a registration study?

David Hallal

At this moment in time and so we have the data and actually see the data we won’t have discussions with the regulators until we know where we are from the trial data.

Geoff Meacham – JPMorgan

Got you. Okay, great. Thanks.

David Hallal

Okay.

Leonard Bell

Thank you.

Operator

Next question comes from the line of Sapna Srivastava with Goldman Sachs. Please proceed.

Yogesh Ahuja – Goldman Sachs & Co.

Hi, this is Yogesh on behalf of Sapna. Thanks for taking my question. Congrats on another great quarter. Two quick questions, one, what are your thoughts on the potential for Asfotase alfa to be used in moderate or even mild forms of HPP. And then two, can you give us any color on how we should think about the growth and SG&A spend going forward, now the year has passed 2012? Thanks.

Leonard Bell

I will take one, Vikas you’ll get two. So I think that obviously it’s very early we just closed I think in the last 48-hours and we’re very excited to spend and increasing the amount of time with our new colleagues in Montreal and in Cambridge at Enobia. And as we’ll look to understand, our focus really as we kind of laid out competitively is that really focused on those disorders that are really of extreme rarity and extremes severity.

And I think that regarding hyperphosphatasia that's clearly our key focus, we are acutely focused as we mentioned in late December, when we announced the pending acquisition, we’re acutely focused of course on those children, who just haven’t absolutely devastating disorder and we’re focused on all of them of course.

At the same time we also are focused on identifying those adults who will have very severe manifestation of the disease and we’re clearly going to be focused on them after we evaluate data to bring forth a therapy to provide them the same life transformation that we believe we’ll provide to children with hyperphosphatasia. Vikas?

Vikas Sinha

Yes, our SG&A came down from 35% in 2011 to we’re guiding towards 33% in 2012. Our view is that over time we need to get it closer to 30 or less. And that is where we have to find more efficiencies in what we do.

Yogesh Ahuja – Goldman Sachs & Co.

Great, thanks a lot guys. I appreciate it.

Operator

Your next question comes from the line of David Friedman with Morgan Stanley. Please proceed.

David Friedman – Morgan Stanley

Hi, thanks for taking my question. I was wondering if you could just talk quickly unless you may not be able to discuss yet, the NMO patients, there is a fairly wide variability of relapse rates in those patients. So I was wondering if you could just quickly discuss any sort of baseline characteristics for these patients, and how severe their disease is? And then just quickly also second was any differences between the disease in moving kidney transplant trials that have separated out their starting over month?

David Hallal

So let me take the first question, I think which on NMO first. So patients that came into the investigator-initiated trial, first of all, all had to be aquaporin antibody positive, and the reason for that is, they are good evidence that the aquaporin antibody is a compliment activating antibody, so it makes the sense. Those patients also tend to be more severe form of the disease. So there has to be a required number of exacerbations over a six-month period prior to entering the trial as part of the inclusion criteria. So we, much as Lenny was describing regarding hypophosphatasia patients, we purposely selected out some of the more severe patients that really were refractory to other forms of therapies.

Leonard Bell

And then regarding the transplant program, I think as we announced probably, a quarter ago or maybe even two quarters ago at this point, with the STEC-HUS program emerging in 2011, there were few programs that were purposely shifted out really more for budgetary reasons and one of them was the disease donor trial, which we now expect to get going in the first part of 2012.

David Friedman – Morgan Stanley

Thanks. And just a quick follow-up, is there any, I mean was there a specific reason why disease was pushed out, versus living, is there a…

Leonard Bell

Yeah, I think it’s pretty clear. We had a fair amount of data as you probably know David. In the living donor patients from the investigator-initiated trial that was going on at the Mayo Clinic with Mark Stegall, so we had lot of confidence in what we might see in the living donor. We had less that information about disease donor.

David Friedman – Morgan Stanley

Great. Thank you.

Leonard Bell

You’re welcome.

Operator

Your next question comes from the line of Salveen Richter with Collins Stewart. Please proceed.

Salveen Richter – Collins Stewart Llc

Thanks for taking my question. So in term of aHUS, you’ve mentioned that the sales force needs to educate physicians on a number of misconceptions, including that chronic therapies required. So just wanted to get a sense of how the physicians are responding to this and whether you’ve seen any evidence that there are effecting uptick to date that these misconceptions are effecting uptick to date?

Leonard Bell

Yeah, it’s a great question. So obviously we have centered our disease awareness campaign around, our key learning’s preapproval through market research. And as I mentioned, not in a lot of detail on the call, but we’re very pleased thus far with the interest and receptivity of those disease awareness programs, either from our ramps or sometimes in educational setting and forums. As it relates specifically to dosing, as I mentioned I think based upon the label that we have in the U.S. and certainly through a press release from the FDA ODAC, that highlighted that indeed aHUS is a chronic disease, I think there is growing awareness amongst physicians that patients should and will require chronic treatment. And again that’s centered in our disease awareness efforts around the genetic permanent nature of the deficiency that the aHUS patients have.

Salveen Richter – Collins Stewart Llc

Great. And then just a question quickly for Vikas. How should we think about the FX impact for 2012, just based on the guidance that you’ve provided?

Vikas Sinha

We are looking at with all the macroeconomic issues in Europe as we move into 2012, we’d definitely will see impact of the euro, and that has been built into our guidance and we’re looking at and obviously €1.3 factored into our guidance.

Salveen Richter – Collins Stewart Llc

Thank you.

Operator

The next question comes from the line of Geoffrey Porges with Bernstein. Please proceed.

Geoffrey Porges – Sanford C. Bernstein & Co. LLC

Thanks very much for taking the question. First to Steve, could you just talk a little bit about whether we should be assuming there is no further development in AMD, TDT and other forms of MPGN? I just want to sort of close this out. And then Vikas, could you just talk a little bit about gross margin, what happened in Q4 versus the earlier periods and the earlier periods are the basis that we should use or should we be thinking that Q4 is the basis going forward? Thanks.

Stephen Squinto

So, let’s see if I can remember now. So AMD, I think as we’ve said in the past, we’ll expect to see and hoping to see some data on the trial being done down in Florida, probably later in 2012. Regarding dense deposit disease and I think there were some encouraging data presented at ASN last fall I think as we’ve said though it’s probably not for all, dense deposit disease patients I think we’re going to look to find those that have a rapid course disease and are the severe. If we can identify that patient population then we are going to look forward to going forward there as well. And I forget the third – the third that you mentioned Geoff.

Geoffrey Porges – Sanford C. Bernstein & Co. LLC

Just other forms of MPGN.

Stephen Squinto

Yeah, I think I throw that into the same basket with dense deposit disease, obviously MPGN type II, MPGN type I as well, again, looking for patients that have a very severe rapid deterioration of disease. Those patients might be good candidates for further eculizumab development.

Geoffrey Porges – Sanford C. Bernstein & Co. LLC

Great, thanks. And just on the gross margin Vikas?

Vikas Sinha

Yeah, Geoff. The gross margin for the full year, it was well on the guidance of 12%. And we normally find this in quarter-to-quarter ups and downs because of specific inventories that are related to certain countries go up and down because of the country requirements. And that kind of a little bit fluctuations will continue to happen, but I am pretty confident that we will be very close to 12% in 2012 too.

Geoffrey Porges – Sanford C. Bernstein & Co. LLC

Okay. Thank you very much.

Operator

(Operator Instructions) The next question comes from the line of Matt Roden with UBS. Please proceed.

Matt M. Roden – UBS Securities LLC

Good morning. Congrats on a very nice quarter here and thanks for taking my questions. So as you look to expand PNH into other geographies such as Brazil, Turkey, Russia. That was interesting some of the comments made by GSK on their call on Tuesday, give or take, whether or not you think their former experience is applicable to your efforts and specifically, two things that they’ve mentioned. One is, that they’re seeing – they see very strong initial growth for three, four years timeframe followed by very intense scrutiny over government spending levels. And then secondly, they’re seeing the majority of their sales in the EM, emerging markets as cash payers’ minority government reimbursements. So to what extend do you think that their former experience is applicable to yours and with Soliris and to what extend do you think that your ultra-orphan model basically immune to that sort of scrutiny as we’ve seen in the emerging markets?

Leonard Bell

This is Lenny. I will respond it, for us it’s fairly easy. I don’t think that we have similarity – similar businesses in anyway.

Matt M. Roden – UBS Securities LLC

Thank you.

Operator

The next question comes from the line of Brian Abrahams with Wells Fargo Securities. Please proceed.

Brian Abrahams – Wells Fargo Securities

Hi thanks for taking my question and my congrats as well on another great quarter. It seems like lot of European countries are revising your approaches to drug value assessments. So I was just wondering if there are any health technology assessments either ongoing or planned in any European countries for Soliris and PNH, which might potentially reduce any restrictions out there on the use. Now we’ve got a lot more data in hand on survival versus historical and association between hemolysis and death, or at the same it also potentially lead to some kind of reevaluation of the pricing and reimbursement.

Leonard Bell

Yeah, so thank you, it’s a very important question of course. As regards PNH actually don’t know across Europe, any current new health technology evaluations that regarding Soliris, there certainly was one that’s often been included I think this was in 2008 I think that was done. And you’re absolutely right though I think that the emergence of additional data it is of course very, very important to consider as new health technologies as I am sure will be done over time, probably outside the major European countries I would anticipate.

Brian Abrahams – Wells Fargo Securities

Thanks very much.

Leonard Bell

Thank you.

Operator

Your next question comes from the line of Robin Karnauskas with Deutsche Bank. Please proceed.

Unidentified Analyst

Hey (inaudible) showing in for Robin. Congrats on the strong quarter. Just a couple of questions, so we’ve heard that some centers are administering Soliris to all patients, just because it takes a longer time to diagnose the typical form. So we’re wondering what was the average time to diagnosis this and how wide spread does this impact us. And what’s the current average dose being given to patients.

Leonard Bell

Okay, yeah, so I think I’ve shared certainly that there is an approach that physicians are taking to identify patients with aHUS, and it clearly involves really two tests, one is an ADAMTS13 deficiency test, which helps to potentially understand whether or not the underlying cause of the TMA is either severe ADAMTS13 deficiency below 5%, consistent with our label in our clinical trials, would point to TTP.

And above 5% would certainly point to the underlying cause of the TMA being chronic uncontrolled complement activations, therefore leading one to a diagnosis of aHUS. Now, as it relates to aHUS, which I think I heard you say, certainly we are educating physicians that one would perform a sugar passing test to determine whether or not the reason for the uncontrolled complement activation in that case maybe related to an infection.

And so we are getting a better understanding that physicians are becoming educated on this, and follow that process. In terms of the – I think your question was related to the dosing, and I would just point that, obviously in the aHUS population, we expect a fair number of patients to be that of a pediatric. And the recommended dosing schedule is by a patient’s weight.

So certainly while the aHUS dose is higher for adults and in PNH, we expect that a substantial number of patients are going to be at a dosing range below PNH, because of the pediatric population. And we’re observing that certainly in the early stages.

Unidentified Analyst

Okay, thanks.

Operator

Your next question comes from the line of Ian Somaiya with Piper Jaffray. Please proceed.

M Ian Somaiya – Piper Jaffray

Thank you and congratulations on a great quarter. Just a question on the R&D guidance. Can you just speak to the incremental $100 million moving into 2012 in terms of R&D spend, how much of that is just related to the inventory build? And the larger question, I'm trying to answer I guess for myself is, as you think about 2013 and the R&D guidance you have given, are we underestimating the cost of the clinical trials or overestimating the cost of clinical trials as we move into 2013 for the other indications for Soliris on the pipeline or we underestimating the revenue outlook for that year?

Vikas Sinha

Yeah, this is the Vikas. Lots of subsets of the question, but I will try and answer as many as I can on that. First is, this years guidance has a significant portion of R&D cost for asfotase alfa drug developments both manufacturing and inventory build plus the absorption of the Enobia organization also into our company, right? So, that's a significant chunk of growth. And if you take that growth off, it’s fairly $30 million, $40 million growth from our own business that is moving forward with so many indications going into 2012 from ’11, and I think Steve laid it out most of the programs pretty carefully there. And going from ’12 to ’13, it’s too early to comment on that because our intention is to bring it down to 17% to 18% in 2013. We do not provide guidance for 2013 right now. Operator?

Operator

Your next question comes from the line of Howard Liang with Leerink Swann. Please proceed.

Howard Liang – Leerink Swann Llc

Thanks very much. What’s the magnitude of the change or the plan change of the sales force in U.S. and Europe, and why would the positive impact sustained for more than one quarter?

Leonard Bell

Yeah, Howard. So, as I mentioned, the expansion of our sales team I’d say, that we added probably about 50% to it, 50%, 60%. And why I don’t think that you would see it continue to grow over time as this that we positioned our regional account managers in the U.S. in what I would consider to be geographic cool spots they were still major areas there maybe we had less coverage because of the larger territories. And what we observed in the quarter in those spots is that we identified some patients with PNH that were previously unidentified. Now, we believe we’ll continue to have success in those areas but it would be similar to what we saw in this quarter and not necessarily growth over this quarter which is what we observed in Q4 versus Q3. Does that make sense?

Howard Liang – Leerink Swann Llc

Yes, do you expect to see a similar impact in Europe?

Leonard Bell

In a smaller sale of course, because they are actually each on in your countries be at different time.

Howard Liang – Leerink Swann Llc

Thanks, very much.

Leonard Bell

Thank you. We have time for one more question.

Operator

And your last question comes from the line of Bret Holley with Oppenheimer. Please proceed.

Bret Holley – Oppenheimer & Co.

Thanks. My questions regarding any assumptions you have in the ‘12, the 2012 guidance regarding additional EU price pressures. Or how should we think about that or how do you forecast that?

Stephen Squinto

So Lonny, I’ll take the first shot, and you know as I mentioned actually the very, very first question, more it seems like a very long time ago. We are obviously on a routine basis build risk and opportunities into our expense, revenue and EPS guidance. And we adjust that throughout the year, so we of course weigh those, risks and opportunities on all sides of the letter with a proposition, and then come up with what we think is our best judgment at the time of our guidance. And so regarding macroeconomic issues as we said, we currently, obviously are very sensitive to that and we also see continued strong demand in the larger countries at this point. Nonetheless we certain consider the potential for changes across obviously, different countries. And we weigh that in as we then provide our guidance, which as we’ve done today.

Bret Holley – Oppenheimer & Co.

Okay, thank you very much.

Operator

Ladies and gentlemen, thank you for you participation in today’s conference. This concludes your presentation and you may now disconnect. Have a great day.

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