Alexion Pharmaceuticals, Inc. (ALXN) CEO David Hallal on Q2 2016 Results - Earnings Call Transcript

Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN)

Q2 2016 Earnings Conference Call

July 28, 2016 10:00 AM ET


Elena Ridloff - Vice President, Investor Relations

David Hallal - Chief Executive Officer

Vikas Sinha - Chief Financial Officer

Carsten Thiel - Chief Commercial Officer

Martin MacKay - Global Head of R&D


Eric Schmidt - Cowen

Anupam Rama - JPMorgan

Ying Huang - Bank of America Merrill Lynch

Chris Raymond - Raymond James

Matthew Harrison - Morgan Stanley

Yatin Suneja - SunTrust

Geoffrey Porges - Leerink

Alethia Young - Credit Suisse

Robin Karnauskas - Citi

Simos Simeonidis - RBC Capital Markets

Terence Flynn - Goldman Sachs


Good day, everyone and welcome to the Alexion Pharmaceuticals Incorporated Second Quarter 2016 Conference Call. Today's call is being recorded. And now for opening remarks and introductions I would like to turn the conference over to Elena Ridloff, Vice President, Investor Relations. Please go ahead, ma'am.

Elena Ridloff

Thank you, April. Good morning and thank you for joining us on today's call to discuss Alexion's performance for the second quarter of 2016. Today's call will be led by David Hallal, our CEO. David will start the call with an overview of our global performance, and be joined by Vikas Sinha, our Chief Financial Officer; Carsten Thiel, our Chief Commercial Officer; and Martin MacKay, our Global Head of R&D.

You can access the webcast slides that will be presented on this call by going to the Events section of our Investor Relations page on our website. Before we begin, I will refer you to slide three. We will be making forward-looking statements all which involve certain assumptions, risks, and uncertainties that are beyond our control and could cause our actual results to differ materially from these statements.

A description of these risks can be found in our most recent 10-Q and 10-K filings with the SEC and our subsequent SEC filings. Any forward-looking statements apply only as of today's date and we undertake no duty to update any of these statements after this call. I'd also like to remind you that our reported non-GAAP operating results are adjusted from our GAAP operating results and exclude certain GAAP items that we described in our press release issued this morning. A reconciliation of our GAAP to non-GAAP financial results and financial guidance are included in the press release. These reflect the impact of the SEC's recently issued interpretations on non-GAAP financial measures. These adjusted financial measures are non-GAAP and should be considered in addition to, but not as a substitute for the relevant information prepared in accordance with U.S. GAAP. Thank you. David?

David Hallal

Thank you, Elena. In Q2 the Alexion team extended our global leadership in rare diseases as we continue to provide life transforming therapies to more patients with rare and devastating disorders.

As our commercial team reached more patients during the quarter, we delivered strong revenue growth and improved our operating margins while also progressing our robust R&D pipeline. Our commercial organization delivered total year-over-year revenue growth of 18% and volume growth of 23% driven by the strength of our three highly innovative marketed therapies.

First, Soliris continued to grow with a steady number of new patients with PNH and aHUS being treated globally. Second, Strensiq in only its third quarter of launch is a new driver of growth. And third, Kanuma continued to progress since we launched in the U.S. last quarter with newly identified patients starting on treatment.

In Q2, there were several highlights in our rare disease pipeline. The presentation of our Phase III regain study, where we believe the strength of the data from the predefined end points and prospective analyses support the potential of eculizumab to provide an early sustained and substantial response in patients with refractory MG.

These results will enable us to have constructive discussions with regulators, despite the narrow primary end point miss. The presentation of Phase I/ 2 data of monthly dosing of ALXN1210 and patients with PNH. The presentation of Phase I/2 data of SBC103 showing the potential for dose dependent disease stabilization in patients with MPS3B and the progress of our Phase 3 studies of eculizumab in DGF and NMO.

Now for a closer look at our commercial performance, starting with Soliris and PNH. In Q2 we continued to identify and serve a consistently high number of newly diagnosed patients globally by executing our PNH diagnostic initiatives with urgency.

Given that one-third of undiagnosed and untreated patients with PNH will die within five years, we aim to deliver the benefits of Soliris to even more patients. Our nine year track record of consistently identifying a similar number of new patients with PNH on a quarterly basis across our 50 country platform affirms our view that globally the majority of patients with PNH have yet to receive an accurate diagnosis, let alone commence appropriate treatment.

Moving to Soliris and aHUS, we once again served a consistently high number of new patients globally. We see a significant opportunity ahead to serve more patients, recognizing that a high number of patients with aHUS presenting with severe and rapidly progressing renal failure still do not receive a rapid and accurate diagnosis.

Matched for time now 19 quarters from their respective approvals in the U.S., there are more patients actively receiving Soliris for aHUS than there had been for PNH. Given the higher incidence of aHUS compared to PNH, combined with the improvements we continue to make to our diagnostic initiatives, we expect that this trend of new patient additions will continue, confirming our view that our opportunity to serve patients with aHUS is larger than that of PNH.

As we look forward, the combination of the high proportion of undiagnosed patients with PNH and the high incidence of aHUS gives us great confidence that the majority of growth in our core Soliris business is ahead of us.

Turning now to Strensiq. We are very pleased with our strong performance in Q2 as we served an increasing number of patients with HPP, both children as well as adults with pediatric onset disease.

Our highly successful HPP disease awareness and diagnostic initiatives have been underway for more than three years and will continue to help us identify and serve more patients with Strensiq over time.

By leveraging our expertise in ultra-rare diseases, just three quarters into the launch, Strensiq now represents a new driver of growth in 2016 and beyond. And with Kanuma, we continue to make progress in the initial stage of our launch in the U.S., which started in Q1.

We are accelerating our efforts to extend our disease awareness and diagnostic initiatives to a greater number of target physicians and accounts, in order to reach more patients with LAL-D faster.

Like HPP, we are now deploying a specialty diagnostic team and are seeing early signs that our enhanced diagnostic pathway is leading to an increase in testing. We expect that these efforts will accelerate the diagnosis and treatment of patients with LAL-D over time.

Moving on to R&D. We are leveraging our unique rare disease development capabilities to advance our highly innovative pipeline to drive additional growth. We have established our leadership in complement biology over the past 20 years, which gives us great conviction that our complement portfolio will enable us to serve an increasing number of patients.

Soliris remains in a position of strength with strong IP as well as regulatory data and orphan drug exclusivities in our core territories, extending through the end of this decade and we expect well into next.

Building upon Soliris, one of our commitments and top priorities is to bring even higher levels of innovation to patients and physicians.

Our R&D team is developing eight complement inhibitors with urgency. Our lead program, ALXN1210, is a longer-acting C5 antibody currently in two Phase 2 trials in patients with PNH. New Phase 1/2 data presented this quarter showed that 100% of patients with PNH treated with once-monthly dosing had rapid and sustained reductions in LDH. We are also evaluating ALXN1210 in longer dosing intervals and look forward to serving more patients with Soliris, ALXN1210 and our growing complement portfolio into the next decade and beyond.

Looking ahead to the second half of 2016, we will have multiple R&D milestones, including an update on our progress with regulators for eculizumab in refractory MG, data from the Phase 3 trial of eculizumab in DGF, completion of enrollment in the Phase 3 NMO trial and additional ALXN1210 data in patients with PNH. Beyond our complement portfolio, we continue to develop other highly innovative therapies. And in total, we expect to deliver up to six additional product or indication approvals through 2018. Martin will take a closer look at our pipeline later on the call.

Looking at our financial performance for the quarter. We achieved total revenues of $753 million, an increase of 18% over Q2 2015, with volume growth of 23%. This year-over-year revenue growth was driven by the continued growth of Soliris across geographies, the strong launch of Strensiq in initial countries and the early progress of our Kanuma launch in the U.S.

During the quarter, we delivered a non-GAAP operating margin of 44% up from 42% in the prior quarter. I also want to briefly touch on the SEC's interpretation on non-GAAP financial measures issued in May. We have modified our definition of our non-GAAP income tax expense to align with this recently issued interpretation. It is important to note that this modification will not change the amount of cash taxes we pay in 2016 or in the future or have any impact on our cash flow.

In Q2, we reported non-GAAP EPS of $1.13 per diluted share, which reflects a $0.12 reduction per share, attributable entirely to the modified definition of non-GAAP income tax expense. Prior to this modification, our Q2 non-GAAP diluted EPS would have been $1.25 per share.

Turning briefly to our 2016 guidance, we are reiterating our Soliris revenue guidance. And based on the strength of the Strensiq launch, we are increasing our metabolic revenue guidance to $200 million to $220 million. In addition, based on the change in our non-GAAP tax rate, we are revising our non-GAAP EPS guidance for 2016 to a range of $4.50 to $4.65.

As we did in Q2, we will accelerate EPS in 2016 and beyond, driven by continued growth of Soliris, Strensiq and Kanuma and operating expense discipline, which will expand our operating margins to 48 to 49% in 2018.

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

Vikas Sinha

Thanks, David. In Q2, we delivered strong financial performance, while continuing to invest in our long-term growth. Total revenues increased to $753 million. Our business grew year-over-year by 18%, with volume growth of 23%. Currency headwinds negatively impacted Q2 revenues by 3%, or $18 million, compared to the year-ago quarter.

Soliris revenues were $701 million. Year-over-year volume growth was driven by continued global growth in PNH and aHUS. While macroeconomic weakness in Latin America continues, the guidance we provided in April remains on track for the remainder of the year.

Turning to Strensiq. After only three quarters, our strong launch in driving new growth and we reported revenues of $45 million. Looking at Kanuma, in just the second quarter since launch, we achieved revenues of $6 million, driven by our continued progress in the early stages of the launch in the U.S. and Germany. During the quarter, we delivered a non-GAAP operating margin of 44%, up from 42% in the prior quarter.

Turning to taxes. We previously defined our non-GAAP income tax expense as being equal to the amount of cash income taxes paid or accrued on our current year performance.

However, to align with the SEC interpretations on non-GAAP financial measures issued on May 17th, which apply to U.S. public companies, we have modified our definition of non-GAAP tax expense. The modified definition no longer includes the cash tax benefits we realized during the year from NOLs and income tax credits and now includes other deferred taxes.

It is important to note that this will not change the amount of cash taxes we will pay or have any impact on our cash flow. We ended last year with NOLs and tax credits that have a cash value of approximately $600 million.

We are reporting a non-GAAP income tax rate of approximately 16% for Q2. As you can see on slide nine and the supplemental tax information tables in our press release, we are providing updated full l year guidance of 15.5% to 16.5%. We have updated our 2015 non-GAAP tax rate to assist in your year-over-year comparisons.

Long-term, we are forecasting a non-GAAP tax rate of 13% to 15% in 2019 and beyond versus our prior year guidance – previous guidance of 12% to 14%. This small change is a result of non-cash deferred taxes.

In Q2, we reported non-GAAP EPS of $1.13 per diluted share, which reflects a $0.12 per share reduction attributable to the modified definition of non-GAAP income tax expense. Without this modification, our Q2 non-GAAP diluted EPS would have been $1.25 per share.

Turning to other elements of our 2016 guidance, I would like to highlight a few key points. First, we are reiterating our Soliris revenue guidance. Second, based on the strength of Strensiq launch, we are increasing our metabolic revenue guidance to 200 million to 220million. Third, we continue to forecast FX headwinds of $70 million to $80 million, net of our hedging activities for the full year of 2016. And fourth, we are revising our non-GAAP EPS guidance for 2016 to a range of $4.50 to $4.65. The change in our non-GAAP EPS guidance is entirely attributable to the change in non-GAAP tax rate.

For other elements of our 2016 guidance, I refer you to our press release that was issued this morning.

Turning briefly to Q3 guidance, revenues are expected to be in the range of $780 million to $790 million, including currency headwinds of approximately $17 million to $20 million year-over-year. We expect R&D expenses for the second half of the year will increase due to the timing of expenses and our continued investment in our pipeline. For Q3, we expect non-GAAP diluted EPS to be $1.14 to $1.18 per share.

Looking at our balance sheet and capital allocation, we ended the quarter with approximately $1.2 billion in cash, cash equivalents and marketable securities, and $3.3 billion in debt. Since the authorization of our $1 billion share repurchase program last year, we have purchased 3.8 million shares and have approximately $425 million remaining in our share repurchase program.

Our strong financial position and future cash flows provide us with the flexibility to support our long-term capital allocation strategy, which includes investing in the core Soliris business and our Strensiq and Kanuma launches, prioritizing investments in our robust pipeline, taking advantage of external opportunities that fit our strategic and financial goals and repurchasing stock opportunistically.

At this point, I'll turn the call over to Carsten for a look at our commercial operations. Carsten?

Carsten Thiel

Thank you, Vikas. In Q2, our global commercial organization delivered an 18% increase in revenue and 23% volume growth year-over-year, driven by the continued growth of Soliris, the strong launch of Strensiq in initial countries and the progression of Kanuma launch in the U.S. and Germany.

Starting the Soliris, in Q2 we grew our global business through the continued strong addition of new patients treated in the U.S., Europe, and Japan, resulting in 15% Soliris volume growth year-over-year, despite ongoing headwinds in new patient starts and treatment interruptions in Latin America.

In PNH in Q2, as in prior years, we consistently identified a high number of newly diagnosed patients with PNH, even in the territories where he we have been operating the longest and we continue to see that the majority of patients starting on Soliris are also newly diagnosed.

Since 2007, we have identified a similar number of new patients on a quarterly basis across our 50 country platform, affirming our view that on a global basis the majority of patients with PNH have yet to receive an accurate diagnosis, let alone commence appropriate treatment.

In aHUS, where we have been serving patients for nearly five years, we also continue to observe a consistent number of new patients starting on Soliris treatment. Matched for time, now 19 quarters from their respective approvals in the U.S., there are more patients actively receiving Soliris for aHUS than there had been for PNH. And importantly, we're seeing the same trends globally, supporting our view that the opportunity to serve patients with aHUS is larger than our opportunity to serve patients with PNH.

As we aim to reach more patients with aHUS who are in urgent need of treatment, we continue to focus on three key initiatives. First, increasing the number of patients with TMA tested for aHUS. Second, helping a higher proportion of diagnosed patients receive the benefits of Soliris as first line treatment. And third, enabling more physicians to better understand the genetic life-long nature of aHUS.

During the quarter we identified a consistently high number of patients with PNH and aHUS on a global basis. And we continue to see the majority of our opportunity to serve patients with PNH and aHUS in front of us.

Now I would like to turn to the launches of our two highly innovative, newly approved enzyme replacement therapies. Starting with Strensiq, in Q2 we delivered another strong quarter of new patients initiating therapy. Our revenues benefited from the combination of the identification of patients prior to approval, newly identified patients in the quarter, and our long-term disease education efforts, which have been focused on the morbidities and high mortality of HPP. We're leveraging the strong labels, which include substantial bone healing and improvements in growth and mobility to serve an increasing number of patients with pediatric onset HPP.

As we apply our expertise in the early phases of launch, we will continue to create greater awareness through our disease and diagnostic initiatives, which are helping physicians, identify the appropriate patients to test for HPP.

Today physicians are increasingly recognizing the role of Strensiq in treating the underlying cause of the disease by replacing the missing vital enzyme. As the robust US launch of Strensiq advances, we are applying key learnings to Germany and Japan where we are in the early stages of serving patients with HPP.

As we look to expand our launch to new countries, we are pleased to have received strong recognition from the French government with a very high ASMR2 rating, reflective of the high innovation and major clinical impact of Strensiq for patients with HPP. As in France, we expect to continue to progress additional in-country funding processes for the remainder of the year and into 2017.

Turning now to Kanuma, where we continue to make progress on our launch in the U.S. and Germany. We are applying our successful experience with Soliris, and our accelerating disease education programs and targeted diagnostic initiatives to help pediatric specialists better understand which children are at higher likelihood for having LAL-D and the importance of early diagnosis. This is critical, as the median age of disease onset is 5.8 years and 50% of non-infants progress to fibrosis, cirrhosis, or liver failure within just three years.

Our LAL-D efforts are aided by our enhanced diagnostic pathway, as we educate pediatric specialists on the signs and symptoms of the disease and the need for rapid and accurate diagnosis to support patient identification and earlier treatment.

Like with HPP, we are deploying a specialty diagnostic team for LAL-D and are starting to see increased dry blood spot testing of patients with liver and lipid abnormalities, as well as more physicians now adding LAL-D to their routine diagnostic work-up.

In addition, we are now targeting the largest U.S. pediatric centers to implement our diagnostic pathway. We expect these programs to accelerate the diagnosis of children with LAL-D over time.

As we expand our launch beyond the U.S., I'd like to note that the majority of Kanuma clinical trial patients were enrolled outside of the U.S. and remain in the extension trial. We expect to begin to transition these clinical trial patients on to commercial products towards the end of 2016 and into 2017, as we progress the in-country funding processes.

As we look to the second half of this year, we are confident that our commercial organization will deliver continued growth for Soliris in PNH and aHUS build on the strong launch of Strensiq to serve more patients with HPP and apply our deep experience in ultra-rare diseases to identify more patients with LAL-D who can benefit from Kanuma.

Now, I will turn the call over to Martin, who will discuss our R&D programs. Martin?

Martin MacKay

Thank you, Carsten. In Q2, we continued to advance our robust rare disease pipeline. Starting with eculizumab in refractory generalized myesthenia gravis, despite the narrow miss on the primary endpoint in the Phase 3 REGAIN study, I would like to highlight three key points.

First, we believe the totality and consistency of data supports the potential of eculizumab to provide an early, sustained and substantial response in patients with this devastating complement-mediated disease.

Second, 18 of 22 pre-defined endpoints and pre-specified analyses in this study based on the primary and five secondary endpoints achieved P values less than 0.05, underscoring the pivotal role of complement inhibition in addressing the underlying cause of disease.

And, third, we are in the process of engaging with regulators in the U.S. and Europe to work together to address the urgent needs of patients with refractory gMG, who are suffering from debilitating muscle weakness and currently have no effective treatments. We expect to have an update by the end of the year.

Our ongoing Phase 3 trials with eculizumab in delayed graft function and neuromyelitis optica spectrum disorder are progressing as planned. We continue to expect data from our DGF Phase 3 trial in the second half of this year, and we are on track to complete enrolment in the relapsing NMOSD Phase 3 trial this year.

Building on our strong foundation with Soliris, we are developing eight additional innovative complement inhibitors with urgency. Our lead program, ALXN1210, is a longer-acting C5 antibody that like Soliris leverages the only proven modality for safe, rapid, complete and sustained C5 inhibition.

We are advancing our clinical program for ALXN1210 with two ongoing clinical studies to evaluate LDH reduction and safety in patients with PNH. In these two studies, we are evaluating monthly and even longer dosing intervals and have exceeded target enrollment with nearly 40 patients receiving ALXN1210.

Last month, new data from 13 patients in the Phase 1/2 study presented at the European Hematology Association Congress showed that 100% of patients with PNH treated with once-monthly dosing exhibited rapid reductions in LDH, which were sustained for up to five monthly dosing intervals of ALXN1210.

Researchers also reported that at the time of the analysis, 80% of patients who required at least one blood transfusion in the 12 months prior to treatment with ALXN1210 did not require transfusions while on treatment. These interim data suggests that rapid, complete and sustained complement inhibition with ALXN1210 results in highly effective blockade of complement-mediated hemolysis in monthly dosing intervals.

We expect additional PNH data to be presented by the end of the year. And continue to target an approval for ALXN1210 in PNH in 2018. We will also be initiating a clinical program with ALXN1210 in patients with atypical aHUS later this year.

Turning to ALXN1007, our novel anti-inflammatory antibody targeting complement protein C5A, we progress our Phase II study in patients with gastrointestinal graft-versus-host disease or GI-GVHD, a severe and life-threatening rare auto-immune disease that can occur as a complication of stem cell or bone marrow transplantations.

New interim data from 13 patients presented at EHA showed a high overall response rate at day 28 and day 56 in 77% of patients treated with ALXN1007. Complete GI-GVHD response rates at day 28 and 56 were 69% and 77% respectively. These data continue to support the advancement of ALXN1007, where we are now evaluating higher doses in patients with GI-GVHD.

Moving to our cPMP replacement therapy for patients with Molybdenum Cofactor Deficiency or MoCD Type A, a rapidly progressing lethal disease afflicting newborns. We are enrolling patients in a pivotal study to evaluate the efficacy and safety of ALXN1101 in neonates with MoCD Type A. And we look forward to progressing the registration study in 2016. We also completed a study to characterize the natural history of MoCD Type A this quarter.

Turning now to SBC-103. SBC-103 is a recombinant form of the NAGLU enzyme, which is administered intravenously for patients with mucopolysaccharidosis IIIB or MPS IIIB, a rare and devastating disorder with no available treatments. Children suffering from the disease experience severe neurocognitive decline, behavioral disturbances, speech loss, increasing loss of mobility and premature death.

New data from our ongoing Phase 1/2 trial were presented earlier this month. And preliminary evidence based on MRI and neurocognitive assessments at six months showed the potential for dose dependent disease stabilization in patients with MPS IIIB. We have completed the planned dose escalation with all patients now randomized to either a 5-milligram per kilogram or 10-milligram per kilogram dose. Additional SBC-103 data are expected in the first half of 2017.

The interim data for SBC-103 administered IV provide evidence that our unique and proprietary protein expression platform could enable other enzyme replacement therapies to cross the blood brain barrier, opening up a large set of potential treatment options for patients. We have initiated preclinical research initiatives in other lysosomal storage diseases with CNS morbidities, and are prioritizing development of novel ERTs against these disease targets.

Beyond our current clinical programs, we are also keenly focused on progressing our preclinical pipeline of approximately 30 programs, and expect four of these programs to enter the clinic this year. We are excited about the multiple milestones in our expanding pipeline, and are driving towards as many as six additional product or indication approvals through 2018.

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

David Hallal

Thanks, Martin. During the quarter, the Alexion team continued to strengthen our global leadership in rare diseases and serve more patients across our global operating platform. In the second half of the year we will grow our business to serve more patients with PNH, aHUS, HPP, LAL-D, and will execute on our growth plans for Soliris, Strensiq and Kanuma while simultaneously advancing the multiple milestones in our pipeline.

As always we thank our talented employees for a strong quarter and for their dedication to our mission as we transform the lives of patients around the world. And we look forward to updating you throughout the year as we progress our ambitious commercial and R&D initiatives. Thank you.

Now let's open the line for questions. April?

Question-and-Answer Session


Thank you. [Operator Instructions] and we'll first hear from Eric Schmidt of Cowen.

Eric Schmidt

Thanks for taking my questions and congrats on a nice quarter. Way to get back on track. Maybe on ALXN1210, Martin, when will you be able to outline what the design of the pivotal studies might be? And then for either David or Vikas, as you guys know there's been a lot of discussion about the potential for that pivotal program to sort of steal away a few commercial patients from Soliris. So maybe you could you address that.

David Hallal

Sure. We'll start with Martin, then I'll take the second part.

Martin MacKay

Thank you, Dave and thank for the question, Eric. Yeah. We will have additional data by the end of the year. As we said in the call, we have almost 40 patients now in the two studies in PNH and of course these studies will really help inform what the pivotal trials look like. Again, I remind everyone that target approval for PNH is 2018.

David Hallal

Yeah. And I think that based upon that data and our discussions with regulators, Eric, we'll have a sense for what that registration program will look like in terms of size and scope. And we absolutely would expect that as we enroll patients into that pivotal program that would have a short-term impact on our Soliris PNH revenues.

As Martin outlines that timing, would likely be a 2017, 2018 impact, but as we have certainly become accustomed to, there's a catch-up phase when you have your approval and you enter into your clinical transitioning phase. But we would anticipate, and it's very difficult to quantify until we know precisely the number of patients that will enroll in the pivotal program. And when we have that, we certainly will provide additional perspective.

Eric Schmidt

Thank you.


Next we'll hear from Anupam Rama of JPMorgan.

Anupam Rama

Hey, guys. Thanks so much for taking the question. Maybe a quick one for Vikas here on the margin side. Maybe you can talk to us about the levers that get you from the 42% to 44% that you're at now to the 48% to 49% that you've talked about over the next couple of years. What are the synergies and other factors that we should be assuming here in the model to get us there? Thanks so much.

Vikas Sinha

Thanks, Anupam. So if you're looking at the margin expansion, first thing we have to – I would like to highlight is that over the next from here till 2018 we will see the top line growth. Right? So, one of the best top line growths you should be seeing here with all three products, Soliris, Strensiq and Kanuma, all three growing from now till 2018.

So, as we grow the top line at a certain growth rate, we will look at managing our costs accordingly to not grow at the same rate as the sales are growing, so – and try and bring, as David mentioned, a lot of discipline has been put into the organization, and we'll continue to keep that financial discipline going into 2018.

And the last thing that I would like to highlight here is, it doesn't happen in one day. So we've got to take one quarter at a time. You saw that from Q1 to Q2, we expanded our margin by 2%, and we'll continue this as we go forward and small increments will lead us to get there.

David Hallal

Absolutely. And as you know, Anupam, we -- with sort of slow and steady trajectory of an ultra-orphan launch, we invested to build out the metabolic capability both for Strensiq and Kanuma. And so, now as we look to really drive those sales this year with the 200 million to 220 million across those two new products, we see great leverage, as we look at the upcoming years.

Anupam Rama

Thanks so much for taking our question.


Next we'll hear from Ying Huang of Bank of America Merrill Lynch.

Ying Huang

Hi, good morning. Thanks for taking my questions. Maybe to start with, Vikas, can you provide an update in the LatAm market because obviously you guys have some headwind in the 1Q. So what's happening in 2Q and what's your outlook for the second half?

David Hallal

And then the second question I have regards to a recently issued U.S. patent on C5, the high concentration antibody formulations. So just along those lines, what are you doing in terms of finding additional patents or to try to protest Soliris beyond the 2020 expiration of the first patent.

David Hallal

Yeah. So Vikas start off and -

Vikas Sinha

On the LatAm front, as you recall, we had talked about $60 million to $90 million impact that we're expecting this year. We have not seen any change in our views there, definitely new patient adds are tough there, but we are getting full support on the existing patients.

David Hallal

And then -- so Ying, from our perspective, a couple of things. We outlined on the call the very strong position we are in with Soliris from the perspective of IP as well as regulatory marketing and orphan drug exclusivities. And as we have our composition of matter patent in effect into 2020 and 2021 in our major territories and then on top of that we continue to strengthen our position with additional patents that we have filed for around new indications, method of use, methods of manufacturing, as well as our proprietary business methods for commercializing eculizumab.

All of that is what gives us great of confidence in our position through the end of this decade and well into next.

Ying Huang

And then...

David Hallal

As it relates to – just I'll take on your high concentration...

Ying Huang


David Hallal

...question, which is one of the things that you know quite well, that we indicated early on, is that 1210 is an important molecule for us that's suitable for a lot of different optionality. So what you might just be seeing is some of our work as we prepare for more optionality for a highly innovative molecule.

Ying Huang

And David also, can I ask on the faster now that you're plan for the animal trial. Because many investors were a little disappointed that the worth thinking that as a kind of a consolidated results for the MG trial. So can you talk about that for on the Phase 3 animal trial design?

David Hallal

Sure. Martin?

Martin MacKay

Yeah. Just briefly, obviously, it's very difficult to extrapolate a across very different diseases. What of course they have in common is truly devastating and relapsing [indiscernible] certainly comes into this category. But just as a brief reminder and this is an event driven study and it's timed to first relapse is the primary end point. So again, quite different in the nature of the analysis that will be conducted post this disease. And again, just to remind, we expect to complete this study this year.

Ying Huang

Thank you.

David Hallal

Thanks, Ying.


Next we'll hear from Chris Raymond of Raymond James.

Chris Raymond

Hey, thanks. Just a question on ALXN1210. I know you guys had talked about having specific longer treatment interval data later this year and I guess arguably that's targeting ASH. Maybe you don't want to give this away, but we ran across some recent DNA correspondence where I think you guys were speculating that dosing could go out to a range of every six to 12 weeks. Just maybe can you discuss the potential here? Is quarterly dosing really an option and if so, could we likely see that at ASH?

And then also, with respect to that profile of 1210, I know I'm asking you to speculate on sort of hypotheticals here but could you just talk about how you think 1210 with really the key differentiation here being dosing the whole, raises the bar over Soliris or other potential biosimilar versions if they are available. Just talk about how really impactful commercially that interval is? Thanks.

David Hallal

Yeah. I'll start and then Martin can jump in. Certainly as we have indicated, we see the half-life of ALXN1210 compared to eculizumab to be in a range of at least three times longer. And as a result, the steps that we have taken first, was to demonstrate that we could have a very high bar set, which is all patients responding to treatment and that we could in a very efficient way reduce complement mediated hemolysis. As Martin and I both discussed during the call, we saw at monthly dosing 100% of patients had an outstanding response to 1210.

We've also been indicating for quite some time that that's obviously two times the interval of where we stand today with eculizumab and what we would be looking to do, is test longer intervals.

Now, without commenting on precisely whether or not it's quarterly, what we'd like to do obviously is have impair of data that we would all be sharing with you, that you then could better understand what that dosing interval might be as we continue to progress the development program for 1210. We look forward to updating you on this later toward the end of the year.

As it relates to the impact of 1210 as opposed to eculizumab, I'd just state that the only attribute that we have really focused on is interval and we do think that in and of itself, depending on whether or not it's monthly or longer, makes a meaningful difference across our 50 country operating platform.

We are serving patients on an ongoing basis in countries where, and even in this country where access to treatment can be improved and we would expect that that would help us to meet the needs of more physicians and patients, and reach out and even improve our ability to treat more patients.

But on top of that, with our pivotal programs that we are anticipating, we clearly will always look to provide as much innovation to patients as possible, both with dose interval and potentially with other clinical benefits to those patients as we optimize a highly innovative molecule.

Chris Raymond



Next we'll hear from Matthew Harrison of Morgan Stanley.

Matthew Harrison

Great. Thanks for taking the question. Can I just ask a follow-up on MG. Can you just help us understand, do you feel the need to communicate with both EU and U.S. regulators before you'll communicate with us or are there scenarios in which after your communication with U.S. regulators you might be willing to give us some idea of what's going on? And do you think there is an outcome where you would run another study? Thanks.

Martin MacKay

Just very briefly, Matt, we said most of this – we would be able to give an update by the end of the year. We are obviously engaging with both European and U.S. regulators, as you may imagine. So once we do that, we'll be able to give more updates within that timeframe.

Carsten Thiel

I think, Matt, as Martin's outlining, the timing of engaging with regulators in the U.S. and Europe may not be in the same sequence. So I think we'd be thoughtful about those discussions on both sides. And then provide a more fulsome update for you on that progress.

As it relates to additional trials, we think it's premature to talk about that, given the data that was presented at ICNMD and we think it is certainly compelling data that sets up for constructive discussions with both FDA and EMA. So we do look forward to providing you all an update toward the end of this year.

David Hallal

Next question.


Next we'll hear from Yatin Suneja, SunTrust.

Yatin Suneja

Hi, guys. Congrats on a good quarter and thank you for taking my question. I think you touched on the FX. Could you tell us where we stand in terms of FX for the full year, any update there. And then, one question for David, a product question on the competitive dynamics. Could you maybe talk about, how do you envision the market, let's say if the biosimilar comes in, how much time do you think you would need to switch patient over to 1210 and any take on how the payers are going to envision the market at that point?

David Hallal

Yes, Vikas?

Vikas Sinha

I'll take the FX here. So Yatin, thanks for the question. The FX guidance doesn't change. We talked about $70 million to $80 million for the full year. As you know, first quarter was somewhere close to 30 million. Second quarter we disclosed around 18 million. Third quarter I gave a guidance of 17 million to 20 million. We're on track within that range of 70 million to 80 million, despite several movements in many currencies around the world.

David Hallal

And Yatin, I think certainly from the perspective as I heard your question more related to biosimilars and how we would see the dynamics in the way we commercialize Soliris as well as the development of 1210.

And clearly as we indicated during the call, we see that Soliris he remains in a position of strength with strong IP as well as regulatory data and orphan drug exclusivities and these are in our core territories, U.S., Europe. And we believe that Soliris is well positioned through the end of this decade and we expect well into the next. At the same time, Martin indicated that we're targeting an approval for 1210 in 2018 in PNH. And Carsten and his team are certainly working on what those scenario plans will be as we have two highly innovative complement inhibitors for patients with PNH. So it's too early to really comment on that go-to-market strategy with 1210 on top of Soliris, but certainly as coming back to Eric's question, as we see the pivotal programs developing with regulators and we get closer to what would be the launch of 1210, we'll be able to provide you a better perspective on what our strategy is at that point. But I think all of the attributes from the interval, the optionality, and the other clinical benefits will help had us to inform what Carsten and his team's go-to-market strategy will be for 1210.

Yatin Suneja

Thanks, guys. Congrats on the quarter.

David Hallal

Thanks, Eugene.


Next, we'll hear from Geoffrey Porges of Leerink.

Geoffrey Porges

Thanks very much. Couple of questions, first on Strensiq, could you comment on whether you think the greater patient adds that are behind the sequential growth, that's something that you would expect to be stable at this level or do you think that you can he see acceleration, presumably all the revenue or most of the revenue's coming from the US or is this something that's going to slow down and plateau in the next couple of quarters. And then, secondly, Martin, could you comment about whether you consider small molecules approach of inhibiting complement in C5. And what might the pros and cons of a small molecule compared to [indiscernible] for this application. Thanks.

David Hallal

Thanks, Geoff. We'll start with Carsten on Strensiq and then Martin on complement.

Carsten Thiel

Geoff, we're very pleased with the Strensiq launch so far. And as we've mentioned in the call, delivered a strong quarter by serving a high number of new patients on Strensiq. And they really came in Q2 from our continued efforts on disease education and testing. Patients came from a set of those identified prior to the approval and then in addition patients that were actually identified in that quarter. It's important to mention that the launch so far is based largely on the US and Japan and Germany. And as we continue to work on funding in the countries outside those territories, we expect more momentum in the future.

David Hallal

Yes, Geoff, I think as Carsten and the team are realizing, it's very early right now. So we'll see if we can maintain this steady pattern of new patient identification as we've seen with some of our other franchises. But it is encouraging and as Carsten laid out, good signs from France with the very ASMR 2 rating really setting up for country expansion beyond these initial countries. Martin, on complement.

Martin MacKay

Thank you, David, and thank you for the question, Geoff. We could spend quite a long time talking about this. But let me make few points. And again, you heard David and I both mentioning we have eight complement inhibitors that we are developing at various stages. And as part of that development, we're really very cognizant of our experience with Soliris, an antibody and the attributes of that highly innovative therapy. And I'll just give you a few examples of things that we think about and that relates directly to your question about really the potential for other modalities? The detailed knowledge of the physical chemistry of C5 blockade in patients and we've built this up over many years. The need -- and we know about this to get immediate, complete and sustained reduction of C5 activity, greater than 99% regardless of source.

We also think about the pathways involved and very effective terminal complement blockade of all three of the pathways, whether they be alternative, classical or lasting. A really important one as you may imagine from this pathway, just Soliris leads important immune response activity intact. So another thing you need to think about deeply as you develop other molecules.

Again, with the antibody, no identified off-target effects, again, a critical part of developing any medicine. And of course with Soliris proven long-term safety and efficacy for over 15 years now since the first PNH patient was dosed. So you put all that together, Geoff, it's an incredible hurdle. Soliris is a really terrific molecule. That said, and again, as David alluded to, we think of ALXN1210 to be able to give these treatment options to patients. And then of course our other complement inhibitors that we'll speak more about in due course.

Geoffrey Porges

Thanks very much, Martin.


[Operator Instruction] Next we'll hear from Alethia Young of Credit Suisse.

Alethia Young

Hey, guys. Thanks for taking my question and congrats on a nice quarter. Just continuing on Strensiq a little bit, can you help us understand for some of the ex-U.S. population you how the conversations, reimbursement, discussions are going, kind of where you are in those discussions? And then also maybe particular countries that seem to have kind of strong packets beyond Germany and France patients that may have HPP? Thanks.

David Hallal

Thanks, Alethia. I'll say while the timing of countries and I'll have Carsten come in here in a moment. While the timing of countries may be different, what we are seeing develop which is actually quite nice is in terms of pockets of patients, very consistent patient identification at the moment. So we're not necessarily serving with funded Strensiq patients outside of just these initial countries but the patient identification efforts. And of course we've been at this for more than three years have been going quite well in a nice pattern. Carsten, on the country by country roll-out.

Carsten Thiel

So as mentioned earlier, the discussions are ongoing with reimbursement authorities in the lead countries. We're very pleased how the French government has looked at Strensiq with ASMR 2 rating, which is encouraging for us. So we are looking into the second half of year and then 2017 to get funding in additional countries outside of the US, Japan and Germany.

David Hallal

And you know Alethia, we've always said pricing and reimbursement is not an isolated initiatives. It really starts with the clinical trials, the outcome of regulatory discussions and the very strong labels. And we've chronicled both the SMPC and USPI labels in both the U.S. and Europe are exceptionally strong, which highlight the very strong clinical impact. And that ends up leading to an ASMR 2 rating with France and then that obviously should help us to conclude in time the pricing and reimbursement discussions and that's the play book as Carsten said that we will now run in each of the countries outside of the US.

Alethia Young



And next we'll hear from Robin Karnauskas of Citi.

Robin Karnauskas

Hi, guys. So just thinking beyond 2018 you talked about like maybe having the enrollment for 1210 impacting PNH growth, but there are a lot of competitors as well as biosimilars. So isn't there a risk that you could see slowed growth beyond 2018 into the 2021 time frames, just because there's so many people trying to enroll new PNH patients? And then just quickly, when could we learn about SubQ 1210 and whether or not it could be a viable drug.

David Hallal

SubQ program is very important to us. I'll ask Martin to come in, in just a moment. But as it relates to your question beyond 2018, a few things. As I mentioned, 1210, I think we've demonstrated with now nearly 40 patients actively on 1210 in two Phase II trials.

There's a unique way that we can execute these clinical programs. And so the point about perhaps others coming into the market to recruit patients, that may be something that -- and certainly we take any one of these matters very, very seriously. But we have a unique perspective on exactly where the patients are, the physicians who are managing them and unique capability to develop complement inhibitors and that's how we were able to enroll nearly 40 patients so quickly. And we look to you apply that obviously into our pivotal program as well as aHUS.

Now, one of the things that we'll be thoughtful about after the 2018 timeframe is the impact of competitor trials. But I also come back to one of the earlier questions about how do we see 1210 and Soliris co-existing. What we know in our global operating platform is that we can reach many, many more patients with PNH and aHUS.

And we realized that some of them do not receive the treatment because in every other week visit to wherever they are and in many cases large, high reimbursable population developing nations where the physician or the patient may be uncomfortable with that every other week visit to an infusion center. And so we are also expecting with Soliris and the advance of 1210 that we'll be driving to even higher volume levels.

And I would also just remind you as we discussed today, we still see an extremely high proportion of PNH patients that are not yet diagnosed and/or treated and aHUS is largely an incident market so that's a -- Carsten and I have indicated we're still not reaching a very large proportion of the aHUS patients. So we see a tremendous opportunity to actually improve and increase our volumes during that timeframe. And then Martin.

Martin MacKay

Just on the subcutaneous question, Robin, given our desire really to provide as many highly effective and safe treatment options for patients, we of course were considering dosing intervals and delivery of 1210. We believe that 1210 is suitable for subcutaneous formulation and in terms of the stage we are currently in preclinical development and really will just update you as this program moves along.

Robin Karnauskas

Thank you.


Next we'll hear from Simos Simeonidis of RBC Capital Markets.

Simos Simeonidis

Hi, guys. Congrats on the quarter and thanks for taking the question. I was wondering if you can tell us in terms of the 1210 data that we expect to see at the end of the year, whether the mix of patients will be the majority once every four weeks or would be more of a mix once every four weeks and less frequent dosing. And whether we'll see pretty much all 40 patients’ data from all 40 patients. Thank you.

David Hallal


Martin MacKay

Just briefly to say we're working through that in terms of what we actually present at that time. As you rightly say we've almost got 40 patients in the two studies that we're running. We will have additional data by the end of the year and we really look forward to updating you at that time.

Simos Simeonidis

Okay. Thank you.


At this time we have time for two more questions. Next we'll hear from Geoff Meacham of Barclays.

Unidentified Analyst

Hi, guys. This is Evan on for Geoff. Thanks for taking my questions. Congrats on the quarter. So, one from cost and guidance, I know you talked about this a little bit in the Q&A but given that you didn't change Soliris guidance can we assume that the macroeconomic issues in Brazil are at a steady state? And I guess, what's the potential impact of some tailwinds from the strengthening of the Japanese yen? And then also kind of on a higher level, how should we think about the potential opportunity for NMO. Is it similar to maybe an MG opportunity and when should we expect some top line data for that trial. Thank you.

David Hallal

I'll take the first one. So yeah, on – your two questions there. Brazil as I earlier responded, we are – the guidance that we gave early in the year, we are sticking with that with $60 million to $90 million impact for the full year. The situation in Brazil we find that pretty consistent from what our guidance was.

On the FX side, yeah, the Japanese yen has a positive impact. The pound gave us a negative impact. Net-net, overall, when I look at overall portfolio our guidance of $70 million to $80 million FX impact, we feel very comfortable with that right now. I also mentioned earlier about the breakdown by quarter. The Q1 we are around $30 million, Q2 we saw around $18 million and Q3 guidance we gave $17 million to $20 million. So we're really on track there.

Carsten Thiel

Martin on NMO.

David Hallal

Yeah. Just briefly on both parts of the question, in terms of the patient population, similarity is we're really going for the severe subset of that population, these patients that relapse and have these NMO attacks, clearly are life threatening, ultra rare neurological disease. In terms of results, we aim to complete the study end of 2016. We're on track for that with our rollout of results sometime next year.

Unidentified Analyst

Great. Thanks for taking the questions.


And our final question for today will come from `.

Terence Flynn

Hi, thanks for taking the question. Just first, I was wondering if you can give us an update on Soliris blended price for aHUS relative to PNH where that stands? And on ENPP1, have you guys – do you have your lead drug identified there and are we still on track for starting the Phase 1 later this year? Thanks.

David Hallal

Vikas, first on the blended, I mean, the blended aHUS compared to PNH.

Vikas Sinha

Terence, we have found that the blended price of aHUS is very similar and very close to the PNH price. And mainly because the younger patients take less dose and adult patients takes higher dose than the PNH and aHUS case, so when we take the averages it's very similar.

David Hallal

Just a couple points on ENPP1. Clearly still in preclinical studies at the moment and what we're looking at is not just in terms of an indication, but doing quite a lot of work pre-clinically and with external investigators looking at other potential indications where an excess of calcification causes a problem, and again really looking forward to updating you on progress with this program as these preclinical studies develop.

Vikas Sinha

Thank you, Terence.


And that was our last question for today's conference. Thank you all for your participation. You may now disconnect.

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