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Alexion Pharmaceuticals Inc. (NASDAQ:ALXN)

Deutsche Bank Securities, Inc. 37th Annual Health Care Conference

May 7, 2012 11:20 AM ET

Executives

Vikas Sinha – CFO

Analysts

Robyn Karnauskas – Deutsche Bank

Navdeep Singh – Deutsche Bank

Navdeep Singh

Hi, good morning everyone. And welcome to the 37th Annual Deutsche Bank Health Care Conference. My name is Navdeep Singh and I work at Deutsche Bank on the biotech equity research team. And it’s my pleasure to announce our next presenter, Mr. Vikas Sinha from Alexion. He is the Chief Financial Officer.

Vikas Sinha

Thank you, Navdeep, and thanks to Deutsche Bank for inviting us to the conference. I’ll be making forward-looking statements during my presentation. So, I encourage you to look at the risk factors that are laid out in our 10-Ks and 10-Qs, and the most recent one in – from the March submission.

Just to give you a corporate highlights, we’re focused in innovation and commercialization of life transforming therapies for patients with severe ultra-rare and life-threatening disorders. Soliris is our first commercial product. It is a pipeline and it’s – our first indication was approved in PNH which targets life-threatening, ultra-rare disorders of uncontrolled complement activation.

PNH now is marketed in more than 40 countries. We’re growing in our core countries of U.S., Western Europe and Japan. And as we continue, we’re expanding into new countries. aHUS, atypical hemolytic uremic syndrome is approved in U.S. and EU in 2011. The U.S. launch is underway. We launched it in Q4 and its ongoing EU countries will be rolling into this year and middle of next year.

Now, growing into severe and ultra-rare disorders which is our philosophy beyond PNH and aHUS, we’re looking at it under two tracks. First track is for Soliris. We’re taking Soliris into four additional indications which we will be talking soon. In nephrology transplant, neurology/hematology indications are under evaluation. And our lead programs are in four areas; kidney transplant, STEC-HUS, myasthenia gravis, NMO.

And beyond Soliris, we have four candidates right now all for life transforming impact on severe ultra-rare disorders; first of which is asfotase alfa for hypophosphatasia. It’s in Phase 2. We acquired this drug recently from Enobia. cPMP replacement therapy for molybdenum cofactor deficiency Type A, this is in preclinical phase. This was acquired last year from Orphatec. TT30 comes into Alexion from Taligen. It’s a unique inhibitor of alternate complement pathway. And we have Alexion 1007, which is a novel anti-inflammatory antibody, currently in Phase 1 in healthy volunteers.

We are profitable, 1,000-employee company with sales in more than 35 countries globally. Revenues, we grew by 47% quarter-over-quarter in Q1. Last year, it was $166.1 million. This year, we closed at $244.7 million in Q1. In terms of profitability, the net income grew by 57% to $88.1 million compared to $56 million that was in Q1 last year.

Now turning into PNH, our first drug, Soliris indication, PNH is a severe ultra-rare blood disease of chronic, uncontrolled complement inhibition. It is an acquired genetic inhibitor deficiency affecting blood cells. It’s defined by presence of hemolysis. And it is a progressive disease and as time passes, it leads into organ failures. It’s a life-threatening disease, approximately 35% mortality at five years. And Soliris is the first and only approved therapy. All patients responded to Soliris treatment in the registration studies.

Now, just a quick look at the registration study; 100% improvement on the objective response side; hemolysis, 86% improvement; and then anemia, fatigue, quality of life; and when we look at renal diseases, 95% improvement there; and thrombosis 92%, improvement, remarkable results here.

As we grow globally in our core markets of the U.S., Western Europe, and Japan, this is approximately 750 million population base. We are going deeper into the market by better disease awareness and diagnostics that we are focusing on.

In terms of other markets which is also on the reimbursable side 750 million in size, Australia, Canada are fully launched. Nordics and LATAM are progressing this year. Middle East and Eastern Europe and Russia, the plan is to roll it out between 2012 and 2013. In the Pacific Rim, we’re looking at 2013. So, all together, reimbursable global market of 1.5 billion.

Growing into aHUS, the ultra-rare disease expansion beyond PNH; aHUS is a severe ultra-rare blood disease of chronic uncontrolled complement inhibition. It is a genetic complement inhibitor deficiency affecting all cells, leads to clotting in small blood vessels throughout the body. It leads to progressive and sudden damage to vital organs resulting in stroke, heart attack and kidney failure.

More than 50% of the patients die – require dialysis or have permanent kidney damage within one year of diagnosis. It has a significant geriatric population, and Soliris is the first and only approved therapy. In terms of clinical data for the aHUS registration studies, we all again had a 100% objective response. Platelet count normalization improvement was 87%, and TMA event-free was seen in 88% patients. And 80% of the patients eliminated dialysis.

The label is very broad both in U.S. and EU, it’s the second Soliris indication and it was approved in September in 2011 in U.S. and November in EU. In both the labels, aHUS is defined in both levels of disorder of uncontrolled complement activation and TMA. Soliris is indicated for aHUS to inhibit complement-mediated TMA. The data is very compelling in all patients: ages, clinical profiles, with or without supportive care. Every patient responded with a reduction in complement activation.

The U.S. launch is underway. It’s taking a gradual up-tick. In terms of EU, we are right now working on reimbursements and first countries are expected to come in 2012 and move out – some of them might even go up to 2013.

Growing into additional severe and ultra-rare disorders, we’re looking at indications for Soliris beyond PNH and aHUS. In terms of a strategy, we want to expand the global Soliris franchise and stay within the severe and ultra-rare disorders. We’re looking at addressing diseases with devastating and life-threatening medical consequences, where there are no treatment or ineffective treatment options for the patients, where disease mechanism is well understood as targets for complement blockade and we can potentially do a transformative impact on patients’ lives.

Four lead clinical programs in nephrology and neurology. In nephrology, STEC-HUS, database cleaning is underway; AHR, it is the transplant area living donor study ongoing; in neurology, myasthenia gravis, we are undergoing discussion with the regulatory studies in 2012; and NMO, the Phase 2 results will be seen in the second half of 2012.

And beyond this clinical programs, there are 10 additional severe and ultra-rare disease settings where investigations are ongoing; in hematology, nephrology and transplant. In hematology, severe ADAMTS13 deficiencies being studied – CAD; CAPS; ANCA vasculitis; nephrology; DDD; C3 nephrology; and in transplant, deceased donor kidney, cardiac, lung, ABO incompatible study. And as we look at this investigator-initiated trials, when you see signals, then we put into lead clinical trial and develop it.

In terms of investigator-initiated single trial in non-life threatening, non-rare disease area, the ophthalmology dry AMD trial, which is being presented today at the ARVO, did not show any signs of effect of Soliris in dry AMD. So we will be looking at not continuing this study further.

Going beyond Soliris – in highly innovative therapeutics beyond Soliris, we’re looking at four other areas where our strategy is primarily focused on what we know well and do well in devastating ultra-rare disorders. We seek transformative impact on patients’ lives, and we’ll leverage development and commercial skills through focused acquisitions.

First acquisition – first is asfotase alfa, which came to us from Enobia acquisition. It’s potentially a life transforming therapy for severe ultra-rare and life-threatening metabolic disorder called HPP. The positive data was presented and published from trails in patients of all ages; pediatric program progressing towards 2014 regulatory filing. And adult program, we’re expanding into this area.

cPMP, this is a drug we acquired from Orphatec early last year. This is a cofactor replacement therapy for severe ultra-rare lethal infant disorder called MoCD which stands for molybdenum cofactor deficiency. It’s a very, very small patient population here. We are currently working on building the clinical supplies in GMP standards and expediting the IND enabling studies.

TT30 came from the acquisition of Taligen. It’s a unique alternative pathway inhibitor, targeting ultra-rare diseases. TT30 clinical study initial one on healthy volunteers and in PNH patients is undergoing right now.

Alexion 1007, it’s a novel anti-inflammatory antibody from Alexion. The Phase 1 study is ongoing on healthy volunteers and it is designed to target severe and rare inflammatory disorders.

Now, going to hypophosphatasia, which is an asfotase alfa. It’s a severe ultra-rare and life-threatening genetic metabolic disorder. If you look at the picture there, a normal nine-month old, the bones, and what an HPP patient sees, the drug is expected to replace the deficient tissue non-specific from of alkaline phosphatase. It’s a progressive vital organ damage the HPP causes – could cause destruction and deformation of bones, profound muscle weaknesses, seizures, impaired renal function, and respiratory failure. 50% of the newborn patients die within a year.

Asfotase alfa, the drug, is a highly innovative approach directly addressing cause of the disease, targets alkaline phosphatase to replace the missing tissue non-specific form in deficient tissues, reverses metabolic consequences of HPP and potential life transforming therapy.

The data is very compelling here. Two studies, one in the infant. We saw 100% of the patients with objective response in mineral metabolism, 90% achieved primary endpoint and symptomatic improvement. In the juvenile population, 100% patients, again, with object response in mineral metabolism, 69% achieved primary endpoint and symptomatic improvement.

Now next steps, we’re optimizing our manufacturing. We are completing pediatric program, towards expected filing in 2014, and expand our adult program. The development program in 2012 is looking at five highly-innovative therapies targeting severe and ultra-rare disorder. First is Soliris, in four lead Soliris ultra-rare disorders, and beyond PNH and aHUS. STEC-HUS, we completed the study in Germany and presenting a final data. Objectives for AHR is to progress enrollment in multinational Phase 2 clinical living donor transplant trial and commencing enrollment in deceased donor kidney transplant trial.

In neurology, myasthenia gravis, we will commence regulatory discussion; NMO, completing the dosing and evaluating the Phase 2 data and later presenting in this year. Beyond Soliris, four other drugs, asfotase alfa, advancing it to pediatric HPP program, expanding adult program and optimizing our manufacturing. cPMP, MoCD, conducting the IND enabling studies. Novel complement inhibitors, advancing TT30 in clinical trials and novel anti-inflammatory antibody, which is built internally completing Phase I clinical testing.

On the commercial and financial objectives; to continue to aggressively grow Soliris top line revenues from PNH into sixth year, expand to bring on next set of larger countries for PNH, aggressively launch Soliris for aHUS in U.S. and commence process in Western Europe, maintain strong financial discipline as we expand R&D and commercial activities.

In terms of our 2012 guidance, revenues, we revised it upwards to $1.065 billion to $1.085 billion. R&D where we held our guidance to $220 million to $230 million, this is approximately 21% of sales for 2012, and a large increase this year related to asfotase alfa investment, especially in the inventory buildup, which is being expensed in 2012. Beyond 2013 – 2013 and beyond, we expect that R&D will be 17% to 18% of sales.

SG&A, we maintained our guidance at $345 million to $355 million. This is approximately 33% of sales, 2% below 2011. In terms of GAAP tax rate, 2012 will be 32% to 34% for full-year, excluding tax impact of integration of – integration and restructuring of the Enobia acquisition which I talked about in the call this time, which will be approximately in Q2, we’ll be $20 million to $30 million incremental in GAAP tax rates.

On non-GAAP tax rate, we will maintain 8% to 10% rate. Non-GAAP EPS is revised upwards to $1.65 to $1.75.

I’ll stop my presentation here. Robyn, if you have any questions, I can answer.

Question-and-Answer Session

Robyn Karnauskas – Deutsche Bank

Let those of you know, we do have a new app that you can ask questions anonymously, it’s yorn.com/hc, or shoot me an e-mail if you don’t want to raise your hand. But I thought maybe first to start off – I noticed today that it was announced that you’re not going to – and you’ve mentioned previously you’re not going to go forward with dry AMD. I was just curious about the Taligen compounds that you acquired that were in development for wet AMD, whether or not that is still on the table?

Vikas Sinha

So Taligen was acquired last year – early last year. As I mentioned, Robyn, that our focus is in ultra-rare life transforming diseases, and we’re continuing to learn more about TT30 and the other compounds. As we gain more experience with the drug, we will identify the indications as we go forward. At this time, it’s too early.

Robyn Karnauskas – Deutsche Bank

Any questions? Maybe you can turn a little bit to the acquisition of Enobia and asfotase alfa? So, you have three different types of patient populations, the newborns, sort of the adolescents and the adults. And you’re known for going after the patients that are really most likely to benefit. Which population do you think faces the most challenges? Which do you have the best understanding of the disease?

Vikas Sinha

Let me go to the chart. So when you look at the infants, when you start looking at 50% of the newborn patients die within a year, that’s the area we want to go first. It’s primarily because this is a highly unmet need that we want to address first before we go into juveniles and the adults, right, because this is where the problem is the most. If we can save these people, we’ll go into juvenile and adult. So the progress – the focus will really be on the infants first and juvenile and then adults.

Robyn Karnauskas – Deutsche Bank

In the adult data, it looked the drug has a sustained and really good benefit. I was just curious though if there is a – how the genetic differences between the baby form and the infant form and the adult form impacts how well your drug will do in these patients long-term?

Vikas Sinha

The trial results are very good in the pediatric and juvenile side. The adult side, I think we’re looking at redoing it with a patient population, as you mentioned, which are very severe and go after that, so another trial will be started very soon.

Robyn Karnauskas – Deutsche Bank

And what percentage of that population is it and do you think that the larger population might still benefit?

Vikas Sinha

We don’t have any specific data on that because it is such an ultra-rare disorder. That level of data is very tough to get until you really go into the market. Our objective really is to focus on bringing these life transforming therapies to these patients. And we’ll worry about the subset and the size of the market at that time.

Robyn Karnauskas – Deutsche Bank

And what percentage of the babies treated are still alive today?

Vikas Sinha

I truly don’t know the answer. I really don’t know. I can get back to you on that.

Robyn Karnauskas – Deutsche Bank

If you ask, I can repeat the question.

Unidentified Analyst

(Inaudible) when you acquired Taligen. So what actually changed between the acquisition and today that you decided not to pursue that opportunity?

Vikas Sinha

You’re talking about Taligen, right? Nothing has changed there. It’s just that the results from this morning definitely did not complement – didn’t see any impact on the dry AMD patients. We don’t know about wet AMD. That’s what I was trying to say.

Navdeep Singh – Deutsche Bank

Hey, Vikas, thanks for the presentation. Just a quick question on potential biosimilar competition, how protected do you think you are because your patent for Soliris does go away in the 2020 to 2021 timeframe? Just an overview of how protected you are.

Vikas Sinha

So, from a patent protection side, you’re right, we said that in 2020 to 2021, we’re protected. We are in environment where biosimilars are being discussed quite a lot, right, and the ability to go closer to the market and stay with the patients and bring that life transforming therapy there is what we are into it. And we haven’t talked about – much about what else is in the pipeline and you were just talking about several other compounds that we have in our pipeline which we have not fully discussed right now. It’s a bit too early.

Navdeep Singh – Deutsche Bank

So, you think that the loyalty that you’ve developed from your patient population will kind of protect you against anybody?

Vikas Sinha

Two things, there is one side is to create that loyalty in the market, second side is to continue to build a second line therapy behind that.

Navdeep Singh – Deutsche Bank

Okay.

Vikas Sinha

On the innovation front, right, because who knows about future?

Navdeep Singh – Deutsche Bank

Okay. And any update on the trial design for the myasthenia gravis studies, the pivotal studies?

Vikas Sinha

It’s still being discussed, so it’s too early to respond to that.

Navdeep Singh – Deutsche Bank

Okay.

Robyn Karnauskas – Deutsche Bank

I’ve a question on – on transplant actually. Thinrise is being developed a little bit in the same indication. I was wondering if you thought that the two products could be complementary.

Vikas Sinha

I just cannot comment on somebody else’s drug.

Robyn Karnauskas – Deutsche Bank

The next question on NMO.

Vikas Sinha

Yeah.

Robyn Karnauskas – Deutsche Bank

So a lot of our research suggests that so many patients are well controlled with RITUXAN, which is an off-label drug, which poses an interesting question. When you go in front of the FDA, you want to develop a drug for like the sickest population when a good chunk is being treated with an off-label drug, how much does that play into how you design this trial?

Vikas Sinha

That will be something you should really look at when the data comes out in Q4 this year. And to look at how many patients were on Rituximab or were not on the Rituximab.

Navdeep Singh – Deutsche Bank

Maybe a follow-up to that question. So, since the NMO trial is an open-label study, have you already made the decision to advance it into pivotal studies?

Vikas Sinha

We are keeping that channel parallel going.

Navdeep Singh – Deutsche Bank

Okay.

Vikas Sinha

As Steve had mentioned in the earnings call, we are talking to several physicians already – investigators already to start building a multinational trial.

Navdeep Singh – Deutsche Bank

Okay.

Vikas Sinha

Multi-center trial, because this one is specific to one center only.

Navdeep Singh – Deutsche Bank

I guess you’re committed to NMO going forward.

Vikas Sinha

Yeah, we just don’t want to lose the time.

Navdeep Singh – Deutsche Bank

Got it. Any other questions in the audience?

Robyn Karnauskas – Deutsche Bank

I have a quick financial question for you. Take a break from the clinical. But then we’ll go back to the clinical. So, everyone wants to be like Alexion. There is – countless numbers of companies said we want to be like Alexion in that you always seem to surprise investors and really manage the Street very well. So the question is as your company – as you start really penetrating new markets and you become a more mature company, how might your strategies change? How do you envision the company changing and what you communicate to the Street regarding your product?

Vikas Sinha

If I understand, your question is how would you manage going forward a multi-product, multi-indication company. That’s your question, right? Yeah, a very key role that we look at in managing our businesses, there is a view that one takes of the future, but you have to also consider the risk and opportunities that are around that opportunity or risk, right? And leveraging that risk and opportunity and aggressively managing that day-by-day, quarter-by-quarter is how we run the business.

And – it’s easier to do it in one indication, going into two, that was one of our biggest worries in Q4 was, when we expand our business in U.S. when we launch it, when you launch something new, people try to drop past one, right? So that was our big fear and that was very important for us in Q4, to how we structure ourselves, how we drive our business, that both the indications need to move forward. And that was a very big feeling internally between Q4 and Q1 that we saw both PNH and aHUS, both progressing with the – with PNH growth not slowing down, right? And, now replicating that into multiple indications and multiple drug, it’s all about how you manage the talent with the right level of objectives. And that’s something we’re tremendously focused on and building the talent level in the company.

Robyn Karnauskas – Deutsche Bank

And so when you think about reporting at some point you think you’ll break out aHUS with PNH and if so like how many years?

Vikas Sinha

I don’t think that is the intention right now, but we will see where the future takes us.

Robyn Karnauskas – Deutsche Bank

Okay. That’s helpful. And then also thinking about strategy, so one of the biggest fears in the investors is that they’ll wake up in the morning and price will be slashed for Soliris in Europe because Spain goes out of business, something like that. So, maybe, you can help us understand why you’re comfortable, and STEC-HUS, which may not be as orphan as HUS, will that influence pricing in Europe?

Vikas Sinha

So, a very good question, two questions here right. One is what do you think about the pricing, right, and future pricing, and what do you think about STEC-HUS which is a acute therapy and not a chronic therapy. The first one is pricing-wise, look, there is always pressures in pricing market. There is no question about it. What we have to really do as a company and as a strategy – I’ll just go back to the chart that I had put as a strategy of the company. So, key thing is to focus our strategy and what we know well and do well which is in devastating ultra-rare disorder, where very key part is, point number two, is to seek transformative impact on patient’s life.

The drug really has to work. If the drug doesn’t work in this market, you just can’t charge the price if it only works in 30%, 40% of the patients, right? It has to work in all the patients that take the drug and that is really key. The top two points are really key as we drive our indications and the strategy, because unless the drug makes that difference, you can’t sit across the table and ask for that premium pricing.

And going back to your STEC-HUS question, then, it’s an acute therapy, a lot in children, a lot in adult, there is a fair mix in the last – last study that have – the last crisis that happened in Germany. But a lot of other countries and then even in U.S. sometimes you see HUS as fairly a pediatric area where short-term duration, a less number of vials is not as – I wouldn’t believe that that would be as high in the pricing radar as you would imagine. Did I answer your question?

Robyn Karnauskas – Deutsche Bank

Well, sort of, so you won’t be charging as much, because your duration is very short?

Vikas Sinha

Yeah.

Robyn Karnauskas – Deutsche Bank

But the question is does it influence – these countries, you negotiate price upfront, so this drug will already be in the market. How do you negotiate like another indication that’s shorter, does it impact the price at all?

Vikas Sinha

As I mentioned, it has to be life transforming therapy. You have to be sitting across the table and talking about a life transforming therapy, when you want to charge a premium price. And Robyn, there is always a pressure, whether it’s a good time or a bad time, right? And if you go back and look at it when we launched the drug, 2007-2008, it was the biggest crisis in U.S. Now, we’re looking at Europe. So there will be some crisis somewhere else throughout the globe and we just have to learn to work around that.

Robyn Karnauskas – Deutsche Bank

The question for the webcast is, do you think you’ll have similar challenges in Brazil?

Vikas Sinha

In terms of challenges?

Unidentified Analyst

(Inaudible).

Vikas Sinha

Yeah, I wouldn’t comment country-by-country here. But there is no country you don’t have that challenge. So, whenever you have a single payer, you have to go and discuss and demonstrate the value of your drug.

Unidentified Analyst

(Inaudible) 750 million people that are left in your chart, Brazil and Latin America was about 40% of it. So it’s a significant chunk of the market that you have left to launch?

Vikas Sinha

Yes that number 295 million, if you look at it, if you add Brazil, Colombia, Argentina, and Mexico, that number will be very large, much larger than 295 million. What we tried to do was within that population base, how much are reimbursable population, that’s how that $295 million comes out. It is not the 190 million of the whole Brazilian population included there neither the full of Mexico is not included there. We’ve looked at which subsets of that population have insurance coverage.

Robyn Karnauskas – Deutsche Bank

Any last questions? Okay, great. Thank you very much.

Vikas Sinha

Thank you very much.

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