Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN)

Q4 FY07 Earnings Call

February 14, 2008, 11:00 AM ET

Executives

Leonard Bell - Director and CEO

Irving Adler - Senior Director, Corporate Communications

David W. Keiser - President and COO

Vikas Sinha - Sr. VP and CFO

Stephen P. Squinto - EVP and Head, Research

Analysts

Sapna Srivastava - Morgan Stanley

William Sargent - Banc of America Securities

Meg Malloy - Goldman Sachs

Rachel McMinn - Cowen and Company

John Sonnier - William Blair & Company

Michael Aberman - Credit Suisse

Michelle Ha - Ferris, Baker Watts

Operator

Please standby. We are about to begin. Good day and welcome everyone to the Alexion Pharmaceuticals Incorporated Fourth Quarter Financial Results Conference Call. Today's call is being recorded.

At this time for opening remarks and introductions, I would like to turn the call over to Dr. Leonard Bell. Please go ahead, Doctor.

Leonard Bell - Director and Chief Executive Officer

Thank you, operator. Good morning. And of course, first, I'd like to wish everyone on the call a very happy Valentine’s Day. Thank you though for joining us on today’s conference call to discuss Alexion's financial results and corporate developments for the fourth quarter and full year of 2007.

I am glad to be joined this morning by members of Alexion management, including David Keiser, President and Chief Operating Officer; Vikas Sinha, Senior Vice President and Chief Financial Officer; Stephen Squinto, Executive Vice President and Head of R&D; Dave Hallal, Senior Vice President and Head of U.S. Commercial Operations; and Irving Adler, Senior Director of Corporate Communications.

I also welcome the entire Alexion team here at our headquarters in Connecticut, at our manufacturing facility in Rhode Island, and of course, across the countries of Europe.

After a review of the quarter, we will have time for several questions, but before we begin Mr. Adler will apprise you of our potential to make forward-looking statements. Irv?

Irving Adler - Senior Director, Corporate Communications

Thank you, Lenny. During the conference call, we may make forward-looking statements, including: statements related to expected 2008 financial results, medical benefits and commercial potential of Soliris, timing of commercial and regulatory milestones for Soliris in different territories, commercialization strategies, plans for clinical trials of Soliris and other products, status of reimbursement price approval and trending processes in Europe, and timing of completion and regulatory approval to manufacture at our Rhode Island manufacturing facility.

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 marketing approval or material limitations on the marketing of Soliris. The possibility that results of clinical trials are not predictive of the safety and efficacy of Soliris in broader patient populations. The possibility that initial results of commercialization are not predictive of future rates of adoption, to risk that third parties won't agree to license any necessary intellectual property to us on reasonable terms or that litigation maybe resolved adversely; the risk that third party payers will not reimburse for the use of Soliris at acceptable rates or at all, the risks that estimates regarding the number of people living with PNH are inaccurate, 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, 2007.

We do not intend to update any of these forward-looking statements to reflect events or circumstances after this call, except when a duty arises under law. Thank you. Lenny?

Leonard Bell - Director and Chief Executive Officer

Thanks very much Irv. 2007 was truly a momentous year for Alexion. During this past year, we started to fulfill our mission to improve the lives of people with serious and life threatening disease. Soliris our first marketed product is the only drug, ever to be approved both on their priority review by the FDA and through an accelerated assessment procedure by the European commission.

Our compelling clinical data which compares very favorably to many other medicines today, demonstrates that every patent with PNH treated with Soliris showed an objective response to therapy. As a result, the approvals are broad and paved a way for us to serve all patients with PNH.

Our fourth quarter results reflect our success in serving a growing number of patients with PNH. Our fourth quarter results reflect our success in serving a growing number of patients with PNH. Net product sales of Soliris were $33.9 million in the fourth quarter of 2007 compared with $21.8 million in the third quarter, indicating a sequential quarter-on-quarter increase in sales of 56%. A total of approximately 515 patients were on clinical and commercial Soliris worldwide at the end of the fourth quarter, an increase of approximately 110 patients from the end of Q3. In the fourth quarter as compared to the third quarter, the U.S. continued its steady growth in patients and sales while patient additions and sales in Europe also grew at a rapid per case.

We expect continued strong growth in both territories. An analysis of the marketplace demonstrates that Soliris’ performance in its first three quarters of commercial availability places it at the top end of ultra orphan drug launches to date. We believe that this reflects the clinical benefits of the drug and the effectiveness of our global commercial organization.

Looking ahead, we will continue to be keenly focused on meeting and surpassing our own expectations. Alexion’s commercial efforts, as you know, are guided by our goal that every patient with PNH who can benefit from Soliris will have access to Soliris. This requires that we proceed one patient at a time working in each country within the unique framework of their particular healthcare delivery system. In all countries, our efforts to facilitate drug access, however, are focused on three fronts. First, working with physicians to identify PNH patients; second, generating demand by helping physicians to increase their understanding of the serious consequences of PNH and the role that Soliris can play to improve patient outcomes; and third, providing payers, either private or public with the information they need to complete their authorization procedures to create efficient and broad access to Soliris.

With respect to patient identification, for example, in the U.S. where we have been in the marketplace now for more than nine months, we are routinely identifying new patients with PNH. Patients who have been previously diagnosed are being identified on an ongoing basis through the meaningfully increased footprint of our U.S. sales organization as well as through physicians [Technical Difficulty] and partnerships with national oncology networks. With respect to patients who may have PNH, but who have not yet been diagnosed, we are working with hematologists and oncologists, including those in the largest community based practices to help them implement standardized pathways for routine PNH testing for their patients who have a higher likelihood of having PNH. We have observed that more hematologists and oncologists are beginning to embrace these diagnostic pathways in order to optimize the care for their patients.

We expect that implementation of these pathways will improve patient care and create a self renewing pipeline of patients who have been newly diagnosed with PNH. Similarly in Europe, these programs are being adapted for implementation by approximately 30 field representatives in the major European countries.

With regard to generating demand, physicians are broadening the use of Soliris in the known PNH population. As we educate them on new clinical data, indicating the progressive, pervasive, and life threatening course of the disease and the observed impact of Soliris. For example, just this past December, an important publication in blood showed that along with the reduction in hemolysis in all PNH patients treated with Soliris, the blood reduced thrombotic events by more than 90%. Also in December, presentations at ASH showed that two-thirds of the clinical trial patients had chronic kidney disease at waistline likely as a consequence of their long-term hemolysis.

In these patients, Soliris treatment was associated with improved their stabilized kidney function. These clinical analyses support the urgency of earlier PNH testing and earlier potential intervention.

Turning to the transition of clinical trial patients, in Germany, studied patients began to transition to fully funded status near year-end and should complete this transition during Q1. In United Kingdom, we are pleased that the first patients will have commenced transition to fully funded status from critical status by the end of the first quarter. We expect patients in additional European countries to transition to fully funded status throughout this year.

Looking beyond the commercialization of Soliris for PNH in the United States and in Europe, we announced in early January that we had commenced dosing in the AEGIS study, a single registration study to evaluate the safety and efficacy of Soliris as a treatment for Japanese patients with PNH. Enrollment in this study is progressing more quickly than initially anticipated. And we currently expect that even though the study was only started last month, enrollment should complete in March. Following 12 weeks of treatment and data analysis, we expect to submit an application for marking approval to the Japanese regulatory authorities in 2009.

Turning to our pipeline. I would like to start by focusing on the roll of compliment inhibition in a broader set of rare and severe diseases. This past November in the journal Nature Biotechnologies, research has reviewed the successful and pioneering developments of eculizumab in PNH. As noted in this article, a similar paradigm of careful and rigorous scientific evaluation maybe applied to the evaluation of the first in class complement inhibitor eculizumab in other uncommon debilitating and life threatening diseases. Hence as our U.S. and European commercial teams are driving steady Soliris growth in PNH, our R&D teams are also diligently working to assume commence studies of eculizumab as a treatment of patients with myasthenia gravis and multifocal motor neuropathy. We expect that our physician sponsored clinical trial evaluating the use of eculizumab in patients undergoing kidney transplantation will also begin this year. Additionally, we are diligently evaluating many queries by physicians concerning the potential role that eculizumab to treat patients with other severe and life threatening hematologic disorders.

Separate from our focus on treatment of patients with rare diseases as our asthma trial continues with intravenous eculizumab treatment, we are also focused on developing a new nebulized dosage form of the drug that can be delivered through an inhaler.

Finally, we expect to commence site initiation for clinical study by new antibody drug candidates targeting anti-CD200 in patients with chronic lymphocytic leukemia in the second quarter.

I would now like to turn to our going forward financial guidance. Increasingly as a business, we are focusing on generating significant growth, but we also recognize that such growth must be obtained through efficient and disciplined deployment of our resources. In that context, we are pleased to announce earlier today that we have accomplished the transfer to Alexion of all of the OMRF rights to certain patents related to Soliris, eculizumab, and the complement an additional technology, with the subsequent elimination of any future royalty obligation from Alexion. This transaction will contribute to a meaningful improvement in our cost of sales.

From enterprise wide perspective, we believe that our focused efforts will enable us to achieve increasing sales with Soliris in the United States and the five largest EU markets and to start to obtain meaningful commercial results from a growing number of additional countries. For 2008, net product sales of Soliris are expected to be within a range of $200 million and $215 million, a level more than three times that of 2007. At the same time, we are committed to drive in clinical studies in four to seven additional medical conditions during this year, while keeping R&D expenses in check.

Two biotech firms make the transition from drug development companies to successful commercial organization, and fewer yet do so simultaneously on a global basis. Many people have contributed to our success including employees, shareholders, medical researchers, practicing physicians and of course patients themselves.

During 2007, we reached an important goal. Successful development of a highly effective complement inhibitor as a treatment for patients with the severe, rare and life threatening disease to which treatment options were sharply limited. However, our true mission is not just to development, but the delivery of life changing drug therapies for patients with serious and life threatening medical conditions. To this end, we are committed to drive the promise of Soliris forward around the world for the benefit of each patient with PNH and for patients with other severe and disabling diseases.

At this point, I will turn the call over to David Kaiser, who will review in more detail our commercial efforts here in the United States as well as across Europe. David?

David W. Keiser - President and Chief Operating Officer

Thank you Lenny. With the addition of our fourth quarter performance our full year results for 2007 reflect Alexion’s momentous accomplishments during the year. The most important aspect of our commercial success of course is that it correlates directly with improvements in patients’ lives.

Before 2007, patients with PNH have few options, many fears and little hope. In a few short months Soliris has changed the profile of PNH for the better in a growing number of countries. As we gain commercial experience in this ultra rare disease state, we have been pleased to find that our original plans are sound and are yielding the results we expect. These plans are four fold. Identifying patients, generating demand with treating physicians, creating access for all patients with PNH and supporting appropriate utilization.

A key element in these efforts in the U.S. has been the work of our field sales force of 32 professional medical representatives. These regional account managers and oncology clinical specialists are working with physicians to streamline practice protocols regarding the detection of PNH. Once the physician decision to treat a patient for Soliris our sales team works for their one source case managers to speed the reimbursement process to the greatest degree possible.

In Europe, our field teams totaling approximately 30 representatives in the five major markets are building the key relationships to support Soliris in both academic centers where many patients tend to aggregate and also in community practices where a significant number are also treated.

As we have expected from the start there are significant differences in obtaining full commercial status from one country to the next, especially in the key areas of pricing reimbursement and funding.

In Germany as in the U.S. the vast majority of patients for whom Soliris has been prescribed have been able to efficiently obtain access to the drug helping to drive strong sales growth. In France, Italy and Spain product revenues are already becoming meaningful through the named patient programs. In these countries we are continuing to expand this access on a patient by patient basis, while transitioning to full commercial status. These efforts are progressing according to plan and should be completed by mid 2008, with a growing contribution to sales coming from these countries.

In the United Kingdom we believe a growing number of PNH patients will gain access to fully funded Soliris therapy, although funding decisions may typically require more time compared to other markets. As you may know the healthcare delivery system in the U.K. are organized around local and regional funding authorities. Many of these entities are currently reviewing the files of PNH patients who fall within their jurisdiction.

The first of the clinical study patients in the U.K. will start transitioning to fully funded Soliris therapy by the end of the first quarter, and we expect additional U.K. clinical trial patients to transition to funded status during this year. In the future, regional funding decisions could make it easier for larger groups of patients in the U.K. to obtain access simultaneously.

As a reminder and importantly we have been informed that Soliris does not need to read reviewed by NICE, the U.K.’s national institute for clinical excellence. Because of our progress to date and in line with performance of other successful ultra orphan drugs, while we continue to achieve steady growth in the U.S. our European business is on track to account for the majority of our total revenues in 2008.

To sum up, 2007 was a remarkable year for Alexion. One in which our Company was transformed in many ways. We have reached some important milestones with a strong commercial foundation and an impressive product launch. We are now driving to expand our business to deliver robust revenue growth, progress product development into other indications and deliver standout financial results.

I will now turn the conference call to Vikas who will review our financial performance during the fourth quarter. Vikas?

Vikas Sinha - Senior Vice President and Chief Financial Officer

Thank you, David. For the quarter ended December 31, Alexion achieved worldwide Soliris net product sales of $33.9 million, compared to $21.8 million in Q3 2007 the previous quarter. This represents a sequential quarter increase in net sales of 56%. The cost of sales in the quarter was $3.4 million. It is important to note that during the quarter, the product we sold included the last of the one that has been previously accounted for as of not any expense. Therefore, the cost of sales in Q4 is a blend of royalty obligations and cost of goods for the past quarter. We report both GAAP results and non-GAAP results, which are equal to our GAAP results less the impact of share based compensation. To save time on this call I will only discuss non-GAAP results. Please refer to our press release for our complete financial results.

On a non-GAAP basis our operating expense for the fourth quarter 2007 was $40.4 million compared to $31.9 million for the fourth quarter of 2006. R&D expense for Q4 2007 were $14.7 million essentially the same as the $14.8 million reported for the year ago quarter. SG&A expenses for the fourth quarter were $25.8 million compared to $17.1 million for the fourth quarter 2006, primarily reflecting costs associated with the ongoing ramp up of our commercial operations in the United States and Europe.

The Company incurred a non-GAAP net loss for the fourth quarter of $8.5 million compared to $30 million in the fourth quarter of 2006 or a loss of $0.23 per common share in 2007 compared to a loss of $0.90 per common share in 2006. The fourth quarter of 2006 was negatively impacted by costs associated with the consolidation of our research facility in San Diego into our Connecticut operations. On a sequential basis, the Q4 2007 non-GAAP net loss of $0.33 per common share was significantly reduced from a Q3 2007 non-GAAP net loss of $0.38 per common share.

Total revenue for 2007 was $72 million including $66.4 million from Soliris product sales, compared to revenues of $ 1.6 million for 2006 which were entirely from contract research. Approximately $46 million or 70% of 2007 revenues were derived from the United States, with the remaining $20 million coming from Europe. On a non-GAAP basis, we have total operating expense of $144.9 million in 2007 compared to $ 118 million in 2006. Our net loss for 2007 was $72.1 million or $1.99 per common share as compared with a net loss of $110.9 million or $3.50 per common share in 2006.

We have achieved these results due to the successful launch of Soliris in the United States and growing product sales in Europe coupled with rigid cost management controls which we intend to maintain as sales further ramp up. I would like to also point out that our total NOS, net operating loses, at the end of 2007 were $735 million. As we move forward towards profitability, these NOLs will significantly help improve our cash outflows for taxes in the coming years

Now looking at the balance sheet. As of December 31, 2007 we had $106.7 million in cash, cash equivalents and marketable securities compared to $250.1 million at December 31, 2006. The decrease in cash during the year was attributable to factors that included the continued development of our commercial operations, costs associated with completing the construction of our manufacturing facility and purchases of inventory. These were offset by proceeds from cash receipts generated by sales, by exercise of stock options and the July 2007 increase in the Company's existing mortgage loan.

We have accounts receivable of $46.3 million at the end of the fourth quarter. In order to provide for further operating flexibility to grow out our commercial business, we have also instituted two measures to provide for further access to the value of our receivables. First we have recently shortened our commercial terms from those during the initial launch phase. Second, we have recently executed an agreement to obtain a working capital line of credit from a commercial bank for up to $25 million. We expect that these two measures will meaningfully augment our future cash balances without equity dilution.

Looking ahead to 2008. we are providing the following financial guidance. Worldwide Soliris sales are expected to fall within the range of $200 million to $215 million. Please note that, as previously discussed, since there is no simple correlation between patient numbers and sales and as we move beyond the initial launch phase we will no longer be providing total patient numbers.

Our cost of sales including anticipated royalties is expected to be in the range of 14% to 16% as compared to our previous estimate of 18% to 20%. The reduction in forecasted cost of sales is primarily due to improved manufacturing yields and reduced anticipated royalty obligations following today’s announcement on private acquisitions.

Looking at expenses. Our non-GAAP R&D expenses are anticipated to be in the range of $65 million to $75 million and non-GAAP SG&A expense in the range of $115 million to $125 million. Our share based compensation expenses for the year are expected to be in the range of $26 million to $28 million. We feel confident that with commercial execution staying on plan, rigid cost controls of proper cash management, we are well positioned to becoming a robust cash generating organization.

In closing, I want to join with Lenny and David and recognizing the great effort that has gone into Alexion's achievement in 2007 and I am looking forward to more accomplishments in the year ahead.

At this point, let me turn the call back to Lenny. Lenny?

Leonard Bell - Director and Chief Executive Officer

Vikas and David, thank you very much. The strong upward trend of the fourth quarter coming on the top of a year of important milestones for the Company, points to continued strong performance in 2008, especially as we serve more patients with PNH in the existing markets and drive expansion into new markets. At all points in the Company’s history, the key to our progress has been the individuals on the Alexion team whether it consisted of the original handful of people on a few rooms of a single office in Connecticut or the current 400 people working across the United States in key countries in Europe.

With that our collective experience, expertise, and passion together with the ongoing support of shareholders, researchers, and physicians, we each feel all the urgency to reach and deliver life changing therapies to more patients in more countries around the world.

I thank you very much for your attention. We would like to turn the call over to the operator for questions, Operator?

Question and Answer

Operator

Thank you. The question-and-answer session will be conducted electronically. To [Operator Instructions].

And we will take our first question from Sapna Srivastava with Morgan Stanley.

Sapna Srivastava - Morgan Stanley

Thank you. Congratulations on a good year and strong quarter.

Leonard Bell - Director and Chief Executive Officer

Thanks Sapna.

Sapna Srivastava - Morgan Stanley

And the one question we have is… could you tell… could you give us some color for your goals for profitability if I looked at your numbers this year and leverage with cost of goods, it seems like you could pretty much be profitable towards the end of the year. We would just love to hear your thinking on that?

Leonard Bell - Director and Chief Executive Officer

Well, thanks very much obviously Sapna. And we are obviously keenly focused as we describe on obtaining strong results. We provided guidance, of course, with regard to revenues, R&D, SG&A, and cost of goods. And at this point, we don’t feel the need to provide any other guidance. I think our plans, Sapna, as you can hear is that maintain very rigid control over costs to invest productively in the key launch phases around the world, and to maintain that leverage. So, at this point, I think that we provided enough flavor for where we are driving without providing any specific numbers for our profitability.

Sapna Srivastava - Morgan Stanley

And just one quick question on the pipeline. Which indications do you think you planning to move forward with first?

David W. Keiser - President and Chief Operating Officer

I think our plan actually would be is that we know a physician is getting ready to start very shortly a study that already received agreement to go forward in kidney transplantation. We ourselves are working diligently with investigators that complete all of the pre-planning to start studies in the U.S. in case of myasthenia gravis and in Europe, in the case of multifocal motor neuropathy. At the same time, the asthma studies are underway. We also, Sapna, are keenly interested as I mentioned in the conference call monolog aspect, a very diligently responding to interest questions and in some cases experience with eculizumab and other indications, typically other human hematologic.

These interests come from both the Europe… European physician community where we have strong ties of course, and increasingly also from the U.S. community where we have a marketing expanding base of PNH treaters now. So, I think, as we move forward as other indications and conditions as I described, will give more color as well. But those are of increasing priority and prominence in our internal thinking.

Sapna Srivastava - Morgan Stanley

Okay. Thank you so much.

Leonard Bell - Director and Chief Executive Officer

Thank you, Sapna.

Operator

And next we will hear from William Sargent Banc of America Securities.

William Sargent - Banc of America Securities

Hi. Congratulations on a spectacular launch and a great 2007.

Leonard Bell - Director and Chief Executive Officer

Thank you.

William Sargent - Banc of America Securities

So, first, just in focusing in on the overall patient numbers by quarter, with quarter was similar to third quarter. I was wondering if you could perhaps comment qualitatively how that EU to U.S. mix changed from third quarter to fourth quarter in a percentage of the patients. And then I had a quick follow-up question on the U.K. U. K. comments?

Leonard Bell - Director and Chief Executive Officer

David Keiser?

David W. Keiser - President and Chief Operating Officer

Well as you probably know and particularly in ultra orphan disease areas patient numbers tend to fluctuate depending on the territory. And as I think we mentioned in the last call as it pertains to new patients addition in the U.S. probably in Q3 patient additions were primarily coming out of the U.S. And that’s where now we have moved into the fourth quarter we got… pretty much equal coming on board on patients with respect to the U.S. and Europe.

William Sargent - Banc of America Securities

Great. And then just to clarify the U.K. patients are anticipating by the end of the first quarter, that is a local and not an MCG [ph] commercially reimbursed or commercially covered patients, is that correct?

Leonard Bell - Director and Chief Executive Officer

That some more locally oriented commissioning system, that’s true.

William Sargent - Banc of America Securities

Do you have any further inside about what do the timeline will be for the national commissioning group is? And then the novel PNH patients that are diagnosed in the U.K. when you anticipate those to being able to be covered by either the local or national MCG?

David W. Keiser - President and Chief Operating Officer

I think you wouldn’t be able to expect in 2008 that there would be a national program instituted here with respect to our drug in any event. And certainly, as we go through the year, as we work through the both local and regional funding groups in the U.K., you would expect additional clinical trial patients to be learned over to funding Soliris as well as new patients coming into the system.

Leonard Bell - Director and Chief Executive Officer

I also comment, it's Lenny. That clearly we were already observed that in a variety of territories within the overall United Kingdom, new patients are already been able to access drug and we know that there is at a variety of these local boards of backlog of many patients… or excuse me… many physicians requesting therapy for their new patients so called high priority patients who in their judgment are really can’t wait. So, we will certainly monitor this carefully and our objective is always is to make sure that we serve the benefits of patients and I think that increasingly others are looking the same way as well.

William Sargent - Banc of America Securities

Thanks very much for taking my questions.

Leonard Bell - Director and Chief Executive Officer

Thank you Will.

Operator

[Operator Instructions].

And next we will hear from Meg Malloy from Goldman Sachs.

Meg Malloy - Goldman Sachs

Thanks very much and also my congratulations on a good year. I just wondering two things. One is, could you explain a little bit on your thought process behind your guidance in terms of expected number of new patients versus patients that have already been identified through various named patients and clinical programs. And then secondly, you had some nice yield improvements that looks like they have translated nicely into the cost of goods guidance this year. I am wondering if there is a room in your view to potentially improve as you scale up to your own manufacturing. Thanks.

Leonard Bell - Director and Chief Executive Officer

Thank you very much, Meg. I will take the first question and then Vikas will take a swing at the second question. So, as we know, in terms of our guidance, as you know, we are as you know are in the midst of launching our first drug together as a team. And today is the first time we expressed our 2008 revenue and also expense guidance. And the types of things that we think about, particularly in a fairly dynamic increasingly global launch period, that is that we recognize that there are uncertainties with regard to pricing still in certain European countries, certainly with regard to funding decisions or reimbursement, and certainly, with regard to the timing of clinical transitions that will occur on a country-by-country or in some cases within a country, local basis.

And then, of course, also new patient addition and we look across all this and take this into consideration and we think in general that this is the guidance that we see with some clinical conversion occurring of course at various times not necessarily early but during the year and we see a steady pace in the United States. Growth which we are very pleased by and are looking to further exploit, but also with ongoing growth with new patients in organic growth across the European countries. So taking all that as the year progresses, if this guidance needs to be updated and it's warranted, we of course will but this is where we feel comfortable now.

Meg Malloy - Goldman Sachs

Thanks very much.

Vikas Sinha - Senior Vice President and Chief Financial Officer

And Meg this is Vikas, and on your second question regarding cost of sales. It is a blend of anticipated royalties and cost of manufacturing of Soliris and on the cost of manufacturing side we’ve taken a strategy to move forward with two sources, one with Lonza and one ourselves. Since the patient numbers are low and the volumes are low in this business. We see that this balance will fairly maintain our cost of sales. On the other side, on the royalty side as things progress we will come back and periodically review with you all how the progress is going on.

Meg Malloy - Goldman Sachs

Okay. Thanks very much.

Operator

And next we will hear from Rachel McMinn from Cowen and Company.

Rachel McMinn - Cowen and Company

Hi. Yes. Thanks very much. I am wondering if you can comment on how many clinical trial patients have or are remaining at the end of the year.

Leonard Bell - Director and Chief Executive Officer

In outside the U.S., you mean, Rachel?

Rachel McMinn - Cowen and Company

Yes.

Leonard Bell - Director and Chief Executive Officer

Yes. I think there were some reports that some patients have started a transition to commercial drugs in the third quarter even in Europe and that obviously wasn’t correct, which we went out of our way to describe in discussions today. So patients really started to move mostly from Germany and towards the end of the quarter and we expect that to be complete in or the very near-term and certainly this quarter absolutely. We are confident of that. We anticipate that the bulk of patients obviously in the U. K. really remain out there and not on transition as well as in Italy and as we mentioned there was a modest number in France but certainly in the Netherlands there is a substantial number of patients, in Spain as well and a smattering of patients that are in Switzerland, Belgium and some of the Northern countries.

Now, there’s also a group of patients in Australia and Canada that we don’t actually anticipate seeing meaningful revenue, if at all, from those patients in 2008 and taking that all into view, other than Germany all the other European patients effectively remain out there are to be converted.

Rachel McMinn - Cowen and Company

And somewhere around like 120 or so, is that a fair number?

Leonard Bell - Director and Chief Executive Officer

People constantly put out those very high numbers like that and we never really seen it the number could be really as high as that. So, certainly, you back out all of it, at some time years ago, there were only 130-140 patients outside the U.S. and when you look at the other countries and so forth and so on, that kind of number just gets too high a number I think.

Rachel McMinn - Cowen and Company

Okay. And then in terms of, I guess, let me see here, I guess I want to ask about the big differences in prescribing between the E.U. and the U.S. I know it’s early days in the European launch, but are you seeing any differences in the way it’s positioned approach the treatment or just prescribing of Soliris going more towards sicker patients in Europe than were so in the U.S. or are they just really the same at this point?

David W. Keiser - President and Chief Operating Officer

This is David, Rachel, I think what we are seeing primarily looking across geographies, really is that there’s the… I don’t think they are really major differences, I think. of course one thing that we’re experiencing that’s different and in parts of Europe, mainly in France and Italy is that those programs at least to-date, which are named patients, are really stimulated by, by the Physicians themselves, in other words, without really being promotional efforts. So, that selection of patients to be putting, to be put on the drug in those two countries, is truly being driven by the physician and what’s interesting there is that the number of patients that have been able to be brought on board on those programs such that we are impacting those two countries generating already now, pretty meaningful revenues.

Leonard Bell - Director and Chief Executive Officer

So, generally, also I just would chime in with David’s comments I will see what… which I agree Rachel, it’s typically, we certainly see that patients who have been more frequently or less frequently or not transfused or are, requesting access to drugs in different areas, there is it does both in the U.S. and in European countries there does tend to be, a greater number of sophisticated prescribers in some of the European countries who are much more keen to the serious consequences of the disease. Out of the gate actually. And so, though they may have a greater insight and certainly as David described, this is all obtained obviously without any promotion, whereas in the United States they allow running a strong excellent and growing U.S. commercial team, quite a bit of the early out of the gate is being focused on disease education, education of the serious consequences of the disease, the long-term impact of chronic hemolysis and the potential beneficial impact on patient outcome of Soliris therapy. Much of that actually is understood by many more people… many more potential prescribers in the European countries. Then again, I wouldn’t focus just here on the U. K. I would focus strongly on Germany, France, Italy, increasingly so in Spain and in addition of course the U. K.

Rachel McMinn - Cowen and Company

Thanks, very much.

Leonard Bell - Director and Chief Executive Officer

Thank you, Rachel.

Operator

And next we’ll hear from John Sonnier from William Blair.

John Sonnier - William Blair & Company

Thank you. Congratulations on a lot of wonderful progress you guys have made over the past year. I had questions today about Japan, from a clinical and regulatory standpoint, I know you said you're going to file in ’09, but can you give us a little bit more insight into the, I guess the size and shape of that study and then from a commercial standpoint, I believe Aplastic Anemia rates are significantly higher in… in Asia and there’s also the very provocative comparative analysis that was done at Duke a couple of years ago that suggests that thrombosis rates are lower in Japanese population. Sort of, so, should we think the patient management might be different there once you're approved?

Leonard Bell - Director and Chief Executive Officer

Sure John. Thanks very much. I’ll make a couple of comments then Steve’s going to well, also give our views. The first comment I'd make is, sort of, an overarching comment that in my experience supervising trials and 15,000 to 17,000 patients over the last ten years or so in particular. Most times actually, we internally are disappointed by the performance in getting a clinical trial go underway and enrollment and bring it to a speedy completion. And there are two times actually that I think, stand out in that very strongly. Of course, the first one will be the U.K only study, our Phase II study, which was really ground breaking describing a small cohort of patients generally run out of leads, really outstanding results by our committed researchers who knew a lot about the disease and a lot of enthusiasm for the drug. I think, the second study quite frankly is going to be the Japanese registration study. Where it turns out, as we just spoke last month at one of the investment banking conferences and an anticipated enrollment completing three or four months away.

They actually have driven very, very hard; they’ve also demonstrated an enthusiasm and ground swell of patient support to rapidly enroll that trial such that all of the patients are already been screened and treated, additional treatments will start sometime by next month. So, that’s actually an indication of what we anticipate to see very strong metrics for both physician and prescriber enthusiasm on the ground. It's about a 25 patient trial, where patients will be treated for 12 weeks. It's a lot like that U. K. study, but it's just about twice the size and across all of Japan.

Steve do you want to make some comments also?

Stephen P. Squinto - Executive Vice President and Head, Research

Well, I wanted… I think, you summed it up very nicely. So, the 25 patients will be enrolled at about nine sites and the nine key opinion leaders in Japan are extraordinarily enthused about the prospect of eventually having a drug like Soliris to treat their Japanese patient population. In fact it’s kind of interesting if you look back in the literature to some of the early days of science around identifying PNH and understanding PNH. It actually tracks back to some of these early Japanese… investigated by these very same Japanese investigators. So, a lot of enthusiasm on the part of those investigators in Japan to… to move these trials forward.

Leonard Bell - Director and Chief Executive Officer

And certainly for laying the ground work. It's quite remarkable that as we actually completed development across the U.S. and Europe and are launching successfully across the U.S. and European countries as well. With a global realization, we have the reach to be able to implement and drive a Japanese registration trial, which obviously we're very, very excited about this. And I think, additionally, the fact that it's spread out among a number of sites really bodes well for… a lot of appreciation for the drug, which again is some what different than the dynamics we had in the United States. So, a lot of… it really appears to be much more a ground swell, which we're very enthused by. And in regard John, to your other comments or questions. Certainly there is a marked increase in the incidence of Aplastic Anemia in the far East and just about a three or four fold higher likelihood as you pointed out and we obviously know that the proportion of patients with Aplastic Anemia who have the common PNH clones depending what threshold the PNH clones could be anywhere from a quarter to two-thirds of the patients.

So, we think that there are probably a fair number of patients with PNH in Japan. There is a fair amount of published data that suggests that thrombosis is a less likely to be occur and be life threatening. And in fact what moves up the order for high morbidity in patients of Japanese decent, who have PNH interestingly enough is Renal disease and I would point out that certainly it was really serendipitous, of course, that we had all of this new renal data come out presented by leading researchers from Europe to the United States at ASH and certainly we were comfortable and shared that information and detail of that data with the entire Japanese community involved in the trial and they are also very enthused about that. So, I think, that there will be slightly different messages per se but I think, they cut their role that Soliris is a highly effective and safe drug that can transform these patients lives through a number of different improvements in clinical morbides [ph] I think, that’s pretty much the same.

John Sonnier - William Blair & Company

Is it possible, it sounds like it's going fast is it possible that the filing time line gets pulled into ’08 because it sounds like if it's in ’09, it's going to be early ’09 for a 12 week study?

Leonard Bell - Director and Chief Executive Officer

It's a big challenge to pull off together something we have done obviously successfully two times. And we have met all these challenges in the course that we have laid out during 2007 which was a very challenging year for us and the fourth quarter was challenging, we did quite well. We are giving guidance that we expect to… that we are comfortable with and I think we are also comfortable with the 2009 submission. There are additional challenges, of course regarding regulatory aspects and language issues and so forth which we have to allow for which adds some of the timeline for Japan submission.

John Sonnier - William Blair & Company

That’s it. Just one last question just so I understand it. There are nine, you believe nine key opinion leaders in Japan and are patients aggregated in Japan as they are in Europe or these nine traders would manage most of the population now.

David W. Keiser - President and Chief Operating Officer

No. Actually there are nine sites that are enrolling patients, they are more key opinion leaders than sites of course, but the nine sites that are enrolling are represented by very strong leaders in the field of PNH studies in Japan.

John Sonnier - William Blair & Company

Okay. Hey, thanks a lot.

David W. Keiser - President and Chief Operating Officer

Thank you John.

Operator

Our next one from Michael Aberman from Credit Suisse.

Michael Aberman - Credit Suisse

Hey guys. Thanks. Thanks for the Valentine Day wishes.

David W. Keiser - President and Chief Operating Officer

You are welcome, Michael.

Michael Aberman - Credit Suisse

Very important for me. Can you not… can you give me any update on the EXPLORE trial in terms of enrollment and the number of patients, a percentage of patients that screen that actually get on drugs and how much of the U.S. growth comes from that trial?

David W. Keiser - President and Chief Operating Officer

Sure. Thank you Michael. EXPLORE continues to rely very important information regarding association of teenage… with a variety of bone marrow disorders and we have now enrolled about 3,800 or so patients with aplastic anaemia or one of the mild displastic syndromes or some related bone marrow disorder and it’s really rolling out well over 200 sites in the U.S. So, over the last period of time, in the last six months or so is about a 50% increase in enrollment or a number of patients have been enrolled which we are enthused by and we think that it’s provided a greater awareness or treat it as a greater awareness of the importance of our… call it a teenage clone of almost any size really in other bone marrow disorders. And as we look at EXPLORE we would expect value with the data. We are working increasingly with MDS thought leaders here in the United States to appreciate importance of the data not only for the identification of patients with important PNH, but also for the improvement of the therapy of patients bypassing imminent MDS irrespective of PNH.

And we think that’s providing an important driver for how we look to position some of the diagnostic pathways that Dave Weil has pioneered here in the U.S. and we also understand that are some patients with EXPLORE. In EXPLORE trial we would have probably gone on to receive Soliris although of course our primary objective really is driven by our interest in obtaining medical information about the association of PNH with bone marrow disorders.

Michael Aberman - Credit Suisse

In terms of data, should we expect data from Myasthenia Gravis or MMN thought. Can you give us a little more color on how you are studying this and how you plan to get to the concept of this drug is affecting on those diseases?

Leonard Bell - Director and Chief Executive Officer

Yes. Actually Mike, Michael, we will give you some thought as well. We are looking in and working again as I mentioned both in the U.S. and with European thought leaders on the different studies and there is probably three or four additional studies that we are looking at outside the ones we describe here as I implied couple of times earlier today, and I think that what we are thinking about is that one of the major things that it accomplishes, we know really the dosing of Soliris that will completely lock confidence in the patient. We also appreciate the designer trials, and what’s been done before in multifocal motor neuropathy and also in Myasthenia Gravis. And we are probably at this point looking at in those cases really a crossover design, something we are not able to do in PNH because of the peculiarities of PNH, but I think it’s that classic rare disease design. We have a crossover design make use and patients control for themselves in a crossover setting.

We would expect that type of data if we were to execute these trials to really help the physician community and also to understand whether the drug is very likely to be effective in that population and we think that that will meaningfully impact how we go forward in each of those populations as well, as I mentioned some other rare… from hemolytic diseases. We think that those are studies probably really will provide a meaningful data probably not till the end of this year but more likely early part of next year is where we are currently looking although we might have some insights will help us.

Michael Aberman - Credit Suisse

And you will provide updates as that progressive data will come early or presumably one or two patients with Myasthenia Gravis and the crossover to design can give a pretty strong signal?

Leonard Bell - Director and Chief Executive Officer

Yes. We are looking at and I think what’s guiding us quite a bit and Michael having followed us… I don’t think followed us but I think examined us carefully over years. You recognize we probably learnt a lot, I said a little hard way quite frankly of how to do efficient drug development, but I think we have come to from a variety of sort of medical, scientific and commercial reasons. It’s really only recently seen very striking signals and that’s what we are interested in really making a contribution to patients who have got a severe disease and now as we have done in PNH, step in with a drug that transforms that patient’s outlook and we would anticipate actually to be to design trials that provide us that insight.

Michael Aberman - Credit Suisse

And mine is just quickly on database. In terms of myasthenia gravis if you do show an effect on a severe population, how big is that population in North America and Europe?

Stephen P. Squinto - Executive Vice President and Head, Research

So, we are actually really focused on probably a subset of myasthenia patients, of course those patients that are not deriving benefit, good clinical benefit from the current use of immunosuppressive therapies. So that is probably… maybe 10% to 25% of the total Myasthenia population, somewhere in the 4,000 to 5,000 range. Yes.

Leonard Bell - Director and Chief Executive Officer

And increasingly look as you are sort of describe us as well, we look to focus where we can really make a difference and far from being scared of by lower numbers we actually find it at this point, very attractive.

Michael Aberman - Credit Suisse

All right. I will get back, actually that’s enough. Thanks. Appreciate it.

Leonard Bell - Director and Chief Executive Officer

Thank you Michael.

Operator

And next we will hear from Michelle Ha from Ferris, Baker Watts.

Michelle Ha - Ferris, Baker Watts

Hi. Congratulations. Could you expand on some of the diagnostic pathways that you reach you, maybe talk about FLAER a little bit?

Leonard Bell - Director and Chief Executive Officer

Dave Weil?

David W. Keiser - President and Chief Operating Officer

Sure. Thanks for the question and it relates back also to the question about EXPLORE, we are really commercially focused on a broader initiative to identify patients with PNH, so let me just talk a little bit about those steps. First is we indicated on the call, really on a routine basis we are identifying patients that have been previously diagnosed with PNH as well as taking it upon ourselves to elevate and educate physicians, about patients who are at a higher likelihood for having PNH, these patients are likely been seen by physicians on a frequent and ongoing basis and it requires really a simple peripheral blood test for the physician to order to really diagnose the patient with PNH. When we think about those patients who have been previously diagnosed with PNH as we suggest, our increased footprint in the United States with our sales organization, our frequent attendance of physician meetings, the website activity that we have seen, in our partnerships with some of the largest national oncology networks are really facilitating that identification.

Back to the diagnostic pathway and then I will pass it over to Steve to comment a bit on FLAER. When we really think about those pathways, the good news for us as I stated is the patients are being seen in these large oncology treatment centers and really by delivering messages to the physicians and sharing that third party reference data on the patients that are at higher likelihood for PNH. What we are seeing is a significant interest in the physicians to then order the test, but it isn’t simply ordering the test, but it is the right test at the right lab and I will finally just say what we have seen in some cases is the numbers of known PNH patients and some of these practices in fairly short period of time, potentially jump from a single known PNH patient and the practice to multiple patients, and gives us some confidence that over the long run this is going to be a very successful approach for us.

I will pass it over to Steve for comments on FLAER. Steve?

Stephen P. Squinto - Executive Vice President and Head, Research

Yes. I think what we are seeing slowly but surely in the field that there are a number of commercial labs that are beginning to adopt the use of the FLAER reagent. As you know it’s a reagent that is used as part of a flow psychometric based diagnosis of PNH and more and more is becoming their assay of choice for PNH panels. And FLAER is really just one part as David mentioned of our overall strategy to inform physicians on best practices for the diagnosis of PNH. FLAER itself is a reagent is important. As you know it is a more sensitive measure and more importantly a very accurate measure of PNH clone size. And this is clinically important since it both facilitates a diagnosis of PNH and it more accurately reflects the PNH burden faced by any individual patient. As with many diseases, the diagnosis is the appreciation of the risk, this disease is usually contributors regarding decisions to treat patients. And also, as an example of the importance that we put on FLAER, so the central lab that does all of the diagnostic work for our support trial, just recently as of January 1, 2008 switched up all analyses now to the FLAER reagent for evaluation of PNH clones, in aplastic anemia, MDS and bone marrow failure patients.

And I’ll just close by saying what we are seeing from the physician community with their awareness of patients who may be at higher likelihood of having, is demand for a test that utilizes the FLAER reagent, so that they can have the highest level of accuracy and specificity on the results. Lenny?

Leonard Bell - Director and Chief Executive Officer

I’ll pass it over David. Thanks so much Steve.

Stephen P. Squinto - Executive Vice President and Head, Research

Michelle, that answer your question?

Michelle Ha - Ferris, Baker Watts

Yes. It does. Thanks very much and another question sort of unrelated. Can you provide any color on the pricing for Soliris in Europe or anything, Germany, U.K. anything to that nature?

David W. Keiser - President and Chief Operating Officer

Yes. I think as we stated our objective here with respect to pricing is that we developed a relatively narrow band or quarter of our prices, both globally as well as specifically as it relates to Europe and that band or quarter also capturing what we are doing here in the U.S. and in terms of what there has been developed so far certainly in those countries where we do have a price at this point that particular objective has been accomplished. We have been able to develop our pricing strategy here in a way in which it could be effectively implemented.

Michelle Ha - Ferris, Baker Watts

Okay. Thank you.

Operator

And that does conclude the question and answer session. I would like to turn it back over to Dr. Leonard Bell for closing remarks and comments.

Leonard Bell - Director and Chief Executive Officer

Thank you very much operator and again I thank everyone for joining us this morning on really a momentous day for us reporting our results for the first nine months commercial availability of Soliris in the United States and Europe. We are very excited by capping off 2007 with a very strong quarter four which sets us up, we think to do and provide strong performance here in 2008. We are well focused on driving our topline growth. At the same time making disciplined investments to provide for strong opportunities for Soliris and a variety of other indications to help patients who currently now have no help for their disease. We are going to provide updates obviously, as we go forward and thank you very much again to Michael and everyone else as well. Happy Valentine’s Day.

Operator

And this does conclude today’s conference. We thank you for your participation and ask that you enjoy the remainder of your day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Alexion Pharmaceuticals, Inc. Q4 2007 Earnings Call Transcript
This Transcript
All Transcripts