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Alexion Pharmaceuticals Inc. (NASDAQ:ALXN)

Q1 FY08 Earnings Call

April 30, 2008, 10:00 AM ET

Executives

Leonard Bell - CEO, Secretary, and Treasurer

David W. Keiser - President and COO

Vikas Sinha - Sr. VP and CFO

Stephen P. Squinto - EVP and Head of Research

David L. Hallal - Sr. VP, United States Commercial Operations

Thomas I.H. Dubin, J.D. - Sr. VP and General Counsel

Analysts

Michael Aberman - Credit Suisse

Rachel McMinn - Cowen and Company

David Veal - Morgan Stanley

Meg Malloy - Goldman Sachs

John Sonnier - William Blair & Company

George Farmer - Wachovia Capital Markets Llc

Operator

Good day and welcome everyone to the Alexion Pharmaceuticals Incorporated first 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, Sir.

Leonard Bell - Chief Executive Officer, Secretary and Treasurer

Thank you, Operator. Good morning. Thank you for joining us on this morning’s conference call to discuss Alexion’s financial results and corporate developments for the first quarter of 2008.

I am joined by members of Alexion’s management, including David Keiser, President and Chief Operating Officer; Vikas Sinha, Senior Vice President and Chief Financial Officer; Dr. Stephen Squinto, Executive Vice President and Head of R&D, Dave Hallal, Senior Vice President and Head of US Commercial Operations; and Thomas Dubin, Senior Vice President and General Counsel.

We also welcome the entire Alexion team here at our headquarters in Connecticut, at our manufacturing facility in Rhode Island, and in countries across Europe. After a review of the quarter, we will have time for several questions. Before we begin, Mr. Dubin will apprise you of our potential to make forward-looking statements. Tom?

Thomas I.H. Dubin, J.D. - Senior Vice President and General Counsel

Yeah, thank you, Lenny. During this conference call, we may make forward-looking statements, including statements related to expected 2008 financial results, medical benefits from commercial potential of Soliris, commercial and regulatory milestones for Soliris in different territories, commercialization strategies, plans for clinical trials at Soliris and other products, reimbursement, price approval and funding processes in Europe, and 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. The 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 payors will not reimburse for the use of Soliris at acceptable rates or at all, the risks of the 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-K for the quarter ended December 31, 2007. We do not intend to update any of these forward-looking statements to reflect events or circumstances after this call, except where duty arises under law. As a reminder for when we discuss non-GAAP results in this call, our non-GAAP results conform to GAAP in all respects except only for the exclusion of expense under section 123R.

Thank you, Lenny.

Leonard Bell - Chief Executive Officer, Secretary and Treasurer

Thanks very much Tom. The first quarter of 2008 was a landmark quarter for Alexion. As we announced the company’s first reporting period of profitability on a non-GAAP basis. We expect that this will represent an historic inflexion point for Alexion’s future operating performance. The introduction of Soliris has tested and proven our scientific, medical, commercial, and financial skills. The non-GAAP profitability is a key measure of our success so far, more importantly it strengthens our mission to bring the Soliris to patient with PNH and to expand the Soliris franchise for the potential treatment of patients with other rare diseases.

I would like to highlight four additional first quarter accomplishments. First, we continue to deliver the hope of Soliris to more patients in the United States and in Europe resulting in a 35% increase in net product sales compared to the fourth quarter. This reflects the growing awareness and strong demand among physicians and patients in marketed territories. Second, we lay the ground work, for expanding our global PNH business by achieving initial sales in more than 10 countries and completing enrollment in our Japanese registration study.

Third, we took important steps to begin to expand our Soliris franchise with developing milestones in Myasthenia gravis and kidney transplantation. Additionally, we have reversed our oncology platform with normal anti-CD200 antibody for patients with CLL. Fourth, we are paying these important commercial and product development accomplishments, while maintaining rigorous financial discipline.

I would like to discuss each of these areas in more detail, beginning with the ongoing success of the global Soliris launch. Net product sales of Soliris were $45.5 million in the first quarter compared to $33.9 million in the prior quarter, Q4 of 2007. This brings total Soliris net product sales in the first 12 months of commercial availability to $111 million. These results place Soliris among the most successful ultra orphan drug launches in both the United States and European markets.

In the first quarter and in line with our expectation substantial numbers of newly identified patients were added to our growing base of patients on Soliris treatment in both the United States and Europe. As in our earlier experience, we are finding that these newly identified patients represented the majority of patients started on therapy in Q1. We are particularly encouraged by a strong increase and performance of new patient additions in United States, which is partly related to the implementation our field force expansion towards the end of 2007.

In addition compliance of existing patients remained at high levels in all territories. In each of our operating countries, we continue to see the growth of our commercial base from four distinct and substantial patient populations. The first of these populations are the remaining patients, who are in clinical supply by present treatment has not yet been funded. In the United States, Germany and France all clinical trial patients have already been converted to commercial Soliris.

In the UK, the first cohort of clinical trial patients’ transitions to fully funded status during Q1. Across several European countries, we expect additional patients to convert to fully funded status during the remainder 2008, and in some European and Non-European countries, we expect additional conversions into 2009. The second population consists of previously diagnosed patients, whom we have already identified. The total population of identified patients is approximately two to five times the number of patients on therapy in any particular country.

The third population consists of patients, who have been diagnosed with PNH, but who are not yet identified by us. Identifying these patients has driven a significant portion of new patient starts in recent quarters, as an ongoing prime focus of our field forces. The fourth patient population comprises those individuals, who in fact have PNH, but who have not yet been diagnosed. In PNH as in many other rare disorders, delay diagnosis and misdiagnosis, their result from a lack of general awareness of the disease combined with an absence of routine diagnostic protocols in daily clinical practice.

To help these patients receive optimal care more quickly, in the United States, our oncology clinical specialists are working with the largest oncology practices to assist them in developing and implementing testing pathways for patients, whose clinical profile indicates a higher likelihood of their having PNH. We now see that an increasing number of hematologists and oncologists are embracing these pathways, especially because the identification of the PNH clone can influence the outcome of treatment of PNH as well as other bone marrow disorders.

We are likewise observing the use of more sensitive flow cytometric testing for the PNH clone, so laboratory testing once ordered will yield more accurate results. We expect that the development and implementation of these diagnostic pathways will help patients in two ways. First, these pathways should facilitate identification of patients, who would otherwise have remained undiagnosed for many years.

Second, more common and systematic screening would be expected to meaningfully decrease the average time to diagnosis for the estimated 600 to 900 patients in the United States and in Europe, who newly developed the PNH mutation each year. Based upon these sources of patient growth and continuing geographic expansion, we expect strong and continuing growth in the use of Soliris in PNH enabling us to fulfill our objective that every patient, who can benefit from Soliris will have access to it.

Alexion’s success in commercializing Soliris as a treatment for patients with PNH has been impressive. Yeah, it is just one facet of our expanding business. The Alexion organization was the first to discover and develop recombinant complement inhibitor into a viable pharmaceutical product. Using internal resources, we converted basic science into an investigational drug and took that drug to the considerable hurdles involved in conducting clinical trials in an ultra rare disorder. We then became the first company to have a product received both regulatory approvals in the United States on a prior review basis and in Europe under Accelerated Assessment.

Now, we are extending our global PNH franchise in the countries beyond those in which we already have marketing approvals. During the first quarter, we announced both the commencement and the completion of enrollment of patients in the AEGIS study, a single registration study to evaluate the safety and efficacy of Soliris as the treatment of our Japanese patients with PNH. Once the last patients have received 12 weeks of Soliris therapy, we will begin the process of data collection and analysis.

As we expand our global presence in PNH, we are also rapidly leveraging our biopharmaceutical development expertise to more fully develop the Soliris franchise in other rare severe complement-mediated diseases. We believe that Soliris already recognized as a safe and effective complement inhibitor in the blood disease PNH. It may have an important impact in patients with three other rare blood disorders.

First catastrophic antiphospholipid syndrome or CAPS, a high mortality autoimmune disease causing multiple organ failure. Second, atypical hemolytic uremic syndrome or aHUS and inherited genetic complement inhibitor deficiency disorder, frequently leading to kidney failure and third Cold-hemagglutinin disease or CHAD a chronic debilitating autoimmune disease. Patients with these rare blood diseases have few, if any treatment options. Together with expert physicians, we are now driving to initiate Soliris clinic studies for these patients.

In addition, during the first quarter, we reached a developmental milestone in two other research programs within the Soliris franchise. First, we submitted the IND to the FDA to commence the study of Soliris and patients with Myasthenia gravis, a rare and severe complement-mediated neurologic disorder. Second, an investigator has received permission to proceed with Soliris in kidney transplant recipients, who are at high risk for severe and acute rejection.

Separately, we reached a third important development milestone, this one in our oncology program, during the first quarter. The FDA authorized our IND for our novel anti-CD200 molecule antibody as a treatment for patients with Chronic Lymphocytic Leukemia. We anticipate beginning of clinical trial in these patients this summer. I would like to take a moment now to address our guidance for fiscal year 2008.

In regard to sales, although we recognize, that it is still very early in the launch of Soliris and also early in fiscal 2008. Our sales performance in the first quarter increases our confidence, such that we are now upwardly revising our guidance for net product sales from the previous estimate of $200 million to $215 million towards volumes estimate of $215 million to $225 million.

With regard to expenses, we now expect a reduction in a cost of goods from the previous estimate of 14% to 16% of sales to revise that right now of 12% to 14% of sales. Further, we expect to continue to grow our global PNH business to expand our Soliris franchise and to grow our oncology platform. All walk closely managing our expenses. Thus we are maintaining our previous operating expense guidance of non-GAAP R&D expenses of $65 million to $75 million and non-GAAP SG&A expenses of $115m to $125 million.

Finally today we are now providing guidance that on a non-GAAP basis, we expect to be profitable for the full year 2008. Based on our results in the first quarter we have reached an important inflection point in Alexion’s history. We are gratified that we are having a positive impact on the life of patient’s with PNH and their families. And we are working diligently toward new and ambitious goal internationally for the benefit of each patient with PNH and increasingly per patients with other rare severe and disabling diseases. Our overall objective remains that every patients who can benefit from Soliris, will have access to Soliris.

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

David W. Keiser - President and Chief Operating Officer

Thank you, Lenny. The reporting of a non-GAAP process is indeed a momentous accomplishment for Alexion considering the short period of time that is last since the FDA and the European Commission approves Soliris. I would like to provide more details on the strength of our commercialization efforts, as we continue to improve the large growing numbers of patients with PNH and the disciplined approach we are taking in our commercial operations to utilize our resources wisely.

In the first quarter of 2008, sales grew by $11.7 million compared with the fourth quarter of 2007. As we continue to bring the clinical benefits of Soliris to more patients with PNH. The increase in sales indicates the steady momentum, we have achieved in three areas. First starting new patients on Soliris, second, converting clinical trial patients to commercial Soliris, which will continue during the remainder of 2008 in certain European Countries and third supporting existing Soliris patients.

Our activities drove robust new patient additions during the quarter. And we are particularly pleased with the strong upward trend of new Soliris patients in the United States. Across all markets newly identified patients represents the majority of patients started on therapy in Q1. As in previous quarters, our performance in the first quarter of 2008 has confirmed that the plans guiding our marketing and sales organizations are correctly attuned to the needs of patients, physicians and payors. These plans since launch have been centered on four key areas of focus. Identifying patients, generating demand with treating physicians, creating access for all patients with PNH and supporting appropriate utilization.

In the United States, our field sales force of 32 representatives continues to perform on plan. They recognize that the majority of patients with PNH, who may benefit from Soliris have yet to begin therapy. In fact, many individuals with PNH despite being seriously ill, have not yet been diagnosed with PNH. Through disease awareness initiatives and by helping physicians to develop diagnostic pathways our field teams are greatly expanding the awareness in the early accurate diagnosis of PNH.

Along with our sales team, our nurse case managers of Alexion’s OneSource Treatment Support program have been instrumental to our success in the United States. By working individually with patients and their physicians they continue to help speed the reimbursement process and to help patients obtain access to Soliris. Our objective is that every patient, who can benefit from Soliris will have access to Soliris.

Our performance in Europe was similarly strong, in an increasing manner Germany, France and Italy contributed meaningfully to European sales in the first quarter. We continue to make steady progress in the process of transitioning to full commercial status in France and Italy and additionally we expect to achieve full commercial status in Spain, during the second quarter. Further Soliris therapy was funded for the first group of patients in the United Kingdom during the first quarter.

As we had expected and we are expanding our efforts in other European markets and are achieving initial sales of Soliris in more than 10 European countries. We have approximately 30 field representatives in the European markets and their work is similar to that of their counterparts in the United States, building relationships in key treatment centers, identifying physicians with patients, who have already been diagnosed with PNH and educating on PNH and the benefits of Soliris.

As we grow our global commercial operations, we remain committed to closely managing our expenses. This enables us to obtain the maximum value from our resources and gives us important upgrading flexibility within our current expense guidance. For example, we expect to add to our existing field presence selectively in the United States and in Europe to take advantage of opportunities as we identify them and to make initial expansions outside of our main European countries.

We have already taken significant steps to initiate commercialization outside of Europe. By mid 2008, we should have an initial decision on our marketing application for Soliris as a treatment for PNH in Australia with an eye toward a commercial launch in that country in 2009.

In Japan, we were highly encouraged by the speed of which our AEGIS trial was fully enrolled, in fact over enrolled. This rapid progress indicates that physicians in Japan are both highly aware of PNH and well organized to treat the disease in this nation of nearly a 130 million people. And beyond these countries we expect to initiate the processes to achieve market access for Soliris and other nations of Asia and South America during the remainder of 2008.

In closing I want to recognize our employees and the many people outside our company, who have made our work possible all along. Together, we are already making an enormous difference in many lives and each day, we look to expand a number of patients and families around the world, whose lives can be improved by our corrective efforts.

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

Vikas Sinha - Senior Vice President and Chief Financial Officer

Thank you, David. I will begin by taking a few minutes to provide some details on our non-GAAP profit in the first quarter, which is truly a pivotal accomplishment for Alexion. For the quarter ended March 31st, Alexion achieved worldwide Soliris net product sales of $45.5 million, compared to $33.9 million in Q4 2007.

As a reminder Soliris first become commercially available in the second quarter of 2007. The increase in Soliris sales from the previous quarter represents a steady sequential quarter increase inline with our expectations, largely reflecting the addition of newly identified patients and conversion of patients from clinical to commercial status. Combined with tight control of expenses our increased revenues have resulted in a non-GAAP net income of $1.6 million, or $0.04 per basic and diluted share.

I would like to remind you that in accordance with FAS 128 the method for determining the number of shares outstanding used for calculating EPS defers with a net income and oppose to with net loss. Additionally, with net income the number of shares outstanding only includes those that would be dilutive. So, 4.7 million shares for our convertible note are not included in the Q1 results because they were not dilutive, but will be included in the EPS calculation in future quarters, if these shares are considered dilutive in EPS.

As a reminder, our non-GAAP number conforms to its US GAAP in all respects, expect the Section 123R option expense that excluded in the non-GAAP calculation. A complete financial result can be found in the press release issued this morning. As in the past I will limit my discussion to non-GAAP results during this call in order to save time.

The cost of sales in the first quarter was $5.5 million or 12% of net product sales, which was lower than our guidance of 14% to 16% for the year. The reduction in the cost of sales percent is resulted from improved manufacturing yields and sales mix by country in the quarter. On a non-GAAP basis, our operating expenses for the first quarter 2008 were $39.5 million, compared to $36 million for the same quarter of 2007.

R&D expenses for Q1 ‘08 were $14 million, compared to $18.8 million reported for the year ago quarter. The higher R&D costs in Q1 ‘07 were primarily the result of the non-recurrence of higher drug development expenses including Soliris registration and Soliris extension study. SG&A expenses for the first quarter of ‘08 were $25.5 million, compared to $17.2 million for the first quarter of ‘07, which was before our commercial operations in the US and Europe were built out.

As I mentioned, we realized non-GAAP net income of $1.6 million, or $0.04 per share in the first quarter of ‘08, compared to a non-GAAP net loss of $24.1 million, $0.78 per share in the first quarter of ‘07. I would like to note that on a GAAP basis, our net loss was $4.2 million or $0.11 and was far below the GAAP net loss of $27.7 million or $0.92 per share reported in Q1 ‘07.

Looking at the balance sheet now. As of March 31, 2008, we are $107 million in cash, cash equivalents, restricted cash, and marketable securities compared to $106.7 million at December 31, 2007. During the quarter, we also set up a working capital loan facility with commercial bank. As of March end, we have withdrawn $18 million from the facility to finance our working capital needs. We also shortened our payment terms and commercial sales this quarter and we expect that the favorable impact of this change on our cash balance will be felt in Q2.

We had trade accounts receivable of $53.7 million at the end of first quarter compared to $46.3 million at the end of 2007. Since we deliver to hospitals and doctors directly, we do not have meaningful inventory in the distribution channel. Given our strong first quarter sales, I would now like to review our financial guidance for 2008.

First, we are revising our 2008 worldwide guidance for net product sales from the previous $200 million to $215 million upward to $215 million to $225 million. Also our cost of sales including anticipated royalties is now expected to be reduced to the range of 12% to 14%, as compared to our previous estimate of 14% to 16%. We are providing this range to a lot of variations in the yields in future manufacturing batches and differences in the sales mix by country in future quarters.

Next, looking at expenses we reiterate our previous costs guidance of $65 million to $75 million for R&D and $115 to $125 million for SG&A. Within this unchanged operating expense items SG&A and R&D expenses are expected to pick up over the remainder of the year. We expect that SG&A costs in Q2 and Q4 will generally be higher due to major conferences such as EHA, ASCO and ASH. R&D cost will pick up over the second half of the year as we redirect resources and move forward with our clinical trials and new indications.

In addition, we are maintaining our guidance of $26 million to $28 million for 123R share based compensation expenses. Finally as Lenny indicated, we are not guiding that on a non-GAAP basis, we expect to be profitable for the full year of 2008. In closing, I want to join with Lenny and David and recognizing the great effort that has gone into achieving Alexion’s first non-GAAP profit. We are looking forward to more accomplishment in this year ahead.

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

Leonard Bell - Chief Executive Officer, Secretary and Treasurer

Vikas and David, thanks you very much. Our profit on a non-GAAP basis in the first quarter, which another major accomplishment went into continuing trend of growing and profitable growth in the years ahead. Our experience in the area of rare disease has shown us firsthand the morbidity is the mortality faced by patients with PNH and with other rare disorders. And the importance of addressing the lack of scientific understanding and the absence of impeccable treatment option for patients with these rare diseases.

Our objective remains that every patient who can benefit from Soliris will have access to Soliris. By putting the needs of patients first, Alexion is helping to build the healthy future for patient and their families and for shareholders and employees as well.

Thank you and I would like now to turn the call over for questions. Operator?

Question and Answer

Operator

[Operator Instructions]. We’ll hear first from Michael Aberman with Credit Suisse.

Michael Aberman - Credit Suisse

Hi, guys, thanks. Congratulations on a quarter.

Leonard Bell - Chief Executive Officer, Secretary and Treasurer

Thank you, Mike.

Michael Aberman - Credit Suisse

I think if you can -- first, can you provide any additional breakout in terms of the sales by geography?

Leonard Bell - Chief Executive Officer, Secretary and Treasurer

Yes. Thank you for your question. Obviously, we have provided on an annual basis the breakout and that was in our 10-K, which have approximately $66 million in sales, about $46 million was in the US and about $20 million was in Europe, which obviously is extremely strong growth in both.

We make comments obviously that we saw a significant and strong up-tick in performance with new patient additions across United States this quarter. And we believe that’s as a very measurable impact. We also saw important growth in each of the major European countries. And as David mentioned, we’re now actually have initial sales in over 10 countries. So I think that the growth is coming strongly from the US and also then starting to add initial sales outside the top five countries in the Europe, where we expect that growth to come out even more stronger in remaining part of Europe.

Michael Aberman - Credit Suisse

Another question, if I may, on the new indications. Can you give any color where you are on those hematologic disorders like the CAPS, the atypical hemolytic anemic syndrome in CHAD in terms of -- what you know about the patients population’s and where you are in terms of thinking about trials and INDs et cetera?

Leonard Bell - Chief Executive Officer, Secretary and Treasurer

At this point, I would say on a weekly basis, there are probably four or five calls from around the world from physicians who wanted to treat patients with at least one of those three disorders. That would be the first comment I’ll make. And that certainly, is increasing over the last three to four months. And it’s coming from all sorts of different directions

It’s taking an increasing amount of time to sort that out that, which is why we are very vigorously showing how to get in front of this to put trials in place. The disease is obviously are rare disorders. They have all in common that each one has a very strong role for complement. In CAPS, it’s well recognized that there have been studies done pre-clinically for years and now the anti-C5 antibodies were effective in pre-clinical models.

HUS, you know for a company like Alexion, Mike will you write that next sweet spot. It’s a disease where patients are born with a deficiency in complement inhibitors that leads to kidney failure quite frankly. And then finally Cold-hemagglutinin disease is a disease where patients have an autoimmune use IgM phenomena that results in intravascular as well extravascular hemolysis and sludging.

And I think we’re at a point now, where there are so much demand from physicians to look to use the drug that we’re very cognizant that we need to sort of look the focus and identify whether there is efficacy with the drug first and we’re very much focused on that right now.

The size of populations, Michael, I would put them all roughly the same in the PNH, maybe a little less, maybe a little more in some of them, but roughly the PNH. And in some of the disorders, quite frankly, there is a lot more identified patients though.

Michael Aberman - Credit Suisse

But each, each individual indications like another PNH roughly?

Leonard Bell - Chief Executive Officer, Secretary and Treasurer

The hedge a little, I would say, a little bit less.

Michael Aberman - Credit Suisse

All right.

Leonard Bell - Chief Executive Officer, Secretary and Treasurer

But I would say in some of this disorders, HUS being one of them, for example, it just seems to be a lot patients being identified to us. So it’s hard to get a handle on it really, how many there might be.

Michael Aberman - Credit Suisse

Can you give us follow-up on, you mentioned in anecdotal patient on with the antiphospholipid syndrome, is that patient still on therapy, up on the sort of compassionate use basis? And is there a follow-up on that patient?

Leonard Bell - Chief Executive Officer, Secretary and Treasurer

Yeah. We’re certainly aware of that there has been use of drug in various sittings, here in United States as well in different European countries as well. And as I mentioned certainly, this gears us to focus on trying to verify the efficacy and safety of the drug in these indications. And that’s where we’re really very much focused on. We’re encouraged that move forward as vigorously as we can.

Michael Aberman - Credit Suisse

I’ll leave. One last question just on Myasthenia gravis, the IND was submitted timing of to start that trial?

Leonard Bell - Chief Executive Officer, Secretary and Treasurer

We’d expect to be on the start of the trial sometime in the later part of the summer.

Michael Aberman - Credit Suisse

Great. Thanks guys. I will get back in the queue.

Leonard Bell - Chief Executive Officer, Secretary and Treasurer

Thank you, Michael.

Operator

We will take our next question from Rachel McMinn with Cowen and Company.

Rachel McMinn - Cowen and Company

Yes. Thank you very much and my congratulations as well. I wanted to draw down a little bit on demand. I know you are not getting specific patient numbers but qualitatively was it kind of a 50/50 mix between US and Europe, or was that a little bit more towards the US?

And if you could also just talk about these patients that are going on therapy and the qualitative discussion around the more they transfusion dependent, independent what kinds of patients are coming on for therapy?

Leonard Bell - Chief Executive Officer, Secretary and Treasurer

I will make a broad comment regarding what the mix kind of looks like and then Dave, allow if you want to sort of give a color on some of the patients that I should. So, you know broadly what we saw is a significant uptake in new patient addition in United States, which played very strongly into the quarter and also moving forward into rest United States.

That together with continuing strong growth in Europe and seeing our performance in first quarter is really underpinning our upward revision and guidance so early in a launch. So, I would like that speak for itself and certainly that we were very pleased with the performance across and particularly, we saw a significant upward movement in new patients additions across United States.

David L. Hallal - Senior Vice President, United States Commercial Operations

Thanks, Lenny. Yes, Rachel, so based upon our market research, we continue to see really drivers for demand being a broad array of symptoms with respective PNH and benefit as it relates to Soliris. So, we’re seeing the drivers from physicians be debilitating fatigue, core patient quality of life, anemia, and physician and patient concerns with respect to the risk or history of thromboses. And it’s also becoming apparent that physicians are increasingly concerned about disease progression in vital organs, particularly the kidneys.

Further, these drivers appear to be independent of whether the patients have been transfused or not. And as seen in our clinical trials, patients benefiting from Soliris therapy represent really a diverse PNH population. So, we see significant groups of patients with little or no transfusion history initiating treatment with Soliris and receiving significant benefit.

Leonard Bell - Chief Executive Officer, Secretary and Treasurer

Like I said, Rachel, you know David also ought to give himself bit more credit. Obviously, in the US has done enormous job with understanding the dynamics across the physician groups and the group in US marketing has done a spectacular job of reaching out, understanding what the real demands and needs are in the marketplace, naturally, led to increase in messaging across United States and now actually driving across our European countries as well, where we’d focused very much on the risk of having one of your most vital organ explored on a continuous basis.

And we think that’s providing a lot of crystallization and how physician are increasingly looking at the risks of this life threatening disease.

Rachel McMinn - Cowen and Company

That’s very helpful. Two, just short questions. One is can you comment on the proportion of US patients that are getting free drug, if at all. And then the cost on the margin side, do you think that 12% to 14% cost of good sold is sustainable?

Leonard Bell - Chief Executive Officer, Secretary and Treasurer

So when I comment -- you know we don’t comment actually specifically on numbers. We are certainly first and foremost focused intensely on making sure that we always focus on our objective that every patient can benefit from Soliris -- will have access to Soliris. And we do that in a very straightforward fashion. And we meet those obligations as we need to be. Vikas, you want to comment regarding cost of goods?

Vikas Sinha - Senior Vice President and Chief Financial Officer

Rachel, regarding cost of goods, yes, it is sustainable. And as I’d mentioned in my call that 12% to 14% is the range that we provided, so that we can, we have some flexibility in looking at the mix in the sales mix within different countries.

Rachel McMinn - Cowen and Company

Okay. Thanks very much and congrats again.

Leonard Bell - Chief Executive Officer, Secretary and Treasurer

Thank you, Rachel.

Operator

We’ll go and take our next question from Sapna Srivastava with Morgan Stanley.

David Veal - Morgan Stanley

It’s, Dave actually calling in for Sapna. Just two questions. First is, in terms of the non-GAAP profitability, and you said for the full-year you expect to be -- do you expect to be for basically each quarter now on or do you think it will dip back and forth in these next few quarters.

Leonard Bell - Chief Executive Officer, Secretary and Treasurer

Yeah. Thank you, David. And also, we certainly look forward to seeing you tomorrow assuming American Airlines performs. On our base is that we can have a much greater insight, and we actually expect to be each quarter going forward here profitable on a non-GAAP basis. We’ve hit an inflection point. That inflection point is upward from here.

David Veal - Morgan Stanley

Then, the second question is just about some of these diagnostic in treatment algorithms that are being developed in collaboration with most scientist and clinicians. Is there any progress in either getting those presented at meeting or published, and sort of what’s the status of how formalize those are?

Leonard Bell - Chief Executive Officer, Secretary and Treasurer

Dave.

David W. Keiser - President and Chief Operating Officer

Sure. So, we are aware of groups that potentially maybe interested in presenting their findings down the line. At this point, we are in peer implementation phase that is the right practices that see a high degree of patients that are higher likelihood for potentially having PNH. So the right practice is identifying the right patients and then making sure logistically that they have steps in place to make it work in their practices and utilizes.

As Lenny mentioned earlier in the call, labs that are providing a good quality PNH panels, the high sensitivity PNH flow. And we’re very, very encouraged by the interest in those groups and adopting those pathways.

Leonard Bell - Chief Executive Officer, Secretary and Treasurer

We would expect that David also overtime for these to become increasingly apparent. And in fact, there are senses that there are variety of groups vying with each other to be out in front of this and be able to present information as it’s available.

David Veal - Morgan Stanley

Okay. And then just a question, sorry. On things like Myasthenia gravis and aHAS and CHAD, I mean do you have sense of whether people are likely to demonstrate responses to the drug as quickly as they do with PNH in terms of getting that quick prudent concept? Or do you expect that some people for certain indication you’ll need to dose for a longer period of time before you actually can demonstrate a benefit?

Leonard Bell - Chief Executive Officer, Secretary and Treasurer

That’s a great question, David. And certainly, our focus on identifying, exploring the efficacy and safety in Soliris in each of the indications is first and foremost in our views. As you recall, we certainly have enormous amount of development experience in variety of larger volume heterogeneous population.

I think what we’ve learned from that and put into place in PNH and now are looking to reduplicate it several time over the near term, is the value and focusing on patients with serve disorders, which presents a relatively homogeneous population for study that allows us to be able to identify as early as possible signal.

And I think that the answer to that of how long they’ll to look to find a response will certainly vary in some diseases. Some diseases that have outward evident hemolysis, quite frankly, we expect to see some evidence of response in few weeks. Some patients who have a debilitating chronic and serious disease, of course, will take longer for that.

And we are designing currently now with expert physician groups really in different pockets across the globe at this point, at least in the western world individual trial sets to look to match it with our rear disease experience to those disorders. So, so much I think will be pretty quick and so much I think will be a matter of many months. All the trials will be roughly the same that we’d anticipate as somewhere between 10 to 40 patients as initial studies.

Steve, you want to add some comment

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

The only comment -- I think that’s great. The only comment I would make in addition, I think we view these as chronic diseases that probably will require product therapy. I don’t think we see any of them as being a setting where Soliris would be used acutely.

Leonard Bell - Chief Executive Officer, Secretary and Treasurer

And we’re very, very chastened by that impression that these are -- some of these diseases have very, very bad acute arm tests. And then patients frankly don’t survive that and are susceptible to recurrent if they do recurrent relapses, which in these diseases can be immediately life threatening. We’re very, very focused on that and as are the physicians.

David Veal - Morgan Stanley

Thank you.

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

Thanks, David.

Operator

Next from Goldman Sachs, we will hear from Meg Malloy.

Meg Malloy - Goldman Sachs

Thanks very much. Good morning everyone and congrats on a good quarter. Had a couple of questions, first is in terms of Japan, can you give us your best assessment of what the underlined patient population might be like. I guess, you have 13 million – was consistent in Japan, then that would suggest maybe just under around 1600 patients or so, but I understand that there is a higher incidence per capita of Aplastic Anemia.

And I’m wondering if you have done any work that suggests that the incidents might be a little higher in Japan as a first question. Second is can you give us an update on the EXPLORE study and finally I realize you didn’t want to get too granular, but do you have a sense of the number of patients that maybe globally are getting free supply through the clinical trials programs. Thanks.

Leonard Bell - Chief Executive Officer, Secretary and Treasurer

Sure. I’ll take one and three and Steve, take two.

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

Okay. I don’t know what’s on the side order here.

Leonard Bell - Chief Executive Officer, Secretary and Treasurer

In Japan, like all things we are very much focused on knowing what we now. So, we had anticipated as you do, Meg, that there are more patients per capita in Japan than in the West. Yeah, we can’t and have not at this point quantitated that number. So, we tend to go with a more conservative number as you described. And I think that’s really, where are we tend to focus. We do have an important attraction and such an advantage in Japan. I suppose to what was the case in the United States prior to launch and what was the case in European countries prior to launch.

We’ve actually got a little bit longer runway and of course the benefit of our commercial experience in US and European countries. And we are certainly focusing on throughout 2008 and into 2009 of course to developing that much larger pipeline of patients ready to go. The AEGIS trial in Japan is a really to the analogous to the SHEPHERD study is effectively in recombinant type of study, but is only for roughly three months of therapy. So, I think from a overall perspective we go with a same numbers that have been published for the West. We have recognized they maybe low, but we go with those because that’s what we can support. In terms of …Steve joins to EXPLORE.

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

Yes sure. Thanks. So EXPLORE continues to enroll well, continues to provide important information regarding the association of PNH with bone marrow disorders. As of now, we have been enrolled approximately 4500 patients with either Aplastic Anemia, Myelodysplastic Syndrome or Other Bone Marrow Disorders. That roughly around 200 centers across the US, I think EXPLORE continues to contribute an awareness of the presence of PNH clones with bone marrow disorders, and I think as we go forward we will be expecting to start to look at some of the data to answer some of the scientific questions that we pose with the EXPLORE trial.

Leonard Bell - Chief Executive Officer, Secretary and Treasurer

And then in response to your final question, of course I have to exclude the patients, who were on clinical supply in Japan of course. But generally speaking I think there are approximately 80 to 90 patients, who were on clinical supply in European countries in 2007 that we’d anticipate we are receiving funded drug in those countries in 2008. And there will be additional patients then in some of those European and non-European countries that probably will access funded drugs into early to mid 2009.

Meg Malloy - Goldman Sachs

Okay. Thanks very much.

Leonard Bell - Chief Executive Officer, Secretary and Treasurer

Thank you.

Operator

Our next question will come from John Sonnier with William Blair & Company.

John Sonnier - William Blair & Company

Thanks for taking the question and congrats on a great Soliris launch. I wanted to ask a couple of development questions. I think you pointed us earlier this year to a nature biotech article that had a nice illustration of a broad spectrum of diseases, where complement is involved. And I think I understand the rationale for CAPS, aHUS, CHAD. But the question is really how… was there a specific data that informed your decision to prioritize Myasthenia gravis and rejection?

Leonard Bell - Chief Executive Officer, Secretary and Treasurer

Yeah, I would comment…Steve, is going follow-up. So, I would comment in regard to each of those disorders, certainly the CAPS, aHUS, CHAD, Myasthenia transplant. There is enormous published preclinical data. It’s a preclinical data showing that anti-C5 therapy and many of those disorders….a clinical data is showing the presence of terminal complement activation right in the site of lesions and so forth and associated with the morbidity and some case mortality. And all of these diseases have been areas that focus within the company for five plus years.

So, it’s not something that we sort of discover in the last 6 or 12 months. Its really evolution of our company establishing success clinical regulatory and now commercial with a rare blood disorder, which is a awful disease to have of course in Asia. Fortunately Soliris is able to help many patients with the disorder.

And now taking that learning really from development across Europe and United States in this rare blood disease and then applying it stepwise each are the diseases. So, I won’t say there is really something new that’s occurred. There is a lot of publications for Myasthenia. I think there is a recent one actually in the last 6 or 12 months, but is not particularly new news. The role of terminal complement and the utility of anti-C5 therapy in preclinical model, it’s been well described for sometime now.

John Sonnier - William Blair & Company

Okay. And from the standpoint of the clinical development path, are these going to be for proof-of-concept, we have to do those ranging studies as we think about the timing , were out, maybe a year from now is it possible that we’ll have proof-of-concept data within reach and some of these indications.

Leonard Bell - Chief Executive Officer, Secretary and Treasurer

Yeah. I would think sometimes in 2009, we got to almost evaluate data in some of these indications. I think that’s, currently what our objective is, and as I said, in several of these indications, we are running as fast as we can to get ahead of our physician. And it’s extremely important to us an organization to do that and do that effectively and successfully and get out in front of them. And I think that’s really that, of course the patient need is really what’s driving us and move this as fast we can.

John Sonnier - William Blair & Company

Well, that makes sense. And this one final question, I think it’s AAN, we some data from rituximab and Myasthenia gravis. Will you be able to file for an Orphan Drug Designation and that indication as you move into the clinic?

Leonard Bell - Chief Executive Officer, Secretary and Treasurer

Yeah. Certainly, I wouldn’t comment on other extremely successful drugs that are using different settings, off-label or on-label. As you well know Orphan Drug Designation is really molecule specific, so certainly we don’t see any barriers in that regard at all.

John Sonnier - William Blair & Company

Okay. That’s helpful. I appreciate it.

Leonard Bell - Chief Executive Officer, Secretary and Treasurer

Thank you.

Operator

And we will take our next question from George Farmer with Wachovia.

George Farmer - Wachovia Capital Markets Llc

Hi. Thanks for taking my question. Can you guys comment on, of the new patients in the US? Where these new patients actually de novo patients, or do they have any other underlying bone marrow disorder?

Leonard Bell - Chief Executive Officer, Secretary and Treasurer

David?

David W. Keiser - President and Chief Operating Officer

Yeah, George, well, I’m related a little bit to my previous answer we see a broad range of patients initiating therapy and we see a mix. We see a mix between the truly classic PNH patients and then those, who have some underlying bone marrow failure, the Aplastic Anemia and MDS population. I certainly suggest you that the majority of patients did not have component of AA or MDS, but still a significant portion do.

George Farmer - Wachovia Capital Markets Llc

Okay. And let’s see regarding expansion into the other trials that we all have been talking about. Do you think you can get away with single arm registration trials in these patient populations and perhaps use historical data is controls?

Leonard Bell - Chief Executive Officer, Secretary and Treasurer

I wouldn’t actually pass anything from a development perspective or regulatory perspective in regard to getting away with something. We did run very rigorous registration trials and probably as you aware that trials with PNH and only 195 patients overall in Phase II registration trials is the largest also orphan development program that’s been performed prospectively and any drug that we are aware of.

So, our view actually is to focus on what are the patient needs, what are the physician needs, what are the activities of the drug and what’s doable. And as I mentioned several times had close relationships in our developing at the strong behest that these physician experts the appropriate trial design.

In some cases there may be no potential, but potential for use of placebo because it’s unethical and in some cases actually that would be inappropriate design. So, like many things what we have learned and people say certainly in the organization if you just seen one PNH patient, you have seen one PNH patient, you have seen one aHUS patient, you have seen one aHUS patient. We are very focused on each disease being different and we look to curtail with our expertise and with our accomplishments to-date to meet those needs those patients and physicians.

George Farmer - Wachovia Capital Markets Llc

Okay. And final one last question. Your revised COGS assumptions, did that in anyway affect your perception of ongoing litigation with PDL BioPharma and can you comment on that, on progress made there?

Leonard Bell - Chief Executive Officer, Secretary and Treasurer

Certainly as we said our COGS revision really downward and improved cost of goods sold percentage. It’s really largely driven by our view of the mix in countries as well as some improvements in manufacturing. We think and evaluate and anticipate royalties all the time. And we constantly to look revise, where we anticipate those to be and we’ll make no specific comments regarding any litigation other than we feel strong in course. The physicians we’ve had with everyone who is (inaudible) and I wouldn’t look at anything differently.

George Farmer - Wachovia Capital Markets Llc

Okay. Thanks very much.

Leonard Bell - Chief Executive Officer, Secretary and Treasurer

Thank you.

Operator

And at this time we could have no further questions. Dr. Bell and the conference back to you for any closing comments.

Leonard Bell - Chief Executive Officer, Secretary and Treasurer

Thank you very much, operator and thank you all for joining us here on this last of April morning. We are very excited by delivering an increasingly delivering and demonstrating this over the quarter first quarter of 2008, robust growth and the up-tick in the delivery of hope of Soliris the patients with PNH across more than 10 countries now has the global reach of our PNH franchise is increasing further and further.

With clearly and focused on expanding vigorously in meeting the needs of patients and physicians, the Soliris franchise in a variety of severe and rare complement-mediated diseases. And also, we are focused keenly as well on delivering this value not only to patients and their families, but of course the share holders. We maintain very rigorous physical discipline, where we looked and maintain upwards our guidance now, on the revenue side. We also we have reduced COGS, guidance and we maintain our expense guidance flat. Thank you very much. We look forward to seeing you in the coming months.

Operator

And that will conclude our conference. Again, thank you all for your participation. We hope you enjoy the rest of your day.

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Source: Alexion Pharmaceuticals, Inc. Q1 2008 Earnings Call Transcript

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