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Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN)

Q2 FY08 Earnings Call

July 29, 2008, 10:00 AM ET

Executives

Leonard Bell, M.D. - CEO, Secretary and Treasurer

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

David W. Keiser - President and COO

Vikas Sinha, M.B.A., C.A. - Sr. VP and CFO

Analysts

Michael Aberman - Credit Suisse

Rachel McMinn - Cowen and Company

Sapna Srivasatava - Morgan Stanley

Meg Malloy - Goldman Sachs

Salveen Kochnover - Collins Stewart

Eun Yang - Jefferies and Company

Operator

Good day and welcome everyone to the Alexion Pharmaceuticals, Inc. Second 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, M.D. - Chief Executive Officer, Secretary and Treasurer

Thank you, operator. Good morning. Thank you for joining us on today's conference call to discuss Alexion's financial results and corporate developments for the second quarter of 2008. I am joined by members of Alexion management, including David Keiser, President and Chief Operating Officer; Vikas Sinha, Senior Vice President and Chief Financial Officer; Dave Hallal, Senior Vice President and Head of U.S. Commercial Operations; and Tom Dubin, Senior Vice President and General Counsel.

We also welcome the entire Alexion team working at our headquarters and those in Connecticut, our manufacturing facility in Rhode Island, our field teams across the United States and our local operations in the field in countries across Europe. After a review of Alexion's second quarter performance, we will have time for several questions. Before we begin, Mr. Dubin will apprize you of our potential to make forward-looking statements. Tom?

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

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 of Soliris and other products, and reimbursement, price approval, and funding processes in Europe.

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 approvals 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 in the disease studied or other diseases, the possibility that initial results of commercialization are not predictive of future results, the risk that third parties won't agree to license any necessary intellectual property to us on reasonable terms, the risk that third party payors will not reimburse for the use of Soliris at acceptable rates or at all, the risk 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 period ended March 31, 2008. We do not intend to update any of these forward-looking statements after this call, except when a duty arises under law. Thank you. Lenny?

Leonard Bell, M.D. - Chief Executive Officer, Secretary and Treasurer

Thanks, Tom. During the second quarter of 2008, we marked the first anniversary of the launch of Soliris. This has truly been a remarkable period for patients living with a rare debilitating and life-threatening disease PNH. On this call, I will focus my discussion on three areas of accomplishment in the second quarter.

First, we provided a life changing clinical benefit of Soliris to an increasing number of patients with in the United States and in a growing number of European countries. In all territories, newly identified PNH patients represented the majority of patients who began Soliris therapy in the quarter.

Second, we made notable progress in our development programs to expand the use of our first-in-class complement inhibitor Soliris to provide much needed treatments for patients with other rare, severe and life threatening disorders in hematology, translocation and neurology.

And third, we have broadened our product pipeline with important strives in our lead oncology program, with the initial dosing our novel anti-CD200 antibody in patients with chronic lymphocytic leukemia or CLL.

PNH is a devastating disease in which one-third of patients die within five years of diagnosis. Prior to Soliris, physicians had little to offer their PNH patients beyond supportive care with blood transfusion, and in a limited number of cases high risk bone marrow transplant.

In addition to the risk of death, the chronic hemolysis of PNH often resulted in years of severe morbidity, including repeated life threatening blood clots, organ damage and failure, severe pain and developing fatigue. The introduction of Soliris provides a safe and effective means to reduce hemolysis, their primary manifestation of PNH. Indeed, Soliris has transformed the life of patients affected with this rare disease.

Of course, after only one year, our work on behalf of patients with PNH is still just beginning, both in the countries where Soliris is currently available, and on an increasingly global basis.

Reviewing our progress by territory, the number of new patient starts in the U.S. in Q2 were similar to our experience in Q1, a steady rate of growth that reflects the patient-centered efforts of our team of professional representative across the country. In order to help more patients with PNH optimal care, as with other rare diseases, requires accurate and efficient patient diagnosis.

In this context, we continue to help physicians develop standardized diagnostic pathways for patients with a greater likelihood of having PNH, including those with aplastic anemia, myelodysplastic syndromes, and unexplained blood clots. In the second quarter, we saw a strong uptick in the use of high quality diagnostic testing and we also observed that these diagnostic pathways are becoming more widely embraced by the oncology and hematology communities. We continue to gain visibility in to these communities and expect that our diagnostic initiatives and patient identification programs will expand broadly throughout the United States.

Our European commercial organization also continues to make significant progress as France, Germany, Italy and Spain, all exhibited steady growth. The addition of newly identified patients continued on pace.

In the UK, a modest number of patients newly obtained treatment during the second quarter. Importantly, the number of local and regional authorities granting treatment assess also continued to grow. However, physicians are indicating that there is a sizeable number of patients with PNH who urgently require treatment with Soliris.

We understand that physicians are actively pursuing access to Soliris for the benefit of these and other patients through applications to local and regional funding authorities. Certain leading healthcare centers have applied for as PNH centers of excellence and are having meaningful discussions on a national level with the objective of achieving full and equitable access to Soliris across all regions in England.

Continued development of knowledge regarding PNH is vital in helping patients with PNH worldwide. In June, clinical investigators reported important new data regarding Soliris at the European Hematology Meeting. The data show that Soliris markedly improved fatigue in patients with PNH by controlling hemolysis, independent of changes in their anemia. This highlights essential role of hemolysis in PNH and the unique beneficial effect achieved with Soliris. The results with Soliris are in sharp contrast with therapies used in other diseases in which changes in fatigue are wholly dependent on changes in anemia.

Turning to the Asia-Pacific region, we reached another milestone in our PNH franchise during the second quarter with a successful conclusion of patient dosing in our AEGIS study of Soliris in Japan. We expect to analyze the data later this year and to file our Japanese marketing application in 2009.

Our Soliris development pipeline is heavily focused on the treatment of patients with severe and rare diseases. Our success with PNH has established Alexion as one of the few companies worldwide with both clinical and commercial expertise in this field. And though just sometimes is a difficult area of medicine, one with unique clinical, regulatory and commercial investment risks given the small patient population, we are committed to provide patients who have rare diseases hope for productive life, free from pain and constant fear of greater illness or death.

To this end, we are targeting the use of Soliris to block complement-mediated inflammation in patients with other rare severe hematologic disorders, transplant rejection conditions and neurologic diseases.

Focusing on hematology, we expect to explore Soliris as a treatment for patients with atypical hemolytic uremic syndrome or aHUS, a rare chronic and life threatening genetic disease. As with patients with PNH, most patients with aHUS are missing naturally occurring complement inhibitors. Afflicted patients who often include very young children experienced life threatening kidney damage. Those who survive are frequently dependent upon kidney dialysis to stay alive.

During the second quarter we worked intensively with clinical experts from Europe and North America to develop trial designs for Soliris as a treatment for both pediatric and adult patients with aHUS.

Another hematologic disorder we are targeting is catastrophic anti-phospholipid syndrome or CAPS. CAPS is a chronic rare blood disease in which uncontrollable blood clots often lead to multiple organ failure with potential for amputations of limbs and death. In the second quarter, together with clinical experts, we finalized a protocol for a multinational clinical study of Soliris as a treatment for patients with CAPS.

Also within hematology, we are evaluating use of Soliris as a treatment for patients with autoimmune hemolytic anemias, a group of chronic and rare diseases characterized by antibody and complement-mediated red blood cell destruction. Cold hemagglutinin disease or CHAD is one such disease. We are in the early planning stage for studies to explore how Soliris can benefit patients with these diseases as well.

In the area of kidney transplant rejection, a subset of patients are at very high risk to experience rapid, complement-mediated destruction of the transplanted kidney. We are aware that in the second quarter an independent investigator commenced dosing in a critical study of Soliris as a treatment for these patients undergoing kidney transplant.

Turning to neurologic diseases, in the second quarter, the FDA authorized our IND for setting Soliris as a treatment for patients with a rare, severe and treatment-resistant form of myasthenia gravis. These patients experience complement-mediated destruction of their neuromuscular junctions with subsequent severe muscle wasting and weakness. Clinical site initiation is currently under way.

Even as we are growing our Soliris franchise, we are also aggressively working to broaden our product pipeline beyond Soliris. We can now report that we have importantly progressed our oncology drug program for which our candidate is anti-CD200, our first-in-class anti-cancer monoclonal antibody. By way of background, the target CD200 molecule is up regulated in several cancers, including CLL, multiple myeloma, non-Hodgkin's lymphoma, melanoma, ovarian cancer, and neuroblastoma. In the second quarter, initial patient dosing commenced in a study of this antibody in patients with CLL.

Overall, 2008 is becoming a year of significant expansion of our development portfolio as we pursue multiple new indications for Soliris and the first indication for our anti-CD200 antibody in patients with cancer.

To help support these high levels of R&D, we have augmented the already strong leadership of our research and regulatory teams. Dr. Camille Bedrosian recently joined us as Senior Vice President and Chief Medical Officer. And Dr. Claud McCase [ph] has come on board as Senior Vice President for Strategic Product Development and Global Regulatory Affairs. Camille and Claud [ph] each have outstanding backgrounds in academia and industry and are recognized experts in hematology and oncology.

We are already appreciating the additional patient-focus expertise that they are bringing to our international clinical studies and regulatory efforts in our Soliris franchise and our oncology programs.

Turning to our financial performance, the larger patient base we are serving is reflected in our growing operating results. Net product sales of Soliris were $59.6 million in the second quarter of 2008, an increase of 31% from the first quarter. Increased revenues in the second quarter combined with ongoing financial discipline enabled us to report Alexion's first quarter of profitability on a GAAP basis.

With regard to judging our operating performance during the ongoing launch phase, importantly, we also increased our level of non-GAAP profit. Further, I note that we achieve the key business objective in Q2 as we have now become a cash generating business.

Our current successful financial performance is the culmination of a history of more than 15 years of innovative research and first-in-class product development and an investment of more than $800 million. Our financial strength today as a growing commercial business enables us to continue to conduct research and treatment support programs to help patients with PNH, and to further leverage our expertise to develop new treatments for undeserved populations with other severe and rare disorders.

In closing this portion of the call, I would like to briefly address our financial guidance for fiscal year 2008. Our strong sales performance in both Q1 and Q2 gives us confidence to further revise upwards our revenue guidance from a previous range of $215 million to $225 million now to a range of $235 million to $245 million for this year.

Also with the year half over, we have visibility to narrow our non-GAAP expense guidance from previous range of $180 million to $200 million now to a reduced range of $180 million to $195 million. We are maintaining our forecast of a non-GAAP profit for the full year of 2008. And additionally, we now expect to report a GAAP profit for the third and fourth quarters of 2008.

Vikas will provide additional details concerning our guidance later in this call. Finally, I am pleased to point out that our Board of Directors has approved a two-for-one stock split as announced in our press release this morning. We view this as a strong endorsement of our accomplishments to-date, the continued growth of our PNH franchise, the potential for our broader Soliris franchise, and the promise of our oncology drug development program. We are keenly focused on continued executions across each of our business areas.

I will now turn the call over to David Keiser who will review in more detail our U.S. and international commercial efforts. David?

David W. Keiser - President and Chief Operating Officer

Thank you, Lenny. The operating results announced today indicate that on an increasingly multinational basis we are effectively executing on our commitments that every patient who can benefit from Soliris should have access to Soliris. In the second quarter, sales grew by $14.1 million or 31% compared with the first quarter of this year. This was achieved by the addition of a strong number of new patient starts in all territories, the majority of whom are patients newly identified to us in the quarter.

High compliance and retention rates in all territories reflecting the benefits that patients are obtaining from Soliris therapy also contributed importantly. Revenues were augmented by conversion of clinical trial patients to commercial status, particularly in Italy and Spain. And overall we are providing commercial Soliris in more than one dozen countries worldwide.

In Germany, France, Italy and Spain, operating results were strong and continue to grow as expected. In England, patient access to Soliris grew modestly as a result of the increase in the number of local and regional funding entities granting access. We expect more patients living in these areas to obtain access going forward, and we understand that physicians are actively pursuing access to Soliris for the benefit of their PNH patients through applications to local funding authorities.

Across regions, it is important that these patients and their physicians are successful so that every patient who can benefit from Soliris has access to it. Our field sales staff in the U.S. and Europe are a highly respected source of information for physicians and patients which regard to the signs, diagnosis and clinical consequences of PNH. They continue the mission they have pursued since the launch of Soliris: identifying patients, generating demand with treating physicians, helping patients to obtain access to Soliris, and supporting appropriate utilization.

Significant progress was made on all four strategic imperatives in the quarter with continued growth in identifying new patients as well as in generating demand with treating physicians. The essential support in these efforts is provided by the nurse case managers and customer support professionals of our one source treatment support program in the U.S. and our customer support service teams in European countries.

Last year, we recognized that in order for physicians to provide optimal care for patients who may have an ultra rare disease such as PNH, there is a need for greater awareness of the disease, better knowledge of which undiagnosed patients are most likely to have PNH, and a fuller understanding of current options regarding diagnosis.

During the first two quarters of this year, we have undertaken a series of specific initiatives which in this most recent quarter have now resulted in a noticeable increase in appropriate diagnostic testing for PNH. Parallel efforts are being implemented in Europe.

As our business continues to expand in the U.S. and Europe, we are also ramping up our activities to provide Soliris to patients in the rest of the world. We anticipate that a favorable decision by the Australian regulatory authorities before year-end 2008 would enable us to launch in that country in 2009. Similarly, with the successful conclusion of doses... dosing in our AEGIS study in Japan during the second quarter, we are working towards submission of our marketing application in 2009 and taking step toward a commercial launch in Japan in 2010. This includes establishing our Japanese business entity during 2008.

We are likewise moving forward with initial steps to identify patients and explore opportunities to serve them in Asia-Pacific, Latin America, and the Middle East.

Finally, we are carefully... as we carefully mange and grow our multinational operations, it is important to note that we achieved a key business objective in the second quarter in becoming a cash generating business. This financial strength enables us to both expand our reach to serve patients in an increasing number of countries and to also continue with wide range of patient support activities. These include, for example, our ongoing financial support of the Complement Foundation and of the PNH Foundation of NORD, two groups dedicated to helping uninsured and underinsured patients with PNH to have access to Soliris when they cannot otherwise obtain the drug.

In closing, I want to acknowledge the many individuals and especially employees who make our work possible. We look forward to continue the accomplishments ahead in serving the urgent and unmet needs of patients which rare diseases.

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

Vikas Sinha, M.B.A., C.A. - Senior Vice President and Chief Financial Officer

Thank you, David. For our second quarter ended June 30, Alexion achieved worldwide Soliris net product sales of $59.6 million compared to $45.5 million in Q1 '08, and $9.8 million in our launch quarter, the second quarter of last year. The robust increase in Soliris sales from the previous quarter exceeded our expectations.

For the first time since the launch of Soliris, we reported a profit on a GAAP basis with net income of $2.4 million or $0.06 per basic and diluted share. In this most recent quarter we increased our non-GAAP net income to $8.4 million or $0.20 per diluted share compared to $1.6 million or $0.04 per diluted share in Q1.

I would also point out that the number of shares used to calculate GAAP EPS may change in future quarters given the potential inclusion of 4.7 million shares from our convertible notes if they are dilutive under FAS 128. In the second quarter, these shares were included in the non-GAAP share count, but not in the GAAP share count.

During the ongoing launch of phase of Soliris in particular, we believe that our operating profit presented on a non-GAAP basis provides an important reading of the performance of our core business and our ability to carry out ongoing research. As a reminder, our non-GAAP operating results conform to U.S. GAAP in all respects except that section 123R share-based compensation expense are excluded in the non-GAAP calculation.

As in the past, I will limit my discussion to non-GAAP results during of the remainder of this call. Our complete financial results can be found in the press release issued this morning.

Strongly growing our business while maintaining financial discipline has resulted in a second consecutive quarter of positive operating results. The cost of sales in the second quarter was $7.1 million or 12% of net product sales, which was within our previously issued guidance of 12% to 14% for a year.

On a non-GAAP basis, our operating expenses for the second quarter of 2008 were $43.7 million compared to $32.6 million for the same quarter of 2007. R&D expenses for Q2 2008 were $15.3 million compared to $12.9 million reported for the year ago quarter. The increase in R&D costs in Q2 2008 was primarily the result of our investment in our PNH and Soliris franchises and our oncology growth program.

SG&A expenses for the second quarter of 2008 were $28.4 million compared to $19.8 million for the second quarter of 2007, which was before our commercial operations in U.S. and Europe were built out fully. SG&A expenses were higher in the second quarter of 2008 than in the preceding quarter, largely as a result of costs related to our participation in key scientific conferences in the U.S. and Europe.

Now, looking at the balance sheet, as of June 30, 2008, we have $108.3 million in cash, cash equivalents, restricted cash, and marketable securities, compared to $107 million at March 31, 2008. As expected, the favorable cash impact of shortened payment terms was felt in the second quarter.

At the end of second quarter, the outstanding balance on our revolving credit facility was $5 million, reduced from $18 million at the end of first quarter.

As Lenny and David mentioned, we reached a key business milestone in the second quarter in becoming cash flow positive, a status we expect to maintain. This cash generation is a result of careful expense management as the revenue increases, and it provides us with added financial strength as we pursue our strategic goals in our PNH and Soliris franchises and in our oncology program.

I would now like to review our financial guidance for the remainder of the year. Of course, based on our strong sales performance in the first and second quarters, we are revising upward our 2008 worldwide guidance for net product sales from a range of $215 million to $225 million now to a range of $235 million to $245 million. Our estimate for cost of sales remains unchanged at 12% to 14% for the year. The cost of sales range allows for variation in using future manufacturing batches and differences in the sales mix by country in future quarters.

Looking at R&D expenses, we are now able to narrow our previous cost guidance from a range of $65 million to $75 million, downward to a range of $65 million to $70 million. Within this guidance, we expect to complete the registration study of Soliris in Japan and conduct clinical trials in new indications.

We are maintaining our previous SG&A guidance of $115 million to $125 million. We expect that SG&A will rise gradually in the next two quarters as we commence commercial operation in additional countries. Also, in Q4, we will incur expenses for our participation in scientific conferences.

Finally, we are revising downwards our guidance for 123R share-based compensation expense for 2008 from a range of $26 million to $28 million to a range of $24 million to $26 million. We are reiterating our guidance of non-GAAP profitability for the full year of 2008. We now also expect to report a GAAP profit in the third and fourth quarters of this year.

In closing, I want to commend the entire Alexion team in the U.S., Europe and other countries for their accomplishments thus far in 2008.

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

Leonard Bell, M.D. - Chief Executive Officer, Secretary and Treasurer

Vikas and David, thank you very much. Our second quarter results further indicate that working together Alexion's exceptional international team of talented and dedicated professionals is hitting its stride with another period of steady accomplishment aiming to improve the treatment of patients with PNH and patients with other rare, severe and developing diseases.

Our experience with Soliris has taught us first hand how gratifying it can be to provide life changing therapies for patients who previously had few, if any, treatment options. As I know that many of our employees are listening to this call around the world, I want to take this time to thank you.

Patients with PNH and other rare, severe diseases are depending on each of us to deliver the hope of Soliris and additional therapies to come. Each and every day each of us needs to maintain our focus to rapidly meet these patient needs.

Our steadfast goal as a company is to serve more patients in more countries each year, provide each of them with the hope and treatment that they deserve.

Thank you. And I would now 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. [Operator Instructions]. And we will take our first question from Michael Aberman with Credit Suisse.

Michael Aberman - Credit Suisse

Hey, congratulations on finding those patients that ran out. I want to ask you a quick question about the UK. You mentioned that mostly newly diagnosed patients, are the clinical trial patients still waiting for the reimbursement? I mean, do you still have a bolus of clinical trial patients available in UK?

Leonard Bell, M.D. - Chief Executive Officer, Secretary and Treasurer

Michael, just to give you overall, right, we expected that approximately 80 to 90 patients on clinical drug in '07 we transition during this calendar year 2008. As we pointed out actually on this call and earlier call, all patients really in Germany, France, Italy and Spain have transitioned. And just the first cohort of patients in the UK have transitioned in the first quarter and then additional patients subsequently. So, we actually expect that there are more patients in UK on clinical drugs who'll actually be able to obtain further drug later this year.

Michael Aberman - Credit Suisse

And then can you spend a minute just expanding on atypical hemolytic uremic syndrome in terms of what you know now about the incidence, prevalence, severity of the disease, and have you had any patient treated off-level with that indication or anecdotes that you can share?

Leonard Bell, M.D. - Chief Executive Officer, Secretary and Treasurer

Thanks very much, Michael. aHUS, to answer atypical hemolytic uremic syndrome, is obviously a devastating disease. It's almost always a genetic disease where patients actually acquire... are born with an deficiency in a comp inhibitor that renders their vascular system in general and their kidneys in particular, susceptible to severe inflammation, and happens chronically. Children are afflicted, which has drawn our attention initially. And these children actually will typically go on to require dialysis for as long as they are able to live. They are very difficult to transplant in that the disease typically recurs after they transplant. And so that creates a significant challenge for physicians and for patients and for their families.

There is a substantial number of adult patients who are also afflicted. We actually are trying to gather specific prevalence numbers and so forth. But what I would describe generally in terms of experience is that there are obviously a number of rare, severe, and life threatening diseases where like aHUS, medical research strongly suggest that the backend of complement, terminal complement activation causes a significant amount of patient morbidity. And it's not surprising that given that Soliris is the first-in-class comp inhibitor that's available now with proven efficacy and safety and blocking terminal complement, that it's natural that practicing physician would consider Soliris as a potential useful therapeutic for patients with these and other rare and sever and frequently life-threatening conditions.

We, as you know, of course, don't promote Soliris in any way for any use off-label. We also recognize that we have an obligation that we take very seriously to continue our vigilance in all patients who are treated with Soliris. And in fact actually it's our awareness that physicians' use of the drug in any of these other conditions, that's propelled us to move as rapidly as we can and certainly the addition of Camille and Claud [ph] is an important aspect there, so that we can work with physicians to develop appropriate critical development programs to take this forward to regulatory authorities and evaluate the drug as rigorously as possible in these diseases.

And so really together with modern safety, creating these appropriate programs that bring the drug forward with the regulatory process in the U.S. and Europe is our focus. That's generally my comments to-date on that.

Michael Aberman - Credit Suisse

Right, thank you very much and congratulations again on a great quarter.

Leonard Bell, M.D. - 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. My congratulations as well. I am just wondering if you can describe a little bit more the Italian and Spanish clinical trial patient conversions. Has that happened early or late in the quarter and of 80 or 90 or so patients that are expected to convert this year, how many more are remaining in the back half of the year? And then finally, on your financial guidance, does that actually assume all of those clinical trial patients convert?

Leonard Bell, M.D. - Chief Executive Officer, Secretary and Treasurer

I will answer the first four questions and Vikas can answer the last question, I guess. So, the first comment to make is that as we just noted that there are approximately 80 to 90 patients who are on clinical drug in 2007 that we anticipated to be on commercial drug in 2008. And all of the patients in Germany, France, Italy and Spain have now transitioned from clinical free of charge drug to fully funded drug. So that's actually completed, and the last of those completed that during the second quarter.

Additionally, the first cohort of patients, I think, we remarked in the UK have converted to... or transitioned rather to commercial drug in the first quarter. And as we commented during the earlier part of discussion, both new patients not on critical drug and patients who are on clinical drug have continued to getting access to commercial drug in the UK and we do anticipate that those patients will continue... that there will be a continual number of clinical patients who will transition to commercial drug in the UK and that new patients that we've already seen in the UK will continue to get access to Soliris in the UK. That is part of our guidance as well.

Rachel McMinn - Cowen and Company

Okay. So, in terms of, I guess, when patients in Italy and Spain converted, can you just comment whether that was early or late in the quarter?

Leonard Bell, M.D. - Chief Executive Officer, Secretary and Treasurer

Rachel, that occurred over both the first quarter and second quarter basically of the year thus far.

Rachel McMinn - Cowen and Company

Okay, okay. And then just on my... just last question, I wanted to understand a little bit more on the new indications, if you have a sense of whether dosing in these trials will be similar to the PNH dosing. Is this going to be every two weeks just based off of the pharmacokinetics or is there any reason for any of these indications why you would have seen more or less frequent dosing?

Leonard Bell, M.D. - Chief Executive Officer, Secretary and Treasurer

Yes, certainly obviously that treatment for these other diseases we anticipate will be generally similar. It's actually generally similar to that of PNH, every two weeks, although we also are familiar that in certain settings, for example, in transplantation, we know that the dose actually being administered to patient is somewhat higher than the 900 milligrams every two weeks.

We also would anticipate for chronic therapy in some of the really devastating diseases that can get out of hands very quickly and cause severe morbidity and/or patient mortality that would be aHUS and CAPS that the potential patient risk of a break through will too high and that those patients also would likely be chronically dosed at a somewhat higher dose. The most important thing, of course, is to gather information that we currently have, to continue working as Camille Bedrosian is doing with experts here in North America, as well in Europe, to finalize those designs in both pediatric and adults with aHUS and adult CAPS patient, and work together with our colleagues at EMEA and the FDA to make sure that we can get out in front of all this to provide appropriate guidance to physicians how best to use the drug in these indications.

Rachel McMinn - Cowen and Company

Okay. Thanks very much.

Leonard Bell, M.D. - Chief Executive Officer, Secretary and Treasurer

Thank you, Rachel.

Operator

And we will take our next question from Sapna Srivasatava with Morgan Stanley.

Sapna Srivasatava - Morgan Stanley

Hi, thanks for taking my question and congratulations also on a very strong quarter. Two questions I had: one is it just seems even with your raised guidance you are tending to be a little bit more conservative based on the kind of growths that you have you seen in the prior quarters. If you could help clarify that.

And secondly, if you could just give us some more clarity on the myasthenia gravis program in terms of timelines, what outcomes are you looking at, and when can we expect to see proof of concept data et cetera that would be very helpful.

Vikas Sinha, M.B.A., C.A. - Senior Vice President and Chief Financial Officer

Sapna, this is Vikas here. We have provided the guidance in a way that we feel comfortable with going for Q3 and Q4. As you see, first half of the year was significantly impacted by several clinical translations converting and we will see the real growth coming in the next two quarters. I will turn the question number two to Lenny.

Leonard Bell, M.D. - Chief Executive Officer, Secretary and Treasurer

Thanks, Vikas. The only thing I would add, obviously, as a company this is our first year of operating full tilt in many European countries. But obviously we are very well aware that overall many businesses actually expect to see a slowdown in incremental business in certain European countries, particularly in the entire month of August with some creeps into the last week of July, sometimes not. In our case actually, we would expect there might be a slight delay in new patient starts in some countries in August and typically what we have observed and others observed is that this typically ramps up again in September. And so this is a part of also our guidance.

With regard to myasthenia gravis, we certainly, as we kind of mentioned, are focusing really on patients who have no other real hope and no other treatment or treatment that's available really provides them the relief of... really with frequently crippling weakness and a very dismal quality of life.

The trial... the design is double-blind placebo-controlled trial that focuses on just these patients actually that have this stage of illness. It's a double cross-over design, which is a very common design in very rare diseases where it's appropriate to use the placebo, which we think this is a phase where physicians are willing to do this. And we would expect over the course of several months to get this... to get patients data, obviously, as they hit their sort of outcome that looks at their relative weakness across a variety of prospectively identified scoring systems.

The trial actually given the awareness of the disease will undoubtedly take several months to enroll and we would expect to get some indications of the activity of the drug some time in '09.

Sapna Srivasatava - Morgan Stanley

Thank you.

Leonard Bell, M.D. - Chief Executive Officer, Secretary and Treasurer

Thanks very much.

Operator

And we'll next hear from Meg Malloy with Goldman Sachs.

Meg Malloy - Goldman Sachs

Thanks very much also. Also I add my congratulations. I just wanted to clarify one thing before the question I was going to ask. And that is didn't you say that most of the patients that entered... that were added in the quarter were new patients or did I mishear that?

Leonard Bell, M.D. - Chief Executive Officer, Secretary and Treasurer

I think what we described actually is that a majority of patients who newly started on Soliris in the quarter were newly identified two up [ph] during the quarter. And that was similar to what our observation was in the previous quarters as well.

Meg Malloy - Goldman Sachs

Right. So when we talk about growth in the second half, I mean, clearly the first half would have been helped by clinical trial conversions, but we have also seen a significant amount of growth in the first half, right?

Leonard Bell, M.D. - Chief Executive Officer, Secretary and Treasurer

Absolutely. We have added certainly all patients additions in the United States, which, as we mentioned, is doing a very good job following the expansion at the end of '07. And now seeing steady growth for Q1 or Q2 and all of those are... all new patient additions, the new patient starts. And similarly, we also are seeing, as we mentioned, a robust new patient start in Germany, France, Italy, and Spain. And actually seeing both transition of clinical trial patients and more moderate degree new patients starts in the United Kingdom as well.

Meg Malloy - Goldman Sachs

And I don't suppose you will do this, but let me ask it anyway, any change you breakout U.S. versus international sales?

Leonard Bell, M.D. - Chief Executive Officer, Secretary and Treasurer

Well, we actually... yes, there is an excellent opportunity. We will do that on a yearly basis.

Meg Malloy - Goldman Sachs

Okay. And then just a question on... you mentioned AEGIS study in Japan. Could you give us an update on what your plans are beyond Japan in terms of further geographic expansion?

David W. Keiser - President and Chief Operating Officer

Well, Meg, we have got obviously, as I think we have stated activities going on in a number of regions now outside of Japan. There is also our activities in Australia where before year-end we're expecting regulatory approval and probably launch in 2009. We also have a number of market entry strategies that we're approaching in other parts of the world, the Asia-Pacific region per se, in a number of countries there, Latin America, focusing on particularly Brazil and Argentina, for example, as well as Middle East. And that's... again doesn't even count the additional European countries in which we should be entering over the time ahead. So, there is a variety of activities here to accomplish a very broad market entry for the drug on a global basis.

Meg Malloy - Goldman Sachs

And just to follow up, David, with that entail additional studies or are you hoping you will be able to largely work off your existing database?

David W. Keiser - President and Chief Operating Officer

I think outside of the requirement that existed in Japan, I think for the most part we should be able to accomplish from a regulatory basis what we need to with the existing set of trials and data that we have.

Meg Malloy - Goldman Sachs

And could we expect some of those next year?

Leonard Bell, M.D. - Chief Executive Officer, Secretary and Treasurer

Some of what?

Meg Malloy - Goldman Sachs

Some of the additional territories?

David W. Keiser - President and Chief Operating Officer

Yes, I think absolutely.

David W. Keiser - President and Chief Operating Officer

Okay, thanks.

Operator

And we'll take the next question from Salveen Kochnover Collins Stewart.

Salveen Kochnover - Collins Stewart

Thank you for taking my questions and congrats again on a really good quarter. Could you provide us with an update on the reimbursement status of Solaris in the various EU countries and what the estimated timing here is regarding receiving a natural coverage decision in the UK?

David W. Keiser - President and Chief Operating Officer

Well, Salveen, I think as we have indicated, we have brought reimbursement for Soliris in the U.S. as well as in a number of European countries as well. In the UK, as we've stated also that that reimbursement and funding approach is progressing over time on a local and on a regional level. And as we are now getting into the market entry situation for some additional European countries that will progress as well into the Nordic countries, Benelux and so forth.

Salveen Kochnover - Collins Stewart

And in the UK in particular, have there been any recent non-clinical trial commercial patient adds and are you seeing a build up of new patient interest and how are these patients being addressed?

David W. Keiser - President and Chief Operating Officer

There is no question that there is a very significant interest on the part of the physician community and also other PNH patients in the United Kingdom. And we understand that there are a number of physicians that are, for the benefit of their patients, proceeding with applications to the local and regional authorities to gain access for their patients through the drug. So that is proceeding on an ongoing basis and there is a very high level of interest there.

Leonard Bell, M.D. - Chief Executive Officer, Secretary and Treasurer

Certainly to emphasize David's comment, in the UK, there is certainly a significant backlog of patients who urgently need therapy according to their physicians caring for them, which, in the UK process, manifests itself in applications by the physicians and/or the patients to local or regional funding authorities. And then the decisions are to either provide treatment or not to provide treatment for patients typically in the UK is driven into National Health Service. And the physicians obviously, as they should, are extremely focused and concerned about the welfare of their patients and as of course we are as well.

Salveen Kochnover - Collins Stewart

Right. And then at the year-end '07, I think there were approximately two to five patients identified for every patient on drug. Are we still kind of in that ballpark?

Leonard Bell, M.D. - Chief Executive Officer, Secretary and Treasurer

Yes, what we have commented actually is that and this obviously changes as we move into the other countries and so forth, but typically there are some multiple of patients are the total patients identified in a country and then some part of those total identified patients are on drugs. And as I said, as I said, actually we just talk about an example. In the UK, where certainly... it's on the high end of patients who are identified versus that are actually on drug.

Salveen Kochnover - Collins Stewart

And then when will you start the studies in the other rare hematologic disorders? And then can you may be just elaborate on off-label use of Soliris in these other indications?

Leonard Bell, M.D. - Chief Executive Officer, Secretary and Treasurer

Sure. As I mentioned, Salveen, and adding Camille and Claud [ph] is just absolutely vital to our efforts, as well as significant improvements and additions of talented people and in Europe on the medical side. And based upon all of this additional talent, which augments the substantial talents already here, we are ramping up our efforts here in the United States, as well as across the continent in Europe. And our objective obviously is to get out in front of physicians who already have strong interest, as they should, for their concern for their patients. And from our perspective, we're really focused on providing the appropriate regulatory environment, which includes well designed and controlled trial to provide the important evidence for the utility and safety of the drug in these other indications.

And so the best I can describe is that as we've gone through this before and a separate rare disease PNH, this will appropriately become a dialog that we will engage in simultaneously with help regulatory authorities here in the Unites States, which will be FDA, and comparable regulatory authorities in Europe, which will be the EMEA, with a focus what I am sure we are all hold together, which is to provide in a controlled fashion a safe and effective guidance and therapy.

So we are moving as quickly as we can and certainly we are geared to make significant progress along those lines. But over this year and certainly, as I mentioned, it's actually in collaboration with outside parties, which is FDA and EMEA, which is an important aspect of the timing.

Salveen Kochnover - Collins Stewart

Thank you.

Operator

[Operator Instructions] And we will take our next question from Eun Yang with Jefferies and Company.

Eun Yang - Jefferies and Company

Thanks very much. I think at the end of 2007, correct me if I am wrong, you guys have kind of mentioned that there were about a little over 500 patients on Soliris, and also about 30% of sales came from EU. Can you comment on what the statistics at the end of the second quarter this year?

Leonard Bell, M.D. - Chief Executive Officer, Secretary and Treasurer

Yes, absolutely Eun Yang. Thank you very much for your question. And as we commented, certainly we will provide territory breakdown in revenue on a yearly basis, which we did, as you noted, at the end of 2007, and when it comes time at the end of end of 2008 we will do that as well. And that will provide visibility. We've also said though that we anticipate given the size of the European continent and the number of people who live there, which at this point really diverts the United States from population side, that obviously Europe is an extremely important aspect in terms of patients who need therapy. So, it undoubtedly will be growing over time.

Eun Yang - Jefferies and Company

So, will it be a fair assumption if we think that about 40% of your... of the guidance for 2008 will be from EU sales and the other 60% from the U.S.?

Leonard Bell, M.D. - Chief Executive Officer, Secretary and Treasurer

We actually don't actually provide that level of granularity. And I certainly wouldn't actually provide you that level of guidance. I would simply say that the U.S. continues with a steady growth. We have also said that there is clinical... patient transition from clinical to commercial drug in European countries, and there also is a steady addition of new patients in Europe. So, those are really our comments in terms of how we see the business. And I would let it stay at that actually.

Eun Yang - Jefferies and Company

Okay. And then a question on the other hematological indications, particularly CAPS and aHUS that you are planning for clinical studies; given the fact that there are some overlaps clinically as well as pathologically pertaining to two indications, does that pose some challenges to recruiting patients?

Leonard Bell, M.D. - Chief Executive Officer, Secretary and Treasurer

The overlap is between what and what?

Eun Yang - Jefferies and Company

CAPS and aHUS.

Leonard Bell, M.D. - Chief Executive Officer, Secretary and Treasurer

I think they are pretty well defined separate clinical conditions. And it is challenging to make the diagnosis in each condition. There is a set of established criteria for each one actually, and obviously the key to CAPS diagnosis has to do with the rapidity of clinical events with the underlying identified positive anti-phospholipid syndrome titer that is required. And in contrast, the aHUS criteria certainly requires, in most cases, genotypic description of what mutations occurred and/or the presence of an antibody to it, just like a comp inhibitor. So I think they are actually pretty clearly distinct from each other.

Eun Yang - Jefferies and Company

Okay.

Leonard Bell, M.D. - Chief Executive Officer, Secretary and Treasurer

I think among the many challenges we see, which there are many in terms of describing and designing trials in patients with rare and life threatening diseases, for that one, fortunately that won't be one of them. But there are many challenges, as you point out.

Eun Yang - Jefferies and Company

Okay. Thanks. And my last question is in the UK reinvestment, normally the UK is a kind of...I ask in general companies do provide some evidence and necessary for appraiser [ph] cost-effectiveness assessment. So I am just wondering will you have to submit some evidence or is it exempt because Soliris awesome drug status?

Leonard Bell, M.D. - Chief Executive Officer, Secretary and Treasurer

Sure. And I'll just comment very briefly is that the UK certainly has a great tradition of looking out for the care for their patients with rare diseases, and in many ways they've actually pioneered that quite frankly. And that being the case, they've actually identified the patients with extremely rare or ultra-rare or ultra-orphan diseases, those that would be similar to patients who have PNH, for example, or other very rare diseases. Typically they are actually not reviewed by NICE. And that's actually by the design of the health system in the UK. And it is important they recognize that these are patients, where there is a societal decision to be made whether the government intends to help support them or not. And typically the government does actually. The government has actually been very forward-looking and from a multitude of rare diseases had provided service and other treatments that are appropriate for these patients. But it's done usually in a different type of mechanism that's done for hypertension or other... or Alzheimer's or other bad diseases, but much more common.

Eun Yang - Jefferies and Company

Okay, thanks very much.

Operator

And there are no further questions at this time. I would like to turn the call back over to Dr. Bell for any additional or closing remarks.

Leonard Bell, M.D. - Chief Executive Officer, Secretary and Treasurer

Yes, thank you very much. We would like to thank everyone for joining us on the call, some people from as far away as South Africa who we are very grateful for being on the call, and wish them a very happy birthday. Others, we're also very glad that we can share this exciting news we expect to propel forward here at Alexion across all of our locations each and every day to help focus on delivering a hope for these patients with PNH and with a variety of other severe life threatening rare diseases who are waiting for us to move forward. Hopefully we will move that forward and give you a report in the next quarter as well. Thank you very much.

Operator

And that concludes today's call. Thank you for your participation and have a good day.

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Source: Alexion Pharmaceuticals, Inc. Q2 2008 Earnings Call
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