Alexion Pharmaceuticals Management Discusses Q3 2012 Results - Earnings Call Transcript

 |  About: Alexion Pharmaceuticals, Inc. (ALXN)
by: SA Transcripts


Good day, everyone, and welcome to the Alexion Pharmaceuticals Third Quarter 2012 Conference Call. Today's conference is being recorded. And now, your host for today's call, the Executive Director for Corporate Communications, Mr. Irving Adler. Mr. Adler, please go ahead, sir.

Irving Adler

Thank you, operator, and good morning. Thank you for joining us on today's call to discuss Alexion's performance for the third quarter of 2012 and our outlook for the remainder of the year. Today's call will be led by Dr. Leonard Bell, our Chief Executive Officer. Lenny will be joined by members of Alexion management: Dr. Steve Squinto, Executive Vice President and Head of R&D; Vikas Sinha, Executive Vice President and Chief Financial Officer; and David Hallal, Executive Vice President and Chief Commercial Officer.

Before we begin, I'd like to note that during the call, we may make forward-looking statements such as expected financial results, medical benefits, regulatory milestones and commercial potential of Soliris, asfotase alfa and our other product candidates globally; plans for development and clinical trials of Soliris, asfotase alfa and our other product candidates; and operations, reimbursement, price approval and funding processes in different countries.

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 approval or limitations on the marketing of Soliris and our product candidates for various indications, the possibility that results of clinical trials are not predictive of the safety and efficacy of Soliris or our product candidates in broader populations in the disease studied or in other diseases, the possibility that initial results of commercialization are not predictive of future results, the risk that third-party payors will not or will not continue to reimburse for the use of Soliris at acceptable rates or at all, and a variety of other risks set forth from time to time in our filings with the SEC, including our 10-Q for the 3 months ended June 30, 2012. We do not intend to update any of these forward-looking statements after this call, except when a duty arises under law.

I'd also like to remind you that our reported non-GAAP operating results conform to our U.S. GAAP operating results except for certain adjustments that we described in our press release issued this morning. A reconciliation of our GAAP to non-GAAP results is included in the release. Thank you. Lenny?

Leonard Bell

Thank you, Irving. During the third quarter, we continued to successfully execute on our mission to develop and deliver life-transforming therapies for patients with severe and life-threatening, ultra-rare disorders.

In Q3, our growing global team continued to make significant progress across 3 key initiatives: first, we again provided Soliris with a substantial number of new patients with PNH, with a steady addition of new patients in Q3, similar to Q2; second, we continue to be encouraged by the steady quarter-on-quarter addition of new aHUS patients in the early stages of the U.S. launch; and finally, we are encouraged by the recent presentation of eculizumab clinical data in patients with severe and relapsing neuromyelitis optica or NMO.

Other development highlights of the quarter include important progress in our asfotase alfa and cPMP programs. Due to our solid performance in this past quarter, we announced this morning that we are increasing our revenue forecast and significantly increasing our earnings guidance, despite the ongoing macroeconomic headwinds, particularly in Europe.

Turning to the quarter, I'd like to start with our growing PNH operations in the United States. In Q3, as in prior quarters, our U.S. team helped to optimize patient care, as our growing presence among hematologists again resulted in a significant number of new patients starting on Soliris. As in prior quarters, the positive impact of our disease awareness programs and diagnostic initiatives resulted in more patients being tested for PNH, as well as more newly diagnosed patients with PNH being started on Soliris. These dynamics reflect the increasing understanding among physicians of the progressive life-threatening complications of PNH and the transformative clinical benefits of Soliris.

In our PNH operations beyond the United States in Q3, we again observed a steady addition of new patients in our core countries in Europe and Japan. Beyond these core territories, we continue to expand our global operations into emerging markets, most recently into Turkey and Brazil. As expected, following the small initial bolus of PNH patients in Turkey and Brazil in Q2, in Q3, and in line with our plans for continuing long-term growth, the rate of new patient additions in these countries returned to a more steady pace.

Q3 also marked the first anniversary of the U.S. launch of Soliris in aHUS. During the quarter, our field team continued to expand our aHUS disease education programs for both hematologists and nephrologists, resulting in a meaningful increase in the number of aHUS patients in the United States who initiated treatment with Soliris.

Outside of the U.S., during Q3, we continued with our anticipated pre-launch plans. In Q3, as in Q2, a small number of new patients with aHUS began therapy in Germany. We expect that reimbursement of Soliris in the hospital setting in Germany will be in place early next year and lead to a continued increase in treated patients.

We're also serving initial patients in Italy through our pre-launch early access program. Significantly during the quarter, in France, Soliris also received the very high ASMR II rating in aHUS, the same rating that Soliris received in PNH prior to the granting of full reimbursement in that indication. This strong confirmation of the medical benefits of Soliris in aHUS is an important achievement as we progress through the reimbursement process in France.

In addition, and as planned, we are progressing reimbursement processes in other countries, and we expect to launch in all the major European countries by mid-2013.

Turning to our plans to open important new market opportunities for Soliris in aHUS outside U.S. and Europe, and based on progress of our global development team during Q3, we now expect to file for regulatory approval in Japan by early 2013. Thus, the current solid start to our aHUS launch in the United States brings a strong foundation for our upcoming global launch. We expect continued solid growth in the U.S. and, in front of us, we see similar opportunities to launch Soliris in aHUS across Europe, Japan, Latin America and Australasia.

As we execute on our commercial initiatives, we are keenly focused on the need to serve more patients with more innovative therapeutics in the years ahead. In Q3, we continue to make strong progress across our lead programs within our focus to develop highly innovative and life-transforming, first-in-class treatment for patients with severe and ultra-rare disorders.

A special note during the quarter, we are highly encouraged by the recent presentation of eculizumab clinical data in patients with severe and relapsing NMO at the ANA meeting earlier this month. NMO is a devastating life-threatening, ultra-rare neurological disorder that can lead to blindness, paralysis or death, from which there is currently no effective treatment option.

The eculizumab NMO study met its primary efficacy endpoint with high degrees of both clinical and statistical significance. Clinically and statistically significant improvements were also observed in the key secondary endpoints. On upcoming discussions with regulatory authorities, we look forward to commencing a company-sponsored study near mid-2013.

We are also pleased with important progress in our asfotase alfa program for patients with hypophosphatasia, and our cPMP program for newborns with MoCD Type A, which Steve will describe later in the call.

Turning to our financial performance. Revenues in Q3 were $294.1 million, an increase of 44% compared to Q3 2011. We are pleased that we achieved this strong performance despite a substantial year-on-year, euro-based headwind and other macroeconomic factors. While serving an increasing number of patients while maintaining rigorous financial controls, we achieved Q3 2012 non-GAAP net income of $0.60 per share, or $120.7 million, a 66% increase in net income year-over-year.

Importantly, I would note that our non-GAAP EPS of $0.60 in Q3 excludes the $0.13 net benefit attributable to the patent settlement with Genentech and the impairment of our ophthalmology program announced this morning. We continue to recognize and manage the ongoing macroeconomic risk in European countries. This includes managing the continued volatility in the euro and the ongoing challenges in collecting receivables, and also, the potential for government spending changes beyond those in recent years.

In particular, we have in place 5 proactive strategies that we expect will mitigate these risks: first, in Europe, as around the world, our sole focus is on serving the very few patients with life-threatening and very rare disorders with whom we can provide life-transforming therapies; second, our disciplined focus and commitment to serve more patients, one at a time, continues to be the largest driver of our ongoing performance; third, we continue to proactively and successfully mitigate payment risks and closely aligning our collection initiatives with evolving market environments; fourth, we know the bottom line benefit provided by the natural hedge we obtained through our euro-denominated expenses, in addition to our targeted hedging activities, which has successfully mitigated a significant portion of the top line currency risk; and finally, we continue to aggressively expand our global platform into strong and growing emerging markets outside of Europe.

These strategies reflect our experience in having continually and successfully navigated through a difficult economic environment since the launch of Soliris in 2007, 5 years ago. Throughout this period, we have successfully managed a changing landscape in the United States, Europe and other regions. We will continue these efforts to achieve our larger goal to develop and deliver life-transforming medicines for those severely ill patients, who would otherwise have no effective treatment options.

I will now turn to our revised 2012 guidance. With an increased revenue forecast, coupled with projected improvements in operating and manufacturing expenses, we are now guiding significantly increased earnings for the full year 2012. Despite macroeconomic headwinds, we are now raising our 2012 revenue guidance from the previous range of $1,110,000,000 to $1,125,000,000, now to the higher range of $1,120,000,000 to $1,130,000,000. This forecasted improvement in revenue performance, coupled with our ongoing financial discipline, is enabling us to meaningfully improve our 2012 non-GAAP EPS guidance from the previous range of $1.78 to $1.88, now to the meaningfully higher range of $1.99 to $2.04.

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

Vikas Sinha

Thanks, Lenny. Following strong performance in the first half of the year, the third quarter of 2012 was a period of sustained growth in revenues and profitability. Net product sales of Soliris were $294.1 million in Q3, an increase of 44% compared to the year-ago quarter, reflecting the steady addition of new patients during the quarter. We are pleased that we achieved this strong performance despite the substantial year-on-year euro-based headwind and other macroeconomic factors.

In addition to the year-on-year comparison, Q3 represented steady sequential in-quarter revenue growth. The growth in Q3 over Q2 was similar to the sequential growth in Q2 over Q1, after adjusting for nonrecurring revenues that occurred in Q2.

SG&A was below our forecasted level in Q3, mainly due to continued expense management, and R&D was lower than expected during the quarter as we prepared to ramp up certain programs later in the year. Overall, expenses were also reduced by an exchange rate benefit on our euro-based expenses in the early part of the quarter.

Strong sales and tight control of expenses enabled us to report Q3 2012 non-GAAP net income of $0.60 per share, or $120.7 million, a 66% increase year-over-year. Importantly, I would note that our non-GAAP EPS of $0.60 in Q3 excludes the $0.13 net benefit attributable to the patent settlement and the impairment of our ophthalmologic program announced this morning.

With our strong operating performance during the quarter, cash, cash equivalents at the end of Q3 were $906 million compared to $806 million at the end of Q2. We formed this strength in our balance sheet by reducing our total debt from $228 million at the end of Q2 to $161 million at the end of Q3.

Turning to our guidance. With an increased revenue forecast, coupled with improvements in our operating and manufacturing expenses, we are guiding to significantly increased earnings for the full year 2012. Despite macroeconomic headwinds, we are now raising our 2012 revenue guidance from the previous range of $1,110,000,000 to $1,125,000,000, now to the higher range of $1,120,000,000 to $1,130,000,000.

Based on a combination of factors, including the terms of the recent patent settlement and our expected manufacturing costs, we are -- we expect an ongoing improvement in COGS. We are now forecasting an improvement in our guidance for COGS to 10% for Q4. This will improve overall full year 2012 COGS to 11%.

We're able to forecast further improvement in our net operating results due to our projected reduction in our 2012 non-GAAP SG&A guidance with the range of $345 million to $355 million. As a reminder, we expect that Q4 SG&A will be higher than Q3 due to the continuing expansion of our global operations and our participation in major medical conferences during the quarter.

At the same time, we are lowering our 2012 non-GAAP R&D guidance to the range of $210 million to $220 million. Q4 will be higher than Q3 due to the expected increase in expenses for asfotase alfa production and the ramp-up of key development programs in Q4.

This improved revenue performance, coupled with reductions in our operating and manufacturing expenses, is enabling us to meaningfully improve our 2012 non-GAAP EPS guidance from the previous range of $1.78 to $1.88, now to the higher range of $1.99 to $2.04.

As noted in our Q2 call, shares outstanding are expected to be approximately 204 million shares in Q4 and approximately 201 million shares for the full year 2012.

Overall, we are pleased with our financial performance in the first 9 months of 2012. We will continue to maintain the financial discipline with which we are expanding our commercial platform and our development programs.

At this point, I'll turn the call over to David, who will provide an update of our global commercial operations. David?

David L. Hallal

Thanks, Vikas. In the third quarter of 2012, global revenues from our Soliris operations increased by 44% compared to the third quarter of 2011. Q3 revenue growth was driven by the steady addition of new PNH patients starting on Soliris, combined with a continuing solid start, with steady new patient additions, to our U.S. launch in aHUS.

In PNH, Q3 revenues reflect steady additions of new PNH patients in our core territories of the U.S., Western Europe and Japan. Importantly, we continue to observe the ongoing positive impact on patient care of our disease awareness and diagnostic initiatives. In Q3, as in previous quarters, a majority of PNH patients, newly starting on Soliris, were also newly diagnosed. This demonstrates that broad education about PNH, as well as PNH diagnostics, positively influences the entire cycle of care, from a patient newly diagnosed with PNH to a patient newly starting on appropriate treatment.

As we noted on our Q2 call, we are successfully expanding our operations into emerging markets. As expected, following the small initial bolus of PNH patients in Turkey and Brazil in Q2, in Q3, the rate of new patient additions returned to a more steady pace. Over the longer term, we expect that ongoing disease awareness and diagnostic initiatives will result in a steady rate of patient identification and Soliris treatment initiation.

While we are gratified by our progress to date, we know that on a global basis, the majority of patients with PNH have not yet received an accurate diagnosis, let alone appropriate treatment, and we remain committed to optimizing care for more patients in more countries around the world.

Turning now to aHUS and our launch in the U.S., we continue to be pleased with the progress of our team. In Q3, as our U.S. field team continued to present our aHUS disease education programs to more hematologists and nephrologists, we again saw a significant number of new aHUS patients initiate treatment with Soliris. We are encouraged by the steady progress to date and expect to serve an increasing number of children and adults with aHUS moving forward.

Outside of the U.S. during Q3, as in Q2, a small number of new patients with aHUS began therapy in Germany in the outpatient setting. In line with the annual reimbursement application period in Germany for new hospital-based therapies, we expect that reimbursement for in-patient Soliris treatment will be in place early next year.

Elsewhere in Europe, we continue to proceed through the country reimbursement processes as planned. In Italy, we are already serving initial patients through a pre-launch early access program. And in France, as Lenny mentioned, we are very pleased that Soliris has recently received the very high ASMR II rating in aHUS, an important achievement as we progress through the reimbursement process in France.

We are advancing our pre-launch plans and selectively adding to our field teams as we continue to prepare for our aHUS launches across the other large European countries by mid-2013. Thus, the current solid start to our aHUS launch in the U.S. creates a strong foundation for our upcoming global launch. We expect continued solid growth in the U.S., and in front of us, we see similar opportunities to launch Soliris in aHUS across Europe, Japan, Latin America and Australasia.

The very early stages of our aHUS launch are supported by the growing body of clinical data regarding the devastating clinical consequences of the disease and the life-transforming benefit that Soliris can provide to patients. At ASN next month, researchers will present 2-year data from 2 long-term extension trials. In these studies, aHUS patients with both shorter and longer durations of disease, after starting on Soliris, experienced continued improvement in renal function, no new dialysis and sustained inhibition of complement-mediated TMA with permanent discontinuation of plasma exchange during the 2-year study period.

Separately, an established group of European aHUS clinical experts published diagnostic and treatment recommendations earlier this month. These experts concluded that eculizumab may be considered as optimal first line therapy in patients with a confirmed aHUS diagnosis.

In addition to aHUS, our nephrology team is continuing their efforts to better understand the disease and diagnostic patterns of STEC-HUS in preparation for a possible launch in 2014.

Looking ahead to commercial opportunities beyond hematology and nephrology, we are now starting to build our team in metabolic diseases, as we plan for a launch of asfotase alfa in hypophosphatasia or HPP. Our plans reflect our goal of a pediatric filing in 2014, based on the rapid progress of our R&D colleagues. In moving this program forward, we continue to identify the needs of the HPP community, mindful that diagnosis can be missed and the natural history of the disease may be misunderstood, given the rarity of the disorder and the wide range of clinical signs and symptoms.

We are pleased with the continued growth in our global PNH operations and the early progress of our aHUS launch. In the fourth quarter, we expect to selectively invest in our global commercial operations as we prepare to serve more patients with PNH and aHUS in 2013.

Now, I'll turn the call over to Steve, who will review our expanding pipeline initiatives. Steve?

Stephen P. Squinto

Thanks, David. In Q3, we made significant progress in advancing our pipeline across both our approved indications and clinical development programs. First, we are continuing to progress our global introduction of Soliris in aHUS. Based on progress of our global development and regulatory teams during Q3, we now expect to file for regulatory approval in Japan by early 2013.

In Q3, we also continued to advance our 8 lead pipeline programs, which include 5 highly innovative therapeutic candidates currently being investigated at various stages of development across 8 severe and ultra-rare indications beyond PNH and aHUS.

Of particular importance, we are encouraged by the recent presentation of preliminary clinical data from an investigational study with eculizumab in patients with severe and relapsing NMO. NMO is a devastating, life-threatening, ultra-rare neurological disease that leads to severe weakness, paralysis, respiratory failure, loss of bowel and bladder function, blindness and premature death.

In patients with NMO, uncontrolled complement activation causes destruction of myelin-producing cells, leading to severe damage to the central nervous system, including the spinal cord and optic nerve. Patients with NMO have a lifelong exposure to this uncontrolled complement activation, due to chronic autoimmune attack and most patients experience an unpredictable, relapsing course of disease with cumulative disability as each attack adds to the neurologic morbidity. Within 5 years of disease onset, 50% of relapsing NMO patients have been reported to sustain permanent, severe disability, including blindness and paralysis. In one report, 30% of patients with NMO died within 5 years of disease onset. There are no approved treatments for this devastating and life-threatening disease.

As Lenny mentioned, we are very encouraged by the preliminary results of the investigator-initiated Phase II trial presented at the ANA meeting. The 12-month open label study enrolled 14 patients with severe relapsing NMO and met its primary efficacy endpoint with high clinical and statistical significance. The median annualized attack rate was reduced from 3 attacks per patient, prior to eculizumab therapy, to 0 attacks per patient during 12 months of chronic treatment with eculizumab.

After 12 months of treatment, 12 of 14, or 86%, of these severely affected patients were completely attack-free. A further note that the investigators characterized the 2 relapses that did occur on eculizumab as only possible attacks, since they did not conform to the definition of a clinically-confirmed relapse in the study protocol.

Clinically and statistically significant improvements were also observed in key secondary endpoints, including EDSS, ambulatory function and visual function. Based on the results of this study, we will be meeting with regulators early next year to discuss our plans for a company-sponsored trial. Our expectation is that we will conduct a larger placebo-controlled study in patients with severe and refractory NMO, likely commencing in mid-2013.

Our other neurology program, myasthenia gravis. We've made meaningful progress with investigators to design our next clinical study, and we have now scheduled a meeting with regulators for the first half of 2013 to discuss plans for a larger, prospective controlled trial in patients with severe and refractory MG.

Turning now to STEC-HUS, 28-week data for the full cohort of 198 enrolled patients across 23 sites in our trial in Germany, will be presented at the American Society of Nephrology meeting on November 3. As a reminder, the 8-week interim results in 148 patients from 9 sites were presented at last year's ASN meeting, and showed a rapid, large and sustained reduction in thrombotic microangiopathy or TMA, and reversal of organ damage with eculizumab treatment.

In addition, we are having ongoing discussions with the EMA and the FDA regarding a pathway to apply for marketing authorization for eculizumab in the treatment of STEC-HUS, which we now expect to submit near mid-2013.

In our kidney transplant program with eculizumab, we are enrolling patients in our company-sponsored, multinational living donor and deceased donor kidney transplant trials, in patients at elevated risk of antibody-mediated rejection. Patients in both studies are being dosed with eculizumab for 9 weeks, post-transplant, and then will be observed for 52 weeks following transplant.

I would like to turn now to our other lead development programs with highly innovative therapeutic candidates beyond eculizumab and starting with asfotase alfa. We continue to accelerate the development of asfotase alfa, as a treatment for a broad spectrum of HPP patients, focusing first on completing the clinical development program in the pediatric setting. A natural history study in infants, which will supplement the existing open label trials, is ongoing.

In addition, we are finalizing the protocol for a 6-month placebo-controlled study in juveniles with HPP and expect to initiate the trial next year. As we have stated in the past, we will be discussing the registration process for pediatric patients with regulatory authorities in the early part of 2013, with an eye towards a pediatric filing in 2014.

Importantly, we have already successfully implemented several steps to optimize a commercial scale manufacturing process for asfotase alfa and will be making continuous process improvements as our clinical studies proceed. We will continue to update you on our asfotase alfa program on future calls.

Beyond asfotase alfa, we are also evaluating 3 additional highly innovative therapeutic candidates as treatment for patients with severe and ultra-rare disorders across a wide range of therapeutic areas.

Looking briefly at these programs. First, in our metabolic disease area, which includes asfotase alfa, we're also accelerating the development of our cPMP replacement therapy for the treatment of patients with Molybdenum Cofactor Deficiency Type A, a severe, ultra-rare and genetic metabolic disorder that is fatal in newborns. We expect to complete pre-IND toxicology studies required to commence normal volunteer studies in early 2013.

Second, we continue to enroll patients in a Phase I study to characterize the mechanism of action and develop initial safety data for ALXN1102 and ALXN1103, IV and subcutaneous versions, respectively, of our novel alternative pathway complement inhibitor. With the data from these studies, we can better evaluate the overall therapeutic potential of these product candidates for various disease targets. We expect to meet with regulators about this development program in 2013.

And finally, we continue to enroll subjects in a Phase I clinical study of ALXN1007, our novel anti-inflammatory antibody, which is a product of our internal antibody discovery technologies. This Phase I study is evaluating the safety, tolerability, pharmacokinetics and pharmacodynamics of this compound in healthy volunteers.

In closing, Alexion's R&D team will continue to drive our R&D programs forward with urgency to help patients and families suffering with severe and ultra-rare disorders. I look forward to updating you on our progress on future conference calls. I will now turn the call back to Lenny. Lenny?

Leonard Bell

Thanks, Steve. We are pleased with the momentum of our ongoing global introduction of Soliris in PNH, and the early stages of our U.S. launch in aHUS. Equally important, we are gratified by our ability to drive forward simultaneously on multiple high-value development programs. We look forward to ending the year strongly in each of our opportunities with our current and future patients.

As always, we thank all those who make our work possible, our employees, researchers and physicians around the world and, of course, patients and their families, who are always at the forefront of what we do.

Operator, we'll now take questions.

Question-and-Answer Session


[Operator Instructions] And for our first question, we go to David Friedman with Morgan Stanley.

Sara Slifka - Morgan Stanley, Research Division

It's Sara for Dave. Just a quick question on SG&A. Looking at what you spent in the first 9 months of the year and your new guidance today, it seems like you're assuming a pretty significant step-up in 4Q, something in the realm of $20-plus million. I was just wondering if you can go into a little bit more detail about what's the main driver of that step-up and what kind of programs or increases in sales force are happening in 4Q to drive that?

Vikas Sinha

Sara, this is Vikas. There are 2 key factors that comes every year from going from Q3 to Q4. The first one definitely is the medical conferences, and, as Steve and David had mentioned, we are now into more than one therapeutic area of ASN, ANA, several conferences that happen in Q4, which is -- which takes a substantial portion of the expenses. And as you heard from David and Lenny, the ongoing expansion in 30-plus countries adds significant headcount, going into Q4 and beyond.


And we go next to Eric Schmidt with Cowen and Company.

Eric Schmidt - Cowen and Company, LLC, Research Division

Lenny, you indicated steady increases in PNH patient numbers and increasing increases in aHUS numbers, and I understand some of the factors that Vikas noted that prevented that from necessarily showing up in the revenues on a quarter-on-quarter basis. But what does steady and increasing refer to? Is it quarter-on-quarter growth or year-on-year growth? How should we think about that? And then second, if I could just squeeze one in for Vikas, he did guide down cost of goods, operating expenses and taxes, all in 2012. I'm wondering whether we should rethink some of the numbers that are out there for 2013 as well. I'm sure he's not going to give guidance, but were any of the cost savings not necessarily following through into the next year?

Leonard Bell

Eric, I'll take A and Vikas will take B. So yes, thank you for the question. The steady, certainly, refers to the increment in PNH patients in Q3 compared to Q2 being similar, and the steady for aHUS refers to the increment in Q3, in this case, in the U.S., being similar to that in Q2. And increasing, of course, would just reflect that Q3 generally, obviously, is larger than Q2, right? In terms of number of patients.

Vikas Sinha

Eric, just let me just walk you through on the growth from Q1 to Q2, which I mentioned was very similar to Q2 to Q3. Moving from Q1 to Q2, we had $29 million growth, and there were 2 factors that contributed above and beyond just the patient growth. One was the $3.3 million in Q2 related to prior year. And so -- and the second one is that normally Q1 to Q2, Q2 gains one extra day compared to Q1. That adds another $4 million to $5 million in growth going from Q1 to Q2. So approximately the growth rate, if you look at $29 million, was approximately around $21 million, $22 million from Q1 to Q2, which was very similar to the patient growth -- patient-driven revenue growth that we experienced from Q2 to Q3. Now going towards the expenses that you were asking, cost of goods sold, we gained, based on this patent settlement and some ongoing manufacturing expenses, we will now be looking at, going forward in 2012 Q4 and onwards, at 10% level. But for Q2 -- 2012, the average, because of the first 3 quarters, will be around 11%. And in general on the operating expenses side, we saw that several factors came in. In terms of SG&A, we looked at a few factors that came in like the euro was definitely weaker in Q3 compared to Q2, and we saved some money there. We also had the integration-related expenses that came in, in Q2. We were better able to manage it going from Q3 onwards, and we saw some synergies come in within our own company. And in general, we also are looking at a very rapid expansion addition in our talent in the key functions across 30 countries to support a global growth. And over the last few quarters, we have improved our processes to recruit the most talented individuals in the territories in which we operate. And this has actually given us, on the scheduling of the hiring, given some opportunity on the savings front. And we anticipate that this will be reflected in increased future investments and corresponding revenue growth in the future.

Eric Schmidt - Cowen and Company, LLC, Research Division

And taxes, Vikas?

Vikas Sinha

Yes. And taxes-wise, we continue with the non-GAAP rate being around 7% to 8% level, that's what we have guided right now for the year. We'll probably see similar levels in 2013. And going into 2014, we will have exhausted our NOLs and we will then move up to more towards a 28% GAAP rate, being very similar to the non-GAAP rates.


And we go next to Rachel McMinn with Bank of America Merrill Lynch.

Rachel L. McMinn - BofA Merrill Lynch, Research Division

I guess just 2 quick questions. On R&D, I just wanted to better understand, is that lower because you're actually having problems manufacturing asfotase alfa? I just wanted to better understand like how -- whether that's just being shifted out or if there's any fundamental issues there. And then just going back to aHUS, can you just give us a little bit more color on what's going on in the U.S.? I guess just everything you had to say about the comments, it seems like it's a steady progress, and that 2013 is really going to be the big driver as all these European countries come online. But just wanting to understand if you can take some of the learnings from your U.S. launch and apply a faster growth rate in Europe, or if you can do something more specific with the disease, or it's just going to be more challenging?

Vikas Sinha

Let me take the first asfotase alfa part. As you heard from David and Lenny, the launch of asfotase alfa is in 2014. And we're trying to align the production as closer to the launch as possible. So we are looking at Q4, Q1, Q2 where most of the releases of asfotase alfa will happen.

Stephen P. Squinto

Yes. And I'll just make a real quick comment. Certainly, there's no technical issues or problems with regard to the production of asfotase alfa. We continue to make pretty significant improvements in our process, and we're quite pleased with where we are.

Leonard Bell

And then in a tag team approach, Rachel, just as an introduction before David gives more color, you're absolutely right. Our U.S. launch is progressing very nicely with aHUS, and we've obviously learned an enormous amount over the last several quarters and they are really doing a fine job of serving an increasing number of patients quarter-on-quarter. And as David and I each laid out in the earlier part of the call, we anticipate, particularly with the good news on the ASMR II rating in France, we anticipate that laying out in Europe and David will give you a little more color.

David L. Hallal

Yes. Thanks, Lenny. Thanks, Rachel. So what we've learned in the U.S., obviously, is aHUS is both a hematology and a nephrology business and as such, our commercial team is focused on both specialties. We see them both contributing greatly to the diagnosis and then subsequent treatment of patients with aHUS. On top of that, obviously, I've indicated observations in the U.S. relate to a broad population of patients. Those who have had much lower prevalence than PNH, those patients who are out there with longer-term disease, being able to demonstrate and, as I mentioned at ASN, there will now be 2-year data that, over time, those patients can benefit from treatment. But at the same time, when patients present with their initial TMA clinical presentation, what easy steps can hematologists and nephrologists take to diagnose patients rapidly and initiate treatment. And I think taking those key learnings from the U.S. in 2012, we are in, obviously, ongoing sharing of information from U.S. observations with our European team, who is now -- they are now beginning to expand their field teams and preparing for, as we mentioned, a launch by mid-2013.


And for our next question, we go to Geoff Meacham with JPMorgan.

Geoffrey C. Meacham - JP Morgan Chase & Co, Research Division

I've got a couple for you on aHUS and one on asfotase alfa. aHUS, it seems like the awareness is pretty high in Europe, from what you guys are talking about, especially with expanded access. And is there a reason to expect a bolus of reimbursable patients as we progress through next year, not really a steady addition? And then the question on asfotase alfa is that in the juvenile protocols, is there anything you guys have learned when you finalize this? And really, since the deal that helps inform your strategy for carving the more adult patient population?

Leonard Bell

David, you want to address the aHUS and then Steve?

David L. Hallal

Sure. So Geoff, no, we wouldn't expect a bolus. And I think as we've indicated now on several occasions, that it's expected that we would see addition to patients over time, and that, that would be gradual, due to the much lower prevalence of the disease. Nonetheless, our observations in the U.S. certainly encourage us, that we'll have the opportunity to serve an increasing number of children and adults over time, and we would expect that pattern to follow in Europe as we get started.

Leonard Bell

Obviously, just to layer in one last thing as, certainly, Europe itself will be layered as -- it'll go, country by country. So in addition to no bolus in a particular country, there will be no European bolus because of the series of country initiations.

Stephen P. Squinto

Yes, just to make a comment on the juvenile program for asfotase alfa. Obviously, after the acquisition, we acquainted ourselves with a lot of the KOLs and the physicians that see these patients, with a fairly deep dive into the clinical data, from both the infant trial as well as the juvenile trial. I think we came away with that -- from those discussions believing that a placebo-controlled trial will probably be important. I think it will strengthen overall, our program. I think we've looked hard at the clinical profile of the patients in the juvenile trial, where about half the patients have been diagnosed before the age of 5. The other half were after the age of 5. I think what's very important to note is that the drug worked very, very well in both populations of patients, meaning that we can look at a more severe patient population going forward, which is probably something we will do. But we're meeting with those KOLs now to finalize the program, and we'll meet with regulators in the early part of '13 to get this trial moving by mid-'13.


And for our next question, we go to Salveen Richter with Canaccord.

Salveen J. Richter - Canaccord Genuity, Research Division

I just have 2 pipeline questions. So one is, in terms of NMO, what specific population here are you targeting in terms of severity of disease with relapses in the Phase III? And then could the immunosuppressants here have effect, that the patients were on, in the process study, that we saw have affected the vaccine for meningitis? Just wanted to get some color on that. And then secondly, asfotase alfa, the Phase II, III infant study that's ongoing, should we expect data for that by year end next year?

Stephen P. Squinto

All right, so we have patient population, the infection and what was the third part of your question?

Salveen J. Richter - Canaccord Genuity, Research Division

Just the pediatric data for asfotase alfa.

Stephen P. Squinto

Okay. All right, so let's take it one by one. So in terms of patient population and NMO, I think the good news is, I think we learned from this relatively small 14-patient investigator-initiated trial, that the drug seems to have a pretty strong efficacy signal in a pretty ill population of NMO patients. About half of those patients were completely refractory to the immunosuppressive therapies that they were on prior to eculizumab. So I think you can look for us to go into a very severe refractory population of NMO patients moving forward, as we lay out placebo-controlled trial. The second part was, sorry?

Leonard Bell

Could the immunosuppressives have altered the vaccines...

Stephen P. Squinto

Yes. No, I don't think that's probably the case. I think there was one patient that did develop a meningococcal infection. They were vaccinated with a quadrivalent vaccine. It turns out that they were infected with the serotype b, which the vaccine doesn't cover. We've done studies and we are doing studies in transplant as well, where patients are very severely immunosuppressed, and we've not seen a signal in terms of meningococcal infections. So I don't really think it was the immunosuppressive therapies. I mean, this just happens in a very, very small number of patients. We do see once in a while, a breakthrough from vaccine. And then the last question was the...

Leonard Bell

Timing of the infant natural history study.

Leonard Bell

Yes, I would look to, hope to see some data maybe mid-'13.

Salveen J. Richter - Canaccord Genuity, Research Division

Actually, sorry, it was timing on the infant Phase II, III study that you're going to use to file on.

Stephen P. Squinto

The study -- sorry, I'm not sure I understand the question. We have actually reported out, actually, it was in the New England Journal of Medicine, the infant study data. Those patients are in an extension study. And in addition to that, we have a trial going, a 10-10 trial going for very severe patients, which we'll probably get a read on next year as well.


And we go next to Brian Abrahams with Wells Fargo Securities.

Brian Corey Abrahams - Wells Fargo Securities, LLC, Research Division

A question on 1101 -- sorry 1102, 1103. I'm just wondering your latest views, now that it looks like you have a subcu formulation there, on the future role of this agent, where you envision that, putting it in? What the role might be, both for an IV and/or a subcu form? And how maybe the half-life versus the eculizumab, and the formulation might influence where this might move forward?

Stephen P. Squinto

I think, as you know, the trial is still ongoing so it's a little early to comment on the data. I think we're encouraged. I think, what I can say so far is, it looks to be relatively safe in a small number of patients that are in the trial. I think, as we have said probably in the past, we believe the subcu formulation will probably be the more important formulation, potentially going forward in development, as we look to commercialize the product as well.


And we go next to Ying Huang with Barclays.

Ying Huang - Barclays Capital, Research Division

First of all, can you give us a little bit color in terms of the breakdown for aHUS patients in the U.S.? Now you have about one year experience in the U.S. marketplace, do you have more pediatric patients than adult patients on therapy? And then secondly, is it your intention to run the NMO trial next year as a pivotal trial here? And then lastly if you could provide any comment on ViroPharma's C1 inhibitor in PNH, they intend to do some work over there?

Leonard Bell

Yes. So as I mentioned during the call, we are currently serving both pediatric and adult patients with aHUS but we do not provide specific breakdown on patients. Steve?

Stephen P. Squinto

I think the second question was related to NMO and whether the next trial would be a pivotal trial. I think, as we said in the call this morning, where we are with the program, we're encouraged by the 14-patient data. We're meeting with investigators that will hopefully participate in our next trial, really around the globe. And we expect to meet with regulators to talk about this program as well, and hopefully initiate this trial by mid-'13. But until we have discussions with regulators, it's impossible to comment on what the next trial will be.

Leonard Bell

Was there another third part of the first question?

Ying Huang - Barclays Capital, Research Division

Yes, can you provide your comment on the ViroPharma's C1 inhibitor program for PNH?

Leonard Bell

Well, there's no clinical program that I'm aware of for ViroPharma for PNH. There are obviously data, looking at calacrine inhibitors like that, at very, very high doses, trying to block complement and the data is published, suggests perhaps a lot more drug required to block complement than to block other enzymes that are apparently useful in HAE, so that's the only comment I can make, just from the published literature. Steve, do you have any further comments or...?

Stephen P. Squinto

No, I don't. I think that pretty much covers it.

Leonard Bell

Yes, so a lot of drug to block complement in upstream part, for which a good part of the immune system that protects us is downstream. So that's what science is about, and we'll see.

Stephen P. Squinto

I think maybe the only comment is I think what we've learned from an enormous amount of clinical experience now that we have, with the complement blocker, is the critical need to absolutely shut down the complement system and not leave even a little bit left. We've learned that the hard way over the years, but an important lesson.

Leonard Bell

That's well described in PNH, sort of partial complement blockade, is probably somewhat worse than no complement blockade.


[Operator Instructions] We go next to Matt Roden with UBS.

Matthew Roden - UBS Investment Bank, Research Division

It's on NMO. Steve, you mentioned the reduction of attacks in the period after cessation of dosing. Do these data teach us anything with respect to whether or not it should be dosed for a defined period of time versus chronic dosing? And then related on NMO, do you think that there's an argument here for the use of your drug to prevent disability and blindness in NMO, as opposed to stabilizing established disease in severe patients? I mean, I realize this may run counter to your focus on severe, ultra-rare disease, but it seems like a reasonable question raised by an investigator.

Stephen P. Squinto

I think, to take the first part of the question, I think what the data suggests, when patients come off of eculizumab, there were several patients that experienced a re-exacerbation of their disease, I think, really highlights, what I said this morning on the call. And I think maybe Lenny also said the same thing, that these patients really have -- are experiencing chronic uncontrolled complement activation. This is an autoimmune disease, complement is sort of constantly on in this disease and so it's really, in my view, maybe not that surprising that when you release complement inhibition, that they're now susceptible to yet another attack. And the problem is, in NMO, maybe unlike in MS, for example, each attack could be devastating, could lead to blindness and/or paralysis. So I would imagine we're going to start to look at this as chronic therapy for NMO. Second part of your question, I forgot...

Leonard Bell

Certainly, we made clear, as Steve said, to clear as well, in his description of the current NMO investigator study which is that 1/2 the patients were refractory to all of the therapies they had tried. We find, really, as a mission, as we've laid out very clearly, those are the types of patients that we seek to focus on, those patients who really have no other possible outcome and there may be other approaches that others would take or that we would take but, frankly, for us, this is what we're well-focused on and we will remain focused there.


And we go next to Geoff Porges with Bernstein Research.

Geoffrey C. Porges - Sanford C. Bernstein & Co., LLC., Research Division

One question, Vikas, spectacular operating margin performance this quarter. And it sounds as though you're guiding that operating margins will be down somewhat in Q4. But can you stay in the sort of low to mid-40% range going forward, as you look at all the different dynamics and moving parts in the business?

Vikas Sinha

That's a very good question, Geoff. But the thing is, we have to look at it from the right investments in the company. And as we embark into our growth strategies and also fund our research and development. So as we had mentioned earlier, to our operating margin targets next year is to achieve 40% for sure, and we will be focused in achieving that.


For our next question, we go to Ian Somaiya with Piper Jaffray.

M. Ian Somaiya - Piper Jaffray Companies, Research Division

Just on, I guess, on the pipeline front on 1102, 1103, maybe following up on Brian's questions. I guess, you've given us some sense of what the differences are going to be from an administration standpoint. But I -- I've always remembered you mentioned that there are other goals in mind in developing a follow-on, and I was hoping you could maybe just share some of those from a product profile perspective and potentially from a therapeutic perspective.

Stephen P. Squinto

I would say, if I understood your question correctly, you're sort of asking, I think, more broadly about a life cycle management plan, which is a good question. I think we take sort of a multipronged approach to life cycle management. We are working very, very hard on alternative versions of eculizumab that could potentially serve as follow-on products. We look at ALXN1102 and 1103 as part of that overall life cycle management program. And I guess, earlier in the development phase, our research group continues to focus its efforts on new and improved complement blocking approaches as well, given the long history we've had as a complement inhibition company. So I think it's really a multifaceted approach to life cycle management.


And we go next to John Sonnier with William Blair.

John S. Sonnier - William Blair & Company L.L.C., Research Division

Here's the first one, Lenny, 5 years or so into the launch in PNH, what have you learned about, I guess, the realistic ability to identify a population of patients, misdiagnosis? Also I'm trying to get at, maybe you have somewhere in the ballpark of 2,500 patients or so on now, how big globally, do you think the addressable market is?

Leonard Bell

I think what we've learned is we've essentially relearned what we kind of thought was true 5, 6 years ago, which is that the limiting factor, unfortunately, for patients with severe, life-threatening, rare diseases, very rare diseases, the limiting factor for their treatment is that the medical community has a relatively low awareness and that improving their awareness and education in understanding the disease, improves the identification of patients and then the decision by physicians about who should be treated or not treated. So that's facts we thought were true 5, 6, 7 years ago and, I think, probably every day, we re-learn that, that's actually true. So we're not sure that we learned anything there new, other than it continues to be true. And I think that really is aligned with all ultra-rare disorders, not just PNH. And that's why we continue to have steady additions of patients here, 20-some-odd quarters out there, and we continue to anticipate and expect and forecast going forward. So we are driving there, and at the same time, as David described, as we're also moving into new countries and though we expect it will be the same slow rate, steady as she goes in each of those new countries and that's what we anticipate doing over the next substantial period of time.

John S. Sonnier - William Blair & Company L.L.C., Research Division

So globally, how big do you think the addressable population is now?

Leonard Bell

We don't really provide that type of guidance, actually. But I think certainly, we're demonstrating now that most of what we serve, obviously, are PNH patients and we're also quite confident that, well less than 1/2 the patients are currently served in the areas where we are active.

David L. Hallal

Yes. I think as I've stated before, even in the countries where we've been operating the longest, what we're encouraged by and what drives us is that each quarter, we are identifying similar numbers of patients. And those patients tend to have a broad range of severity of disease. So we see over time, patients who are very sick with PNH who probably have the disease for some time, are being newly diagnosed and then advanced to treatment. And that clearly gives us a conviction on the opportunity moving forward.

John S. Sonnier - William Blair & Company L.L.C., Research Division

That's actually helpful. And then real quick for Vikas, a lot of questions about expenses. I guess mine is a little bit different. You're essentially guiding $25 million lower than you were on July 25. So my question is what's not happening operationally, that maybe you expected would be happening?

Vikas Sinha

So a few things that -- as I mentioned earlier, when Eric had asked the same question is, obviously, we definitely got some synergies out of the acquisition and integration, that was one, and that's generating some value towards the end. But also, as we have mentioned, some timing on the asfotase alfa production and releases. And third, as we mentioned, is the headcount growth planning, as we have refocused and looked at bringing in -- improving our processes to bring in more talented people in the company, it definitely has generated some space for us. And one more thing, lastly, I must say about this, the cost of goods improvement by 1% also contributes to that.


And we go next to Howard Liang with Leerink Swann.

Howard Liang - Leerink Swann LLC, Research Division

Just on NMO. If I heard Steve correctly, I think he said that it will be -- the next will be a placebo-controlled trial in severe population and it seems like placebo may not be necessarily consistent with the severe patient. Is the population defined by the severity or previous treatment?

Stephen P. Squinto

Well, I think it will be placebo on top of standard of care. It will be in severely affected NMO patients. I think having a control arm is going to be required, moving forward, in terms of our discussions with the regulators, although we have had those discussions, that's our anticipation that, that will be necessary to continue the development of the program.


And for our final question, we go to Robyn Karnauskas with Deutsche Bank.

Robyn Karnauskas - Deutsche Bank AG, Research Division

So just real quick, I don't think I caught you mentioning TT30, and I'm just wondering if you can give an update on when we might see data and the importance of that product in the life cycle management?

Stephen P. Squinto

So TT30 is referred to now as ALXN1102 and 1103. 1102 is the IV formulation, which was the initial formulation that Taligen had developed. We now have a subcu formulation of the product as well. Both formulations are currently being tested in clinical development. The trial is continuing and enrolling, so really can't comment on the data from the trial. As I said earlier, to someone else who asked the question. What I can say is so far, the drug is proving to be very safe in a small number of patients, which is very encouraging. So I think we can maybe look forward to having something to report out next year.


And ladies and gentlemen, that was our last question. This concludes today's conference call. Thank you for your participation. You may now disconnect.

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