Alexion Pharmaceuticals' (ALXN) CEO David Hallal on Q4 2015 Results - Earnings Call Transcript

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Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN) Q4 2015 Earnings Conference Call February 3, 2016 10:00 AM ET


Elena Ridloff - Vice President, Investor Relations

David Hallal - Chief Executive Officer

Vikas Sinha - Executive Vice President and Chief Financial Officer

Carsten Thiel - Executive Vice President and Chief Commercial Officer

Martin Mackay - Executive Vice President and Global Head, Research and Development

Saqib Islam - Executive Vice President, Chief Strategy and Portfolio Officer

Julie O'Neill - Executive Vice President, Global Operations


Eric Schmidt - Cowen and Company

Anupam Rama - JPMorgan

Ying Huang - Bank of America Merrill Lynch

Matt Roden - UBS

Yatin Suneja - SunTrust

Chris Raymond - Raymond James

Cyrus Mahloudji - Morgan Stanley

Geoff Meacham - Barclays

Terence Flynn - Goldman Sachs

Alethia Young - Credit Suisse.


Good day, everyone, and welcome to today's Alexion Pharmaceuticals Incorporated fourth quarter and full year 2015 conference call. Just as a reminder, today's call is being recorded. For opening remarks and introductions, I would like to turn the call over to Elena Ridloff, Vice President, Investor Relations. Please go ahead, ma'am.

Elena Ridloff

Thank you, Sarah. Good morning and thank you for joining us today to discuss Alexion's performance for the fourth quarter and full year 2015 and our plans for 2016.

Today's call will be led by David Hallal, our CEO. David will start the call with an overview of our global performance and be joined by Vikas Sinha, our Chief Financial Officer; Carsten Thiel, our Chief Commercial Officer; and Martin MacKay, our Global Head of R&D. Also, with us today are Saqib Islam, our Chief Strategy and Portfolio Officer; and Julie O'Neill, our Global Head of Operations.

You can access the webcast slides that will be presented on this call, by going to the Events section of our Investor Relations page on our website. Before we begin, I will refer you to Slide 3. We will be making forward-looking statements, all of which involve certain assumptions, risks and uncertainties that are beyond our control and could cause our actual results to differ materially from these statements. A description of these risks can be found in our most recent 10-Q and 10-K filings with the SEC and our subsequent SEC filings.

Any forward-looking statements apply only as of today's date and we undertake no duty to update any of these statements after this call. I'd also like to remind you that our reported non-GAAP operating results are adjusted from our GAAP operating results for certain items 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. David?

David Hallal

Thank you, Elena. 2015 was a transformative year for Alexion, and we entered 2016 with two new launches just now underway on top of our strong and growing Soliris-based business. Our breakthrough therapies are the foundation of our continued success as we grow and expand our complement franchise, while building a premier rare metabolic disease franchise.

In Q4, we achieved many significant commercial R&D and financial milestones. First, we received FDA approvals for both Strensiq and Kanum under breakthrough therapy designation and also received two Rare Pediatric Disease Priority Review Vouchers with the approvals. Second, our commercial team continued to serve a consistently high number of new patients, with PNH and aHUS with Soliris.

Third, we completed enrollment in the DGF registration trial. Fourth, we advanced the most robust rare disease pipeline in biotech and present a new clinical data for three new highly innovative product candidates being studied in PNH, MPS IIIB and GI-GVHD. And fifth, we delivered another quarter of strong financial performance.

We are pleased that Soliris continues to deliver strong volume growth. As we enter our 10th year since the initial Soliris launch, we delivered 28% year-on-year volume growth in 2015 and continue to see the majority of the opportunity ahead of us, for both PNH and aHUS.

In PNH, in Q4, as in prior quarters, our global commercial organization continued to identify and serve a consistently high number of new patients across our 50 country platform. In aHUS in Q4, we once again served a consistent number of new patients, supporting our view that our opportunity to serve patients with aHUS is larger than our opportunity to serve patients with PNH.

Turning now to our metabolic franchise. Strensiq was approved in the U.S. on October 23. We are now in the very early stages of launching Strensiq in the U.S., Germany and Japan. Our launch is supported by the strong labels, which reflect the highest level of medical innovation. Strensiq addresses the underlying clause of HPP by replacing the vital enzyme of tissue-nonspecific alkaline phosphatase enabling babies to have a 97% survival rate at one year compared to 42% of historical controlled patients.

On Strensiq, 100% of juvenile onset patients had substantial bone healing, improvement and weight and short stature and were able to perform a six-minute walk tips comparable to matched healthy peers. We are pleased with our early performance in the Strensiq launch in Q4, which indicates that applying our unique rare disease expertise from PNH and aHUS has been effective in elevating the awareness of HPP.

While we have observed early progress, we continue to expect that the launch trajectory for Strensiq will be slow and steady, consistent with the launch of therapies for ultra rare diseases. This is due to the low incidents and high mortality of HPP, as well as the very low awareness of the disease.

Now, turning to Kanuma, which is our second highly innovative enzyme replacement therapy that was approved by the FDA on December 8 and launched in the U.S. in January. Like Strensiq, our Kanuma launch has supported by the very strong labels in the U.S. and Europe, which again reflect the highest level of medical innovation.

Kanuma addresses the underlying cause of LAL-D by replacing the vital enzyme of lysosomal acid lipase, enabling babies to have a 67% survival rate beyond 12 months of age compared to 0% of historical controlled patients, all of whom died by eight months of age. Patients also had improvements in multiple liver and lipid parameters including a reduction in liver fat content.

As we launch Kanuma, we will bring these compelling clinical benefits to patients with LAL-D and thus far we are pleased with the early progress we are making since the acquisition. Patient identification is central to our success in reaching patients with ultra-rare diseases. And this is what we know well and do well.

We saw early on that the LAL-D diagnostic pathway needed to be improved and tailored to pediatric patients to increase rapid and accurate diagnosis. We made our enhancements to the pathway in Q3, and began the rollout in Q4 and we've observed the following: first, more selective testing of high-risk patients; second, a higher rate of positive diagnoses driven by pediatric testing; and third, an increasing number of patients with LAL-D have been identified.

As we move into Q1, we are looking to extend this meaningful progress. We aim to serve patients across our 50-country platform with HPP and LAL-D. However, for the first year launches of Strensiq and Kanuma, we expect that the majority of patients we serve will be in the U.S. and Germany.

We have initiated the country-by-country reimbursement processes throughout Europe, as we look to obtain funding and start serving patients in other countries in the second half of 2016 and 2017. We are excited about our opportunity across our metabolic franchise and are committed to working with urgency to serve patients with these two devastating diseases. Carsten will provide more color on the launches later in the call.

While we expanded our commercial portfolio, we also advanced the most robust rare disease pipeline in biotech. In Q4, in addition to completing enrollment in the DGF registration trial, we also presented initial patient data for three of our highly-innovative molecules.

First, ALXN1210 data from the initial patients with PNH showing a rapid reduction in LDH; second, ALXN1007 interim Phase 2 data from patients with GI-GVHD showing an 80% overall response rate at 28 days; and third, SBC-103 interim Phase 1/2 data, showing a dose dependent reduction in heparan sulfate and CSF and patients with MPS IIIB at 12 weeks, indicating that the NAGLU enzyme administered IV is crossing the blood brain barrier.

Looking ahead to 2016, we will have multiple R&D milestones including: data from two registration trials of eculizumab in MG and DGF; completion of enrollment in the NMO registration trial; additional data for ALXN1210 and PNH and initiation of an aHUS clinical program; six month heparan sulfate data for SBC-103; and additional data for ALXN1007 and GI-GVHD. We look forward to providing updates on our expanding pipeline, which we expect to deliver up to six additional product or indication approvals through 2018.

Looking now at our strong financial performance for the full year, we achieved total revenues of $2.6 billion or 29% increase in volume compared to the prior year, reflecting the ongoing strength of our core PNH and aHUS businesses and a small initial contribution of $12 million from Strensiq in Q4.

In 2015, we delivered 21% total revenue growth compared to 2014 in-year sales. Our robust volume growth was partially offset by 8% or $165 million in currency headwinds. We also achieved non-GAAP EPS of $4.99 per diluted share.

Turning to our 2016 guidance. On a constant currency basis, we forecast revenues of $3.17 billion to $3.22 billion or 22% to 24% constant currency revenue growth year-over-year. For 2016, we forecast $120 million in currency headwinds. Factoring this in, we are guiding 2016 total revenues of $3.05 billion to $3.1 billion, which reflects continued strong underlying demand for Solaris, as we serve an increasing number of patients in 2016, as well as strong first year metabolic revenues of $150 million to $175 million.

These metabolic approvals are the first two of up to eight new product or indication approvals that we committed to deliver through 2018 to drive our next level of growth. Beyond 2016, we will accelerate EPS growth, driven by the continue growth of Soliris and the metabolic franchise, and by expanding our operating margins to 48% to 49% in 2018 from our 2016 forecast of 44%.

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

Vikas Sinha

Thanks, David. We are pleased with our financial performance in Q4 despite continued currency headwinds, as well as macroeconomic factors in Latin American countries.

Q4 revenues reflected the continued steady growth of Soliris in PNH and aHUS, and the small initial contribution of Strensiq in the U.S. Total revenues increased to $701 million in Q4. This revenue growth was driven by a 25% increase in volume partially offset by 8% or $45 million in currency headwinds net of hedges in Q4 over the year-ago quarter, resulting in 17% revenue growth above the year-ago quarter.

Soliris volume growth of 23% was driven by continued growth in PNH and aHUS across all geographies in Q4. However, volume growth was partially impacted by $15 million in Latin American countries due to end of year local government budgetary constraints.

Turning to Strensiq, we were pleased with the initial contribution in the revenues of $12 million in the fourth quarter, as we started serving the first group of HPP patient in the U.S., Germany and Japan. As a reminder, we served initial LAL-D patients in Germany in Q4. However, Kanuma was just launched in the U.S. in January 2016. During the quarter, we delivered non-GAAP EPS of $1.13 per diluted share.

Turning to the full year, 2015 revenues increased to $2.6 billion, driven by a strong 29% increase in volume, partially offset by 8% or $165 million in currency headwinds net of hedges in 2015 over the prior year. On a reported basis, this represents 21% revenue growth compared to 2014 in-year sales. In 2015, we achieved non-GAAP EPS of $4.99 per diluted share.

Our strong financial position and future cash flows provided us with the financial flexibility to support our pipeline growth, service our debt, take advantage of external opportunities as they may arise, and repurchase stock opportunistically. In 2015, we purchased 2 million shares and so far this year we have purchased an additional 0.5 million shares in January. We have an additional $675 million remaining in our share repurchase program.

Turning to our 2016 guidance, on a constant currency basis, we forecast revenues of $3.17 billion to $3.22 billion or 22% to 24% revenue growth year-over-year. This robust revenue growth reflects serving an increasing number of patients in PNH and aHUS, as well as the first year of the Strensiq and Kanuma launches, where we forecast metabolic franchise revenues of $150 million to $175 million.

For 2016, we currently forecast $120 million or negative 4.6% in currency headwinds. Factoring this in, we are guiding total revenues of $3.05 billion to $3.1 billion.

Looking at other elements of our 2016 guidance supported by continued Soliris growth, the anticipated strength of first year metabolic sales and an ongoing financial discipline, I would highlight the following points. First, we will be advancing our robust rare disease pipeline, while maintaining our R&D spend of approximately 22% of revenue, similar to the second half of 2015 level.

Second SG&A expenses will be approximately 26%, which is significantly reduced from second half of 2015 SG&A expenses of 28%. Third, we are significantly improving our non-GAAP operating margin in 2016 to 44% from 42% in second half of 2015. And fourth, our non-GAAP EPS guidance is in the range of $5 to $5.20. On a constant currency basis, our non-GAAP EPS guidance would have been 31% higher. For other elements for 2016 guidance, I'll refer you to our press release that was issued this morning.

Turning briefly to Q1 guidance, on a constant currency basis, total revenues would be $735 million to $745 million. On a reported basis, Q1 revenues are expected to be in the range of $700 million to $710 million, which includes our $35 million FX impact year-over-year. On a sequential basis, there is a $10 million negative FX impact, as well as few infusion days in Q1 2016 versus Q4 2015. For Q1, non-GAAP EPS is expected to be $1.10 t $1.15.

Looking beyond 2016, we will accelerate EPS growth driven by the continued growth of Soliris and the metabolic franchise and by expanding our operating margins to 48% to 49% in 2018 for March 2016 forecast of 44%.

In summary, we are pleased with our financial performance in 2015, as we achieved strong Soliris volume growth executed on the Synageva integration, successfully launched Strensiq and prepared for the initial launch of Kanuma.

At this point, I'll turn the call over to Carsten for a look at our commercial operations. Carsten?

Carsten Thiel

Thank you, Vikas. In 2015, our global commercial operations continue to serve more patients with Soliris, as we delivered a strong 28% volume growth year-on-year, reflecting the underlying strength of our core Soliris business, while also initiating the launch of the Strensiq and Kanuma for patients with HPP and LAL-D.

Starting with Solaris and PNH, the ongoing success of our diagnostic initiatives is driving a steady addition of new patients. In 2015, as in prior years, we consistently identified a high number of newly diagnosed patients with PNH across our 50 country platform. We also continue to see that the majority of patients newly starting on Soliris are also newly diagnosed. In 2016, we will continue to execute our PNH diagnostic initiatives with urgency to reach more new patients.

In aHUS, we also continued to observe a consistent number of new patients commencing Soliris treatment. Matched for time, now four years from their respective approvals in the U.S., there are more patients actively receiving Soliris for aHUS than there had been for PNH.

We continue to see the same trends in Europe. Given that the incidence of aHUS is higher than that of PNH combined with the success of our diagnostic initiatives, we expect that over time this trend will continue and perhaps even widen, confirming our view that our opportunity to serve patients with aHUS is larger than that of PNH.

As we aim to reach more patients with aHUS, we are focused on three key initiatives: first, increasing the number of patients with TMA tested for aHUS; second, helping a higher proportion of diagnosed patients receive the benefits of Soliris as first line treatment; and third, enabling more physicians to better understand the genetic life long nature of aHUS. With the majority of our opportunity in PNH and aHUS in front of us, we are confident that we will serve an increasing number of patients with both diseases in 2016 as in prior years.

Now, I would like to turn to our global metabolic franchise. Starting with Strensiq, in Q4, we saw an initial group of patients commencing treatment and are pleased with our earlier results as we apply our unique ultra-rare disease expertise to serve patients with HPP.

In the U.S., we are pleased with the initial observations in the early stages of launch. First, we are benefiting from having a dedicated metabolic field team, which enables us to reach more physicians who are seeing patients at a higher likelihood of having HPP.

Second, our team is focused on overcoming the low awareness of HPP with our disease education initiatives. Our programs address the morbidities and high mortality of HPP, the role of Strensiq in addressing the underlying cause of the disease by replacing the missing vital enzyme, and the compelling clinical benefits that Strensiq can provide to patients with HPP.

Third, our diagnostic pathway is helping physicians identify the appropriate patients to test for HPP. And fourth, payers are recognizing the value of Strensiq based on the compelling clinical benefits included in the label.

The launches of Strensiq are also underway in Germany and Japan and we are planning a similar approach as in the U.S. We have now served initial patients in both countries. Our efforts globally are supported by the growing body of medical evidence [technical difficulty] to further support the HPP community.

At the upcoming annual Clinical Genetics Meeting and Endocrine Society Meeting researches will present new longer-term data from multiple studies on the benefits of Strensiq in entrants, children and adults with HPP. As a reminder, we continue to expect that the initial use of Strensiq will grow gradually due to the low incidence, high-mortality and low awareness of HPP.

Turning now to Kanuma. We received FDA approval in December and launched in the U.S. just a few weeks ago in January. We are pleased that the approved label allows patients of all ages to be eligible for treatment and includes a survival benefit for the youngest patients, as well as benefits in multiple liver and lipid parameters, including a reduction of ALT and liver fat contents.

As the Kanuma launch is now underway in the U.S. and Germany, we are applying our deep experience in ultra-rare diseases to serve the LAL-D community. Following the Synageva integration, we enhance the LAL-D disease awareness programs. Our more targeted diagnostic pathway helps pediatric specialists better understand which children are at higher likelihood for having a LAL-D, which is important because the medium age of disease onset is 5.8 years.

Rapid and accurate diagnosis of LAL-D is of critical importance, as 50% of non-entrants progress to fibrosis, cirrhosis or liver failure within just three years of symptom onset. From our early experience thus far, we've seen an increased rate of patient identification, supported by more children obtaining an accurate diagnosis.

Although, there's still very low disease awareness for LAL-D, we are observing both interest and perceptivity, among the physicians we are reaching. While we are in an earlier stage of initiating our LAL-D disease awareness programs, we see a meaningful opportunity to serve patients, supported by the known prevalence of LAL-D of eight to 12 patients per million in the general population.

Our global efforts are further supported by the growing body of medical evidence for Kanuma. Upcoming WORLDSymposium meeting, researchers will present two-year survival data in infants with rapidly progressive LAL-D.

Turning to the timing of additional country launches for Strensiq and Kanuma, we have initiated the funding processes with healthcare authorities in other major European countries. We expect to start serving patients in initial countries outside of Germany in the second half of 2016 with additional countries to follow in 2017.

Also, in Japan, we expect regulatory approval for Kanuma in the first half of this year. As we demonstrated by achieving access to Soliris for patients with PNH and aHUS across our [technical difficulty], we are committed to working with healthcare authorities around the world to ensure that patients with HPP and LAL-D will have access to Strensiq and Kanuma.

In closing, the commercial organization has the expertise to achieve our objective for our three products. We see the majority of our growth ahead of us in our global complement franchise in both PNH and aHUS, and we are leveraging our ultra-rare disease expertise to serve initial patients with HPP and now LAL-D.

Now, I will turn the call over to Martin who will discuss our R&D programs. Martin?

Martin Mackay

Thank you, Carsten. In 2015 we continued to advance the most robust rare disease pipeline in the industry, which includes 10 clinical programs and 30 preclinical programs with at least four moving into the clinic in 2016.

Starting with our late-stage complement pipeline, our three ongoing registration trials with eculizumab continue to progress as planned. In Q4 in kidney transplant, we completed enrollment in our delayed graft function registration trial and expect preliminary data in the second half of 2016.

In neurology, we have completed enrollment in our refractory Myasthenia Gravis trial and expect to have preliminary data in mid-2016. And we are on track to complete enrollment in the relapsing neuromyelitis optica spectrum disorder trial this year.

In addition to Soliris, we have eight additional complement inhibitors that we are developing with urgency. Our lead program ALXN1210, a longer acting C5 antibody, that has a half-life nearly three times that of Soliris, has shown rapid, sustained and complete inhibition of free C5 in healthy volunteers.

We have two ongoing clinical studies to evaluate LDH reduction and safety in patients with PNH, receiving the ALXN1210 at varying doses and dosing intervals. And these two studies we are evaluating monthly and even longer dosing intervals. In December, we announced preliminary data from the initial PNH patients, which showed a rapid reduction in LDH of 88% and 85% just three weeks after treatment, which is consistent with what we saw in the pivotal Phase III TRIUMPH study with Soliris.

We have now completed enrollment in our Phase 1/2 study of ALXN1210 in patients with PNH and expect data in midyear. And we are also focused on rapidly enrolling our second PNH study. We will also be initiating a clinical program in patients with atypical aHUS this year, as well as evaluating other indications. We are targeting an approval for ALXN1210 and PNH in 2018.

Turning to ALXN1007, our novel anti-inflammatory antibody targeting C5a we progressed our Phase 2 study in patients with Gastrointestinal Graft-versus-Host Disease or GI-GVHD, a severe and life-threatening rare autoimmune disease.

In Q4, we shared interim data, which showed a 28-day overall response rate of 80% and a 28-day complete response rate of 70% compared to historical response rate of 56% and 49%, respectively. The interim data support the continued advancement of ALXN1007 including the evaluation of higher doses in additional patients with GI-GVHD.

Turning now to our robust metabolic pipeline and starting with SBC-103. SBC-103 is a recombinant form of the NAGLU enzyme, produced with the unique and proprietary protein expression platform, which is administered intravenously for patients with mucopolysaccharidosis IIIB or MPS IIIB. MPS IIIB is a rare devastating disorder, characterized by CNS and systemic accumulation of heparan sulfate due to a genetic deficiency in the NAGLU enzyme.

In Q4, we presented interim three months data from our Phase 1/2 study. This study showed a dose-dependent reduction of heparan sulfate levels in cerebrospinal fluid in three dosing cohorts with a mean reduction of 11% observed at the highest 3 milligram per kilogram dose. We are encouraged that SBC-103 has a potential to provide both systemic and CNS clinical benefits due to blood brain barrier penetration.

We will now look to see if the dose-dependant response is maintained over a six-month dosing period and are pleased that the data will be presented at a late-breaking poster at the WORLDSymposium next month. The interim data for SBC-103 provides evidence that our unique and proprietary protein expression platform could enable other enzyme replacement therapies to cross the blood brain barrier, opening up a large set of potential treatment options for patients.

We have initiated preclinical research initiatives in other lysosomal storage diseases with CNS morbidities and are prioritizing development of novel ERTs against these disease targets by evaluating the severity of patient CNS symptoms, applicability of technology for CNS transport for each disease and the potential to provide a transformative benefit to patients. I look forward to providing updates on our progress with our platform in future calls.

Moving to our cPMP replacement therapy for patients with Molybdenum Cofactor Deficiency, or MoCD Type A, a rapidly progressing lethal disease afflicting newborns, we have initiated a pivotal study to evaluate the efficacy and safety of ALXN1101 in neonates with MoCD Type A and we look forward to progressing this registration study in 2016.

Beyond our current clinical programs, we are also keenly focused on progressing our preclinical pipeline and expect four of these programs, three metabolic and one additional candidate from our growing complement inhibitor portfolio to enter the clinic this year. We are excited about the multiple catalysts in our expanding pipeline, which we expect to deliver up to six additional product or indication approvals through 2018.

I will now turn the call back to David. David?

David Hallal

Thanks, Martin. We are very pleased with our performance in 2015 and are entering 2016 from a position of strength. We are off to a strong start, as we execute on our two new metabolic launches and continue to grow our Soliris business. We also look forward to the multiple development milestones in our robust rare diseases pipeline that is poised to produce transformative therapies for patients with rare and devastating diseases. As always we thank our talented employees for their dedication, to our mission, as we work to transform the lives of patients around the world.

Now, let's open up the line for questions operator.

Question-and-Answer Session


[Operator Instructions] We'll go first to Eric Schmidt of Cowen and Company.

Eric Schmidt

Just two quick ones perhaps on Soliris trajectories in 2016. I guess first, Vikas, I think you mentioned the impact from Latin America in Q4 and I assume that was mostly Brazil related. Has that issue been fixed in that region? And what does your 2016 guidance imply with regard to continued shipments into Brazil?

And then, second, maybe a broader picture on the guidance. If I do the math looking at 2014 sales into 2015 sales, I guess, if you correct out for the net stocking effect in 2016 and the FX impact, you actually would have grown sales up $600 million year-over-year in 2015. Yet the 2016 guidance is calling for, again, netting out the FX impact about $450 million in year-on-year growth. So trying to reconcile that with David's comments that the new patient adds are very steady. I'm sure there's some issue with my math, maybe you could help figure that out.

David Hallal

Yes, sure. Vikas?

Vikas Sinha

So we had a bet with Martin that I'll get the first question, so thanks a lot for that. I won the bet. So let's talk about Brazil first. We had a $15 million impact in Brazil as a yearend. Government restrictions delayed our orders. We feel that we have sorted out the issues right now in February. So we have to factor that into our guidance in 2016. So we think that the business is usual is ongoing from February onwards.

Regarding the broader picture of -- and your math is absolutely right, $600 million and $450 million. So if you recall in the beginning of 2015, I talked about the impact of foreign exchange overall for us is going to be $320 million going into 2015 compared to 2014, right? Out of that the hedge is going to take half of it out. So the hedge definitely helped us in 2015, but going into '16 and '17 that the remainder $160 million is going to get impacted.

So what you see here is the $450 million growth is now adjusted for that FX impact that was felt between '14 and '15. And so now from '15 to '16, there will be an additional $120 million. Now, it is not purely attributable to the growth. It is actually the base results are getting impacted.

So if you really think through the two phases, if you look at 2015 number once again, what you see is $2.6 billion was a starting line, and when you suddenly get to January 1 that number is $120 million less, so you're starting from that number, and you're adding that $450 million. Does that answer your question?

David Hallal

Eric, I would just add on top of that, all of those dynamics are actually impacted by the fact that in 2015 we added a similar number of patients with PNH and aHUS, as we did in the prior year, and we expect moving into 2016, we will see that very same dynamic, a similar consistent high number of new patients commencing treatment with PNH and aHUS with Soliris, as we've seen in prior years as Vikas is saying, not only the impact of FX, and the impact of hedging, but the larger base that we've accumulated over that time as well.

Vikas Sinha

And just to add to that, given that $320 million, we got the $165 million, we got $120 million small proportion of $40 million to $50 million is going to be impacting '17 and onwards.

Eric Schmidt

I'm sorry, what was the '17 impact, Vikas?

Vikas Sinha

If we look at the $320 million, $165 million came in 2015. We are absorbing around $120 million this year. So approximately $40 million, $50 million will be left, which will get felt in 2017, if the currency is stays where it is.


And next, we'll go to Anupam Rama of JPMorgan.

Anupam Rama

Maybe just a quick one on SBC-103. Are there additional efficacy markers we should be looking for at world beyond heparan sulfate declines? And I noticed that the press release said, that the natural history study had also completed enrollment, should we expect any natural history data at the conference?

David Hallal


Martin Mackay

Just to say, Anupam, thank you for your question, and really we will be focused on there heparan sulfate levels. As you know, Anupam, this is the bad player in this disease and while it's a biochemical marker, it's directly related to the pathophysiology of disease. So we will be concentrating on that, and no intention to produce more natural history data at this stage.


And next from Bank of America Merrill Lynch, we'll go to Ying Huang.

Ying Huang

A quick one for, Vikas, first. So you guys are looking at potentially 48% to 49% op margin in 2018. When I looked at your 2015 R&D guidance, it's a little bit above street numbers. So can you talk a little bit about the path forward in terms of achieving that 48%, 49% op margin?

And then for, Martin, I know you will present the six-month data, but can you give us a little bit color in terms of since you presented the three-months data for SBC-103, are you seeing more pronounced effect in the CSF heparan sulfate reduction or not?

David Hallal

Yes, Vikas?

Vikas Sinha

So what we're looking at it is -- let's address the R&D expenses first that relates very closely with the 48% to 49%. If you look at second half of last year, where we integrated Synageva, so average run rate per quarter in the second half is $150 million of R&D expenses. So when we look at annualizing that for 2016, it's approximately starting from a $600 million base.

So what we have looked at here is a very financially disciplined growth of literally 10% to 12%, much, much lower than what the topline growth is going to be. And we'll continue this process, as we go forward in '17 and '18. So we take that 22% of sales down, below 20% by the time we get to 2018.

Similarly in SG&A, we came down from 28% in the second half of last year to 26% this year, and as the sales move forward and we have our topline growth coming over in 2017 and 2018 and lesser FX impact, we will start seeing the improvements in those reads, also from 26% further down by few percentage, taking us down to 48% to 49%. Can I pass it on to Martin?

David Hallal

Yes, Martin.

Martin Mackay

Yes, in terms of the second part of your question, thank you, Ying. Obviously, we'll be presenting those data at the meeting, so we can't discuss them now. But if you remember the three months data that we did present, we were really very excited by, and just as a reminder, if you think about it in a 3 milligram per kilogram dose where we saw an 11% reduction, really showing that we were able to cross the blood brain barrier.

This has two impacts for me really. One is to look at the six month data to see what we see in this disease. But it also speaks to the expression platform that we're using here and that notion of being able to use the platform for other diseases where we need to get large molecules across the blood brain barrier, so in both levels we were really excited by these three months results and look forward to presenting the six months data at that in time.


We'll go to Matt Roden of UBS.

Matt Roden

I do have one question that just happens to have a couple sub-clusters. It's all for Martin about the SBC-103. So first, at your Investor Day, you showed a nice linear dose response with SBC-103. But I'm not sure. Do you have any evidence for a time-dependent response? In other words, did you look at any time points prior to 12 weeks in the lead-up to those data?

The second sub-cluster is, I think what you're saying about the data update at WORLD is it will be six month follow-up on the doses that we've already seen, but is it possible that we'll see any doses over 3 mgs per kg? And just can you just talk about your plans to further dose escalate?

And then, the related third part is how high of a dose is really feasible for 103? What are the limitations to dose escalation? Is it just safety, volume or some other practical matter that we're not thinking about in terms of getting up that dose curve?

David Hallal

Yes, Matt. Before I turn over to Martin, as a reminder, right that one thing that was really nice that we showed back on Investor Day, was the consistency of what we saw in the patients compared to what we saw in our preclinical models, which Martin indicated. And there is a prescribed, as you might imagine, taking a sample of the CSF, it's not something that is done so frequently. So Martin can talk you through that.

But the reason why I mentioned the preclinical data, remember we also show the preclinical data at the 5 milligram and the 10 milligrams per kilogram dose, showing more reduction in the preclinical models of heparan sulfate in the brain, and so that's the intention of the program moving forward. But Martin, can provide more color on the frequency of the CSF in the next steps.

Martin Mackay

No, I think you articulated very well, David. And thank you Matt for those three questions, buried nicely into one question, very admirable. Really, as we alluded to, this was a six month study, which is the data that we will present at the WORLDSymposium, but we did have a 12 week look, we didn't' look at dates before that. So that answers the first part of your question.

In terms of the second, we won't present any higher doses at that six months. This will be the six month data for 0.31 and 3 milligrams per kilogram, but as you alluded to and David mentioned our ability to go to higher doses makes complete sense in this devastating disorder.

And then your third one is really a basic pharmacology question about how high can you go up with dose escalation. And this applies to any program, as you know better than I do, given the devastating nature of the disease, the encouraging results that we see, particularly the 3 milligram per kilogram dose, our ability to go higher than that is clear and it's something that we want to do. We will also, as always, be very careful. We'll be looking at safety along the way such that we do proper dose escalation studies, and these will unfold over the next period.


Yatin Suneja of SunTrust has a next question.

Yatin Suneja

I have a question on Phase 3 REGAIN trial in Myasthenia Gravis. Could you help us maybe understand what sort of improvement in MG-ADL score you think might be clinically meaningful? And then how should we think about the performance from the placebo arm, any particular endpoint other than MG-ADL that we might be looking for? I have a quick one for Vikas as well. Could you maybe tell us what sort of European pricing discount have you assumed in the guidance?

David Hallal

So why don't I start, then I'll go to Martin and then over to Vikas. Remember in the Myasthenia trial, the patients that we enrolled were failing multiple immunosuppressive therapies. And so despite the use of aggressive standard of care, they were progressing with refractory disease and progressing the MG-ADL of at least six or even more.

And of course, we leveraged our Phase 2 proof-of-concept data to help us design the trial and agree with regulators on what we thought the right endpoint would be, which is changed in MG-ADL at 26 weeks from baseline. In terms of magnitude, Martin, do you just want to talk through what we saw in the proof-of-concept study and then as we bring that through the registration trial?

Martin Mackay

Absolutely, David. And again, you highlighted the fact that MG-ADL, we agreed with the regulators. So this would be the most meaningful clinical endpoint for the patients. And to answer a kind of subpart of your question clearly, we'll be measuring exactly the same things in the placebo arm. And as we also said, we will aim to report data from the study in mid-2016.

In terms of what we saw in the investigator studies around the Phase 2 data, you may recall that we showed an 85% difference in the MG-ADL between eculizumab and placebo. The trial has gone very well in terms of the mechanics of it. We exceeded our enrollment. And we believe we've got a really good clinically meaningful endpoint and that we're really looking forward for the data to readout, as mentioned, midyear this year.

Vikas Sinha

And Yatin, on the European pricing discount side, we normally don't break it out by region. But on an average, we have seen 2% to 3% decline in the prices over the past. And that's what we factored into our forecast going forward. However, we will see that in 10-K that will be submitted soon, but it was less than 2% in 2015.


We'll move next to Chris Raymond of Raymond James.

Chris Raymond

Just one question on SBC-103, so Synageva used to talk about this, but I haven't really heard you guys mention this, I think there is a four-week temporary interruption phase as part of the Part B of the Phase 2/3. And just kind of curious, when do you think we would be able to see data from that?

And knowing what you know now with the preliminary data that you presented at your R&D Day and what we'll see at WORLD, do you think that will be a meaningful event in terms of -- do you think four weeks is enough time to see sort of a reversal of the heparan sulfate effect or would you design this differently, perhaps, now?

David Hallal

So Chris, I'll get started. As you know that what we've laid out was the patients are going to carry through on their original dose through the six-month period, right. Then those patients are all going to move for a period of time to the highest of the initial three doses, the 3 mgs per kg.

We are then, as we indicated at Investor Day, going to re-randomize the 11 patients to the five or the 10. But yes, there will be a period of time in which -- I wonder if this is what you're asking, there will be a period of time in which all 11 patients will move up to eventually the 3 mgs per kg dose for a short period of time on their way to what we've now amended the protocol to do is test even higher dosage. Is that your question?

Chris Raymond

No, I'm sorry. So what I'm asking is originally as this trial was designed, there was a four-week interruption period on the Part B Phase. Is that still part of the plan? And if so when should we expect to see something from that?

Martin Mackay

No, you won't see anything from that, Chris. In answer to, if I heard you correctly at the start, we've really gone beyond that and that's why we haven't discussed it, based on the data we saw in the 0.3, 1 and 3, and as David alluded to the move to the higher doses with 5 milligrams and 10 milligrams, we believe we've gone over that. As I said, we'll show the six month data at the WORLDSymposium, and then clearly the 5 milligram and 10 milligram doses will come out in due course.

David Hallal

Which in a way, Chris, right, we've got a couple of shots at looking at this, right. The first is what was the dose-dependent response at 12 weeks, hold the patients at that very same dose, see what the impact was in terms of additional time through an additional 12 weeks to get to six months, and then we'll dose escalate from there.

Chris Raymond

But to be clear, no dose interruption phase then?

David Hallal



Morgan Stanley's Matthew Harrison has a next question.

Cyrus Mahloudji

This is Cyrus calling in for Matthew. So regarding the pipeline for the path forward for SBC-103, can you guys move directly to Phase 3? And then when you're going to meet with regulators? And when could they offer some feedback? And then for 1210, how would you define the bar for LDH reduction? And what can you tell us about trough levels, because we only got a couple weeks of data at Analyst Day?

David Hallal

I'll just say that I think we've laid out our plans for 103, and I think it's just too early at this point to sort of speculate on what the registration plan will be. Clearly, we have a like what we've seen so far through 12 weeks. We look forward to taking look at the six month data. And all of this we'll inform with some other secondary endpoints in the Phase 1/2 what our plan is moving forward. It is a devastating disease, so we look forward to ultimately reaching patients as fast as we possibly can. In terms of 1210, Martin?

Martin Mackay

As we've said before, Cyrus, what we're looking for here with 1210 is rapid sustained and complete inhibition. As you know 1210 is an antibody, it's behaving very well in the study so far. And as you know we've had a single ascending dose study, multiple ascending dose and volunteers at two studies and patients, one of them where we've completed enrollment, and clearly we're following the data along the way now and expect to clearly continue to see the data that we showed at Investor Day showing that this antibody continues to be well behaved.

David Hallal

And I would just add that, so that's precisely why we're running two trials in PNH patients, one of which as Martin indicated today, is completely enrolled. We're looking at a variety of induction and maintenance doses and looking at intervals of once monthly and longer. We will be evaluating those different dose levels and looking at trough over time. And as Martin said, we look forward to presenting a more fulsome look at the data for 1210 for the first time near mid-year in PNH patients. And so there will be more to certainly discuss then.


We'll go next to Geoff Meacham of Barclays.

Geoff Meacham

Got a few on 1210, but they're all related. So I guess to get to a 2018 PNH approval does the current Phase 2 have to rollover to a registration trial? That's the first one, the first part. Second part is, would you guys expect to have a switching trial in the initial NDA or what's the plan for that in PNH? And then the third part, and probably not a lot of visibility in this, but are there any subtleties in the regulatory sort of path or requirements when you look at 1210, the approval path in the EU or rest of world?

David Hallal

Yes, maybe I'll just start and then Martin can jump in. So our view on 1210 PNH in 2018 is that certainly these two trials are be supportive, but not necessarily the rollover trials for registration. But all of it will be informative both to our registration trial plan and design, and the dose in the interval that we ultimately select. I'd just sort of leave it at that, and do we feel comfortable that the way that we've laid it out that these timelines certainly fit nicely with what our plans are.

Martin, maybe I'll just say that, and I know you'd say the same thing, Geoff, it's too early to really talk about the plan for the registration trials at this time, whether or not it's naïve or switch or a combination of the two. I think that we're assessing that as we speak. And I think that as we developed Soliris and eculizumab in PNH, regarding your question about subtleties, I think we'd be looking like we normally do to develop a global program that would be ideally suited for all of the regions and territories and countries in which we operate.

Martin Mackay

I think you've really cracked it there, David. I mean, in terms of the two volunteers studies and two patient studies will really help us inform the pharmacokinetic and pharmacodynamic profile of 1210, which will allow us exactly to decide on the Phase 3 program. We're very confident in the timeline that we've laid out based on everything that we've seen today.

And then secondly, just to really reinforce David's point; we're clearly in discussions with regulators. These will be global studies as we did with eculizumab and no expectations really of any nuances over and above what you regularly see talking with different regulators.

David Hallal

I think, Geoff, the other thing I'd just comment on is when we think about our timelines and such, obviously we have an extremely strong vantage point, as it relates to the global PNH arena, the investigators, the physicians, the patients, which all enable us, obviously to do outstanding development work in this area.


Terence Flynn of Goldman Sachs has a next question.

Terence Flynn

Just one for me on Strensiq. I was wondering if you're willing to offer any insight here with respect to the types of patients you're seeing on drug at this point, and also the contribution from new starts versus any clinical trial transition patients?

David Hallal

I'll start Terence and then Carsten will come in. I think that Q4 was certainly supported by -- the program's been in our hands for a while. We've been applying our PNH and aHUS know-how to HPP for some time. And as a result of that, right, as we indicated that in any single country, because the trials were generally small and global in nature, not any one country is necessarily disproportionately impacted by clinical transitioning patients.

But at the same time, with our introduction in the U.S. in Q4, we did benefit from some clinical trial patients moving over, and then through our efforts, some patients that we had identified along the way commencing treatment. So as I think, Vikas, and Carsten indicated earlier in the call, an initial group of patients, but Carsten can fill you in a little bit more on the types of patients, beyond whether or not they're clinical trial or not sort of the dynamics and what we're saying at the types of patients commencing treatment.

Carsten Thiel

Yes. Thank you, David. So with our focus on the pediatric patient population and our disease education efforts on that population, certainly what we have seen so far is a lot of newly diagnosed patients in the pediatric onset in a HPP setting.


And our final question today will come from Alethia Young of Credit Suisse.

Alethia Young

One just on Strensiq. I wondered if you maybe could provide a little bit more color on the kind of incidents numbers. I know you've mentioned the prevalence. And then just also on Myasthenia Gravis, the refractory population, can you remind us of kind of the numbers and the potential market opportunity there as well?

David Hallal

So Carsten, so I'll just say that one thing we mentioned on HPP is it's, unlike PNH and even LAL-D, where there are publications on prevalence, they're really in both aHUS and HPP, it's been a little lighter. There has been some indications of what the incidence might be and the youngest population of patients, right, a range of 1 and 100,000 to 1 and 300,000 live births being impacted by HPP.

There haven't been -- and Carsten and the team working with Martin's team trying on to better understand some of the mutations that are identified in the HPP space to try to give us a better understanding of what the prevalence might be. But at this point we don't really have much more to work on. Even some of these incidents numbers I'm sharing with you are from as long ago as the 1950s with the Fraser publication, and more recently a French publication. Regarding MG?

Martin Mackay

Yes, just to say briefly, Alethia, I think as you know that the patients that we have are refractory patients for Myasthenia Gravis that failed treatment with at least two treatments, so they are the more severe. In terms of the estimate, we estimate a subset is a small proportion of the broader MG population. Maybe a few thousand patients in the U.S., as you may imagine. So it's very much in the area where we work these ultra-rare patient populations, the most devastating and the most severely affected by the dieses.

David Hallal

Yes, and where these patients have really no other hope, because they have been worked through the system and the standard of care.

End of Q&A


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