Alexion Pharmaceuticals (ALXN) Q1 2018 Results - Earnings Call Transcript

Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN) Q1 2018 Earnings Call April 26, 2018 10:00 AM ET

Executives

Susan Altschuller - Alexion Pharmaceuticals, Inc.

Ludwig N. Hantson - Alexion Pharmaceuticals, Inc.

Paul J. Clancy - Alexion Pharmaceuticals, Inc.

John J. Orloff - Alexion Pharmaceuticals, Inc.

Brian Goff - Alexion Pharmaceuticals, Inc.

Analysts

Geoffrey C. Porges - Leerink Partners LLC

Eric Schmidt - Cowen and Company

Christopher J. Raymond - Piper Jaffray & Co.

Matthew K. Harrison - Morgan Stanley & Co. LLC

Anupam Rama - JPMorgan Securities LLC

Terence Flynn - Goldman Sachs & Co. LLC

Josh Schimmer - Evercore ISI

Geoffrey Meacham - Barclays Capital, Inc.

Robyn Karnauskas - Citigroup Global Markets, Inc.

Ying Huang - Bank of America Merrill Lynch

Martin Auster - Credit Suisse Securities (NYSE:USA) LLC

Slanix Alex - RBC Capital Markets LLC

Operator

Good morning, and welcome to the Alexion Pharmaceuticals First Quarter 2018 Results Call. Today's call is being recorded. For opening remarks and introductions, I would now like to turn the call over to Ms. Susan Altschuller, Vice President, Investor Relations. Please go ahead, ma'am.

Susan Altschuller - Alexion Pharmaceuticals, Inc.

Thank you very much. Good morning. Thank you for joining us on today's call to discuss Alexion's performance for the first quarter of 2018. Today's call will be led by Ludwig Hantson, our CEO. Ludwig will be joined by Paul Clancy, our Chief Financial Officer; John Orloff, our Global Head of R&D; and Brian Goff, our Chief Commercial Officer.

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 would like to point out that we will be making forward-looking statements and these statements involve certain risks and uncertainties that could cause our actual results to differ materially. Please take a look at the risk factors discussed in our SEC filings for additional details. These forward-looking statements apply only as of today and we undertake no duty to update any of the statements after the call, except as required by law.

I'd also like to remind you that we will be using non-GAAP financial measures which we believe provide us useful information for the understanding of our ongoing business performance. Reconciliations of our financial results and financial guidance are included in our press release. These non-GAAP financial measures should be considered in addition to but not a substitute for our GAAP results. Thank you. Ludwig?

Ludwig N. Hantson - Alexion Pharmaceuticals, Inc.

Thank you, Susan, and thanks for joining us this morning. We are very pleased with the strong start to the year and the progress we have made to deliver on our key objectives to drive sustainable, long-term growth.

First, we continued to grow our in-line business from a complement and metabolic portfolios, delivering strong revenue growth, including year-over-year revenue growth of 7% and volume growth of 7%. Second, our Soliris launch for patients with gMG is off to a strong start, particularly in the U.S. and we're on track to meet our ambition of gMG being the best Soliris launch.

Third, today we announced positive data from the 1210 PNH Switch study. Once again, 1210 met a high bar set by Soliris in a second large Phase 3 study. We now have robust data showing that patients with PNH can effectively and safely transition from Soliris to 1210. Based on the totality and consistency of the data from the Phase 3 Naïve and Switch studies in a broad patient population, we believe we have a strong, differentiated profile for 1210 and plan to move rapidly through regulatory submissions in the U.S. and EU in mid-2018, followed by Japan later in the year. John will provide detailed study results later in the call.

Fourth, we executed on our disciplined business development plan by announcing the tender offer to acquire Wilson Therapeutics which marks an important first step in rebuilding our clinical pipeline. And, fifth, we delivered very strong financial performance and have updated our guidance to reflect the strength of the underlying business and the announced tender offer of Wilson Therapeutics.

Moving to slide six, we're pleased with the differentiated profile of 1210 and believe it has the potential to become the new standard of care for patients with PNH. The robust efficacy data from two Phase 3 trials show numeric results in favor of 1210 across all primary and key secondary endpoints. This, along with an every eight-week dosing schedule, optimized weight-based dosing, and potential economic and quality-of-life impacts could impart meaningful benefits to patients, physicians and payers. If approved by global regulators, we will leverage over a decade of real-world experience to enable rapid conversion of patients to 1210. Brian will provide more details on our plans for 1210.

With that, I will now turn the call over to Paul to discuss the first quarter financial results and our updated guidance for this year. Paul?

Paul J. Clancy - Alexion Pharmaceuticals, Inc.

Thanks, Ludwig. Starting with slide 8; in the first quarter, we delivered revenue growth of 7%, driven by volume growth of 7%. We delivered non-GAAP earnings per share growth of 22%. Continued momentum on the top-line, coupled with expense control, led to an approximate 600 basis point expansion in non-GAAP operating margin. We're updating guidance to reflect the strength of the core business as well as the preliminary financial impact of the announced tender offer for Wilson Therapeutics.

Turning to slide 9, net product sales in the first quarter were $930 million. Net product sales were driven by volume growth of 7% and FX tailwind of 2%, partially offset by a price headwind of 2%. Net product sales were driven by growth in the U.S., EU and Asia Pacific, offset by decreased sales in Latin America. The softness in Latin America sales related to the timing of ordering patterns in 2018 as well as comparison to the first quarter of 2017.

Turning to slide 10, Soliris revenue in the first quarter was $800 million, and year-over-year volume growth was 2%. Recall that the first quarter 2017 revenues included a benefit of roughly $49 million from both the recognition of deferred revenue and timing of orders from certain non-U.S. tender markets. In addition, Q1 headwinds to Soliris from 1210 and other clinical trial enrollments were approximately $42 million.

As expected, this was an increase from the approximately $37 million in Q4 due to the ramp-up of enrollment. When adjusting for all these items, the underlying PNH and aHUS volume growth in the first quarter was in the low double-digits. In its first full quarter, the gMG launch is off to a very strong start and is a growing contributor to Soliris revenues. It's an exciting launch for us and Brian will provide greater context.

As shown in slide 11, Strensiq remains a key driver of growth. We reported revenues of $111 million in Q1, representing 50% revenue growth and 58% volume growth year-over-year. In the first quarter, we realized a $7 million benefit due to a change in a distributor arrangement in the United States.

Looking at Kanuma, we achieved Q1 revenues of $20 million, representing 63% revenue growth and 58% volume growth year-over-year. Sequential quarterly growth was impacted by the timing of orders in tender markets and previously deferred revenues that benefited Q4 by approximately $5 million.

Turning to the P&L on slide 12, during the quarter, we delivered a non-GAAP operating margin of 50%, driven by revenue growth and operating expense leverage. Non-GAAP R&D was $162 million or 17% of revenue, and non-GAAP SG&A was $220 million or 24% of revenue.

R&D expense was unusually low in Q1 owing to the restructuring efforts in 2017 and lower than expected transition expenses. We expect R&D expense to ramp higher, especially in the second half of 2018, driven by the ongoing R&D expense from anticipated rebuilding of the pipeline. The non-GAAP effective tax rate in the quarter was 15.3%. We reported Q1 non-GAAP earnings per share of $1.78, which grew 22% year-over-year. GAAP earnings per share was $1.11.

During the quarter, we generated free cash flow of $233 million and ended Q1 with approximately $1.6 billion in cash and marketable securities. We utilized a portion cash flow to repurchase 700,000 shares for approximately $85 million. We anticipate approximately half of our cash and marketable securities will be used to finance the recently announced tender offer for Wilson Therapeutics. Following the anticipated tender offer and regulatory approval, we expect the deal to close in the second quarter. The acquisition fits well with our approach to capital allocation, and our goal is to continue to build the pipeline.

Let's turn to slide 13, which outlines our updated financial guidance. We're now guiding to total revenue of $3.925 billion to $3.985 billion, which represents an 11% growth year-over-year at the midpoint of the range. This guidance includes our expectations for the impact of 1210 and other trials on Soliris as well as our assumptions for price and foreign currency.

For Soliris, our revenue guidance is $3.38 billion to $3.42 billion, an increase over the prior guidance due to our steady underlying growth in PNH and aHUS as well as the growing contribution from gMG. Our planning assumption for PNH and aHUS, when adjusting for 1210 and other trials, is for volume growth in the high single-digits, which we believe is a prudent planning assumption.

Turning to metabolics, our revenue guidance is $545 million to $565 million, reflected continued momentum in particular for Strensiq. Our revenue guidance for 2018 assumes a foreign currency tailwind of $45 million to $55 million or approximately 1% benefit. In addition, we estimate price will be a 3% headwind in 2018, two-thirds attributable to Soliris and one-third to metabolics.

GAAP-operating margin is expected to be 8% to 11%. This is inclusive of our estimate of the announced Wilson Therapeutics tender offer, as well as restructuring and related expenses. As you recall, from an accounting perspective, the acquisition will be treated as a purchase of an asset. And following the closing, the acquisition cost will be expensed immediately to R&D on the GAAP P&L.

Non-GAAP operating margin is expected to be in the range of 48% to 49%, representing approximately 300 basis points to 400 basis points expansion year-over-year. This is inclusive of expected ongoing expenses for WTX101 and additional expenses related to rebuilding the pipeline. At the midpoint of this guidance, non-GAAP operating profit growth is expected to be 20%. We're guiding now to a 2018 non-GAAP effective tax rate of 15% to 16%.

GAAP earnings per share is expected to be $1.35 to $1.75 inclusive of the impact of Wilson Therapeutics. Non-GAAP earnings per share is expected to be $6.75 to $6.90 per share. At the midpoint of this range, this represents approximately 16% growth.

Q1 was an excellent start to the year. We plan to continue to execute on our 2018 objectives, including delivering on the core business and investing in building our pipeline.

I'll turn the call over to John now.

John J. Orloff - Alexion Pharmaceuticals, Inc.

Thank you, Paul. I'm really happy to report that the 1210 Phase 3 PNH Switch study was a success. We now have a complete picture of the differentiated profile of 1210 based on strong efficacy and safety data from two large Phase 3 studies. And I'm pleased to share these data with you today.

I will start with a review of the Switch study design on slide 15. This is a Phase 3 open-label, randomized, active-controlled global non-inferiority study to evaluate the safety and efficacy of 1210 versus Soliris in adult patients with PNH who were clinically stable after having been treated with Soliris for at least the past six months. The purpose of this study is to show that patients currently receiving Soliris can effectively and safely transition to 1210.

The study enrolled 195 patients who were randomized in a 1:1 ratio to receive 1210 or Soliris. It consists of a four-week screening period, a 26-week randomized treatment period and an ongoing extension period in which patients are receiving 1210 for up to two years or until regulatory approval is obtained.

Patients in the 1210 arm were treated in three weight-based dosing cohorts every eight weeks beginning on day 15 following a single loading dose on day 1. Patients in the Soliris arm were treated every two weeks in accordance with the label dosing regimen for Soliris in PNH.

Turning now to the core study data at 26 weeks, I would like to orient you to the forest plot on slide 16. The lines represent the lower and upper bounds of the 95% confidence intervals and the difference in the treatment effect estimates. They were assessed relative to the respective pre-defined non-inferiority margin represented by the red triangle. For the primary endpoint, a percent change in LDH levels, the lower bound of the 95% confidence interval is less than 1%, which far exceeds the predefined non-inferiority margin of 15%.

You also see that the mean percent change from baseline was -0.82% for the 1210 arm, a slight reduction in LDH values which were already in the normal range at baseline compared to a mean increase of 8.39% in LDH levels for the Soliris arm. Additionally, the point estimate falls to the right side of no difference, indicating that numeric results favored 1210 versus Soliris.

We had a similar plot for the key secondary endpoints. As you see, all four met non-inferiority, as the lower bounds of the 95% confidence intervals are substantially greater than the predefined non-inferiority margins. In addition, the point estimates favor 1210 over Soliris for all four key secondary endpoints.

Since we achieved non-inferiority on the primary and all four key secondary endpoints, our Statistical Analysis Plan allowed us to test for superiority. The hierarchical testing order pre-specified percent change in LDH as the first endpoint tested. The difference in the percentage change in LDH between the 1210 and Soliris arms was 9.21% with a lower bound of the 95% confidence interval of -0.42% which came close but did not quite reach statistical superiority with a P value of 0.0583.

Therefore, no further testing for superiority was conducted. However, it is notable that in this patient population, no patients receiving 1210 experienced breakthrough hemolysis compared to five patients in the Soliris arm, including one patient who experienced three breakthroughs and withdrew from the study due to lack of efficacy.

Turning to slide 17, you see that in the Switch study, 1210 had a safety profile consistent with that seen for Soliris. 1210 was generally well-tolerated and there were no reported cases of meningococcal infections in either arm of the study. No patient withdrew from the study due to adverse events. Treatment compliance was 100% for both the 1210 and Soliris treatment arms. No treatment-emergent anti-drug antibody was observed for 1210 and one was observed for Soliris. No neutralizing antibodies were observed in either arm.

On slide 18, you see on one side the results consistently favoring 1210 across all primary and key secondary endpoints in both the Naïve and Switch studies. We are particularly pleased with the low rates of breakthrough hemolysis for 1210 compared to Soliris across the Phase 3 program. Importantly, patients receiving 1210 also improved their quality of life as measured by the FACIT-Fatigue scale.

In summary, we are confident that we've established the benefits of 1210 based on the totality of the Phase 3 data in more than 440 patients with PNH around the world. In two complementary studies, 1210 dosed every eight weeks achieved non-inferiority to Soliris and substantially exceeded each non-inferiority margin with numeric results favoring 1210 for every primary and key secondary endpoint. We are now preparing regulatory submissions to the FDA and European Commission which we intend to file midyear followed by our submission to the PMDA in Japan later in the year.

Turning now to business development activity on slide 20. This month, we announced the tender offer to acquire Wilson Therapeutics, a biopharmaceutical company based in Stockholm, Sweden that is developing WTX101, a Phase 3 asset for patients with Wilson disease. This is a rare genetic and chronic disorder in which copper accumulates in vital organs, especially the liver and the brain. It is estimated that roughly 10,000 Wilson disease patients are diagnosed and treated in the United States and the EU5.

WTX101 is a first-in-class high affinity copper binding agent that addresses the underlying cause of the disease, namely, the accumulation of toxic copper in the liver, serum in central nervous system, which can have devastating consequences for patients. WTX101 has a unique mechanism of action that addresses the limitations of current treatments and has the potential to become the standard of care for patients with Wilson disease. We look forward to applying our clinical development and regulatory expertise to our developing the innovative treatment.

Looking at slide 21, our objective is to build a pipeline through both internal research and disciplined business development deals that leverages our fundamental strength in complement biology and focuses on our core therapeutic areas of hematology, nephrology, neurology and metabolic disorders.

Let me provide brief updates on our other pipeline programs. In addition to the 1210 PNH studies I've already talked about, we continue to enroll patients in the 1210 Phase 3 atypical HUS study in complement inhibitor, treatment-naïve adult and adolescent patients and in our pediatric studies in patients with PNH and atypical HUS. We also continue to make progress in our programs to develop a higher concentration formulation of 1210 delivered subcutaneously.

Moving onto Soliris in relapsing neuromyelitis optica spectrum disorder, or NMOSD, we have completed enrollment in the PREVENT study, a single, multinational placebo-controlled Phase 3 trial. We now expect to report data from this study in the fourth quarter of 2018. As a reminder, this is an event-driven study and we are waiting on final events to close the study and analyze the results. I look forward to providing updates on our R&D programs throughout the year.

With that, I'll turn the call over to Brian to discuss the commercial highlights for the quarter and the team's plans for 1210. Brian?

Brian Goff - Alexion Pharmaceuticals, Inc.

Thank you, John. I'll start with our in-line business and then discuss the expansion of our complement franchise, including some color on the potential 1210 launch. Starting with Soliris on slide 23, in the first quarter of 2018, we grew the treated population of patients with PNH and aHUS. We continue to identify new patients with PNH and still believe that the majority of patients with PNH have yet to initiate treatment.

This is especially encouraging, given that we're now in our 11th year of the Soliris PNH launch. In aHUS, we're still seeing a growing number of new patients starting on Soliris and continue to believe that the opportunity with aHUS is even greater than that of PNH. This continued momentum provides a strong platform as we prepare for the launch of 1210 and I'll provide a bit more color on our efforts in a moment.

Moving to gMG, which is on track to become the best Soliris launch, on slide 24, you see the trajectory in the U.S., where we're increasing the number of treated patients each month. I'm very pleased to report that as of the end of March, there were 400 patients enrolled in OneSource, including 194 patients on therapy. These patients are generally aligned with the REGAIN study population. As a reminder, these are patients with AchR antibody-positive gMG, who had inadequate response to appropriate immunosuppressive therapy and continue to suffer from significant unresolved disease symptoms, which represent approximately 5% to 10% of the total MG population.

As we've discussed in the past and unlike our experience in PNH and aHUS, patients with gMG are already diagnosed. However, there is low awareness about the role of complement mediated destruction of the neuromuscular junction in gMG. Our specialized and dedicated field team is actively educating neurologists, including neuromuscular specialists, on the role of complement in this devastating disease and the benefits of complement in addition with Soliris.

Turning to our metabolic franchise on slide 25, starting with Strensiq, I'm very pleased to report that the first quarter 2018 revenue has surpassed $100 million. Continued execution has enabled us to identify new patients with HPP in the U.S., Germany, and Japan and we're also now treating initial patients in the UK, France, Canada and Israel following the completion of funding agreements in these countries. We expect additional geographic expansion, so patients in other countries can have access to the transformative benefits of Strensiq, and we see significant growth opportunities ahead.

Looking at Kanuma, we continue to expand lab testing target an enriched patient population that are at higher likelihood for having LAL-D, such as those with NASH, NAFLD and familial hypercholesterolemia, who have elevated ALT and LDL levels. In addition, we expect to serve more patients as we secure funding agreements in additional countries.

Turning back to our complement franchise on slide 26, you can see that Alexion has a proven track record of being the global leader in complement inhibition. We believe there is meaningful growth ahead for both Soliris and 1210, if approved. We continue to strive to raise the bar for patients and provide them with numerous life-changing therapeutic options, the first of which could be 1210 delivered IV every eight weeks for patients with PNH.

If approved by regulators, our strategy will be to establish 1210 as the new standard of care for PNH. As shown on slide 27, there are a number of factors that we believe position us well to enable rapid conversion to 1210. First, 1210 has a compelling differentiated profile. Second, our 11 years of experience in PNH has given us a deep understanding of the disease and the needs of the patients. During this time, we've also established strong relationships and trust with the physicians who are treating these patients.

Third, and similar to our ongoing experience in launching Soliris in gMG, if approved, we will be launching 1210 into a market of identified PNH patients who are already on treatment. In addition, the safety and efficacy profile of 1210, coupled with the less frequent dosing schedule, creates opportunity for newly diagnosed, as well is currently untreated patients to initiate treatment with 1210.

Fourth, we're developing a compelling value proposition for 1210 based on its differentiated profile, including the direct and indirect costs relating to the benefits of every eight week dosing, low levels of breakthrough hemolysis and transfusion avoidance, as well as impacts on productivity and quality of life.

Fifth, the rapid enrollment into the PNH trials and high enrollment in the extension studies, as well as feedback from both patients and physicians, indicate a strong interest in the attributes of 1210. And, finally, initial patient and physician market research suggests that they favor the profile of 1210 over current treatment options. So, all of this together gives us confidence in our ability to rapidly deliver on 1210 becoming the new standard of care for patients with PNH.

I'll now turn the call back to Ludwig. Ludwig?

Ludwig N. Hantson - Alexion Pharmaceuticals, Inc.

Thank you, Brian. Let me conclude today's call by saying I'm very pleased with our first quarter performance and with what we have delivered over the past 12 months to position Alexion for the future. We've established a strong foundation that enabled us to get off to a great start. This positions us very well to deliver on our 2018 objectives that will drive sustainable growth and create long-term shareholder value. As always, I would like to thank our global employees for their dedication to our mission.

We will now open the call to questions. Operator?

Question-and-Answer Session

Operator

Thank you. We will now turn to the question-and-answer portion of our call. In order to accommodate as many people as possible, please limit yourself to one question. Our first question comes from Geoffrey Porges with Leerink. Please go ahead.

Geoffrey C. Porges - Leerink Partners LLC

Thank you very much for taking the question and for all the progress. A couple of quick ones. First, could you clarify all the moving parts in the change in the revenue from rest of world markets year-over-year from $175 million to $128 million, just so we understand what's going on and what if any of that change is from Brazil? And then a second question if I may, if we could just talk a little bit about you were sort of perilously close to superiority on certain endpoints in both of the trials. Now you have the profile for 1210. What other studies are you contemplating either in the existing indications or in other indications? Thanks.

Paul J. Clancy - Alexion Pharmaceuticals, Inc.

Geoff, this is Paul. I'll start with the first part of your question. Thank you for the question because it's actually important to clarify. It was probably the softness on Soliris kind of that sticks out from a geographic perspective. Couple points. One is that we're comparing to a time period in first quarter of 2017 where the $175 million was unusually high. And that was both the revenue deferral change in the first quarter of 2017, as well as some benefits from timing of tender orders a year ago.

On the flip side, in the first quarter of 2018, we had an unusually lower number of tender orders, particularly in Latin America. We're going to have a lot of inconsistency on those tender orders. So I think one was an unusually high and one was an unusually low time period for the rest of world. When you strip it apart, we were actually incredibly pleased, particularly also with the 1210 headwind. We're incredibly pleased with the Soliris performance.

John J. Orloff - Alexion Pharmaceuticals, Inc.

And, Geoff, this is John. Regarding your question about superiority, I think, if you take a step back and look at the totality of the data, two Phase 3 studies that were as successful, I think, is remarkable. All of the results numerically favoring 1210 versus Soliris, which I think is a testament to the team's careful optimization of the dose and dosing regimen that they took into the Phase 3 program that provides better coverage through a dosing interval despite the fact we're going from two weeks to eight weeks and reducing infusions from 26 to six.

We think that provides a very differentiated profile and a compelling value proposition. And at this point, we feel the data stands on its own and we'll be proceeding to regulatory filings in the middle of this year in the U.S. and EU and Japan later this year based on those two pivotal studies which is the largest program that's ever been conducted in PNH. As we said before, we also plan to proceed later this year with a gMG study and other potential studies.

Ludwig N. Hantson - Alexion Pharmaceuticals, Inc.

We have a differentiated profile with 1210. I don't think anybody will dispute that. And, for sure, we're going to try to get the best label. And we believe that the data that we have will be reflected in the clinical trial section. The way I look at it, we don't need the superiority claim to be successful for a fast conversion. We have a strong, differentiated clinical profile, a robust data package. As Brian was talking about, we have a decade of experience in PNH. I feel we have all the ingredients to be successful in a fast conversion. We'll take the next question.

Operator

We will take our next question from Eric Schmidt with Cowen and Company.

Eric Schmidt - Cowen and Company

Thanks for the question and congrats on all the progress. Maybe, Ludwig, just following up on your latest comment there on a successful conversion and having all the components needed to achieve that successful conversion for 1210. Could you give us some kind of a benchmark on what type of conversion you were thinking of? Would you hope to convert the majority of patients within two or three years' time, great majority? Even a percentage would be amazingly helpful if you're willing to give that out and potentially compare this launch or this conversion to other conversions we've seen. Thanks very much.

Ludwig N. Hantson - Alexion Pharmaceuticals, Inc.

Yeah. Sure. So thanks for the question and Brian will give us a little bit more detail. But the way to think about this, we're not going to talk about a forced conversion. We will have both Soliris as well as 1210 on the market. As I said, we have all the ingredients to be successful and our objective is to be best-in-class within a segment of non-forced conversion to be best-in-class and Brian is going to talk about that.

Brian Goff - Alexion Pharmaceuticals, Inc.

Yeah. Hi, Eric. It's Brian. Just building on that, as Ludwig had noted, we feel commercially that we have the profile that we wanted. We now have two distinct studies that have very complementary and consistent results. And that's what we were after. And so, as I noted in my prepared comments, as we've done primary market research with payers and physicians as well as looking back at what kind of enrollment path John and his team were able to achieve, we think that's a good proxy for how differentiated the profile really is.

And I think at this stage as we're formalizing and intensifying all the prelaunch commercialization plans, it's fair to anchor on the ambition which is that we want to make 1210 the new standard of care in PNH. There's no perfect analog for that. But with the 10-plus years of commercialization experience we have with Soliris in PNH, with the fact that it's a known patient population where we don't have to go through identification, we think we're really well-positioned for that.

Eric Schmidt - Cowen and Company

If I can just follow up, we recently saw conversion with COPAXONE, a non-forced conversion where the more convenient formulation was able to get up to about 75% share within a couple years' time. Is that a reasonable estimate?

Ludwig N. Hantson - Alexion Pharmaceuticals, Inc.

I think the COPAXONE conversion might be a little bit different than the situation that we're in here. But our objective is for 1210 to become the market leader within a short period of time with the PNH indication.

Eric Schmidt - Cowen and Company

Thank you.

Operator

We'll now take our next question from Chris Raymond with Piper Jaffray. Please go ahead.

Christopher J. Raymond - Piper Jaffray & Co.

Thanks. Just another question I guess on 1210. The prior management team used to talk at length about how this drug, 1210, given its profile could actually serve to sort of increase utilization and therefore is more than just playing defense, is really a market expander. I guess the question here is with all the market research work you've done, is there any chance you could maybe put some brackets around what that expansion could be, at least in terms of increasing compliance, patients that normally wouldn't get the drug, et cetera?

Brian Goff - Alexion Pharmaceuticals, Inc.

Yeah. Hi, Chris. It's Brian again. It's a good question. And it's tough to put precision on the brackets, as you say, but we are fully aware that there are patients who are identified – if we talk about in the U.S., they are identified but not yet on treatment and, for lack of a better term, have waited on the sidelines for one reason or another, some of which may be that the burden of treatment is just not optimal for them. And so that's in PNH as an example. And the same opportunity we think could be true as we build up with aHUS as a future indication.

So, as you noted, the rapid conversion that we've just talked about is really focused on PNH with a known patient population, but we do expect that there is a growth opportunity as well as some of those currently untreated patients come into the fold, so to speak, with 1210 given the profile it offers.

Ludwig N. Hantson - Alexion Pharmaceuticals, Inc.

Yeah. As Brian says, it's a conversion strategy but it's also a growth strategy, a conversion strategy that will start with PNH. We still have a lot of opportunity there, aHUS. We talked about also MG. We just embarked on the launch for MG. In 1210, as you know, we will also start a program later this year with MG. The subcu option will also play a critical role here. Some patients prefer an infusion. They like the every eight weeks infusion, but we will see most likely some patients that prefer a subcu and then the other potential indications. So I think my message and Brian's message is it's a conversion strategy but it's also a growth strategy.

Christopher J. Raymond - Piper Jaffray & Co.

Thank you.

Operator

And we'll go on to our next question from Matthew Harrison with Morgan Stanley.

Matthew K. Harrison - Morgan Stanley & Co. LLC

Great. Good morning. Thanks for taking the questions. I guess if I can just ask two updates. So one, can you just update us on the situation with European patents for 1210 and what's happening there? And then second, you gave us some nice patient numbers on gMG, any help in terms of thinking about what that translated to in terms of revenue? And also, I mean, it looks like you're tracking at sort of 50% of the patients heading into OneSource come out the other side. Do you feel good about that conversion rate right now and how should we think about that in the future?

Ludwig N. Hantson - Alexion Pharmaceuticals, Inc.

So I'll take the IP situation in Europe. So I'll take a step back just to make sure that everybody understands that we've got three new patents that were issued last year in the U.S., so composition of matter patent, the manner of use as well as formulation patent. You'll also know that in 2017 we've got a new patent in Japan covering the three topics I just discussed.

With respect to Europe, nothing has changed since the last update on the Q1 call. We do feel good about the strength of the applications that are pending. We're using a very similar approach as we did in the U.S. and Japan. As a reminder for everybody, the EU process is different in a way that there is back and forth between the innovator and the patent office. And so the inventors commonly engage in multiple rounds discussing with patent offices prior to having the patents allowed. So that's important to understand. But at this point nothing new to report since our last earnings call. And then with respect to MG?

Brian Goff - Alexion Pharmaceuticals, Inc.

Yeah. Good morning, Matthew. It's Brian. With respect to MG, as I noted, and I'm happy to say several times, we're really pleased with the excellent uptake that we're seeing, particularly in the U.S., with MG. And we are on track to make this the best of our Soliris launches which we feel really good about.

We gave pretty specific numbers in terms of the patient uptake. So in terms of that for Q1, which I'll note is the first full quarter of launch in the U.S., you can probably update your models fairly precisely in terms of how we're tracking. And what is important to note as well is that the majority of both the patients, as well as the neurologists, the neuromuscular specialists that are prescribing, are not REGAIN patients and they're not really clinical trial investigators. So one of the elements we feel good about in terms of continued uptake is the breadth of prescribing that we're seeing.

With respect to your question about OneSource enrollment, just as much as we're pleased with the progress of patients on treatment, the so-called pipeline of open cases behind that treatment through OneSource is also tracking quite well. And it's too early to give real precision in what exactly the throughput is, how long it takes to move through. What I will say is both sides of the equation are strong, the open cases as well as patients on treatment, and we're learning how to continue to refine that throughput model to make it easier for patients to move through to Soliris treatment.

Ludwig N. Hantson - Alexion Pharmaceuticals, Inc.

And just to add to complete the picture on the IP question, with respect to 1210, we have patents issued in the U.S., Europe, and Japan. The expiry is 2035 and these are composition of matter patents, so we feel good about our patent situation with 1210.

Operator

We will now move on to our next question.

Ludwig N. Hantson - Alexion Pharmaceuticals, Inc.

Next question, please.

Operator

Thank you. We'll take our next question from Anupam Rama with JPMorgan.

Anupam Rama - JPMorgan Securities LLC

Hey, guys. Thanks so much for taking the question. Maybe a quick one from me on Strensiq and market dynamics that you're seeing there. Are there any trends worth noting on HPP patient subtypes that are initiating therapy relative to 12 to 18 months ago or any trends in age of initiation of therapy worth noting? Thank you so much.

Brian Goff - Alexion Pharmaceuticals, Inc.

Yeah. Good morning, Anupam. It's Brian. With respect to Strensiq, the growth you've seen is strong and continues to track well. I'll take the opportunity to say I'm really proud of the team that is working in the metabolics area on Strensiq. These are folks who have to have, I would call it, disproportionate stamina, because a lot of the equation on Strensiq is about identification of patients. And sometimes it's difficult to know exactly what specialty they need to go to, to find those folks, but they're becoming efficient. They're really growing in terms of their efficiency in finding the patients.

And then, more importantly, the doctors becoming convinced to translate identification over to therapy with Strensiq and part of that is due to improved genetic testing that some of the clinicians are adopting. And we expect that in the U.S. that trend will continue. And, again, we see it as a growth driver. And then, ex-U.S., of course, most of the journey there is around continued global access and making sure that patients who could benefit – who have HPV who could benefit from the transformative potential of Strensiq have the right funding behind in their country to get that access.

Ludwig N. Hantson - Alexion Pharmaceuticals, Inc.

Next question.

Anupam Rama - JPMorgan Securities LLC

Thanks for taking our questions.

Operator

Thank you. We'll now take our next question from Terence Flynn with Goldman Sachs.

Terence Flynn - Goldman Sachs & Co. LLC

Hi. Thanks for taking the questions. Maybe just two from me. I was wondering given the 1210 data if you guys can comment on the subcu program, what's gating to getting that underway, and then any changes that you might make there based on what you've seen in the prior two Phase 3 trials. And then, maybe just one for Paul on the tax rate change for the quarter. Can you just comment on what drove that and if you think that's sustainable longer-term? Thanks.

John J. Orloff - Alexion Pharmaceuticals, Inc.

Terence, this is John. So subcu program is on track. As we've previously discussed, we'll be planning to initiate a single PK-based bridging study to the IV formulation in the fourth quarter. We're also doing drug and device compatibility testing, performance testing, and human factor testing. That is what's gaining us to initiating that trial in the fourth quarter. We also have a next-generation subcu formulation that we're working together with Halozyme that will potentially get us a Q2-week, Q4-week formulation delivery. And that's also on track to be in the clinic in healthy volunteers in the second half of 2018.

Paul J. Clancy - Alexion Pharmaceuticals, Inc.

Terence, thanks for the question on tax rate. So I think the best way to think about it is if you recall the conversations that we had coming into this year around what's the impact on U.S. tax reform, we had thought about it as 200 basis points or 300 basis points upward pressure, not from last year because we had some discrete benefits, but from what we had – kind of where we probably would've landed excluding U.S. tax reform. We're now tracking towards the lower end of that. And so I think there might be a little bit of a upward pressure, but probably closer to 100 basis points as we go into 2019 and 2020. So, obviously, everyone's interpreting and that's subject to change as the interpretations of U.S. tax reform evolve, but that's our current thinking.

Ludwig N. Hantson - Alexion Pharmaceuticals, Inc.

Next question.

Operator

We'll hear now from Josh Schimmer with Evercore ISI.

Josh Schimmer - Evercore ISI

Thanks for taking the question. As we consider biosimilar label extrapolation from one disease to others, would this apply to Soliris? Or does the separate doses used for PNH versus aHUS in myasthenia gravis and the disease pathogenesis necessitate separate non-inferiority trials for full labels? Do you have any views on that? Thanks.

John J. Orloff - Alexion Pharmaceuticals, Inc.

So this is John. I'll take a stab at that. It really is dependent, I think, on the circumstances of the product and the disease. In this case, I mean, typically, what's been required is conducting clinical studies in most sensitive population and allowing for some extrapolation to the other indications, but not always the case. And that may require additional studies. And it's, I think, premature for us to comment on exactly what the development program would be for biosimilar actually to come to market given the data we have with Soliris and now with 1210.

Operator

Thank you. And now we'll move on to our next question...

Ludwig N. Hantson - Alexion Pharmaceuticals, Inc.

Next question.

Operator

...from Geoff Meacham with Barclays.

Geoffrey Meacham - Barclays Capital, Inc.

Hey, guys. Thanks a lot for the question. Just had a couple. If you look at the reasons why patients discontinue Soliris or become refractory or have to raise the dose to a super high level, what can you read into the data as to how that could change with 1210 clinically? And the second question on the BD front, the Wilson deal obviously expands the Phase 3 pipeline, but what's the capacity for a few more bolt-on deals? And I wanted to see if there's a bias towards more product-based deals that have, let's say, more of a near-term impact versus a tech platform which is longer-term like a gene therapy, cell therapy platform? Thank you.

John J. Orloff - Alexion Pharmaceuticals, Inc.

So this is John. I'll take the first question. I think one thing to highlight from our Phase 3 program with 1210 is that as we cover the dosing interval in a better way and have sustained, continuous reduction of free C5 levels, and we'll have more to share later this year in terms of the PK/PD effects, we're seeing less breakthrough hemolysis. And our analysis of the data suggest that we're not getting any PK-based breakthrough with 1210, unlike what is seen in some patients with Soliris. And so we think that there is an opportunity there to cover patients that would otherwise have to be titrated up with 1210 – I'm sorry, with Soliris.

Paul J. Clancy - Alexion Pharmaceuticals, Inc.

Geoff, this is Paul. I think you had kind of two parts on that. One was capacity, one was our bias. So on capacity, I think, I'd frame it up as in the prepared remarks we talked about we have $1.6 billion of cash. We expect to use a bit more than half of that for the Wilson transaction. We have cash generation throughout the year and that's the financial ambitions that we've laid out, all part and parcel to create some strategic flexibility. We also have access to an undrawn revolver of about $500 million. And our debt-to-EBITDA levels are manageable at this point.

So I think our capital allocation strategic priority is disciplined business development. I mean, no doubt about it, it's to rebuild the pipeline. I would characterize the bias towards products, not towards platforms. Never say never, but this is rare disease. Wilson represents a good example of our bias. Rare disease, devastating diseases, a potential product to transform the disease, and we're building up our ability to do that inside the company. We still firmly believe we have capabilities to bear against that and that the opportunity set – you've got to look pretty hard, but the opportunity set is pretty rich.

Geoffrey Meacham - Barclays Capital, Inc.

Thanks.

Ludwig N. Hantson - Alexion Pharmaceuticals, Inc.

Next question?

Operator

Thank you. We'll now take our next question from Robyn Karnauskas with Citi.

Robyn Karnauskas - Citigroup Global Markets, Inc.

Hi, guys. Thanks for taking my question and congratulations on the strong launch. So I guess a couple questions. So you'd mentioned before it takes time to get a patient on drug just because they have to get injected with vaccine. What is the minimal amount of time it takes for a patient to go on Soliris? I'm just thinking about this from the MG perspective. I thought it was a couple months but maybe you can clarify that.

And then the second question is you kind of have always spoken about how spread out these patients are amongst physicians. In the patients that you've seen go on OneSource, have they been at the more concentrated doctors? Or how are you seeing MG uptake amongst, given the breadth of doctors that are treating these patients?

Brian Goff - Alexion Pharmaceuticals, Inc.

Good morning, Robyn. It's Brian. Thanks a lot for the question. With respect to the time for patients who are being treated with gMG with Soliris, it still is evolving for one, because as I noted, we're in our first – we're reporting out now on our first full quarter of launch in the U.S. But if I were to use sort of general averages, it's generally about a month is what we're seeing for a patient to go all the way from the identification and the vaccination process to an open case with OneSource, verification of their funding and then getting onto therapy. And there's puts and takes around that obviously depending on the challenges that they have actually getting in sync to get the vaccination as well as the coverage determination.

One area where we feel like we've made a lot of progress has been on the commercial side. Now more than 80% of the commercial policies are defined and largely those plans are in line with or better than the REGAIN criteria. So that helps, in some regard, to speed of that process. But that's, in general terms, what we're seeing. And then...

Ludwig N. Hantson - Alexion Pharmaceuticals, Inc.

Brian, for one month would be the best-case scenario...

Brian Goff - Alexion Pharmaceuticals, Inc.

Yes. And that's where I was headed next, is that, again, there are puts and takes and we're still in the early days. And you saw in my prepared comments that there is a queue still of patients who are open cases who have not yet been converted to therapy. And it is taking longer for some of those patients and that can also be on the back-end where it's coordination of the infusion itself, as an example.

And with respect to, as you called it, the sort of spread of clinicians, what we're seeing for the most part is that in general most of the initial prescriptions are coming from community neurologists and neuromuscular specialists. They do though tend to be concentrated in the treatment centers where we target and that's in the range of a few hundred across the U.S. So it is somewhat more concentrated than just any community neurologist.

Robyn Karnauskas - Citigroup Global Markets, Inc.

And can I follow up with that question? Would you expect then some slow – because you're hitting all the most concentrated centers, should we sort of expect that as you get out into broader areas this year that we could see slowing? And then the other question was can you give us one example of someone who went into OneSource and then just opted not to have therapy or is it really more of a time element to get someone on drug? So is there another element of people not opting in to go to therapy?

Brian Goff - Alexion Pharmaceuticals, Inc.

Yeah, sure. And we have had cases like that where somebody has become a case, they've opted in, they got maybe cold feet, decided now is not the right time. We've also had cases where they've done that, they've opted out and then opted back in and went on therapy. So it still is very much in the early days of that launch progress.

With respect to your question about a slowing or a kind of leveling off, we haven't seen it yet and we're really pleased with the continued uptake. We do expect that with our ambition, at some point we will continue to move from these out of option patients on the more severe side of the equation towards earlier therapy. That's definitely our plan.

Ludwig N. Hantson - Alexion Pharmaceuticals, Inc.

But just to add to that, our structure and investment will reflect the broader prescriber base that we have, since it's broader than just academic centers. It's also community-based prescribers. We have a long way to go from where we are now, 400, to we talked about 60,000 to 80,000 MG taking a refractory 3,000 to 8,000. So we still have a long way to go. So we don't expect that our numbers are going to slow down soon.

Robyn Karnauskas - Citigroup Global Markets, Inc.

Thanks for taking my questions.

Brian Goff - Alexion Pharmaceuticals, Inc.

Sure.

Operator

Thank you. We'll take our next question from Ying Huang with Bank of America Merrill Lynch.

Ying Huang - Bank of America Merrill Lynch

Hi. Thanks for the question. Maybe I was hoping you can give us a little bit clarity on the Brazil patent situation. What's next and what's the timeline for resolution of that? And could this potentially spread to other geographies or not? Secondly, do you have any specific plan to start a trial for Alexion 1210 in non-responders to Soliris?

Ludwig N. Hantson - Alexion Pharmaceuticals, Inc.

Yeah. With respect to Brazil, so the media reports that we saw last week were incorrect. I think the short answer is for us, the situation in Brazil is business as usual. And so what happened was the Superior Court of Justice reaffirmed their prior determination on how to calculate the term of mailbox patents and 20 years from filing versus 10 years from issuing. But I think the message is no, nothing new, business as usual.

This is Brazil only. This does not have any impact on ex-Brazil countries. As you know, Brazil is about 3% of our total revenue. And so what we're doing is, yeah, we're listening to what they have to say and we're exploring our options to respond to what we saw last week. But I think the message is business as usual. This is an ongoing dispute. We're not the only one, the only company that's pushing back on the way they're looking at patents, and no impact on ex-Brazil.

John J. Orloff - Alexion Pharmaceuticals, Inc.

Then, Ying, with regard to additional clinical studies, again, just the reminder that this is the largest clinical program conducted by far to-date in PNH with about 200 patients in one study and 250 in another. We studied a broad patient population that really covers the ground for PNH patients. We have naïve patients. We have Soliris-experienced patients. We have patients who are transfusion dependent and independent. And we've conducted subgroup analyses for both studies that show consistent effect and favorability for 1210 versus Soliris.

So with regard to your question, the Naïve study enrolled all comers, and presumably there would be patients in there that might be considered non-responders to Soliris. And as I said, we had very favorable results there with no PK-based evidence of a breakthrough. So we're very confident that we've got the right dose and dosing regimen to cover the extended dosing interval out to eight weeks and provide patients with that benefit of going from 26 to six infusions per year.

Ying Huang - Bank of America Merrill Lynch

Thank you.

Ludwig N. Hantson - Alexion Pharmaceuticals, Inc.

Okay. We'll take two more questions.

Operator

Thank you. We'll take our next question from Martin Auster with Credit Suisse.

Martin Auster - Credit Suisse Securities (USA) LLC

Hey, guys. Thanks for taking the question. I just wanted to follow up on a comment made earlier about some of the internal market research you've conducted on 1210 on the IV versus a subcu and the relative clinical appeal for patients and docs. Just curious if you could add more color on if there's – were you aware if there's certain indications that kind of skew more towards preference for subcu or if there's certain geographies that have different views on IV versus subcu? Thanks.

Brian Goff - Alexion Pharmaceuticals, Inc.

Most of our research so far, Martin, has related to the IV formulation. That really has been our focus as we prepare for the prelaunch planning and commercialization. And, in general, what we're pleased about is that we knew that it would be quite impressive to patients to consider moving from 26 infusions a year to six. What we wanted to start exploring is some of these other benefits that we begin to see in the data now with two different studies consistently where things like breakthrough hemolysis have numerically played out quite well for 1210, transfusion avoidance, some of those other elements. The clinicians, in particular, are finding the profile appealing. And what we think is important about 1210 and the positioning is that it's not just viewed as a convenience kind of thing moving from 26 to six infusions. It really is about the totality of benefits that it offers in that overall profile that John described.

Ludwig N. Hantson - Alexion Pharmaceuticals, Inc.

As we have now the final profile from the Phase 3 studies, of course, there's going to be more market research. And as we continue to talk over the months and quarters to come, we will update you on the additional insights that we get, but I think everything is lined up for us to make this a successful launch. So we'll take one more question.

Operator

Thank you. We'll take our last question from Kennen MacKay with RBC Capital Markets.

Slanix Alex - RBC Capital Markets LLC

Hi. Good morning. This is Slanix Alex on for Kennen. Congrats on the quarter and the Phase 3 results and thanks for taking the question. I just wanted to briefly touch on the Wilson Phase 3 trial. I was just wondering if you could provide some additional color on the rationale as well as level of confidence in designing the Phase 3 to aim for superiority. Thank you.

John J. Orloff - Alexion Pharmaceuticals, Inc.

Yeah. So thank you. It's John. Yeah. Right now, we obviously haven't closed the deal. We've had a chance to evaluate and through due diligence the currently designed Wilson Phase 3 program, which is enrolling. And we'll carefully take a look at the opportunity to optimize the development program in order to provide a differentiated profile for WTX101, which we're convinced is going to be a transformative therapy for Wilson patients with a 10,000-fold greater affinity for copper, the ability to de-copper, deliver, and reduce the risk of worsening neurological symptoms, and will be something that really addresses the underlying disease in Wilson patients. So, more to come on that after we've had a chance to consummate the deal and talk to investigators, as well as regulators about how we might alter or enhance the development program as it currently exists.

Ludwig N. Hantson - Alexion Pharmaceuticals, Inc.

Okay. So that's the end of the call. So I want to thank all of you for dialing in. We're really, really pleased with our first quarter and so we'll continue our dialog. So thanks, everybody.

Operator

Thank you. That does conclude today's conference. Thank you all for your participation. You may now disconnect.

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