Alexion Pharmaceuticals, Inc. (ALXN) Q1 2012 Results Earnings Call April 24, 2012 10:00 AM ET

Operator

Good day, ladies and gentlemen. And welcome to the First Quarter 2012 Alexion Pharmaceuticals’ Earnings Conference Call. My name is [Alisha], and I’ll be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions)

As a reminder, this conference is being recorded for replay purposes. I would now like to introduce your host for today’s call, Dr. Leonard Bell, Chief Executive Officer. Please proceed, sir.

Leonard Bell

Thank you, [Alisha]. Good morning. Thank you for joining us on today’s call to discuss Alexion’s performance for the first quarter of 2012. I’m joined by members of Alexion management. Steve Squinto, Executive Vice President and Head of R&D; Vikas Sinha, Senior Vice President and Chief Financial Officer; David Hallal, Senior Vice President, Global Commercial Operations; and Tom Dubin, Senior Vice President and Chief Legal Officer. We also welcome our entire Alexion team working around the world.

Vikas, David and Steve will join me on today’s call to report on our financial, commercial and R&D accomplishments in the first quarter, and to update our strategic initiatives and accelerated execution plans for 2012.

Before we begin, Tom will apprise you of our potential to make forward-looking statements. Tom?

Tom Dubin

Thanks, Lenny. During this call we may make forward-looking statements, such as expected financial results, medical benefits, regulatory milestones and commercial potential of Soliris, asfotase alfa, and our other product candidates in the U.S. and other territories, plans for development and clinical trials of Soliris, asfotase alfa and our other product candidates, and operations reimbursement, price approval and funding processes in different territories.

Forward-looking statements are subject to factors that may cause our results and plans to differ from those expected, including decisions of regulatory authorities regarding approval or limitations on the marketing of Soliris and our product candidates for various indications. The possibility that results of clinical trials are not predictive of the safety and efficacy of Soliris or our product candidates in broader patient populations in the disease studied or in other diseases.

The risk that third parties won’t agree to license any necessary intellectual property to us on reasonable terms or at all, the possibility that initial results of commercialization are not predictive of future results, the risk that third-party payers will not or not continue to reimburse for the use of Soliris at acceptable rates or at all, and a variety of other risks set forth from time-to-time in our filings with the SEC, including our 10-Q for the quarter ended December 31, 2011. We do not intend to update any of these forward-looking statements after this call except when the duty arises under law.

I’d like to remind you that our reported non-GAAP numbers conform to U.S. GAAP except in three respects. First, our non-GAAP numbers exclude share-based compensation. Second, we exclude non-cash tax adjustments associated with the utilization of our U.S. net operating losses. And third, with completion of three recent acquisitions, we also exclude amortization of acquired intangible assets and costs associated with acquisitions. A reconciliation of our GAAP to non-GAAP results is included in the press release we issued this morning.

Thanks you. Lenny?

Leonard Bell

Thanks, Tom. In the first quarter of 2012, Alexion made steady progress across our strategic objectives for the year as we continue to expand our initiatives to develop and deliver life transforming therapies for patients with severe and ultra-rare disorders.

Our development and commercial teams performed solidly in three key areas during the quarter. First, we again provided Soliris to a substantial number of new patients with PNH globally. Second, we are very pleased by the steady increase in new patients with aHUS beginning treatment with Soliris. And finally, we significantly advanced our eight lead development programs with eculizumab and four other highly innovative therapeutics. Steve will discuss the details and the specific areas of progress, and what is now the broadest pipeline in Alexion’s history.

I’d like to turn first our global operations of PNH and aHUS. In PNH, during Q1, we again achieved steady quarter-on-quarter growth in our core territories of United States, Western Europe and Japan.

Importantly and as in previous quarters, we again observed that a majority of PNH patients newly starting on Soliris were newly diagnosed with PNH indicating an ongoing and cumulative impact from our disease awareness programs and diagnostics initiatives.

We are driven by the recognition that even in the territories where we have operated the longest, the majority of PNH patients who can benefit from Soliris have still not received an accurate diagnosis nor started on appropriate therapy.

Turning to aHUS, we are very pleased to be serving a steady edition of new patients beginning treatment with Soliris in Q1. Patients newly commencing Soliris treatment represent a broad range of ages and clinical profiles, and are being treated by adult and pediatric nephrologists, as well as hematologists, indicating broader interest by the full range of physician who are likely to treat patients with aHUS.

As we have previously noted, more than half of aHUS patients not treated with Soliris are known to advance to dialysis from the kidney damage or die within the first year of following diagnosis. Based on this natural history, we identified two groups of aHUS patients prior to launch.

Patients with the longer duration of disease and substantial chronic kidney damage and as expected a larger proportion of patients were being identified during their first TMA clinical presentation and require emergent medical intervention.

Before approval, we focused on being able to serve all the patients with aHUS, including meeting the urgent needs of newly presenting patients by developing a range of patient centered initiatives. We are very pleased to see the early positive impact that our initiatives are having on the care of patients with aHUS.

As we have discussed, our PNH and aHUS operations in United States are driven by our recently expanded sales force, which is supported by our integrated hematology and nephrology therapeutic area teams. We observed strong marketing synergies that are focused on both hematology and nephrology with learning in each area that supports the other.

Our current commercial operations are only one part of our strategy for maximizing the therapeutic value of Soliris. As a long sort medical breakthrough, Soliris has the potential to transform the lives of patients suffering from a range of severe and ultra-rare disorders or uncontrolled complement activation beyond PNH and aHUS.

We are currently focused on applying the breakthrough innovation of Soliris and clinical development programs in four such disorders, acute humoral transplant rejection, STEC-HUS, neuromyelitis optica and myasthenia gravis.

As we seek to maximize the potential for Soliris to transform the lives of patients, we are also working diligently on expanding and accelerating development of our portfolio of other highly innovative treatments for patients with severe and ultra-rare disorders.

Our lead clinical development programs now comprise five innovative biologics, including Soliris, currently being investigating in eight severe and ultra-rare disorders in multiple therapeutic areas.

Importantly, even as we have significantly expanded our development pipeline, we have recognized a need to maintain the highest level of focus. Our eight lead clinical programs have been chosen for their strong fit with our longstanding objective to pursue the highest level of medical innovation to serve patients.

Specifically, all of these disorders manifest clinical complications that range from serve to fatal and all are ultra-rare. In the alignment with the severity of these disorders all of the therapies we have chosen to develop are highly innovative, first-in-class treatments with strong potential to provide a life transforming impact to patient.

As a recent indication of our high standards of breakthrough innovation, we note the publication last month of the highly encouraging asfotase alfa pediatric data in the New England Journal of Medicine. Given their various stages of development, our lead pipeline programs have the potential to make a growing contribution throughout our organization well into the next decade.

Turning to our financial performance, revenues in Q1 were $244.7 million, an increase of 47% compared to Q1 2011. By serving an increasing number of patients while maintain rigorous financial controls, we achieved Q1 2012 non-GAAP net income of $0.45 per share or $88.1 million, 57% increase year-over-year.

Following our performance in Q1, we announced this morning that we are raising our 2012 revenue guidance from the previous range of $1.04 billion to $1.07 million now to the higher and narrower range of $1.065 billion to $1.085 billion.

As we increase our revenue forecast for the year and continue to maintain tight control over expenses, we also raised our guidance for 2012 non-GAAP EPS from the previous range of $1.60 to $1.70 now to the higher range of $1.65 to $1.75.

We are gratified by our strong start in 2012 including our very encouraging and steady progress in serving patients with aHUS, as well as with a substantial expansion and acceleration of our research programs.

As the year progresses the global Alexion team will drive forward in each of its opportunities to serve current and future patients to the widest commercial operations and the deepest development pipeline in our history.

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

Vikas Sinha

Thanks, Lenny. Q1 2012 was a period of strong financial performance by Alexion with steady sales growth and increasing profitability. Cash flow was again robust and expenses were controlled well within our previously stated target.

Net product sales of Soliris were $244.7 million in Q1, an increase of 47% compared to the year ago quarter. Revenue performance in Q1 was supported by our core geographies of the U.S., Western Europe and Japan, augmented by serving a small but growing number of patients in other countries.

As we executed strongly on patient centered initiatives in Q1, we continued to control both SG&A and R&D expenses. In Q1, non-GAAP SG&A was $77.9 million and non-GAAP R&D was $42.1 million.

Strong topline performance combined with control of other key financial parameters resulted in a 57% increase in our non-GAAP net income year-over-year to $88.1 million or $0.45 per share in Q1 2012.

Turning to our balance sheet, cash, cash equivalence and marketable securities at quarter end were $359 million. These reflect positive cash flow from operations during the quarter and acquisition related debt offset by payment for the purchase of Enobia.

I would now like to review our guidance. Following our performance in Q1, we announced this morning that we are raising our 2012 revenue guidance from the previous range of $1.04 billion to $1.07 billion now to the higher and narrower range of $1.065 billion to $1.085 billion.

As we increase our revenue forecast for the year and continue to maintain tight control over expenses, we have also raised our guidance for 2012 non-GAAP EPS from the previous range of $1.60 to $1.70 now to the higher range of $1.65 to $1.75.

While, all other items of the guidance are being reiterated, I’d like to provide some insights into our remaining non-GAAP SG&A and R&D expenses, and our GAAP tax rate.

First, I would note that non-GAAP SG&A is historically lower in Q1, compared to other quarters. In particular, we expect to have significantly greater non-GAAP SG&A expenses in Q2 and Q4 due to expenses related to medical conferences.

Additionally, excluded from our non-GAAP SG&A in 2012 will be approximately $20 million to $25 million in acquisition-related cost for Enobia and we have already recognized $12.4 million of this cost in Q1.

Turning to non-GAAP R&D, we expect that non-GAAP R&D in Q2 will increase to approximately $63 million to $68 million, mainly driven by asfotase alfa manufacturing and development costs.

Falling this peak in Q2, we expect R&D to be lower in Q3 than in Q2, though still above the Q1 level. We continue to expect that as a result of extra expenses related to Enobia, R&D will be 21% of sales in 2012 and will return to our target levels of 17% to 18% of sales in 2013.

Finally, regarding taxes, we expect to incur a $20 million to $30 million tax expense in Q2 for the integration and structuring of the Enobia acquisition. Excluding this charge, we continue to expect our 2012 GAAP tax rate of 32% to 34%. Our non-GAAP tax rate forecast of 8% to 10% remains unchanged.

Importantly, we expect to realize substantial long-term financial benefits from the structuring of our organization as we integrate Enobia.

Overall, we are very pleased with our performance in the first quarter of 2012. We are especially gratified at the discipline with which we are expecting our commercial platform in our development programs and the efficiency with which we are integrating our acquired drug candidates into a pipeline within our financial parameter.

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

David Hallal

Thanks, Vikas. In the first quarter of 2012, global revenues from our Soliris operations increased by 47% compared to the first quarter of 2011. Q1 revenues reflect steady additions of new PNH patients in our core territories of the U.S., Western Europe and Japan augmented by a steady increase in new patients with aHUS commencing treatment with Soliris.

Looking more closely at PNH, we are gratified to observe the treatment is increasingly being optimized for patients. Through our disease awareness programs, we are discussing with physicians the large and growing body of clinical evidence regarding the morbidities and premature mortality associated with PNH and the positive long-term outcomes demonstrated with Soliris treatment.

Similarly, our diagnostic initiatives are aided by publications, which recommend testing for patients at higher likelihood for having the disease. Given the clinical evidence, more patients are being tested and if they are determined to have PNH, their physicians are more likely to rapidly initiate treatment with Soliris.

Our view of the global landscape remains unchanged. We continue to find that the majority of patients with PNH have not yet received an accurate diagnosis let alone are receiving appropriate treatment, even in those countries where we have been operating the longest.

As we expand our disease education and diagnostic efforts in both existing and new countries, we believe we will continue to transform the lives of more patients with PNH around the world.

Turning to aHUS, we are very pleased with the second full quarter of our aHUS launch with a steady addition of new patients beginning treatment with Soliris in Q1. Importantly, we note several dynamics from the early stages of our aHUS launch.

First, we are observing that patients who are receiving Soliris represent a broad range of ages and clinical profiles, including those with long-term disease and chronic kidney damage as well as those who are being identified during their first TMA clinical presentation.

Second, we continued to observe that a significant proportion of the new prescribers of Soliris for patients with aHUS are hematologists. Thus, we are able to apply our long-term presence in hematology for the benefit for both PNH and aHUS patients.

And third, our decision to expand our sales team in the United States has enabled us to grow our present and increase reach and frequency of our interaction amongst both hematologist and nephrologists, as each representative is able to focus on more physicians in a smaller geographic area.

Importantly, our aHUS disease awareness programs, which are focused on the morbidities and mortality of aHUS are underway and are being well received by physicians. These programs help educate physicians on the early signs and symptoms of aHUS, the role of chronic uncontrolled compliment activation as the underlying cause of TMA in these patients and the compelling clinical benefits that Soliris can provide to patient with aHUS by inhibiting compliment-mediated TMA.

Based up on the no natural history of aHUS, we identified two groups of patients with aHUS prior to launch. Patients with a longer duration of disease and substantial kidney damage and as expected a larger proportion of patients who are identified during their first TMA clinical presentation and require immediate medical intervention.

Before approval, we focused on being able to serve all patients with aHUS, including meeting the urgent needs of newly presenting patient. By developing a broad range of patient-centered initiatives in the areas of disease awareness, patient diagnosis, reimbursement support and providing supply of Soliris to treatment sites within hours.

For the implementation of these initiatives, we are currently supporting an increasing number of physicians as they identify emerging aHUS patients and seek to start them on Soliris therapy without delay.

We are pleased with the early positive impact that these initiatives are having on the patient care and look forward to serving more patients with aHUS in the United States overtime.

Turning briefly to our upcoming aHUS launch in Europe, we are on track with our reimbursement discussions with healthcare authorities in major European countries. We expect to start serving patients with aHUS in initial European countries later in 2012 with others commencing through mid-2013.

To prepare for our EU launches, we will start to expand our European field teams on a country-by-country basis with professionals who have experience in rare disorders and relevant medical specialty. As in the U.S., each member of our expanded European field teams will be fully cross trained on both PNH and aHUS and will manage a smaller territory than in the past.

While we expect that the initial use of Soliris and aHUS in Europe will grow only gradually due to the low prevalence and low awareness of the disease, we are confident that we will serve an increasing number of European patients with aHUS over time.

Turning now to HPP. In March, we attended the American College of Medical Genetics Meeting where we provided disease information and met with physicians who have experienced treating patients with HPP. Like PNH and aHUS, we know that HPP is often misunderstood given the rarity of the disorder and the wide range of its clinical signs.

Thus, we believe that disease awareness and diagnostic initiatives will be a critical component of our commercial program as we prepare for the potential introduction of asfotase alfa. As our clinical and regulatory teams drive the development program forward, the commercial team will continue to assess the needs of the HPP community as we prepare for the potential introduction of asfotase alfa.

Looking ahead, we are driving forward on every front to transform the lives of more patients in more countries who are suffering with PNH and aHUS while beginning to prepare for new Soliris indications and the launch of asfotase alfa. Driven by our commitment to patients and families, our global commercial operations team will continue to employ their experience, skills and talent to achieve our objectives for many years to come.

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

Steve Squinto

Thanks, David. In the first quarter of 2012, we continue to make substantial progress in our lead pipeline programs, which include five highly innovative compounds currently being investigated at various stages of development across eight severe and ultra-rare indications beyond PNH and aHUS.

I would first like to provide an update on our eculizumab programs, starting with STEC-HUS. Out of the total 198 patients enrolled in our STEC-HUS study in Germany, the interim data presented in November were from the 148 patients who were treated at the first nine clinical trial sites.

The interim data were very encouraging demonstrating that eculizumab treatment for eight-weeks substantially reduce the occurrence of serious morbidities in STEC-HUS patients. Interim data showed a rapid, large and sustained reduction in thrombotic microangiopathy or TMA and reversal of organ damage with eculizumab treatment.

Patients in the study were observed for 28 weeks following treatment initiation. We have now commenced the normal process of data collection and data cleaning for subsequent data base lock and analysis for the overall 198 patient intensive treat group.

After the final steps are concluded, we expect to have discussions with regulators regarding a pathway for filing an SPLA as early as the second half of this year. In our kidney transplant program with eculizumab, we continue to enroll patients in our company-sponsored multinational living donor kidney transplant trial in patients at elevated risk of antibody-mediated rejection.

Patients in this study are being dosed with eculizumab for nine weeks post-transplant and then will be observed for 52 weeks following transplant. In addition, we expect to initiate a disease donor study in the summer of this year.

We also have two neurology clinical development programs ongoing with eculizumab, in severe and refractory neuromyelitis optica and in myasthenia gravis. Data from the investigator initiated Phase 2 clinical trial of eculizumab in severe refractory NMO is expected to be presented at a scientific meeting in the second half of 2012. Even before these data are presented, we expect to hold a series of discussions with investigators to design the next study prior to our anticipated meeting with regulators.

With regard to myasthenia gravis, additional data from the 14 patient Phase 2 study are being presented at the American Academy of Neurology Annual Meeting this month. We expect to discuss the plans for a larger perspective controlled study with regulators in 2012.

I would like to turn now to our other lead development program with highly innovative therapeutics beyond eculizumab, starting with asfotase alfa. We are highly encouraged by the progress made in asfotase alfa clinical development in just the first quarter of this year. It is noteworthy that this significant progress was demonstrated in the three distinct trials across a broad spectrum of HPP patients.

Turning first to pediatric patients. Our Phase 2 study of infants and young children with life-threatening HPP were published in the New England Journal of Medicine in March. Importantly, all the patients treated with asfotase alfa demonstrated an improvement in blood levels of PPI and PLP, two key biochemical indicators of HPP providing strong support for the potential of asfotase alfa to correct the underlying enzyme deficiency in patients with HPP.

The study made its primary end point with 90% of patients showing substantial skeletal healing at 24-weeks of treatment with asfotase alfa. In the study, skeletal healing became apparent as early as week three. All patients treated with asfotase alfa also had an improvement in respiratory function and patients also demonstrated improvements in fine motor and gross motor function and cognitive development. These findings are remarkable given the historically grim outlook for patients with life threatening HPP.

Also in pediatrics, data in juveniles were presented at the Sanford Burnham Rare Disease Day Symposium in February. Data showed that all patients who were treated with asfotase alfa had an objective response to therapy, with clinically and statistically meaningful decreases in enzyme substrate. These biochemical improvements were accompanied by improvement in bone mineralization as evidence by both bone biopsy and radiographic improvement. In addition, asfotase alfa-treated patients showed a marked improvement in physical function as measured by the six minute walk test.

In Q1, clinical data were also presented for the first time from the Phase II study of asfotase alfa in Adolescents and Adult with HPP at the American College of Medical Genetics meeting in March. In this study, all patients were treated with asfotase alfa, had an objective response to therapy with clinically and statistically meaningful decreases in enzyme substrate. And these biochemical improvements were accompanied by improvement in patient’s physical function as demonstrated by an improvement in the six minute walk test.

Based on the significant accomplishments during the first quarter, we are accelerating the development of asfotase alfa as a treatment for a broad spectrum of HPP patients. Our efforts remained focused on three key areas.

First, we are optimizing the commercial scale manufacturing process to ensure our ability to provide long-term support to the HPP community.

Second, we are completing the clinical development program in children prior to an anticipated regulatory filing for pediatric patients in 2014. We will have further discussions with regulators regarding the studies required for registration in pediatrics and expect to complete a natural history study in infants to supplement the existing open label trial.

And third, our expanding adult program will now be further informed by the encouraging Phase 2 data. We continue to expect that we will need to initiate a placebo-controlled study in adults with severe HPP to support registration in this patient population. I look forward to updating you on our asfotase alfa program on future calls.

Beyond acetate alpha, we are also evaluating three additional highly innovative therapeutics as treatment for patients with severe and ultra-rare disorders. We are pleased that these cover a wide range of therapeutic areas, enabling us to employ our skills in developing ultra-orphan therapies to a growing universe of patients.

Looking briefly at these programs, first, in our new metabolic disease area, which includes asfotase alfa, we are also accelerating the development of our cPMP replacement therapy for the treatment of patients with molybdenum cofactor deficiency Type A, a severe ultra-rare and genetic metabolic disorder that is fatal in newborns.

In 2011, we made substantial progress on our GMP manufacturing process for our cPMP replacement therapy. Following successful completion of the initial cGMP manufacturing runs at the end of last year, we now have commenced pre-IND toxicology studies. Additionally, we’re also now increasing our cPMP manufacturing to provide sufficient supplies to commence clinical studies in early 2013.

Second, we continue to enroll patients in a Phase I study to characterize the mechanism of action of ALXN1102 formally known as TT30 and to develop initial safety data. As a remainder, ALXN1102 is a unique inhibitor of the alternative complement pathway with a mechanism of action different from Soliris and thus build on our world-class expertise in complement biology. Once we have the data from the study, we can better evaluate the overall therapeutic potential of ALXN1102, for various disease targets.

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

I would like to turn briefly to the multi-factorial disease age-related macular degeneration. Importantly, eculizumab or AMD does not fit within our core mission of developing life transforming therapies for patients with severe ultra-rare and life-threatening disorders. I would note that data from the investigator initiated study of intravenous eculizumab in patients with dry AMD will be available at the ARVO Conference on May 7th.

As a remainder, this is an investigator-initiated exploratory study designed to test the stomach, but not direct intraocular complement inhibition in patients with dry AMD. These data will help determine whether or not complement inhibition plays a role in dry AMD. We expect to review our options for this program later this year.

In closing, I’m proud that Alexion’s R&D team continues to be driven via passion and an urgency to help patients and families suffering with severe and ultra-rare disorders. I look forward to updating you on our progress on future conference call.

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

Leonard Bell

Thanks, Steve. Out strong start to 2012 positions us to keep executing rapidly on our key objectives throughout the year. We are pleased that we continue to serve an increasing number of patients with PNH and now aHUS, and we’ll continue accelerating our development programs with a goal of rapidly brining life-transforming innovations to more patients with severe and ultra-rare disorders.

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

Operator, we will now take questions.

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