Alexion Pharmaceuticals, Inc.
Q2 2018 Earnings Call Transcript

Published: 26 Jul 2018

[Operator:]

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

[Susan Altschuller:]

Thank you, Gigi. Good morning. Thank you for joining us on today's call to discuss Alexion's performance for the second 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 Event section of our Investor Relations webpage 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'll be using non-GAAP financial measures, which we believe provide 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 as a substitute for our GAAP results. Thank you. Ludwig?

[Ludwig N. Hantson:]

Thank you, Susan, and thank you for joining us this morning. We're very pleased with our performance in the second quarter, delivering strong top- and bottom-line growth as we continue to advance our leadership position in rare diseases. We've made significant progress executing on our 2018 key objectives to drive sustainability long term. First, our Complement and Metabolic portfolios continued to deliver, including year-over-year revenue growth of 14% and volume growth of 16% with PNH, aHUS, gMG and our metabolic franchise all-important contributors to this growth. Second, with gMG we're on track to meet our ambition of being the best Soliris launch. We continue to be encouraged, as we add new patients, particularly in the U.S. We will apply our capabilities from gMG towards the ALXN1210 launch. Third, based on the positive data from both the ALXN1210 PNH Phase 3 naive and switch studies, which collectively comprised the largest ever PNH clinical trial program, we've completed U.S. and EU regulatory submissions and are planning for our first launches next year, pending regulatory approvals. Filing in Japan is also on track for the second half of this year. In addition to the potential to provide an important new treatment option for PNH patients, ALXN1210 provides an extremely strong foundation for continued expansion of our Complement leadership. I look forward to John and Brian providing detail on the full ALXN1210 development programs, as well as our launch plans later in the call. Fourth, rebuilding our pipeline is a key objective. And in the second quarter we completed the Wilson Therapeutics acquisition and began a collaboration with Complement Pharma. With WTX101, we believe we have a differentiated asset with potential to become the standard of care for Wilson's disease. I'm pleased to announce we're now powering the Phase III study for superiority and are evaluating other trial enhancements. In addition, we are actively evaluating other opportunities to build out our pipeline and hope to provide additional updates over the course of the year. And fifth, once again we delivered very strong financial performance and have updated our guidance to reflect the strength of both the top and bottom line. Clearly this is a great second quarter and we've accomplished a lot in the first half of this year, including the continued strengthening of our culture, our compliance and the opening of our new global corporate headquarters in Boston. And we remain focused on building on this momentum. As always, we will do so by following our mission to transform the lives of patients and their families affected by rare and devastating diseases. With that, I will now turn the call over to Paul to discuss the second quarter financial results and to provide details on our updated guidance. Paul?

[Paul J. Clancy:]

Thanks, Ludwig. This was a strong quarter. I'm happy to provide more color on our financial performance. Starting with slide 7, we reported total revenues in the quarter of $1.045 billion, an increase of 14% year-over-year, driven by strong performance in Soliris in the Metabolic franchise. Our non-GAAP operating margin was 54.3% in the second quarter, an expansion of 719 basis points. This is above our goal to achieve 50% operating margin in 2019. We're anticipating a lower operating margin in the back half of the year, owing to increased R&D investment, driven by WTX101 Phase 3 trial, expansion of ALXN1210 program into gMG in subcutaneous formulations and spend earmarked for business development activities. We delivered non-GAAP earnings per share growth of 33%, driven largely by top-line strength, in addition to strong operating expense control. As we reported in our press release this morning, we're increasing our full-year 2018 guidance to reflect continued momentum in the business. Moving to slide 8. Net product sales were driven by volume growth of 16% and an FX tailwind of 1%, partially offset by a price headwind of 2%. Second quarter revenues were favorably impacted by tender orders in rest of world markets compared to the first quarter of 2018 and also included an approximately $18 million benefit related to order timing ahead of the July 4 holiday in the United States. This will likely be a headwind in Q3. Turning to slide 9, Soliris revenue in the second quarter was $898 million with year-over-year volume growth of 11%. Second quarter results were favorably impacted by tender orders in rest of world markets as mentioned, compared to the first quarter of 2018, and included approximately $9 million due to the order timing ahead of July 4. Moving to slide 10, Strensiq remains a key driver of growth, and we reported revenues of $125 million in Q2, representing 50% revenue growth and 55% volume growth year-over-year. The second quarter included approximately $8 million due to order timing ahead of the July 4 holiday. We reported Q2 Kanuma revenues of $21 million, a 40% revenue growth and 51% volume growth year over year. Turning to the P&L on slide 11. During the quarter non-GAAP R&D was $158 million, or 15% of revenues. Spend was lower than anticipated, driven by timing of clinical supply orders, lower program spend and lower workforce costs. GAAP acquired in-process R&D expense was $804 million, owing to the value of the in-process research and development asset acquired in connection with Wilson Therapeutics acquisition. Non-GAAP SG&A was $230 million or 22% of revenue. The non-GAAP effective tax rate in the quarter was 14%. We reported second quarter non-GAAP earnings per share of $2.07, growing 33% year-over-year. GAAP EPS was negative $2.05, which is inclusive of the Wilson Therapeutics IP R&D expense. During the quarter, we generated free cash flow of $358 million excluding the cash paid for Wilson. In June, we amended and restated our prior credit agreement. The new agreement provides for a $2.6 billion term loan facility and a $1 billion revolving credit facility. We drew $250 million against the revolving credit facility in the quarter. We ended Q2 with approximately $1.2 billion in cash and marketable securities. So let's now turn to slide 12, which outlines our updated financial guidance. We're increasing our topline revenue guidance to a range between $3.980 billion and $4.010 billion, which represents 13% growth year-over-year at the midpoint. For Soliris, our revenue guidance is $3.420 billion to $3.440 billion, an increase over prior guidance due to the growing contribution from gMG. Turning to Metabolics, our revenue guidance is $560 million to $570 million, reflecting continued momentum in Strensiq. We now see Strensiq itself as providing nearly half a billion dollars of revenue this year. We estimate price will be a 3% headwind in 2018. This is unchanged from previous guidance, with two-thirds attributable to Soliris and one-third attributable to Metabolics business. We now forecast FX impact for 2018 to represent a roughly $25 million tailwind using current FX rates. GAAP operating margin is expected to be 11% to 14%, which is inclusive of the Wilson acquisition as well as restructuring and related expenses. We're increasing our non-GAAP operating margin to be in the range of 49% to 50%, representing approximately 400 to 500 basis point expansion over 2017. This is inclusive of R&D spend of 18% to 19% of revenues and includes ongoing expenses for WTX101, additional ALXN1210 programs and spend earmarked for business development. At the midpoint of this guidance, non-GAAP operating profit is expected to grow 24% year-over-year. We're forecasting a non-GAAP effective tax rate of 14.5% to 15.5%. GAAP earnings per share is expected to be $1.25 to $1.50 per share. Non-GAAP EPS is now expected to be between $7.00 and $7.15 per share, and at the midpoint of the range, this is approximately 21% growth year-over-year. With the strong first half of the year, we're well-positioned as we move into the second half, and we're really proud of the progress as we continue to execute on all five of the key initiatives that we laid out at the beginning of this year. I'll turn the call over to John.

[John J. Orloff:]

Thank you, Paul. We've made significant progress advancing our pipeline, in particular with ALXN1210 and WTX101, and as you see on slide 14, we have a number of upcoming trial initiations and data readouts. Starting with our first ALXN1210 indication, PNH. As planned in the second quarter of this year, we filed for approval in the U.S., where we used a priority review voucher, and in Europe, and we look forward to working with regulators as they review our applications. Additionally, we remain on track to file for regulatory approval in Japan in the second half of this year. For our second ALXN1210 indication, atypical HUS, enrollment is complete in our Phase 3 study, and we now plan to report results in early 2019, putting us on track to file atypical HUS regulatory submissions following approvals in PNH. Moving to Soliris and relapsing neuromyelitis optica spectrum disorder, or NMOSD, we are happy to report that the final study visit for the last patient just occurred, and the PREVENT trial is now complete. Given the primary endpoint was time to first relapse, the trial required all patients remaining in the study to come in for final evaluations, and there is, therefore, a large bolus of data to be analyzed. We are now working diligently with all study sites and are anticipating a database lock in the coming months and results later this year. I'd like to emphasize that Alexion investigators and patients remain completely blinded to study results at this time. We continue to raise the bar with ALXN1210 by developing multiple subcutaneous formulations to provide additional treatment options for patients. By the end of this year we plan to initiate a Phase 3 bridging study with subcutaneous ALXN1210 designed for once-weekly dosing. In addition, we filed a Clinical Trial Application, or CTA, in the EU for subcutaneous ALXN1210 co-administered with Halozyme's ENHANZE technology PH20 and plan to initiate a Phase 1 study later this year. Pending co-formulation, this next-generation subcutaneous formulation will be called ALXN1810 and could potentially reduce dosing to every other week or once monthly. Following the second quarter completion of our acquisition of Wilson Therapeutics, we now have an additional Phase 3 asset in WTX101. We also began a collaboration with Complement Pharma to codevelop CP010, a pre-clinical development inhibitor, a complement inhibitor targeting C6 for neurological disorders. Slide 15 depicts the Phase 3 study design for ALXN1210 in adolescent and adult patients with atypical HUS. This is a single arm, multi-center study with the primary endpoint being a measure of complete TMA response, which is a combination of important improvements in both hematologic and renal parameters. We also look at a number of secondary endpoints, including kidney function. The filing will be an sBLA submission following PNH approval. Now turning to slide 16. We're excited to advance another Phase 3 program and look forward to applying our clinical and regulatory expertise to bring a new potential standard of care to patients with Wilson disease. We believe WTX101 has a differentiated profile which we plan to demonstrate by now powering the Phase 3 study for superiority. We are also evaluating additional data generation to further differentiate 101, including a potential liver biopsy study. With the changes to the Phase 3 trial, we now expect enrollment timing to modestly increase and plan to file for regulatory approval with the required one-year Phase 3 data in 2021. Turning to slide 17, this quarter we began a collaboration with Complement Pharma to co-develop CP010, a pre-clinical C6 complement inhibitor for neurological disorders. It is believed that C6 is primarily produced in the liver and subsequently crosses the blood brain barrier to enter the central nervous system. CP010 binds to this peripherally produced C6 and has the potential to decrease the level of C6 in the CNS, resulting in inhibited formation of the membrane attack complex, or MAC. While we continue to focus our BD strategy on building out our clinical stage pipeline, this preclinical collaboration is a strong strategic fit with our internal research programs and complement expertise. I look forward to providing you with further updates on these programs throughout the year. With that I'll turn the call over to Brian to discuss the commercial highlights for the quarter. Brian?

[Brian Goff:]

Thank you, John. I'll start by providing an overview of our Soliris franchise, including an update on our gMG launch and then cover our Metabolic portfolio performance. Starting with Soliris on slide 19, building on our foundation, which we've established over our 11 years on the market, we continue to identify new patients with PNH and aHUS. I'm pleased to report that in the United States we saw the highest number of new patient starts and net patient additions in PNH since our launch in 2007. In addition to our core indications of PNH and aHUS, we've been able to further grow our Soliris family of patients with our launch into MG, which is becoming an increasing contributor to Soliris revenue growth, and we expect this to continue going forward. Slide 20 provides an update on MG growth in U.S. in the quarter. Given our adoption trends to date, we believe MG will outpace our launches in PNH and aHUS. We continue to increase the number of treated patients each month. As of the end of June in the U.S., we had 676 patients enrolled in one source, including 375 on therapy. Turning now to slide 21. Here I'd highlight that 26% of prescribing physicians have now treated more than one patient. This trend, coupled with our efforts to expand commercial access now at 85% of covered lives in the U.S., gives us confidence in the ongoing trajectory of Soliris and MG. While our U.S. launch is progressing ahead of our expectations, we continue to focus and refine our efforts in Japan and Germany. In Germany, we continue to see slower uptake, which was largely expected due to the lack of clinical trial experience in the region. In both Germany and Japan, we've launched new sales initiatives based, in large part, on our learnings from the U.S. Our dedicated neurology sales force is actively educating neurologists, including neuromuscular specialists, on the role of complement-mediated disruption of the neuromuscular junction in gMG as well as on the benefits of complement inhibition with Soliris. Moving now to our Metabolics franchise starting with Strensiq on slide 22. We reported $125 million in revenue this quarter, and we now expect Strensiq revenues for the full year to be nearly $0.5 billion, which highlights our confidence in its continued performance. The sales trajectory is another powerful example of our demonstrated launch excellence, and we see significant growth opportunities ahead. Looking at Kanuma on slide 23, we continue to expand lab testing to 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. We remain focused on securing new funding agreements in additional countries to expand access to this transformative medicine. I'm very proud of our global team, and I want to thank them for their tireless efforts to bring our three therapies to patients in need across five rare diseases. Given the excitement and interest in the upcoming launch of ALXN1210 and PNH, John and I will now take you through a more detailed update on our ALXN1210 launch plans as well as the broader ALXN1210 development program. John?

[John J. Orloff:]

Thanks, Brian. As we work toward our first ALXN1210 approval, we want to take the opportunity to discuss how we expect the ALXN1210 value proposition will meet the needs of physicians, patients and payers and how we intend to elevate the standard-of-care with our broader suite of ALXN1210 development programs. As you may recall, as shown on slide 25, the ALXN1210 Phase 3 PNH program evaluated more than 440 patients in two studies, one in patients who had never received a complement inhibitor and one in patients who were stable on Soliris and switched to ALXN1210. In both of these Phase 3 studies, which collectively comprised the largest PNH clinical program ever conducted, ALXN1210 demonstrated noninferiority to Soliris across all 11 of the program's primary and key secondary endpoints. Importantly, immediate and complete C5 inhibition was observed and sustained throughout the entire 26-week treatment period. In addition, ALXN1210 had a safety profile consistent with that of Soliris. There were no reported cases of meningococcal infections in either of the Phase 3 studies, and there have been no further cases reported in the extension studies thus far. In total, we have more than 400 patient years of exposure across the entire ALXN1210 program. Slide 26 shows the breadth of our work with ALXN1210 and how we plan to advance the standard-of-care with multiple next-generation programs, expanding into new modalities and additional indications over the next few years. As mentioned previously, we're expecting our first launches for ALXN1210 and PNH next year, pending approvals. We plan to file for approval for our second ALXN1210 indication, atypical HUS, in the first half of 2019 pending Phase 3 results and following approval in PNH. In parallel, we are progressing our higher concentration formulation, 100 mgs per ml, in order to reduce infusion times for patients. Moving beyond 2019, we plan to further expand options for patients with multiple subcutaneous programs. We have an opportunity to provide another needed treatment option to patients with the initiation of our Phase 3 bridging study for once-weekly ALXN1210 subcutaneous later this year and a potential filing in 2020. We also continue to progress our second sub-Q program, ALXN1810, which is planned to be a coformulation of ALXN1210 and PH20 that could further extend the dosing interval to either every other week or once monthly. We intend to initiate a Phase 3 trial of ALXN1210 IV in myasthenia gravis later this year, with the potential to file in late 2021 or early 2022. So as you can see across the suite of programs, we are dedicated to raising the bar in complement innovation and are planning to provide a broad portfolio of treatment options to elevate the standard of care. And now I'll turn the call back to Brian to further discuss ALXN1210's differentiated profile. Brian?

[Brian Goff:]

Thank you, John. Moving to slide 27, let me highlight the key attributes of ALXN1210 that we believe support a compelling value proposition. First, as John just highlighted, ALXN1210 has a strong clinical profile, given the data generated across two large Phase 3 trials in very diverse patient populations. Second, with every eight-week dosing we believe we will significantly reduce the treatment burden for patients. And third, weight-based dosing ensured complete complement inhibition in all patients. Moving now to slide 28. The strongly differentiated profile addresses many of the needs of physicians, patients and payers. First, important to the physician community is the totality of the clinical data, which includes several key measures including LDH levels, transfusion avoidance and controlling breakthrough hemolysis. We saw strong clinical results on all three of these critical disease measures in our Phase 3 ALXN1210 PNH studies. We consistently hear from patients the desire to minimize the burden of treating their disease and to have an extended therapy. ALXN1210's every eight-week dosing reduces the number of infusions, which could reduce the burden of treatment. Also, its complete C5 inhibition over eight weeks with no deviations could protect patients from breakthrough hemolysis. In our ALXN1210 Phase 3 studies trials, all but one patient continued in the extension studies, which indicates significant patient interest in ALXN1210 treatment. Payers prioritize the totality of the clinical data and the predictability of treatment costs. Payers will look at total disease burden and cost of the system. With that in mind, we plan to partner with payers across the globe to convey ALXN1210's strong value proposition. While we're still generating extensive market research, our initial finding suggests strong physician and patient engagement supportive of adoption. Over 90% of PNH patients surveyed prefer ALXN1210's two-hour infusion every eight weeks. Additionally, more than two thirds of PNH patients surveyed had interest in trying an IV treatment dosed every eight weeks within one to two months of new product launch. Physicians surveyed saw an opportunity for spontaneous switching in over a quarter of their patients, suggesting strong initial interest shortly after launch. We also found more than two thirds of initial target physicians would switch some or all of their existing patients to ALXN1210. We view the data shared today as a positive initial read on the potential market receptivity to ALXN1210, giving us confidence in our ability to facilitate rapid PNH patient conversion. Turning to slide 29. Given our decade-plus of experience with Soliris, we are uniquely positioned in the complement space to deliver a new standard of care to patients with the launch of ALXN1210. We continue to charge towards a potential launch in PNH in early 2019 and advance our ALXN1210 pipeline to pursue additional indications, as well as subcutaneous delivery options. With each of these programs, we plan to further address patient, physician and payer needs, bringing new treatment options to our growing family of patients and striving to elevate the standard of care. I'll now turn the call back to Ludwig for closing remarks. Ludwig?

[Ludwig N. Hantson:]

Thank you, Brian. Let me close by reflecting not only on the past quarter, but on the past year when we first laid out our strategy to deliver long-term shareholder value. Thanks to this team and to our talented employees around the world, we have established a strong foundation that positions Alexion well for the future. And as you can see here, we have made tremendous progress towards our 2018 goals. I would also like to thank our patients and their families around the world for the critical role they play in making our work possible. In summary, I'm very pleased with our momentum. And most importantly, I'm inspired by our team's steadfast commitment to providing life-changing therapies for rare disease patients and their families. With that, we will now open the call to questions. Operator?

[Operator:]

We will now turn to the question-and-answer portion of our call. To prevent any background noise, we ask that you please place your line on mute once your question has been stated. In order to accommodate as many people as possible, please limit your question to one. Our first question comes from Geoffrey Porges from Leerink. Your line is now open.

[Geoffrey C. Porges:]

Thank you very much, and congratulations on all the accomplishments and excellent operating results this quarter. A couple of questions, quickly. First, on the high concentration formulation, wondering if, John, you could give me a sense of what that would reduce the infusion time for ALXN1210 from and to, meaning what you're observing now that you've had all this clinical trial experience with current formulation and what it might go to. And then, just Paul, if you could just give us a little bit more clarity about – it looks as though gMG contributed about $30 million in sequential growth in the U.S. And just wondering if that's about the right number and then, what the implied underlying growth rate of the business in the U.S. is, ex-gMG. Thanks.

[John J. Orloff:]

So, Geoff , thanks. This is John. With regard to the current formulation in the Phase 3 program with ALXN1210, infusion times were approximately two hours, and that's given every eight weeks. With the newer higher concentration formulation, 100 mgs per ml, we hope to reduce that to below one hour, approximately 45 minutes.

[Geoffrey C. Porges:]

Great. Thanks.

[Paul J. Clancy:]

Geoff, in the second part of your question, you're pretty close on the gMG. We're not giving revenue numbers as you know, but the patient numbers – we ended the quarter at 375 in the United States. We started a little bit below 200 in the United States, so you can kind of do that math. The lion's share of gMG comes from the United States business. In terms of implied underlying growth, we've kind of talked about these numbers over the last number of quarters. If you strip out and try to, kind of, do apples-to-apples on all the dynamics on a quarter-to-quarter basis, in the second quarter for PNH and aHUS we saw underlying volume growth in the very high single digits. That's a modest attenuation from what we've seen in the last couple of quarters. I'd say the biggest factor that is changing that is rest of the world. As we've pointed out before, what was previously a key driver of growth, we see it as the geography that's got the lowest amount of growth.

[Ludwig N. Hantson:]

And Paul, every quarter our base is bigger and bigger.

[Paul J. Clancy:]

Yes. Absolutely.

[Geoffrey C. Porges:]

Great. Thanks very much, guys.

[Paul J. Clancy:]

Thank you, Geoff.

[Operator:]

Thank you. Our next question is from Matthew Harrison for Morgan Stanley. Your line is now open.

[Matthew K. Harrison:]

Great. Good morning, everybody, and thanks for taking the questions. I guess two for me. Paul, could you talk about how large were some of these tender orders that you received in the quarter? And it sounds like you think that should reverse next quarter, so maybe just give us an idea of what that swap will be. And then second, on the Wilson trial, just remind us here about how many more patients you think you need to enroll and what additional endpoints, including the liver biopsy, that you need to maybe drive a superior result. Thanks.

[Paul J. Clancy:]

Matt, for the first part of your question – this is Paul – I would characterize the benefit in the second quarter from tenders from a sequential quarter basis in the magnitude of around $20 million. I'd point you to the Soliris geographic sales breakdown. You can actually see that on a sequential basis. It is extremely hard to predict in the rest of world – many of these rest-of-world markets, the timing of that. No doubt, the headwind we do expect to see is the July 4 headwind, which we itemized in total as well as by product.

[John J. Orloff:]

And Matthew, with regard to the Wilson program, first of all, we're really excited to have WTX101 in our own portfolio. The Phase 3 program, as you know, is already underway, and we don't want to disrupt the momentum that's already been achieved so far. So the primary change will actually be increasing the sample size from what was originally communicated to be 100 patients to at least 150 patients, possibly more, so that we can position the trial for superiority relative to standard of care for the primary endpoint which is non-ceruloplasmin corrected copper. With regard to other endpoints, we're going to keep the endpoints as they are. We may even try to optimize them to ensure that we get them in the label. And the liver biopsy would be a separate study that we're now evaluating in terms of feasibility, sites, et cetera.

[Ludwig N. Hantson:]

Our objective is to show that we can de-copper the liver. So there's the regularly objective and there's the payer's objective. And from a regulatory, we do need one-year data. The additional studies should help us to get a stronger label, as John was saying, and do better with payer discussions.

[John J. Orloff:]

Yeah. We think this is a differentiated profile, and the liver biopsy study will help us to underscore the effect of this product uniquely to de-copper the liver, which is the pathophysiology that underlies the progression to end-stage liver disease.

[Matthew K. Harrison:]

Thank you.

[Operator:]

Thank you. Our next question is from Terence Flynn from Goldman Sachs. Your line is now open.

[Terence Flynn:]

Hi. Good morning. Thanks for taking the questions. Just wondering if you've had any preliminary discussions with either U.S. or EU payers regarding the value proposition of ALXN1210 and any feedback you can share. And then on your market research slide, I noticed that while two thirds of docs are indicating they prefer to switch patients, is there any feedback from the one third of docs that indicated they might not have a preference to switch patients to ALXN1210? Thanks.

[Brian Goff:]

Sure. Hi, Terence. It's Brian. Thanks a lot for both questions. On the payer discussions with ALXN1210, first of all, we're, of course, very pleased with the strong data that we've been able to present. We do believe that the product profile addresses, as I had mentioned, many of the needs of physicians, patients, as well as the payers. And so we're engaged in those discussions. Our ambition, of course, is to set a high bar with ALXN1210 to make it the new standard of care. So that has a two-part benefit. Of course, that helps patients. It also for our business narrows the space for potential competition. And ultimately, as we continue with those engagements with payers, we'll make sure that the comprehensive value of ALXN1210 is well-recognized. With respect to the initial market research discussions, as you noted, the two thirds and the one third of doctors, I think mainly what you're seeing here is a segmentation that has to do with kind of early adopters, those who are willing to jump in earlier in the course of launch, as well as those who might wait a little bit of time to see what the initial profile looks like and the patient response. But we'll continue to work on making sure that all of our target doctors see the full benefits of the product.

[Ludwig N. Hantson:]

The data Brian talks to that we should be able to deliver on our objective of facilitated conversion, fast conversion to ALXN1210.

[Operator:]

Thank you. Our next question is from Josh Schimmer from Evercore ISI. Your line is now open.

[Josh Schimmer:]

Great. Thanks very much for taking my question. For the myasthenia gravis adoption curve for Soliris, can you give us a sense of the persistence on therapy and how that...?

[Ludwig N. Hantson:]

Josh, we can't hear you. Could you try again?

[Josh Schimmer:]

Sorry. Is this any better?

[Ludwig N. Hantson:]

That's much better, Josh.

[Josh Schimmer:]

Okay. Sorry about that. So I was just asking for the myasthenia gravis Soliris adoption curve, if you can give us a sense of persistence on therapy and how that might ultimately affect the launch trajectory compared to some of the other indications?

[Brian Goff:]

Hey, Josh. It's Brian, again. With respect to MG, as I noted on the front-end, the demand side of the equation, we're pleased with the continued uptake. Just as a reminder, we're only in the second full quarter since launch. And from the REGAIN study, we had looked at the 12-week mark, there were about 40% of the patients who were so-called nonresponders. What we're seeing in the real world early on is that the number is significantly less than that, which is encouraging because it really has a positive reinforcing benefit, of course, for patients on what this product means for them and for their journey through MG. And it also has yielded a positive reinforcement back to physicians who have prescribed Soliris for MG. So early on, but generally we're seeing more encouraging continuations than we saw in the REGAIN study.

[Operator:]

Thank you. Our next question is from Chris Raymond from Piper Jaffray. Your line is now open.

[Christopher J. Raymond:]

Hey. Thanks for taking the question. So just following up on the market research question, Ludwig, I think I heard you answer the previous question regarding the third of docs that wouldn't switch. I think I heard you say it was a matter of timing and waiting for clinical experience. Can you maybe clarify was there some specific issue that jumped out that they were looking for with the clinical experience? Was it safety? Or was it just waiting for the reimbursement dynamic or logistics or something like that? Any color there would help. Thanks.

[Brian Goff:]

Hey, Chris. It's Brian. Maybe I'll go first and Ludwig can add on any further commentary. As I mentioned, having had experience in rare diseases, what you classically see is a segmentation of one cohort of doctors, and in this case, we talk about two-thirds of the doctors who had seen the profile and market research who are more ambitious about a conversion. And one thing to keep in mind too when it comes down to actual conversion is there's a little bit that we'll have to work through in terms of the cadence of patients visiting their clinicians. The second part of it and the one-third that you allude to oftentimes is a function of just waiting and getting more experience and exposure to the data and how it plays out. And I think that's more or less what we expect in terms of the launch uptake. But as Ludwig noted, the ambition here is make it the standard of care in PNH and really go after facilitated conversion for those patients.

[Ludwig N. Hantson:]

We've had over the decades a lot of experience with the market segmentation and launch and insights prelaunch. We're really excited about what we saw here. So the early adopters' percentage is high. So you have a group of fast followers, which we believe is also very favorable of what we see. And then you have this group of physicians who will need time. And the fact is that Soliris has a high bar and although we believe that we have a strong value proposition for each of our stakeholders, Soliris is a pretty good product but we believe we're in a pretty good position here.

[Brian Goff:]

Hey, Chris. Maybe I'll just add one more comment is that as we further our market research, I expect that we'll see a dynamic of one cohort of doctors who get the obvious point about ALXN1210 which is the eight-week dosing interval versus two weeks, and another who will need to digest – as we talked about the totality of the data, the LDH measures, the transfusion avoidance – as well as the breakthrough hemolysis. And that will be our focus as well.

[Operator:]

Thank you. Our next question is from Anupam Rama from JPMorgan. Your line is now open.

[Anupam Rama:]

Hey, guys. Thanks so much for taking the question. On the gMG launch, you guys have talked about natural efficiencies at institutions that could get patients on therapy faster. What are you hearing anecdotally in the field on this? Thanks so much.

[Brian Goff:]

Yeah, Anupam, it's Brian. Good to speak with you again. With respect to gMG, actually, most of the uptake initially has been with community neurologist, less so in the academic settings. And we expect over time that will continue to progress with the institutions. But in general, what we've been encouraged by is that we're seeing both breadth of prescribing improving, which is really important at this phase in launch. And then as I noted in my comments, we're also beginning to see some improvements in terms of depth. And that's a signal of the doctors who have had initial experience with Soliris for gMG have had that positive reinforcing signal of the patients responding well and so they're enhancing their uptake. And that's what you're seeing play out in the trajectory.

[Anupam Rama:]

Thanks for taking our question.

[Brian Goff:]

You bet.

[Operator:]

Thank you. Our next question is from Geoff Meacham from Barclays. Your line is now open.

[Jason Zemansky:]

Wonderful. Thank you. Good morning, everyone. This is Jason Zemansky on the call for Geoff. Thanks for taking our question and congrats on the quarter. Real quickly. In previous quarters you had talked about the steady underlying double-digit growth in both PNH and aHUS. And I'm curious, was that true of this quarter? And moving forward, are you still expecting kind of the same level starts or are we seeing a saturation point? And then, in terms of Kanuma, Strensiq is really ramping nicely. I'm curious, is there a tipping point where you think that Kanuma can kind of achieve that same level as growth-driver? And kind of what needs to happen. And if so, when? Thanks so much.

[Paul J. Clancy:]

Hey, Jason. This is Paul. I'll take the first part of that question. I think Geoff had asked it earlier on. You may not have heard, but we saw high-single-digit growth rates of the aHUS PNH business on an underlying basis when you kind of get all the apples-to-apples together. That is very much in line with our expectations. We're growing off of a larger base, so we continue to see patient additions, as Brian had noted, really strong PNH quarter in the United States. And then, just balancing that, we do envision rest-of-world, which previously was a big growth driver. We're seeing that being probably the slowest geographic growth rates from a regional perspective. Brian, I'll turn it to you for Kanuma.

[Brian Goff:]

Yeah. Maybe just before Kanuma, since you asked the question I want to take an opportunity to go behind the numbers a little bit and say, again, I could not be prouder of the team. I think what you're seeing in the underlying growth is a team that is really expert in the diseases where we focus as well as the products and the patient needs. And they work day in and day out to deliver, and that's what you're seeing in terms of those results. So really proud of that group. With Kanuma, this is, as we've talked about for a few quarters, we really are convinced we're on the right strategy in focusing on, first of all, getting accounts set up one by one to do the lab testing, and secondly, to motivate clinicians to actually do the testing and make that as easy as possible for them. And we believe that, with increased volume of testing in these enriched populations, that we will see an increase with Kanuma. But it's a slower ramp, as you've seen, I'm not sure that I would predict at this stage a tipping point per se, but we do believe it's the right strategy.

[Ludwig N. Hantson:]

Yeah. We're seeing that same passion in our sales force in the Kanuma as we see with Strensiq and gMG and PNH and aHUS. At the end of the day, the clock is ticking for those patients, and it's part of our mission to find those patients.

[Operator:]

Thank you. Our next question is from Phil Nadeau from Cowen & Company. Your line is now open.

[Phil Nadeau:]

Good morning. Thanks for taking my question. Another question on the conversion to ALXN1210, Ludwig, in response to a prior question, I think you said that you expected a rapid conversion, and I'm curious if you'd be willing to quantify that. What proportion of patients could convert from Soliris to ALXN1210 over what period of time? Maybe specifically, we're projecting about a third of patients, U.S. PNH patients, convert in 2019 and two thirds by the end of 2020. Do those estimates strike you as reasonable, aggressive, or conservative? Thanks.

[Brian Goff:]

So this is Brian. I'm going to jump in line here, and thanks a lot for the question. I mean -

[Ludwig N. Hantson:]

Great to hear from you by the way, Phil.

[Brian Goff:]

Yeah. I do appreciate the question. We've not provided any conversion targets at this stage. We're certainly ramping up in our launch preparations. As I've said a couple times, of course, we do believe in ALXN1210's differentiated profile, and with the totality of data we feel that that will support rapid market conversion. So our objective is to be best-in-class for facilitated conversion. And I think at this stage in the launch preparation, we'll leave it there.

[Phil Nadeau:]

Great. Thanks for taking my question.

[Brian Goff:]

You bet.

[Operator:]

Thank you. Our next question is from Marty Auster from Credit Suisse. Your line is now open. Martin Auster - Credit Suisse Securities (USA) LLC Hey, guys. It's Marty. Thanks for taking the question. Can you outline how you think the ALXN1210 aHUS clinical program could help differentiate the product, relative to Soliris in that indication? And then, are there any reasons why you might expect ALXN1210 conversion interest might look different in aHUS relative to PNH as you gather that data and start doing that work in 2019? And then, just lastly, housekeeping question, what proportion of the aHUS population currently do you think is pediatric versus adult? Thanks.

[John J. Orloff:]

So Marty, this is John. So you know that our PNH program was a head-to-head program against Soliris in both Naive and Switch studies were. We believe we have a differentiated profile on a number of fronts that have already been highlighted. The aHUS study, which has completed enrollment and will have data at the beginning of 2019, is a single arm estimation study with complete TMA response as the primary endpoint. So we'll only have historical data to compare to. With Soliris, it will not be head-to-head. So it won't have that opportunity for direct head-to-head differentiation in that program.

[Ludwig N. Hantson:]

And then the mix peds versus adults. Is your question, Marty, related to aHUS? Martin Auster - Credit Suisse Securities (USA) LLC It is, yes. And I was just wondering if there's any, in terms of the less frequent infusions and any other potential benefits clinicians might find in ALXN1210's profile relative to Soliris, whether there is kind of a more pronounced benefit in the pediatric population versus adults and whether you think that conversion curve would look any different relative to PNH.

[John J. Orloff:]

So what I can say is that the study we have ongoing is for adults and adolescents, and we have a pediatric program that's also underway and enrolling. And the average patient age, of course, with aHUS is less than PNH. So there'll be younger patients that would be able to take advantage of the eight-week infusion, I think would be better received on that end. I can turn it over to Brian to comment on that differentiation.

[Brian Goff:]

We don't have precision on the split, but in terms of the expectations of how it'd play out, we have to see the data, of course, in the real world with Soliris. We don't see, and we wouldn't expect to see necessarily a difference between the two. But we'll have to wait for the data. Martin Auster - Credit Suisse Securities (USA) LLC Okay. Thanks.

[Operator:]

Thank you. Our next question is from Keith Mackey from RBC. Your line is now open.

[Keith Mackey:]

Hi. Thanks for taking the question. Maybe one for Brian, first. You mentioned all but one patient continued into the extension study. I was just wondering why that one patient chose not to continue. And then, more broadly, just wondering if you could help us out with sort of what your internal expectations are for a potential biosimilar Soliris in Europe and if there have been any internal changes to those expectations recently. Thank you very much.

[John J. Orloff:]

So this is John. I'll take that first question. First of all, it's extremely unusual and very remarkable for virtually all patients to go into an extension study. There's various reasons for patients to not choose to do that. In this case, it didn't have anything to do with their satisfaction, from our understanding of the experience taking the product during the randomized phase of the study. It was more of a logistical personal decision.

[Ludwig N. Hantson:]

Yeah. With respect to your biosimilar question, I'll try to elevate maybe my answer to sustainability of our leadership position that we feel really good about it that we can sustain our leadership position in complement. We just had a long discussion on raising the standard of care with ALXN1210, which, I believe, is maybe the most important piece. We have a strong IP platform for Soliris, both U.S., Japan and we're prosecuting the same strategy in the EU. And then on the biosimilar front, nothing new from what we discussed before. So we have not seen any Phase 1 data and we are not aware of any Phase 3 trial that is actively enrolling.

[Operator:]

Thank you. Our next question is from Ying Huang from Bank of Merrill Lynch. Your line is now open.

[Ying Huang:]

Hi. Good morning. Thanks for taking my question. Maybe first one for Paul. The SG&A as a percentage of total revenue has continued to come down to now about 22% on a non-GAAP basis. So just wondering, is that a good proxy for the SG&A going forward or do you think there is more improvement potentially that could happen. And then also quickly on the research and development side, can you talk about potential indication for the Complement Pharma collaboration? Thanks.

[Paul J. Clancy:]

Yeah. Let me – I'll take the first part of that, Ying. I think it was a little bit garbled, but I think you were asking about SG&A as a percentage of sales.

[Ying Huang:]

Yes.

[Paul J. Clancy:]

Yes. So we're getting leverage. Obviously, a lot of that is leverage off the top line. Without kind of giving guidance or big expectations going into next year and the year after, I continue to expect that there is leverage on SG&A broadly.

[John J. Orloff:]

And with regard to Complement Pharma, as you know, this is in a preclinical stage. We're now characterizing the antibody and doing some in vivo animal experiments to sort out its profile. Because of the biology of C6 that we believe it's not generated in the CNS, even in circumstances of injury, it lends itself to peripheral neutralization and inhibition with an antibody that would attack a range of CNS-related complement mediated conditions, including some of the ones we've already been evaluating with terminal complement inhibition. So the range is quite broad, and we'll share more, I guess, over the coming year as to which direction we may take it.

[Ludwig N. Hantson:]

Operator, we'll take three more questions.

[Operator:]

Thank you. Our next question is from Robyn Karnauskas from Citi. Your line is now open.

[Robyn Karnauskas:]

Hi, guys. Thanks for taking my question and congrats on the quarter and the progress. So I guess my question is two. One, it's for Paul. Kind of a follow-up to the last question. On operating margins, you talked a lot about all these trials going on and I was just wondering, help us think about how much pressure that could put on operating margins in the near term. I know you haven't given long-term guidance. And the second question is on pricing. And if you think about like you're going to regulatory authorities in a year or so and asking them to reimburse ALXN1210, will you also be telling them we're going to have ALXN1210 for MG and ALXN1210 for aHUS and maybe doing similar things. You and other companies are doing multi-drug contracts. Is that on the table or a possibility so you could speed up conversions? Thanks.

[Paul J. Clancy:]

Okay. Robyn, this is Paul. I'll try to tackle it. Great questions. So look, we're very pleased that we're actually nearing on an operating margin with the full year 2018 guidance. We're nearing what we set out as a financial ambition for 2019. So effectively, pulling it in a year. I think the way to think about it is as we continue to believe that we want to achieve double-digit topline growth in leverage to the bottom line, which implies as we go into next year and the following year, continuing operating margin expansion. The degree to that we'll have to kind of sort through. As we get upward pressure from some of the programs that I noted, if there's potential over a longer period of time, downward pressure, as ALXN1210, PNH and aHUS trials effectively we kind of get to a different stage with them. That doesn't happen overnight and it doesn't even happen. But we do see that happening in sight. So we're still committed to kind of the margin performance growing for the company. With respect to pricing, I mean, you kind of asked a broad question. I think it would be a great problem. It is very complex. As Brian noted, it'll be country by country. We'll be tackling this. And I think it's premature to get too specific on it but we do just kind of broadly see it as a good opportunity.

[Robyn Karnauskas:]

Great. Thank you.

[Operator:]

Thank you. Our next question is from Hartaj Singh from Oppenheimer & Company. Your line is now open.

[Hartaj Singh:]

Great. Thank you. I appreciate the question. I just had a quick question on the aHUS trial in the ALXN1210. There have been some companies in rare diseases where there have been sort of these one-arm trials where regulators have had sort of a maybe not optimal view of it. Just any thoughts on your regulatory interactions and how that supplementary BLA to PNH will work out. Thank you.

[John J. Orloff:]

So Alexion had extensive interactions with regulatory authorities before embarking on Phase 3 program for ALXN1210 and they got alignment with having a head-to-head trial in PNH and an estimation single-arm trial in atypical HUS. So we're very confident that it will meet regulator's guidelines for registration. As you know, we've already filed for PNH in the U.S. and the EU, and we're planning to file in Japan the second half of this year.

[Ludwig N. Hantson:]

Last question.

[Operator:]

Thank you. Our last question is from Yatin Suneja from SunTrust. Your line is now open.

[Yatin Suneja:]

Hey, guys. Thanks for squeezing me in. Just a broader question on gMG. Is there a possibility that Soliris, or perhaps other pipeline candidates that you have could move up front in the treatment paradigm? I mean, given that the pathway is validated to complement C5, just thinking, or how are you thinking about maximizing the value of this indication? Thank you.

[Brian Goff:]

Yeah. Hi Yatin, it's Brian. Great question. I'll start just by saying that I hope so. Our ambition is on behalf of these patients who have, in many cases, suffered for a long time, that we continue to progress towards earlier course of therapy. Now, because, as I noted, we're in the second full quarter of launch in the U.S., we're still in that neighborhood of the REGAIN type population. And keep in mind, in terms of clinical treatment inertia, this Solaris for MG was the first new FDA approval in about 60 years. So there's a lot of education and reorienting clinicians to a different way of treating relative to IST therapy, IVIG, plasma exchange and so on. But that is the ambition, and maybe I'll ask John if he wants to comments from an R&D perspective.

[John J. Orloff:]

Yeah. I think from a mechanistic perspective we know that patients with acetylcholine receptor antibodies activate complement. So theoretically patients further upstream and the journey would be amenable to C5 inhibition. There is a large unmet need continuing in myasthenia gravis, and so there's an opportunity here for additional innovation across the board as well as new mechanisms.

[Ludwig N. Hantson:]

So we're going to close the call. First of all, I want to thank everybody for calling in. As we said, we are really pleased with this quarter and in what our employees are delivering to our patients and their families. So thanks for calling in, everybody.

[Operator:]

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect.