Alexion Pharmaceuticals, Inc.
Q3 2017 Earnings Call Transcript

Published: 26 Oct 2017

[Operator:]

Good morning, everyone, and welcome to the Alexion Pharmaceuticals, Incorporated Third Quarter 2017 Conference Call. Today's conference is being recorded. For opening remarks and introductions, I would like to turn the call over to Elena Ridloff, Vice President, Investor Relations. Please go ahead, ma'am.

[Elena H. Ridloff:]

Thank you, Rebecca. Good morning and thank you for joining us on today's call to discuss Alexion's performance for the third quarter 2017. Today's call will be led by Ludwig Hantson, our CEO. Ludwig will be joined by Paul Clancy, our Chief Financial Officer; Brian Goff, our Chief Commercial Officer; and John Orloff, our Head of R&D. 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 detail. These forward-looking statements apply only as of today, and we undertake no duty to update any of the statements after the call. I'd also like to remind you that we will be using non-GAAP financial measures, which we believe provide useful information for the understanding of our ongoing business performance. Reconciliations of 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:]

Thank you, Elena, and thanks to everyone for joining us this morning. I want to start today's call by saying I'm very pleased with the FDA approval for Soliris as a treatment for patients with generalized myasthenia gravis. This is a tremendous accomplishment for Alexion. But more importantly, this is a significant milestone for patients and their families that have been waiting a long time for new treatments. I would like to thank the cross-functional teams at Alexion, who worked to make this approval a reality, the FDA, for their review of our application and the investigators' patients and families who participated in our trials. We will discuss the gMG approval in more detail later on the call. Turning now to our Q3 performance, as shown on slide 5. During the quarter, we made significant progress, advancing our mission to bring hope to patients and families affected by rare diseases. And positioning the company to deliver on its long-term growth objectives. Continued execution generated strong commercial R&D and financial performance in the quarter, including year-over-year revenue growth of 8%, volume growth of 9% and non-GAAP EPS growth of 17%. Recent highlights includes our commercial organization once again delivered on serving more patients, driven by continued volume growth of Soliris, despite rapid enrollment in the ALXN1210 studies and continued momentum of Strensiq. In addition, our MG team launched Soliris in Germany. Our R&D team achieved regulatory approval in the EU, for patients with refractory gMG and we received FDA approval earlier this week. We're very pleased with the label which John will discuss in more detail. In addition, we completed enrolment in the ALXN1210 IV Phase 3, PNH Naïve and Switch studies and progressed our plans to initiate a single PK-based Phase 3 study of ALXN1210 delivered subcu. We strengthened our patent portfolio with three new U.S. patents for Soliris, issued in the third quarter that extend patent protection into 2027. These new patents work in concert with other patents and regulatory exclusivities to protect Soliris in all indications. We announced the restructuring plan that aligns the global organization with our refocused strategy. By streamlining our operations, we are creating a leaner organization with greater financial flexibility. And we added Paul Friedman, a respected and highly accomplished executive with extensive R&D and biotech experience to our board of directors. I'm pleased with our accomplishments in the third quarter and our performance year-to-date. Before I turn it over to Paul to discuss the financial results including our updated guidance for 2017, I want to reiterate the four objectives that will drive our next phase of growth as shown on slide 6. First, we continue to see meaningful opportunities to grow our rare disease business. Second, we will focus research on our complement expertise and development on our core therapeutic areas. Third, we will build our pipeline through disciplined business development and additional complement indications. And fourth, we are optimizing our infrastructure to deliver margin expansion, EPS growth and increase cash flow. Our third quarter results position us well for the remainder of 2017 and beyond. We are in a great position to build on our strengths by executing on our strategy to generate long-term growth with a clear goal of delivering increased value for our shareholders. I will now turn it over to Paul to review the third quarter financial results. Paul?

[Paul J. Clancy:]

Thanks, Ludwig. Starting with slide 8. Total reported revenues in the third quarter were $859 million and grew 8% year-over-year. As we had forecasted and previously communicated, growth this quarter was lower than the previous two quarters due to a few factors. First, the second quarter benefited from approximately $35 million due to timing of orders, which directly impacted quarter-over-quarter and year-over-year growth for this quarter. Second, the impact from ALXN1210 and other clinical trial enrollments increased. We estimate that this impact in Q3 was approximately $30 million versus approximately $20 million for the first half of the year. This is a welcome headwind as we continue to advance this program. And, third, pricing was a 1% headwind in Q3, a slight increase versus the first half of the year, although lower than we had anticipated. The third quarter non-GAAP earnings per share of $1.44 grew a strong 17% year-over-year. Moving to slide 9, our product sales were driven by growth in the U.S., Europe, and the Asia Pacific region, whereas growth in the Rest of World was impacted by the timing of orders. You can see we delivered a 9% increase in volume, partially offset by FX headwind of less than 1% inclusive of hedging and a pricing headwind of 1% compared to the same period last year. Turning to slide 10. Soliris revenue was $756 million and year-over-year volume growth was 3%. ALXN1210 and other clinical trial enrollment was an approximately 4% headwind to year-over-year volume growth in the quarter with the largest geographic impact from enrollment in Europe and the Asia Pac region. Importantly, when you strip away a number of the moving pieces over the last few quarters, we continue to see underlying volume growth for Soliris maintaining its momentum. More specifically, when adjusting for ALXN1210 in ordering patterns, Q3 volume growth was around 13% which is consistent with what we've seen in the last five quarters. As shown on slide 11, we reported Strensiq revenue of $87 million as we had continued momentum from existing patients continuing on therapy, as well as new patient additions. Growth was impacted by changes to our pricing strategy in the U.S. as we work with payers to better align the value for higher dose patients. Looking at Kanuma, we achieved revenues of $16 million. Turning to operating margin on slide 10. During the quarter, we delivered a non-GAAP operating margin of 45%, benefiting from revenue growth and focus on operating expenses. Non-GAAP R&D was $175 million or 20% of total revenue. The decreased R&D spend compared to third quarter of 2016 was due to cost savings from the announced deprioritized programs and terminated partnerships, offset by increased investments in ALXN1210. Additionally, R&D spend in Q3 of this year benefited by approximately $6 million due to the timing of batches of clinic drug compared to our expectations. This expense is now expected in Q4. Non-GAAP SG&A was $230 million, 27% of total revenue. The year-over-year increase includes spend associated with the build of the dedicated field teams in preparation for the gMG launches in the U.S., Germany and Japan. The effective tax rate in the quarter was 10% and benefited from the conclusion of a routine IRS audit for the years 2013 and 2014. This contributed approximately $0.07 to non-GAAP earnings per share in the quarter. For the full year, we now expect the tax rate to be between 12% and 13% including this benefit, and expect an increase to 13% to 15% in 2018. Non-GAAP EPS in the quarter of $1.44 grew 17% year-over-year, driven largely by revenue growth and a favorable tax rate. We reported Q3 GAAP EPS of $0.35 and recognized $164 million in restructuring and related expenses as outlined on slide 13. The majority of these expenses were associated with our planned closure of the Rhode Island manufacturing facility and employee separation costs. Of the $164 million, $74 million will be cash outlays. In the quarter, we generated over $580 million in free cash flow and ended September 30 with approximately $1.5 billion in cash and marketable securities, of which approximately 35% is in the United States. We repurchased approximately 475,000 shares in the quarter. Let's now turn to slide 14 and walk through the full-year guidance and a few items to keep in mind as we move forward. Total revenues are now expected to be between $3.475 billion to $3.525 billion, up from our prior guidance range of $3.45 billion to $3.525 billion; we're effectively increasing the low end of the revenue range. At the midpoint, this represents 13% total revenue growth year-over-year. This includes an updated estimate of $30 million to $40 million of foreign currency headwinds and our expectations for the impact of ALXN1210 and other trials on Soliris, which I'll discuss in a moment. Excluding these, revenue growth would be approximately 17%. For Soliris, our revenue guidance is $3.09 billion to $3.125 billion. Similarly, we've increased the low end of the range. This assumes continued underlying volume growth with PNH and aHUS globally. It also assumes the impact of Soliris revenue from ongoing ALXN1210 trials as well as other studies, which we believe will fall within $80 million to $90 million now. To touch briefly on 2018, we do expect incremental headwinds to Soliris revenue from the ALXN1210 studies, given the ramp of enrollment through 2017 and that these patients will remain in extension studies until a regulatory decision which we're targeting for PNH in the first half of 2019. In addition, we expect some limited incremental headwinds due to our plan to initiate a Phase 3 subcu study in 2018. With regards to the MG launch, given the timing in the year, we expect limited contribution from MG in Q4 2017. Turning to Metabolics. Our revenue guidance is $385 million to $400 million which is also an increase at the low end of the range. GAAP operating margin is expected to be between 16% and 19% with the reduction due to restructuring and related expenses. Non-GAAP operating margin guidance is unchanged. We anticipate a sequential increase in operating expenses in the fourth quarter due to seasonal medical congresses, as well as the timing of clinical drug batches I previously mentioned. This will be partially offset by savings from the restructuring. The guidance now assumes a non-GAAP effective tax rate of 12% to 13% versus our prior expectations of 13% to 14%. GAAP earnings per share of $2.00 to $2.35 includes the restructuring and related expenses. Our revised non-GAAP earnings per share guidance is $5.50 to $5.65, an increase over our prior guidance range of $5.40 to $5.55. This EPS guidance represents approximately 21% growth at the mid-point of the range. Turning to slide 15, we're executing on the restructuring plan we provided last month in working towards the 2019 financial ambitions as shown on slide 16. These include double-digit revenue growth, operating margin growing to 50% in 2019 and leverage from the top line to the bottom line, leading to greater non-GAAP EPS growth. We anticipate delivering on these objectives while simultaneously investing in our pipeline, including through disciplined business development. On this note, I'm pleased to announce that Dr. Aradhana Sarin will be joining us as Senior Vice President of Business Development and Corporate Strategy. Aradhana brings to Alexion over 20 years of professional experience at global financial institutions, has a strong orientation for science, an excellent understanding of the sector and deep transactional experience. I'll now turn the call over to Brian.

[Brian Goff:]

Thank you, Paul. I'm pleased to report in our commercial performance in the third quarter starting with Soliris on slide 18. Our global commercial operations continue to serve more patients with PNH and aHUS with Soliris despite the rapid enrolment in the ALXN1210 trials. In PNH, our longstanding focus on disease education enables us to continue to identify new patients and we still believe that the majority of patients with PNH have yet to initiate treatment. In aHUS, we're seeing a growing number of new patients starting on Soliris and patient retention remains a focus. Our disease education programs target specialties with high potential for patients with complement amplifying conditions and we continue to further our understanding of optimal treatment for patients with aHUS. We also continue to believe that the opportunity with aHUS is even greater than that of PNH. We're very pleased with the Soliris performance in Q3 and year-to-date even as we simultaneously enroll patients into the ALXN1210 trials and expect continued growth ahead of us in both PNH and aHUS. Now, moving to generalized myasthenia gravis on slide 19. We're extremely gratified to be launching Soliris for patients with this chronic and debilitating neuromuscular disorder. Our initial focus for the gMG launch will be in the U.S., Germany and Japan. Starting with the U.S., earlier this week, the FDA approved Soliris for the treatment of adult patients with gMG who are anti-acetylcholine antibody positive. This is the first FDA approved treatment for these patients in more than 60 years. In addition, Soliris is the first and only complement inhibitor available to treat gMG. Our focus will be on the studied patient population in the Phase 3 REGAIN trial, 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 patient population. As a reminder, we estimate the total MG population to be 60,000 to 80,000 patients in the U.S. These patients are in urgent need of treatment, as shown on slide 20, despite cycling through existing therapies, often over many years. They continue to suffer from profound muscle weakness and severe disease symptoms that limit function, including difficulties walking, talking, swallowing, and breathing. They're also at increased risk of disease exacerbations and crises that may require hospitalization and intensive care and may be life-threatening. Based on what we observed in the Phase 3 REGAIN study, we also estimate that approximately 60% of AchR antibody-positive gMG patients will respond to treatment with Soliris and that most patients who respond will do so by 12 weeks of treatment. To serve the gMG community in the U.S., our specialized and dedicated field team is fully staffed, trained, and now deployed in the field. Having just returned from the launch meeting, I can say that our team is excited about the opportunity to educate neurologists, including neuromuscular specialists, on the critical role of complement-mediated destruction of the neuromuscular junction and, now, the benefits of complement inhibition with Soliris. Our expectations are that there are initial patients who have been waiting for another treatment option. However, patients need to be vaccinated and go through benefit verification, as well as infusion scheduling prior to initiating treatment, which can take several weeks. Given the timing in the year, we would expect patients in the U.S. with gMG to largely start on Soliris later this year or early 2018. Moving now to Germany, the initial launch is underway following the approval by the European Commission in August for AchR antibody-positive patients with refractory gMG. And in Japan, our supplemental new drug application for Soliris in refractory gMG was accepted for review by the Japanese Ministry of Health, Labor, and Welfare, and we expect a decision in early 2018. Turning now to our metabolic therapy starting with Strensiq on slide 21. In Q3, we continued to identify new patients with HPP in the U.S., Germany, and Japan and also continued to focus on geographic expansion. Following the national funding agreement with NICE and NHS England, patients in England with pediatric onset HPP in most need of treatment will have access to Strensiq starting in November. We also reached an agreement in France in the third quarter that will cover patients of all ages similarly to England. We expect that the France funding agreement will go into effect by the first quarter of 2018, and we're also working diligently to ensure that patients with HPP in other countries also have access to the transformative benefits of Strensiq. Looking at Kanuma on slide 22, 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're also establishing additional lab partnerships to drive an increase in testing. In addition, outside of the U.S., we're pleased to report that we reached an agreement for the treatment of patients with infantile-onset LAL-D in Italy in Q3, which will go into effect later this year. I'm very pleased with the commercial team's performance in the third quarter and believe we are well-positioned to continue to deliver on growth in the remainder of 2017 and beyond. And I'll now turn the call over to John for an overview of the R&D highlights from the quarter. John?

[John J. Orloff:]

Thank you, Brian. I'm proud that Alexion's deep understanding of complement biology led to the recent FDA and EC approval of Soliris for the treatment of patients with anti-acetylcholine receptor antibody positive, gMG. As Brian mentioned, our focus will be on the patient population evaluated in the REGAIN study, which were acetylcholine receptor antibody positive patients who had inadequate response to appropriate immunosuppressive therapy and continue to suffer from significant unresolved disease symptoms. Turning to slide 24. I want to first make a few moments, comments on, the highlights from the FDA-approved label. The clinical trial experience section of the prescribing information includes robust data from the REGAIN study, including the change from baseline to week 26 in MG-ADL and QMG total scores, which showed a statistically significant difference favoring Soliris compared to placebo. Also of note, the proportion of clinical responders with no rescue therapy was significantly higher for Soliris compared to placebo for both QMG and MG-ADL. For both endpoints and also at higher response thresholds, the proportion of clinical responders was consistently greater for Soliris compared to placebo. We are pleased that the FDA recognized the comprehensive clinical data supporting the benefits of Soliris for patients with anti-acetylcholine receptor antibody positive gMG. Also, in neurology on slide 25, we have now completed enrollment in the PREVENT Study, a single multinational placebo-controlled Phase 3 trial of eculizumab in patients with relapsing neuromyelitis optica spectrum disorder, or NMOSD, and expect to report data in mid-2018. As a reminder, this study is based on results from a small investigator-initiated Phase 2 trial in 14 patients that showed a reduced frequency of attacks in patients with severe relapsing NMO. Beyond Soliris and to drive continued innovation, we are rapidly progressing the development of ALXN1210, our innovative, next generation C5 antibody that has the potential to address important patient needs. Turning now to slide 26, we now have over 500 patients enrolled in the ALXN1210 development program and about 130 patient years of exposure. Before discussing our ALXN1210 registration trials, I wanted to mention that additional Phase 1/2 data will be presented at this year's ASH congress. As a reminder, the Phase 3 dosing and study designs were determined based on empiric data from the Phase 1/2 studies, our 20 years of experience in complement development, robust PKPD modeling data and discussions with regulators. Turning to the Phase 3 trials, we have completed enrollment in both the PNH Naïve study and the PNH – Switch study which both administered ALXN1210 intravenously every 8 weeks. We expect data from these studies in the second quarter of 2018 and as Ludwig mentioned, we are targeting an approval in PNH in the first half of 2019. On slide 27, we also continue to enroll patients in the Phase 3 atypical aHUS study in complement inhibitor treatment-naïve adolescent and adult patients and expect to complete enrollment in early 2018. In addition, we initiated enrollment in a Phase 3 study in complement inhibitor treatment-naïve children with atypical aHUS. Turning to slide 28. To provide even more optionality for patients, we are also developing a higher concentration formulation of ALXN1210 delivered subcutaneously. Based on encouraging Phase 1 PK and tolerability data and discussions with the FDA and EMA, we are planning to proceed with a registration trial, which we're in the process of designing. We expect to initiate a single PK-based Phase 3 bridging study to support registration in both PNH and atypical aHUS, evaluating a weekly subcutaneous formulation of ALXN1210, utilizing a commercially available device. As a reminder, our Phase 1 study was a single-dose study in healthy volunteers. We are completing additional device and drug combination work to initiate a Phase 3 study in late 2018. Our ambition is to establish ALXN1210 as the new standard of care for patients with PNH and aHUS. Touching briefly on our R&D strategy, we have a clear strategy that will, first of all, expand beyond ultra-rare disorders and evaluate opportunities in the rare disease space, focus on our core expertise to grow our leadership and complement, drive greater R&D efficiencies and returns, and execute on disciplined business development to build a portfolio that is diversified by stage and risk. With strategic parameters in place, I'm confident that we'll be able to build a leading rare disease pipeline, and I look forward to providing an update on our R&D progress on future calls. Now, I'll turn the call back to Ludwig. Ludwig?

[Ludwig N. Hantson:]

Thank you, John. Let me conclude today's call by saying that I'm confident we're on the right path to deliver innovation and sustainable growth for Alexion to be the global leader in rare diseases. We have accomplished a great deal, and I look forward to updating you on our progress on future calls. As always, I would like to thank our employees for their dedication and performance. We will now open the call to questions. Operator?

[Operator:]

Thank you. Ladies and gentlemen, the question-and-answer session will be conducted electronically. Our first question comes from Eric Schmidt at Cowen and Company.

[Eric Schmidt:]

Thanks for the question. Congrats on the approval in myasthenia gravis. Maybe a question for Brian on the gMG launch in Europe. Is it just Germany where the drug is available? Can you characterize the reception? Do you already have some patients on drug or is there a growing queue of patients who are seeking therapy? Thank you.

[Brian Goff:]

Sure. Hi, Eric. And thanks for the congrats. As you can imagine, we're very excited to have the approval. And as I mentioned in the prepared comments, this is really important for patients who really have not had – in the case of the U.S., they've not had a new FDA-approved treatment option in over 60 years. So it's quite a statement for those patients. As you mention, our launches are focused in Germany, in Europe, and then, of course, now we have the U.S. and we'll be awaiting Japan approval ideally the end of this year for launch late this year into early next year. And in Germany, so far, we've deployed our field team. They're trained. They're talking to neuromuscular specialists. They're highly engaged. It's pretty early in terms of the German launch so far, so probably too early to give a sense as to what that uptake will look like. And then, one comment I should make about Germany in particular is that unlike in the U.S., we didn't have any clinical trial experience. So, we're limited in terms of the number of thought leaders who have first-hand experience with the product. And that'll likely lead to a slower uptake than we might expect in the U.S., for example.

[Eric Schmidt:]

Thank you.

[Brian Goff:]

Sure.

[Operator:]

And next, we'll hear from Alethia Young with Credit Suisse. Alethia Young - Credit Suisse Securities (USA) LLC Hey, guys. Thanks for taking my question. Congrats on all the execution throughout the year as well. I know Paul had in his script, which was helpful, around the volume trends, when you back out all the stuff, I think it was around 13%. But maybe you can talk a little bit more on a geographic basis, in particular Latin America? What you're seeing there and kind of how the trends are holding up. Thanks.

[Paul J. Clancy:]

Yeah. Alethia, thanks for the question. And I think what you noted is probably the soft spot in terms of our affiliate performance, with respect to kind of affiliates around the world. When we kind of dialed down, the dynamics in Latin America around ordering and the macro trends that I think are probably common across the whole sector, is actually – we think it's impacting us as well. So, I think some of those countries there, which had been growth countries, probably – will probably won't be growth countries in the future. But what – even in light of that, what we're seeing is, on a global basis, kind of maintaining overall global volume trends that we've seen over the last five, six, seven quarters.

[Operator:]

And next, we'll hear from Geoff Meacham with Barclays.

[Geoffrey Meacham:]

Good morning, guys. Thanks a lot for the question. I'm a bit impressed with the ALXN1210 progress on the IV and subcu front. But you guys have been talking about biz dev for quite some time. And obviously, it would be huge to diversify the portfolio. So the question is, is there a tipping point in your decision? In other words, does MG approval for the upcoming ALXN1210 data in 2Q influence the timing? Or is it a matter of trying to manage seller expectations? Thanks.

[Paul J. Clancy:]

Let me try to take, this is Paul, Geoff. Thanks for the question. I think I understand it. It's a little bit – I'm trying to weave in. I don't think we think that our business development efforts per se are tied to progression on ALXN1210. No doubt we've been talking about it kind of for the last 90 days. And that comes a lot out, in terms of an outgrowth of prioritizing the pipeline and a number of terminated programs that we'd certainly feel great about ALXN1210 as a pipeline within itself in kind of that alone. But beyond that, we certainly need, we believe we need to rebuild the pipeline. I would characterize it, despite we've talked about it, is that while we have a good sense of what we want to do with respect to strategy, I mean moving from ultra-rare to rare, staying in the disease areas of focus, leveraging our development capabilities in rare disease and our launch in commercial capabilities and pointing towards kind of Phase 1, Phase 2 assets, I'd still characterize it as we're building internally a set of capabilities to be able to do this over a long period of time. We just hired a new head of the group. We'll build out the team even more and I think we still have to get into the flow before we actually begin executing transactions.

[Geoffrey Meacham:]

Thanks, Paul.

[Operator:]

From Goldman Sachs, Terence Flynn.

[Terence Flynn:]

Hi. Thanks for taking the questions. Was just wondering if maybe you could give us any more details on the ALXN1210 subcu Phase 3 trial, just wondering kind of remind us of the non-inferior requirements for bioequivalence. Is it going to enroll a mix of naïve and experienced patients Will the subcu dose be weight-based or fixed? Thanks a lot.

[John J. Orloff:]

Thanks for the question. This is John. So, we recently got clear feedback from both FDA and EMA on the trial design, which is a PK-based single study for registration, roughly 100 to 150 patients required for that, which will be a comparison and bridging back to the IV dosing regimen. The details of the study design, we will disclose at a later point as we initiate the trial in later in 2018.

[Ludwig N. Hantson:]

But, it will not be a bioequivalence...

[John J. Orloff:]

That is correct.

[Ludwig N. Hantson:]

...approach because the PK profiles of IV and subcu are different.

[Elena H. Ridloff:]

Next question, please.

[Operator:]

And that will come from Geoffrey Porges with Leerink.

[Geoffrey C. Porges:]

Thank you very much, and again, congratulations on the approval. Just wanted to follow up a few questions around MG. Given the numbers that you are suggesting, it sounds as though it could potentially be as large an indication as PNH and just make sure that we're thinking about it the right way. But more importantly, are you – should we expect that you have to give any price concessions as you introduce this new indication to payers in the U.S. or indeed in markets outside the U.S.? And then, lastly, when might you start a study of ALXN1210 in MG? Presumably, that's going to be front and center now and might you look at some other patient populations in MG other than those that you have studied in the pivotal trial?

[Brian Goff:]

Yeah. Hi, Geoffrey. It's Brian. And maybe I'll start with that one in a few different parts, and again, I'll say thanks for your enthusiasm as well for gMG. We think it's obviously a very important approval and, again, very important for patients as well. As everyone knows, it's always difficult in the early going to anchor on the shape or the kinetics of a launch trajectory curve. There is a number of different factors that we'll be putting into that assessment. First is the patient population and our focus will be on the REGAIN study which, as I mention and you know, were AchR antibody-positive gMG patients who had an inadequate response to appropriate immunosuppressive therapy. So, when you carry that forward, we estimate that's 5% to 10% of the total MG population. And then to anchor that, as I mention in my prepared comments, on the U.S. population, call that 60,000 to 80,000 patients, you carry forward the math, and we're talking about an opportunity of 3,000 to 8,000 patients in the U.S. So, that'll be our focus. We do think it's a significant opportunity. Some of the factors to consider when you talk about the puts and the takes of what that launch curve will look like is, on the one hand, we do believe there is an initial cohort of patients who have been waiting for treatment. And on the other hand, in terms of the timing of the uptake, there are logistical steps that the patients will need to go through, including the vaccination, of course, the insurance benefit verification, as well as the calendaring of infusion scheduling itself. And so, as I mention, we expected that that will take some time. The ambition, of course, is to get to as many of those customers to educate them around the benefits of Soliris as quickly as possible, and then to help facilitate those conversions of the patients. And in terms of your question about price, obviously, what we're focused on is moving into markets where the value of Soliris across the indications the portfolio has recognized. So, the initial cohort of countries as I've mentioned is U.S., Germany and Japan. And then, going forward, we'll continue to assess what the uptake looks like as well as the economics that different countries are willing to support for the value of Soliris.

[Ludwig N. Hantson:]

So, we have a very strong Soliris pricing strategy and we're not going to undermine the pricing strategy and that's the reason for Europe that we're focusing on Germany at this point. The rest of the countries will discuss on a – one-over-one basis. And then, ALXN1210, MG...

[John J. Orloff:]

Yeah. With regard to the life cycle management for ALXN1210, right now, of course, we're focused on execution in the PNH and aHUS trials. We have disclosed that we will be considering up to two different proof-of-concept trials this coming year. And of course, with the success of the MG program with Soliris and the significant clinical impact across a number of clinical assessment scales, we're also evaluating the opportunity for ALXN1210 in myasthenia gravis and we'll be in a position to share more of our LCM plans in 2018.

[Ludwig N. Hantson:]

But certainly, a subcu version for an MG patient would be – will be a great treatment option.

[Geoffrey C. Porges:]

Great. Thanks very much guys.

[Operator:]

Next, we'll hear from Matthew Harrison with Morgan Stanley.

[Matthew K. Harrison:]

Great. Good morning, everybody. Thanks for taking the question. If I could just push on two topics that people have asked about already. So, I think, first on subcu ALXN1210, can you just sort of walk through what needs to be done before you can initiate that study? Is it just study planning or is there more work related to both the device and formulation that has to be done? And then, I think, the second question is just following up on Geoff's question around BD, what's the sense of urgency there? I think many investors would like to see you work to diversify the revenue stream in the near term, and I'm just trying to understand those expectations relative to your current plans. Thanks very much.

[Brian Goff:]

So, with respect to the subcu program, we do have the higher concentration formulation that we've already studied in the Phase 1 healthy volunteer bioavailability study. What needs to be done now before we initiate the trial is that additional device and therapeutic work performance, compatibilities testing, as well as stability testing, and then we need to do some human factor testing to ensure that patients and physicians can use the device. As we said, we're using a commercially available device, which provides some de-risking of the program as we go forward into the once-weekly subcu later in 2018.

[Paul J. Clancy:]

Matt, this is Paul. With respect to the second part, the second question, we absolutely have a sense of urgency here. I mean, it's a new team here, a new business development team being formed. We will undoubtedly balance that with focusing on quality, not quantity of assets. I fundamentally believe that in where we're looking strategically, there's likely to be more competition than there was 5 or 10 years ago, but the opportunity set is, probably offsets that. So, there's a – I think that in – but I think absolutely sense of urgency balanced by making sure we get quality assets.

[Ludwig N. Hantson:]

But discipline as well. Sense of urgency and being disciplined.

[Elena H. Ridloff:]

Next question, please?

[Operator:]

That'll come from Chris Raymond with Piper Jaffray.

[Christopher Raymond:]

Hey. Thanks for taking the questions. Maybe a two-part question on MG. So, I was struck by the label, and I don't think a lot of investors were – the fact that you got a stat sig benefit in the primary endpoint. Just maybe – as you guys were thinking about the scenarios of having it or not having it, maybe talk about how you view the impact here commercially with payers? I mean obviously, having the stat sig benefit is great. But was there a potential downside that you can quantify, that would've existed without – with the label, but maybe without the stat sig benefit? And – what does that mean now going forward? And then also maybe, a follow-on question on that. The prior management team used to talk about a warehousing effect, if you will, in MG. That you may not have seen with aHUS or with PNH. I wonder if maybe you could sort of put some brackets around – with your fresh set of eyes on that dynamic. Is there potential for that effect or maybe not? Thanks.

[Brian Goff:]

Yeah. Hi, Chris. It's Brian. So, I'll start on that and then I think John will probably want to make a few comments as well. Without necessarily going into specifics on upsides, downsides, I mean, if I just react to the label that we have, obviously we're very pleased with the FDA approval. We think it's a label that positions us well, moving forward with the launch. And as I mentioned in the prior question as well as in the prepared comments, the real anchor point for us, since you asked about payer reactions, our anchor point will be on the REGAIN patient population. That's our core focus, that reflects what we found in terms of the benefits from REGAIN, as well as in the label. Those patients who are AchR antibody-positive gMG, that's the 5% to 10% of the total MG population. And we think at least in the early going that that will be the right positioning, particularly with payers. And then, of course, what we'll have to do is look at what the uptake looks like and make adjustments appropriately from there on. With respect to patients who are already in the system and identified, you called it the warehousing effect, that is a different dynamic of course than we've had with PNH as well as atypical aHUS with Soliris, and so on. Again, on the one hand, there are patients, who are well diagnosed, known in the system, we as a new entrant into neurology and the gMG space, we're working really hard to identify the right targeting of clinicians and make sure we get to them as quickly as possible. So, that's on the tailwind side. On the headwind side, as I had mentioned we have some logistics that we'll need to work through at the patient level, which comes down to the vaccination REMS process as well as the benefit verification in the calendaring of the infusions itself. So, with those puts and takes, that will really determine how we do in terms of the early uptake.

[Ludwig N. Hantson:]

And maybe in addition to that, it's a very broad prescriber base as compared to what we see with PNH and aHUS, but that's going to be a little bit different.

[Brian Goff:]

(44

[John J. Orloff:]

Yeah. If I can add to that. To clarify some of the reported results in the primary manuscript, which came out earlier this week in Lancet Neurology versus what is reported in the label. I think it's important to recognize the totality of the clinical data is robust and clinically meaningful. We had 18 out of 22 primary and secondary end points that were statistically significant. And the robustness of the data, I think is underscored by the fact we have two major regulatory bodies that have approved Soliris now for gMG with various differences maybe in the language of the indication. And the primary endpoint in both – in the study was MG-ADL and that was analyzed statistically using a number of different statistical methodologies. The primary analysis was a worst-rank analysis and that was reported in the REGAIN manuscript and there were also additional pre-specified sensitivity analysis around the worst-rank test and that what's reported in the label. That accounts for some of the limitations in the primary approach that assigned patients who had discontinued therapy to a worst-rank even though they had a clinically meaningful clinical response. And so the sensitivity analysis is statistically significant and that's what's reported in the label along with a more traditional least squared (46

[Christopher Raymond:]

Great. Thank you.

[Operator:]

From Citi, we'll go to Robyn Karnauskas.

[Robyn Karnauskas:]

Hi, guys. Thank you.

[Elena H. Ridloff:]

Robyn, are you there?

[Robyn Karnauskas:]

Can you hear me? Sorry. My phone keeps dropping everyone (46

[Brian Goff:]

Yeah. Hi, Robyn, it's Brian again. And so, I'll start on the first part of your question about finding the clinician targets and who to call on and how good we feel about that. I would say, as I mention, obviously neurology is new for us. But having just come back from our launch meeting in the U.S., what I felt really great about is that we have, you could call it, hand-selected the best of from across the industry in rare diseases. We have a lot of neurology experience for the team that we've now deployed in the U.S. And so, on that front, we have a group that really understands the space very well. However, we are working through the learning process, I would call it, in a new therapeutic area where we feel good about our understanding of the high potential physicians. Here, I'm talking about neurologists, neuromuscular specialists, as well as the, you could call it, a few hundred centers where MG patients predominantly are treated. But we're in that learning mode. And as we deploy and we get more experience, we'll continue to sharpen our pencils and our targeting accordingly. And the other dynamic, as Ludwig alluded to, is that this is admittedly a wider prescribing base in MG than we certainly have experienced with the other side of Soliris in PNH and aHUS.

[Ludwig N. Hantson:]

With respect to the IP, we're very happy with the new Soliris patents in the U.S. until 2027. We're following a similar approach ex-U.S., Europe, as well as Japan. And this might take – it's difficult to say what the timelines are, but it might take another 6 to 12 months before we find out.

[Robyn Karnauskas:]

Okay. Great. Thank you.

[Operator:]

Next, we'll hear from Ying Huang with Bank of America Merrill Lynch.

[Ying Huang:]

Hi. Good morning. Thanks for taking my question. I have one on AXLN1210. For the Phase 3 PK study, is it fair to assume you're seeking registration or approval with the subcu formulation based on biomarkers such as LDH reduction? And then, secondly, when are we going to see maybe a more Phase 2 data from AXLN1210 before the Phase 3 result? Thanks.

[John J. Orloff:]

So, I'll take the first – the second question first. We are – as we mention, we'll be sharing some Phase 1/2 data at ASH in December. We've previously shared the SBC-103 data at a couple of congresses. And for the first time, we'll be sharing the SBC-201 data. Based on the aggregate results from both SBC-103 and SBC-201, we've modeled that data out to arrive at a Phase 3 program dosing for ALXN1210 that's based on achieving maximal benefit in patients, maximum number of patients with a minimum dose. The first question you had had to do with the subcu program and how that is designed. Essentially, we'll be looking at C trough concentrations. At the end of dosing intervals, we'll be looking at LDH normalization and all the biomarkers as a basis for that registration study.

[Ying Huang:]

Thanks for the clarity.

[Operator:]

From JPMorgan, we'll hear from Anupam Rama.

[Anupam Rama:]

Hey, guys. Thanks so much for taking the question. I was wondering if I could ask a quick one on Strensiq, actually, and how we should be thinking about the net price long term here in the U.S.? And maybe you could provide a little bit of color on how your strategy with payers here for some of these higher dose patients? Thanks so much.

[Brian Goff:]

Yeah. Hi, Anupam. Good morning. It's Brian. And so, I'll start with that and maybe turn it over to Paul for added color. With Strensiq, the highest level our focus, of course, remains to continue to identify and serve patients with HPP. And as you heard in the prepared comments that the growth has been affected by pricing adjustments in the U.S. I think the way to characterize that is that we continue to work with payers to make sure that the value of Strensiq is aligned particularly for the higher dose patients. We've worked through much of that in the U.S. at this point, and now pivoting from the U.S., we continue to work on geographic access expansion. And as I had mentioned, the NICE funding agreement is a good example of that, which will go into effect in, next month, in November of this year. And maybe, Paul, I don't know if you want to add anything else?

[Paul J. Clancy:]

No. I think, I mean, the starting point that we talked before, it just is trying to adjust for a slightly different mix between pediatrics and adults that was originally thought through. So, I think of it as not really changing our outlook at all for essentially what it could achieve in terms of peak sales. So, I think it's actually just a smart strategy working with payers in the United States.

[Anupam Rama:]

Great. Thanks so much for taking our question.

[Operator:]

From Deutsche Bank, Andrew Peters.

[Andrew Peters:]

Hi, guys. Thanks for taking my questions and congrats on the all execution. So, I guess kind of a bigger picture question, coming back to the financial ambitions that you've outlined. I guess, on the top line, when you think about the contribution, was hoping to see if you can kind of run through some of the puts and pulls of that guidance a bit more. Specifically, how you think about growth in underlying patient demand across the now three marketed indications that you have? And how you think about the relative contributions of each? Thanks.

[Paul J. Clancy:]

Yeah. This is Paul. I think your question is focused on Soliris, but I'll actually broaden it out as well. What we're, no doubt seeing is growth across PNH and aHUS, but aHUS outpacing the growth of PNH. That is relatively consistent. We actually have a few markets, where our best estimate of revenue is that aHUS is now crisscrossed over PNH. And hope that that continues on, without sacrificing, obviously, continued PNH penetration, where in both indications, they're quite, quite a lot of headroom. No doubt, what we hope is MG ends up kind of being a big, kind of, accelerator as well. The timing of that is still unclear, as it kind of really kick-in in 12 months out or 6 months out or whatever the timing is. And then I think the Metabolics franchise for us, driven by Strensiq, I think can continue to be meaningful contributions to, if you will, almost a cause of change contribution to growth on a year-after-year basis.

[Andrew Peters:]

Great. Thank you.

[Operator:]

From SunTrust, Yatin Suneja.

[Unknown Speaker:]

Hey, guys. Thanks for taking my question. This is David (54

[John J. Orloff:]

So, we showed in our Phase 2 study a significant reduction in relapse rate. The design of the Phase 3 study is time to event in relapses, and this study is, actually randomizes a 2

[Brian Goff:]

And then, this is Brian. Maybe I'll just jump in on the market. So, anchoring on the U.S., it's generally cited that NMOSD is about 1% to 2% of the MS population. That's the generally cited number. So, you could think of it as a few thousand patients in the U.S. which, again, we think could be a nice opportunity for Soliris as well if the data plays out.

[Unknown Speaker:]

Great. Thank you.

[Operator:]

From BMO, we'll hear from Ian Somaiya.

[M. Ian Somaiya:]

Thanks for taking my question. Would love to hear a little bit more about subcu ALXN1210, just the profile from a patient's perspective and does the higher concentration formulation allow you to develop it in IV maybe to address some of the concerns related to duration of infusion, maybe even provide a different scheduling.

[John J. Orloff:]

So, I'll start with that. Yes, we are pursuing the higher concentration formulations as well with IV because it has the opportunity for us to reduce the infusion time substantially. So, that's something we will be pursuing as well this year.

[Ludwig N. Hantson:]

Yeah. I don't think there's anything else I should add to that. I think it's a great opportunity for us to address IV, as well as the subcu with a higher concentration.

[M. Ian Somaiya:]

Should we assume the regulatory path will be similar to what you've sort of advocated for subcu, just a bridging study?

[John J. Orloff:]

It'll be much quicker, actually, because we just have to do a fairly small IV study with the formulation to bridge to the existing DLA with the subcu program. We will have to also show safety in addition to the primary PK analysis that I alluded to earlier. So, that's a little bit more extensive program. But again, fairly limited, as I said, to 100, 150 patients we're estimating for the subcu program.

[M. Ian Somaiya:]

Thank you.

[Operator:]

And we'll take our last question from Kennen Mackay with RBC Capital Markets.

[Kennen Mackay:]

Hey, thanks for fitting me in here. I just wanted to say congrats on the strong guidance and the clarity on Soliris and really the turnaround that you've accomplished in such a short amount of time here. I'm really looking forward to seeing what we could have coming on the M&A front down the line. Maybe just a quick question, I guess for John. I just wanted to get a better sense of really what your perspective is on the additional unmet need in Generalized MG versus Refractory MG. So, I'm thinking you must have applied for a broader label, but can you help us just understand really how the unmet need is being thought of outside of Refractory MG. I know that's where you're focusing but really, what is it that drove the FDA's decision to grant a broader label in Generalized MG versus Refractory, which was the REGAIN population?

[John J. Orloff:]

Well, for the population overall, patients with generalized myasthenia gravis who have positive antibodies to acetylcholine receptors, we know that complement activation is a part of their disease and that current immunosuppressive therapies do not address the underlying complement activation, and some of that destruction that's related to that at the neuromuscular junction, that study population that we enrolled in REGAIN, however, were patients who had inadequate responses to two immunosuppressive therapies or one immunosuppressive therapy and chronic use of IVIg or plasma exchange. So, I really can't complement. I can't comment on the use of the product outside of that. The FDA, obviously, granted us a label for generalized myasthenia gravis and we'll leave it at the discretion of prescribers and healthcare providers to determine whether patients beyond those that we enrolled in the study are appropriate for eculizumab therapy.

[Kennen Mackay:]

Got you. And is there any opportunity in crisis given the fast mechanism of action of treating complement here? Or, is that something where we just don't have the data to say?

[John J. Orloff:]

We don't have the data on typically in crisis, they're treated with IVIg or plasma exchange. And you could, I guess speculate, there's a role for complement, but again, we don't have the data in that setting.

[Kennen Mackay:]

Okay. Thanks again for taking my questions.

[Operator:]

And that was our last question and this concludes today's conference call. Thank you for your participation and you may now disconnect.