ALXN
#Thanks, <UNK>
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 <UNK>
<UNK>, 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
Let me try to take, this is <UNK>, 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
Matt, this is <UNK>
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
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
Yeah
This is <UNK>
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
