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Edited Transcript of ALDR earnings conference call or presentation 25-Feb-19 10:00pm GMT

Q4 2018 Alder Biopharmaceuticals Inc Earnings Call

Bothell May 22, 2019 (Thomson StreetEvents) -- Edited Transcript of Alder Biopharmaceuticals Inc earnings conference call or presentation Monday, February 25, 2019 at 10:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Carlos Campoy

Alder BioPharmaceuticals, Inc. - CFO

* Eric G. Carter

Alder BioPharmaceuticals, Inc. - Former Interim Chief Medical Officer

* John A. Latham

Alder BioPharmaceuticals, Inc. - Co-Founder, Chief Scientific Officer & Head of Research & Development

* Robert W. Azelby

Alder BioPharmaceuticals, Inc. - President, CEO & Director

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Conference Call Participants

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* Alexandre N. Bouilloux

Mizuho Securities USA LLC, Research Division - Research Analyst

* Beau Harkonen Miller

RBC Capital Markets, LLC, Research Division - Senior Associate

* Carter Lewis Gould

UBS Investment Bank, Research Division - Large Cap Biotech Analyst

* Danielle Catherine Brill

Piper Jaffray Companies, Research Division - VP & Senior Research Analyst

* Geoffrey Craig Porges

SVB Leerink LLC, Research Division - Director of Therapeutics Research, MD & Senior Biotechnology Analyst

* Jeff Hung

Morgan Stanley, Research Division - Equity Analyst

* Jessica Macomber Fye

JP Morgan Chase & Co, Research Division - Analyst

* Na Sun

BMO Capital Markets Equity Research - Associate

* Paul Andrew Matteis

Stifel, Nicolaus & Company, Incorporated, Research Division - Co-Head of the Biotech Team, MD & Senior Analyst

* Sumant Satchidanand Kulkarni

Canaccord Genuity Limited, Research Division - Analyst

* Tian Sun

Needham & Company, LLC, Research Division - Research Analyst

* Uy Sieng Ear

Crédit Suisse AG, Research Division - Research Analyst

* William Patrick Maughan

Cowen and Company, LLC, Research Division - Equity Research Associate in Specialty Pharma

* Yanan Zhu

Wells Fargo Securities, LLC, Research Division - Associate Analyst

* Michael Schaffzin

Stern Investor Relations, Inc. - Director

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Presentation

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Operator [1]

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Good afternoon, and welcome to the Alder Biopharmaceuticals Fourth Quarter and Full Year 2018 Financial Results Conference Call. (Operator Instructions) Please be advised that this call is being recorded at the company's request. At this time, I'd like to turn the call over to Michael Schaffzin of Stern Investor Relations. Please proceed.

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Michael Schaffzin, Stern Investor Relations, Inc. - Director [2]

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Thank you, operator. Good afternoon, and thank you for joining us. Just after market closed today, we filed our Form 10-K for the full year 2018 with the Securities and Exchange Commission and issued our financial results and corporate highlights press release, both of which are available on the Investors section of our website at www.alderbio.com. You may listen to a live webcast and listen to a replay of today's call on the Investors section of the website.

Today on the call, we have Bob Azelby, Chief Executive Officer; Dr. Eric Carter, who very recently stepped down as our Interim Chief Medical Officer; and Carlos Campoy, our Chief Financial officer. John Latham, our Chief Scientific Officer; and Dr. Paul Streck, who just joined us as Alder's permanent Chief Medical Officer, are also on today's call to respond to any questions.

Before we begin, I would like to caution you that during today's conference call, we'll be making forward-looking statements regarding future events or the future performance of the company, including statements about possible future developments regarding clinical, regulatory, commercial, financial and strategic matters. Actual events or results, of course, could differ materially. We refer you to the documents that Alder files from time to time with the SEC and in particular, the company's form 10-K for the year ended December 31, 2018, which is filed with the SEC today, February 25, 2019. These documents, which are available on SEC's website, contain and identify, under the heading Risk Factors, important factors that could cause actual results to differ materially from those contained in any forward-looking statements.

With that, let me pass the call over to Bob.

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Robert W. Azelby, Alder BioPharmaceuticals, Inc. - President, CEO & Director [3]

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Thank you, Michael, and welcome, everyone. As many of you know, our mission at Alder is to forever change migraine treatment and give patients their lives back. 2018 was a very successful year as we achieved a number of significant milestones that moved us closer towards the commercial launch of our lead investigational product candidate, eptinezumab; and advance our preclinical candidate, ALD1910, which targets the PACAP pathway for the treatment of migraine. Our momentum has continued into 2019 with the completion of another major milestone just last week, our BLA submission for eptinezumab. I'm going to talk about that first, and then we will review our 2018 accomplishments, the migraine landscape and market opportunity, and our recent progress with ALD1910.

Last Thursday, February 21, we submitted our epti BLA with the FDA. This is the combination of the hard work and dedication of the entire Alder team, and we are confident that we have submitted a robust, high-quality BLA, supported by strong clinical trial data and a robust CMC data package. I'd like to thank our employees as well as the thousands of patients, physicians and clinical trial investigators whose efforts have enabled us to reach this important milestone.

Now turning to 2018. This was a seminal year for us as we demonstrated strong execution with the completion of key milestones. Let me remind you of all that we accomplished throughout the year and you'll understand why we feel so confident about where we believe our momentum will take us.

It started in January with our announcement of positive top line Phase III results for PROMISE 2, which, consistent with results from our earlier trials, demonstrated the rapid, effective and sustained efficacy of epti in chronic migraine. In April, we presented new PROMISE 1 and PROMISE 2 Phase III clinical trial data, which highlighted the strength of epti's clinical profile by showing efficacy, sustained or increased, following subsequent administrations of epti. In the second quarter, we completed our 1-year safety study of epti, which demonstrated a favorable safety profile consistent with previous studies. In October, we announced positive results from our PK study, which substantiated our comparability evaluation of the clinical supply for epti and its planned commercial supply.

We were also pleased to strengthen our leadership team with the appointments of Carlos Campoy as CFO and Dr. Paul Streck as CMO. They bring decades of experience that will help us build a fully integrated biopharmaceutical company with comprehensive commercial capabilities.

Further, we significantly expanded our commercial infrastructure across functions, including marketing, market access, medical affairs, data analytics and commercial operations. Regarding our commercial supply, we recently entered into an amendment to our existing eptinezumab supply agreement with Sandoz, which dates back to 2015. This supply agreement and its amendment provides for the manufacture of eptinezumab drug substance for a 5-year term running through 2023 and will allow us to meet our forecasted supply needs at launch and beyond. As we had previously mentioned, we have already begun building commercial inventory.

In summary, last year was an exceptional one for Alder. We are particularly excited about the consistency of data across epti and our clinical development program where we have seen rapid, effective and sustained responses combined with a favorable safety profile.

Turning to the current migraine landscape and why we are so confident in epti's ability to capture distinct segment of the market. There are 13 million people in the United States who have 4 or more migraines per month, which means they are eligible for preventive therapy. Before the launch of anti-CGRP in May 2018, only about 3.5 million of them were being treated prophylactically. This low 27% treatment penetration rate underscores the large unmet need and enormous opportunity for new, innovative migraine therapies.

As we have discussed previously, preventive therapies, both approved and in development, including other anti-CGRP therapies, if effective, may take weeks to months to achieve meaningful clinical and quality-of-life benefits. I am always surprised when people ask me why speed is important in a chronic disease. Keep in mind that in our PROMISE 2 clinical trial, our patients average 16 migraine days per month or 4 migraines per week. Imagine having 4 migraine days a week. These patients experience not only extreme pain but also sensitivity to light and sound. They have bowel issues, impaired cognitive skills, and they are anxious and depressed because of their disease. I think it's really important that we continue to educate the market on the disability associated with migraine because it goes to the significant need to bring new, innovative therapies to the market and improve the lives of these patients.

Our market research shows that patients who are highly impacted by migraine and in need of preventive treatments want products that provide a rapid onset of prevention with deep, sustained responses and limited side effects. Nearly 90% of patients surveyed would choose a product based on effectiveness, and 80% of them would choose a product based on speed-of-prevention effect. Importantly, we understand there is a large segment of patients that prioritize relief of their disabling symptoms over convenience of administration. This was further supported by our market research that showed over 50% of patients would choose an infusion product with epti's demonstrated clinical profile over a subcutaneous preventive therapy.

Now I will talk briefly about epti, which has demonstrated a clinically differentiated profile that includes day 1 onset to prevention and robust 50%, 75% and 100% response rates with a safety profile similar to placebo. If approved, epti will be the first anti-CGRP therapy for migraine prevention to be administered by quarterly IV infusion, resulting in 100% bioavailability. This means that the full dose administered is immediately available to block CGRP. Combining epti's 100% bioavailability with its very high specificity and binding affinity to the CGRP ligand has led to rapid, effective and sustained responses. We hear directly from doctors that while they are excited with the recent launches of the new anti-CGRP subcutaneous products, they view these products as being fairly comparable to each other in terms of their performance. They tell us they are looking forward to epti's highly competitive clinical profile and a differentiated IV mode of administration. Our physician market research aligns very well with this feedback, which, in addition, also estimated epti's share of the anti-CGRP market to be in the range of 20% to 30%. It's clear that these physicians see epti as being a meaningfully differentiated and an important part of their treatment armamentarium because of the potential benefits for their patients.

From the commercial payer perspective, we have had numerous meetings and discussions with a number of payers to gauge their view on epti. The feedback on epti's clinical performance has been very consistent. These payers see epti as being differentiated due to its 100% bioavailability, high response rates and speed to prevention as well as the potential for enhanced compliance due to its quarterly IV administration. They also highlighted epti's patient-reported outcomes data's strong alignment with the early onset of prevention data seen in our Phase III clinical trials.

We are really excited about epti's ability to compete in this market, which we believe to be a large and significantly unmet. An early signal in this uptake of anti-CGRP subcus, since entering the market back in May, over 200,000 patients have been prescribed one of these products in less than 8 months. This underscores our view of the market opportunity and value, and we remain confident in epti's ability to garner a significant share of that market. It is against this backdrop that we are so excited about epti's differentiated profile and its potential to create long-term value for our patients, physicians, shareholders and other stakeholders.

Looking to 2019 and beyond, we recognize that there are multiple ways to address migraine. Keep in mind that migraine is a heterogeneous disease, which means there are multiple mechanisms that can be involved in this disease. This highlights the need for further innovation and development of new therapies with alternative mechanisms. At Alder, we are focused on finding a treatment for every single migraine patient. We are, therefore, exploring other pathways beyond CGRP to treat migraine. With this in mind, we're excited about the recent progress we have made advancing ALD1910, which targets PACAP, an alternative pathway believed to be associated with migraine.

Dr. Eric Carter will talk about this in more detail as well as epti's clinical data and BLA submission. With that, I will turn it over to Eric.

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Eric G. Carter, Alder BioPharmaceuticals, Inc. - Former Interim Chief Medical Officer [4]

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Thanks, Bob, good afternoon, everyone. Today, I'm going to talk about why we're so excited about Alder's recent milestones, including our first BLA submission, epti's differentiated clinical profile and ALD1910, our anti-PACAP monoclonal antibody.

You'll remember in my remarks last year that I said that we want to ensure a high-quality BLA submission that would present a compelling data package in the best possible way to facilitate the FDA's filing acceptance, review and subsequent approval with a differentiated label. We believe that we've achieved this, thanks to the dedicated, hard work of the Alder team and the excellent support of our partners. Essentially, you can appreciate submitting a high-quality, well-supported BLA as a significant achievement for Alder and we do so confident that following approval, epti will play a major role in helping patients effectively manage the very real burden that the migraine illness represents.

Before I discuss ALD1910, I'd like to review key aspects of epti's clinical data and highlight why we continue to believe its clinical profile is so compelling. As Bob noted, epti's intravenous mode of administration with 100% bioavailability at the time of the infusion results in a differentiated clinical profile due to the rapid, effective and sustained suppression of migraine, as demonstrated in our clinical trials. With respect to speed of onset, we believe that epti will uniquely enable physicians to provide patients with the potential for prevention within 24 hours, and so a physician will have a pretty good idea if a patient will benefit from epti following the first administration. Our clinical data has demonstrated rapid onset of prevention on day 1 first infusion that lasts for 12 weeks. In other words, patients have the potential to receive the full benefit of the medicine 1 day after administration, perhaps compared to weeks or months for other preventive treatments.

With respect to efficacy for both episodic and chronic migraine patients, epti reduced the risk of having a migraine by approximately 50% within the first 24 hours after treatment compared to baseline. Further, our clinical trials demonstrated that epti delivered unsurpassed 50%, 75% and 100% responder rates sustained for 3 months following 1 administration. So we observed that approximately 55% to 60% of chronic migraine patients achieved a 50% rate of reduction in migraine days by month 1 that was sustained through 3 months after a single quarterly infusion and perhaps even more striking was that approximately 1/3 of patients achieved a 75% or greater reduction in migraine days by month 1 also sustained through month 3 after a single quarterly infusion. In short, this means fewer migraine days per month for more patients. Additionally, we noted that these responder rates continue to be sustained or increased after the second, third and fourth quarterly administration of eptinezumab. Finally, epti's impressive efficacy data are associated with what we believe is a very good safety profile. The most common adverse reaction observed in our clinical trials with an incident of at least 2% and at least 2% greater than placebo and the only one meeting this criteria was nasopharyngitis. Taken together, we see epti as having a very favorable benefit-to-risk profile with a significantly differentiated clinical profile in terms of speed and efficacy.

Now turning to ALD1910, which, as Bob mentioned, is our preclinical candidate with the potential to establish and extend Alder's leadership in the migraine space. While the launch of anti-CGRP promises to provide significant benefits for a large proportion of patients suffering from migraine, it's clear that some patients will not fully benefit from therapeutic antibodies that block CGRP biology. Migraine is a heterogeneous disease and patient responses to various treatment suggest that other mechanisms are involved in the disease. ALD1910 is a high-specificity, high-affinity, neutralizing monoclonal antibody with reactivity to PACAP, or pituitary adenylate cyclase-activating peptide. PACAP-38 has emerged as an important signaling molecule in the pathophysiology of migraine and represents an attractive novel target for treating migraine. Importantly, new evidence indicates that PACAP may represent a unique and distinct pathway associated with migraine. PACAP and its 3 known receptors, PACAP 1, VPAC1 and VPAC2, are expressed in the regions of the brain known to be associated with migraine symptomatology. By blocking the ligand, ALD1910 prevents the signaling of PACAP by all 3 receptors since they're all associated with migraine symptoms. We recently completed additional preclinical work that showed ALD1910 was very effective in blocking the effects of endogenous PACAP in a dose-dependent manner in an animal model of neurogenic vasodilation. Animal toxicological studies, a good predictor of what the human response will be, also indicate that ALD1910 has the potential to be a safe compound. This further supports our view in developing new therapies that blocking the ligand versus blocking only one involved receptor is likely to be a more effective approach to treating migraine disease.

The totality of our preclinical data gives us the confidence to progress this candidate towards initiating a first-in-human clinical study by the end of 2019. We're excited about the potential of ALD1910. And as we extend our leadership and innovation in this space, we believe it could become a very large market opportunity.

With that, Carlos Campoy, our Chief Financial Officer, will take you through our financial results. Carlos?

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Carlos Campoy, Alder BioPharmaceuticals, Inc. - CFO [5]

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Thank you, Eric, and hello, everyone. During the fourth quarter and full year 2018, our epti program drove a significant portion of our R&D and G&A expenses in support of our commercial rating effectivity. As of December 31, 2018, we reported $412 million in cash and cash equivalents, short-term investments and restricted cash compared to $485 million as of September 30, 2018 and compared to $286 million as of December 31, 2017.

Please note that we will provide brief fourth quarter results on this call and refer you to our period-over-period operating results detailed in this afternoon's press release and Form 10-K filed with the SEC. In the fourth quarter, R&D expenses totaled $64 million, G&A expenses were $13 million and our net loss was $81 million or $1.19 per share. These figures represent increases over the same period last year, reflecting our commitment to advance the epti program and position the company for commercialization.

With respect to our financial outlook, we expect that our full year 2019 net cash used in operating activities and purchases of property and equipment will be in the range of $285 million to $315 million. Much of the spend is focused on ensuring that we are prepared for the potential launch of epti in the first quarter of 2020, including advancing its supply chain, building commercial inventory, continuing to build out our commercial footprint and other prelaunch market readiness activities. We estimate our available cash, cash equivalents, short-term investments and restricted cash as of the end of 2018 will be sufficient to meet projected operating requirements into 2020 and the anticipated launch of eptinezumab.

With that, I'll turn the call back to Bob.

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Robert W. Azelby, Alder BioPharmaceuticals, Inc. - President, CEO & Director [6]

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Thank you, Carlos. 2018 was a tremendous year for Alder marked by a number of significant milestones, and 2019 is off to a great start with our first BLA submission last Thursday. We remain focused on epti's commercial launch targeted for the first quarter of 2020, and we are confident in the team, resources and plans we have in place to ensure that we will go to the market successfully. Importantly, we continue to believe that epti has the potential to make a significant difference in the lives of people living with the debilitating effects of migraine.

As we look deeper into 2019, we are committed to finding relief for all migraine patients and building an integrated biopharmaceutical company not just for the short term but for the medium and long term as well. It is with this view that we are moving forward with ALD1910 and optimistic about its potential to further transform the migraine treatment paradigm. We are very pleased with where we are today and are very optimistic about Alder's future. I look forward to sharing our continued progress as we advance towards epti's potential commercial launch in the first quarter of 2020.

With that, we'd like to open the call to your questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Brian Abrahams Jr. of RBC Capital Markets.

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Beau Harkonen Miller, RBC Capital Markets, LLC, Research Division - Senior Associate [2]

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This is Beau Miller on for Brian. So 2 questions from me, 1 commercial and 1 maybe more clinical. I guess, first, on R&D priorities for 2019 -- and maybe Paul or Eric, you could offer your thoughts here as well. I'm just curious if you have any more color on additional research efforts planned for the upcoming year that could augment the label and commercial opportunity for epti, like a potential switching study or any updates on plans for a subcutaneous formulation.

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Robert W. Azelby, Alder BioPharmaceuticals, Inc. - President, CEO & Director [3]

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Sure. So -- you know what, I'll take that, Beau. First of all, for R&D priorities, we said at the end of last year and as Brian noticed, we went through an exhaustive life cycle management program for eptinezumab and we ranked the whole bunch of different studies. And we are very excited about the opportunities we have to continue to invest in eptinezumab to continue to differentiate that product in the marketplace. But I would tell you we're not ready to share that yet because we're working through our feasibility work as well as the commercial opportunity work, and so that will come later this year. Additionally, I would say we get asked quite a bit about subcu. When we -- subcu was very much in that conversation. However, it fell lower on the list because we thought resources were better spent on things outside of subcu. And we sit here today saying we're really excited about being the first quarterly IV administration rather than the fourth subcu on the market.

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Beau Harkonen Miller, RBC Capital Markets, LLC, Research Division - Senior Associate [4]

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Okay, great. And then my second question is just on manufacturing. I guess, what is your current manufacturing capacity? And what further scale-up do you anticipate will be necessary when you launch next year?

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Robert W. Azelby, Alder BioPharmaceuticals, Inc. - President, CEO & Director [5]

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So first of all, this past summer, we sat down as a team and actually discussed what our long-term manufacturing strategy was going to be because we sat down and we thought, "Hey, there's 13 million people in the U.S. who suffer from this disease, and then there's that many -- as many of those globally." And so we want to make sure when we sat down and put together our manufacturing strategy, we would not only be able to meet the needs of our launch forecast in the United States and beyond but be able to supply the globe as it relates to people who would benefit from eptinezumab. And so we're very, very excited about the 5-year deal that we went into with Sandoz. That puts us in a great position to produce high-quality supply and be able to meet our forecasted needs not only in the U.S. but also in the rest of the world. As it relates to your question on specific capacity, we're not going to share that, but we're very, very confident in our ability to meet our forecasted demand.

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Operator [6]

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Our next question comes from Paul Matteis of Stifel.

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Paul Andrew Matteis, Stifel, Nicolaus & Company, Incorporated, Research Division - Co-Head of the Biotech Team, MD & Senior Analyst [7]

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Congrats on the progress. A couple of quick questions. On the commercial side, you guys have continued to affirm that you think you can target this market with a small, specialized sales force, and we noticed in the K that you've actually taken the range down from 75 to 125 to 75 to 100. Can you comment on your confidence that this is enough sales reps to target the core group of physicians that will maximize the size of eptinezumab? And then I have a follow-up.

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Robert W. Azelby, Alder BioPharmaceuticals, Inc. - President, CEO & Director [8]

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Sure. Thanks, Paul. Thanks for the congratulations on the BLA. First of all, we've been saying that we think this is a specialty marketplace and we continue to believe that. With the latest data we have, we've been now tracking the concentration curves associated with the anti-CGRPs that launched this past May and throughout the year, and there's roughly 3,100 physicians that represent 80% of those anti-CGRP prescriptions and there's about 1,500 accounts that represent 80% of the prescriptions. And so therefore, we became more confident as we kind of hone our commercial footprint to be between 75 and 100 representatives to target that marketplace, what we call the 3,000 proceduralists we've been talking about. So we've become more and more confident about that every day.

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Paul Andrew Matteis, Stifel, Nicolaus & Company, Incorporated, Research Division - Co-Head of the Biotech Team, MD & Senior Analyst [9]

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Okay, okay, Bob. And then on PACAP-38, we saw like you did and we talked about this before about the failure of the Amgen program. Can you talk about the key biological differences between your asset and theirs just in terms of the epitope, whether it's ligand or receptor and if there's anything about their development program itself that you might do differently here that you think can lead to a different result.

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Robert W. Azelby, Alder BioPharmaceuticals, Inc. - President, CEO & Director [10]

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Sure. So yes, I'll turn it over to John, but just letting you know, obviously, we're a company that focus on the ligand and we think that is a great approach in this migraine pathway. And so let me turn it over to John, who's the architect of our ALD1910 program.

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John A. Latham, Alder BioPharmaceuticals, Inc. - Co-Founder, Chief Scientific Officer & Head of Research & Development [11]

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So Paul, the first thing we know is that if I infuse PACAP into migrainers, that's what causes the migraine. So that's actually the first thing to take out of the gate. And as Eric shared, our asset, ALD1910, it blocks all the pharmacology of PACAP against the 3 receptors that are -- have been described to date for use in the response that happens. And we really do feel strongly, as Bob said, if we block the ligand, we block the biology that's going to happen with PACAP. We've conducted a number of preclinical studies to get ready to make this bet, and there are a number of models that we believe are very relevant to the migraine pathophysiology. And in fact, we have compared a PACAP antibody versus a PAC1 antibody in those particular systems specifically to see what was going to have happened and in our hands with those particular preclinical models, we believe, are important for the migraine biology that PAC1 antibody was ineffective. So the ALD1910 worked as we expected it, and it's very much aligned that the peptide is clearly causing the pathophysiology in which the folks in Denmark have established and that when we look collectively, as we've talked about today, between the preclinical data that we have as well as the toxicology data to get ready for first-in-human, we feel very bullish about moving into man.

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Operator [12]

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Our next question comes from Jeff Hung of Morgan Stanley.

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Jeff Hung, Morgan Stanley, Research Division - Equity Analyst [13]

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Can you talk a little bit about your payer conversations with regards to whether they've expressed any interest in performance-based contracts?

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Robert W. Azelby, Alder BioPharmaceuticals, Inc. - President, CEO & Director [14]

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Sure, Jeff. So thanks for the question. So we've been very active over the last -- since the start, but I've been personally very active here over the last few weeks, where we had an ad board. I also went out and visited 3 of the largest payers. I would first start off by saying they have very similar feedback that our patients as well as our physicians have. They're excited about the 100% bioavailability. They like the high response rate as well as the rapidity of which eptinezumab works. And then the other key element is they really do like the quarterly infusion because they think it enhances compliance. And as you know, payers love the fact of only paying for a product that -- once it's in the system. And so obviously, when IV-ing a patient, a payer would not be billed until it's in the patient's bloodstream. And so with that being said, they really like the clinical profile. Number two, I would suggest to you, is when they talk about our IV mode of administration, they see that separate from the pharmacy benefit versus the medical policy benefit. And they do like to have access to provide access to patients on those different modes of administration. And then finally, they did encourage us to think about a value type of contract. However, you get mixed opinions on that because there's a ton of work that goes into managing those contracts on the payer side. But they said that they would like to see what that may look like. And obviously, with our speed of effect, especially at day 1, month 1, and week 12, we're going to be active in putting that together. But I don't see that as being a huge driver.

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Jeff Hung, Morgan Stanley, Research Division - Equity Analyst [15]

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Great. And then how should we think about the R&D expenses in 2019? Like, should we think of the 4Q level as kind of the baseline going forward? And maybe can you talk about the contributors in 4Q that might have made it a little bit higher than 2Q and 3Q?

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Robert W. Azelby, Alder BioPharmaceuticals, Inc. - President, CEO & Director [16]

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Sure. So I'll take the first part. I think we've articulated that in 2019, we'll be spending between $285 million and $315 million. And obviously, a lot of that is going to prepare ourselves for the commercial launch, whether that be building the commercial footprint externally, building the infrastructure we need internally, making sure our supply chain is ready to go as well as building inventory. And so I think we've given you a pretty good look at that going forward. But Carlos, do you want to just highlight some of the differences between Q4 and Q3?

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Carlos Campoy, Alder BioPharmaceuticals, Inc. - CFO [17]

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Yes, this is primarily around securing our supply chain for epti and initiating the manufacturing of commercial-grade products. And as you look at 2019, you will see a profile that's also slightly larger in that area as we look to reserve all the capacity that we need to produce sufficient inventory to be ready for launch and beyond. And over time, you would see those early expense levels drop to lower levels.

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Operator [18]

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Our next question comes from Jessica Fye of JPMorgan.

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Jessica Macomber Fye, JP Morgan Chase & Co, Research Division - Analyst [19]

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Maybe just following up on the prior question on spend and manufacturing spend. I think the K says in 2017, there was about an $80 million increase in R&D spend due to manufacturing, and then in '18, it declined by, I forgot, $10 million or $15 million. So I guess can you speak to just what proportion of that 2019 cash burn is going to be producing product sort of manufacturing spend? And also help us think about growth in SG&A as you kind of embark on these more, like, commercial prep and building out the sales infrastructure?

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Robert W. Azelby, Alder BioPharmaceuticals, Inc. - President, CEO & Director [20]

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Sure. So when we think about 2019, Jessica, obviously, we've stated between $285 million and $315 million all going for commercial infrastructure, and we're not going to break out our expenses under the R&D line between manufacturing and research and development. Obviously, most companies in our space don't do that. On the other side of the SG&A side, we've spoken about a field force of 75 to 100 people, which we expect to have on in the back end of 2019, to make sure we're prepared to launch in the first quarter of 2020. And then obviously, we're building all the other internal infrastructure required, including IT, HR, Finance, in order to catch those types of elements to make sure we're in a good position to launch in the first quarter of 2020.

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Jessica Macomber Fye, JP Morgan Chase & Co, Research Division - Analyst [21]

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Okay, great. And then just a couple others I had. With the U.S. BLA in, can you talk about your latest thinking around the kind of ex U.S. strategy and potential for partnerships?

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Robert W. Azelby, Alder BioPharmaceuticals, Inc. - President, CEO & Director [22]

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Sure. So one, again, huge milestone for Alder for our submission last Thursday, I would say we're very, very excited about that, and the team did a wonderful job in executing and hitting all the time line. And so what that means, we now -- as we stated in the past, we believe that our clinical package combined with our CMC package is robust enough to submit to the MAA. And so our team is now actively working on an MAA strategy and looking to submit that package in Europe as well, although we haven't provided time lines on that but we immediately start to pivot towards that. Additionally, as we said at JPMorgan, we were active with large, global organizations to help us potentially take eptinezumab around the globe. And so we've had good discussions with that. But obviously, if a deal was to be had there, we'd have to make sense to make sure we would access a large number of patients and we'd have to make sure to meet the needs of our shareholders; and therefore, too early to opine any further on that.

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Jessica Macomber Fye, JP Morgan Chase & Co, Research Division - Analyst [23]

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Okay, got it. And just the last one is, as we think about eventually prevention data coming from the oral players, can you talk about your view on whether those products will compete in the prevention market for chronic migraine, for frequent episodic migraine, or both or neither?

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Robert W. Azelby, Alder BioPharmaceuticals, Inc. - President, CEO & Director [24]

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Yes. So what we would say -- I get asked that question on a regular basis about the oral anti-CGRPs. And what I would say is before we can really opine on that, I'd love to see additional data, right. All we've seen is from one of the competitors, only monthly migraine day reduction in episodic migraine but no 50%, 75%, 100% response rates. We haven't seen the time of which they actually occurred. The other competitors shared some data in a post hoc analysis on -- in chronic migraine, which didn't seem to meet the threshold of which we see in -- with eptinezumab in the chronic migraine space. And so what I would say to that is I would -- we need to see more data to see how relevant they will be in not only episodic migraine space but also the chronic migraine space.

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Jessica Macomber Fye, JP Morgan Chase & Co, Research Division - Analyst [25]

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So do you have an expectation based on what you've seen so far?

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Robert W. Azelby, Alder BioPharmaceuticals, Inc. - President, CEO & Director [26]

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Based on what I've seen so far, I would say I have no determination because I haven't seen enough data.

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Operator [27]

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Our next question comes from Jim Birchenough from Wells Fargo.

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Yanan Zhu, Wells Fargo Securities, LLC, Research Division - Associate Analyst [28]

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This is Yanan on for Jim. So first of all, would you be able to share your thoughts on pricing as well as promotion strategies, yes?

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Robert W. Azelby, Alder BioPharmaceuticals, Inc. - President, CEO & Director [29]

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So first of all, we'll start off with -- from a promotional strategy perspective. Based on all the feedback we're garnering from our -- for our Phase III clinical trial, we think that the speed of prevention and the durable responses, not only are we getting greater than 50% reductions in migraine on day 1, but that's consistent through week 4 and then through week 12. And so the speed and the depth of response is really going to be a clinical differentiator for us, and that's what we're going to play on and that -- and the feedback we get from patients, physicians and payers is very consistent in that light. Additionally, we're focused on the 3,000-or-so proceduralists who also are excited about the fact that you get enhanced adherence or compliance with a quarterly IV administration. It fits right in their business model as it relates to procedures. And so that's going to be our target market as we go forward. And then finally, to your question on speaking about pricing, we believe it's too early to be discussing pricing and we continue to monitor the uptake of the anti-CGRPs and how that's playing out in the payer space.

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Yanan Zhu, Wells Fargo Securities, LLC, Research Division - Associate Analyst [30]

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Got it, that's very helpful. And also, just a curious question, could there be a scenario where patients or doctors opt to try -- to use the IV drug to get a rapid response but later they may switch to subcu? How do you anticipate such a scenario?

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Robert W. Azelby, Alder BioPharmaceuticals, Inc. - President, CEO & Director [31]

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Sure. I would go back to our -- really understanding the chronic migraine patient, number one, right. So again, in our PROMISE 2 data, these patients average 16 migraines a month. That's 4 a week. I mean, I think we should just step back and think about if you were suffering from 4 migraines a week. And then you've got this IV eptinezumab, which had a dramatic impact for you, right. And it makes you go back every quarter that we do not believe in the research that we do with patients because what we're told is 90% of them say, "I'm just going to continue to chase as much efficacy as possible." So if there's any likelihood that a patient's going to go back, meaning get worse, we don't find that to be an attractive alternative for patients nor for their physicians.

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Operator [32]

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Our next question comes from Geoffrey Porges of SVB Leerink.

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Geoffrey Craig Porges, SVB Leerink LLC, Research Division - Director of Therapeutics Research, MD & Senior Biotechnology Analyst [33]

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Most of my questions have been answered but a couple. First, I just want to come back to this question of R&D because I think most of us were expecting that with the PROMISE trials being completed that there might be some reduction in R&D. But if we just look to 2020, if we assume then that you don't have to continue to pay for inventory because at that point, you'll be running the manufacturing expense through cost of goods line and you won't have pivotal trials, should we be modeling a significant step down in R&D in 2020 and in future years? And secondly, perhaps slightly related to that, on the PACAP program, could you confirm whether or not it's produced in the same yeast system as epti? And if so, do you have a process already that you can scale?

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Robert W. Azelby, Alder BioPharmaceuticals, Inc. - President, CEO & Director [34]

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So Geoff, let me take the first one. Obviously, we articulated what we're going to spend in 2019, between $285 million and $315 million. And in our -- from a manufacturing perspective, as you know, we're really, really excited about the 5-year agreement we've done with Sandoz because it puts us in a position for high-quality supply to not only meet our forecasted launch but beyond and again not only to be able to deliver supply in the U.S. but to deliver supply globally. And so we feel really good about that. There are some costs in the 2019 number that's associated with us reserving capacity over that 5-year program. And so I would not use 2019 as the foundation for manufacturing spend in 2020 and beyond. And then to your second question on PACAP, whether that's in the same yeast system, we haven't provided any context yet on our ALD1910 program and we're keeping that in-house for now. So we're not going to provide more detail on that.

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Operator [35]

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Our next question comes from Difei Yang of Mizuho.

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Alexandre N. Bouilloux, Mizuho Securities USA LLC, Research Division - Research Analyst [36]

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This is Alex on for Difei. I had a question on manufacturing. Could you give us a bit more color on how many CMOs will you be using to manufacture eptinezumab? And are you expecting FDA inspections at each of these CMOs?

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Robert W. Azelby, Alder BioPharmaceuticals, Inc. - President, CEO & Director [37]

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So as we stated in our -- if I step back and again just highlighting our 5-year agreement with Sandoz just puts us in an excellent position to meet the demand going into -- or forecasted demand in 2020 and beyond and again not just in the U.S. but globally. And so they are our supplier as we go forward. And then as it relates to FDA inspections, we would anticipate a post-approval inspection that will occur after -- if and when our file is accepted by the FDA. And then sometime after that, we would anticipate an inspection at our CMO partner.

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Alexandre N. Bouilloux, Mizuho Securities USA LLC, Research Division - Research Analyst [38]

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Okay, great. And then could you also highlight the major remaining milestones with respect to the BLA process? And do you anticipate an outcome meeting will be required?

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Robert W. Azelby, Alder BioPharmaceuticals, Inc. - President, CEO & Director [39]

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So the next major milestone would be at the 60-day mark from last Thursday, February 21. That's when the FDA would tell us whether or not they accept the file and then would officially be filed. And then from that end, we believe it will be 10-month clock and we do not anticipate us getting priority review.

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Operator [40]

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Our next question comes from Matthew Luchini of BMO.

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Na Sun, BMO Capital Markets Equity Research - Associate [41]

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This is Na on for Matthew. In terms of reimbursement, can you put a little bit more color on what the puts and takes are in the discussion with payers in the context of value-based contracting?

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Robert W. Azelby, Alder BioPharmaceuticals, Inc. - President, CEO & Director [42]

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So first of all, I'll start off by saying our engagement with the payers over the last 3 to 6 months has been outstanding. And again, they provide very, very similar feedback on the clinical differentiation associated with eptinezumab in terms of speed of response and depth of response. They also love the 100% response rate and the quarterly IV infusion based on compliance. And so from that end, they say, "Hey, you're in the IV world. You're in medical policy rather than the pharmacy policy. And therefore, we like to provide our patients with different modes of administration." So from a coverage perspective, we feel really, really good about that. As it relates to the puts and takes on value contracts, can I just ask you to provide a little more detail? I don't want to infer what you mean by that question.

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Na Sun, BMO Capital Markets Equity Research - Associate [43]

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Well, I just think with the discussion on -- there's been discussion on -- for example, recently reimbursement based on outcomes and what -- how the manufacturer views the value that they bring to the table versus like what sort of quantitative or qualitative bar do you see as in bringing to the discussion that would convince payers?

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Robert W. Azelby, Alder BioPharmaceuticals, Inc. - President, CEO & Director [44]

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Sure, sure. So I think when we've had discussions with payers on the value that eptinezumab would bring relative to the other preventive therapies on the marketplace, we're going to start off by just talking about absolute response rates especially in the chronic migraine world, where the costs associated with chronic migraine patients is greater than episodic migraine patients. And so they like to focus there. When you look at the depth of response that we're getting, such as 60% of the patients in the PROMISE 2 trial got a 50% response and roughly 1/3 of patients got a 75% response. And when you've seen that relative to the -- our competitors in the marketplace, they see a higher percentage of patients having a positive benefit. The other element which they're excited about is with the speed of which eptinezumab works with day 1 prevention, meaning it starts the prevention within 24 hours for those patients that's going to benefit, right. So you can imagine if a patient is benefiting tomorrow rather than in week 4, week 8, week 12 or beyond, there's direct medical cost associated with that. And finally, I would just say the payers highlighted our HIT-6 data, which is patient-reported outcomes data, and they love the fact that they saw a significant impact in patient-reported outcomes at week 4, which ties to our rapidity of prevention that they've seen in the PROMISE 2 data. And so those 2 pieces, from a payer perspective, they said, "Hey, we like your data and we love the fact that the patients who we're covering are seeing benefit and it's helping them in their daily living."

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Na Sun, BMO Capital Markets Equity Research - Associate [45]

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And one more follow-up on -- for PACAP. Could you just talk a little bit more on the overlap between ALD1910 and epti? Or how many more incremental patients do you expect ALD1910 to bring in to the migraine population?

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Robert W. Azelby, Alder BioPharmaceuticals, Inc. - President, CEO & Director [46]

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So I think if you just step back and we believe, as we've been stating here on today's call, that eptinezumab has fantastic robust data. And I just shared with you that we believe the data suggest that we get 60% of patients to a 50% response. And that's top of the class from an absolute perspective. Now imagine 40% of those other patients are getting less than a 50% response, right. They would need some additional opportunities in order to manage their disease. We think ALD1910 has the enormous opportunity there going forward because the anti-CGRPs, no matter how good they are, there's still an enormous number of patients that would still benefit from new, innovative therapies.

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Operator [47]

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Our next question comes from Vamil Divan of Credit Suisse.

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Uy Sieng Ear, Crédit Suisse AG, Research Division - Research Analyst [48]

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This is Uy on for Vamil. Some clarity on a couple of questions. You indicated that you don't anticipate a priority review. I'm just wondering whether you're asking for one, or have you asked for one already? That's the first question. And second question -- yes, so the 1Q launch, could you just elaborate on it, whether that would be a full launch to essentially the whole market or will it be sort of staged? And will you, I guess, have sufficient product if it is a full launch?

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Robert W. Azelby, Alder BioPharmaceuticals, Inc. - President, CEO & Director [49]

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Sure. So to the first question, as it relates to priority review, the likelihood of us getting a priority review is very, very small because there's 3 other anti-CGRPs on the market, and so we're not anticipating that moving forward. As it relates to a Q1 launch, if everything goes well, February 21, you assume a 60-day review by the FDA and then a 10-month clock, that would put us into launch mode roughly in, let's call it, late February, early March of 2020. And we fully anticipate to be ready to go with supply to be able to meet the forecasted demand needs in the United States. And so we don't think we'll have any inhibition as it relates to being ready to go to the market and try to help as many people and patients as possible.

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Operator [50]

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Our next question comes from Serge Belanger of Needham.

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Tian Sun, Needham & Company, LLC, Research Division - Research Analyst [51]

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This is Tian actually on for Serge. I just have a question. Teva actually recently reported that 10% of their weekly Rx for Ajovy is actually from the quarterly dosing. So do you kind of expect this number to be a good proxy for your future demand for epti once it becomes available?

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Robert W. Azelby, Alder BioPharmaceuticals, Inc. - President, CEO & Director [52]

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Yes, we saw that number as well, but I don't think that's a great proxy. I think when you look at the eptinezumab data and the -- and our clinical profile and really when we talk about the speed of response within day 1 and our depth of response, we think we're going to be clinically differentiated. However, I would say it's good news for us when patients enjoy quarterly administration rather than monthly subcu. I think we're going to align very well in the marketplace. I would suggest to you for those patients that are highly impacted with migraine, a very, very high percentage of them see their clinicians on a quarterly or even more frequently. And so the quarterly infusion fits right in line with how these patients are engaging their health care provider, and so we're very, very confident in our ability there.

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Operator [53]

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Our next question comes from Danielle Brill of Piper Jaffray.

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Danielle Catherine Brill, Piper Jaffray Companies, Research Division - VP & Senior Research Analyst [54]

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So Bob, I'm curious, based on interactions with doctors, do you have any sense what proportion of the 200,000 patients that have started subcus are nonresponders or poor responders? And then for those patients, how willing are doctors to try another CGRP?

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Robert W. Azelby, Alder BioPharmaceuticals, Inc. - President, CEO & Director [55]

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So I don't have a great insight as to the number of the 200,000, how many are nonresponders or inadequate responders. What I can tell you, the feedback has been enormously consistent that the subcu anti-CGRPs are performing very similar to the way they performed in the clinical trials, right. And so if you take that, they're getting about 40% to 45% of people to a 50% reduction in migraines. And we hear that very, very consistently from a -- from the marketplace. We've also heard regularly from the marketplace. We do have the medical affairs team out, doing scientific exchange, understanding what's taking place in the marketplace, and we hear regularly that physicians, if a patient has an inadequate response or a toxicity issue or something else going on with one subcu, they have the -- physicians have not been reticent to move to another subcu.

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Operator [56]

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Our next question comes from Bill Maughan of Cowen and Company.

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William Patrick Maughan, Cowen and Company, LLC, Research Division - Equity Research Associate in Specialty Pharma [57]

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Congrats on the BLA. So for doctors who aren't currently affiliated with an infusion center, is there anything you're planning on doing to facilitate their access to IV centers? Or are you -- do you rely on the differentiation of product to bring them in any way they can find? And second question, do you believe that the CGRP mechanism of action and the Botox mechanism of action are additive? Or are they more treating discrete populations with migraines?

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Robert W. Azelby, Alder BioPharmaceuticals, Inc. - President, CEO & Director [58]

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All right, very good. First of all, on your first question as it relates to clinicians who may not have infusion capabilities in their office or their hospital, obviously, IV access is widely available, right. And so it's not really challenging for clinicians to get a patient whether that be to a freestanding infusion center, to a hospital outpatient. Many times, they send it over to even the oncology world where they're doing standard infusions. And so we're going to work to build an infusion network but not really build it just to make sure that we have it identified, but we do not believe that IV access is going to be a rate limiter for us going forward. As it relates to the CGRP mechanism of action and the Botox mechanism of action, I'll defer to John as it relates to the difference between those. And I do think it's -- actually, I'll just defer to John -- or Dr. Carter.

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Eric G. Carter, Alder BioPharmaceuticals, Inc. - Former Interim Chief Medical Officer [59]

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Yes. So I think given that migraine is a consequence of sensitization to nociceptive and vasodilatory signals within particular regions of the brain, the trigeminal vascular region, the thinking is that if the botulinum toxin plays a role in impacting that sensitization, which in some patients leads to migraine, as does CGRP. And in the absence of really looking at these 2 medicines, side by side, it's difficult to tell whether or not they would be additive or whether they would be acting in a discrete -- in a purely discrete manner. I would anticipate that they do probably act somewhat discretely but perhaps with a final common pathway. What we do know, of course, is that our efficacy data with epti is significantly more compelling than the Botox data and so obviously with -- dealing with the different -- probably different -- at the end of the day, different mechanistic approaches here. I don't know of -- I just don't know whether or not people are using subcu CGRPs in patients that are having an inadequate response to Botox. I imagine that in clinical practice, people -- doctors will try pretty much anything given how burdensome migraine is for patients.

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Operator [60]

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Our next question comes from Carter Gould of UBS.

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Carter Lewis Gould, UBS Investment Bank, Research Division - Large Cap Biotech Analyst [61]

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Congrats to Bob and team on the filing. Let's start off with a clarification question. I guess, the first question you got asked around some of those LCM activities that you kind of were working through and you weren't ready to share them at this time, can you at least commit that we will -- those -- some of these activities will start this year? And then Bob, I want to get your latest thoughts on the need to potentially provide free drug when you launch. I know in the past, you've kind of downplayed that notion. I'd love to kind of get your latest take on that front?

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Robert W. Azelby, Alder BioPharmaceuticals, Inc. - President, CEO & Director [62]

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Sure. So first of all, on your question on the life cycle management and we were excited about the different alternatives we had to continue and invest in epti and continue to differentiate it, what I would tell you is we put a nice list together. We have plans to execute again them, but we've got to make sure they're feasible, right, and then we've got to make sure that there's a good commercial opportunity associated with it. I can tell you that once we jump through those 2 hurdles, we would execute against them as quickly as possible, but I can't sit here and tell you that they're definitively true to happen because we still have to do, as any biopharmaceutical company does, we have to dot our Is and cross our Ts in terms of the feasibility assessment as well as the commercial opportunity and so -- but I will tell you once we jump through those hurdles, we would like to move as quickly as possible. So that's one. Number two, on your question on free product, when we look -- when we've seen since the launch in May of 2018, all 3 companies went out there and gave quite a big amount of free product although as you see and how all 3 competitors spoke about that the number of prescriptions that are being fulfilled and are paid for, 2 of them said 50%, 1 said 60%. So you're starting to see the marketplace starting to settle, and what we anticipate 12 months from now that medical policy and payer coverage will be established. The priority review in those types of things will be established, and so we don't sit here anticipating that we're going to have to go out and give 12 months of free product to actually allow this marketplace to get going and to settle. And basically, in our engagement with the payers, they didn't fit -- deem that we should be doing that as well. And so never say never, but as we sit here today, we don't see that as a real probability.

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Carter Lewis Gould, UBS Investment Bank, Research Division - Large Cap Biotech Analyst [63]

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That's great. I guess just 1 or 2 more. Can you also provide an update on kind of where you stand on the CCO hire? And then just one last clarification, obviously, we saw the Lilly-Teva IPR. Is there any chance that down the road, if Lilly continues to win out, that potentially impacts your downstream payments to Teva?

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Robert W. Azelby, Alder BioPharmaceuticals, Inc. - President, CEO & Director [64]

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So let me talk back the CCO hiring. So first of all, let me talk about our current CCO, which -- has done a phenomenal job and continues to be engaged as deep, working as hard as she ever had. And so I do want to give a shout-out to Elisabeth because of her leadership and her engagement, and we're still getting every nickel out of her that she's doing. With that being said, we are very active on our Chief Commercial Officer search. We're actively engaging what I see as very, very strong candidates, and I'm optimistic that we're going to be able to secure a CCO that's not only going to enable us to compete very effectively in the marketplace but also one that's going to help us build this organization into a fully integrated biopharmaceutical company. As it relates to the IPR and the patents, we're going to refrain from speculating on how that's going to play out.

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Operator [65]

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Our next question comes from Sumant Kulkarni of Canaccord.

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Sumant Satchidanand Kulkarni, Canaccord Genuity Limited, Research Division - Analyst [66]

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First, now that you have your amended drug substance deal with Sandoz in place, could you give us a sense of what COGS might be and, more importantly, the gross margin to Alder on eptinezumab after the royalty due to Teva?

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Robert W. Azelby, Alder BioPharmaceuticals, Inc. - President, CEO & Director [67]

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Yes. So Sumant, first of all, great to hear from you. As you know, we have a standing policy that we don't comment as it relates to what our COGS are actually going to be. What I would say from a high-level perspective, our success is going to be determined by our commercial effectiveness in the marketplace and not by our COGS, and we feel confident where our COGS are going to end up but we're not in a position to give you details on that.

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Sumant Satchidanand Kulkarni, Canaccord Genuity Limited, Research Division - Analyst [68]

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Sure. And then assuming eptinezumab is approved and launched, how do you expect the lack of a specific procedure code in 2020 to impact the ramp for sales if at all?

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Robert W. Azelby, Alder BioPharmaceuticals, Inc. - President, CEO & Director [69]

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Yes, we don't anticipate the lack of a procedure code. In fact, we believe a procedure code does exist for IV administration, but I'll go back into a little bit more homework on that particular element, but infusing codes are not usually a problem, but let me go back and confirm that.

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Operator [70]

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Thank you. I'm showing no further questions at this time. Ladies and gentlemen, this does conclude today's conference. Thank you for your participation, and have a wonderful day. You may all disconnect.