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Edited Transcript of ALXN earnings conference call or presentation 24-Jul-19 12:00pm GMT

Q2 2019 Alexion Pharmaceuticals Inc Earnings Call

CHESHIRE Jul 25, 2019 (Thomson StreetEvents) -- Edited Transcript of Alexion Pharmaceuticals Inc earnings conference call or presentation Wednesday, July 24, 2019 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Brian M. Goff

Alexion Pharmaceuticals, Inc. - Executive VP & Chief Commercial Officer

* John J. Orloff

Alexion Pharmaceuticals, Inc. - Executive VP and Head of Research & Development

* Ludwig N. Hantson

Alexion Pharmaceuticals, Inc. - CEO & Director

* Paul J. Clancy

Alexion Pharmaceuticals, Inc. - Executive VP & CFO

* Susan Altschuller

Alexion Pharmaceuticals, Inc. - VP of IR

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Conference Call Participants

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* Christopher Joseph Raymond

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

* Geoffrey Craig Porges

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

* Justin Alexander Kim

Oppenheimer & Co. Inc., Research Division - Associate

* Kennen B. MacKay

RBC Capital Markets, LLC, Research Division - Co-Head of Biotechnology Research

* Martin Douglas Auster

Crédit Suisse AG, Research Division - Research Analyst

* Matthew Kelsey Harrison

Morgan Stanley, Research Division - Executive Director

* Mohit Bansal

Citigroup Inc, Research Division - VP and Analyst

* Nathaniel Tower

Stifel, Nicolaus & Company, Incorporated, Research Division - Associate

* Philip M. Nadeau

Cowen and Company, LLC, Research Division - MD and Senior Research Analyst

* Salveen Jaswal Richter

Goldman Sachs Group Inc., Research Division - VP

* Steven James Seedhouse

Raymond James & Associates, Inc., Research Division - Research Analyst

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Presentation

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Operator [1]

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Good morning, and welcome to the Alexion Pharmaceuticals, Inc. conference call to discuss second quarter 2019 financial results. Today's call is being recorded.

For opening remarks and introductions, I would now like to turn the call over to Susan Altschuller, Vice President of Investor Relations. Please go ahead ma'am.

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Susan Altschuller, Alexion Pharmaceuticals, Inc. - VP of IR [2]

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Thank you, Crystal. Good morning, and thank you for joining us on today's call to discuss Alexion's performance for the second quarter of 2019. Today's call will be led by Ludwig Hantson, our CEO. Ludwig will be joined by Paul Clancy, our Chief Financial Officer; John Orloff, our Global Head of R&D; and Brian Goff, our Chief Commercial Officer. You can access the webcast slides that will be presented on this call by going to the 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, except as required by law.

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 our financial results and financial guidance are included in our press release. These non-GAAP financial measures should be considered in addition to, but not a substitute for, our GAAP results. Thank you. Ludwig?

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Ludwig N. Hantson, Alexion Pharmaceuticals, Inc. - CEO & Director [3]

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Thank you, Susan, and good morning, everyone. We've made great progress so far this year further solidifying the durability of the base business in PNH and HUS, continuing to drive neurology and metabolics growth, building out the pipeline for long-term value creation and continuing to deliver on our financials.

Slide 5 highlights some of our recent achievements. The U.S. launch of ULTOMIRIS for PNH is off to a strong start, and I'm pleased to report that as of the beginning of this week, we have facilitated conversion for 40% of PNH patients. On July 2, we received approval of ULTOMIRIS for PNH in EU and have already launched in Germany. We have remained consistent with our global sustainable pricing strategy and have a best-in-class conversion ambition of at least 70% of patients in the first 2 years from launch. Our ULTOMIRIS atypical HUS filing was accepted by the FDA and granted priority review with a target action date of October 19, ahead of our initial expectations.

With the U.S. approval of SOLIRIS in NMOSD in late June, we took a major step forward in neurology. SOLIRIS is the first-ever FDA-approved therapy for NMOSD, a disease in which even one relapse can have a devastating consequence for patients. We have already made good progress with the U.S. launch and are working on prelaunch planning in the EU and Japan, where we hope to gain approvals by the end of the year. With the launch of NMOSD and growing contribution from gMG, we expect neurology to be our biggest franchise by patient volume in the U.S. by year-end.

In metabolics, STRENSIQ and KANUMA once again delivered double-digit year-over-year growth. With 1840 for Wilson disease, we have an opportunity to bring another transformative therapy to patients, and our pivotal trial remains on track to complete enrollment by early next year.

Our pipeline is progressing. Dosing is underway in the Phase III studies for ULTOMIRIS subcu and ULTOMIRIS in gMG. We're also preparing for multiple late-stage clinical trial initiations over the coming year. Business development remains a core organizational focus, and we're working to add to the 3 deals completed in the first half of the year: Caelum, Affibody and Zealand Pharma.

Finally, we delivered very strong financial performance with 15% revenue growth and 28% non-GAAP EPS growth, and our updated 2019 guidance reflects the momentum of the business. All these positions us very well to deliver against our objectives in the remainder of the year. We also continue to look for opportunities to further build out our 4 therapeutic areas and expand into others aligned with our mission to bring transformative therapies to even more patients with rare diseases.

With that, I will turn the call over to Paul to discuss our second quarter financial results. Paul?

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Paul J. Clancy, Alexion Pharmaceuticals, Inc. - Executive VP & CFO [4]

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Thanks, Ludwig. Starting with Slide 7. We reported second quarter total revenues of $1.203 billion, an increase of 15% year-over-year. This was driven by gMG, continued growth in the core business and the ULTOMIRIS PNH conversion. Our non-GAAP operating margin was 58% in the second quarter, an expansion of 417 basis points driven by top line leverage and lower-than-planned R&D expense. Non-GAAP earnings per share was $2.64, representing 28% growth year-over-year.

Moving to Slide 8. Second quarter net product sales were driven by volume growth of 23%, offset by an FX headwind of 1% and a price headwind of 7%. The price headwind was largely a result of a $32 million reduction to revenue for SOLIRIS in our Canada business in the second quarter. This is related to our ongoing dispute with the Canadian Patented Medicine Prices Review Board, or PMPRB, related to SOLIRIS pricing in Canada. In May of this year, the Federal Court of Canada dismissed our application for judicial review. While we're appealing, the decision led to reduction of revenue in the quarter, which includes the impact for the period from September 2017 to June 2019. We estimate that going forward, this will result in approximately a $5 million headwind per quarter.

Turning to Slide 9. SOLIRIS revenue in the second quarter was $981 million with year-over-year volume growth of 17%. Revenue growth in rest of world markets was negatively impacted by the Canada judicial order and erosion in the Russia business. In the U.S., we benefited from order timing ahead of the July 4 holiday by approximately $8 million, which is consistent with prior year.

Turning to Slide 10. ULTOMIRIS revenue in the second quarter was $54 million. Recall, as patients switch, there's a 10% benefit in the first year due to the loading dose dynamic.

On Slide 11, we've included the C5 franchise of SOLIRIS and ULTOMIRIS combined where we saw 15% year-over-year growth across PNH, atypical HUS and gMG. Underlying volume growth in PNH and aHUS remained solid in the quarter, and we expect high-single digits underlying volume growth for the year for those 2 indications.

Moving to Slide 12. STRENSIQ revenues for the second quarter were $141 million, representing 13% revenue growth and 21% volume growth year-over-year. KANUMA revenues in the second quarter were $26 million, representing 22% revenue growth and 33% volume growth year-over-year.

Turning to the P&L on Slide 13. During the quarter, non-GAAP R&D expense was $149 million or 12% of revenues. Our non-GAAP R&D expense is much lower than we had planned. This is due to the phasing of late-stage program spend, which we expect to ramp up in 2020, and we've not seen significant R&D burn from the business development deals we've closed so far this year.

Non-GAAP SG&A expense was $256 million or 21% of revenues. The non-GAAP effective tax rate in the quarter was approximately 13%. The GAAP tax rate was 8%. Both non-GAAP and GAAP taxes were driven by our ability to claim a foreign tax credit in the quarter. We reported second quarter non-GAAP earnings per share of $2.64, growing 28% year-over-year. GAAP earnings per share was $2.04. We ended the second quarter with approximately $2.1 billion in cash and marketable securities.

I'll now turn to Slide 14 for our updated full year financial guidance. We're guiding to total revenues between $4.750 billion to $4.800 billion, an increase from prior guidance. This represents 16% growth year-over-year at the midpoint of the range.

For the combination of SOLIRIS and ULTOMIRIS, our revenue guidance is $4.095 billion to $4.130 billion. This assumes continued momentum in gMG, incorporates our recent launch of NMOSD in the United States and now includes the expected FDA approval and U.S. launch of ULTOMIRIS for aHUS in the fourth quarter.

Turning to metabolics. Our revenue guidance is $655 million and $670 million for both STRENSIQ and KANUMA. This includes the impact of a strategic pricing decision for STRENSIQ in the U.S. to support sustainability given weight-based dosing. The estimated price will be a 3% headwind in 2019, higher than prior guidance driven primarily by the Canada pricing item. Foreign exchange impact, net of hedging is expected to represent a $40 million headwind.

GAAP operating margin is expected to be between 42% and 43%, inclusive of restructuring and related expenses as well as upfront payments. Non-GAAP operating margin is expected to be between 55% to 56% of revenue. Non-GAAP R&D expense is projected to be 14% to 16% of revenues, lower than our original expectations for 2019. Phasing has shifted, and we now expect much of the late-stage program spend to accelerate into 2020. We intend to further build the pipeline and anticipate R&D spend, both in dollars and as a percentage of sales, to increase going into next year.

Non-GAAP SG&A spend is expected to be 20% to 21% of revenues for full year of 2019. We expect non-GAAP effective tax rate similar to 2018. GAAP earnings per share is expected to be between $8.13 and $8.41, and non-GAAP earnings per share is expected to be between $9.65 and $9.85. The midpoint of this range is approximately 23% growth year-over-year. We've delivered an excellent first half and well positioned to deliver our 2019 financial goals.

I'll now turn the call over to John to provide an update on R&D.

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John J. Orloff, Alexion Pharmaceuticals, Inc. - Executive VP and Head of Research & Development [5]

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Thank you, Paul. I want to start by recognizing the significant accomplishments of the R&D organization in the first half of this year. SOLIRIS became the first FDA-approved therapy for NMOSD, marking a significant milestone in the treatment of this devastating rare disease. ULTOMIRIS was approved for PNH in both the EU and Japan and granted priority review for atypical HUS in the United States.

We continue to advance our pipeline and are dosing patients in our pivotal ULTOMIRIS gMG trial as well as our once-weekly ULTOMIRIS subcutaneous trial. We also added to our pipeline with 3 business development deals. We announced a collaboration with Caelum Biosciences for CAEL-101 in AL (light chain) amyloidosis; a collaboration with Affibody Biosciences (sic) [Affibody AB] for ABY-039, a novel anti-FcRn asset; and a collaboration with Zealand Pharma for peptide therapeutics targeting complement.

On Slide 17, you can see the breadth of our development portfolio, which currently encompasses 15 development programs across our 4 blockbuster pillars. We expect clinical trial activity to ramp up towards the back half of 2019 and into 2020 as we initiate numerous late-stage development programs.

Turning to Slide 18. I'd like to highlight some of the key late-stage programs. Starting with our plans for ULTOMIRIS. In hematology and nephrology, we are announcing today that we plan to initiate a Phase III study in hematopoietic stem cell transplant-associated thrombotic microangiopathy or HSCT-TMA in 2020. This provides us the opportunity to potentially serve HSCT-TMA patients who have very limited treatment options.

With our ULTOMIRIS once-weekly subcutaneous Phase III study, we believe we will be able to offer optionality for patients with PNH and atypical HUS.

In neurology, our Phase III study of ULTOMIRIS in gMG is ongoing with plans to pursue a weekly subcutaneous bridging strategy in parallel. We're on track to initiate a Phase III trial for ULTOMIRIS in NMOSD later this year.

We plan to initiate a clinical trial in ALS early next year pending regulatory feedback. This will likely be a Phase II/III study with a goal to gain early proof-of-concept for the role of complement inhibition in the pathogenesis of ALS.

Moving to CAEL-101 and our collaboration with Caelum Biosciences. We plan to initiate a Phase II/III study in early 2020 in patients with AL (light chain) amyloidosis, a rare disease with rapid progression to organ failure and high mortality. Recall, the Phase Ia/Ib program demonstrated early proof-of-concept with clinical benefit on cardiac and renal function and target engagement in vivo.

Turning to metabolics with ALXN1840 for Wilson disease. We remain on track to complete enrollment in our Phase III trial in early 2020. 1840 has the potential to be highly differentiated from current therapies due to a 10,000-fold higher affinity for copper, potentially improving liver function and neuropsychiatric symptoms and significant improvement in dosing.

Finally, ALXN1830 is our lead candidate in our emerging anti-FcRn portfolio. We remain on track to manufacture sufficient supply for the 1830 clinical programs by year-end. In warm autoimmune hemolytic anemia, we plan to start a Phase II/III operationally seamless trial of 1830 in early 2020. In gMG, given the evolving landscape, we have decided to focus our development of 1830 on the subcutaneous formulation, and we'll begin our trial in 2020 after generating subcutaneous data in healthy volunteers.

I'm incredibly proud of the progress made so far this year and would like to thank the global R&D organization for their tireless efforts in advancing our pipeline and portfolio strategy. I look forward to providing future updates as our pipeline continues to build.

With that, I'll turn the call over to Brian to discuss commercial highlights for the quarter. Brian?

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Brian M. Goff, Alexion Pharmaceuticals, Inc. - Executive VP & Chief Commercial Officer [6]

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Thanks, John. I'll start on Slide 20 with all the progress we've made with ULTOMIRIS. In the U.S., we continue to be very pleased with the launch and our efforts to facilitate patient conversion. As at the beginning of this week, 43% of PNH patients were enrolled in OneSource, and 40% are on treatment with ULTOMIRIS. So we remain on a very solid path towards achieving our goal of best-in-class patient conversion and now believe we can reach that goal of at least 70% even faster, targeting mid-2020 in the United States. This is not only important for patients but also reflects the strength of the ULTOMIRIS clinical profile.

Earlier this month, we received approval for ULTOMIRIS in Europe and have already begun treating patients in Germany where we have a sustainable pricing strategy as is already established in the U.S. Similar to the global price range for SOLIRIS, our ambition is to maintain a relatively narrow price band globally for ULTOMIRIS. We aspire to facilitate a rapid, best-in-class conversion in each launch geography.

In Japan, we received approval in June and while we're waiting for the National Health Insurance price listing in order to launch, we're actively engaged in efforts to improve physician awareness of ULTOMIRIS. We anticipate patients can begin conversion in September.

Turning to Slide 21. Neurology represents a significant growth opportunity. As you see on the left, we ended the quarter with nearly 1,200 gMG patients treated with SOLIRIS in the U.S., and we're still less than 2 years into the launch.

On the right, you can see the continuum of gMG disease severity. Building on our base of SOLIRIS, our goal is to expand treatment options for gMG patients with ULTOMIRIS and 1830. We believe a portfolio approach will help us to serve patients across the spectrum of disease.

Turning to Slide 22. We're excited to build upon our gMG success with the recent expansion of SOLIRIS into NMOSD. SOLIRIS is the first-ever FDA-approved therapy for NMOSD, a disease in which patients live in constant fear of the unpredictable and potentially devastating effects of another attack. As you can see on the right, our Phase III trial demonstrated that SOLIRIS has a profound effect on reducing the risk of an NMOSD relapse.

We've expanded our neurology field and medical teams this year, which positions us well for launch. There are strong synergies and overlapped with gMG, but we're also targeting new call points, such as MS centers of excellence. With the right infrastructure in place and a sense of urgency to serve these patients, I'm pleased to report that we already have a number of open cases in OneSource as well as the first NMOSD patients now treated with SOLIRIS.

Moving to our metabolics franchise on Slide 23. We reported second quarter STRENSIQ revenue of $141 million. With our CALIPER age-adjusted initiative, we aim to increase awareness and adoption of the appropriate diagnostic ranges for HPP, helping to support earlier diagnosis, particularly of pediatric patients.

KANUMA ended the quarter with revenue of $26 million. With both LAL-D and HPP, we continue to identify new patients and plan to seek reimbursement agreements in additional geographies. This was a great and action-packed second quarter, and I want to especially thank the commercial team for their hard work and dedication to bringing hope to patients suffering from our now expanded rare disease indications.

I'll now turn the call back to Ludwig for closing comments. Ludwig?

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Ludwig N. Hantson, Alexion Pharmaceuticals, Inc. - CEO & Director [7]

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Thank you, Brian. I'm very pleased with our 2019 progress so far. I look forward to further building on this momentum. As we strengthen our position in each of our 4 blockbuster pillars, we'll also continue to look for ways to further leverage our unique and established rare disease expertise.

Looking ahead, we have a strong foundation with our base business and exciting opportunities for growth, including our expanded neurology portfolio and numerous late-stage pipeline programs. We're committed to executing on our strategy with the aim to transform patient lives and create long-term shareholder value. As always, I would like to thank our global employees for their dedication to our mission and the patients we serve for their continued trust in us.

With that, we will now open the call to questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes from Geoffrey Porges from SVB Leerink.

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Geoffrey Craig Porges, SVB Leerink LLC, Research Division - Director of Therapeutics Research, MD & Senior Biotechnology Analyst [2]

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And congratulations for all of you on the progress and particularly the approvals. I guess the big question, Ludwig, is the share price. You're executing strongly, both in the pipeline and commercially. The trajectories are all looking good for the new products and new indications, but yet the share price has been flat for 3 years. And that probably reflects people's concerns about pricing, patents and concentration of the portfolio. So as you think about what options you might have with the company, is there anything that you could contemplate that might potentially generate value for shareholders or else things you could do with the balance sheet? And assuming that there's not much you can say about that, could you just also update us on the EU patent appeal as well, which is part of the overhang?

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Ludwig N. Hantson, Alexion Pharmaceuticals, Inc. - CEO & Director [3]

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Yes. You have a lot of questions in that, Geoff, but thanks for that. So first of all, we are -- we have a strong strategic plan, and the team is doing an awesome job in executing the plan here. And when you look at our business model on where we were a couple of years ago and where we are now, I think the team really redefines what the fundamentals of this organization is. And we've gone from old to new. And it's only like 1.5 years ago that we got the ULTOMIRIS data, which was strong, and we're moving our business from our SOLIRIS to our ULTOMIRIS business.

With respect to some of your questions on concentration, IP, biosimilars. As we execute or continue to execute on our conversion, those questions are going to become less relevant because biosimilars and IP is related to the SOLIRIS story, not related to the ULTOMIRIS story. And as we're building that conversion quarter-after-quarter, country after country, we're going to have a new portfolio that will lead different types of discussions. So I'm really pleased with what we've done so far.

We're not going to change our strategy. As I said, we believe we have a very strong strategy. We're looking at strengthening our portfolio through internal innovation. And as you saw that we have 1720, which is an internal asset, a first one in the last 2 years going into CTA as well as we will continue to use our cash towards building our pipeline through external innovation.

So I think my story is we don't change this company overnight. The teams have a very strong strategic plan. We're delivering on what we said we were going to do. And every quarter, we're getting stronger and stronger with our fundamentals.

With respect to our questions on IP, there's no new news on the EPO in Europe, no new updates. So beginning of September, we should know more about composition of matter and method of use patents. But again, I'll come back to what I just said, that it's our strategy -- our chapter 2 for this company is to make ULTOMIRIS the standard of care for PNH and, once approved, the standard of care for HUS. So the topic of IP and biosimilars will become less relevant for this organization.

So I hope that answers your question. I'm looking at my colleagues to see if there's anything you want to add.

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Paul J. Clancy, Alexion Pharmaceuticals, Inc. - Executive VP & CFO [4]

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Well said.

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Operator [5]

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Our next question comes from Matthew Harrison from Morgan Stanley.

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Matthew Kelsey Harrison, Morgan Stanley, Research Division - Executive Director [6]

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I guess I wanted to focus on a couple of the R&D programs, if I could, and just ask about especially time lines related to FcRn. It looks like those studies are now starting a bit later than you had talked about last quarter. And so I was wondering if you could update us on the manufacturing issues that you had. And if you've been able to work through those? And then what some of the drivers had been around the pushing out of the time line related to those?

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John J. Orloff, Alexion Pharmaceuticals, Inc. - Executive VP and Head of Research & Development [7]

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Thanks, Matt. It's John. Actually, no change relative to what we communicated last quarter. We -- basically, what we said and what we've identified is an impurity in the manufacturing process that we've addressed now, and we've run new drug substance runs that will deliver new drug product by the end of the year. So drug product will be delivered by December, which allows us to restart the program in January. So that's consistent with what we said.

We do plan to go back into hemolytic anemia with a Phase II/III operationally seamless design with the IV formulation. We're also pursuing a subcu formulation with higher concentration drug product that will also be delivered at the end of the fourth quarter for us to start dosing healthy volunteers. And then as I indicated during my prepared comments, we are looking at myasthenia gravis as well with that subcu formulation, recognizing evolving landscape in that space.

And I would take the opportunity to say that we are committed to myasthenia gravis. We clearly have a great product in severe patients with severe MG with SOLIRIS. We're conducting a trial now with ULTOMIRIS in myasthenia gravis that does not require the failure of an IST, so we'll move further upstream in the patient journey, less severe patients. And then with our FcRn, we have 2 shots on goal here: We have ABY-039. It's in Phase I dosing now, as it's SAD and MAD, as well as 1830 that will give us the opportunity to span the spectrum of all patients with myasthenia gravis.

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Operator [8]

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Our next question comes from Chris Raymond from Piper Jaffray.

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Christopher Joseph Raymond, Piper Jaffray Companies, Research Division - MD & Senior Research Analyst [9]

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Just another R&D question, I guess. Just one really. Just wonder if you could talk a bit about what's going on with ALXN1810. I think last quarter, you talked about completing a Phase I study, and I think you had a slide talking about a potential launch in 2023. But as I read the description now, it looks like you're in the midst of strategic planning for that asset. So is this driven by what you're seeing with ULTOMIRIS subcu? Or is there something else going on with 1810?

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John J. Orloff, Alexion Pharmaceuticals, Inc. - Executive VP and Head of Research & Development [10]

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So as you know, for 1810, we completed the healthy volunteer study that allowed us to increase the bioavailability from 16 -- 60% for 1210, which is ULTOMIRIS, to 73%, which gives us options to dose at every 2 weeks. We are looking at our options here. Given the fact that ULTOMIRIS now is rapidly expanding to now 7 new indications in total with PNH and atypical HUS and serving that patient -- those patient populations very well, in parallel, we have a subcu program that's enrolling now that will allow optionality for patients in our core business when that reads out in 2021 and gets to market. And we have a bridging strategy to expand that once-weekly subcu formulation to the other indications we're pursuing with ULTOMIRIS.

So right now, we have options in our portfolio with regard to C5. That includes 1720 as well 1810. We're exploring now the potential to go into alternative indications and go into new horizons.

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Operator [11]

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And our next question comes from Martin Auster from Crédit Suisse.

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Martin Douglas Auster, Crédit Suisse AG, Research Division - Research Analyst [12]

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Congrats on the continued strong operating results. I have a follow-up on the Canada pricing decision. I was just curious, so did the lowering of Canada prices, wondering if that presents any near-term risks as it creates a lower price point that could then be used by -- as a comparator by other countries that are evaluating pricing around SOLIRIS. I was just curious if that could trigger potentially any near-term risks around other countries repricing SOLIRIS.

And then secondly, I was wondering if you could articulate more precisely what the international pricing band around SOLIRIS is. And then for ULTOMIRIS, do you expect a similar pricing band or a relatively tighter international band than you currently have with SOLIRIS?

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Paul J. Clancy, Alexion Pharmaceuticals, Inc. - Executive VP & CFO [13]

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Right. Martin, this is Paul. Thanks for the question. The Canada situation goes back to kind of 2017, as I had noted. It's been in our legal disclosure since that time period. We believe it's pretty localized issue. It relates to what -- the core issue relates to what's the appropriate comparison, and it actually gets involved with foreign exchange rates and so on and so forth. We're appealing it, but for the time being, there'll be a little bit of a headwind as we kind of march through the balance of the year. But we do believe it's local -- it's a localized issue at this point. Brian?

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Brian M. Goff, Alexion Pharmaceuticals, Inc. - Executive VP & Chief Commercial Officer [14]

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Yes. Just on the second question about the SOLIRIS pricing band, we haven't quantified that. But I mean qualitatively, we described it as a relatively narrow global pricing band, and I think that's really relative to what we know in terms of most other pharmaceutical products on the market who have a global footprint similar to ours.

So the ambition that we have, and we've already taken big steps towards this with the launch of ULTOMIRIS in the U.S. and then most recently in Germany, is with ULTOMIRIS, we want to have -- maintain a similar pricing range. So in Germany, just to be specific about what that looks like, it is similar to the pricing in the U.S. and so in the maintenance phase, there's about a 10% discount of ULTOMIRIS versus SOLIRIS.

The way Germany looks at these patients is they have kind of more of a longer-term view. They blend together years 1 and 2. And when you take that average, essential parity with ULTOMIRIS versus SOLIRIS. And then when you get into maintenance and beyond, you capture the system savings and the discount. And that's our ambition, to have that pricing range globally.

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Ludwig N. Hantson, Alexion Pharmaceuticals, Inc. - CEO & Director [15]

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Yes. I'm going to add to -- the government published end of 2018 an international pricing review document, and SOLIRIS is part of this. So maybe that's a good reference document. But what it said is that our SOLIRIS price in the U.S. is not that much different from the price, even if seen international. And maybe you've already seen this document.

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Operator [16]

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Our next question comes from Paul Matteis from Stifel.

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Nathaniel Tower, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate [17]

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This is Nate on for Paul. Maybe one question for Brian. So you got almost 1,200 gMG patients on SOLIRIS. Well, I guess 2: a, how has [persistence] looked so far? And then, b, just longer term, what do you think caps the upside of SOLIRIS in gMG? Is this -- I mean is this payers restricting use? Or do you think it's going to be physicians being reticent to use that in a less refractory population?

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Brian M. Goff, Alexion Pharmaceuticals, Inc. - Executive VP & Chief Commercial Officer [18]

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Sure. Well, we are really pleased with the progress that we're making. So we're nearly 2 years into launch, and we've been very consistent reporting the numbers, so you guys can see exactly what we see. And we continue to make progress with all the stakeholders, whether it's physicians, patients or payers.

Just to quantify where we are in the bigger picture. In the U.S. gMG refractory population, which really aligns with our REGAIN pivotal Phase III study, at the high end of that, there are about 8,000 patients. And as you just noted, we have now achieved nearly 1,200 but that still is a pretty small number in the bigger picture, which suggest there is plenty of opportunity to go.

I think most importantly, in terms of how we continue on that journey, it's really clear that SOLIRIS continues to deliver clinically. And we see that reflected by the steady growth as well as particularly this stage in launch, both breadth of prescribing as well as depth of prescribing. And both of those components, for all of our launches, are important measures. So what this does is this reinforces at the physician level, their advocacy to payers. So if a payer were to come back to a physician and require some form of documentation for continuity of therapy, that reinforcing clinical delivery that SOLIRIS has offered has always strengthened the case.

And then I would add that from a payer perspective, too, where we are with now both gMG and NMOSD is that we continued to reach out to payers proactively. And the combination of that proactive communication as well as the steady growth creates one of the most important elements for payers, and that's predictability as they set their budgets going forward. So we feel really good about the progress.

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Operator [19]

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Our next question comes from Phil Nadeau from Cowen & Company.

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Philip M. Nadeau, Cowen and Company, LLC, Research Division - MD and Senior Research Analyst [20]

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And congrats on the progress. Just a couple on the European patent situation. Our understanding is that the -- on September 5, the Board will issue a ruling on the 2 patents on that day. Is that correct? And if it is correct, will Alexion be in a position to announce what the ruling is on September 5 itself? Or will you have to wait for some written correspondence?

And then second, broadly on the European situation, if you don't successfully get those patents issued, the concern that we continue to hear is that biosimilars as they launch in Europe would not just compress the price of SOLIRIS but would have some impact on the utilization and pricing of ULTOMIRIS in price-sensitive countries. What do you think of that concern? Is there a chance that a deeply discounted SOLIRIS biosimilar could impact utilization or pricing of ULTOMIRIS in European price-sensitive countries?

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Ludwig N. Hantson, Alexion Pharmaceuticals, Inc. - CEO & Director [21]

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Yes. So with respect to the EPO hearing, correct, that's September 5. So no new updates there. And yes, it is about 2 patent applications, which is compositional manner and method of use. This is a closed hearing, and we think that the written decision would come soon after. But we expect to know the outcome of the completion of the hearing -- the outcome at the completion of the hearing, so this will be on the same day.

And with respect to what this means for the European situation, a couple of things. First of all, as you know, we have the formulation patent granted, and we have an appeal process ongoing. So that means that, that patent is going to stick with us for the next to 3 to 5 years. That's number one. Number two is our strategy is to make ULTOMIRIS the standard of care for PNH. And as I said, once approved, also standard of care for aHUS. With the approval and the launch in Germany, we have -- we feel we have time enough to convert our business to second generation, so which is ULTOMIRIS.

The time line for biosimilars, to the best of our knowledge, we think best-case scenario is 3 years from now. And I think we can do a lot of conversion and upgrade standard of care or redefine standard of care in the next 3 years.

With respect to interchangeability of ULTOMIRIS and SOLIRIS, these are 2 different molecules, and I'm not aware of a market analog where biosimilars is moving into a branded product. So if you ask market analog in Europe, please send them over so that I can learn. But I'm thinking of all the biosimilar launches in Europe and the market dynamics in each of these countries. This will be 2 distinct molecules and 2 distinct pricing dynamics. So I'm looking at Brian here.

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Brian M. Goff, Alexion Pharmaceuticals, Inc. - Executive VP & Chief Commercial Officer [22]

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Yes. Let me just only add that if you stick to that time frame, 3 years from now, and the ambition that we have with ULTOMIRIS-facilitated patient conversion, it gets harder and harder to imagine that you have patients who have had repeated bimonthly infusions and the experience that comes with that, that we've already seen play out in the U.S., it's hard to imagine that those patients would then -- or the physicians would be motivated to take a step backwards, to go back to biweekly therapies. So the more that we continue to deliver on that facilitated conversion, the better off our position is, and the less relevant the prospect of a biosimilar becomes.

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Ludwig N. Hantson, Alexion Pharmaceuticals, Inc. - CEO & Director [23]

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Yes. I think every quarter, we're in a much better situation. Now since we have the approval, we're starting with the conversion. We have good uptake in U.S., and we hope to do the same in Europe, next being HUS. There's a lot we can do in 3 years. And I do believe that we have the opportunity to really redefine standard of care for PNH and aHUS and make the IP discussion a moot point.

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Operator [24]

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Our next question comes from Kennen MacKay from RBC.

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Kennen B. MacKay, RBC Capital Markets, LLC, Research Division - Co-Head of Biotechnology Research [25]

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Maybe one for John Orlaff. I was wondering if you could help us understand the decision behind starting the trial in thrombotic microangiopathy or HSCT-TMA. Given there are already some off-label use of SOLIRIS here, is the decision to run the trial here based on competitive dynamics with other complement inhibitors? Or just any color there would be hugely appreciated.

And maybe a follow-up for Ludwig on strategy, which was brought up previously. I was wondering if there's any potential or thinking around issuing perhaps a very small dividend. I know this is going to get me some looks from my biotech peers here, pretty myopically focused on growth. But this really could broaden the shareholder base given some investors might be interested in the story, but they might be precluded from investing if their fund has a mandate for cash return.

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John J. Orloff, Alexion Pharmaceuticals, Inc. - Executive VP and Head of Research & Development [26]

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So I'll start with the first one. I think we're looking at this as a significant new opportunity in a severe or devastating disease that currently doesn't have really many treatment options. As you may know, HSCT-TMA was excluded from our atypical HUS program even though many of these patients actually have underlying complement dysfunction. There are approximately 20,000 patients undergoing such transplants in the U.S. annually. 30% to 40% of those experience a TMA event, and about half of those are considered severe related to complement dysregulation.

And you alluded to SOLIRIS. Yes, there's actually published case series, Jodele and others that have shown a benefit of SOLIRIS in this population with reductions in TMA and improvement in mortality, improvement in survival. In fact, the mortality rate is over 80% at 1 year. And in that paper, they had about 60% survival after a year. So it's a reason to believe that we understand the mechanism of action, and there's an opportunity here to have real big impact in yet another indication for ULTOMIRIS.

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Paul J. Clancy, Alexion Pharmaceuticals, Inc. - Executive VP & CFO [27]

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Kennen, this is Paul. I'll grab the strategy or capital allocation question. It is -- our priority is strategic deployment, so building the pipeline. I think we've been -- we tried to be very, very clear about that, that, that is our priority at this point in time. And we're obviously working on the cash flow generation of the company, so that we could potentially broaden out kind of capital allocation and possibly, in a few years, return capital to shareholders.

I think the way we think about it, particularly with the volatility in the sector is that if we get to that point in time, share repurchases would be the preferred avenue for doing that. So at this point, dividends is not on the horizon.

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Ludwig N. Hantson, Alexion Pharmaceuticals, Inc. - CEO & Director [28]

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Yes. We still have some more work to do on the pipeline. So that's our main focus at this point.

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Operator [29]

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Our next question comes from Mohit Bansal from Citi.

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Mohit Bansal, Citigroup Inc, Research Division - VP and Analyst [30]

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And congrats on all the progress. Maybe one quick question on PNH conversion. Is it possible for you to characterize the early adopters or early switchers in that market? What I'm trying to understand is it coming more from the bucket of optimal responders on one end of the spectrum, or these are the previous poor responders on SOLIRIS? And then going forward, what challenges do you see from the 40% number to move from 40% to 70% or even beyond that?

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Brian M. Goff, Alexion Pharmaceuticals, Inc. - Executive VP & Chief Commercial Officer [31]

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It's Brian. Thanks a lot. Good questions. I would say that from what we've seen so far in the conversion, there really isn't any one, call it, dominant patient phenotype for conversion. One of the more prominent early factors seems to be -- and this is often the case in rare disease and launches, it's the frequency of patient visits. So if the patient is seeing the clinician every month or every other month versus once every 6 months, obviously there are more opportunities to have a discussion on conversion with their clinician. We also think, and this is a very practical point, that patients who live some distance away from their infusion center would be, not surprisingly, more motivated to switch.

So overall, on your question of where do we go from the 40% to get to the 70%, it's going to be the same continued journey as education becomes more prominent across a wider part of the patient and clinician community. Those patient visits will continue. We've made really good progress with the commercial payers. We're now over 75% of the covered lives have a defined policy in place. And we don't really hear any resistance on any level from clinicians. It's more about moving through those time lines and the progress that we've made so far.

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Operator [32]

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Our next question comes from Steven Seedhouse from Raymond James.

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Steven James Seedhouse, Raymond James & Associates, Inc., Research Division - Research Analyst [33]

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What is the current U.S. insurance mix for patients on SOLIRIS and ULTOMIRIS? And can you at least say is it appreciably different in gMG versus PNH versus aHUS? And if the new Senate financing committee drug pricing reform plan were implemented as law as written, what do you assess the impact would be to Alexion?

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Ludwig N. Hantson, Alexion Pharmaceuticals, Inc. - CEO & Director [34]

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Yes. I'll start with the latter, and just a couple of things. As you know, nothing is really concrete, so we'll follow what's going to happen. But overall, we believe our potential exposure is limited. So let me go through a couple of topics here.

First of all, Medicare is a relatively small part of our business. As you know, 50% of our global business is U.S. Medicare is about 20% of our U.S. business. The same is true for our Medicare Part D business, which is a very small part of our total global business.

The second point I want to highlight is that our price increases above CPI is not really our business model. We stayed away from that, and that's not how we drive our business. Our business is through innovation and access and volume.

Then with respect to our pricing strategy, as you know, we have a global sustainable pricing strategy, and Brian already addressed the pricing band that we're trying to respect. But we have a narrow pricing band internationally for SOLIRIS as well as for ULTOMIRIS moving forward. And maybe the last point I want to make is that rebates is not really our business model, so we have, you could call it, price transparency in our business model. So I hope that helps you to frame our position.

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Brian M. Goff, Alexion Pharmaceuticals, Inc. - Executive VP & Chief Commercial Officer [35]

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Maybe I'll just add. This is Brian, so I think Ludwig already made the points. But it's about 20% Medicare in the U.S. And then the largest portion for us are the commercial payers. There's not really a material difference when you go across indications, but that's why in the case, for example, of the ULTOMIRIS PNH progress, it's especially important for us that we continue to navigate through the commercial live policy determinations. And each one of those engagements, now with multiple launches underway, gives us a chance to give those payers predictability about the outlook ahead. So really, commercial is the biggest part of the story.

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Operator [36]

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Our next question comes from Salveen Richter from Goldman Sachs.

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Salveen Jaswal Richter, Goldman Sachs Group Inc., Research Division - VP [37]

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Just a follow-up on Paul's question. Can you frame for us your expectations into this EU IPO hearing? And then secondly, when you look at the SOLIRIS launch in NMO, do you expect this to follow a similar cadence to the launch that we've seen for gMG in U.S. and Europe? Even though I do recognize you have more touchpoints here.

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Ludwig N. Hantson, Alexion Pharmaceuticals, Inc. - CEO & Director [38]

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Yes. With respect to the EPO, and Brian will do the second question. EPO, there's not much more I can say to -- we believe that we have a strong case here. As I said, we have the formulation patent. But of our overall strategy, again, it's not about SOLIRIS. Our overall strategy is about ULTOMIRIS, making that the standard of care, and we're moving quarter after quarter, we're moving, so we have now the approval. Germany is launching. We have other countries that will join Germany in the launch later this year. So we believe that we're in a pretty good spot here. And with respect to your second question.

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Brian M. Goff, Alexion Pharmaceuticals, Inc. - Executive VP & Chief Commercial Officer [39]

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Sure. And then with respect to NMOSD, we are excited about the launch opportunity. The fact that this is the first FDA-approved treatment option for these patients, who are really living in a world of fear given the unknowns and the devastating impacts of these attacks, is meaningful, and it's very motivating for us.

It is an important growth opportunity. And just to characterize it, in gMG, we often cite the -- at the high end of the refractory spectrum, there are about 8,000 patients in the U.S., and that aligns with the REGAIN pivotal Phase III study criteria. To dimensionalize it, NMOSD in the U.S. is about 4,000 to 5,000 patients, so roughly half of the refractory gMG U.S. population. Hopefully, that helps sort of frame up the opportunity.

I would say that we have gained a lot of neurology experience in the almost 2 years that we've been commercializing with gMG as we amortize that into NMOSD as well, but there are some different market dynamics with respect to NMOSD. One is that physicians have had nothing that is FDA approved to use. So that, with their use of something, for example, like Rituxan, that's created a sense, we believe, a false sense of stability from attacks, and so we're working through that educational aspect of every attack matters and really, stable is a false sense of security.

And the second one is that we also noted there is potential near-term branded competition on the horizon. We could not be prouder of the very high bar that we've set with the SOLIRIS PREVENT study. And none of the competitors on the horizon address complement, a core part of the underlying pathophysiology of NMOSD. So those were a couple of dynamics. We don't expect a bullish. We do expect more of a linear uptake as we've seen with other neurology launch.

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Operator [40]

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And our final question comes from Hartaj Singh from Oppenheimer.

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Justin Alexander Kim, Oppenheimer & Co. Inc., Research Division - Associate [41]

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This is Justin Kim on for Hartaj. Just wanted to see if you could speak a little to how many of the total patients around SOLIRIS, ULTOMIRIS in the context of the 5,000 patient goal by year-end?

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Brian M. Goff, Alexion Pharmaceuticals, Inc. - Executive VP & Chief Commercial Officer [42]

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Yes. This is Brian, Justin. So thanks for the question. We haven't broken down those numbers specifically, but I think we've given enough that you can walk around the numbers and get to the right landing spot.

So our ambition is, as you noted, to get to 5,000 patients or beyond by year-end. And what's important about that, want again to reflect back on prior comments we've made is from the launch of SOLIRIS in PNH back in 2007, up until the middle part of 2017, we had achieved about 2,500 patients on therapy. And that's the base indications of PNH and atypical HUS. And in the roughly 2, 2.5 years subsequent to that, we will have doubled that number. So that gives you a sense of the velocity of change and the meaningfulness of neurology in the business.

And then, of course, inside of that, we're actively in the U.S., converting now the PNH patients over to ULTOMIRIS. We're thrilled about the early PDUFA date that we achieved for atypical HUS. We're excited to, upon approval, get going on that journey. And then SOLIRIS will continue near term on the neurology path. So hopefully, that gives you enough color to dimensionalize the numbers.

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Ludwig N. Hantson, Alexion Pharmaceuticals, Inc. - CEO & Director [43]

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Thanks, again, everybody. As I mentioned, I'm really pleased with what we've accomplished so far this year, and I'm really, really proud of the Alexion team. So to all my colleagues, a big thank you. And thanks to everyone for your time today. So thanks so much.

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Operator [44]

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Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect. Everyone, have a wonderful day.