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Edited Transcript of ALXN earnings conference call or presentation 30-Jan-20 12:30pm GMT

Q4 2019 Alexion Pharmaceuticals Inc Earnings Call

CHESHIRE Feb 10, 2020 (Thomson StreetEvents) -- Edited Transcript of Alexion Pharmaceuticals Inc earnings conference call or presentation Thursday, January 30, 2020 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Aradhana Sarin

Alexion Pharmaceuticals, Inc. - Executive VP & CFO

* Brian M. Goff

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

* John J. Orloff

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

* Ludwig N. Hantson

Alexion Pharmaceuticals, Inc. - CEO & Director

* Morgan Sanford

Alexion Pharmaceuticals, Inc. - Director, Investor Relations

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Conference Call Participants

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* Christopher Joseph Raymond

Piper Sandler & Co., Research Division - MD & Senior Research Analyst

* Cory William Kasimov

JPMorgan Chase & Co, Research Division - Senior Biotechnology Analyst

* Geoffrey Christopher Meacham

BofA Merrill Lynch, Research Division - Research Analyst

* Geoffrey Craig Porges

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

* Joshua Elliott Schimmer

Evercore ISI Institutional Equities, Research Division - Senior MD & Equity Analyst

* Kennen B. MacKay

RBC Capital Markets, Research Division - MD & Co-Head of US Biotechnology Research

* Mohit Bansal

Citigroup Inc, Research Division - VP and Analyst

* Robyn Kay Shelton Karnauskas

SunTrust Robinson Humphrey, Inc., Research Division - Research Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by. And welcome to the Alexion Pharmaceuticals Fourth Quarter and Full Year 2019 Results Conference Call. (Operator Instructions) Please be advised that today's conference may be recorded.

I would now like to hand the conference over to Morgan Sanford, Director, Investor Relations. Please go ahead, ma'am.

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Morgan Sanford, Alexion Pharmaceuticals, Inc. - Director, Investor Relations [2]

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Thank you, operator. Good morning. Thank you for joining us on today's call to discuss Alexion's performance for the fourth quarter and full year 2019.

Today's call will be led by Ludwig Hantson, our CEO. Ludwig will be joined by Aradhana Sarin, our Chief Financial Officer; John Orloff, our Global Head of R&D; and Brian Goff, our Chief Commercial and Global Operations 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 as 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, Morgan, and good morning, everyone. Before we review our fourth quarter and 2019 full year performance, I would like to take a brief moment to announce that we have successfully closed on our acquisition of Achillion Pharmaceuticals, which represents an important step in diversifying our business. Through this acquisition, we add 2 clinical stage assets to our portfolio with danicopan and 5228. We are thrilled to welcome our Achillion colleagues to Alexion and excited about the opportunity to collaborate on the development of these Factor D assets for a broad range of rare diseases.

Turning now to our 2019 performance. We delivered on all of our key objectives, and in many cases, have surpassed our goals. ULTOMIRIS is now the market leader in PNH in our 3 largest markets: the U.S., Germany and Japan. The ULTOMIRIS' aHUS conversion is progressing well in the U.S. and we anticipate launching in the EU and Japan this year. We are also very pleased with the uptake of our neurology franchise, with continued growth of SOLIRIS and gMG and the launch in NMOSD. In just over 2 years, neurology has become our largest franchise in the U.S. by patient volumes. Our ambition is to quadruple the number of MG and NMOSD patients treated by SOLIRIS and eventually ULTOMIRIS in the U.S. by 2025.

Our metabolics portfolio continues to deliver strong growth as we work to expand access for HPP, LAL-D patients. Importantly, we have made great progress on our pipeline, and have an ambition for 10 launches from now until the end of 2023 through a combination of new assets, new formulations and new indications, and once again, have delivered on our financials with 21% revenue growth and 33% non-GAAP earnings growth in 2019.

Turning to Slide 6. We have a clear strategy for long-term value creation. First, we will move past SOLIRIS and establish ULTOMIRIS as market leader in PNH and aHUS in our 3 key geographies. Secondly, we will expand our C5 franchise beyond PNH and aHUS into larger rare diseases. We have ULTOMIRIS programs planned in 6 new indications, including 4 neurology and 2 nephrology indications. In parallel, we will continue to innovate for patients with new formulations and subcu treatment options.

Finally, we will diversify our portfolio beyond C5. Achillion is the most recent example of this effort. With Factor D, we have the opportunity to pursue development in a broad range of indications. Outside of this transaction, we have built a robust rare disease pipeline over the past few years and have clear line of sight to multiple potential blockbuster launches, including treatments for Wilson disease and AL amyloidosis. We have significant financial capacity to continue to diversify our pipeline in the future.

In addition to bringing in external assets to diversify our business, we are evolving our leadership in complement to expand our addressable patient population.

On Slide 7, you can see our business is rapidly moving beyond SOLIRIS. ULTOMIRIS is approved for 2 indications.

(technical difficulty)

This is Ludwig Hantson again. We had a technical issue. I hope that you guys can hear us okay. So what I will do is instead of restarting, we're going to start on Slide 6, and then we'll take it from there.

So turning to Slide 6. We have a clear strategy for long-term value creation. First, we will move past SOLIRIS and establish ULTOMIRIS as market leader in PNH and aHUS in our 3 key geographies. Secondly, we'll expand our C5 franchise beyond PNH and aHUS into larger rare diseases. We have ULTOMIRIS programs planned in 6 new indications, including 4 neurology and 2 nephrology indications. In parallel, we will continue to innovate for patients with new formulations and subcu treatment options.

Finally, we will diversify our portfolio beyond C5. Achillion is the most recent example of this effort. With Factor D, we have the opportunity to pursue development in a broad range of indications. Outside of this transaction, we have built a robust rare disease pipeline over the past few years and have clear line of sight to multiple potential blockbuster launches, including treatments for Wilson disease, and AL amyloidosis. We have significant financial capacity to continue to diversify our pipeline in the future.

In addition to bringing in external assets to diversify our business, we are evolving our leadership in complement to expand our addressable patient population.

On Slide 7, you can see our business is rapidly moving beyond SOLIRIS. ULTOMIRIS is approved for 2 indications and in development for 6 additional indications across neurology and nephrology. This year, we will transition to a high concentration formulation, which will shorten infusions to only 45 minutes. Next year, we plan to launch our once-weekly, on-body, subcu ULTOMIRIS formulation, offering patients a home-based self-administration option.

Our next-generation subcu assets, 1810 and 1720, offer improved patient dosing regimens. And we have significant optionality for indication selection with each of these assets. From there, we will expand with Achillion's Factor D platform. We see immense opportunity for all proximal complement treatments to transform standard of care in many complement-mediated diseases.

On Slide 8, you see that once again, we have delivered strong top and bottom line growth for the fourth quarter and the full year, which provides a solid foundation to continue to deliver on our value creation strategy. Again, I'm very pleased with our strong execution against our 2019 priorities and excited for 2020 as we build on our successes.

With that, I will now turn the call over to Rana.

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Aradhana Sarin, Alexion Pharmaceuticals, Inc. - Executive VP & CFO [4]

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Thank you, Ludwig. Starting with Slide 10, we reported fourth quarter total revenues of approximately $1.4 billion, an increase of 23% year-over-year. This was driven by strength in our neurology franchise, continued growth in the core businesses and ULTOMIRIS launch. Our non-GAAP operating margin was 51%, a reduction of 155 basis points versus prior year, driven by increased R&D spend as we advanced and further built our development portfolio. Non-GAAP EPS was $2.71, representing 27% growth year-over-year, driven primarily by strong top line growth and lower effective tax rate.

Moving to Slide 11. Fourth quarter total net product sales were primarily driven by patient volume growth in our key markets.

Turning to Slide 12. SOLIRIS revenues in the fourth quarter were approximately $1 billion, with year-over-year growth of 4%. SOLIRIS revenue growth was driven primarily by gMG revenues, partially offset by ULTOMIRIS' conversion dynamics. ULTOMIRIS revenues in the fourth quarter were $170 million, which now includes contributions from atypical HUS in the United States.

Metabolics revenues in the fourth quarter were $201 million, representing 32% year-over-year growth.

Turning to the P&L, on Slide 13. During the quarter, non-GAAP R&D expense was $227 million or 16% of revenues. Non-GAAP SG&A expense was $340 million or 25% of revenues. The non-GAAP effective tax rate in the quarter was approximately 12% and continued to benefit from certain onetime events, including the release of state income tax reserves related to the conclusion of an audit.

We reported fourth quarter non-GAAP EPS of $2.71, growing 27% year-over-year. GAAP earnings per share were $4. We ended the fourth quarter with approximately $2.7 billion in cash and marketable securities. This is not adjusted for the Achillion transaction.

I'll now turn to Slide 14 for our 2020 financial guidance. We are guiding to total revenues between $5.5 billion and $5.56 billion. This represents 11% growth year-over-year at the midpoint of the range. For SOLIRIS and ULTOMIRIS, our revenue guidance is $4.755 billion to $4.800 billion. This assumes continued momentum for SOLIRIS in gMG, our ongoing launch of SOLIRIS in NMOSD and the launches of ULTOMIRIS for PNH and atypical HUS.

Turning to metabolics. Our revenue guidance is $745 million to $760 million for both STRENSIQ and KANUMA. This includes the impact of the strategic pricing decision for STRENSIQ in the U.S. to support sustainability and access given weight-based dosing.

In 2020 and beyond, it is important to consider the dynamics associated with conversion from SOLIRIS to ULTOMIRIS, as it relates to the annual cost per patient. There's a revenue benefit when each patient starts ULTOMIRIS' PNH treatment due to the increased number of vials consumed during the loading dose. We benefited from this loading dose dynamic having converted 60-plus percent of patients in PNH to ULTOMIRIS over the course of 2019. We now expect to be impacted by lower annual treatment cost per patient, as the majority of patients move to maintenance dosing.

In atypical HUS and other indications in development, we will see a lower annual cost per patient compared to SOLIRIS for both loading dose and maintenance dosing. It is also important to consider quarter-over-quarter variability due to every 8-week dosing for ULTOMIRIS. However, this quarterly fluctuation will even out on an annual basis.

We have included a slide in the Appendix of this presentation to provide a summary of this dynamic and to serve as a reference going forward.

Non-GAAP operating margin is expected to be between 53.5% and 54.5% of revenues. Non-GAAP R&D expense is expected to be between 17.5% and 18.5% of revenues and represents a step-up of approximately $270 million versus prior year, consistent with our intention to further build out and progress the pipeline.

Clinical program spend, particularly for late-stage development, is planned to increase in 2020. R&D expense also includes program costs and potential milestones for previously announced BD transactions and collaborations.

Non-GAAP SG&A spend is expected to be between 19.5% and 20.5% of revenues for the full year 2020 and reflects increased leverage from top line growth. We expect the non-GAAP effective tax rate to be between 16% and 17%.

In 2019, the non-GAAP effective tax rate benefited from certain onetime items. Absent these onetime benefits, our 2019 non-GAAP tax rate would have been approximately 15%. We expect our non-GAAP effective tax rate to increase in the future as a result of tax regulation changes outside the U.S.

GAAP EPS is expected to be between $7.91 and $8.71. Non-GAAP EPS is expected to be between $10.65 and $10.85. The midpoint of the non-GAAP EPS is approximately 2% growth year-over-year as a result of increased R&D spend and an increased tax rate compared to prior year. This guidance reflects the financial impact of our recently closed Achillion acquisition, but does not reflect any future M&A that we may pursue.

As you can see on Slide 15, we have established a track record of strong financial execution. Since 2017, we have delivered double-digit total revenue and non-GAAP EPS growth, while maintaining a competitive non-GAAP operating margin. We continue to invest in our R&D programs and have increased our non-GAAP R&D spend as a percentage of revenues to within 16% to 19%, in line with our biotech peers. With the current momentum of the business, we are well positioned to deliver on our 2020 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, Aradhana. On Slide 17, you can see our current development portfolio. We now have 19 planned clinical stage development programs for 2020. In the coming weeks and months, we expect to report interim data from our Phase III once-weekly, on-body, subcutaneous ULTOMIRIS program; an update on our anti-FcRn studies; and interim data from the Phase II study of danicopan and C3G. We're excited about the acquisition of Achillion and look forward to providing additional detail in the coming months as we embark on the integration.

Just a few weeks ago, we reiterated our ambition to execute 10 launches by 2023 from our current portfolio. On Slide 18, you can see our R&D highlights, which summarize these programs, including stage in clinical development and the estimated addressable population. We are expanding our C5 presence well beyond the PNH and atypical HUS business and are advancing ULTOMIRIS into 5 additional indications across neurology and nephrology. Together, the ULTOMIRIS programs present an opportunity to expand our treated patient population by tens of thousands of patients. We believe in the compelling value proposition of ULTOMIRIS, which has been received well by patients, physicians and other key stakeholders, and are continuing to innovate with a high-dose concentration, reducing infusion time to 45 minutes and a once-weekly, on-body ULTOMIRIS subcutaneous formulation.

In addition to ULTOMIRIS indication expansion programs, we see opportunity to diversify our business beyond C5, with 4 additional late-stage novel assets. Our Phase III Superiority Trial for ALXN1840 in Wilson's disease remains ongoing. 1840 is an oral, once-daily therapy, with 10,000-fold higher affinity for copper than current standard of care chelators, which have core compliance rates due to burdensome dosing regimens. We're on the verge of completing enrollment and expect a top line readout in the first half of next year.

We plan to initiate a Phase II/III program for CAEL-101 in AL amyloidosis in the coming months. We see potential for this late-stage asset to transform the treatment of AL amyloidosis, a disease characterized by misfolded kappa and lambda light chains, resulting in abnormal deposits of amyloid, which can lead to organ failure. Patients are currently treated with chemotherapeutic agents not approved for amyloidosis, and median survival rates are only 18 months post-diagnosis.

Clinical data supporting our rationale for the collaboration showed a 63% overall organ response rate in addition to efficacy on cardiac and renal endpoints. Our Phase II/III program will look at an overall survival primary endpoint with patient function, quality of life and cardiac imaging serving as secondary endpoints.

Last year, we announced a license agreement with Eidos, to develop and commercialize AG10 for ATTR cardiomyopathy in Japan. AG10 is a small molecule designed to address destabilized and misfolded transthyretin protein, which is the root cause of ATTR. We believe AG10 has potential to stabilize TTR and halt disease progression. Pending regulatory discussions, we plan to extend the AG10 development program into Japan later this year.

Finally, we are excited about our acquisition of Achillion and its Factor D platform. Achillion reported positive Phase II data for danicopan in PNH patients with extravascular hemolysis at a medical conference last year. We see opportunity for danicopan in a small subset of PNH patients with extravascular hemolysis. We see additional opportunity for danicopan in C3G, and expect interim Phase II data in the coming weeks, and we see great potential for ACH-5228, as twice daily, best-in-class Factor D oral treatment in PNH and a broad range of rare diseases.

We are excited about the opportunity for these 10 potential launches to significantly expand the number of treated patients and look forward to providing you with updates as we progress through the year.

Moving to Slide 19. We have plans to further expand and diversify our C5 leadership with our next-generation assets. Starting on the left, our weekly subcutaneous formulation of ULTOMIRIS for use in PNH and atypical HUS is in an ongoing Phase III PK-based trial. Leveraging the West Gen on-body device, we believe this will provide patients with the flexibility to choose how they wish to manage their disease within their lifestyle. We are expecting interim PK data in the second quarter of this year with a potential launch in 2021.

Next, we have the opportunity to evolve our terminal complement subcutaneous treatment options with ALXN1720 and 1810. 1720 is our internally designed bi-specific C5 inhibitor. At only 25 kilodaltons, 1720 is a unique mini-body tailor-made for convenient subcutaneous administration. We see opportunity for this asset in a number of larger rare disease indications, and we look to initiate a proof-of-concept study in the first half of next year.

Finally, 1810 is our co-formulation of ULTOMIRIS and Halozyme's PH20 hyaluronidase, which allows for biweekly subcutaneous dosing. We've recently disclosed our plans to start a Phase II renal basket trial with 1810 and look forward to providing additional updates as this program progresses.

Together, these 3 assets represent an opportunity for Alexion to expand our offerings for patients living with complement-mediated rare disease. Our development portfolio has grown significantly in the last 2.5 years, and I'm incredibly proud of all the hard work undertaken by the entire R&D organization.

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

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

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Thank you, John. Turning first to Slide 22. We've seen unprecedented progress in establishing ULTOMIRIS as the market leader in PNH. This is due in large part to the compelling value proposition, which includes strong data from the largest and most inclusive PNH clinical program ever conducted. The broad inclusion criteria in the 2 Phase III trials ensured our study patient population would be representative of the real-world PNH population.

Specifically, we enrolled transfusion-independent and transfusion-dependent patients, with no baseline hemoglobin or absolute reticulocyte count requirements. We also included patients with prior history of bone marrow failure, which is critical because roughly 40% to 50% of PNH patients have a history of bone marrow failure or aplastic anemia.

As of Monday of this week, we've converted 60% of PNH patients to ULTOMIRIS in the U.S., 62% in Germany and 53% in Japan, making ULTOMIRIS the PNH market leader in our 3 largest volume countries.

Our latest launch of ULTOMIRIS in atypical HUS in the U.S. is also off to a strong start. While it's still early days, conversion is tracking in line with the PNH conversion curve at the same time point since launch.

Our neurology business is now our largest franchise by patient volume, and this was achieved in just 2 years since launch. On Slide 23, you can see we exited the fourth quarter with 1,885 patients on treatment with SOLIRIS for gMG and NMOSD in the U.S. We've made significant progress advancing our presence in gMG and with our NMOSD launch. gMG patients continue to have broad access to SOLIRIS. Our strong NMOSD launch is underpinned by our remarkable Phase III data, showing 98% of patients relapse-free at 48 weeks, with sustained efficacy out to 3 years. We're making progress educating payers on the severity of NMOSD attacks, the objective of preventing all relapses and the difference between NMOSD and MS. As a result of these efforts, payer adoption of coverage policies for NMOSD has been rapid, and we're seeing strong adherence to SOLIRIS therapy in both gMG and NMOSD.

Looking ahead, we're well positioned to deliver on our ambition of quadrupling our U.S. gMG and NMOSD-treated patient population within the next 5 years, with potential for ULTOMIRIS to launch in late 2022 or early 2023 as an every 8-week infusion. Our once-weekly, on-body subcutaneous formulation, planned to launch simultaneously with the IV formulation, will provide another important treatment option for patients who prefer self or home-based administration.

Our target gMG population represents more severe, uncontrolled patients, and we believe this is a unique space where SOLIRIS, and then ULTOMIRIS, can serve as a highly effective treatment option. In NMOSD, our target patient population mirrors inclusion criteria in our Phase III SOLIRIS PREVENT trial. With our dedicated neurology team, we believe our commercial organization is well positioned to deliver on our 2025 ambitions.

I'd like to take a brief moment to thank both our global commercial and global operations organizations for their hard work and dedication, which has enabled us to excel with multiple launches and continue to bring hope to the rare disease patients we serve.

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. Once again, I'm very proud of what the team delivered in 2019. We're well positioned to further build on our momentum in 2020, and there is much to look forward to this year. We have laid out a clear strategy to deliver long-term shareholder value by establishing ULTOMIRIS as market leader in PNH and aHUS, expanding our presence in C5, including planned programs in neurology and nephrology and continue to look for opportunities to diversify our business beyond C5.

Importantly, we maintain our unwavering focus on patients and our commitment to advance our mission to deliver life-changing therapies to people living with rare diseases.

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) Our first question comes from Cory Kasimov of JPMorgan.

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Cory William Kasimov, JPMorgan Chase & Co, Research Division - Senior Biotechnology Analyst [2]

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I guess, I just want to get a better sense of the drivers behind your guidance for 2020, particularly on the top line. On the surface, it looks pretty conservative. But is this primarily just a function of the pricing dynamic of assuming more ULTOMIRIS patients on maintenance dosing this year? Or are there other factors that are also important behind the scenes that I'm missing?

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

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Yes. Rana? The answer is yes, you're right, but go ahead.

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Aradhana Sarin, Alexion Pharmaceuticals, Inc. - Executive VP & CFO [4]

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Yes. So first of all, we had an amazing year in 2019, 21% top line growth, 33% EPS growth, exceeded all our conversion targets, 6 BD deals. So 2019 was an amazing year. On 2020, we have guided to 11% top line growth. So there are a few dynamics that are going on here. First of all, we had -- because we had great conversion from SOLIRIS to ULTOMIRIS in 2019, as we go into 2020, there will be an impact to revenues due to the lower annual cost of treatment per patient, as majority of patients have now already converted and will now go into maintenance dosing. That's on the PNH side.

On the atypical HUS side, we're just starting to launch ULTOMIRIS. There, we do not have the loading dose benefit. There -- in fact, on the first year, there was a 22% lower price per patient annual treatment cost. And in year 2, there's a 33% lower treatment cost annually for the patient. As a result, that dynamic also is sort of a headwind from a revenue standpoint. This is, to some extent, mitigated by our neurology growth.

As you know, we put our ambition for neurology having 4x the number of patients by 2025. So we're still seeing strong neurology growth on the patient volume side. In addition, we're also seeing high single-digit growth for PNH and atypical HUS patients, and our metabolics business continues to grow as well. So it's a mix of all these different factors that impacts the top line.

On the bottom line, there are several other factors that impact the EPS guidance. As you can see, our R&D spend is going up substantially. It's about a $270 million increase on a dollar basis, and it's 19 clinical programs that you've heard about, many of which we did not have in 2018 or 2019. In addition, the R&D spend also includes the spend that we will have as a result of the close of the Achillion transaction. In addition, the R&D spend includes the BD transactions that we've already announced and the milestones that we expect to pay for those transactions as those programs move forward.

In addition, you see that the tax rate, which was, on a non-GAAP basis, 13% in 2019 -- is, on the midpoint, expected to be between 16% and 17% or 16.5%. So that's about 350 basis points change from 2019. So those are some of the factors that impact the bottom line.

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Ludwig N. Hantson, Alexion Pharmaceuticals, Inc. - CEO & Director [5]

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Cory, does that answer your question?

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Cory William Kasimov, JPMorgan Chase & Co, Research Division - Senior Biotechnology Analyst [6]

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Yes, that does. That color is very helpful.

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Operator [7]

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Our next question comes from Geoff Meacham of Bank of America.

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Geoffrey Christopher Meacham, BofA Merrill Lynch, Research Division - Research Analyst [8]

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Just have a couple of quick ones. For Brian...

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Ludwig N. Hantson, Alexion Pharmaceuticals, Inc. - CEO & Director [9]

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Geoff, do you mind speaking up a little bit? It's very difficult to hear you.

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Geoffrey Christopher Meacham, BofA Merrill Lynch, Research Division - Research Analyst [10]

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Yes. Is that better?

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Ludwig N. Hantson, Alexion Pharmaceuticals, Inc. - CEO & Director [11]

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Okay. Let's try.

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Geoffrey Christopher Meacham, BofA Merrill Lynch, Research Division - Research Analyst [12]

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Okay. So for Brian, on ULTOMIRIS conversion, are there differences between PNH and aHUS? And down the road, NMO and MG, with respect to conversion from SOLIRIS? I wasn't sure if there are nuances between the indications or if the 70% target was broadly applicable? And then, Ludwig, just curious if there have been further dialogue between you and Elliott since the announcement? And maybe just highlight where you see the biggest differences between -- an opinion between the strategies going forward?

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Brian M. Goff, Alexion Pharmaceuticals, Inc. - Executive VP & Chief Commercial and Global Operations Officer [13]

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Hey, Geoff, this is Brian, I'll start. On the conversion, first of all, your comment on is the 70% broadly applicable to our base business of PNH and atypical HUS, the answer is yes. We have the same ambition. Of course, we've made excellent progress on PNH. And as we've reported now in our 3 largest markets, with PNH, we're over the 50% mark. So ULTOMIRIS is definitively the market leader.

Atypical HUS is a different dynamic in terms of conversion because it's a more acute condition. So you have many of the patients will start in the inpatient setting, and they may actually start on SOLIRIS. But then as soon as they are discharged, there's an opportunity for facilitated patient conversion to ULTOMIRIS. And part of that is hospital formulary dynamics and part is just awareness of ULTOMIRIS' availability. But again, same ambition.

And the other half of your question was around neurology. And I guess, you're asking about with SOLIRIS, because it's too premature to talk about ULTOMIRIS in neurology. And there are very different dynamics between gMG and NMOSD, though we're really pleased with the progress we're making with both launches. gMG, as you know, is 2 years and counting. And in the U.S., we continue to make progress in both breadth of prescribing as well as depth of prescribing. In NMOSD, we began that journey in the middle part of last year. The launch is very much on track, and we gave the combined numbers of the -- as of the end of last year, 1,885 patients. So that starting point of 2 years with gMG and 6 months plus with NMOSD and the progress we've made has really set our ambition to be at 4x within 5 years from now.

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Ludwig N. Hantson, Alexion Pharmaceuticals, Inc. - CEO & Director [14]

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With respect to your second question, Geoff, so we continue to have a constructive dialogue with Elliott as we have with all of our shareholders. As you know, our dialogue with Elliott started in 2017. And we listen very carefully to all of you. We also believe that we have a stock that is undervalued, especially given our strong execution. And we -- so the management team, including the Board, believes that we have a strong strategy, and that we need to continue to focus on executing that strategy and that will create long-term shareholder value. There's not much more that I can add to that.

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Operator [15]

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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 [16]

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Okay. A couple of questions. First, to Rana, just on the guidance. So it sounds to me as though you're saying that ULTOMIRIS is going to be sort of flattish to down because there's, obviously, a strong underlying trend in SOLIRIS. So if I just take the Q4 revenue run rate and carry it forward, then I get to your guidance for 2020? So it sounds as though you're telling us that ULTOMIRIS is actually going to go down compared to the Q4 run rate because of the dose shift. And I just want to make sure that's clear.

And then another communication clarification question. Your 10 launches by 2023, is that what you see being possible? Or is that your strategic commitment? Meaning if some of those, which are clearly high-risk such as ALS or even the Caelum program, if they fall by the wayside and this trial is unsuccessful, will you add other programs to ensure that you deliver 10 by 2023? I just want to understand how to think about that.

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Aradhana Sarin, Alexion Pharmaceuticals, Inc. - Executive VP & CFO [17]

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Sure. So I'll address the first question, and then John can address the second question. So I don't think it's accurate to assume that ULTOMIRIS revenues are actually going down. We expect ULTOMIRIS revenues to still go up for a number of reasons. First of all, we've only converted, say, around 60% of the market in our 3 major geographies. And there's still a long way to go on the PNH side. Secondly, we just started launching ULTOMIRIS in atypical HUS, and that's the conversion dynamic that we will see. Now there is a mix of both volume as well as price, and you've been -- you can see in the appendix the pricing dynamic. So we still expect the conversion to drive the volume. And there will, obviously, be some price headwind as a result of the lower annual cost per patient. That will be balanced by, on the SOLIRIS side, strong growth on the neurology franchise as well as on the metabolics side, both of which -- both of those businesses still continue to grow very well.

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Ludwig N. Hantson, Alexion Pharmaceuticals, Inc. - CEO & Director [18]

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Yes, we have $170 million for the quarter. So we have a run rate of $680 million. We plan to do much better than that, Geoff. There's almost no aHUS sales in 2019 and U.S. is picking up.

And Brian was talking about the fact that the aHUS conversion to ULTOMIRIS is similar to what we've seen with PNH, which is best-in-class. Plus we think that we're on a good track to get European HUS approval before mid of this year, so that will come in as well. Plus, every month, we have another country globally that's launching ULTOMIRIS. So ULTOMIRIS is going to grow substantially.

And then with respect to your question on your 10 launches.

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John J. Orloff, Alexion Pharmaceuticals, Inc. - Executive VP and Head of Research & Development [19]

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Yes. So Geoff, it's John. I think the 10 launches is clearly our ambition. We believe it's an achievable ambition. Five of those launches are related to ULTOMIRIS, which we think is de-risked, based on the data we have so far. Many of those are in disease areas where we've already established proof-of-concept and mechanism. The other 5 relate to new assets, 2 of those are danicopan and Factor D, where we think we have a strong supporting data.

And as you indicate, we continue to press the envelope, if you will, with regard to business development and bringing in new assets that we think will be able to kind of plug and play. And so we think that's -- it's highly achievable. And if one or more of those fall off, then we have other opportunities as well that we haven't really talked about, both internally as well as potentially through external innovation.

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Operator [20]

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Our next question comes from Chris Raymond of Piper Sandler.

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Christopher Joseph Raymond, Piper Sandler & Co., Research Division - MD & Senior Research Analyst [21]

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Just noticing in your slides, I guess, it's Slide 12, specifically. It looks like there's a lot more growth in Q4 for ULTOMIRIS in APAC or the Rest of the World versus EU. Maybe just if you could talk about the assumptions you made in 2020 for Europe versus the Rest of World or APAC on ULTOMIRIS? And also maybe can you quantify any Russian biosimilar impact for ULTOMIRIS or SOLIRIS? And then maybe just a guidance question around -- just on the R&D. Can you maybe put some brackets around what those milestones are? And maybe quantify some of that impact?

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Ludwig N. Hantson, Alexion Pharmaceuticals, Inc. - CEO & Director [22]

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Yes, maybe I'll start with Russia. As a matter of fact, you might know how the Russian market works, but we're out of the C5 business in Russia. Should you expect any ULTOMIRIS business in Russia moving forward? The answer is not really. And on your second question on APAC fourth quarter loading?

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Aradhana Sarin, Alexion Pharmaceuticals, Inc. - Executive VP & CFO [23]

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Yes. So the APAC fourth quarter that you see is really driven by Japan. And as we launch PNH ULTOMIRIS in Japan, there was very strong uptake. We've shared numbers with you in the past. And that was the loading dose benefit that I talked about for the PNH patients, given the pricing and the volume difference. So that explains the APAC numbers.

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Ludwig N. Hantson, Alexion Pharmaceuticals, Inc. - CEO & Director [24]

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And then we have a question on the milestones.

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Aradhana Sarin, Alexion Pharmaceuticals, Inc. - Executive VP & CFO [25]

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Yes, we've made public our various partnerships, both on Caelum and Affibody and Dicerna and so forth. And as those programs progress, they'll be milestones owed. I don't think we're breaking down how much is milestones versus not. And then also that $270 million increase includes the impact of the Achillion transaction, and you can estimate sort of how much that spend would be, given we plan to progress both danicopan and 5228 forward this year.

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Operator [26]

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Our next question comes from Josh Schimmer of Evercore ISI.

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Joshua Elliott Schimmer, Evercore ISI Institutional Equities, Research Division - Senior MD & Equity Analyst [27]

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I might have missed it, but was there any other contributing factors for the strong performance of SOLIRIS in the U.S.? Even with some of the growth drivers, it's still a little bit above where I might have expected. And then for SOLIRIS, in Japan, with the new repricing rule with label expansion, does the NMO indication addition? Is that going to change the price point for SOLIRIS? And if so, how?

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Brian M. Goff, Alexion Pharmaceuticals, Inc. - Executive VP & Chief Commercial and Global Operations Officer [28]

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Josh, it's Brian. With SOLIRIS in the U.S., I think what you have are mostly a story around neurology, and we're really pleased with the growth that we've had with gMG as well as the launch of NMOSD, which again began in July, and that has progressed very nicely.

We also -- and this is more for SOLIRIS and ULTOMIRIS, which goes back to earlier questions as well. In addition to all the conversion dynamics that we talk about, we continued to identify new naive patients with PNH as well as atypical HUS as well. And as we've indicated, we see that continuing in high single digits and low double-digit growth pattern. So that's feeding it additionally.

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Operator [29]

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Our next question comes from Matthew Harrison of Morgan Stanley.

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Unidentified Analyst [30]

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This is Costas on for Matthew. I have a question based on your FcRn gMG study, which is now a Phase II in second half 2020. I'm wondering whether there has been any delay to the initiation of this study versus prior expectations? And a follow-up question. What do you need to advance this study to the Phase III?

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John J. Orloff, Alexion Pharmaceuticals, Inc. - Executive VP and Head of Research & Development [31]

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Yes. So we have 2 anti-FcRn programs. One is via the Syntimmune acquisition, which is 1830. That's back in the clinic now. You may recall that, last year, we had a CMC issue that we've addressed. We have now a new drug product that's been delivered. We initiated, with a higher concentration, formulation subcutaneously to healthy volunteers that began in December. And we're reinitiating the Phase II program with the IV formulation in hemolytic anemia this quarter, which was also paused for the same reason. So we will complete those dose-ranging trials, and then be in a position to launch pivotal programs later this year.

And with regard to myasthenia gravis, we may need to do some additional dose-ranging upfront there that would be a seamless Phase II/III type of trial. And then, of course, progressing further with hemolytic anemia. So no additional delays in the program. We're pressing ahead.

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Operator [32]

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Our next question comes from Robyn Karnauskas of SunTrust Robinson.

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Robyn Kay Shelton Karnauskas, SunTrust Robinson Humphrey, Inc., Research Division - Research Analyst [33]

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So just quickly on the 20,000 eligible target population for MG that you've noted, how are you thinking about that in terms of that impact to price and the ability to capture that, given the competitive landscape? And then along with that, you've talked about you have a way to go still with conversion, already at 60%, with the 70% you had set out originally as a goal. How do we think about bottlenecks for conversion going forward? How quickly could that flow? Or just any color you could provide so we could -- and figure out how to model that correctly?

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Brian M. Goff, Alexion Pharmaceuticals, Inc. - Executive VP & Chief Commercial and Global Operations Officer [34]

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Robyn, let me start with the first one on the approximately 20,000 patient addressable opportunity for ULTOMIRIS in gMG. So the way that we see the gMG market evolving is, first of all, as we've talked about many times, SOLIRIS continues to occupy a relatively, let's call it, narrow segment of the larger gMG population. It's about 8,000 patients, which are uncontrolled, more severe patients. And that really aligns with the REGAIN pivotal Phase III study. We are not, by the way, limited from a label perspective, to stay in that 8,000 patients, but that as in the last 2 years, that's really been the sweet spot for SOLIRIS. As we move into the opportunity with the launch of ULTOMIRIS, based on the trial design that John and the team have put forward, we see that space expanding, such that the burden of previous IST cycles of therapy is not as high as it was for REGAIN. And we see that opening up a larger segment for ULTOMIRIS.

Now to your point about price, I mean, neurology is one aspect of price that we'll continue to assess. But as we've said, we have 8 indications that we've announced that we're pursuing for ULTOMIRIS. And as those unfold, we have consistently said, we maintain price flexibility to align the volume opportunity with the value that ULTOMIRIS offers, and so we'll stay on that path.

Your second question was around the continued conversion dynamics. We still maintain the same ambition of 70% within 2 years of our launch markets. We're well on track with that. We've talked with a lot of pride about the 3 largest markets we have worldwide: U.S., Germany and Japan. The only real bottlenecks that we see, and I wouldn't even call them bottlenecks, it's largely a function of time, is moving from so-called Centers of Excellence of treatment with PNH, higher volume centers as well as with atypical HUS to a broader customer segment, and that just takes time for us to continue to penetrate.

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Operator [35]

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Our next question comes from Mohit Bansal of Citi.

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Mohit Bansal, Citigroup Inc, Research Division - VP and Analyst [36]

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Great. So just switching towards danicopan as well as 5528 (sic) [5228] strategy. The doctors seem to like the alternative pathway a lot, and 4471 is clearly not pursuing monotherapy. But could you please help us understand what would you want to see with 5528 (sic) [5228] in terms of profile of the drug, which could potentially make it a viable monotherapy or potentially a frontline agent ahead of C5?

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John J. Orloff, Alexion Pharmaceuticals, Inc. - Executive VP and Head of Research & Development [37]

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Yes, sure. So first of all, we're committed to progressing the clinical development plans that Achillion has already communicated publicly in PNH with 4471. That's completed the Phase II data that was shared at ASH in December and now planning to move forward with a Phase III study in PNH patients with extravascular hemolysis. At the same time, there's an ongoing Phase II study with 5228, which has better PK characteristics. It is -- got a longer half life, the half life being about 12 hours. It also has better activity against the alternative pathway, with more than 90% inhibition of that pathway. So we're really excited about that compound in order to give it less frequently. And it's greater potency that allows us to expand potentially into new opportunities beyond those with EVH. So there is a Phase II program going on now that is looking at it, not only on top of C5 inhibition, but also as monotherapy.

And then I would say, lastly, that we're very excited about the opportunities beyond PNH and additional disease areas that we haven't operated in where the alternative pathway has been implicated, and where there are exciting opportunities to treat more patients with rare disease.

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Operator [38]

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And our last question comes from Kennen MacKay of RBC Capital Markets.

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Kennen B. MacKay, RBC Capital Markets, Research Division - MD & Co-Head of US Biotechnology Research [39]

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Congrats on the progress throughout 2019 and into the new year. Maybe a question for Brian. The PNH switch execution has been beyond phenomenal in the U.S. Can you maybe help us understand how we should be thinking about the pace of switching in aHUS versus PNH, given differences in presentation and disease morbidity?

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Brian M. Goff, Alexion Pharmaceuticals, Inc. - Executive VP & Chief Commercial and Global Operations Officer [40]

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Kennen, beyond phenomenal. I wrote that one down, so thanks a lot.

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Kennen B. MacKay, RBC Capital Markets, Research Division - MD & Co-Head of US Biotechnology Research [41]

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You can put that in your review.

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

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Yes. Yes, the dynamics, as I noted earlier, the dynamics between atypical HUS and PNH are different. But of course, the profile of ULTOMIRIS is the same, and we get the same compelling feedback from patients, from physicians and certainly from payers. And in fact, as Aradhana had noted, the economics on an annual cost of therapy play out even more favorably for atypical HUS with ULTOMIRIS versus SOLIRIS. So I think what we're going to see are different dynamics in terms of inpatient/outpatient starts, but the same 70% ambition. And in just a couple of months in the launch, we're pleased with how we're tracking. So thanks for the question.

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

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Okay, perfect. Operator, I'll take it from here. I have 2 topics that I want to close the meeting with. The first topic is the state of our business. The second one is an update on IP.

With respect to our business, I believe we have a very healthy business. We talked about the fact that we have a healthy top line growth moving forward in -- driven by volume growth. This is not about price increases. We drive our business through volume and innovation. We believe we have a healthy R&D pipeline. And that's why we say we -- our ambition is to launch 10 products, new indications, new formulations by 2023. And that's the way it should be for a biotech organization.

Then we have an operating margin that is very attractive within our industry. We're now around the mid-50s, we come from the lower 40s. And we believe that's a very healthy operating margin space to play in. So we really feel good about all of this, and this is reflected in our guidance.

The second topic, as I said, is IP. So I have an update. And some of you might have seen that the U.S. patent office has allowed a new patent for SOLIRIS providing additional patent protection in the U.S. through 2027. And the new patent covers the methods of treating PNH with SOLIRIS, which is a method of use patent. Just to remind you, we also have an existing patent covering a method of use for aHUS with SOLIRIS, which expires in 2022. And none of those 2 patents have been challenged. It's important that you guys know all the details of what's going on in the U.S. patent office.

With that, we'll close the call. Thank you for dialing in. I'm really excited about the progress that we're making, and I hope you will enjoy the rest of your day. Thank you.

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Operator [44]

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Ladies and gentlemen, this does conclude the conference call. Thank you for participating, you may now disconnect. Everyone, have a great day.