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Edited Transcript of ALXN earnings conference call or presentation 24-Oct-18 12:00pm GMT

Q3 2018 Alexion Pharmaceuticals Inc Earnings Call

CHESHIRE Jan 8, 2019 (Thomson StreetEvents) -- Edited Transcript of Alexion Pharmaceuticals Inc earnings conference call or presentation Wednesday, October 24, 2018 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Brian 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

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Conference Call Participants

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* Anupam Rama

JP Morgan Chase & Co, Research Division - VP and Analyst

* Christopher Joseph Raymond

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

* Geoffrey Christopher Meacham

Barclays Bank PLC, Research Division - MD & Senior Research Analyst

* Geoffrey Craig Porges

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

* Joshua Elliott Schimmer

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

* Laura K. Chico

Raymond James & Associates, Inc., Research Division - Senior Research Associate

* Matthew Kelsey Harrison

Morgan Stanley, Research Division - Executive Director

* Paul Andrew Matteis

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

* Philip M. Nadeau

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

* Robyn Karnauskas

Citigroup Inc, Research Division - Director and Senior Analyst

* Terence C. Flynn

Goldman Sachs Group Inc., Research Division - MD

* Ying Huang

BofA Merrill Lynch, Research Division - Director in Equity Research

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Presentation

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Operator [1]

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Good morning, and welcome to the Alexion Pharmaceuticals Inc. Third Quarter 2018 Results Conference Call. Today's call is being recorded. For opening remarks and introductions, I would now like to the turn the call over to Susan Altschuller

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Susan Altschuller, [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 third quarter of 2018. 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 thank you all for joining us this morning. We continue to build on our momentum, advancing our mission of bringing hope to patients and families affected by rare diseases. We had an excellent third quarter with a number of significant achievements to highlight. Yesterday marked the anniversary of the FDA approval of Soliris for patients with MG. One year later, I'm very proud to say that we have delivered on our ambition of making MG the best Soliris launch yet.

Last month, we reported remarkable top line results from our Phase III PREVENT study of Soliris in NMOSD. We're moving quickly to prepare global regulatory submissions, which can make Soliris the first approved therapy for patients with this devastating disease. Also last month, we announced an agreement to acquire Syntimmune, and with it, SYNT001, an innovative FcRn targeted asset that holds great promise for treating IgG-mediated diseases. And once again, we delivered strong top and bottom line growth.

Moving to Slide 6, we've continued to execute on our 5 key objectives throughout the year. We have made notable progress in addition to the achievements I've just mentioned. We continue to grow the in-line business with our complement and metabolic portfolios, delivering year-over-year revenue growth of 20% and volume growth of 26% in the quarter.

MG remains a significant growth driver, and at the end of September, 560 MG patients were on therapy in the U.S. The PNH regulatory submissions for Ultomiris, formerly referred to as 1210, have been accepted in the U.S., EU and Japan, and we're actively preparing for anticipated launches.

I'm very pleased with the significant progress we've made in building our pipeline this year. With Syntimmune, Wilson Therapeutics, Complement Pharma and most recently, Dicerna, our pipeline today is far more robust and diverse.

Again, I will highlight the groundbreaking results from our Phase III study of Soliris in NMOSD, which showed a 94.2% reduction in the risk of adjudicated relapse and an adjudicated annualized relapse rate of 0.02.

Finally, given our strong financial performance, we have increased our guidance. We've accomplished a lot in the first 3 quarters of this year, executing on our base business, successfully launching in MG, preparing for Ultomiris launches, and we're building our pipeline for long-term value creation, all while maintaining our focus on transforming the lives of patients with rare diseases.

With that, I will now turn the call over to Paul to discuss the third quarter financial results and to provide details on our guidance. Paul?

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

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Thanks, Ludwig. I'm pleased to be reporting on another strong quarter. Starting with Slide 8. We reported total revenues in the quarter of $1,027,000,000, an increase of 20% year-over-year, driven by continued performance of Soliris and metabolic portfolios. Our non-GAAP operating margin was 54% in the third quarter, an expansion of 916 basis points. This was well above our prior forecast, driven by top line leverage, timing of program spend and lower workforce costs.

We're anticipating a lower operating margin in the fourth quarter of the year due to an expanding pipeline and sales and marketing investment to support our growth opportunities. I'll provide further details. Non-GAAP earnings per share growth was 40%, driven by top line performance and strong operating expense control.

Moving to Slide 9. Net product sales were driven by volume growth of 26%, partially offset by an FX headwind of 1% and a price headwind of 5%. The price headwind was largely driven by price changes in Turkey and Brazil. Specifically, we formalized reimbursement agreements subsequent to marketing authorization for Soliris in Turkey in the third quarter of 2018 and Brazil in the fourth quarter of 2017. Additionally, changes in our metabolics business contributed to the price headwinds.

From a geographic perspective, recall that in the third quarter of 2017, we had a low amount of orders in Latin America. When taking that into consideration, we continued to deliver exceptionally strong revenue growth in the United States, in Asia Pacific, while delivering more modest growth in the rest of world. From a sequential basis, it's worth noting that the second quarter included an approximately $18 million benefit related to the order timing ahead of the July 4 holiday in the United States. Approximately half of this was for Soliris and half for Strensiq.

Turning to Slide 10. Soliris revenue in the third quarter was $888 million with year-over-year volume growth of 24%, driven primarily by the strength in the U.S. and Japan, which both include the growing contribution from our MG launch.

Moving to Slide 11. Strensiq revenues for the third quarter were $113 million, representing 30% revenue growth and 37% volume growth year-over-year. Kanuma revenues in the third quarter were $25 million, representing 54% revenue growth and 74% volume growth year-over-year.

Turning to the P&L on Slide 12. During the quarter, non-GAAP R&D expense was $162 million or 16% of revenues. Spend was lower than anticipated due to lower program spend and lower workforce costs. Non-GAAP SG&A expense was $225 million or 22% of revenue. The non-GAAP effective tax rate in the quarter was approximately 14%. We reported third quarter non-GAAP earnings per share of $2.02, growing 40% year-over-year. GAAP earnings per share was $1.47. We ended the third quarter with approximately $1.5 billion in cash and marketable securities.

Now turning to Slide 13, which outlines our updated financial guidance. Before getting into specifics, I'd like to call out a few items. First, our updated guidance reflects the strength of the business, especially MG. Second, as we move into the fourth quarter and beyond, we anticipate increased investment in R&D due to our expanding pipeline and increased investment in medical affairs and sales and marketing given growth opportunities in neurology. And third, GAAP guidance includes accounting for 2 asset acquisitions, Wilson Therapeutics in the second quarter and the planned acquisition of Syntimmune expected to close in the fourth quarter, as well as our collaboration with Dicerna announced this morning.

We're increasing our top line revenue guidance to a range between $4,020,000,000 and $4,050,000,000, which represents 14% growth year-over-year at the midpoint. For Soliris, our revenue guidance is $3,460,000,000 to $3,480,000,000, an increase over prior guidance, driven by the strength of MG.

Turning to metabolics. Our revenue guidance remains $560 million to $570 million, reflecting continued momentum in Strensiq. We estimate price will be a 3% headwind in 2018, with 3/4 attributable to Soliris and 1/4 attributable to metabolics. We now forecast FX impact for 2018 to represent roughly a $10 million headwind using current foreign exchange rates.

GAAP operating margin is expected to be 0% to 5%, which is inclusive of the Syntimmune and Wilson acquisitions, the Dicerna collaboration as well as restructuring and related expenses. We're increasing our non-GAAP operating margin to be in the range of 51% to 52%, representing approximately 600 to 700 basis points expansion over 2017. This is inclusive of R&D spend of 16% to 17% of revenues and includes increased investments for the ongoing SYNT001 Phase I, Phase II trials; the WTX101 Phase III trial; preparations for regulatory filings for Soliris in NMOSD; initiation of 1210 subcutaneous in MG programs; and increased workforce spend. We also expect to further invest in medical affairs and sales and marketing as we intensify preparations for potential launches of Ultomiris in PNH and support our growing neurology portfolio, including expanding our MG sales footprint in preparing for the potential launch of Soliris in NMOSD.

At the midpoint of this guidance, non-GAAP operating profit is expected to grow 30% year-over-year. We're forecasting a non-GAAP effective tax rate of 14% to 15%. GAAP earnings per share is expected to be between negative $0.08 to positive $0.26 per share, inclusive of the Syntimmune and Wilson acquisitions. We're increasing non-GAAP EPS, which is now expected to be between $7.45 to $7.60 per share. The midpoint of this range is approximately 29% growth year-over-year. With the strong year-to-date performance, we're poised to deliver on our 2018 financial ambitions.

With that, I'll turn the call over to John.

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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. With our impressive Phase III NMOSD results, the acquisitions of Syntimmune and our new collaboration with Dicerna, our pipeline has progressed considerably in the third quarter. I'm very proud of our team for all they have accomplished, and we remain committed to advancing and rebuilding our pipeline.

Slide 15 reflects key updates in our development portfolio. Starting with Soliris in NMOSD, we're actively engaging with regulators and plan to file early next year.

Moving to Ultomiris. Our PNH BLA filings have been accepted in the U.S., Europe and now Japan. Recall, our U.S. PDUFA date is scheduled for February 18 of next year. We remain on track to report Phase III top line results for 1210 in atypical hemolytic uremic syndrome, or aHUS, in early 2019, and plan to file our sBLA, subject to Ultomiris approval in PNH. We now plan to initiate our Phase III study investigating 1210 in MG in early 2019.

Our subcutaneous programs are progressing on schedule, and it is our ambition to be first to market with a subcutaneous C5 inhibitor. We plan to initiate a Phase III bridging study for once-weekly subcutaneous 1210 in the fourth quarter.

We initiated our ALXN1810 Phase I trial in healthy volunteers in the third quarter. Recall, this trial is investigating a coadministration of 1210 and Halozyme's PH20, and co-formulation work remains ongoing. With Halozyme's ENHANZE technology, we see potential for every 2-week or once-monthly dosing schedules.

We expect to add 2 clinical-stage assets to our portfolio this year with the previously announced acquisition of Wilson Therapeutics and agreement to acquire Syntimmune. Our Phase III WTX101 trial is ongoing, and we see meaningful opportunity for label differentiation as the study is now designed to demonstrate superiority over the current standard of care. I'll remind you that our trial enhancements have modestly increased enrollment time lines, and we plan to file for regulatory approval with the required 1-year data in the first half of 2021.

In addition to the 2 ongoing Phase Ib/IIa programs for SYNT001, there's an ongoing Phase I healthy volunteer dose-ranging study, which will be informative for dose optimization. We look to initiate 2 pivotal trials for 001 in 2019.

Slide 16 provides an overview of the devastating nature of NMOSD. Step-wise disease progression is driven by each unpredictable and debilitating relapse. Therefore, the primary goal of treatment is relapse prevention. Each relapse may result in worsening disability, including vision loss, paralysis and even premature death. The majority of NMOSD patients continue to have high disease activity despite long-term off-label treatment with ISTs, so there's a critical need for an effective treatment.

While we continue to refine our global addressable population estimates, in the U.S., there are approximately 8,000 diagnosed patients, with 90% of those patients meeting our criteria for high disease activity. Roughly 75% of those patients test positive for the anti-aquaporin-4 autoantibody, and roughly 90% are treated. The relatively recent introduction of this test has improved awareness and diagnosis of NMOSD and has been included in the most recently published diagnostic guidelines.

Slide 17 highlights key findings from our Phase III PREVENT study, evaluating Soliris in patients with anti-aquaporin-4 autoantibody-confirmed NMOSD. The trial enrolled patients with high disease activity despite treatment with immunosuppressant maintenance therapy. Per protocol, patients in both the Soliris arm and the placebo arm were allowed to remain on maintenance IST therapy, provided a stable dose was confirmed at screening. Approximately 75% of patients enrolled were on IST maintenance therapy and approximately 32% of patients enrolled had been previously treated with rituximab.

The study met its primary endpoint of time to first adjudicated on-trail relapse, demonstrating that treatment with Soliris reduced the risk of adjudicated relapse by 94.2% compared to placebo with a p-value of less than 0.0001. Nearly 98% of patients in the Soliris group were relapse free at 48 weeks compared to approximately 63% of patients in the placebo group. Additionally, the Soliris adjudicated on-trial annualized relapse rate was 0.02 versus 0.35 for placebo. Soliris was generally well tolerated with an overall safety profile consistent with that seen in clinical studies and real-world use in all 3 approved indications, and we did not observe any meningococcal infections.

We're very happy with these results, which we believe confirm that the complement inhibition achieved by Soliris has a profound effect on relapse prevention and marks a potential turning point in the treatment of this disease. Pending regulatory review, we believe Soliris has the potential to be the first approved treatment for NMOSD.

Moving to Slide 18. This quarter, we announced our planned acquisition of Syntimmune, a clinical stage biotechnology company developing antibody therapeutics targeting the FcRn preceptor. We're excited to help shape the FcRn landscape and view this acquisition as a great step towards diversifying our pipeline. The acquisition will bring SYNT001, the anti-FcRn antibody with demonstrated proof of mechanism, into our pipeline.

On the right, you see a range of IgG-mediated autoimmune diseases that could be treated by targeting FcRn. We see potential for broad application across a number of indications with 001. We have already decided to move forward in warm autoimmune hemolytic anemia, or WAIHA, and plan to initiate a pivotal trial in another undisclosed indication next year.

WAIHA, a rare hemolytic autoimmune disorder, affects approximately 65,000 patients across the U.S. and EU5. The disease is characterized by profound, potentially life-threatening anemia and other acute complications, including severe hemolysis, fatigue, congestive heart failure and enlargement of the liver and spleen. There are currently no approved therapies. 001 is the first, and at present, the only anti-FcRn asset in clinical development for WAIHA. We expect data from the ongoing Phase Ib/IIa study in 2019 and intend to initiate a pivotal program following its completion. We plan to provide updates on our 001 development plans in the coming months.

Turning to Slide 19. Today, we announced a collaboration with Dicerna Pharmaceuticals to discover and develop RNAi therapies for complement-mediated diseases with the GalXC technology platform. This innovative RNAi-based approach to blocking the production of complement pathway factors and the potentially broad therapeutic applicability across rare diseases offers us the opportunity to pursue multiple targets. This preclinical collaboration is a strong strategic fit with our complement expertise and internal research programs. I'm very proud of the progress we have made rebuilding our pipeline, and I'm excited for what lies ahead in our development portfolio.

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

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

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Thanks, John. Starting with Soliris on Slide 21. We continue to execute on our base business, and importantly, on our MG launch, which is now confirmed to be the best Soliris launch to date. As of quarter-end, we have roughly 1,000 MG patients enrolled in OneSource, including 560 patients on therapy. We continue to see strong movement through OneSource and on to treatment with a run rate of approximately 16 net new patient additions per week. We also continue to see growth in our PNH and aHUS businesses and believe there is still room for expansion with roughly half of the addressable U.S. patient population treated. We believe this underlying momentum lays a strong foundation upon which we can facilitate Ultomiris conversion once we've achieved regulatory approvals.

Turning to Strensiq on Slide 22. We reported revenues of approximately $113 million this quarter, and we continue to believe Strensiq will exit 2018 with revenues approaching $500 million. As of quarter-end, Strensiq is on market and reimbursed in 7 countries.

Looking at Kanuma on Slide 23. We reported $25 million in revenue this quarter. We remain focused on securing new funding agreements and partnerships in additional countries to expand access to this transformational medicine. To date, Kanuma is launched and reimbursed in 8 countries.

Turning to Slide 24. We remain confident in our abilities to facilitate conversion to Ultomiris in PNH and are rapidly advancing our launch preparation ahead of the February 18 PNH PDUFA date as well as potential launches in Europe and Japan. We're leveraging our deep PNH experience to inform our sales force, medical affairs and case management strategies ahead of launch, and we're developing payer dossiers to articulate the unique Ultomiris value proposition. We're also utilizing market research in our existing footprint to segment physicians, while actively engaging with payers in advance of the launch. We believe the extensive depth of our PNH knowledge and stakeholder engagement is key to facilitating rapid conversion.

I'd also like to highlight findings from recent physician and patient market research that suggest Ultomiris IV infusion every 8 weeks is the preferred route of administration in PNH, which reinforces our view on market receptivity at launch. Importantly, an every 8-week IV profile was preferred over monthly, weekly and daily subcutaneous dosing. We believe minimizing the burden of managing the disease, improving compliance and co-pay considerations are all important factors driving these preferences.

We expect Ultomiris IV-based dosing to achieve and maintain significant market share. However, we feel that there is an opportunity for subcutaneous dose therapies to provide additional options for patients, and we'll be in the lead, initiating our Phase III trial of once-weekly subcutaneous 1210 this year.

As you can see on Slide 25, we're also focused on maximizing our neurology portfolio. We have plans to further expand our footprint in order to build on our success in MG. Given the strength of the data and the lack of approved therapies, we're preparing for a potential launch in NMOSD with a significant sense of urgency. I want to thank our global team for their continued efforts and reiterate the organization's excitement as we evolve our broader strategy and prepare for numerous potential launches in 2019.

I'd now like to turn the call back to Ludwig for final remarks. Ludwig?

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

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Thank you, Brian. Beginning on Slide 27. We continue to make progress on each of the 5 objectives we laid out at the beginning of the year. We are not only achieving, but in many areas, surpassing our plans to grow the in-line business, launch MG, extend our leadership with Ultomiris, rebuild the pipeline and deliver financially.

Turning to Slide 28. Thanks to this team and to our talented employees around the world, we now have a strong foundation and are advancing our strategy to enter the next phase of rare disease leadership. We remain committed to delivering innovative therapies to patients in need and believe the Syntimmune acquisition and Phase III NMOSD readout are critical next steps in doing so.

We have expanded our portfolio to drive long-term sustainability in our core therapeutic areas. Our goal is to further build upon this as we continue to redefine what it means to live with a rare disease.

I'm very proud of what we, as a company, have achieved so far this year, and I'm very excited for the future we are continuing to build, not only for Alexion but also for patients with rare diseases. While we have accomplished a great deal, we also know there are many patients and families still waiting. So we continue to forge ahead with the utmost urgency. I look forward to updating you on our progress as we go.

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 Geoffrey Porges from Leerink.

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

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Couple of financial questions related. Paul, you highlighted the operating margin improvement. But then you also highlighted the incremental investments that you're going to be making, both in pipeline and in commercial preparedness. Can you see your way clear to maintaining that 50%-plus operating margin? So not just in the immediate future, because we sort of have been waiting for that to improve for a while. And then secondly, related on guidance for next year. Given that you'll be guiding ahead of the 1210 approval, should we be assuming that you'll guide assuming that approval when we hear from you in the first of the year?

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Paul J. Clancy, Alexion Pharmaceuticals, Inc. - Executive VP & CFO [3]

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Thanks, Geoff. Great question. We're definitely pleased and committed to the 50% operating margin, right. I mean, that was put out with Ludwig and the new strategy a year ago for 2019. We are actually surpassing it with the guidance for 2018. So that's -- in my mind, that's excellent, excellent progress. It's exactly as you said, and we understand that, that is really kind of earning the trust back from our investors that was so critical.

As we move into 2019, it's premature to kind of give spot numbers and exact numbers that -- we'll hold that, obviously, for the guidance call. But let me kind of give you at least a framework to kind of -- and some guardrails to think about. We still want to have top line to bottom line leverage. I think that the thought process of the degree that we delivered this year is actually quite astounding, right. And it's on the heels of good, strong revenue growth, coupled with kind of pulling through the restructuring and cost-containment efforts going into next year.

We purposely -- and I purposely wanted to kind of frame up that those dynamics probably aren't as strong going into next year in terms of margin expansion for all really what we think are positive reasons. We actually do have -- as we go into next year, what we start to now envision is a meaningfully expanded pivotal trial pipeline when you combine Wilson, that is in Phase III; our objectives for the FcRn product to be into 2 Phase IIIs by the end of next year; continuing to move 1210 into other indications, both subcutaneous as well as MG, potentially others. So that's a high-class problem, as well as ensure we put wood on the fire with respect to making sure Ultomiris is launched extremely well. I mean, there's obviously a tremendous amount of synergy with the existing footprint. But MG has really kind of exceeded our expectations this year. We want to keep that going, and then this new opportunity that we probably didn't envision around NMO. So all great stuff. But I think -- I still think we'll commit to top line and bottom line -- leverage to the bottom line. The degree of it will probably not be at the pace that we saw in 2018.

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Geoffrey Craig Porges, Leerink Partners LLC, Research Division - Director of Therapeutics Research, MD & Senior Biotechnology Analyst [4]

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Great. Then turning to guidance and the basis?

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Paul J. Clancy, Alexion Pharmaceuticals, Inc. - Executive VP & CFO [5]

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I'm sorry?

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Geoffrey Craig Porges, Leerink Partners LLC, Research Division - Director of Therapeutics Research, MD & Senior Biotechnology Analyst [6]

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Would you guide assuming 1210 approval, when you give us the guidance in...

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Paul J. Clancy, Alexion Pharmaceuticals, Inc. - Executive VP & CFO [7]

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Yes, yes, yes, we will. I think we think that, that -- you never know, but we think that, that is a very, very high likelihood.

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Operator [8]

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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 [9]

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I wanted to ask a question, which I realize might be more difficult to answer. But I was hoping maybe you guys could provide some perspective for us. So overnight, Chugai confirmed that they're going to present data from SYK59 (sic) [SKY59] in patients at ASH, and you've also got another potential competing product coming at ASH. And I'm just wondering if you might be willing to help us think about what are the key metrics that you're going to focus on when you think about that data versus what you've demonstrated with Soliris and 1210.

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

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So Matt, this is John. Thanks. Yes, well, we're really anticipating the ASH congress. We have a big presence there with 4 abstracts, 3 of them are oral, presenting data from our Phase III program with Ultomiris in both naive and experienced patients, switch patients, that will build on what we shared earlier this year. And we think our data is really raising the bar. And we anticipate the approval for 1210 here shortly in the U.S. Of course, we filed also in the EU and Japan. So we'll certainly be first to market, raising the bar from what Soliris has demonstrated. And I don't really want to speculate what they may or may not show, but I will say that they are targeting a different epitope than we target, that Soliris targets and that Ultomiris targets. And so there are some considerations relating to switching patients in that scenario.

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Operator [11]

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Our next question comes from Geoff Meacham from Barclays.

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Geoffrey Christopher Meacham, Barclays Bank PLC, Research Division - MD & Senior Research Analyst [12]

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Brian, on the MG launch, I wanted to get more context from you for the OUS perspective, what the experience has been from access reimbursement, and then looking forward, maybe what hurdles remain. And then for Ludwig or Paul, you guys have done quite a bit of BD to expand the pipeline. Do you feel like you're at capacity now? Meaning, is the pace going forward expected to slow down? Or are there still more deals to do?

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

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It's Brian. I'll start. So with MG and, obviously, as we talked about in the call, we're really excited about the progress in the U.S. Outside, to your question, we're still looking for more in Germany and Japan, and we have recently made some changes in our approach to essentially better leverage the learnings that we've had, the progress we've made in the U.S. The changes predominantly include adjustments to our sales education, the initiatives that are more effective, that explain the role of complement to physicians, as well as, I would say, broader and more effective KOL engagements. And we'll look to continue on that journey ahead.

We also, by the way, now have approval for MG in Canada. And so that's also now becoming a part of our geographic footprint for gMG. And the benefit of all of this is, of course, such strong momentum in the U.S. We can amortize those learnings around the world.

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Paul J. Clancy, Alexion Pharmaceuticals, Inc. - Executive VP & CFO [14]

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Geoff, I'll take the second part of the question on business development. Short answer is no. We don't think we're at capacity. We want to press on. I think what you have seen in terms of -- there was a lot of questions, like what are you trying to do on BD, at the beginning of the year. I think what you've seen now through, call it, 10 months of the year is exactly what we set out to achieve: rebuild the pipeline, clinical-stage assets, manageable deployment of capital with what we hope to have meaningfully strong returns for shareholders, all in the category of rare disease and transformative-type therapies. So we've got a couple of those that kind of tilted towards the research stage. We may be at capacity on the research stage. That one probably, we raised the bar. But with respect to kind of bringing in more clinical-stage assets, we will press on.

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

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Yes, we will keep a disciplined approach on BD. Awesome job so far.

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Operator [16]

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And 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 [17]

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I'm just curious, over what period of time do you expect the 1210 trial patients to shift from the $90 million to $100 million unfavorable to favorable? And do you expect that whole amount to be converted? And given that you'll have 1210 data in PNH and aHUS, do you expect that you might see off-label adoption in myasthenia gravis and NMO before those indications are added to the 1210 label?

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Paul J. Clancy, Alexion Pharmaceuticals, Inc. - Executive VP & CFO [18]

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Josh, let me try to take both of those. On the 1210 patient conversion, I would characterize that as we move into '19, not a headwind but not a tailwind yet, just because of the nature of where those patients were, kind of coupled with where we expect to have launches and reimbursement. Remember, 301 was disproportionately Asia Pacific, 302 disproportionately Europe. Those are going to be a little bit staged.

The other dynamic just that we're trying to keep a close watch on is competitive impact of -- kind of into the kind of commercial. So competitors moving into trials, which I think it's just going to be harder. It's been harder to predict this year. It'll be harder to predict, but we're just going to try to be cognizant of that.

As it relates to the second part of your question, we are focused on on-label promotion for Ultomiris moving into PNH. That is critical for -- and particularly with the backdrop of where we've come, compliance and culture is a critical part of where we are as a company. And that will kind of be -- will guide all of our behaviors there.

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Ludwig N. Hantson, Alexion Pharmaceuticals, Inc. - CEO & Director [19]

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Yes. I think all of you know from last year that I'm very passionate about compliance, and this is front and center at Alexion. And we have high standards for our marketing and sales practices. So we will wait until we get that regulatory approval and the label before we get going on any discussions on immune indications.

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John J. Orloff, Alexion Pharmaceuticals, Inc. - Executive VP and Head of Research & Development [20]

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Yes, and I'll just add. We do anticipate approval in PNH in 2019, followed by aHUS in 2020. And as we said, we're going to be initiating a Phase III trial in MG with 1210. And we're in the process now, with a positive readout from NMO, evaluating our neurology strategy and our potential beyond those that we've disclosed currently.

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Operator [21]

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Our next question comes from Robyn Karnauskas from Citi.

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Robyn Karnauskas, Citigroup Inc, Research Division - Director and Senior Analyst [22]

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Just a couple of questions on just the patient dynamics, both on MG and the PNH side. So for MG, we're going to get competitor data in earlier-stage MG, with an injectable that may be priced cheaper, later this year in Phase II, and I'm just trying to understand a little bit the dynamics. How -- for MG, now that you've launched for a year, do you think we can -- will want to get a complement drug earlier stage in the disease, maybe in front of even FcRn or an IVIg? What do you think the dynamics are for MG for an injectable versus an infusion? And then for PNH, for switching, [neurochecks] indicate that some patients might be reluctant to switch because they had such a horrible bleeding event. And how do you help patients get over that hurdle or concern when they're switching onto a new therapy?

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Brian Goff, Alexion Pharmaceuticals, Inc. - Executive VP & Chief Commercial Officer [23]

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I'll take both of those. On MG, I think we have to remind ourselves where we are in terms of both the size of the population and where we are in our launch progress. And then we can have a little discussion on method of infusion or injectable. So the total population, as you know, is 60,000 to 80,000 patients in the U.S. And if we just take the kind of extreme end of that, the out-of-option patients that align with the REGAIN criteria, that's about 5% to 10%. So we've always talked about 3,000 to 8,000. And what we talked about this morning is we have 560 patients on therapy, which we're really pleased about, and I'm especially proud of the team that's behind those numbers. But that's also a pretty healthy reminder about how much more work is to be done and how large a space this is for potentially a number of different therapeutic options, which is also why we continue to look at neurology as a really important area of interest for us.

As it relates to method of delivery for the products, the patients that we're focused on right now are, again, generally out-of-option patients. And all the signals that we hear are very encouraging. We're talking about Soliris [q] 2-week infusion. And I can tell you, when I spend time in the field talking with -- whether it's our commercial teams or the customers themselves, the physicians, the feedback is really strong on what patients are reporting back.

The other aspect is that these are patients that are generally quite disabled. They have extreme fatigue and weakness, as you know. And so just to have not the burden of having to self-inject is one aspect that we take into consideration.

And the other one is from a payer dynamic, once you move into the subcutaneous world, particularly in this population you're talking about, Part D on the Medicare side, and that comes with a co-pay. So we'll look at all of those elements as we look at optionality for patients.

On the second part of your question for PNH, all I can say right now is that we think the most important thing for these PNH patients is that the options are based on Soliris, and that's why we're encouraged by the progress we continue to make with Soliris in our base business, both PNH and aHUS. And the profile that we have with Ultomiris gives us a very strong platform. And we know, as I'd said in my comments, that there's very strong patient preference for a once-every-8-week IV formulation. So we feel confident about our facilitated conversion opportunity.

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

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And Brian, with respect to MG, we also see low D/C rates.

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Brian Goff, Alexion Pharmaceuticals, Inc. - Executive VP & Chief Commercial Officer [25]

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Yes. So far, the discontinuations, as we talked about now on a few calls, has tracked well below what we saw in the REGAIN patient population. And in that pivotal study, the discontinuation rates at 12 weeks was around 40%, and we've been below that line, which is another signal about the performance of the product.

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Operator [26]

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Our next question comes from Chris Raymond with Piper Jaffray.

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Christopher Joseph Raymond, Piper Jaffray Companies, Research Division - MD & Senior Research Analyst [27]

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Just on the guidance. I think, Paul, you guys raised full year '18 guidance, but that number infers sort of flattish Q4 revenue sort of quarter-on-quarter. But you highlighted in the Q3 report, order timing, headwinds, et cetera. So I guess one would assume that potentially could be made up in Q4. So first of all, is that assumption wrong? If not, is there something else that might hold Q4 revenue back like FX?

And then maybe if I can slide in a quick question on the Dicerna deal. So a key RNAi player's already had relatively well-documented setbacks, specifically with respect to knocking down enough C5. With this deal, you must believe there's a solid path here, I guess, with RNAi. Can you maybe talk about what you think makes Dicerna different? Or is there perhaps another non-C5 target that makes more sense? Any color there would be great.

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Paul J. Clancy, Alexion Pharmaceuticals, Inc. - Executive VP & CFO [28]

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Yes. Thanks. Let me just kind of clarify the revenue sequentially kind of dynamics. The July 4 holiday effectively increased -- dynamics effectively increased Q2, depressed Q3. So as we move into Q4, I think we're behind those dynamics, and it's pretty straightforward at that point in time. John, I'll turn it to you for the Dicerna.

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John J. Orloff, Alexion Pharmaceuticals, Inc. - Executive VP and Head of Research & Development [29]

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Yes. So first of all, C5 is not one of the targets we're looking to prosecute with the Dicerna deal. We believe that we've addressed the C5 inhibition with Soliris. We're raised the bar with Ultomiris in PNH, and we'll look for the data with aHUS. Rather, we're using this technology platform, which is proprietary to Dicerna, to pursue additional targets in a complement cascade that will allow us to expand the potential number of indications that are complement mediated. This technology is designed to silence gene expression and inhibit the translation of mRNA for key proteins that may be mediating disease. And with their GalXC technology platform, they're targeting liver production of various complement factors.

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Operator [30]

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Our next question comes from Paul Matteis from Stifel.

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Paul Andrew Matteis, Stifel, Nicolaus & Company, Incorporated, Research Division - Co-Head of the Biotech Team, MD & Senior Analyst [31]

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Just a follow-up on that RNAi question. I wanted to just even delve deeper and understand why you think RNAi is a potentially better or a good approach relative to antibodies and complement disease given that the Soliris data in PNH looked much better than the Alnylam data for [aniline] C5.

And then just separately on FcRn. I wonder if you wouldn't mind commenting on kind of the developing competitive landscape there with Momenta's updates and their early safety data and how you're kind of refining your view on where the Syntimmune compound fits in.

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John J. Orloff, Alexion Pharmaceuticals, Inc. - Executive VP and Head of Research & Development [32]

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So for the first question, we believe the technology has been derisked by the fact that they've already demonstrated proof of concept in primary hyperoxaluria. And as you know, Alnylam does have an approved product, the first approved product with RNAi technology.

We are targeting other upstream complement cascade factors. And we will be pursuing indications that go beyond the current footprint. So we're not focused as much on PNH as other complement-mediated diseases, whereby factors that are primarily produced in the liver are potential attractive targets. And this is all about shots on goal. It's about optionality, and it doesn't mean that necessarily, this is better than an antibody-based approach. But depending on the target, we may pursue it. It supplements our own internal discovery efforts, where we're pursuing multiple internal programs with complement-based targets, and we think this is a great strategic fit for us from the research perspective.

With regard to Momenta, what I can say is that the Syntimmune molecule and all of the FcRn molecules are not appreciably differentiated at this stage. They all have the same mechanism. They all reduce IgG in dose-dependent fashion. They all share an adverse event profile characterized by headaches, which are, for the SYNT001 molecule, is mild to moderate. And they have specificity, to some degree, for FcRn in IgG reduction. I can -- the Momenta data shows that there is some reduction in albumin. We do not see reduction in albumin, so we are specific for IgG. That's been shown. And we're pursuing 3 programs right now: One Phase I study in healthy volunteers is designed to optimize the dose to help us to select an appropriate dose for Phase III next year; as well as a Phase Ib/IIa study in pemphigus; and another in WAIHA, again, which will inform our execution of a Phase III program in WAIHA in another Phase III study in a different indication next year.

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Ludwig N. Hantson, Alexion Pharmaceuticals, Inc. - CEO & Director [33]

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It's a class of drugs that potentially could transform the Ig treatment landscape over the next few years. And as you know, it's -- IVIg is widely used in autoimmune disorders. WAIHA is our lead indication, but the way that we think about this is we have a pipeline opportunity in the product. And it's a technology platform and the addressable market opportunity is huge. So at this stage, we're the only one in the WAIHA space. We're very pleased with that and, hopefully, we can move to Phase III next year. And this is a unique opportunity for us.

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Operator [34]

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

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Philip M. Nadeau, Cowen and Company, LLC, Research Division - MD and Senior Research Analyst [35]

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A question for Brian. Brian, you mentioned that you've already started to work with payers on 1210 in advance of the launch. Can you talk about what you've been doing with them? And in particular, I'm curious whether you think reimbursement's going to be gating to the conversion from Soliris. Do you expect there to be immediate access to reimbursement? Or will it take some time for access to develop?

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Brian Goff, Alexion Pharmaceuticals, Inc. - Executive VP & Chief Commercial Officer [36]

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We have been engaging with payers very actively since we now have the profile of the product itself. We say that generally, we feel really good about the fact that we have 2 very large, distinct studies with all 11 of the primary and secondary endpoints all moving in the same direction. That creates a strong value proposition for payers.

And then the second part, in addition to the data, is to begin discussions around what the totality of both direct and indirect cost savings could look like. So we haven't locked in on any specific pricing discussions. Of course, it's too early for that. But the feedback that we've had so far is that we feel good about our abilities to engage with those payers and to get the kind of access that we believe is needed to have the facilitated conversion that we want to be on the pathway to eventually make Ultomiris the new standard of care for PNH. So more to come as we continue to engage. But so far, it's been promising feedback.

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Operator [37]

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Our next question comes from Terence Flynn from Goldman Sachs.

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Terence C. Flynn, Goldman Sachs Group Inc., Research Division - MD [38]

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We're just wondering on the NMO front, if you can talk about your views of the recent competitor data there. And then of the 4,000 to 5,000 patients on treatment that you cite on the slides, do you have a sense of how many of those might have previously received Rituxan?

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John J. Orloff, Alexion Pharmaceuticals, Inc. - Executive VP and Head of Research & Development [39]

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This is John. So first of all, I'll just say that we're really pleased with the outstanding results we have from our Phase III program. I think they're very definitive. And this is a patient population that has significant disability, no approved therapies currently. And with these data that show 94% reduction in adjudicated relapse and a 95% reduction in annualized relapse rate, with an absolute rate of 0.02, we think it has potential to be first-in-class and best-in-class with the first approved therapy for NMO. So I think that there is opportunity here in the NMOSD space for multiple therapies. And the IST use in our population was about 75% of patients that had concomitant IST use. About 32% of them had prior use of rituximab within 3 months of the study start.

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

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And Terence, this is Brian. Maybe I'll jump in and just add that the difference between NMOSD and gMG, of course, as John noted, the relapses themselves are terrifying. They're unpredictable. They have potentially devastating consequences, where patients, without any warning, can have blindness, can have some form of paralysis or both. And so the heavy emphasis -- and we're so grateful for the data, of course -- will be on making sure that the goal will be to get to a no-relapse state. And even small differences, as data continues to play out, can be really significant for these patients and for clinicians, who have had, quite literally in this case, no approved therapeutic options.

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Ludwig N. Hantson, Alexion Pharmaceuticals, Inc. - CEO & Director [41]

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The objective should be for those patients to live in a relapse-free world, and I think we -- the PREVENT study came very close to that. And I think that's the bar that's out there for NMOSD treatment.

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Operator [42]

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Our next question comes from Laura Chico from Raymond James.

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

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We can't hear you.

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Laura K. Chico, Raymond James & Associates, Inc., Research Division - Senior Research Associate [44]

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Sorry about that. Two quick housekeeping questions for you. On 1210 and aHUS, we noticed one of the child adolescent studies was expanded to encompass some SWITCH subjects. I'm just kind of curious if you can comment on how that might affect the labeling implications? And then secondarily, just wanted to clarify. On the Phase III study in MG, has the start timing changed? I'm noticing in the deck, that's got a first half '19 start timing. I'm just wondering if you could add any additional clarity perhaps on design attributes and kind of how that all might come together to potentially affect timing for launch there.

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John J. Orloff, Alexion Pharmaceuticals, Inc. - Executive VP and Head of Research & Development [45]

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So with regard to the aHUS study, the pediatric study, yes, was we added some SWITCH patients based on interactions with the regulatory authorities. But it will not have an impact on our plans to file with the adult study, which will read out in the first quarter of 2019, followed by subsequent submissions to regulatory authorities, which are being gated by the action dates for PNH in the EU and the U.S. With regard to the...

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Ludwig N. Hantson, Alexion Pharmaceuticals, Inc. - CEO & Director [46]

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1210 MG timing.

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John J. Orloff, Alexion Pharmaceuticals, Inc. - Executive VP and Head of Research & Development [47]

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The MG timing, yes. So initially, we had a target to start the end of this year. But with the availability the of the great results from NMO as well as the Syntimmune deal, we took a step back to evaluate our -- reevaluate our neurology strategy as we look at the opportunities before us. And we recommitted all our effort to proceed with the 1210 MG trial that will begin in the first quarter of 2019.

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Operator [48]

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Our next question comes from Ying Huang from Bank of America.

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Ying Huang, BofA Merrill Lynch, Research Division - Director in Equity Research [49]

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Maybe one for Paul. When you mentioned the pricing assumption for the updated guidance for 2018, there's a 3% headwind there. So besides the Brazil and also Turkey reimbursement agreement, can you talk about what happens with the pricing ex U.S., especially in Europe? And what's your outlook for 2019 on pricing in general?

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Paul J. Clancy, Alexion Pharmaceuticals, Inc. - Executive VP & CFO [50]

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Yes. Good question, Ying. Thanks for it. I'll hold off on 2019 because we'd kind of get into guidance as well. But like kind of the really, the only meaningful change versus kind of what we thought in previous guidance and coming into the year in terms of the business plan is the dynamics in Turkey, which we pointed out on the call. That's what drove it, Turkey and Brazil. That's what drove it this quarter. That's what kind of changes the full year dynamics a little bit different. It was a formalized agreement subsequent to marketing authorization in both those countries.

We had expected it, I think, even going back a year ago. I think I pointed out that what we felt in terms of rest of world wouldn't be the growth trajectory that we had experienced over the last handful of years going forward. Still, important parts of the business. But as we moved into formalized reimbursement agreements, it's changed. The strength of the business is United States, Asia Pac, solid performance in Europe.

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Operator [51]

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And our last question comes from Anupam Rama from JPMorgan.

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Anupam Rama, JP Morgan Chase & Co, Research Division - VP and Analyst [52]

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Just quick one on Strensiq. Outside of unfavorable order timing, were there any other headwinds to note? The quarter-over-quarter growth seems like a decline even if you back out the unfavorable order in 2Q? And then what's assumed in sort of that approaching $500 million? Is it increased penetration in the 7 countries for -- [that you referenced] for Strensiq or additional geographic expansion as well?

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Paul J. Clancy, Alexion Pharmaceuticals, Inc. - Executive VP & CFO [53]

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Yes, I think Brian and I would tag team this, Anupam. Thanks for the question. No, nothing meaningfully different in terms of trends. I think you got to back it out of Q2, put it into Q3. It's one of those type of dynamics. So on a sequential basis, when doing that, we still kind of see sequential growth. Brian?

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Brian Goff, Alexion Pharmaceuticals, Inc. - Executive VP & Chief Commercial Officer [54]

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Yes, Anupam. I'll just add. I mean, again, I'm really proud of the metabolics team behind this product. And what you have here is strong underlying demand growth. Paul talked about the volume increases of 37%. It's an ultrarare disease, so there is variability on both patient identification, and it ties to -- sometimes genetic testing is required, so there could be lag effect on patients onboarding to therapy. But generally, we feel really good about the continued progress we're making. And it's always a 2-parter: It is about continued progress on that end in the U.S. and then geographic expansion. And as you noted, we're pleased that we're now available and reimbursed in 7 countries around the world.

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Ludwig N. Hantson, Alexion Pharmaceuticals, Inc. - CEO & Director [55]

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So thanks, everybody. So we'll end the call here. And I'm going to say the obvious, that I'm very proud of the Alexion team and everything the team has achieved this year. We're growing our base business. We're delivering on our ambition of making gMG the best Soliris launch. We're advancing towards the Ultomiris launch. We're rebuilding our pipeline internally and through business developments. We're delivering on our financial ambitions. So we're basically executing on all the 5 objectives that we laid out beginning of 2018. So a big thank you to the entire Alexion team for an awesome job. So we'll keep you posted on the progress, but we're very pleased with what we've done so far. So thanks for calling in. Enjoy the rest of your day, and we'll talk soon. Thank you.

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Operator [56]

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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.