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ALXN > SEC Filings for ALXN > Form 10-Q on 25-Oct-2013All Recent SEC Filings

Show all filings for ALEXION PHARMACEUTICALS INC

Form 10-Q for ALEXION PHARMACEUTICALS INC


25-Oct-2013

Quarterly Report


Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.

Note Regarding Forward-Looking Statements

This quarterly report on Form 10-Q contains forward-looking statements that have been made pursuant to the provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on current expectations, estimates and projections about our industry, management's beliefs, and certain assumptions made by our management, and may include, but are not limited to, statements regarding the potential benefits and commercial potential of Soliris® (eculizumab) for its approved indications and any expanded uses, timing and effect of sales of Soliris in various markets worldwide, pricing for Soliris, level of insurance coverage and reimbursement for Soliris, level of future Soliris sales and collections, timing regarding development and regulatory approvals for additional indications or in additional territories for Soliris, the medical and commercial potential of additional indications for Soliris, failure to satisfactorily address the issues raised by the FDA in the March 2013 Warning Letter, costs, expenses and capital requirements, cash outflows, cash from operations, status of reimbursement, price approval and funding processes in various countries worldwide, progress in developing commercial infrastructure and interest about Soliris and our drug candidates in the patient, physician and payer communities, the safety and efficacy of Soliris and our product candidates, estimates of the potential markets and estimated commercialization dates for Soliris and our drug candidates around the world, sales and marketing plans, any changes in the current or anticipated market demand or medical need for Soliris or our drug candidates, status of our ongoing clinical trials for eculizumab, asfotase alfa and our other product candidates, commencement dates for new clinical trials, clinical trial results, evaluation of our clinical trial results by regulatory agencies, prospects for regulatory approval, need for additional research and testing, the uncertainties involved in the drug development process and manufacturing, performance and reliance on third party service providers, our future research and development activities, plans for acquired programs, assessment of competitors and potential competitors, the outcome of challenges and opposition proceedings to our intellectual property, assertion or potential assertion by third parties that the manufacture, use or sale of Soliris infringes their intellectual property, estimates of the capacity of manufacturing and other service facilities to support Soliris and our product candidates, potential costs resulting from product liability or other third party claims, the sufficiency of our existing capital resources and projected cash needs, assessment of impact of recent accounting pronouncements, declines in sovereign credit ratings or sovereign defaults in countries where we sell Soliris, delay of collection or reduction in reimbursement due to adverse economic conditions or changes in government and private insurer regulations and approaches to reimbursement, the short and long term effects of other government healthcare measures, and the effect of shifting foreign exchange rates. Words such as "anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates," variations of such words and similar expressions are intended to identify such forward-looking statements, although not all forward-looking statements contain these identifying words. These statements are not guarantees of future performance and are subject to certain risks, uncertainties, and assumptions that are difficult to predict; therefore, actual results may differ materially from those expressed or forecasted in any such forward-looking statements. Such risks and uncertainties include, but are not limited to, those discussed later in this report under the section entitled "Risk Factors". Unless required by law, we undertake no obligation to update publicly any forward-looking statements, whether because of new information, future events or otherwise. However, readers should carefully review the risk factors set forth in this and other reports or documents we file from time to time with the Securities and Exchange Commission.
Business
Overview
We are a biopharmaceutical company focused on serving patients with severe and ultra-rare disorders through the innovation, development and commercialization of life-transforming therapeutic products. Our marketed product Soliris is the first and only therapeutic approved for patients with either of two severe and ultra-rare disorders resulting from chronic uncontrolled activation of the complement component of the immune system: paroxysmal nocturnal hemoglobinuria (PNH), a life-threatening and ultra-rare genetic blood disorder, and atypical hemolytic uremic syndrome (aHUS), a life-threatening and ultra-rare genetic disease. We are also evaluating additional potential indications for Soliris in severe and ultra-rare diseases in which uncontrolled complement activation is the underlying mechanism, and we are progressing in various stages of development with additional biotechnology product candidates as treatments for patients with severe and life-threatening ultra-rare disorders. We were incorporated in 1992 and began commercial sale of Soliris in 2007.
Soliris is designed to inhibit a specific aspect of the complement component of the immune system and thereby treat inflammation associated with chronic disorders in several therapeutic areas, including hematology, nephrology, transplant rejection and neurology. Soliris is a humanized monoclonal antibody that effectively blocks terminal complement activity at the doses currently prescribed. The initial indication for which we received approval for Soliris is PNH. PNH is a debilitating and life-threatening, ultra-rare genetic blood disorder defined by chronic uncontrolled complement activation leading to the


Alexion Pharmaceuticals, Inc.
(amounts in thousands, except per share amounts)

destruction of red blood cells (hemolysis). The chronic hemolysis in patients with PNH may be associated with life-threatening thromboses, recurrent pain, kidney disease, disabling fatigue, impaired quality of life, severe anemia, pulmonary hypertension, shortness of breath and intermittent episodes of dark-colored urine (hemoglobinuria).
Soliris was approved for the treatment of PNH by the U.S. Food and Drug Administration (FDA) and the European Commission (EC) in 2007 and by Japan's Ministry of Health, Labour and Welfare (MHLW) in 2010, and has been approved in several other territories. Additionally, Soliris has been granted orphan drug designation for the treatment of PNH in the United States, Europe, Japan and several other territories.
In September and November 2011, Soliris was approved by the FDA and EC, respectively, for the treatment of pediatric and adult patients with aHUS in the United States and Europe. aHUS is a severe and life-threatening genetic ultra-rare disease characterized by chronic uncontrolled complement activation and thrombotic microangiopathy (TMA), the formation of blood clots in small blood vessels throughout the body, causing a reduction in platelet count (thrombocytopenia) and life-threatening damage to the kidney, brain, heart and other vital organs. In addition, the FDA and EC have granted Soliris orphan drug designation for the treatment of patients with aHUS. In September 2013, the MHLW approved Soliris for the treatment of pediatric and adult patients with aHUS in Japan.
Products and Development Programs
We focus our product development programs on life transforming therapeutics for severe and life-threatening ultra-rare diseases for which we believe current treatments are either non-existent or inadequate. Eculizumab is a humanized antibody known as a C5 terminal complement inhibitor (C5 Inhibitor), which is designed to selectively block the production of inflammation-causing proteins of the complement cascade. We believe that selective suppression of this immune response may provide a significant therapeutic advantage relative to existing therapies. In addition to PNH and aHUS, for which the use of eculizumab has been approved in the United States, Europe and Japan, we believe that C5 Inhibitors may be useful in the treatment of a variety of other serious diseases and conditions resulting from uncontrolled complement activation. Marketed Products
Our marketed products include the following:

      Product            Development Area            Indication           Development Stage
Soliris (eculizumab)   Hematology              Paroxysmal Nocturnal      Commercial
                                               Hemoglobinuria (PNH)
                                               PNH Registry              Phase IV
                       Hematology/Nephrology   Atypical Hemolytic        Commercial
                                               Uremic Syndrome (aHUS)
                                               aHUS Trials               Phase IV
                                               aHUS Registry             Phase IV

Paroxysmal Nocturnal Hemoglobinuria (PNH) Soliris is the first and only therapy approved for the treatment of patients with PNH, a debilitating and life-threatening ultra-rare blood disorder in which an acquired genetic deficiency causes uncontrolled complement activation which leads to life-threatening complications. We continue to work with researchers to expand the base of knowledge in PNH and the utility of Soliris to treat patients with PNH. The EC recently extended the Soliris label to include pediatric patients with PNH. Additionally, we are sponsoring multinational registries to gather information regarding the natural history of patients with PNH and the longer term outcomes during Soliris treatment. Atypical Hemolytic Uremic Syndrome (aHUS) aHUS is a chronic and life-threatening ultra-rare genetic disease in which uncontrolled complement activation causes blood clots in small blood vessels throughout the body (thrombotic microangiopathy, or TMA) leading to kidney failure, stroke, heart attack and death. Soliris is the first and only therapy approved for the treatment of patients with aHUS. Pursuant to a post marketing requirement imposed by the FDA, we have now completed enrollment in a prospective open-label trial in adults with aHUS and, separately, enrollment has been completed in a prospective trial of pediatric patients with aHUS.


                         Alexion Pharmaceuticals, Inc.
                (amounts in thousands, except per share amounts)

Clinical Development Program
Our significant programs, including investigator sponsored clinical programs,
include the following:
      Product          Development Area         Indication           Development Stage
Soliris (eculizumab)   Nephrology         Presensitized Renal       Phase II
                                          Transplant - Living
                                          Donor
                                          Presensitized Renal       Phase II
                                          Transplant - Deceased
                                          Donor
                                          Delayed Kidney            Phase II
                                          Transplant Graft
                                          Function*
                                          ABO Incompatible Renal    Phase II
                                          Transplant*
                                          STEC-HUS (Shiga-toxin     Phase II
                                          producing E.
                                          coli Hemolytic Uremic
                                          Syndrome)
                       Neurology          Neuromyelitis Optica      Phase II
                                          (NMO)*
                                          Myasthenia Gravis (MG)    Phase II
                       Hematology         Cold Agglutinin Disease   Phase II
                                          (CAD)*
Asfotase alfa          Metabolic          Hypophosphatasia (HPP)    Phase II
                       Disorders
cPMP (ALXN 1101)       Metabolic          MoCD Type A               Phase I
                       Disorders
ALXN 1102/1103         Hematology         PNH                       Phase I
ALXN 1007              Inflammatory                                 Phase I
                       Disorders

* Investigator Initiated Trial

Soliris (eculizumab)

Nephrology
Acute Humoral Rejection (AHR) in Presensitized Kidney Transplant Patients Enrollment of the targeted number of patients is complete in a multi-national, multi-site controlled clinical trial of eculizumab in presensitized renal transplant patients at elevated risk for AHR who have received deceased donor grafts. In response to physician requests for eculizumab for their immunized patients awaiting kidney transplant and positive preliminary data, we have decided to expand the study by reopening enrollment. Enrollment is ongoing in a multi-national, multi-site controlled clinical trial of eculizumab in presensitized renal transplant patients at elevated risk for AHR who have received living donor grafts.
Delayed Kidney Transplant Graft Function Enrollment has been completed in an investigator-initiated Phase II study of eculizumab in patients at elevated risk for delayed graft function (DGF) following kidney transplant. DGF is the term used to describe the failure of a kidney or other organs to function immediately after transplantation due to ischemia-reperfusion and immunological injury.
Shiga-toxin producing E. coli Hemolytic Uremic Syndrome (STEC-HUS) STEC-HUS is an ultra-rare disorder, comprising only a small sub-set of the already rare population of patients with EHEC. Following an authorization by the Paul-Ehrlich-Institut, Germany's health care regulatory body for biologics, and an access program for patients initiated in May 2011, we initiated an open-label clinical trial to investigate eculizumab as a treatment for patients with STEC-HUS. Enrollment in this trial has been completed. We are obtaining and analyzing additional control clinical outcome data from an epidemiologic study in approximately 400 STEC-HUS patients who received only best supportive care. The FDA and the EC have each granted orphan designation for eculizumab as a treatment for patients with STEC-HUS.


Alexion Pharmaceuticals, Inc.
(amounts in thousands, except per share amounts)

Neurology
Neuromyelitis Optica (NMO)
NMO is a severe and ultra-rare autoimmune disease of the central nervous system (CNS) that primarily affects the optic nerves and spinal cord. Preliminary data from the investigator-initiated Phase II clinical trial of eculizumab in severe and relapsing NMO patients was presented to the American Neurological Association (ANA) meeting in October 2012. The study was reported to have achieved its primary efficacy endpoint with a high degree of clinical and statistical significance and several key secondary endpoints were also achieved. We are completing our discussions with regulators and plan to initiate what we expect to be a single pivotal NMO registration trial. Myasthenia Gravis (MG)
MG is an ultra-rare autoimmune syndrome characterized by complement activation leading to the failure of neuromuscular transmission. Preliminary data from a Phase II trial evaluating the safety and efficacy of eculizumab in patients with severe, refractory MG demonstrated an encouraging disease improvement signal and was presented at the Myasthenia Gravis Foundation Annual Meeting in September 2011. We continue to work with investigators to design the next clinical trial to evaluate eculizumab as a treatment for patients with severe and refractory MG. We have completed our discussions with regulators and plan to initiate what we expect to be a single pivotal MG registration trial. Hematology
Cold Agglutinin Disease (CAD)
We are aware that dosing is ongoing in an investigator-initiated Phase II study of eculizumab in patients for the treatment of CAD. CAD is a severe, ultra-rare complement-mediated autoimmune disease characterized by the presence of high concentrations of circulating complement-activating antibodies directed against red blood cells. As observed with PNH patients, CAD patients also suffer from the clinical consequences of severe hemolysis.

Asfotase Alfa
Hypophosphatasia (HPP)
HPP is an ultra-rare, genetic, and life-threatening metabolic disease characterized by impaired phosphate and calcium regulation, leading to progressive damage to multiple vital organs including destruction and deformity of bones, profound muscle weakness, seizures, impaired renal function, and respiratory failure.
Asfotase alfa, a targeted enzyme replacement therapy in Phase II clinical trials for patients with HPP, is designed to directly address the morbidities and mortality of HPP by targeting alkaline phosphatase directly to the deficient tissue. In this way, asfotase alfa is designed to normalize the genetically defective metabolic process and prevent or reverse the severe, crippling and life-threatening complications of dysregulated mineral metabolism in patients with HPP. Initial studies with asfotase alfa in HPP patients indicate that the treatment significantly decreases the levels of targeted metabolic substrates. We have completed enrollment in a natural history study in infants with HPP and have completed our initial analysis for the study. We are currently dosing patients in a separate global trial of severe infant HPP patients.

cPMP (ALXN 1101)
Molybdenum Cofactor Deficiency (MoCD) Disease Type A (MoCD Type A) MoCD Type A is a rare metabolic disorder characterized by severe and rapidly progressive neurologic damage and death in newborns. MoCD Type A results from a genetic deficiency in cyclic Pyranopterin Monophosphate (cPMP), a molecule that enables production of certain enzymes, the absence of which allows neurotoxic sulfite to accumulate in the brain. To date, there is no approved therapy available for MoCD Type A. There has been some early clinical experience with the cPMP replacement therapy in a small number of children with MoCD Type A and we have initiated a natural history study in patients with MoCD Type A. We received authorization to initiate testing of our synthetic cPMP replacement therapy in healthy volunteers and began dosing healthy volunteers in the second quarter 2013.

ALXN 1102/1103
ALXN 1102/1103 is a novel alternative pathway complement inhibitor with a mechanism of action unique from Soliris. ALXN 1102 is currently being investigated in a Phase I single dose, dose escalating safety and pharmacology study. ALXN 1103 is being dosed in the same Phase I trial as a subcutaneous formulation.


Alexion Pharmaceuticals, Inc.
(amounts in thousands, except per share amounts)

ALXN 1007
ALXN 1007 is a novel humanized antibody designed to target rare and severe inflammatory disorders and is a product of our proprietary antibody discovery technologies. We are completing enrollment in a Phase I single-dose, dose escalating safety and pharmacology study in healthy volunteers and we are currently enrolling patients in a multi-dose, dose escalating safety and pharmacology study in healthy volunteers. Manufacturing
We currently rely on three manufacturing facilities, Alexion's Rhode Island manufacturing facility (ARIMF) and two facilities operated by Lonza Group AG and its affiliates (Lonza), to produce commercial and clinical bulk quantities of Soliris, and we rely on a facility operated by Lonza for clinical quantities of asfotase alfa. We produce our clinical and preclinical quantities of our other product candidates at ARIMF. We also depend on a limited number of third party providers for other services with respect to our clinical and commercial requirements, including product finishing, packaging, vialing and labeling. On March 27, 2013, we received a Warning Letter from the FDA regarding compliance with current Good Manufacturing Practices (cGMP) at ARIMF. The Warning Letter followed an FDA inspection which concluded on August 6, 2012. At the conclusion of that inspection, the FDA issued a Form 483 Inspectional Observations, to which we responded in August 2012 and provided additional information to the FDA in September and December 2012. The observations relate to commercial and clinical manufacture of Soliris at ARIMF. We responded to the Warning Letter in a letter to the FDA dated April 15, 2013. We continue to manufacture products, including Soliris, in this facility. While the resolution of the issues raised in this Warning Letter is difficult to predict, we do not currently believe a loss related to this matter is probable or that the potential magnitude of such loss or range of loss, if any, can be reasonably estimated. To the extent that circumstances related to this matter change, the impact could have a material adverse effect on our financial operations. Further, the European Medicines Agency (EMA) inspected ARIMF in January 2013 and a GMP certificate was issued in May 2013.
On August 19, 2013, we initiated a voluntary recall and replacement of the remaining vials of a single lot of Soliris due to the presence of visible particles in a limited number of vials in the lot. The recall did not interrupt the supply of Soliris to patients and had no material impact on operations or financial results.
Critical Accounting Policies and the Use of Estimates The significant accounting policies and basis of preparation of our consolidated financial statements are described in Note 1, "Business Overview and Summary of Significant Accounting Policies," of our financial statements included in our Form 10-K for the year ended December 31, 2012. Under accounting principles generally accepted in the United States, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and disclosure of contingent assets and liabilities in our financial statements. Actual results could differ from those estimates. We believe the judgments, estimates and assumptions associated with the following critical accounting policies have the greatest potential impact on our consolidated financial statements:
• Revenue recognition;

• Contingent liabilities;

• Inventories;

• Research and development expenses;

• Share-based compensation;

• Valuation of goodwill, acquired intangible assets and in-process research and development (IPR&D);

• Valuation of contingent consideration; and

• Income taxes.

For a complete discussion of these critical accounting policies, refer to "Critical Accounting Policies and Use of Estimates" within "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations" included within our Form 10-K for the year ended December 31, 2012. We have reviewed our critical accounting policies as disclosed in our Form 10-K, and we have not noted any material changes.

New Accounting Pronouncements
In January 2013, the Financial Accounting Standards Board issued an update to clarify the scope of disclosures for offsetting assets and liabilities. The standard is effective for interim and annual periods beginning on or after January 1, 2013 and requires disclosure for all comparative periods. We adopted the provisions of this guidance in 2013.


Alexion Pharmaceuticals, Inc.
(amounts in thousands, except per share amounts)

In February 2013, the Financial Accounting Standards Board issued a new standard to improve the reporting of reclassifications out of accumulated other comprehensive income. The new standard requires the disclosure of significant amounts reclassified from each component of accumulated other comprehensive income and the income statement line items affected by the reclassification. The standard is effective prospectively for interim and annual periods beginning after December 15, 2012. We adopted the provisions of this guidance, and included the additional disclosure requirements, in the first quarter of 2013. Results of Operations

Net Product Sales
The following table summarizes net product sales for the three and nine months ended September 30, 2013 and 2012:

Three months ended Nine months ended September 30, $ September 30, $ 2013 2012 Variance 2013 2012 Variance Net product sales $400,405 $294,136 $106,269 $1,109,437 $813,588 $295,849

The increase in revenue for the three and nine months ended September 30, 2013, as compared to the same period in 2012, was primarily due to an increased volume of unit shipments, partially offset by a negative impact of price and foreign exchange.
The increase in revenue of 36.1% and 36.4% for the three and nine months ended September 30, 2013, respectively, was due to an increase in unit volumes of 42.1% and 40.1%, offset by a negative price impact of 4.1% and 2.7%, and a negative impact on foreign exchange of 1.9% and 1.0%. The increase in volume was largely due to physicians globally requesting Soliris therapy for additional patients. The negative price impact of 4.1% for the three months ended September 30, 2013 was primarily due to increased rebates in certain countries in Europe. The negative price impact of 2.7% for the nine months ended September 30, 2013 was primarily due to increased rebates in certain countries in Europe, offset by a price increase in the United States.
The negative impact on foreign exchange of $5,467 and $7,809, or 1.9% and 1.0%, for the three and nine months ended September 30, 2013 was due to changes in foreign currency exchange rates (inclusive of hedging activity) versus the dollar for the three and nine months ended September 30, 2012. The negative impact was primarily due to the weakening of the Japanese Yen. We recorded a gain in revenue of $5,709 and $4,810 for the three months ended September 30, 2013 and 2012, respectively, and $18,364 and $8,885 for the nine months ended September 30, 2013 and 2012, respectively, related to our foreign currency cash flow hedging program.
Cost of Sales
In October 2013, we entered into a settlement agreement and dismissal with Novartis pursuant to which Alexion was granted a non-exclusive, fully paid license and the case was dismissed with prejudice. As a result, we recorded expense of $9,181 in cost of sales in the third quarter 2013 related to this litigation settlement agreement.
In the third quarter of 2012, we reduced our estimate for probable contingent liabilities as of September 30, 2012 due to the execution of a settlement and non-exclusive license agreement in October 2012 with a third party related to the third party's intellectual property. The adjustment reflected the actual, negotiated royalty rate set forth in the agreement. This change in estimate resulted in a positive impact in cost of sales of $53,377 during the third quarter 2012.
Exclusive of the settlements noted above, cost of sales were $42,177 and $33,186 for the three months ended September 30, 2013 and 2012, respectively, and $116,823 and $93,067 for the nine months ended September 30, 2013 and 2012, respectively. Exclusive of the settlements noted above, cost of sales as a percentage of net product sales decreased to 10.5% for the three months ended September 30, 2013 from 11.3% for the three months ended September 30, 2012 and cost of sales as a percentage of net product sales decreased to 10.5% for the nine months ended September 30, 2013 from 11.4% for the nine months ended . . .

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