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ALXN > SEC Filings for ALXN > Form 10-Q on 25-Apr-2014All Recent SEC Filings

Show all filings for ALEXION PHARMACEUTICALS INC

Form 10-Q for ALEXION PHARMACEUTICALS INC


25-Apr-2014

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 U.S. Food and Drug Administration 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, our ability to develop and commercialize products with our collaborators, 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, the possibility that expected tax benefits will not be realized, 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 (the "SEC").
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 we believe that 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


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

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 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 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. In September 2013, the MHLW approved Soliris for the treatment of pediatric and adult patients with aHUS in Japan. 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.

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.
Marketed Product/Indications
Our marketed product/indications 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 Long-term            Phase IV
                                               Follow-up
                                               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. In 2013, the EC extended the Soliris label to include pediatric patients with PNH. The Committee for Medicinal Products for Human Use (CHMP) recommends that the renewal be granted with unlimited validity. Additionally, we are sponsoring a multinational registry 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 adult and pediatric 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 Programs
Our programs, including investigator sponsored clinical programs, include the
following:
      Product             Development Area            Indication           Development Stage
Soliris (eculizumab)   Transplant               Antibody Mediated         Phase II
                                                Rejection (AMR)
                                                Presensitized Renal
                                                Transplant - Living
                                                Donor
                                                Antibody Mediated         Phase II
                                                Rejection (AMR)
                                                Presensitized Renal
                                                Transplant - Deceased
                                                Donor
                                                Delayed Kidney            Phase II
                                                Transplant Graft
                                                Function*
                       Nephrology               STEC-HUS (Shiga-toxin     Phase II
                                                producing E. Coli
                                                Hemolytic Uremic
                                                Syndrome)
                       Neurology                Neuromyelitis Optica      Phase II
                                                (NMO)*
                                                Myasthenia Gravis (MG)    Phase II
Asfotase alfa          Metabolic Disorders      Hypophosphatasia (HPP)    Phase II
cPMP (ALXN 1101)       Metabolic Disorders      MoCD Type A               Phase I
ALXN 1007              Inflammatory Disorders                             Phase I

* Investigator Initiated Trial

Soliris (eculizumab)

Nephrology
Antibody Mediated Rejection (AMR) in Presensitized Kidney Transplant Patients Enrollment in a multi-national, multi-site controlled clinical trial of eculizumab in presensitized kidney transplant patients at elevated risk for AMR who received kidneys from deceased organ donors was completed in March 2013. The study was then re-opened in October 2013 to enroll additional patients at the request of participating investigators. AMR is the term used to describe a type of transplant rejection that occurs when the recipient has antibodies to the donor organ. In September 2013, researchers presented positive preliminary data from the eculizumab deceased-donor AMR kidney transplant study at the European Society of Organ Transplant (ESOT) in Vienna, Austria.
Enrollment is ongoing in a multi-national, multi-site randomized controlled clinical trial of eculizumab in presensitized kidney transplant patients at elevated risk for AMR who received kidneys from living donors. In April 2014, the EC granted orphan drug designation to eculizumab for the prevention of graft rejection following solid organ transplantation. 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. We have been granted orphan drug designation for DGF by the FDA and, in the first quarter of 2014, the EC granted orphan drug designation to eculizumab for prevention of DGF after solid organ transplantation.
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 enterohemorrhagic Escherichia coli (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 currently discussing with physician investigators 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. In an investigator-initiated Phase II clinical trial of eculizumab in severe and relapsing NMO, eculizumab reduced the median number of NMO attacks at 12 months with a high degree of statistical significance. A single pivotal trial in patients with relapsing NMO commenced patient enrollment in the first half of 2014. The FDA and the EC have each granted orphan designation for eculizumab as a treatment for patients with NMO.
Myasthenia Gravis (MG)
MG is an ultra-rare autoimmune syndrome characterized by complement activation leading to the failure of neuromuscular transmission. Data from a Phase II trial evaluating the safety and efficacy of eculizumab in patients with refractory generalized MG demonstrated an encouraging disease improvement signal. We have completed collaborations with investigators on the design of a Phase III trial to evaluate eculizumab as a treatment for patients with refractory generalized MG, and this trial commenced patient screening in the second quarter of 2014.

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 its severe, crippling and life-threatening complications 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 infantile-onset patients with HPP and have completed our initial analysis for the study. We believe that the analysis is supportive of our anticipated regulatory filings in the U.S., EU and Japan. We continue to enroll and dose patients in a separate multinational Phase II open-label study of infants and children with HPP. Interim results of this trial were presented at the European Society of Pediatric Endocrinology meeting held in September 2013 in Milan, Italy. Results of 15 enrolled and treated patients representing a range of HPP characteristics were summarized, showing that the primary efficacy endpoint was achieved with a high degree of clinical and statistical significance and several key secondary endpoints were also achieved. These results provide data in a broader patient population of infants and children. In 2013, asfotase alfa received Breakthrough Therapy Designation from the FDA.
We have commenced a rolling submission of our BLA for asfotase alfa, which allows completed portions of the application to be submitted and reviewed by the FDA on an ongoing basis. We submitted certain portions of the BLA to the FDA during the second quarter and expect to complete the submission of the remaining sections in the fall of 2014.

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. In October 2013, cPMP received Breakthrough Therapy Designation from the FDA for the treatment of patients with MoCD Type A. Evaluation of our synthetic cPMP replacement therapy in a Phase I healthy volunteer study is complete. As a result, we have initiated a multi-center, multinational open-label clinical trial of synthetic cPMP in patients with MoCD Type A being treated with recombinant Escherichia coli-derived cPMP.

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 have completed enrollment in both a Phase I single-dose, dose escalating safety and pharmacology study in healthy volunteers, as well as in a multi-dose, dose escalating safety and pharmacology study in healthy volunteers. Results are currently being analyzed. We also completed successful meetings with the FDA to discuss


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

initiation of proof of concept studies. As a result, proof of concept studies in two severe life-threatening and ultra-rare disorders are expected to start in the first half of 2014.
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 manufacturing services, product finishing, packaging, vialing and labeling.
In March 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 in August 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 in April 2013. We continue to manufacture products, including Soliris, in this facility. In the first quarter of 2014, we submitted our request for inspection to the FDA, and we are currently awaiting this re-inspection of our manufacturing 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.
The European Medicines Agency (EMA) inspected ARIMF in January 2013, and a good manufacturing practices (GMP) certificate was issued in May 2013.
In August 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. Subsequently, in November 2013, we initiated a voluntary recall and replacement of a limited number of vials of Soliris due to the presence of similar visible particles. These recalls did not interrupt the supply of Soliris to patients. Following investigation, we believe that we have identified the filling process step that resulted in the presence of the visible particles and we are implementing the changes necessary to modify the process step. During the fourth quarter of 2013, we recorded expense of $14,277 in cost of sales resulting from the expected disposal of inventory in 2014. In January 2014, we agreed to purchase a vialing facility in Athlone, Ireland, and the closing of the acquisition occurred in April 2014. Following refurbishment of the facility, and after successful completion of the appropriate validation processes and regulatory approvals, the facility will become our first company-owned vialing and packaging facility for Soliris and other clinical and commercial products. Our plans for future expansion in Ireland also include the purchase of property in Dublin, Ireland, which we completed in April 2014, for the construction of office and laboratory facilities.
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, 2013. 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.


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

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, 2013. We have reviewed our critical accounting policies as disclosed in our Form 10-K, and we have not noted any material changes. Results of Operations

Net Product Sales
The following table summarizes net product sales for the three months ended March 31, 2014 and 2013:

Three months ended
March 31, $
2014 2013 Variance
Net product sales $ 566,616 $ 338,941 $ 227,675

In March 2014, we entered into an agreement with the French government which positively impacts prospective reimbursement of Soliris and also provides for reimbursement for shipments made in years prior to January 1, 2014. As a result of the agreement, in the first quarter of 2014, we recognized $87,830 of net product sales from Soliris in France relating to years prior to January 1, 2014. Exclusive of the $87,830 recognized related to prior years, the increase of 41.3% in revenue for the three months ended March 31, 2014, as compared to the same period in 2013, was primarily due to an increased volume of unit shipments and increased price, partially offset by a negative impact of foreign exchange. The increase in revenue of 41.3% for the three months ended March 31, 2014 was due to an increase in unit volumes of 36.8% and a positive price impact of 6.5%, offset by a negative impact on foreign exchange of 2.0%. The increase in volume was largely due to physicians globally requesting Soliris therapy for additional patients. The positive price impact of 6.5% for the three months ended March 31, 2014 was primarily due to the agreement with the French government, a reduction in estimated rebates in Germany, and a price increase in the United States, offset by an increase in rebates in certain countries in Europe.
The negative impact of foreign exchange of $6,861, or 2.0%, for the three months ended March 31, 2014 was due to changes in foreign currency exchange rates (inclusive of hedging activity) versus the U.S. dollar for the three months ended March 31, 2013. The negative impact was primarily due to changes in the Japanese Yen. We recorded a gain in revenue of $1,266 and $5,153 related to our foreign currency cash flow hedging program for the three months ended March 31, 2014 and 2013, respectively.
Cost of Sales
In the first quarter of 2014, the Company entered into a settlement agreement with a third party related to the calculation of royalties payable to such third . . .

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