Alexion Pharmaceuticals, Inc.

Ladies and gentlemen, thank you for standing by. And welcome to Alexion Pharmaceutical's second quarter 2020 results conference call. At this time, I'll put this in front and then one on your telephone. Please be advised that today's conference may be recorded. If you require a good question, press star and then one on your telephone. Please be advised that today's conference may be recorded. If you require any further assistance, please press star and then zero. I would now like to hand the conference over to your speaker today, Mr. Chris Devo, Head of Investor Relations. Sir, you may begin.

Thank you, operator. Good morning. Thank you for joining us on today's call to discuss Alexion's performance for the second quarter of 2020. Just as we did last quarter, we are practicing physical distancing and are each doing the call from home. Today's call will be led by Ludwig Hansen, our CEO. Ludwig will be joined by Aradna Sarin, our Chief Financial Officer, John Orloff, our global head of R&D, and Brian Goff, our chief commercial and global operations officer. We will begin the call with a brief presentation and will reserve the rest of the time for your questions. You can access the webcast slides that will be presented on this call and other earnings materials 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 with 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 as an addition to, but not a substitute for, our GAAP results. Thank you. With that, I'm happy to give you our CEO, Ludwig.

Thank you, Chris, and good morning, everyone. I'm pleased to share our second quarter performance. The last several months have tested the global community, healthcare systems worldwide, and individuals and families around the world. We know the rare disease community has been greatly impacted and remain committed to supporting them. Our ability to successfully navigate through this challenging time is a result of strong execution against the contingency plan we developed at the beginning of the pandemic. This will guide us as we move forward. Our continued performance demonstrates the overall strength of the business and the resilience of the organization. I would like to thank our employees worldwide for their hard work and relentless commitment to our mission of transforming the lives of people with rare diseases and devastating conditions. Turning to the progress we have made in the second quarter, we have delivered another very strong financial performance. with 20% revenue growth and 18% non-GAAP EPS growth year over year. As a result, we have increased our full-year financial guidance to reflect the momentum of the business. Driven by continuous execution, demonstrated commercial excellence, and a growing pipeline, we've entered a new stage for the company, one of diversified growth and financial flexibility. As part of this evolution, We actively review our long-term corporate plan to assess the most compelling capital allocation strategies, industry landscape, and business development opportunities to ensure we support the areas of high score potential for value creation. As a result of the company's continued progress over the last three years, we now have the ability to be more flexible in how we deploy capital with confidence in our pipeline and our future. we are able to make a multi-year commitment to return more value to shareholders. We have significantly increased our free cash flow over the last few years and are committing to a minimum share repurchase of $500 to $550 million in 2020 and at least an average of one-third of free cash flow annually from 2021 to 2023. We will also continue to be opportunistic about this commitment. As you may recall, last year we laid out a multi-year strategy for value creation with three primary areas of focus. The first revolves around the leadership in complement. We have achieved our initial ambition in this area by establishing Ultramir as the market leader in P&H with more than 70% conversion in the U.S. We launched Ultramaris for HUS in the U.S. last October and are on track to achieve our goal of 70% conversion for Solaris within two years. The German launch in HUS is just getting started following last month's European Commission decision, and our Japanese team is preparing for approval later this year. In addition, we continue to advance efforts to improve patients' treatment experience. We received positive Phase III non-inferiority data for our ultramarine once-weekly sub-Q formulation, which will provide an additional treatment choice for our patients. Next, we are broadening our C5 franchise into new and expanded therapeutic areas. We began this expansion with neurology, which has already grown into our largest franchise in the U.S. We continue to build on this momentum. and arm track to quadruple the number of U.S. neurology patients treated by 2025. In addition, phase III ultramarine studies in MG and MOSD and ALS are all underway, and we plan to begin additional late-stage trials in several new indications later this year. Third, we have significantly diversified our development and commercial stage portfolios to discipline business development. Earlier this month, we completed the acquisition of Fotola, and we're very excited to welcome our new colleagues into the organization. We look forward to advancing our shared mission of developing transformative therapies together. Collectively, we have made great strides advancing and transforming Alexion and have built a strong foundation for the future. Our pipeline now includes 20 development programs, up from four at the end of 2017, with the potential for 10 launches by 2023. As a result of the strong foundation we have established, we're also well-positioned to continue delivering on our ambition of double-digit revenue growth. We believe significant value lies ahead as we continue to execute on our strategy to create shareholder value. We have made substantial progress thus far and have created a strong foundation upon which we can continue to deliver. Importantly, our journey continues as we remain focused on driving long-term value for our shareholders. With that, I will now turn the call over to Arana. Arana?

Thank you, Ludwig. Starting with Slide 9, we reported second quarter total revenues of approximately $1.4 billion, an increase of 20% year-over-year. We are pleased with the momentum we saw over the quarter, which was driven by strength in our neurology franchise, continued growth in the core PNH and atypical HUS businesses, and volume growth in our metabolic business. Operating margin strength continued in Q2, with non-GAAP operating margin of 58%. Non-GAAP EPS was $3.11, representing 18% growth year over year, driven primarily by strong top line growth. Moving to slide 10, second quarter total net product sales were primarily driven by volume growth across each of our medicines and key markets. Turning to slide 11, Solaris revenues in the second quarter with approximately $976 million. Year-over-year Solaris revenue was flat, as growth in Solaris neurology indications was offset by conversions to Ultramaris in PNH and atypical HUS. Ultramaris revenue in the second quarter was $251 million, including contributions from the ongoing launches in atypical HUS. As a reminder, we made the strategic decision to lower the annual cost per patient on Altamiris compared to Solaris. In the maintenance phase, Altamiris represents a 10% and 30% lower annual cost per patient compared to Solaris for P&H and atypical HUS patients, respectively. Total C5 franchise revenues were $1.2 billion, an increase of 19% year over year. Metabolic revenue for the second quarter was $218 million, representing 30% growth versus prior year driven by volume. On the right of the slide, we highlight indexa historical revenues as reported by Portola, which are not included in Alexion's results. Second quarter indexa estimated sales, which have not been conformed to Alexion's accounting policies, were adversely impacted by COVID-related demand reductions. Turning to the P&L on slide 13, during the quarter, non-GAAP R&D expense was $205 million, or 14% of revenues. Non-GAAP SG&A expense was $254 million, or 18% of revenues. The non-GAAP effective tax rate in the quarter was approximately 15%. Non-GAAP second quarter EPS was $3.11, growing 18% year over year. During the second quarter, the company revised its strategic view of Konuma based on continued challenges, expanding patient growth, and new alternative commercial opportunities. This resulted in reduced long-term cash flow projections and an impairment of our Konuma intangible assets of approximately $2 billion. As a result, GAAP earning per share was a loss of $4.84. We ended the second quarter with approximately $2.9 billion in cash and marketable securities and repurchased approximately 3.6 million shares at a cost of $361 million during the first half of 2020. Now moving to slide 14, I'd like to provide an update to our 2020 full-year guidance. As mentioned, we closed the acquisition of Portola in early July. And we've learned a lot over the past three months as we continue to navigate through the global COVID-19 pandemic. As a reminder, we lowered our guidance in the first quarter with the assumption that we would start to see gradual reopening to healthcare systems around the globe in July. I will now walk you through how our guidance has evolved since that time. Starting with the top line, we are increasing our revenue guidance to $5,550,000,000 to $5.6 billion for the full year where the midpoint reflects a 12% growth over 2019. In terms of product revenue, updated guidance for Solaris and Altameris is $4,725,000,000 to $4,755,000,000, while guidance for a metabolic business is now $785,000,000 to $800,000,000. We also expect indexed revenues of $40 million to $45 million for the second half of 2020. Our second quarter showed that compliance rates remain similar to pre-COVID levels across all of our indications. We also continue to see strong Alzheimer's conversion in light of the advantages of an every-eight-week dosing regimen. We will continue to monitor the impact of the following over the remainder of the year. Access to medical care around the globe, compliance rates across indications, the queue of new patient starts, U.S. fare mix given fluctuating unemployment rates, and continued COVID case growth and a potential second wave. Non-GAAP operating margin is expected to be between 53% and 54% of revenues. Non-GAAP R&D expense is expected to be between 16.5% and 17.5%, just slightly above our prior guidance. Non-GAAP SG&A spend is expected to be 21% to 22% of revenues and includes investments for INDECSA following the close of the Portola acquisition. These best-in-class margins reflect the addition of approximately 125 million of OPEX relating to Portola. Gap EPS is expected to be between $0.96 and $1.30. Non-gap EPS is expected to be between $10.65 and $10.95. Despite the fact that Portola is estimated to be about $0.32 dilutive, the midpoint reflects an increase over both prior quarter and initial 2020 non-gap EPS guidance. The strength of our underlying business performance allows us to absorb the short-term dilution from the Portola transaction. Longer term, we still expect Indexa to achieve peak sales of at least 600 million and profitability aligned with historical Alexion margins. As Ludwig mentioned earlier this morning, we are updating our capital allocation strategy. Since 2017, We have significantly grown our business with robust improvements in both the top line and free cash flow. We've made significant investments in our R&D portfolio, transforming it from just a handful of C5 programs in 2017 to one that now includes 20 clinical stage programs across 11 assets. As we move forward, we will continue to invest in our existing pipeline to drive long-term value for patients and shareholders alike. Slide 16 highlights our updated commitment. It is as a result of the pipeline progress and confidence that I just mentioned that allows us to shift our capital allocation strategy to a more balanced approach. At this time, we are announcing our intention to repurchase at least 500 to 550 million shares in 2020. We will increase this to a minimum of one-third of our free cash flows on an average annually from 2021 to 2023. We will opportunistically consider additional repurchases above this amount as the market and business development landscape evolves. While disciplined BD remains part of our strategy, in the near term, we are focused on integrating and creating value from the Portola transaction. To this end, In addition to the $1 billion share repurchase authorization approved in October of 2019, the Board has approved a further $1.5 billion authorization in support of this effort to maximize shareholder value. I will now turn the call over to John to provide an update on our R&D activities.

Thank you, Aradna. Starting on slide 18, you can see our current development portfolio and the significant evolution it has undergone since 2017, resulting in a robust clinical stage pipeline today. This year, we have made significant progress in advancing our programs despite the challenges posed by COVID-19. In the quarter, we received approval for Ultramaris and atypical HUS in the EU. Importantly, we also reported positive top-line results from our once-weekly subcutaneous Altamira's trial and are on track to file in the third quarter of 2021 after the 12-month safety data and drug-device combination data are collected. It has the opportunity to be the first subcutaneous treatment option for both PNH and atypical HUS and provides an additional treatment choice for patients who prefer to self-administer their medicines. Following the transaction close earlier this month, we have been busy integrating Portola's R&D activities into Alexion, including label and geographic expansion opportunities for Indexa, as well as the urgent surgery program. We are also assessing next steps for Certilatinib. Turning to slide 19, the pipeline progress made this quarter in spite of the current environment is a testament to the dedication of our teams and the capabilities we have built within R&D. I'd like to take a moment to highlight some of the innovative approaches we have invented in our operations. In order to accelerate our clinical programs, we have focused on innovative study designs, leveraging real-world data to inform site startup and enrollment strategies to maximize efficiency. We have also built robust capabilities across our footprint to effectively liaise with local regulatory bodies, and in some cases, even bring the trial to the patient at home. An example of this is our Altamiris GMG trial, where we have implemented at-home monitoring and infusion services, allowing us to maintain the safety of patients while keeping the program on track. In addition, we have built capabilities to enable digital clinical trials, leveraging artificial intelligence and machine learning to analyze risk and support data-driven decision-making. Taking advantage of the enhanced productivity that these innovations bring allows us to better allocate our resources and increases the overall capacity of the organization. These enhancements support our ambition and we remain on track for 10 launches by 2023. Turning to slide 20, here we highlight the current programs we see as potentially launching by 2023 and the potential opportunity each presents. Starting on the left, We have the once-weekly Altamira subcutaneous program that I mentioned earlier on track for filing in the third quarter of next year. We are also expanding our C5 portfolio well beyond the PNH and atypical HUS businesses with Altamira's neurology and nephrology programs, which collectively present an opportunity to expand our treated patient population by tens of thousands of patients. I am pleased to share that our Altamira's GMG trial has achieved greater than 65% enrollment, and NMOSD has achieved greater than 25% enrollment. Our ALS program, initiated just this year, continues to enroll. In addition, our HSCT TMA and complement mediated TMA trials remain on track to initiate later this year and early next year, respectively. I'd also like to highlight a new opportunity within our pipeline, Solaris in Guillain-Barre syndrome. The study is planned in Japan, where we have been granted the Sakagaki designation by MHLW, one of the few foreign medicines to have received this distinction. Results from an investigator-sponsored study suggest that treatment with Solaris in addition to IVIG standard of care may result in improved long-term outcomes for patients with GBS. Given these results, in close partnership with the investigators, Alexion will be taking this forward into a Phase III program in the first half of 2021. Building on this foundation, we see opportunity to diversify our business beyond C5 with four additional late-stage novel assets currently in scope. The Phase II dose-ranging portion of the pivotal Phase II-III program with CAEL-101 and AL amyloidosis has recently successfully completed, and we look forward to working with our partners at Kalem to initiate the Phase III program later this year. As we had previously shared, enrollment is complete in our Phase III superiority trial for ALXN1840 and Wilson disease, and we continue to plan for Phase III data in the first half of next year. 1840 has the potential to be a transformative new standard of care in Wilson disease, with its rapid onset of action, profound copper clearance, and convenient once-daily oral dosing. Finally, both our AG10 ATTR cardiomyopathy and ALXN2040 PNH add-on therapy programs remain on track to begin Phase III trials later this year. While there is always risk in clinical development, we are confident that our robust pipeline and innovative R&D capabilities will support our ambition to significantly expand the number of patients we serve. Turning to slide 21, I'd like to provide an update on some of our earlier stage clinical programs. Upon review of the recent Phase II data, the PKPD results support proof of mechanism in C3G, but ALXN2040 and the level of alternative pathway inhibition it provided did not significantly control disease in patients. While we have made the decision to no longer pursue the indication with ALXN2040, a subset of patients did show reductions in proteinuria that, along with other signals, support the rationale for factor D as a target. So we are exploring next steps in C3G, such as consideration of including the indication in the Riedel program with ALSN 2050, the next-generation factor D inhibitor acquired from Achilleon. Given 2050's longer half-life and greater levels of alternative pathway inhibition, it will be better suited for C3G. On the right, we lay out our proof of concept strategy and renal indications. As previously announced, we will be initiating basket trials with both Altamiris and 2050. A nimble proof of concept strategy will allow us to efficiently identify the most appropriate indications to move forward into Phase III development. In addition to considering the efficacy of the asset in the indication, we will consider route of administration and patient needs, balancing the advantages of both every eight-week IV infusion with Altamiris and convenient twice-daily oral dosing with 2050. While the final list of indications to study is still under evaluation, we have identified lupus nephritis, IgA nephropathy, primary membranous nephropathy, and C3G as a sampling of indications of interest. The Altamiris renal basket study is planned to start in the second half of this year and 2050 to begin in the first half of 2021. Finally, at the bottom left of the slide, we have an update on ALXN 1830, our FCRN program. Recall last quarter, we paused this program as we were unable to continue healthy volunteer studies due to COVID-19. We will be reinitiating the program in the first half of 2021. Given the evolving landscape in FCRN, we are shifting our approach to an entirely subcutaneous route of administration for both warm autoimmune hemolytic anemia and generalized myasthenia gravis. While we did have to pause our subcutaneous single and multiple ascending dose program, early data showed single doses were well tolerated and had a meaningful IgG lowering potential. Further, our internal modeling suggests a weekly subcutaneous infusion of 1,500 milligrams should provide greater than 70% IgG lowering. Coupled with a convenient on-body device, we believe 1830 has potential to be a differentiated FCRM. With that, I'll turn the call over to Brian to provide commercial highlights from the quarter. Brian?

Thank you, John. Turning first to slide 23, I'd like to start by reflecting back over the past 18 months when we first launched Altamiris in the U.S. for PNH. At that time, we set an ambitious target to establish a new standard of care through a best-in-class conversion of 70% of patients within two years. Today, I couldn't be more proud to share that we've achieved that 70% conversion and established Altamira as the standard of care in the U.S. And we did so within 18 months, six months ahead of our initial goal. Japan has also reached this 70% ambition. in less than a year since launch, and Germany is nearly there in just over one year since initial launch. That's an incredible accomplishment and speaks to the meaningfulness of Altamiris for patients and our team's excellent execution capabilities. Our Altamiris journey continues as we remain on track to achieve a similar ambition of 70% conversion within two years for atypical HUS. We received the great news of EMA approval for atypical HUS in late June, and we expect Japanese approval in the second half of this year. Beyond the strength of the current Altamiris value proposition, we remain committed to leadership in the diseases we serve and continue to innovate for patients to improve their experience overall. In this vein, we're excited about the opportunity to bring our higher concentration formulation of Altamiris to patients which when approved will reduce the infusion time from two hours to 45 minutes. This remains on track for approval and launch in the second half of this year. We also look forward to expanding the Altamiris franchise with a potential once-weekly subcutaneous formulation with the goal to provide an alternative choice to patients who prefer to self-administer. With that, let's turn to neurology. Despite one of the most challenging times to date with respect to accessing physicians due to the ongoing pandemic, our US team has added 189 net new patients within the quarter for a total of 2,341 US GMG and NMOSD patients on Solaris. Since we set the ambition to increase the number of treated neurology patients fourfold by 2025 at the start of this year, We've progressed approximately 10% of the way towards achieving that goal. This is made possible by the strong value proposition of Solaris in both indications. It has a proven safety and established efficacy profile, providing continuous control in patients with GMG, suffering from unresolved symptoms, and exceptional relapse-free rates for NMOSD patients at risk of devastating attacks. I'm incredibly pleased with this progress in the past two quarters, especially considering the pivot the team continues to make to find new ways of working in light of COVID-19. Building on this track record of success in neurology, we continue to see a path forward for expanding the addressable population we serve with Altamiris and GMG with the Phase III trial enrolling patients regardless of their prior treatment regimen. With potential launch estimated for Alzheimer's in late 2022 or early 2023, we expect to ultimately expand our target market to approximately 20,000 patients with the opportunity to move earlier in the patient journey. This is one of the key drivers of success to our ambition of quadrupling the number of both GMG and NMOSD patients we treat in the U.S. by 2025. We see this goal as achievable, especially with the potential for additional products to come to market with the possibility to expand the overall treated patient population and disrupt earlier line treatments. Turning to slide 25, I'm incredibly pleased to be able to talk in more detail about Amdexa following the close of the Portola acquisition. Patients on factor Xa inhibitors who experience life-threatening or severe bleeds often face sudden and uncontrolled bleeding. If left untreated, these patients can face extremely high mortality rates, so it's imperative that these patients get help quickly when they first present in the critical care setting. And DEXA provides a solution for these patients through targeted and rapid reversal of factor Xa activity with a growing body of both clinical and real-world evidence that advances its value proposition. As the first approved treatment for these patients, INDEXA is a strong strategic fit with our mission of bringing transformative treatments to patients with rare diseases and devastating conditions. Moving to slide 26, the urgency of treating patients in the critical care setting requires significant alignment across numerous stakeholders. Alexion has been operating in this space for almost a decade since the launch of Atypical HUS. While Solaris and Altamiris both have an incredibly strong value proposition as innovative therapies, the key to our success in atypical HUS goes well beyond the treatment themselves. Our teams focus on a system-wide approach that encompasses all stakeholders in the hospital, including dedicated access and field reimbursement support to work with financial decision makers. We've also made significant progress by working with large hospital systems across the country. For example, recently, we've been able to work with a large, geographically diverse hospital system to establish a consistent approach in treating atypical HUS. That system has already adopted Altamiris for 100% of their patients. This has led to continued growth in our underlying atypical HUS business. with this past quarter generating the highest number of new patient initiations in the U.S. to date. Considering the impact of the ongoing pandemic on hospitals across the country, this is a testament of the teams working on atypical HUS and the product profiles of both Solaris and Ulthamiris. While in the early days of integration, we're excited to bridge these capabilities with the value proposition of Vandexa. As you'll see on slide 27, we've continued to see positive momentum for Andexa since we announced the deal in early May. New doors have opened to support access in the U.S., including proposed NTAP renewal through October 2021 and issuance of a J-code for drip and ship use. And the American College of Cardiology's updated consensus guidelines for managing patients on oral anticoagulants now recommend Amdexa as the preferred reversal agent for factor Xa inhibitors over four-factor PCC. Our focus in ramping up Amdexa will be a three-pronged approach for value creation. While still important, we'll shift from a heavily weighted focus on demand generation to a multifaceted approach that is similar to our comprehensive atypical HUS model. We're investing in additional resources to enhance market access, health economics, and GPO IDN contracting capabilities to ensure patients and providers are able to access INDECSA. And we'll also be building out capabilities for a thought leader liaison team to focus on gaining support across high potential institutions. While it'll take some time to execute fully, our teams have hit the ground running to lay the foundation, and I look forward to sharing additional updates on future calls. So with that, I'd like to now hand it back over to Ludwig for closing comments. Ludwig? Thank you, Brian.

In the second quarter, we continue to build on the momentum of the last few years. We remain focused on a value creation strategy of leading in complement, expanding our BAC5 business into new therapeutic areas, and diversifying beyond C5 to drive durability and long-term growth. As a result of execution and delivery against our objectives, we have entered a new phase of the company growth and diversification, which enables us to return value to shareholders. This includes our updated capital allocation strategy with a commitment to directing 500s to $550 million this year and an average of at least one-third of free cash flow towards share repurchases annually from 2021 through 2023. I also want to note that directors from our board and management have been proactively engaged in discussions with many shareholders. We appreciate the perspective we've heard and the support we've received of our mission. We'll also hear the feedback and share the perspective that we are undervalued. We're working with diligence and urgency to increase shareholder value and demonstrate to investors that significant returns are ahead as we continue to execute on our strategy. We look forward to more discussions in the months ahead. In closing, We continue to adapt to the COVID-19 pandemic and today have demonstrated organizational adaptability and resilience that will remain critical in this uncertain environment. I'm confident that we will be able to continue to deliver for patients and shareholders alike. I'm very proud of our strong execution thus far in 2020, especially in the face of this challenging environment. and I look forward to carrying this momentum into the rest of the year. With that, we will now open the call to questions. Operator?

Thank you. Ladies and gentlemen, if you have a question at this time, please press the star followed by the number one key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Once again, to ask a question, please press star and then one now. Our first question comes from Josh Shimmer from Evercore ISI. Your line is open.

Thanks for taking the questions. Just two quick ones. If you're committing to return of capital to investors in the midterm, why not issue a dividend? And then why are you starting new pediatric Phase III studies with Soliris as opposed to Altamiris? Thanks.

We'll start with the capital allocation question in Soliris. I just want to, and then Rana will jump in, and then John will talk about the PEAT study. As far as capital allocation, as I said, we believe we're in a position of strength, and we have now more flexibility because of a strong commercial execution, because of strong cost management, strong free cash flow generation, a strong pipeline. So it puts us in a situation of strength. And that's why we have the flexibility on capital allocation. So we talked about the fact that we're committed to at least one-third of our free cash flow towards the share buyback because of the situation that we're in. And this is a commitment that we've made towards the next three or four years. Why we're focusing on buyback? Buyback gives us opportunities to increase, to dial up or dial back while we stay disciplined on the business development side. And I know, Ivana, you want to add to this?

No, I think that's the reason, Josh, for doing a buyback and to have the approach that is both balanced as well as flexible. And we're not committing to a dividend at this point. We don't think as a company we're at that stage of maturity yet. But we are committing to at least one-third of free cash flow towards buyback for the next three years.

And, John, do you want to talk about the pediatric studies?

Yeah, I think, thanks, Josh. With Solaris, generally, these are post-marketing regulatory commitments. We do have an ongoing pediatric study in MG, MG 303 study that's ongoing now that, again, is a regulatory requirement for us through our PIP requirements and interactions with other regulatory authorities to generate data in the pediatric population.

Okay, thanks for the question, John. So, operator, we'll take the next question.

Thank you, sir. Our next question comes from Corey Cosimo from J.P. Morgan. Your line is open.

Hey, good morning, guys. Thanks for taking my question. I wanted to ask you about your sales guidance. When you consider your first half, C5 sales were, I think, 2.47 for the franchise. If you just annualize that, you get to a little over $4.9 billion versus your guidance that's in the range of $4.75. So obviously there's a different pricing dynamic as more patients convert to Altamiris, but it still seems conservative, especially in light of Saliris' continued strong performance in neuro. So I'm just curious if there's something else there that I'm missing, such as a more accelerated conversion in atypical HUS or anything like that. And then just really quickly on the pipeline regarding the plans to start a Phase III trial for 2040 and PNH before year-end, would you consider waiting on 2050 given the suboptimal PKPD profile you described for C3G, or do you remain confident in the data you've already demonstrated in the PNH indication? Thank you.

Thanks for the question, Corey, and a lot of questions in your one question. Let me start with the guidance before I give it to Rana, and I think Brian might also jump in to talk about what we see in the marketplace. Needless to say that the COVID-19 situation adds complexity and uncertainty in forecasting. But I can tell you that we believe we see continuous strength in our business despite the current environment. The 12% top-line growth is a very strong outcome for the year. Even with Portola, our operating margins continue to be competitive, very competitive within the industry. And there continues to be uncertainty in the markets moving forward. And Brian can talk about, yes, we're adding new patients, but we do see a little bit of a slowdown. But, Rana, do you want to talk on this?

Sure. Thanks, Corey. So you're right that our guidance for the second half is a little more conservative, but there are obviously various variables that we are constantly monitoring. One is compliance rates, which we haven't seen the impact on in our second quarter, but it is definitely a factor that we monitor very closely. The second is the queue of new patients and the new patient ads which, as you can imagine, it takes time for patients to, from the time of identification to, you know, vaccination, reimbursement, and actually getting on therapy. So there is a lag time, and we are seeing slowdown in sort of new patient ads. The third is the conversion to Alzheimer's, which has been great, given the every-eight-week profile of Alzheimer's. The fourth is the payer mix, which, again, takes a little bit time with the unemployment rates and so forth. The payer makes space time to go through and we're watching that for the second half of the year as well. And then overall, there's the uncertainty, as Brian mentioned, our field force is not back yet. There's uncertainty around COVID and wave two and access and so forth. So taking all those factors into account is what our guidance is based on. And, you know, as a company, we generally try to set guidance which we can meet or exceed. Brian, can we – sorry, go ahead.

Maybe before we go to the question on 2014, 2050, Brian, do you want to talk a little bit of what you see in the market? I can tell you that I'm very proud of what the commercial team – has done over the last month and quarters, Brian. Yeah, and Corey, thanks for the question.

The only thing I wanted to add, I think it's been covered really well, is to end on a positive note. You know, here we are a full quarter in through the pandemic, and we've learned a lot. The teams continue to get more effective in their virtual engagements. We're certainly not fully physically present in all offices, but we started on that journey And as I had noted, we've got a couple of bright spots. First of all, the conversions with Altamiris continue to track really well. And then secondly, what you see in terms of atypical HUS, as I had mentioned, is a record quarter in terms of new patient initiation. So we're trying to monitor through it very carefully, as every company is, but we feel good about the continued progress that we continue to make.

Okay, so we'll take your second question, Corey. So, John, 2040, 2050 PNH.

Yeah, Corey, so with regard to the Factor D program, recall that we had very strong Phase II results with 2040 danicopan that showed a nice bump in hemoglobin of 2.4 grams per deciliter, as well as a dramatic reduction in the requirement for transfusion. So based on that data in the PNH population with patients that have coexisting extravascular hemolysis. As add-on therapy to either Celiris or Altamiris, we will be proceeding with a Phase III trial that will start in the second half of this year. So, confident based on the Phase II data. The 2050 program, as you know, is also being explored in a Phase II program in PNH, and our focus there is on evaluating its optionality for monotherapy, whether it can actually adequately control both intravascular hemolysis and extravascular hemolysis which remains to be determined. We also, of course, with 2050, are most excited about expanding into additional indications. We will be starting a renal basket trial in the first half of next year that will include among them potentially lupus nephritis, IgA nephropathy, and membranous nephropathy. And again, there could be other indications that we might pursue as well and other disease areas that we're looking at right now. And I would just add that the C3G data, I think there's a difference between liquid phase and solid phase with regard to Factor D targeting and alternative pathway inhibition. It was pretty clear based on the PKPD analysis that we did on the study 204 and 205 data that there is a PKPD relationship such that in patients who achieved higher pharmacokinetics with 2040. They had better alternative pathway inhibition as well as reductions in complement BD factor. And look at that in a subset of patients over half in the study 205 had meaningful reductions in proteinuria, which both our internal experts as well as external advisors believe is a meaningful impact on proteinuria that what would not have been realized spontaneously.

Yes, thanks, Tom. Operator, we'll take the next question.

Thank you. Our next question comes from Jeffrey Porges from SVD LeanRank. The line is open.

Thank you very much, and congratulations on the quarterly result. Terrific to see. Just on the financial, the capital deployment question, First, is your intention, Aradhana, to achieve an absolute reduction in share count with the buyback, or do you expect initially, at least this year, to just offset employee stock option dilution? And then have you contemplated providing long-term guidance? Obviously, there are a host of issues this year with COVID, but it would be helpful to know whether that was something that you were considering. And then just related to that, Which indications and geographies are you still seeing most affected by COVID? It would just be helpful to know where the risks are there.

Sure. So the capital allocation strategy that we provided, even for this year, that is clearly in excess of what we would say is share stabilization to offset the dilution from the employee stock. So that's only, again, for this year, which is a smaller amount than what we expect for the next several years where we said one-third or at least one-third of our free cash flow for the next three years. So that was your first question. I think your second question was, do we plan to provide long-term guidance? And I really can't comment on that, but we will obviously take that under advisement and, you know, see how much more clarity and transparency and information we can provide. With relation to your third question, which is what geographies are being impacted by COVID, so we're starting to have the field force and some of the offices open in Europe and Japan. In the U.S., the field force is still not back. And as Brian mentioned, we have essentially pivoted a lot of our calling efforts and a lot of our strategies to more digital means, which obviously is not the same. So I think we're, you know, using a lot of different tools and mechanisms to keep our physician base engaged, driving more depth right now instead of breadth, but, you know, continuing to explore new means, not knowing how long this continues. Brian, I don't know if you want to add to the third question.

Yeah, good morning, Jeff. The only thing I would add is it's probably what you would expect in terms of severity and life-threatening status of the indications if you stratify that way. So as I've mentioned, atypical HUS continues to track really well. That's, as you know, an unforgiving acute manifestation. It's not dependent on testing per se. So that has progressed. And then within neurology, we gave you the aggregate numbers But always, GMG is unfortunately thought to be less severe than NMOSD. And so NMOSD continues to progress very nicely. GMG is just a function of our continued focus more on the breadth, or sorry, excuse me, the depth side of prescribing and less so on breadth, i.e., generating prescriptions with new first-time clinicians. So I would say, in large part, that's how it breaks apart. And then PNH is an indication that is disproportionately dependent on testing volume. So in the COVID era, as you can imagine, as testing starts to slow a bit, you'll see a subsequent impact on PNH prescribing as well.

Okay. Thank you, Brian. Operator, we'll take the next question.

Thank you. Our next question comes from Chris Raymond from Piper Sandler. Your line is open.

Thanks. I just wanted to ask a couple questions here. First, on OpEx, I'm trying to understand what's involved with this new guidance. Just sort of midpoint to midpoint, it's up $242 million. I think, Chris, if you back out the Portola component of that, of $125 million, that's up about $117 million. I know you've talked about a lot of puts and takes, but maybe, you know, just kind of walk through what's sort of, you know, I guess sort of driving that. And then maybe just clarify, I think from your answer to the last question, you guys mentioned that – And you were talking about the differences in indications, but can you just clarify, are you seeing in the field that NMO is indeed more resilient to COVID-19 disruptions than MG? Thanks.

Yeah, Radna, you want to take the first one and Brian the second one?

Sure. So, on the OpEx, I think you were comparing it to the guidance that we had given last quarter. And if you remember some of the commentary from the last quarter, we actually had talked about various controls and various things that changed in the OPEX, some of which were involuntary, for example, T&E expense and, you know, conference-related expenses and so forth. And some of it were voluntary because of the uncertainty on the top line. And our guidance at that point, we had actually, you know, taken several actions internally to manage office. The other part of the OPEX is we had also anticipated, you know, perhaps delays in studies and therefore given the OPEX guidance appropriately. However, we now expect a number of the studies to actually start in the second half of the year. So you can imagine that our R&D expenses in the second half of the year will also be going up. And then, as you also mentioned, we are absorbing 125 million of Portola OpEx. So, those are the various elements as to why it's different from the guidance from the last quarter.

Yeah, Chris, just on your second question, within neurology, it's as we had expected generally that GMG tends to be a longer journey of conversion. Unfortunately, the perception with many clinicians is the suffering is less obvious to them that the patients go through. And so it's a lot of educational lift, and it's a lot of convincing on breaking those successive immunosuppressive therapy cycles to convert over to Solaris. NMOSD, as you know, is a highly unforgiving disease. It's event-oriented. When those attacks happen, they are devastating patients. And so it tends to be more front and center in terms of the acute nature of the conversions. And during this, you know, COVID era, less access to physicians, I would expect it will continue to play out that way.

Okay. Thanks, Devon. Thanks, Brian. Operator, we'll take the next question.

Thank you. Our next question comes from Phil Nadeau from Cow Running Company. Your line is open. Thank you.

Good morning. Congratulations on the quarter, and thanks for taking my question. Just two questions for me. First, a question on kind of longer-term trends and guidance. It seems like you've highlighted a couple of headwinds in 2020 and specifically the second half, such as COVID and the conversion of patients from Solaris onto Ultramaris. It seems like going into 2021 and certainly 2022, the conversion is largely going to be over, and hopefully COVID would be behind us. So is it reasonable for us to expect revenue acceleration there? over that intermediate term. And then second question just on the pipeline. You've highlighted Ultimaris as maybe broadening the patient population in GMG. Recently saw data from the FCRNs. How do you think that competition is going to affect Ultimaris' opportunity, and where will Ultimaris fit in to the treatment paradigm in light of FCRNs coming? Thanks.

Yeah, Ivana, can you take the long-term guidance, and then maybe Brian and John will do ultramarathon positioning within MG?

Sure. Thank you, Ludwig. So as it relates to your question on what we could anticipate for 2021, obviously we're not in a position to give guidance for next year, but I think the same factors will apply for next year as well. The first being the compliance rate. And as you can imagine, where we land at the end of this year and what our ending number of patients on therapy are across all various indications and what the compliance rates we see towards the end of the year will determine where 2021 is. I think also with hopefully COVID fading away, we will see a pickup in the new patient ads and the new patient queues. You're right that we would be behind the conversion to Alzheimer's and PNH, but we still have the conversion to Alzheimer's really going strong in atypical HUS, and that will continue into next year. And then the fourth factor that I mentioned was the payer mix, which also may take some time to play out and may have impact in 2021 as well. So I think those are the four major factors that we're constantly monitoring and will have an effect on next year as well.

Maybe I'll hand it over to... Yeah, Phil, I'll just jump in on the second question about neurology and potential new competitive insurance. I mean, first of all, we do see this as a very large market. It certainly is the largest we operate in with GMG in particular, 60,000 to 80,000 patients in the U.S. alone. What will be interesting is there are analogs to show that as new competitive insurance come in, you know, when you look at MS, for example, or RA, there are great examples of how the market volume had continued to grow for many years. And so we see that expansion potential as well in GMG, namely because the different modalities are likely to occupy very different positioning spaces. In the case of Solaris, we're talking about more severe, out-of-option, less controlled patients. And with FCRN, where we're certainly with our own pipeline interested as well, that's more towards first-line displacement, IVIG, immunosuppressive therapies, high-dose steroids and the like. So it's a very different treatment approach. And the other thing that is unique about Celiris and then bridging to Altamiris is we do firmly believe given that this is a chronic disease in continuous, not cyclical therapy. And this is taking a little bit of a playbook out of some experience in the hemophilia world, where it's unfortunate if patients wind up paying the price with waiting until symptoms return and then retreating. So we're quite emphatic about the continuous aspect of therapy. With Alzheimer's, we see the addressable market. significantly expanding. As I mentioned, it could be up to 20,000 patients. And then the last thing I'll just mention is we don't intend to rest on any of the progress that we're making now two and a half plus years in. We're working on Altamira's higher concentration. We're working on subcutaneous, as we've discussed. We have other assets in the pipeline that we'll be looking at, including Factor D, And so as this market grows, we will intend to continue to innovate to serve those patients.

John, do you have anything to add to this?

Yeah, the only thing I would add is that, as you know, the MG trial has opened the aperture, so we are going to be enrolling patients, and we are enrolling patients who are over 65% enrolled now that have not actually failed an IST. So we're moving earlier in the course of the disease. In addition, as I said, we will be pursuing MG with our own FCRN program 1830, but we'll be looking at continuous therapy as opposed to cyclical therapy to avoid a loss of a treatment effect and carrying that response out throughout the full duration of the dosing interval.

Okay. Thank you, John. We are at the top of the hour, so we'll take one more question.

Thank you. Our last question comes from Jeff Meacham from Bank of America. Your line is open.

Hey, guys. Congrats on the quarter, and thanks for taking the question. I'll just add a few. So, Brian, as you prepare for the Ultimares EU launch for HUS, just help us with maybe the nuances with the U.S. in terms of switch dynamic and pricing. And then real quick, Ludwig, I like the new capital allocation strategy with the emphasis on buybacks. Should we view this as maybe deprioritizing BD now that you have Portola behind you and the pipeline is starting to mature, or can you do both optimally? Thanks, guys.

Yeah, I'll start, Jeff, on the first one about Altamiris. First of all, we're already underway now in Germany and thrilled about that with Altamiris for atypical HUS. I guess just quickly, the high level is I don't see a lot of differences between between U.S. and what we would expect in Germany. The one advantage we have with the Atypical H.U.S. launch is Altamiris is not new to many of the institutions and the clinicians, and so that's why we've stated pretty emphatically our continued ambition to have that 70% facilitated patient conversion within two years, and And I expect that atypical HUS with Altamiris will really deliver for patients just as it has with PNH.

Yes, Jeff, on the capital allocation part, as I said, we're in a position of strength, and we have the flexibility now because of the strong execution, but also because the situation that we're in with our R&D pipeline, which is much stronger than before. And as German was saying, saying we have now 20 programs in development and an option for 10 launches by 2023. So when you look at that, our BD strategy and external innovation has been a very critical external source to drive innovation. But as our pipeline now has strengthened significantly, you're going to see that we're going to rely less on business development. And as we discussed during this call, our short-term focus for this organization as we've had over the quarters and really delivering quarter after quarter after quarter. For the next quarters, we're going to focus on the integration of Portola and really making sure that we maximize the asset. So you're going to see a much more focused approach towards what we have internally with being opportunistic on share buyback. So that means we can dial it up if we want to above the one-third that we discussed. And on the business development side, as I said, we will rely less on BD moving forward, but we will remain disciplined. So that has not changed. So with that, thanks for joining us this morning. Needless to say, I'm very proud of what this team has achieved quarter after quarter, delivering or even over-delivering on what we said we're going to do. and we're looking forward to keep you informed on our progress. So enjoy the rest of your day, everybody, and thanks for calling in.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation, and you may now disconnect. Everyone, have a wonderful day.