Some insights into Alexion 2018.

As it is obligated to do, on 14 May 2019 Alexion will be holding its shareholders meeting to report on how things went in 2018.

Its financial performance for 2018 has been visible on the NASDAQ website for some time and its 2018 Annual Report can be read on its own website . It provides a considerable insight into Alexion’s commercial operations, risks and challenges as a company that provides the only complement inhibitor so necessary for those afflicted by aHUS.

It is quite long but for those who have time to read it themselves the Report can be found by clicking here.

The Report reveals not just how much Alexion is growing but also how much it is changing  as the following extracts illustrate.

1. It is shifting from an ultra rare disease company to a rare disease company. Finding treatments not only for PNH , aHUS , gMG, but also for HPP, LLAL-D, and soon Wilson’s Disease.

2. It has four products Soliris, Ultomiris, Strensiq and Kanuma

3. Alexion’s global income exceeded $4.13 billion in 2018

4. Soliris accounted for nearly 90 % of those sales , with global sales growing by 13.3% year on year. For the first time, sales  of its other products exceeded $0.5 billion.

5. Purchases by just 4 customers accounted for 50% of all of Alexion’s  sales.

6. The volume of Soliris sold went up higher than the increase in income , that was because globally Alexion’s Soliris price was reduced by 3.9% from 2017 levels.

7. Most of Alexion’s sales are in the USA which is where sales grew most year on year ( +28.6%)  because of the use of eculizumab for the eye disorder gMG. Sales in Japan  (+16.4%) also grew much more than Europe  ( + 5.2%) and the Rest of the world , which in fact shrunk from $596 million  to $556 million.

8. The cost of producing its mix of products fell in 2018 to $374 million . Taking out some one off costs from closing one of its production facilities, product cost represents 8.9% of global sales.

9. Cost of production is not just the factory’s manufacturing cost. It also includes royalty payments  to those who hold the patents for the drug technology, as well as charging an amount each year for  some of the costs Alexion invested in getting  licences for its products. Making Soliris from its ingredient eculizumab and putting the contents  into vials is therefore less than 8.9%  of its price .

10. Alexion’s operating income before operating expenses  in 2018 was $3.56 billion.

11. Alexion spent $730million  on Research and Development in 2018. As the development of eculizumab falls away, more research  costs were incurred on Revulizumab and the other new products. Overall R&D cost was 17.6% of sales income and Alexion expect it to stay at that level going forward. Although a smaller proportion than promised by the old Alexion,  as total sales income grows the actual sum will increase. It is in addition to R&D it also buys in.

12. It costs $1.1 billion to market its products and do all the things needed to administer and run a modern company operating globally. This is not much more than the year before and it relatively fixed  but it is still a substantial overhead cost to be paid for.

13. It is expensive to set up a pharmaceutical marketing presence in a new country and it can limit the countries that companies like Alexion can operate in. The Report mentions a “new model of operations” to address this  strategically and remedy this constraint on global sales in new countries.

14. Increasing its product portfolio to change from an ultra rare to a rare disease company costs money . A few years ago Alexion borrowed $3.5 billion to acquire another company not for their physical assets but for the technology they had researched and developed. Alexion bought Synageva for its Strensiq and Kanuma products for $8.4 billion.This has to be paid for and in 2018 some $1.18 billion of the profits were used to do just that largely through allocating some of the expense of that to something called “ in process research and development “. Another  $320 million was for  the third installment of  the purchase of Synageva’s goodwill. It will take a few years to pay for it all.

15. After  all these costs are taken into account Alexion made an actual profit of $242.6 million.

16. No dividend was paid to shareholders, as has been the case throughout Alexion’s history. Shareholders benefiting from the market capital growth of the company instead.

17. Alexion paid $ 164.6 million corporate tax on its profit in the US and in non US countries, leaving just $77.6 million net income.

18. In the Report Alexion set out the risks it faces which could have a negative impact on its business. Product trials need to successful and then approved by agencies in USA , Europe and Japan etc. to get a licence to market the product. It is then at the mercy of Health funders to pay for  clinical prescription.

19. Biosimilar competition and political pressures on drug pricing will be its key threats in the 2020s and 2030s,  Although the action it is taking on product patents will limit this impact, there  could still  be an adverse affect. Also  compliance with regulatory legislation throughout the world on matters like product safety , sales practices, relationships with doctors and patients, as well  as the usual health and safety rules applicable to businesses , presents it with a considerable challenge.

20. There was barely a mention of patient organisations in the Report save for a reference to a penalty of $13 million it might incur due to an investigation by the US Attorney Generals Office into its relationships with two charitable organisations, National Organisation for  Rare Disorders and Patient Service’s Inc. . This is something that patient organisations need to be careful about and openness , independence and transparency must prevail .

Alexion has many stakeholders including patients and their families , shareholders ,employees , suppliers,  health care policy makers, healthcare  funders and providers, each  will view it from different perspectives.

The alliance is just one stakeholder and the insights it found in Alexion’s 2018 Annual Report, are just a few  from its perspective. The patient organisations for those needing Alexion’s newer drugs may see Alexion 2018 differently. Perhaps as we would might have perceived it ten years ago. The key insight from the 2018 Annual Report is that eculizumab’s profits are being used in an “elves and shoemaker “ way to benefit those other rare disease patients.

Alexion’s products, eculizumab and ravulizumab matter to all aHUS patients, whether those patients  exist now or are yet to be. It matters to them that these  drugs are used both wisely and widely in a safe and sustainable way for all. We can but hope that what matters to aHUS patients guides Alexion’s decision making too, and,  if not for all at the moment but  eventually as Alexion grows and changes.

 

Note: The featured image is of a Canadian patient in the midst of an aHUS onset.