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Alexion Pharmaceuticals (NASDAQ:ALXN)
Q4 2018 Earnings Conference Call
Feb. 4, 2019 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, welcome to the Alexion Pharmaceuticals Inc. fourth-quarter and full-year 2018 results conference call. Today's call is being recorded. For opening remarks and introductions, I would now like to turn the call over to Susan Altschuller, vice president, investor relations.

Go ahead, ma'am.

Susan Altschuller -- Vice President of Investor Relations

Thank you, good morning, and thank you for joining us on today's call to discuss Alexion's performance for the fourth-quarter and full year of 2018. Today's call will be led by Ludwig Hantson, our CEO. Ludwig will be joined by Paul Clancy, our chief financial officer; John Orloff, our global head of R&D; and Brian Goff, our chief commercial officer. You can access the webcast slides that will be presented on this call by going to the Events section of our Investor Relations Page on our website.

Before we begin, I would like to point out that we will be making forward-looking statements, and these statements involve certain risks and uncertainties that could cause our actual results to differ materially. Please take a look at the risk factors discussed in our SEC filings for additional detail. These forward-looking statements apply only as of today, and we undertake no duty to update any of the statements after the call except as required by law. I'd also like to remind you that we will be using non-GAAP financial measures, which we believe provide useful information for the understanding of our ongoing business performance.

Reconciliations of our financial results and financial guidance are included in our press release. These non-GAAP financial measures should be considered, in addition to, but not a substitute for, our GAAP results. Thank you very much. Ludwig?

Ludwig Hantson -- Chief Executive Officer

Thank you, Susan, and thank you all for joining us this morning. 2018 was a transformative year for Alexion. We established a strong foundation for continued growth and also advanced our mission of delivering innovative therapies to patients with rare diseases. As we move into 2019, we have an exciting future ahead.

As you can see on Slide 5, we achieved each of the 2018 objectives and exceeded in a number of areas. Let me highlight a few key themes, which will be critical to our future success. I strongly believe that how we achieve our objectives is equally as important as delivering on our goals. Today, we have a culture focused on compliance, serving our patients and acting with integrity, which will carry us forwards into our next phase of growth.

We continue to demonstrate our development expertise in rare diseases, completing successful Phase III programs in PNH, atypical HUS and NMOSD. In parallel, we have proven our excellence in rare disease launch execution, as evidenced by Solaris in MG. We have launched Ultomiris for PNH ahead of schedule in U.S. and are preparing for launches in the EU and Japan, later this year.

Finally, we rebuild and extended our pipeline through internal efforts and disciplined business developments. As you can see on Slide 6, we delivered strong financial performance for both the quarter and the full year. Our fourth-quarter revenues of more than $1.1 billion represent our best quarterly revenues yet. As we move into 2019, there are five key areas, shown on Slide 7, where we will focus our efforts in order to continue building on our prior success.

Our first area of focus will be Ultomiris. We have a best-in-class goal of converting more than 70% of PNH patients within two years of launch. We're off to a strong start and are on track toward this conversion goal. Our second area of focus is neurology.

In our first year with MG, we significantly increased the total number of patients on Solaris in the U.S. We filed for approval of Soliris in NMOSD in U.S. and Europe. We plan to take Ultomiris into several neurology studies, including Phase III MG and NMO studies as well as proof-of-concept studies in ALS and PPMS.

We also intend to initiate a pivotal trial for 1830, formally known as SYNT001 in MG in 2019. Our third priority is continuing to grow our metabolic portfolio by increasing access to Strensiq and Kanuma and continued execution on our Phase III program in Wilson disease with 1840, previously known as WTX101. Fourth, we'll continue to build our pipeline to advancement of internal programs and business developments, including the recently announced deal with Caelum Biosciences. And finally, we are focused on delivering financial performance aligned to our long-term vision.

These five key objectives represent priorities for 2019 as well as opportunities to drive long-term sustainable growth. Looking ahead, we have aligned our corporate strategy to focus on our four therapeutic pillars, as outlined on Slide 8. These pillars, PNH and atypical HUS, metabolic, neurology and FcRn, each have blockbuster potential. Later in the call, John and Brian will address how we plan to advance each pillar to drive durable long-term growth.

With that, I will now turn the call over to Paul, to discuss our 2018 financial results and 2019 guidance. Paul?

Paul Clancy -- Chief Financial Officer

Thanks, Ludwig. This was a great fourth quarter, capping off a strong 2018. Starting with Slide 10. We reported total revenues in the quarter of $1,129,000,000, an increase of 24% year over year, driven by continued performance of our Solaris and metabolic portfolios.

Our non-GAAP operating margin was 53% in the fourth quarter, an expansion of 826 basis points, driven by top-line leverage coupled with operating expense control. Non-GAAP earnings per share were $2.14, representing 45% growth year over year. For the full-year 2018, we delivered revenue growth of 16%, volume growth of 20% and non-GAAP earnings-per-share growth of 35%. Moving to Slide 11.

Fourth-quarter net product sales were driven by volume growth of 30%, partially offset by an FX headwind of 1% and a price headwind of 5%. The price headwind was largely driven by Solaris price changes in Turkey, as we formalized our reimbursement agreement subsequent to marketing authorization late in the third quarter of 2018. Additionally, rebates in the United States and reimbursement agreements outside the United States in our metabolics business contributed to the price headwind. Turning to Slide 12.

Soliris revenue in the fourth quarter was $977 million, with year-over-year volume growth of 28%, driven primarily by strength in the U.S. and in Japan, including the growing contribution from MG. Underlying volume growth in the PNH and atypical HUS business remains solid through the year and was in the high single digits. Moving to Slide 13.

Strensiq revenues for the fourth quarter were $126 million, 32% revenue growth and a 43% volume growth year over year. Kanuma revenues in the fourth quarter were $26 million, a 17% revenue growth and 51% volume growth year over year. Turning to the P&L on Slide 14. During the quarter, non-GAAP R&D expense was $164 million, or 15% of revenues, and non-GAAP SG&A expense was $278 million, 25% of revenue.

The non-GAAP effective tax rate in the quarter was approximately 15%. We reported fourth-quarter non-GAAP earnings per share of $2.14, growing 45% year over year. GAAP earnings per share was negative $0.20, which is inclusive of the Syntimmune IP R&D expense. We ended the fourth quarter with approximately $1.6 billion in cash and marketable securities.

I'll now turn to Slide 15 for the 2019 financial guidance. We're guiding to total revenue of between $4,625,000,000 to $4,700,000,000, which represents 13% year-over-year growth at the midpoint of the range. For the combination of Solaris and Ultomiris, our revenue guidance is $3,970,000,000 to $4,020,000,000. This assumes continued momentum in MG as well as a modest initial contribution from our anticipated U.S.

approval and launch in NMOSD in the second half of the year. We assume MG patients will make up the largest population of patients on Solaris in the U.S. by year-end. Also of note, we plan to transition from a direct to distributor model in certain international markets.

The rationale for this transition is driven by focusing on our larger growth markets. While P&L neutral, we expect the net impact of this transition to be an approximately $25 million headwind to revenue in 2019. For Ultomiris, we expect steady conversion from Soliris. Recall, the first year loading dose results in a roughly 10% premium in the U.S.

for the average adult PNH patient when compared to the labeled Solaris PNH maintenance dosing regimen. While hard to estimate, the guidance includes expectations of a headwind from competitor trials and studies of 1210 subQ and 1210 in MG. Turning to metabolics. Our revenue guidance is $655 million to $680 million, reflecting continued patient additions for both Strensiq and Kanuma.

This includes the impact of a strategic decision to proactively offer a discount for largest dose vial for Strensiq that began at the start of the year in the United States. We estimate price will be a 2% headwind in 2019 with approximately one-third attributable to Soliris and two-thirds attributable to metabolics. We forecast FX impact net of hedging for 2019 to represent roughly a $60 million headwind, driven by the euro and the full-year comparison of FX changes in Turkey, Russia and Brazil. GAAP operating margin is expected to be 36% to 43%, inclusive of restructuring and related expenses as well as milestone payments.

Non-GAAP operating margin guidance is expected to be 54% to 55%, representing approximately 130- to 230-basis-point expansion over 2018. Non-GAAP R&D expend is expected to be 16% to 17% of revenue and includes increased investments for the ongoing 1830 clinical trials, the Phase III trial for 1840, regulatory filings for Soliris and NMOSD, our 1210 subcutaneous programs and initiation of 1210 MG, NMO, ALS and PPMS clinical programs. We also have R&D dollars earmarked for potentially new programs from business development efforts. Non-GAAP SG&A spend is expected to be 20% to 21% of revenues, as we expect to further invest behind the launch of Ultomiris in the U.S.

and for potential launches outside the U.S. We'll also support our growing neurology portfolio with expansion of our MG sales footprint in preparations for the potential Soliris launch in NMOSD. At the midpoint of this guidance, non-GAAP operating profit is expected to grow 17% year over year. We expect the non-GAAP effective tax rate similar to 2018.

GAAP earnings per share is expected to be between $6.14 and $7.26. Non-GAAP earnings per share guidance is expected to be between $9.10 and $9.30. The midpoint of this range is approximately 16% growth year over year. With the strong momentum across the business, we're well-positioned to deliver on our 2019 financial ambitions.

I'll turn the call over to John.

John Orloff -- Global Head of R&D

Thank you, Paul. We've made significant progress advancing our pipeline over the past year and are entering 2019 with a robust portfolio of both early and late-stage development programs. On Slide 17, you can see our pipeline as of year-end 2017 following our rationalization and prioritization. In the span of only one year, through a combination of internal and business development efforts, we have dramatically expanded our portfolio as shown on Slide 18.

Let me start with ALXN1210. We're moving forward with multiple programs in neurology. In parallel, we are investigating additional routes of administration including a high concentration 100 mg per ml IV formulation, which will reduce infusion time and be used in the development of multiple subcutaneous delivery options. Our internal once-weekly subcutaneous program is enrolling patients, and we expect to report bioavailability data from our Halozyme subcutaneous collaboration in the first quarter.

Moving to ALXN1840. We continue to advance our Phase III trial in Wilson disease. The trial is powered for superiority over current standard-of-care, as we believe 1840 could be transformative for patients with this devastating disease characterized by toxic copper accumulation. We have ongoing trials for ALXN1830, formally SYNT001, including Phase Ib/IIa trials in warm autoimmune hemolytic anemia and in pemphigus vulgaris and pemphigus foliaceus, or PVPF.

We plan to initiate a Phase III trial for 1830 in warm autoimmune hemolytic anemia in 2019 and are pleased to announce that we also intend to initiate a Phase III trial for 1830 in generalized myasthenia gravis. We believe there is a strong rationale for targeting FcRn in MG. We will provide additional updates on our pipeline programs at our upcoming investor day on March 20. Turning to Slide 19.

We reported top-line results from our Phase III single-arm trial of Ultomiris in atypical HUS last week. The study met its primary objective with roughly 54% of patients demonstrating complete thrombotic microangiopathy or TMA response. This was a high bar, as patients had to meet all three criteria of complete TMA response: normalization in platelet count, normalization in LDH level and improved kidney function at the same time, at least, once over the course of the 26-week trial. In addition, each of these criteria had to be met for at least 28 consecutive days.

With these positive data, we believe Ultomiris will be an effective, every eight-week treatment option for aHUS patients, and we're moving forward with regulatory filings. Moving to Slide 20. Soliris has provided a strong rationale for complement inhibition in neurology with the ability to impact both the neuromuscular junction and the central nervous system. As such, we plan to initiate Phase III trials of Ultomiris in gMG and NMOSD as well as proof-of-concept studies in amyotrophic lateral sclerosis or ALS and primary progressive multiple sclerosis or PPMS.

Our decision to initiate proof-of-concept trials in these indications is based on scientific rationale for the role of complementing these diseases. Recent publications provide evidence for elevated glial MAC protein and increased C5b-9 deposition in rapidly progressive ALS disease. Literature also supports elevated levels of C3 and C4 in PPMS at the time of disease progression compared to controls. Turning to Slide 21.

We remain committed to advancing our FcRn program with ALXN1830. 1830 has a strong product profile, demonstrating rapid IgG clearance in a dose-ranging study, high specificity for FcRn and no effect on albumin levels. We have planned to investigate every two-week IV dosing in the upcoming Phase III studies. Furthermore, we plan to pursue a subcutaneous formulation.

1830 remains the first and only anti-FcRn therapy currently in development for warm autoimmune hemolytic anemia, a rare IgG mediated hemolytic disorder with no approved therapies. On the right hand of the slide, you'll see how FcRn fits into our vision with the evolution of our MG portfolio. We believe 1830 provides an opportunity to build on the MG footprint we've established since the launch of Solaris. Solaris, which was the first therapy approved for MG in more than 60 years, has already transformed treatment for a growing subset of patients with the anti-acetylcholine receptor antibody positive form of the disease, who continue to suffer from significant unresolved symptoms despite existing treatment options.

However, the progressive and diverse nature of MG necessitates the need for additional and earlier treatment options. Most patients require some form of immunotherapy, which is generally associated with adverse events and also remains inadequate at controlling the disease. 1830 has the potential to be an important treatment option for patients and to be used earlier in the treatment paradigm. The possibility of a convenient, every two-week or self-administered subcutaneous treatment option would be a meaningful improvement for patients.

We believe that 1830, Soliris and Ultomiris are complementary assets in our growing MG portfolio and could address different needs of patients and collectively provide important optionality at different parts of the patient journey. Turning now to Slide 22. Last week, we announced a collaboration with Caelum Biosciences to develop CAEL-101, a clinical stage hematology asset for the treatment of AL amyloidosis. This rare disease is characterized by overproduction of the misfolded monoclonal kappa and lambda light chains that results in deposits of abnormal amyloid and can lead to organ failure, most frequently in the heart and kidneys.

AL amyloidosis is believed to affect over 20,000 patients in the U.S. and EU5, diagnosis may be protracted and only coincide with meaningful organ deterioration. The current standard of care, which includes chemotherapy, does not address or treat organ failure and there is significant need for innovative therapies given the median survival time of less than 18 months following diagnosis. The clinical dataset includes in vivo imaging of CAEL-101 binding to AL amyloid in human organs.

In a Phase Ia/b trial, CAEL-101 demonstrated a 63% overall organ response rate as well as efficacy on cardiac and renal endpoints. We see a clear overlap with 101 in our hematology franchise. We believe this partnership represents an opportunity to evolve our focus toward bringing innovative therapies to broader rare disease patient populations with significant unmet need. I'm very proud of the progress we've made advancing our portfolio over the course of 2018, and I'm looking forward to all we have planned in the coming year.

I'd like to take a brief moment to thank the broader R&D team for their work in the past year on business development, our ongoing development programs, multiple pivotal trial readouts and regulatory submissions and importantly, the early approval for Ultomiris and PNH. With that, I'll turn the call over to Brian to discuss commercial highlights, Brian?

Brian Goff -- Chief Commercial Officer

Thank you, John. Starting on Slide 24. We're very pleased that the U.S. launch of Ultomiris is now under way.

We believe we can achieve a best-in-class conversion of at least 70% of patients within two years of launch, based on a number of operational components unique to our team. We have dedicated and highly trained field teams, many of whom have years of experience and expertise in PNH. Our commercial product supply is ready, the Ultomiris REMs certification is in place and payer policy determination for access is under way. However, the most critical component of our launch is Ultomiris' strong clinical profile.

By addressing the clinical needs, the clinical disease drivers of PNH, Ultomiris has the potential to become the new standard of care with LDH normalization, low incidents of breakthrough hemolysis, well-understood safety data and clear patient and physician preference for an every eight-week dosing profile. Importantly, since Ultomiris and Soliris bind to the same epitope on C5, we've shown in our pivotal 302 trial the patients can safely switch without requiring a wash-out period. While still early in our launch, we're seeing promising early indicators of success and initial stakeholder feedback is very positive. Specifically, as of the end of January, our first full month of Ultomiris launch in the U.S., we already have approximately 5% of Soliris PNH patients confirmed, as OneSource cases for potential conversion and approximately half of those have already initiated Ultomiris therapy.

We have similar ambition to facilitate a rapid best-in-class conversion in Europe and Japan, prelaunch planning is under way with the first potential ex-U.S. launch in Germany midyear. Turning to Slide 25. Ten years after the launch of Soliris, just 18 months ago, there were approximately 2,500 PNH and atypical HUS patients in the U.S.

on therapy, and we've seen continued steady growth in this core ultrarare franchise. However, by the end of this year, our ambition is to have at least 5,000 patients on either Ultomiris or Soliris. So as you can see in just over two years, we plan to expand our patient base by the same amount that previously required 10 years. This patient growth, driven primarily by neurology, is consistent with our strategic transition from a focus on ultrarare to rare diseases.

It's also consistent with our global, sustainable and durable pricing strategy for Ultomiris, especially as we expand it to new geographies and indications with larger addressable patient populations. Moving to our metabolics franchise on Slide 26. Strensiq ended the year with revenues of $475 million. We expect continued growth coming from Strensiq in 2019, as we identify new patients and seek reimbursement agreements in additional geographies.

Looking at Kanuma. We reported full-year revenue of $92 million. Kanuma continues to grow steadily, but of course, is starting at a lower base. To date, Kanuma is launched and reimbursed in eight countries.

We believe Strensiq and Kanuma provide a solid base, as a build our metabolics portfolio into a sustainable blockbuster franchise. There's meaningful growth potential with 1840 for Wilson disease, which, if approved, will share strong call point synergies with Kanuma. As you can see on Slide 27, our neurology franchise will continue to grow significantly, driven by continued uptake for Soliris in gMG as well as expansion into NMOSD, where we estimate there are 4,000 to 5,000 addressable patients in the U.S. We look forward to the prospect of bringing hope to these families and -- to these patients rather and their families.

Moving to Slide 28. With a dedicated neurology field sales force as well as payer and market access teams, we believe we have the right infrastructure in place to continue our momentum in gMG. We're especially pleased with the breadth of our gMG prescribing base with over 500 unique prescribers around the country as well as the depth given that roughly one-third of gMG prescribers have more than one patient on Soliris therapy. Furthermore, we've still only addressed a small percentage of the targeted refractory population with Soliris treatment and expect gMG will be the largest patient volume indication for Soliris in the U.S.

by the end of this year. At the same time, we're actively preparing for a potential launch in NMOSD by training our growing neurology team. Relapse prevention remains the primary treatment goal for patients, who live in constant fear of the potential devastating effects of another attack. Given significant need and the strength of our data, we have a sense of urgency in preparing for launch.

I want to thank our team for their continued efforts and dedication to bringing hope to patients suffering from rare diseases and would like to reiterate the organization's excitement, as we move through the year. I'd now like to turn the call back to Ludwig, for closing comments. Ludwig?

Ludwig Hantson -- Chief Executive Officer

Thank you, Brian. As we've discussed, 2018 has been a year of tremendous growth and evolution. It has also been a year of great success. Thanks to the efforts of our employees around the world.

On Slide 32, you will see our four blockbuster pillars for growth, overlaid with our 2019 objectives. This list, while not exhaustive, provides a means to benchmark our accomplishments over the course of the coming year. I'm proud of our achievements and looking forward to our future. Most importantly, I'm excited that we'll be able to help more patients than ever before.

We know that many of these patients do not have any treatment options today. I look forward to updating you on our progress as we go. With that, we will now open the call for questions. Operator? 

Questions and Answers:

Operator

Thank you. [Operator instructions] And we'll take our first question from Geoffrey Porges from Leerink. Your line is open.

Geoffrey Porges -- Leerink Partners -- Analyst

Thank you very much. And congratulations on all the accomplishments and the very encouraging guidance. I'll start off, Ludwig, with a sort of macro one, if I may. You were probably saying perhaps some long awaited consolidation in the industry.

And could you talk a little bit about the M&A environment that you see? You've obviously had some experience with this. And give us a sense of how your investors are sort of talking to you? Because, of course, one of the things we're hearing is that companies are trying to pivot away from dependence on one franchise and Solaris, Ultomiris is still about 85% of your business. So if you could just give us a little bit of color on that? And then could you explain the Strensiq price effect a little more clearly? What will be the net reduction in the per patient per year revenue? That will be really helpful. thanks.

Ludwig Hantson -- Chief Executive Officer

Yes, absolutely. So I'll talk about strategy and then Paul and Brian will talk about Strensiq. Going back, Geoff, 2017, we had a refocused strategy that we've put in place. And what you've seen is that the team has delivered, and I would say, maybe over delivered on what we said we were going to do.

And you and I had that discussion. I'm very proud of what the Alexion team has achieved. We're staying on course. We're staying on strategy.

And as we discussed over the last months, we're moving our strategy from ultrarare to rare. I think the MG launch is a great example of that. We have therapeutic areas that we will continue to focus on. We're building for blockbuster franchises that we believe will be durable, sustainable.

From an M&A perspective, I think, what we've done in 2018 is a great example of how we think about M&A, how we think about moving forward. You'll see that we'll continue to focus on clinical assets and think the Caelum acquisition is again a great example on how we think about accelerating our pipeline. And then with respect to the Strensiq question, Paul?

Paul Clancy -- Chief Financial Officer

Yes. I'll be glad to thanks, Geoff, for it. Let me just try to provide a little bit more clarity. It's been an evolution over the last year and a half.

So it's actually started probably 14 months ago. It all is tied toward trying to have a sustainable pricing strategy, mostly for the adult population of Strensiq. So we are proactively, on the largest vial, kind of taking -- putting some rebates in place in order to accommodate that. For the company, next -- 2019, we have about a 2% price headwind, of which metabolics is about two-thirds of that.

So you step away from it and really not much price dynamics going on. So it's really a kind of that proactive move with the adult population.

Operator

Thank you. Our next question comes from Terence Flynn from Goldman Sachs. Your line is open.

Terence Flynn -- Goldman Sachs -- Analyst

Hi. Thanks for taking the question. Maybe just one for Paul on the guidance. I mean, if we annualize the fourth-quarter Soliris sales, it looks like you can easily achieve the bottom end of your complement franchise guidance for the year for '19.

So maybe you can help us think about the tailwinds from MG and Ultomiris versus the headwinds of competitor trial enrollment? I know, in the past, you guys have quantified that. Can you give us a little bit more granularity on that? Thanks a lot.

Paul Clancy -- Chief Financial Officer

Yes. Terence, I think, everybody just heard the price impact for the total business. So let me kind of give you a complete answer of kind of the puts and takes on the numbers, particularly on the revenue fronts. Price, we just went over, foreign exchange, we expect -- we build a plan based on the current spot rate.

And the net effect is about a $60 million headwind on foreign exchange net of hedging. And that's inclusive of effectively the wraparound effect of changes in FX or currency in Russia, Brazil and Turkey. We do have embedded -- more specific to your question, Terence, we do have embedded a headwind, if you will, for competitor trials. It's effectively an estimate based on what the publicly announced clinical trials are for those competitors in PNH, HUS and MG.

We don't give the number, just largely because it's going to be hard to reconcile as we go throughout the year. We just won't have that visibility. And then, as I had noted in the script, we are intending to change some of our smaller international markets to distributors. These kind of all about focus.

And that's about a $25 million headwind. And that's effectively all attributable to Solaris. Now the tailwinds, which is way more important, is we expect to have underlying PNH, HUS continued high single-digit growth. NMOSD, while modest, it's an important, what we hope to be, a launch in the United States this year.

And we're effectively planning for continued kind of steady momentum in MG, which ends up being a big part of our growth business and continued momentum in metabolics.

Operator

Thank you. Our next question comes from Kennen MacKay from RBC Capital Markets. Your line is open.

Kennen MacKay -- RBC Capital Markets -- Analyst

Hi. Thanks for taking the question. Maybe one for the clarity and also tying in Brian on this one. I was just wondering if you could help us understand the sort of one-fourth to one-third of Soliris sales that are coming from the EU? Sort of how this breaks down by market over there? Is this predominantly Germany and the U.K.? Or are there some other factors that we should be thinking about there? And for Brian, wondering in the EU, aside from sort of a country-by-country launch over there, is there any different dynamics we should be thinking about, as it relates to switching patients from Soliris to Ultomiris and sort of the guidance we've seen in the U.S.

versus what we could expect there?

Paul Clancy -- Chief Financial Officer

Let me kind take the first part of that, Kennen. So it's been a while since I've being called Clancy. So that sounds good. It was back in high school.

Look, I think, the way to think about Europe is, Germany is by far and away the lion's share and the biggest market. And very similar to other places. I'd say, the big five in Europe make up well north of two-thirds of the business in Europe. We have obviously strong country penetration, but it still is pretty much dominated by the big five.

Brian Goff -- Chief Commercial Officer

Yes, and this is Brian, or you can refer to me as Goff, if you want. The -- in Europe as well, thinking about Ultomiris, our ambition first of all is the same as we have in the U.S. that when we launch in a given country, we would look to convert at least 70% within two years post-launch. And 2019 really is a Germany story when we think about Europe.

The dynamics are a little bit different in that we've known for many years, of course, the payer challenges can be significant. So we're engaging with those payers as early as we possibly can and as well systems tend be a little bit more integrated. The hospital and the outpatient system, for example, particularly in Germany, so that will play into our launch dynamics as well.

Ludwig Hantson -- Chief Executive Officer

For 2019, Brian, we think that Germany will be the only European country to launch.

Brian Goff -- Chief Commercial Officer

Yes, it's really a story of the U.S., which started as we mentioned our first full month is now reported. And then Germany, hopefully, at the midyear point and then, of course, we'll look ahead to Japan.

Operator

Thank you. Our next question comes from Geoff Meacham from Barclays. Your line is open.

Geoff Meacham -- Barclays -- Analyst

Good morning, guys. Thanks for the question. Just had a few. Ludwig, another one on strategy.

You've come out of 2017, the trough quite nicely, but are there global commercial markets, for example, like Latin America that are worth revisiting or less penetrated overall. And then Paul, I know, the goal is 70% conversion to Ultomiris in two years, but do you think it'll be linear? I'm just trying to get a sense for the conversion implied in your 2019 guidance. And congrats on the Super Bowl, by the way.

Paul Clancy -- Chief Financial Officer

It's about time someone said something. Thanks, Geoff. Coming from you, that means a lot.

Ludwig Hantson -- Chief Executive Officer

So I'll take the first one with respect to the strategy and your question, Jeff, is in reference to our geographical footprints. When you think about the biosimilar footprint and the geo opportunity that we have, we believe that we're in a position of strength. We clearly have a strong position in North America as well as Europe. There are some pockets of opportunity outside of those markets.

And we do believe that we have the footprint and the capability to do business. So we look at the LATAM, as a country of growth that will move up the ranks within our geo footprint, I would say, the answer is not necessarily. With the portfolio that we have, we will continue to focus on our key markets. And our key markets are U.S., Europe as well as Japan.

Brian Goff -- Chief Commercial Officer

Jeff, it's Brian. And I'll take the second part around the trend that we expect for that conversion of Ultomiris. I mean, so far, it's one full month in. We're encouraged by the progress we've made.

We're right on track where we wanted to be. And I would expect because of the puts and takes that often happen in rare and ultrarare diseases, it'll be more of a linear progression, is what we would expect. Of course, in this case, it's conversion. So we have a good sense as to where the patients are.

As I mentioned in my comments, we have experience that goes back years in many cases with our commercial field teams. And we have a now early adopters, physicians, who have already identified patients and those have moved through the system. We'll be waiting in the coming weeks and months and working toward additional payer policy determinations. And then, of course, as clinicians get more experience with Ultomiris and patients get into the cadence of visits to see their clinicians, we would expect that conversion to continue.

Ludwig Hantson -- Chief Executive Officer

Yes. So as we discussed weeks ago during the Q&A session, we should not expect a bolus of influx of the new patients. As we -- we don't have too much clinical -- patients in our clinical program, the commercial uptake will take months and -- but we're really, really pleased with what we have so far.

Operator

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

Chris Raymond -- Piper Jaffray -- Analyst

Hey, thanks. Just on the 1210 aHUS data, you guys kind of, I think, verbally, a few days back, when the data came out, called attention to differing baseline patient characteristics that I think you guys were saying sort of made comps to the Soliris data difficult. Knowing that you maybe want to say some of this for publication, can you give us some summary differences around each percent on dialysis and maybe other markers with the disease severity just -- so folks -- so we can have a sense of how to contextualize that?

John Orloff -- Global Head of R&D

Sure, Chris. This is John. So I would just say at the top that we're very pleased with the data that demonstrated a meaningful effect in patients with atypical HUS. As you know, these are very sick -- they're critically ill patients.

And it's always difficult to make cross-study comparisons, in fact, this is generally inappropriate, because the populations are somewhat different. And I can speak to that in a minute. But also, there is an evolution in standard-of-care, how patients were diagnosed, how they are managed. And the Soliris trials were done a decade ago.

Having said that, this was generally a sicker patient population. They were older, there was a higher proportion that were on dialysis, over 50% were on dialysis. They had extrarenal signs and symptoms in about 90% of the patients. And if you look at baseline LDH, platelet levels and estimate a GFR, they're all more severe than the Soliris study that you've seen published in American Journal of Kidney Diseases and is also a part of our label.

Chris Raymond -- Piper Jaffray -- Analyst

Thank you.

Operator

Thank you. Our next question comes from Paul Matteis from Stifel. Your line is open.

Paul Matteis -- Stifel Financial Corp -- Analyst

Great. Thanks so much for taking my questions. Just on Europe for 1210. I was wondering if you could just speak at least at a high level on your current thinking on pricing there and whether or not maintaining pricing parity with the year one dosing of Ultomiris to Soliris is feasible in that market if you need to use price as a lever.

And then just quickly on NMO, I'd love to see a comment qualitatively on how developed that market is in the U.S. relative to MG? And whether or not you think the MG launch is at all a reasonable comp? Thanks so much.

Brian Goff -- Chief Commercial Officer

Yes. Paul, it's Brian. I'll start with a question on Ultomiris and Europe for pricing. As we've talked about with Soliris, we maintained a narrow pricing globally, narrow pricing band, I should say.

So the goal would be to maintain generally the same with Ultomiris. It's too early to get, of course, into specifics while we wait for the European approval. And as I'd mentioned in a prior question, our expectation is that Germany will really be the key European launch opportunity in 2019, in this year, and the way it works in Germany is that for the one-year period, which is pre-AMNOG, it allows for open market-based pricing, which, as we get closer to launch, we'll, of course, finalize. And then with respect to NMOSD, that's a really exciting opportunity for us.

We're very pleased with the data, of course. We have an ambition to make NMOSD, a meaningful contributor to our neurology business, if approved. There are clear differences between gMG and NMOSD, including, maybe top of the list would be the available treatment options. Just as a reminder, there are no FDA-approved treatment choices for patients in NMOSD.

And the other key consideration is, this is all about the relapse. And so we'll have a very strong focus when we get to the point of launch around education of our data, the significance and the fear that exist at the patient level for each subsequent relapse as well as focusing clinicians on really reconsidering what stable means. And that's one of the classic things that happens in rare diseases is where there are limited treatment options, there tends to be some inertia, which we'll need to overcome with our educational efforts, both on redefining stability as well as the role of complement in that this is treating that patient in a completely different way than they've ever been treated before. So we look forward to it.

And hopefully, that's a kind of midyear opportunity.

Ludwig Hantson -- Chief Executive Officer

And the disease, Brian, has a high diagnosis rate.

Brian Goff -- Chief Commercial Officer

Yes, highly diagnosed. And the other thing, I guess, I should mention is the prevalence would put this in the neighborhood of about two-thirds of the regain kind of population that we look at for gMG. So it's somewhere between 4,000 and 5,000 patients in the U.S.

Operator

Thank you. Our next question comes from Robyn Karnauskas from Citi. Your line is open.

Robyn Karnauskas -- Citi -- Analyst

Hey, guys. Thanks for taking the question, and sorry, I'm losing my voice. This question, I think -- we've had a lot of questions regarding Europe and Ultomiris and pricing. I think big picture, I think, what we're trying to get out is does Soliris and Ultomiris have a real future in Europe, given that Hantson is saying now that they're going to start enrolling your biosimilar program in patent situation.

Before thinking about Europe, conservatively, how do you internally think about that part of the business? I know you've mentioned before, because the split is going to be greater to the U.S. versus Europe and we should think about that over time, but maybe help us give some sense if you're trying to be more conservative of how to think about Europe as a revenue stream for those two products? Thanks.

Brian Goff -- Chief Commercial Officer

Yes. Robyn, it's Brian, again. Well, I'll pick up with the same thread on -- first on the pricing, as I mentioned, our ambition will be to stay in the same band that we've had with Soliris. So I think I've added enough color on that.

The other key point is, with our ambition for conversion itself, we believe, we have a pathway toward the 70% conversion within two years. And the good news is when we think about a potential biosimilar entry point, we don't see that occurring inside of a three-year horizon. So the key point here is that we believe we have enough time to convert those patients. The other benefit I would add is, it's always helpful if you have the U.S.

sort of going first as it is right now, because we have all kinds of launch learnings that we'll be able to amortize once we get to the point of launch beginning in Germany, hopefully, at the midyear point. And we have the exact same dynamic with gMG, of course. So that's how I would see Europe unfolding.

Operator

Thank you. Our next question comes from Ying Huang from Bank of America. Your line is open.

Ying Huang -- Bank of America Merrill Lynch -- Analyst

Hi. Thanks for the questions. The first one I have to ask about the European patent. Since the EPO recently revoked the 2027 formulation patent for Soliris, can you talk about your confidence level on the composition of matter? And also the master use applications in Europe? And then secondly, maybe, for Brian.

You mentioned that there are 4,500 addressable NMOSD patients in U.S., can you talk about the diagnosis rates? Are these all diagnosed and under active care by physicians, therefore, whenever it's approved, you're ready to launch? Thank you.

Ludwig Hantson -- Chief Executive Officer

Sure, I'll take the first question and Brian will take the second one. I want to go back to what Brian just said. Our strategy in Europe is to redefine the standard of care in PNH, and eventually, hopefully, also in HUS when we get the approval. We believe that, that strategy is a conversion strategy and we have time to execute on that.

Brian was talking about at least three years for PNH. Our situation -- we also have the regulatory exclusivity part. Our situation for HUS, I would say, worst-case scenario, is six years. I think you're all aware of the November 2023 time line that we have.

So that's our strategy is to redefine standard-of-care in PNH and eventually in HUS. And we believe we have the time to do that. Now with respect to the EPO situation, we are aware of the formulation challenge and the outcome. We have not seen the written documentation.

We will be assessing our appeal process in the next weeks once we get the document. These are two different processes. So the formulation process as well as the composition of matter and matter of use process, these are two different processes. We believe that we have a strong position here.

Brian, with respect to the second question?

Brian Goff -- Chief Commercial Officer

Yes. Hi, Ying, your question about the NMOSD and the 4,000 to 5,000 addressable patients. First off, the -- when we say addressable, what we mean by that is, these are patients who have active disease, meaning they have relapses that fits with the PREVENT pivotal Phase III trial. Secondly, it's that they've been tested for aquaporin-4 antibody, which is fairly ubiquitous, that's a test that's done fairly frequently.

And the third is that they're in some form of treatment, and it's really the third point that will be the heavy-lift educationally that we will go after. And that's again to focus on redefining what stability means for the clinician, because they just have had not had therapeutic options certainly that have been approved. And secondly, to really emphasize the point that it is all about the relapse. It's terrorizing for patients, it's very unpredictable and unfortunately, what it means for patients oftentimes is they have blindedness or some form of paralysis or loss of bladder control or all of the above or higher rates of mortality.

So we will focus heavily on those educational aspects and the role of complement. But we do believe that many of those patients are already diagnosed, they're in the system and they tend to be in NMOSD centers of excellence, which are fairly concentrated or in MS centers and having built up now quite a neurology team that has experience now, not only with gMG, but also coming from the MS world, that gives us confidence as well with our launch potential.

Operator

Thank you. Our next question comes from Anupam Rama from J.P. Morgan. Your line is open.

Anupam Rama -- J.P. Morgan -- Analyst

Hey, guys. Thanks so much for taking the question and congrats on the quarter. I think at the conference, you mentioned that the Phase III NMO data, may be at AAN, is that still the case? And if the data are at AAN, what's the sort of scope of data we're going to be getting? And are there any particular endpoints beyond relapse we should really be focusing on? Thanks so much.

John Orloff -- Global Head of R&D

Thanks, Anupam. This is John. Yes, we've submitted a late-breaker to AAN. So we do plan on presenting, that hasn't been accepted yet.

But we will plan to present that. That's in early May. And we'll be showing, in addition to the top-line results, the key secondary endpoints that include measurements of disability and disease progression. The data itself, we think, is extremely strong.

I mean, these are critically ill patients where every relapse gives a potential devastating complication for patients. And so when you look at the competition, where the percentage of relapse raise in the 70% range, 70 percentage-wise, and we have 98% of patients that are relapse-free after 48 weeks, 95% reduction in annualized relapse rate, that is an important factor, because that next extra relapse could be devastating for those patients, could cause death, blindness, paralysis. And so the goal should be to achieve a relapse-free world in these patients.

Operator

Thank you. Our next question comes from Matthew Harrison from Morgan Stanley. Your line is open.

Matthew Harrison -- Morgan Stanley -- Analyst

Great. Good morning. Thanks for taking the question. I was just wondering if you could just give us a little bit of color on what the payer discussions are like in the U.S.

for Ultomiris. How those are going? How those are progressing? How you think they may impact uptake in the U.S.? And sort of what sort of coverage you'd expect to get? Thanks.

Brian Goff -- Chief Commercial Officer

Hey, Matthew, it's Brian. Sure. We're very active in payer discussions. And so far, I would summarize to say they're quite encouraging.

So a little bit early right now to have policy determinations that takes typically weeks if not months. It really depends on the payer. But on the commercial side, it has been quite productive. And I think the payers generally recognize the value that Ultomiris offers at the patient level, of course, with the every eight-week dosing relative to every two-week infusions with Soliris.

And then the pricing decision that we have taken with all the clinical data behind it, you might say was a bit surprising to the payers, pleasantly surprising, particularly given the trend that they see with most other follow-on type products. So that gives us a position of strength as we wait for the coming weeks and months for those determinations. And so far, right on track.

Operator

Thank you. Our next question comes from Phil Nadeau from Cowen and Company. Your line is open.

Phil Nadeau -- Cowen and Company -- Analyst

Good morning. Congrats on the productive year. A couple of questions for Paul. Paul, first in your prepared remarks, you mentioned that there is R&D funding set aside for business development in the guidance.

Could you give us some sense of how much R&D funding is set aside for business development? And whether we should expect any more collaborations to be announced near term? And then second, as we look to model Ultomiris in aHUS, it looks like based on the dosing difference that there's -- there will be a 40% average price discount for Ultomiris in aHUS versus Soliris. Is that accurate? Is there anything that we're not taking into account, like average weight per patient or something that makes the pricing more similar than different? Thanks.

Paul Clancy -- Chief Financial Officer

Yes. It -- let me start with the second part, Phil, thanks for the questions. It's -- that's a little high. It's probably closer to 30% discount on kind of patient-to-patient basis on an ongoing basis.

With respect to -- and that obviously, that's in the United States, where we've announced the pricing. With respect to the kind of earmarked funds for business development, it's in the range of kind of $60 million to $80 million. And we just do that so that we ensure that it is part and core to our strategy. So we hope that we keep a kind of drumbeat of business development where we'll remain disciplined, obviously, so there you go.

Operator

Thank you. Our next question comes from Martin Auster from Credit Suisse. Your line is open.

Martin Auster -- Credit Suisse -- Analyst

Hey, all. Thanks for taking the question. I had a couple on the Ultomiris opportunity in aHUS. I know there is a bit more turnover in that market compared to PNH.

And I was just wondering if you think the Soliris, Ultomiris conversion rate would look any different there? And then secondly, when we talk to clinicians, they often cite both the kind of the administrative difficulties with Soliris relative to Ultomiris and then also the price. I'm curious if you think Ultomiris could achieve greater rates of chronic use than Soliris has in aHUS with advantages on both of those factors. Thanks.

Brian Goff -- Chief Commercial Officer

Yes. Martin, it's Brian. Good questions. First, our ambition is the same best-in-class conversion in atypical HUS, as we talk about for PNH.

We just, of course, released our very strong atypical HUS Phase III data, which we're quite pleased about. So the team is moving forward with the submission for that. And there are differences, of course, between PNH and atypical HUS, as you know. However, with both diseases, the every eight-week dosing is quite meaningful for patients and for physicians.

We expect that will resonate very well. And then as you noted, there could be an opportunity to improve the persistence with patients on atypical HUS with Ultomiris. We'll have to see how that plays out. But that could in part address some of the shorter-course therapy that can happen with Soliris.

And the last thing is just reflecting on Paul's earlier comments that the fact that Ultomiris' U.S. pricing has established a discount to Soliris when we get to the point of launch for atypical HUS, will really also create an opportunity to address some of the concerns that have existed around cost and access.

Operator

And our final question comes from Josh Schimmer from Evercore ISI. Your line is open.

Josh Schimmer -- Evercore ISI -- Analyst

Great. Thanks for taking the last question. I just want to understand the comments about key markets being the U.S., Europe and Japan. Maybe you can elaborate or expand on the global filing and pricing strategy for the C5 franchise in myasthenia gravis? And then will you press to launch in the rest of the world territories? Which territories are you not targeting and why? And do you expect incremental indications for Ultomiris beyond PNH will have any impact on price or is the initial launch price in PNH the one that you expect will set the tone across indications? Thanks.

Brian Goff -- Chief Commercial Officer

Yes. Hey, Josh, maybe I can just start. It's Brian, again, on paraphrasing. What I'm hearing the question is about is U.S., Germany, Japan, those are three very important markets for us that's also -- that's been the entry point for our launches as of late.

Starting with gMG, which has been a big storyline throughout 2018 and moving into 2019. We continue to engage with payers and minsters of health and the like across our geographic footprint. But because pricing and economics and reimbursement are increasingly globally linked, we're quite careful to make sure that the economics all lined up before we look toward a market or entry point. And we've seen that in the case of Strensiq and Kanuma, where we have continued to progress with thoughtful geographic expansion where the payers have recognized the value of those products.

We do the same thing with gMG. And we would expect looking ahead with Ultomiris, particularly beyond 2019. As those discussions unfold, for example, in Europe, then we would be looking at continued launch sequencing beyond Germany.

John Orloff -- Global Head of R&D

And Josh, this is John. I'd just add, as you know, we're planning to start the MG trial for Ultomiris this quarter. We have plans to initiate the NMO program for Ultomiris later this year as well as two proof-of-concept studies in diseases that have high unmet need, a little bit higher risk than those core indications where we already have proof-of-concept for C5 inhibition. But it allows us to potentially expand into a larger patient base across neurology therapeutic area.

Ludwig Hantson -- Chief Executive Officer

Perfect. So we're going to close the call. The -- needless to say that we're very proud of what the Alexion team has achieved in 2018, but also 2019, I believe, will be an exciting year. We have two launches ahead of us.

The Ultomiris PNH conversion is going to be a key priority. Also, talking about accelerating our neurology portfolio and clearly, we'll have some key R&D milestones. So I believe 2019 could be another strong year for Alexion. So with that, we'll close the call.

Thank you all for dialing in and enjoy the rest of your day. Thank you.

Operator

[Operator signoff]

Duration: 62 minutes

Call Participants:

Susan Altschuller -- Vice President of Investor Relations

Ludwig Hantson -- Chief Executive Officer

Paul Clancy -- Chief Financial Officer

John Orloff -- Global Head of R&D

Brian Goff -- Chief Commercial Officer

Geoffrey Porges -- Leerink Partners -- Analyst

Terence Flynn -- Goldman Sachs -- Analyst

Kennen MacKay -- RBC Capital Markets -- Analyst

Geoff Meacham -- Barclays -- Analyst

Chris Raymond -- Piper Jaffray -- Analyst

Paul Matteis -- Stifel Financial Corp -- Analyst

Robyn Karnauskas -- Citi -- Analyst

Ying Huang -- Bank of America Merrill Lynch -- Analyst

Anupam Rama -- J.P. Morgan -- Analyst

Matthew Harrison -- Morgan Stanley -- Analyst

Phil Nadeau -- Cowen and Company -- Analyst

Martin Auster -- Credit Suisse -- Analyst

Josh Schimmer -- Evercore ISI -- Analyst

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