Biogen Inc (BIIB) 2002 Q2 法說會逐字稿

[Early confusion and interal conversation] Good morning.

My apologies on the operator just forgot to let us know that we could begin.

So welcome to Biogen's second quarter 2002 conference call.

Today on the call we have Jim Mullen, Chairman and CEO of Biogen, Peter Kellogg, CFO and Executive Vice President of Finance, Elizabeth Woo, myself, Director of Investor Relations and joining us for Q&A is Burt Adelman, Executive Vice President of Research and Development.

Let me begin with the Safe Harbor Statement.

Comments made in this conference call may contain forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

References made in particular to statements regarding future financial performance, including expectations regarding future revenues, product sales, royalties, expenses, and EPS, as well as statements regarding our expectatations with regard to competition in the U.S. marketplace.

Such statements are based on managements current expectations and are subject to a number of facts and uncertainties which could cause actual results to differ materially from those described in the forward-looking statements.

In particular, careful consideration should be given to cautionary statements made in the various reports Biogen has filed with Securities and Exchange Commission, including the outlook section of the MD&A in the company's most recently filed form 10 K.

I'm now going to turn it to Peter to walk you through the financials for Q2.

Ok.

Thank you, Elizabeth.

Thanks for joining us on the call today.

I'm gonna spend some fair bit of time on the financials today.

I'll go slowly and it will take a little time, but I think it will be very helpful.

I'd like to begin with a quick review of our overall P&L results for Q2 and then come back and discuss in more length the performance of the U.S. and International businesses separately.

I'll then wrap up for guidance in the full year and Q3.

Now in sum, our Q2 reported EPS was 29 cents per share.

Excluding a $5.8 million charge related to severance, and benefits of retired Chairman, Jim Benson, Q2 operating EPS was 31 cents per share.

Both reported and operating EPS results are inline with the guidance range of 28 to 32 cents provided in our June 7 conference call.

Now, lets's walk through the P&L lines.

[INAUDIBLE] revenues for the second quarter was $251million.

That's a 3% increase over prior year.

Now, these results reflect softer reported revenues in the U.S., that's really the soft spot.

As we discussed in our June 7 call, this is due to an unusually large reduction in Avonex inventories held by U.S. wholesales during Q2.

We believe this resulted in a roughly $14 to $16 million negative impact to our reported Q2 sales.

If this dynamic had not occurred we estimate that worldwide sales would have increased about 9% year-over-year in Q2.

And I'll cover this in much more detail as we walk through the U.S. business results.

Royalties were $19 million in the second quarter, that's a 7% increase over prior year.

As anticipated, there's no update on arbitration with Schering-Plough.

Regarding the resumption of royalties from Schering-Plough for U.S. sales, we won't know view on this topic or their actions until they issue their quarterly royalty payment.

For Q3 we are not booking any royalty revenues for these U.S. sales and our guidance has always been to assume these payments will not resume in Q3 or Q4 of this year.

Cost of Sales was $36 million or 13% of revenue and that drive has been a gross margin of 87%.

R&D is $89 million, 33% of revenue, and a 13% increase over prior year.

Now as you know, our R&D spending has been driven by three large phase III antegren trials, two in Multiple Sclerosis and one in Crohn's.

Continued dosing of Amevive patients and overall pipeline support.

Remember, that we are also now sharing the cost of the CDP-571 program with our collaboration partner, Seltech.

SG&A in the second quarter was $92 million.

Now, this SG&A includes the $5.8 million charge for wages, severance and benefits for Jim Benson.

Now, on an operating basis, excluding that one-time charge, SG&A was 32% of revenues and a 56% increase over prior year.

This operating SG&A spending increased 17% sequentially over Q1.

This includes some strong ongoing increases in our large - in our sales force, which is now up 25% from last year, an increase customer service.

It also reflects our commitment to strong communication programs targeted to our retention of our current patients.

On March 11, with the change in the orphan drug status, we implemented an aggressive sales and marketing strategy to maintain our established position as the leading MS therapy in the U.S.

For competitive reasons, we will not be disclosing the detailed spend of that program.

During the quarter we have also successfully developed our proof trial, which the head-to-head Avonex vs.

Rebif study examining the impact of naturallizing antibodies over the long term.

We expect to begin this trial sometime shortly.

Finally, we have already increased our spending to prepare for the Ameviv launch.

Including the addition of most of our sales and marketing management team for both North American and Europe.

Other income and expense for Q2 was $8 million, taxes were $19 million, that's about a 28% effective tax rate, and we expect that tax rate to be the same for most of the year.

As I mentioned earlier, our reported EPS was 29 cents per share and the operating EPS was 31 cents per share and, of course, the difference is the severance and benefits charge in Q2 of $5.8 million.

And once again, these results are pretty much in line with our guidance range that we provided on June 7th.

Now I'd like to turn to the U.S. product sales and walk through the dynamics that we experienced during Q2.

The product sales were $176 million, which is a 2% growth over prior year.

Now, let me begin by summarizing.

Fundamentally, our U.S. business at the patient demand level has been steady with very modest to no growth since January 1 of this year.

The revenue variations that we are seeing are primarily the effect of channel buying behavior around the Avonex price increase in Q1.

The underlying demand for Avonex has been steady throughout.

I'd like to walk through the impacts on our U.S. revenue line in the first half of this year and essentially there are two major impacts.

The first is the reductions in the wholesale inventory levels during the quarter and the impact of softer overall MS market growth in the U.S. during Q2.

Let's start with the inventory impact.

We certainly spent a lot of time and effort to sort out the dynamic and I think we have far better tools today to track the trade behavior and differences between under lying demands and shipments in the wholesaler channels than we did at the beginning of the year.

I'd like to walk through the findings of this effort.

The findings are as follows: First we determined that in Q1, it turns out that there was an inventory build due to pre-buying by wholesalers in anticipation of our January price increase.

We had not detected this net impact during Q1.

We now estimate that inventory build was in the range of $8 to $10 million.

Secondly the wholesale channel then worked down this inventory during Q2, and continued down to a lower level than existed at the beginning of the year.

Resulting in a total Q2 inventory reduction in the $14 to $15 million range.

So, naturally the question is, whether this reduction activity is finished.

It is now clear that this inventory adjustment activity has ended in early June.

As we work through June and as we watched our sales patterns in July so far we have seen shipments to wholesalers match the underlying demands.

And this is based on both IMS unit and Script data.

There have been no inventory changes over the last five weeks.

And we believe that this dynamic is over.

This is supported by the fact that the level of inventory is now about 1-1/2 weeks at the end of Q2 and this should be a logical minimal level for wholesalers to manage their once a week ordering pattern.

These conclusions have been confirmed with recent discussions with the individual wholesalers.

So what does all this tell us?

First of all, it implies that while we've seen steady, underlying U.S. demand for Avonex since the beginning of 2002, the flucuations in shipments and hence, reported revenue have been driven primarily by wholesaler behavior around our Q1 price increase.

Without this inventory flucuation, U.S.

Avonex revenues would have been $8 to $10 million lower or just under $190 million and $14 to $16 million higher in Q2, slightly above $190 million, leaving a fairly steady or slightly growing revenue trend through the first half of 2002.

It does not appear that the inventory changes are due to any particular changes in wholesaler thinking from the Rebif launch.

Now, the underlying demand trend from this analysis does imply that Avonex has experienced some share decline in the first half of 2002 because of the Rebif launch.

Pretty much in line with our expectations and so this is as we anticipated.

We believe this reconciles reasonably well with the IMS weekly data that you've all been tracking.

So this brings us to the second driver of our softer Q2 U.S. revenues, the MS market growth.

As we discussed on our June 7th call, the overall MS market growth has been softer in 2002 than we had originally anticipated.

Following a strong 21% growth in 2001, most projections were for a high teens growth in 2002.

Instead we have seen low teen growth through May which has reduced our growth in Avonex.

So, when you take this all together, net/net the underlying demand for Avonex has remained roughly flat through the first half of 2002 based on expected share decline and a softer MS market growth rate.

We believe that the net number of Avonex patients in the U.S. has remained steady in the low 80,000 range since the end of 2001.

Avonex market share now stands in the low 50s as expected.

Finally, we have developed some very favorable performance agreements in selected managed care channels.

We believe that the total level of discounts for the full year of 2002 will be roughly 1%.

The impact in 2003 will be an additional one point.

These programs position Avonex in a favorable or equal position for doctors and patients in these important managed care channels.

Now let's turn to the International business outside the U.S., and the product sales outside U.S. were $75 million in Q2 after the translation impact of foreign exchange.

That's a 7% growth over the same period last year and a 9% growth over 1st quarter.

Biogen's revenue growth versus prior year in local currency was 11%.

Our performance in Q2 is quite strong on a quarter per quarter basis.

We often see strong growth in Q2 over Q1 and this quarter was no exception.

Our growth versus prior year is lower than has been in recent quarters.

A major part of this is due to very strong 37% revenue growth that we experienced in Q2 last year as we launched the Bioset package.

Taking that into account we are comfortable that our International Avonex sales are on track to achieve our expected high teens growth performance in 2002.

In western Europe specifically, Avonex market share was stable in Q2.

Avonex remains the most prescribed therapy in terms of patients, which is an important point that Avonex has achieved and now maintains its leadership despite the competition from Rebif and Betaferon for more than four years.

Biogens' Avonex team received good news from Europe during the quarter.

The European regulatory authorities approved our indication for early treatment of patients determined to be at hight risk for developing Multiple Sclerosis.

Avonex is now the first and only Multiple Sclerosis medicine to posess this indication in Europe.

Then finally, let me turn to the financial guidance for this year.

We're maintaining our full year 2002 guidance as provided in our June 7th conference call.

Avonex U.S. revenue should be in the range of $730 to $755 million, which assumes that the U.S.

MS market continues to grow in the 12% to 15% range.

Now, a number of people have called and asked if we could provide some thinking about the upper and lower ends of that range and how we look at it.

We think the lower end of this range incorporates some conservative assumptions regarding market share and the upper end of this range assumes that demand remains constant as it has through the first half of 2002.

International Avonex revenue growth we expect to be in the mid-teens, driving revenue in the $290 to $310 million range.

This should drive total worldwide Avonex revenue growth of 6% to 10% resulting in over $1 billion in 2002.

We've not included any significant, positive impact from our recent MediCare reimbursement approval.

Finally, I'd just like to recap again on the pricing front for the U.S.

The full year impact of the 3.9% price increase we implemented in Q1 will be offset by roughly one point of Avonex defence spending in managed care.

I'd like to emphasise that these discounts pertains only to portions of selected channels, the managed care channels, where performance can be actively supported by the channel organization.

We are not giving any rebates to wholesalers.

Royalties guidance is unchanged.

They will remain in the range of $75 to $85 million.

And again, we've not included the resumption of U.S.

Schering-Plough royalties in the second half of this year, leading to a total revenue growth of 6% to 10%.

The rest of our P&L guidance is consistent with our last call.

And just to quickly recap, operating expenses in 2002, R&D will be 33% to 35% of sales.

SG&A will be 26% to 28% of sales.

Now we've been receiving some calls and inquiries as to whether the recently announced Pfizer-Serona deal will increase our sales and marketing staff.

Jim Mullen, in a moment, will comment on our observations of this announcement, but in terms of guidance, we've always assumed that Serona would fully cover the market.

Either alone or with a partner.

So this development does not change our outlook for SG&A in 2002.

Based on these updates, we expect 2002 EPS to be in the range of $1.50 to $1.60 on an operating basis.

And of course, this includes the development costs for CDP 571.

It also works with our timing assumption for the Amevive approval as we've always indicated, which is towards the end of 2002 or in the first quarter of 2003.

Obviously, our full year earnings outlook could be slightly modified if we receive earlier approval for Amevive.

Finally our Q2 EPS should be in the range of 32 to 38 cents per share.

Now, we'll be giving 2003 guidance later this year.

This will be provided once a clear outlook and timing of the Amevive approval and launch are clarified, the phase II results for CDP 571 have been assessed, and the go forward actions are planned and agreed with Siltech.

That wraps up a fairly lengthy financial discussion.

I apologize for that.

But, I think there's a lot going on in Q2 so it was important to cover it all.

What I'd like to do now, is hand it off to Jim Mullen, who will discuss Biogen strategic progress during 2002.

Jim.

Thanks Peter.

Thank you all for joining us this morning.

This quarter we made great progress toward our long-term goals, as we've discussed before, I'll reiterate here, we put the stake in the ground for by 2005 or for 2005.

We envision Biogen having exceeded $2 billion in revenue, three to four commercialized products, a world leading physician in imulogic diseases and a powerful and robust pipeline.

Since the two years that I've served as CEO, the companies pipeline has turned around significantly and has now become one of the best in the industry.

We do have Ameviv in registration,obviously.

We're completing phase III trials with CDP 571 and we started trials in two different phase III trials, two different indications with Antegren and we have several phase II products so we feel very good about the long-term prospects.

I'm going to talk about Avonex here for a few minutes.

Q2 confirmed the demand was constant, but the numbers in the U.S. were softer than expected primarily due to the inventory reductions that Peter discussed.

With 1-1/2 weeks of inventory in the system, that's what our best estimate is at this point.

It doesn't appear that they are likely to reduce inventories further, so I think those adjustments have happened and will be completed or were completed in this quarter.

The market growth year-to-date has been about 5 percentage points softer than what our original forecast was and through May the MS market is growing about 13%.

Rebif total market share is around 5% at the end of June which is in line with our expectations.

As I've said, it's too early for anyone to conclude long-term trends on market share for any of the competitors and we'll have to wait for the Q3 results to see a clear picture of the trajectories since virtually everyone of the companies has several inventory changes going in different directions.

So, we've seen wholesaler reductions for Avonex, I would imagine probably Betaferon as well.

Rebif, of course, has been stocking the channels as part of a new product launch and the [INAUDIBLE] had a new [INAUDIBLE] which changed the inventory picture temporarily there as well.

Let me make a couple comments about the recent announcement by Serona and Pfizer on their collaboration on Rebif.

I not gonna speculate on the agreement, since we don't know any more detail on this collaboration than you've read in the press.

We assume Serona feels that they need more marketing horsepower here in the U.S.

Perhaps Serona has determined the collaboration is needed to achieve their goals in the U.S. market where they're competing against established players that have years of relationships with both patients and doctors.

While we have the utmost respect for Pfizer and the sales force and we do not underestimate the competition here, it has yet to be proven that more feet on the street will be the main driver in MS specialty products.

We don't believe that this is a sales force intensive market.

And sales force increases have had relatively little impact on the growth of the market.

If there is a broader outreach as part of their general strategy, an outreach to general practitioners, that might be helpful in growing the market, but the ultimate prescribing decision I believe will remain with the neurologists and we feel we've covered with our sales force all of these neurologists very effectively.

Just to reiterate a few numbers that we've talked about before, MS is a highly specialized marked, it's driven by a very small number of specialists. 5,000 doctors account for 90% of the descriptions, 500 doctors account for 40% of the prescriptions.

We've been in the market since 1996 and we're in weekly communication with those top 5000 docs with our sales force of about 80.

As Peter said, we don't anticipate changing our tactic or our marketing strategy in any significant way in response to this collaboration and I don't see that it has any impact on our SG&A for the remainder of the year.

I want to make a few comments about Antegren because I think this is the long-term future.

The market growth is driven by innovation in MS and the real game change will be the introduction of novel therapies.

That's of course, why we've been very excited about the Antegren program now for a couple years.

Antegren will be the next major advance in the treatment of MS .

It is the first compound to come along in years with strong data that works by a different mechanism of action.

We're committed to maintaining our leadership position by continuing to innovate and bring meaningful new advances to patients.

By 2005, the largest pool of patients will be those who have tried, but have not fully responded to current therapies and we expect that the entire MS market to be about $4 billion in 2005.

Products with truly novel mechanism action will increase access to patients that are not well served by the current therapies.

The phase III trials for Firm, which is the mono therapy trial, the accrual has been completed with over 900 patients.

The sentinel combination trial with Antegren is on track for completion by year-end as is the Crohn's trial.

The Antegren program moves along as we've discussed and on schedule.

Amevive.

Let me give a couple of updates on Amevive.

Obviously, a lot of activity in the quarter which brings Amevive much closer to the market as the first new treatment for moderate/severe psorosis.

We did receive positive recommendation by the advisory committe on May 23rd.

As, there was much speculation in advance that.

The panel group touted as a watershed event for the industry.

I think most people were betting that Ameviv would not pass this hurdle.

The advisory committee certainly put us to the test.

But allowed us to demonstrate our best scientific expertise and throughness.

It was a demonstration of Biogen's excellence of execution.

We received the complete response letter in June.

There are no new clinical trials requested prior to approval.

Let me summarize in a bit more detail the elements of the complete response letter.

They are within three sections, manufacturing, post marketing obligations and proposed labeling.

I'll touch on manufacturing first.

The letter reviewed all the data submitted by early May.

So, things up to about one week in front of the -- before the advisory committee, so I think it was May 10th was the cutoff date, but the inspection of our North Carolina facility occurred mid-May.

Just a week before the advisory panel.

Thus many of the questions in the manufacturing section are procedure requests and they had already been answered actually prior to the June 6th complete response letter.

There's a few remaining items to tie up there but nothing of great significance.

Post marketing obligations, as discussed at the panel, a post marketing safety registry was proposed to answer the questions about Amevive's long-term safety.

Biogen has all along supported such a registry and we've been working with experts to design such a trial.

The agency is asking that we submit a protocol that addresses these issues.

Of course, there were a number of other minor protocols that they also requested to submit and those are all being developed.

It's completely in line with the conversation that occurred at the end of the advisory committee meeting.

But again, let me emphasize that no new clinical studies are required prior to approval.

Finally, the proposed labeling.

The label proposed by the agency is in line with the panel recommendations and we're generally pleased with the initial language.

The indication proposed is moderate to severe chronic to flat psorosis for patients who are candidates for systemic or photo therapy.

So, we feel that a label that's in keeping with the entry criteria for a phase III trial and in keeping with the market sizes that we've discussed previously with all of you.

The next step, everybody in our medical and regulatory groups are working very diligently in response to questions in the letter.

Most of the answers have already been submitted.

The remaining issues will be tied up and submitted in the next few weeks.

After that, the FDA will take a bit of time to review the responses and then they will indicate whether this is a class 1, which is a two-month review, or class 2, which is a six-month review.

So just to summarize what the milestones have been completed in preparation for approval and launch, we passed all the FDA and the ENEA, the European preapproval inspection in our North Carolina facility, our Cambridge facility and all our contractor facilities.

The product is already manufactured, it is already in vials.

None of the questions from the complete response letter impact the inventory of product that's already been made.

We have exceeded our prelaunch goal of having 30,000 names of prescription willing patients in the U.S. in a database and our reimbursement preparations are on track.

So at this time, we're maintaining our guidance for late 2002, early 2003 launch in the U.S. and the EU.

We've incorporated the more conservative assumption should the FDA take six months to review our responses.

Let me review again the psoriasis market opportunity.

We believe this market opportunity for psoriasis is very significant.

Psoriasis market has a lot of similarities to the RA market before the [G&S] inhibiters were launched.

With 1.4 million moderate to severe psoriasis patients in North America and Europe, a modest penetration of this market provides a multibillion dollar market opportunity.

I think most people agree with the 1.4 million number and that's certainly consistent with the population described in the indication statement.

I think the debate among analysts in the marketplace is how deeply that space can be penetrated.

Amevive will be the first to market in this phase.

We've got a unique profile of duration, which will be Amevive's competitive advantage over other biologics that will be entering the market.

We have stated and we're reaffirming a goal for Amevive to achieve $500 million run rate by the end of 2005.

By this time, next year we'll be executing in the marketplace and the performance will speak for itself and the gate will be shaped around what happens in the market as opposed to everybody's speculation.

So to summarize here and then I want to leave plenty of time for questions and answers here today, we have our second product, Amevive, on the cusp of commercialization, we have a potential third product, CDP 571 which completed phase III trials. the fourth product, Anagren is in phase III trials in both MS and Crohn's disease.

I think this lineup is now clearly one of the best late stage pipelines for the industry and this will deliver robust top and bottom line growth over the next few years.

We continue to look for opportunities both early and late stage that lever our manufacturing capabilities and fit our therapeudic franchise strategy.

Over the last two years we've been building a foundation for growth in the medium to long-term.

Our quarterly earnings going forward will be lumpy over the next few quarters as we prepare to build our commercial organization in dermatology and gastroenterology a little later and as we continue to invest in our pipeline.

I think we believe the investments are necessary and that we've got a great financial base to operate from.

Let me reiterate 2005 we expect to exceed $2 billion in revenue, with a 2 year forward growth rate of 20%, three to four commercialized products, and a powerful robust pipeline.

The next 12 to 18 months will be a few proof points for you to look at by this time, next year.

Amevive will be on the market and generating revenues, Anagren's phase III trials will be about half-way done, and the one-year data in MS potentially available in the second half of 2003.

The CDP-571 phase III results will be available shortly.

And so that product may be filed next year with trials in psoriasis also starting next year.

We'll have to see what the data tells us.

Now let me turn it back to Elizabeth for questions and answers.

Thank you, Jim.

Operator, we're ready to begin question and answer.

And generally, since we have a number of folks in line, please keep yourself to one question and if you have a second question, please re-enter the cue.

Operator we'll take the first question.

Thank you.

At this time I'd like to remind everyone if you would like to ask a question, please press star then the number 1 on your telephone key pad.

We'll pause for just a moment to compile the Q&A roster.

Your first question comes from Mark Kavaski.

Mark.

Your line is open.

Mark, go ahead.

Okay, he withdrew his question.

Your next question comes from Araj Davok.

This is Merrill.

Is it me?

Yeah, it's you Ros. [laughter]

Well ok.

That's clearly a new one.

That was a new interperatation even we couldn't get to it Ros.

It's get interesting and interesting as we go.

I'm a little bit confused about your guidance for SG&A because if I assume the middle of the range of your revenue guidance, let's say around close to 9% in revenue growth, getting to 26% to 28% of the percent of sales on GNA basically means that you cannot spend more in the second half on SG&A than you did in the first half, so that means actually SG&A is going to decline from the second quarter level.

Is that accurate and if so, what are the drivers?

Well yes, first of all, it's accurate, so your math is right.

Secondly, we did have a very heavy step-up in spending in Q2.

Q3 and Q4 are still significant increases over prior year, so I wouldn't want to leave the impression that SG&A is going to be going down versus the prior year in any way or even really be at a lower level.

But Q2 did have higher spending activity than we would have in Q3 and Q4, so to answer your question, Q2 was kind of the peek level of spending.

It will come down slightly in Q3 and Q4 but it will certainly be higher than it was in prior year or in Q1.

Ok.

Thank you.

Ok.

Thanks.

Next question,

Your next question comes from Eric Smit.

Good morning, it's Eric Smit of SG Cowen.

Could you update us on the number of patients that have registered themselves as therapy willing in psoriasis and also tell us your intentions of what you plan on doing their names?

Well, it's well in excess of 30,000 and I don't know the precise number now, but it's well in excess of 30,000, Eric.

What are we gonna do with their names?

I'll take you back to the Avonex business.

We have a very sophisticated customer service and outreach and communication with patients there and so this really just gives us a jump-start on what took probably three years, four years to accumulate at Avonex.

So we will immediately be communicating with them of course when the product is approved for marketing and that will hopefully give them an early entry into all of our other customer services, so that's what we plan to do with them.

We're going to be - They have identified themselves to us and therefore we can have a direct line of communication with them.

We aren't going to share their data or information with anyone else, or use it in any way that would violate I'd say the privacy issues.

Ok.

Thank you.

Next question

Your next question, comes from Matt Duffy.

Good morning.

Matt Duffy from Black Diamond.

I just wanted to ask you a quick question on what you're thinking with the Serona/Pfizer, if you have to do anything different or if you have all the pieces in place on a larger sale force or if you're contemplating additional steps to counter balance them.

No, both Peter and I pretty much covered it from a dollars and cents point of view.

We're not going to make any changes.

When we announced in March that we would be increasing our marketing and sales spending in defense of the Avonex business, it wasn't as if every one of those dollars got allocated because we knew that there is a -- you know, there's going to be a competitive arena here and we may have to make responses in the future, so this is -- this isn't completely unexpected.

We've been hearing about this for months.

I don't think it really changes the dynamics.

It's not our view that more sales force is going to drive this marketplace.

We cover all these accounts very thoroughly with 80 people.

Next question, Operator.

Your next question comes from Alyce Wang from Salomon Smith Barney.

Thanks.

I was wondering if you could give us information about the number of new patients that were added in Europe and then just confirm to us what the number of patients here in the U.S. and in light of that, how you think the market share has changed among the different products as well as the feedback you're getting from the sales force as to what the doctors here in U.S. are now kind of focusing on on issues given some of the changes with the various options that are available in the market.

Ok.

Hi, Alyce, this is Peter Kellogg.

I'll take the first part of the question relative to some of the patient numbers and trends and then I'll actually hand off to Jim to discuss what we're hearing from some of the patients in the marketplace.

First of all just -- when we quote patient numbers, we are working off our unit volume and triangulating in on other information, so we do always give a range on that.

For International we think in Q2 our range was probably in the high 38,000 to up to maybe as high as 40,000, but somewhere in that range.

And in the U.S., we think our patient count has been in the low 80,000, and I'm sorry to be sort of vague about it, but I do think with all the activity that has been going on with the inventory and trying to get all the IMS data triangulated well, we're a little hesitant to put too sharp a point on it, but those are the numbers we think.

We think International did add [INAUDIBLE] a fair number of patients in Q2, where I think the U.S. has been, as best as we can read it, relatively steady or flat, maybe a slight increase, but not a big increase.

That's the patient numbers information.

The second thing is, I think, when we look at the market share, of course then you have to look at a lot of different data points.

The weekly data that is published obviously, doesn't include all the channels and so forth.

That's a little bit rough.

When we add in all the other channels of activity and try to make our best guess, we sense that at the end of Q2 in the U.S., we were probably in the low 50s in terms of market share.

We think we're probably down about, something like maybe 3 to 3-1/2 points on a year-to-date basis.

That's not to far from what we anticipated with the launch of Rebif.

It would appear quickly ,from what we can tell anyway, it would appear that Rebif is somewhere a little over 4%. 4%to 5% range.

Something like that.

And I guess, our estimate would be that Betaferon maybe has given up a little more than a point.

And [INAUDIBLE] has been pretty steady in terms of market share.

And that's all U.S. Numbers.

Now in terms of what we've heard back from doctors and how they're looking at the dynamic of the different products being offered, I think, actually, I'll hand that off to Jim.

In a lot of ways, the conversations are not tremendously different, so it's what will patients benefit from over the long-term, and that is not simply just a clinical data question, but what will the patients tolerate, will they give themselves the doses, will they be compliant with the administration, et cetera.

Specific to the question of what's the discussion around Rebif, it's really, does six months traded off against higher safety issues or injection site reaction.

Higher neutralizing antibodies and what the long-term impact of those neutralizing antibodies and how should we think about treating patients over multiple years, not just six months.

That's kind of the debate in the marketplace.

I'd say it's going pretty much as expected.

I still think it's too early to call, you know, which one of those sets of arguments is getting more traction in the marketplace.

But it really seems to be on the Rebif front, the six-month data as you would expect, they are touting superiority versus for the claim that they got from the FDA on that versus what are the long-term benefits and the higher neutralizing -much higher neutralizing antibody rate and injection site reactions and frequency of injections.

Just to wrap up one thing, the market share quotes that I gave obviously, are pretty much triangulating across different channels to get the best numbers.

As Jim mentioned earlier, I think when you get the published results from the companies, it will be hard to work off the revenues because you will see a lot of inventory behavior.

OIn our case we had the reduction inventories.

And as Jim mentioned earlier, there will be other inventory dynamics.

We've always indicated that probably the best - the first time we'll really get a good read of what's going on and how the market share trends are more precisely behaving is when we get into the fall.

We almost need to get through the July, August, September time frame and October time frame to get a sense of how the market trends are evolving, okay?

Next question, Operator.

Your next question comes from Carolyn Capital from Morgan Stanley.

Thank you.

I'm tjust rying to understand my, kind of, growth rate trends we expect through the year for Avenex in the U.S.

Looking at the top end of your guidance, the $755 million, even if you add back a little bit for, I guess, the inventory draw downs that were not intraquarter fluctuations coming to about a 7% year over year increase and about, almost 4% of that price, and sequentially since the patient numbers have been flat I'm trying to figure out where we get the uptake, if it's through some impact from the secondary progressive indication or what will cause the pickup in the later part of the year to get to it looks like 4% kind of patient growth.

Caroline, I'll take a run at that.

Obviously the dynamics of this market have been tough to measure and exact a model forward.

I would say at the $755 level, what we were seeing is that would imply that we were having steady volumes or slightly rising unit volumes.

I would say it's a little better than just flat in the second half of the year.

As we try to extract the best information we can, we would say through the first half of the year, Avonex has been somewhere in that range of flat to slowly growing.

It's just a question of the dynamic of first how the market share has evolved.

We think they've been fairly predictable at this point also the MS market overall.

If the MS market does pick up a little bit then we would obviously, all benefit from that.

That may happen as people sort through the different arguments and the different data that Jim discussed, it may be that people settle in and we start to see it pick up again in the MS market as people thought it would be coming into this year.

At this point on the market growth rates, we are in the middle of just about to get the IMS monthly unit data that we rely on for May so we don't quite have that yet.

They're having some data problems with that.

So we should be getting that shortly and that will give us kind of the next month of information.

At this point we're still working primarily with the January to April data, where you get all channel information.

Operator, next question, please.

The next question comes from Peter Ginsburg of Piper Jaffrey.

Good morning.

On the secondary progressive MS side what are the [INAUDIBLE] discussions with the FDA in terms of their thinking of the MSFC end point, and I know you were doing work to show correlation between MSFC and quality of life.

I was just wondering, what's going on on that front?

Hi.

This is Burt Adelman.

I'll try to answer that.

Hi, Burt.

We're still having these conversations both in the U.S. and in Europe.

Perhaps the conversations have progressed a little more smoothly in Europe.

We've submitted a required package of data to the agency to try to help them understand the relationship between MSFC, quality of life, and the overall outcome from our secondary progressive trial and that's where we are.

Ok.

We'll take the next question, operator.

Your next question comes from Robert Smith of Flinner Floor Performance.

Flinner Floor Performance.

Good morning.

Could you tell us the extent of the build up in marketing infrastructure expense for Amevive in the quarter?

Ok.

We don't actually break that out at this point.

Could you give us some feel for it?

I'm sorry?

Could you give us some feel for it?

Yes.

What I'd say, we have the entire -- I'll give you a qualitative sense of it.

We do have the entire sales organization -- or entire marketing organization in place for both the U.S. and Europe.

We have most of the sales management in place and we're beginning now as we talk with the FDA and get a sense of timing be, we're beginning to add in more and more of the sales reps, but that has not yet really begun.

We are doing some - we are continuing to spend in the R&D line, but we haven't really begun obviously, anything until we have approval for a marketing activity level, so I would say that it wasn't been a major cost yet - at this point, but we anticipate it will start to pick up as we get close to launch.

It's a substantial material amount, but not the driver of our SG&A increase in Q2.

Ok.

Operator?

Next question?

Your next question comes from Steve Siegel from William Blair.

Hi.

Good morning.

Phil Steckle from William Blair.

Thanks for taking my question.

Good morning, Phil.

If you were to get a class 1 response from the FDA, how soon thereafter do you [INAUDIBLE] quantity for product and how does the reimbursement issue fit into this whole scenario?

This is Jim.

How soon after an actually a approval we would be ready?

Certainly within 30 days.

That's clear, because we've already got the product.

What would remain to be done at that point was simply getting the final license numbers, labeling and then getting it shipped out.

You know, so, I'm probably being conservative when I say within 30 days because the last time we did it - it was 33 hours.

-- in terms of the reimbursement issue, what kind of a barrier do we expect that to be, certainly we'll work on that and this will be a question that comes up with every account and every payer.

But, there is a huge pool of patients that have been on virtually all of these other therapies.

The [INAUDIBLE] and the Lypox therapies that have failed us.

So the first classic question is going to be, "Is this first line, second line and all kinds of things," and that will be the initial push back, but there's already a huge population of patients for which if they start prescribing it now, it would be their third, fourth, fifth different kind of a treatment.

Initially I don't really expect that to be a huge issue to getting the product in the hands of a relatively large number of patients.

As we're into the marketplace in the first six to twelve months. we're going to have to really make progress on the reimbursement issue or it could be a real impediment to growing the market.

I don't think it's an impediment to getting launched and getting started.

Thanks.

Operator, next question.

Your next question comes from May Kinho of Goldman Sachs.

Hi.

Can you get us an idea for the first year of sales for Amevive.

What range does it have to be before it can be profitable?

The company?

You mean the product, not the company?

Right.

Because we are 20% after tax right now.

Yes, I understand.

I would say that - First of all we've always said it depends on -- are you saying for 2003 or the first year?

Let's say 2003.

For 2003.

Ok.

Some of that will depend a little bit on the timing class 1 class 2, but in general the way I think about it, over the first year or 12 months of spending and launch activity, you would have to get up into the -- almost up around $90, $100 million and you start seeing some nice profitability.

I'd caution you, in that the spending level on Amevive will depend a number of factors as we go through the year so it's a little bit of a dynamic model.

As the volume picks up and as we go into the market we'll see how that plays out.

So not all the dollars are fully committed and so I'd be cautious to sort of, give you a sense that - ok - there's a spending level that's determined and then we'll see how the revenue is.

I think it's a little more dynamic than that.

We are going to be developing Amevive in other indications, so it just depends whether you include the research expenditures for those other indications or not.

But certainly Peter's guidance was very good on the psoriasis market, but everybody has lost sight for the opportunities for Amevive in other indications.

Operator, next question.

Your next question comes from Craig Parker from Lehman Brothers.

Question about Amevive.

Have you negotiated the final package insert with the FDA and have they begun to review any of your promotional materials?

I'll take that.

This is Burt Adelman.

So, no we have not yet completed negotiation on the package insert.

That will be part of the discussion, be it class 1 or class 2, and actually, I don't believe that [Tebur] pre-reviews promotional material any longer.

You send - it's a good idea to send that material down to them so they have it.

Sometimes they look at it and respond to you, sometimes they don't.

But we will of course send down the promotional materials to them.

It was a process historically even at the time of Avonex, [Tebur] did pre-aprove promotional material around launch but they don't do that any longer.

Operator, we'll take another question.

Your next question comes from John Sonia from Prudential.

Thanks for taking my questions.

I apologize for earlier.

We were disconnected.

I just had a quick question for Peter on the numbers.

When you were talking about the expense ratios, I believe you were referring them to percentages of total revenue, and in your guidance back in June, you were referencing product sales.

How should we be thinking about that?

Ok.

Hi, John.

No, I always try to use in my guidance total revenues, so if that was picked up earlier as product sales, I apologize.

I always work off total revenue when I quote margins as percent of sales - percent of revenues.

Percent of revenues.

That actually is different than your press release on the seventh.

So,it will be as a percent of total revenue?

Yes, it should be total revenue.

Ok.

It was just an oversight.

It was a sloppy wording.

We always use total revenues.

That's helpful.

Thank you.

Operator?

Yes?

Next question.

Your next question comes from Robert Smith of Center Core Performance.

Hi.

Center for Performance Investing.

Could you give us your assessment of your experience of working with the FDA in a period of general delays that have been seen in the organization?

I don't know if we have enough time.

This could take an hour. [ laughter ]

First of all, what I'd have to tell you is that it's very much related to each -- so we have different experiences respect to each of our different products, and each of -- you know, different issues around these products, so in that therefore implies that there are probably not clear standards being enforced throughout the agency that every reviewer absolutely understands how they're being judged and what the performance objectives are.

This is [INAUDIBLE].

With respect to the Amevive review, on the one hand, they certainly got to the advisory committee meeting and to sending us a complete response letter within the most aggressive time lines that they have laid out for themselves, so they did perform within those time lines.

The issue is could everything have gone more smoothly, could there have been sort of less running between stoplights and rather of a sort of smoother process, yeah, I would think so.

We have good dialogue with some reviewers and less with other reviewers.

I'm going to reserve judgment until we finally complete the whole process and I think I could make a clearer assessment of what it was like from start to finish.

That's about what we can say at the moment.

Thank you.

That's helpful.

Operator, next question?

Next question, Alyce Wang of Salomon Smith Barney.

Thanks.

Just follow up with a question on Amevive.

I think you said - It seems like you are perhaps moving along quicker on the regulatory front with the European regulatory authorities.

If you can give us an update on that and any potential in terms of timing therefor on their response.

And, then also, will you be having some data at the upcoming summer session of the AAD?

To the second question, Elizabeth is shaking her head yes, so I imagine that means she knows something that I don't.

That we will indeed be having some data presented at the summer AAD.

All of the -

Really all of the data, the vast majority of the data are out there.

There won't be any unique surprises.

I imagine there may be some safety data, some additional information about long-term follow-up, but there won't be anything that will be changing the efficacy or safety data that you all saw in great detail of the briefing document and at the advisory committee meeting.

With respect to the regulatory process in Europe and the EMEA, I'm not quite sure exactly what you mean by moving more quickly.

They have been moving on their schedule.

We did submit to them our answer to their consolidated list of questions.

They're reviewing that.

Based upon their review of those questions, we will know probably in August or early September what the going forward timeline will be with respect to a hearing at the CTMT or additional questions.

It seems that we've lapped questions now, so I think that was our last question.

I'll turn it to Jim for a couple closing comments and we'll get off the call for your 9:30 open market.

Thanks everyone.

Challenging times in the marketplace.

I mean in the stock market and we have our challenges in the Avonex market.

So far, I think you've heard what we know in as much detail as we know it.

I'm anxiously looking at the 3rd quarter and we'll see where the trends really are going and that should give everybody a lot more comfort where this is going.

It appears that it's still a stable market here in the U.S.the overall market is growing a little slower and we're growing modestly.

Amevive is moving along pretty much as we predicted both in the U.S. and in Europe.

The European timelines, our best estimate is Q1 of next year.

We've made our complete responses to Europeans and we'll be going through the oral part of that in the Fall/early winter.

We've got a great pipeline now, CDP 571.

We look forward to getting the results of that shortly.

Antegren phase III trials are occurring pretty much on schedule and the other products are moving along.

That's why we're very confident with the stake in the ground of $2 billion plus in revenues for 2005 with the forward growth rates in the 20% range,3 to 4 of these products commercialized and a very robust pipeline behind that and I think that's really the story that's hopefully going to unfold for everybody over the next quarter and years.

So ,thanks very much.

We look forward to talking to you next quarter.

Thank you, operator.

Thank you for participating in today's Biogen second quarter earnings conference call.

You may now disconnect.