Biogen Inc (BIIB) 2004 Q1 法說會逐字稿

Good morning, my name is Judy and I will be your conference facilitator.

At this time, I would like to welcome everyone to the Biogen Idec first-quarter earnings conference call.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question-and-answer period, and instructions will be given at that time.

I would now like to turn the call over to Elizabeth Woo, Senior Director of Investor Relations.

Ma'am, you may begin.

Thank you, Judy.

Welcome everyone to Biogen Idec's earnings conference call for the first quarter 2004.

Before we begin, I would urge everyone to go to the Investor Relations section of our website, biogenidec.com, and print out the press release and accompanying tables.

This will make it easier to follow along when Peter Kellogg reviews the financial results.

I will now start with the Safe Harbor statement.

Comments made in this conference call include forward-looking statements regarding the Company's expectations regarding future financial results and plans for the company's pipeline products.

Such statements are based on management's current expectations and are subject to risks and uncertainties which could cause actual results to differ materially.

In particular, careful consideration should be given to the risks and uncertainties that are described in our earnings release and in the periodic report Biogen Idec has filed with the Securities and Exchange Commission.

The Company does not undertake any obligation to publicly update any forward-looking statements.

And now I'll turn the call over to Bill Rastletter, Executive Chairman.

Good morning to everyone on the call this morning.

In a minute Jim Mullen will introduce the agenda for the call.

Five months into the merger I continue to be pleased with the growing list of wins this merger has created.

In the past you've heard us discuss how our long-range plan allows Biogen Idec to fund 25 percent more development programs over the next five years based on synergy savings.

We've also stated our goal for 50 percent of our pipeline in 2010 to be generated from in-license opportunities we've clearly had greater interest amongst potential partners.

In addition to a great quarter most recently, the great news on the accelerated timeline for Antegren highlights one of the synergies of the merger.

We anticipate that Antegren, pending FDA and European regulatory approvals, will initially be supplied out of our large-scale facility in RTP, North Carolina.

However, we're now accelerating the completion of construction and validation of our new large-scale facility in Oceanside, California.

The Oceanside facility will double our capacity to make Antegren.

So the good news on Antegren further validates the strategic elegance of bringing the two companies together.

With three products in Phase III development, Antegren in MS and in Crohn's disease, BG-12 for psoriasis in Europe, and Rituxan in rheumatoid arthritis, we have a robust pipeline that reaffirms our commitment towards our corporate goal of averaging 15 percent revenue growth and 20 percent EPS growth through 2007.

Now I'd like to turn the call over to Jim to introduce today's agenda.

Jim?

Good morning everyone.

I'm going to take a very brief time here to outline the agenda for the call.

First up will be Peter Kellogg, CFO, who will review the financial results for the first-quarter.

Revenues were over $540 million, the top line momentum has really driven this adjusted EPS result of 40 cents per share.

Avonex grew by more than 20 percent this quarter posting outstanding performances in the U.S. and abroad and Rituxan continues to solidify its position as a top-selling cancer therapy in many parts of the world, growing 17 percent year-over-year.

With the acceleration of Antegren, an aggressive investment to the launch preparation, this year's EPS may represent the high watermark for the year.

Peter will get into more detail on that later.

Next up will be Bill Rohn, the Chief Operating Officer, who will provide an overview of our commercial operations.

As has been widely written about, many of you will recall on last quarter's call we cited potential interruption in the supply of Avonex based on a technical issue related to the prefilled syringe, but the picture is much clearer now.

The inventory situation is better; we've been working closely with the FDA and EMEA on resolving the technical issues.

Again Bill will go into more detail.

As the medical research organization is busy preparing the BLA for Antegren, the commercial organization has been gearing up to prepare for the launch.

Over the coming quarters our investments in sales and marketing as well as manufacturing will ramp up substantially to support these Antegren launch efforts.

We and our partner, Elan, have been meeting regularly to formulate the launch plans;

Kelly Martin and I are in frequent communication.

We believe these investments will provide healthy returns to the business given Antegren's blockbuster potential.

Finally, Burt Adelman, Executive Vice President of Development, will review the progress of our late stage compounds.

Since most of you were not in Budapest this week for the EADV, Burt will review the Phase IIb data for the BG-12, our oral fumarate for psoriasis; this is really the first chance you have all had to hear about this data.

This compound is currently in Phase III in Europe and we're very excited about the potential of this oral immunomodulatory agent not only in moderate to severe psoriasis but also in MS.

And lastly on the Rituxan front yet another trial; this time run by a European clinical cooperative has stopped early for efficacy.

And at the upcoming ASCO meeting in early June a couple of major studies will be highlighted.

After Burt's pipeline update we'll open it up to questions.

So now I'll turn it over to Peter Kellogg.

As you're aware, this marks the second-quarter in which our merger is reported.

So just as a little bit of background to that; the merger closed on November 12th of last year and the results of the newly formed Biogen Idec are consolidated from that date forward.

Similar to last quarter, we have included four tables as attachments to our press release; the first two are straight GAAP results which we will always provide; table 3 begins with the GAAP results and then reconciles these reported GAAP financial results to an adjusted non-GAAP set of numbers.

And table 4 details revenue by product.

As I review the P&L operating performance of Biogen Idec in table 3, I'm going to talk about column 3, the adjusted non-GAAP because we believe it better reflects the recurring economic characteristics of our integrated business.

As a reminder, adjusted non-GAAP excludes all of the non-operating elements of the GAAP results in column 1 that are non-recurring or unique to the merger.

Again, when we compare year-over-year growth rates we'll compare Q1 2004 results to Q1 2003 pro forma results which reflect what the Biogen and Idec performance would have been like had it been one entity on an operating basis beginning January 1, 2003.

This will be the best comparison of the combined companies year-over-year.

After that discussion I'll circle back and walk you through the reconciliation items that bridge the GAAP results to the adjusted pro forma non-GAAP performance.

But let me just quickly give you a top line summary of the quarter.

As Bill and Jim mentioned, we had a strong first quarter, the top line was strong as was EPS, it was based on some great performance in Avonex even after some inventory adjustments which I'll discuss in a minute.

Rituxan's performance was fine but Zevalin and Amevive were off to a slow start.

In cost of sales we only incurred $3 million in inventory write-offs and we feel much better about the Avonex liquid situation and Bill Rohn will provide much more detail on that.

Our R&D was at $157 million, above Q4, but in line with what you should expect given our growing pipeline which now includes five Phase III trials, three in Antegren, one for Rituxan RA, and one for BG-12 in psoriasis.

In SG&A we experienced somewhat softer spending in Q1, but we'll see more investment coming as part of our Antegren preparation in the balance of the year.

Net net our 40 percent EPS, as Jim said, is very strong.

This quarter represents a high watermark for the year given the upcoming Antegren investment and milestones that are anticipated in Q2.

Now let's discuss our adjusted non-GAAP results from table 3 in a more detailed manner beginning with total product revenues.

In Q1 our total product revenues were $373 million, that's a 31 percent revenue growth over our pro forma results of last year.

The Avonex portion of that worldwide was $355 million, a 29 percent increase over prior year.

In the U.S. the business was strong.

U.S.

Avonex product sales were $240 million, up a phenomenal 27 percent.

Now this was an excellent quarter; volume was up 11 percent, the pricing impact was 16 points.

However, before you take your numbers up for the Avonex business for the rest of the year let me warn you that there were some anomalies that impacted the quarter.

We did see a rebuilding of channel inventory during Q1 of roughly $16 million for two reasons.

First, Avonex liquid ended Q4 at a lower than normal level of channel inventory and as we worked through Q1 we rebuilt this to a more typical level.

This contributed $13 million to revenue.

Secondly, we reintroduced lyophilized version of Avonex in Q1 which required reestablishment of its normal inventory level at our wholesalers.

This drove roughly $3 million in revenue due to restocking.

Now excluding these two impacts the underlying business still had a fantastic quarter, posting essentially 20 percent growth over prior year.

On the international front our first-quarter Avonex product sales were $115 million, up 35 percent over prior year.

So our international team continues to post wins.

They posted a strong first quarter with strength in the UK where our units were up 41 percent versus prior year, Latin America where our units were up 22 percent versus prior year, and in France where our units were up 18 percent versus prior year.

Avonex's Q1 sales growth included a 15 point benefit from foreign exchange; so while the growth in U.S. dollars came in at 35 percent over prior year, our local currency growth was 20 percent year-over-year.

Now moving down to Amevive and Zevalin, both of these businesses had a relatively flat performance in Q1 versus Q4;

Amevive product sales were $13 million, Zevalin products were $5 million.

Our next line is the Rituxan collaboration revenues and this line is titled "unconsolidated joint business" which equaled $134 million, an increase of 21 percent over prior year.

As we always discuss, this number has several elements.

First, we receive our share of the U.S.

Rituxan profit.

U.S.

Rituxan sales were $362 million in the first-quarter and our Q1 profit share from that business was $101 million.

Secondly, we receive royalty revenue on sales of rituximab outside the U.S. and in Q1 this was $26 million.

Third, we are reimbursed for selling and development costs incurred related to Rituxan, this was $7 million in Q1.

Moving to the next line, Q1 royalties were $25 million, down a bit from Q4 and this reflects most notably a slight decline in the royalties versus last quarter received on Intron A from Schering-Plough, pretty much as expected.

The next line in Q1 is our corporate partner revenue which was $10 million.

This reflects the $10 million milestone payment from Schering AG for the EMEA grant of marketing approval of Zevalin in the EU.

Biogen Idec supported these development steps and filing efforts and was awarded this milestone in Q1 based on these activities.

So in total our revenue in Q1 was $542 million, a 24 percent revenue growth over prior year.

Our cost of sales were $60 million; as I mentioned, we did incur $3 million of inventory write-offs, roughly 2 million was Avonex and the rest was Amevive.

Our R&D was $157 million, that's 29 percent of revenue, still a healthy investment in the pipeline.

Q1 SG&A was $126 million, 23 percent of revenue.

Our other income and expense in the first-quarter was $12 million, taxes were $67 million and that's an effective tax rate of 32 percent versus our adjusted PBT.

And our Q1 adjusted EPS was 40 cents per share.

Now because we recognize the importance of earnings computed in accordance with GAAP, and in accordance with Reg G, this table tree does reconcile our GAAP P&L to the adjusted non-GAAP performance that we just discussed.

This table breaks out the reconciliation by major driver and by P&L line item and includes the following types of items -- $194 million of non-cash expense related to cost of sales going to the P&L as a stepped up inventory value per purchase accounting.

As you'll recall, this step-up occurred when the inventory was brought onto the new Biogen Idec balance sheet on November 12th at fair value.

This relates primarily to Avonex and secondarily to Amevive.

The adjustments also include $81 million non-cash amortization of acquired intangible assets, again namely Avonex and Amevive.

And finally, the other charges relate to severance, restructuring and integration charges that impacted Q1.

We'll continue to provide such reconciliation tables in all of our quarterly earnings releases in the next year.

Now let's turn to financial guidance.

And I'd like to make a few comments about the full year 2004 outlook and the quarter upcoming, and clearly the Antegren update will cause some changes.

First of all the Antegren news further supports our long-term goal of delivering 15 percent top line and 20 percent average EPS growth from 2003 to 2007, just as Bill and Jim mentioned.

Now, how does this affect our 2004 outlook?

On our last earnings call I indicated at that time it was too soon to assess the impact to guidance that the early filing for Antegren might have.

Well, at this point it won't surprise any of you that indeed we are now accelerating our preparations for the launch of Antegren based on the early filing.

Our estimate of incremental impact of this revised Antegren timeline is $50 to $60 million and these costs will fall into three general buckets.

First, we will incur additional milestones.

We estimate that we may owe Elan $14 million in milestones if our guess of progress is correct.

These are being pulled forward from 2005 under previous timing assumptions.

Secondly, manufacturing.

We will be accelerating both our production schedules and our manufacturing staffing activity this year, essentially pulling these efforts forward one year.

And finally, commercial preparation.

We will begin market assessments and incremental commercial staffing right away, and Bill will comment on that as well.

In summary, while the mean analyst EPS outlook is reasonable before Antegren updates, we would now recommend that you incorporate this additional Antegren spending into your estimates for 2004.

Net net we expect to see revenue growth well in line with our long-term goals; but 2004 will be a year of temporarily increased investment impacting the EPS accordingly.

Clearly the organization is shifting gears to ensure that we capitalize on this very unique opportunity.

Now finally let's discuss our expectations for Q2 relative to Q1.

The incremental investments in Antegren will begin in Q2, so SG&A will increase.

Additionally we also expect to pay $11 million in milestone payments related to our late stage pipeline.

Beyond that, much of the increased manufacturing expenses are already occurring during Q2.

As a result, R&D spending in Q2 will be at a peak for the year and, just as Q1 represented a high watermark for the year at EPS, we expect that Q2 will probably be our softest quarter at the EPS line due to these expenses.

Just to conclude I'd like to say that we are very excited about our business performance in Q1; the team did a great job.

And about the developments also over the past few months.

It does create a surge of new activity in the short-term to prepare for Antegren, but this is the kind of opportunity that biotechnology is all about.

Now I'd like to hand off to Bill Rohn.

Bill?

Since Peter has already covered the sales performance for the various products, let me focus my remarks on some of the operational highlights, starting first with Avonex.

I'm pleased to report that, in addition to recording a strong quarter on the revenue front, we have also made significant progress in bolstering the inventory of both the liquid prefilled syringe and the lyophilized forms of Avonex.

I can now say with confidence that we have significantly reduced the risk of any near-term stock-out of either form.

By way of reminder, in March we alerted you to the fact that we had experienced some loss in the liquid prefilled syringe falling outside of our release specifications, which if exacerbated, could potentially compromise our ability to meet ongoing demand.

We also noted that the technical challenge was not related to the bulk product but to the syringe fill and finish process.

This resulted in the aggregation levels exceeding specifications for certain lots.

We are confident we have isolated the root cause of the problem and our product development team is working diligently on a permanent solution.

We will be implementing those changes over the coming months.

In the meantime we have been working closely with regulatory authorities and have agreed upon a plan that should allow us to provide sufficient product to meet market demands.

However, to ensure every patient who is currently on Avonex can stay on Avonex, we're also boosting the production of the lyophilized form; both dosage forms are, of course, bioequivalent.

As a footnote I should mention that we have worked with the regulatory authorities to develop a more extensive release testing protocol and based on that we are voluntarily recalling selected lots of product from wholesalers.

This will result in the withdrawal of about 1,000 four packs of Avonex prefilled syringes in the U.S. and about 4,500 four packs in Europe.

We have already accounted for this in our Q1 results as an offset to revenue.

And just as we have alerted the investment community to this issue, we have taken the added measure to also alert physicians of the details of this entire situation in the form of a "Dear Healthcare Provider" letter.

On the marketing front we are continuing to successfully position Avonex as platform therapy using our start and stay with Avonex theme.

Importantly our U.S. share of the MS market remains in the mid 40 percent range despite two years of intensified competition from a new entry.

On the international front, our international business has demonstrated strong unit growth and our marketshare runs neck in neck with other interferons.

Overall, our neutralizing antibodies message in Europe is hitting home.

Since we're on the topic of our neurology franchise, let me make a few comments about Antegren.

Currently the commercial organization is in an active planning mode to make sure we are ready for an early product launch should we be fortunate enough to receive a timely review from the FDA.

As Peter noted, we are making substantial investments this year.

Our efforts include market analysis, staffing up for manufacturing in North Carolina, and accelerating the completion and validation of the Oceanside facility.

We're taking a hard look at our marketing infrastructure as well as salesforce sizing, and we'll be expanding in both areas as that makes sense.

Overall we are very excited about the opportunity that Antegren represents.

Recently there's been a lot of investor focus on this opportunity so let me put it in perspective.

We believe the potential MS market over the next few years will grow to 6 billion approximately, up from about 3.6 billion today.

We believe Antegren will not only expand the market but also capture a very significant share of the market.

What will drive this growth?

Well, simply innovation in the form of a new mechanism of action.

It's been several years since the last meaningful therapy in MS was introduced and untreated patients are ready for a new product.

Some investors have asked us whether Antegren will cannibalize Avonex; well the answer is not a simple yes or no.

I think we have to put ourselves in the shoes of the clinicians who will undoubtedly apply a decision tree algorithm based on exactly how the patient presents.

One of the key challenges has been what to do for patients who have fallen off all therapy.

Clinicians will be eager to prescribe Antegren for those patients who have failed other therapies and are currently untreated.

By addressing this unmet need in the marketplace Antegren will rejuvenate and expand the market by accessing those approximately 100,000 patients worldwide that have failed current therapies.

Just to put this into perspective, Avonex is a leading worldwide MS therapy with nearly 130,000 patients.

For those patients who experience breakthrough disease, the decision for the physician will be either to switch patients to Antegren or add Antegren on top of current therapy.

Once the data is available clinicians will be in a position to assess the benefits of combination therapy.

And if combination therapy is chosen, Avonex is likely to be prescribed in more than other MS therapies since the clinical dataset available will exist only for Antegren and Avonex.

The other beta interferons have subtle but important differences.

If patients who are experiencing breakthrough are switched to Antegren, Antegren will cannibalize all current therapies not just Avonex.

There are about 350,000 patients on MS therapy worldwide and Avonex currently has a 35 percent share.

For those patients whose disease is well controlled on current therapy, frankly patients and clinicians are unlikely to make an immediate change.

And finally, for newly diagnosed patients, it is yet to be seen whether clinicians will choose Antegren or continue to utilize the beta interferons which have a strong track record.

We firmly believe that decision will be driven by the Antegren clinical data and doctors’ interpretation of that data in the context of their own experience with currently available therapies.

Turning now to the dermatology franchise, Q1 results for Amevive represent flattish demand and we continue to build depth and breadth in our prescribing base.

The psoriasis market has become hypercompetitive with the recent launch of another biologic and the expected approval of a formal indication for Embrel.

We do see evidence that the competitive noise is expanding the market for biologic therapies and we continue to believe that Amevive will have an important role in the physician's armamentarium.

Amevive has a unique profile which we are further developing through additional combination and extended dosing clinical studies.

Long-term we expect to leverage our experience in this market to other products in the dermatology franchise.

And Burt will review the Phase IIb data recently presented for our oral fumarate product in licensed last year from Fumapharm.

Commercially we believe there's a substantial opportunity for an oral compound in the moderate to severe psoriatic market.

Turning now to the oncology franchise;

I think it's fair to say that our Q1 Zevalin results of 4.8 million indicates that radio-immunotherapy has yet to prove itself as mainline therapy in NHL.

Ongoing marketing research continues to underscore the negative economic flow to private practice oncologists as a major hurdle to broader use of radio-immunotherapy in general and Zevalin in particular.

As a company we continue to support clinical development of this product with several post marketing studies.

As some of this information becomes available starting at ASCO in about a month and ASH later this year, we are hopeful that clinicians begin to more widely embrace Zevalin as an alternative to chemotherapy as well as a viable consolidation therapy following a chemo plus Rituxan induction regimen.

Let me conclude my comments with a few remarks on Rituxan.

U.S. net sales in Q1 were 362 million, a 17 percent increase versus Q1 of last year and a 2 percent decrease versus Q4 of last year.

The slight decrease in Rituxan revenues versus last quarter is largely a result of inventory adjustments made by wholesalers at the beginning of the year.

This of course has already been reported by Genentech, our partner on the product.

In addition, reaction to the Medicare legislation may have caused some disruption in physician ordering patterns during the first few weeks of 2004.

Sales patterns later in the quarter appeared to be back on track.

Overall we believe Medicare legislation has had limited impact on Rituxan prescribing to date, however, we will continue to monitor the Medicare situation closely.

Rituxan's overall adoption rate in the combined NHL and CLL markets was 68 percent in the first quarter, up from 65 percent in the fourth quarter.

As expected most Rituxan growth in Q1 was in induction use, specifically in front-line -- front-line indolent NHL and front-line CLL.

Rituxan continues to be the market leader for use in the indolent NHL setting.

This was the largest single area of growth for Rituxan in Q1.

As you know, neither our nor Genentech's salesforce promotes Rituxan in front-line indolent NHL, aggressive NHL, CLL or maintenance.

Even so Rituxan continues as a significant therapy in these settings and achieved adoption gains in quarter one in each of these areas.

This of course is a data driven market.

At ASCO we expect to see over 50 new abstracts, posters and oral presentations featuring Rituxan in a variety of clinical settings.

We're especially looking forward to seeing the results of ECOG 1496, a study that looks at Rituxan maintenance in front-line low grade patients following CVP induction.

Also what has become known as the MinT trial, that is MabThera International trial, a study of CHOP like chemotherapy plus or minus Rituxan in younger patients with aggressive NHL will be presented.

We believe this flow of important new clinical information will continue to fuel the use of Rituxan for the net several quarters.

Now I'll turn the call over to Burt Adelman to provide an update on the pipeline.

I will take you through some bullets product by product and then if there are a few questions I can deal with them during the question-and-answer period.

Beginning with Antegren, as both Jim and Bill and Bill have all said, we and our partners at Elan Pharma are working furiously on this very important product.

We continue to be on track for a filing with the FDA for the MS data by the end of Q2.

Now we don't know what the review period for this BLA will be after it is submitted, it'll depend upon further conversations with the FDA.

We also plan on filing the MS data with the CPMP in Europe this summer and that is also on track.

Now regarding Crohn's, discussions are still ongoing with Europe about filing with the current dataset but no decision has been reached.

Coming up shortly at Digestive Disease Week, there will be seven abstracts presented defining additional data from the ENACT-1 study which was the Antegren induction study in Crohn's.

In addition, at the late breaking news session on May 19th the results of the ENACT-2 study will be presented.

As you may recall, this is the follow-on study that compares the ability of Rituxan versus placebo to maintain patients either in a state of remission, that is TDAI score below 150, or in stable disease.

Now I'm not going to go through the specific results of the trial because they will be presented by the investigators on May 19th.

In addition, a second induction trial has been initiated and we expect enrollment to continue through year end.

Finally, a Phase II trial in rheumatoid arthritis has been initiated and we'll start accruing patients shortly.

It is a very standard RA study with the usual endpoints that you've heard many times.

Regarding Amevive, a few updates.

The Israeli Ministry of Health has approved Amevive for sale in Israel and it will be distributed by Medison Pharma Ltd., the same folks that we have been working with for many years with Avonex in Israel.

In addition, we've received a positive opinion from Swissmedic, the regulatory authority in Switzerland, and we're in the final stages of negotiating the indication and securing market approval.

Applications for marketing authorization are also under discussion in Australia and Canada.

Moving on to BG-12, our new formulation of fumaric acid; a product that has recognized immunomodulatory characteristics.

This is the product, again, you've heard much about.

We in licensed it from a private firm called Fumapharm in Q4 of '03.

The Phase IIb data of this BG-12 formulation were presented in Budapest at the European Academy of Dermatology and Venereology meetings, and I'll very quickly bullet that trial for you.

It was conducted by Fumapharm; it's a multicenter double-blind placebo-controlled dose ranging Phase II study.

There were 144 patients with various forms of severe psoriasis in the study.

Patients were randomized to one of four treatment groups and received either placebo or BG-12 at 120, 360 or 720 milligrams daily for 12 weeks.

An improvement in psoriasis was observed as early as two weeks and was dose related.

At week 12 the median percentage reductions from baseline PASI, a common measure of psoriasis severity, were 6 percent, 31 percent, 52 percent and 71 percent for patients receiving placebo 120, 360 and 720 milligrams respectively.

Importantly at week 12 the PASI 75 was achieved by 42 percent of patients in the 720 milligram dose group as compared to 11 percent of the placebo patients, a difference which was statistically significant.

PASI 75 signifies a 75 percent reduction in disease activity from patients' baseline assessment of psoriasis severity.

The most commonly reported adverse events were flushing, elevations in liver function tests and common colds, respiratory infections, most of which were transient and mild or moderate in severity.

Gastrointestinal side effects were reported in less than 5 percent of patients in each group.

Now I believe that we have provided this to you, and we'll be happy to do so again, a copy of the actual abstract that was submitted at the presentation.

You can get that directly from Elizabeth.

Phase III clinical trials for psoriasis in Europe are ongoing and under development.

Patient enrollment in the major Phase III European trial is complete and we expect results by year end.

This Phase III trial is 150+ patients, standard efficacy end points.

A Phase III trial in the U.S. would begin in early 2005.

The overall U.S. timeline for development and submission to the FDA is not fully complete until we have further meetings with the FDA.

We do know that filing will require some additional preclinical work.

And moving on to Rituxan, Bill has really hit the high points here.

At ASCO you will have the opportunity to hear the results from two important studies -- the MinT study which looks at Rituxan in the treatment of aggressive non-Hodgkin's lymphoma in patients under the age of 60, and the ECOG 1496 study in indolent NHL patients.

This is the study that was stopped early that examined Rituxan in induction and in maintenance patients who had relapsed.

We are also working on potential label expansions in discussions with the FDA.

We are looking to file a supplement BLA in mid 2004 based upon the data developed by our partner, Roche, looking at induction with Rituxan CBT therapy in front-line indolent, that is the treatment of indolent lymphoma with this as front-line therapy.

Regarding rheumatoid arthritis, the Biogen Idec led RA trial in patients with inadequate response to anti TNF treatment is enrolling well and we anticipate enrollment will be completed by year end.

This is a Phase III study.

In addition the Phase II study that Genentech Roche is sponsoring is well underway.

This is a study in patients with e-mard (ph) failure.

And in fact, I believe that enrollment was completed in March which was one quarter early.

Both RA studies have as their primary endpoints ACR 20 reductions at 24 weeks.

We expect results from the earlier Roche sponsored Phase II study to be published in an important journal this summer.

Abstracts have been submitted and accepted for presentation at the EULAR meeting in June of this year.

So in summary, as you can see, we've had a very productive and successful period in development of our late stage products and we are pleased that they will all -- they are all on track to come to market quickly.

Now I'll turn the call back over to Elizabeth.

Operator, we're going to begin the Q&A session.

And folks, if you could try to keep your questions to one or two so that other colleagues can ask questions.

We will probably end the call close to 9:30.

Sorry, our comments may have run a little long today.

(OPERATOR INSTRUCTIONS) Craig Parker, Lehman Brothers.

I have a question for Bill Rohn on the inventory.

I guess I'm trying to put the pieces together from what you've told us, and it sounds like you perhaps only had one lot that didn't meet specifications but you haven't changed any release tests or changed the formulation at all this quarter.

Is that accurate, Bill?

We haven't made any changes in the formulation at this point in time.

And, as I mentioned, in collaboration with the regulatory authorities both here and in Europe, we've agreed upon a going forward release paradigm that should allow us to adequately supply market demand on both sides of the Atlantic.

So the explanation for I guess improved quality for the quarter, is it just that the aggregation is unpredictable?

I'm trying to understand how it is that you had so many lots fail to meet specifications (multiple speakers).

Yes, I would think it's fair to say that it's not predictable, but we wouldn't say also that it's occurring at a low level and we've had a string of good luck in getting a number of lots released and been able to build inventory.

And we expect that with the new rigorous testing profile going forward we'll be in good shape.

Maybe I can just add one comment on that.

We believe we understand the mechanism behind this so that it's not unpredictable in the sense of something happening that we have no insight into.

Okay, that's great.

And also I just want to commend Peter for providing the detailed true pro forma comparisons.

I think few other companies do that and it's very helpful.

Thanks.

Eric Schmidt, SG Cowen.

Peter, I was wondering if you could tell us what the milestone payments, the 14 million milestones to Elan that you're pulling into 2004 might be reflective of?

Generally they are milestones that were set up in the beginning of the contract obviously, and they relate to the filing process for Antegren.

So probably with the two-year timetable we would've envisioned that all happening in 2005.

At this point we're seeing that the earlier filing timelines so we've pulled them into 2004.

And are those filing timelines in both MS and Crohn's?

I guess Burt never updated us on (multiple speakers).

It's not specific to MS or Crohn's.

Maybe Burt could update us on where you are with the FDA and Crohn's?

With the FDA with Crohn's we're still in conversation.

But as I think we've said in the past, we believe it's likely that a second induction study will be necessary to complete the BLA and therefore that is why we have started the second induction study that I referred to.

I would not anticipate an early filing in Crohn's at this time with the FDA.

Jennifer Chao, RBC Capital Markets.

Thanks for taking the call and congratulations on a nice quarter.

Burt, I was wondering if you could just help us understand at what time point it would be appropriate to potentially seek a six-month abstract priority review?

And then, Jim, in the event that an approval were to come in the year end '04 time frame, would you be ready from a manufacturing, commercial and reimbursement standpoint for a robust nationwide commercial launch?

Thanks.

Thank you, Jennifer, good morning.

So of course in the context of conversations with the FDA and at the time of filing we will request whatever form of accelerated review we think is most appropriate.

And we certainly do believe that we have good reason to ask for an accelerated review but it is entirely up to the FDA to give that to us.

The short answer to your question is would we be prepared from a supply and a marketing and sales point of view to launch this year?

The answer is, yes.

Let me turn it back to Bill Rohn to maybe add a little bit more color to that.

Well obviously since we had a chance to review -- at least some selected people had a chance to review some of the data with the agency; it's been all hands on deck getting ready at all levels.

So we've been cranking activities at North Carolina facilities.

We're doing a hiring ramp now; obviously our campaign is already underway.

We've been working on accelerating the mechanical completion of the Oceanside facility and we'll be going through basic startup on that plant as well using the Antegren process as the product for the startup mode.

We're tapping the internal marketing group; we're taking a really, really hard look at expanding sales force.

The last thing that one wants to do with a product like this is under-resource it at launch, and we certainly don't intend to do that.

The initial licensed plant will be the large-scale facility in North Carolina and then our intent would be to add on the Oceanside facility as rapidly as possible, but it won't be -- we won't be doing it, for example, the way we did Amevive where we started at the small-scale and added the LSM to the license.

The large-scale plant is going to be the initial licensed facility.

Elise Wang, Smith Barney.

I was wondering if you could, Peter, clarify for us your guidance again about the additional expenses related to Antegren this year?

You mentioned that based on where the analyst estimates are we should take into account the additional 50 to 60 million in spending which equates to approximately 10 cents per share on an after-tax basis; yet the range on the Street is also pretty broad, it's about $1.34 to $1.56.

What benchmark should we be using as a basis to make that adjustment on?

That's always a tough one.

I appreciate your dilemma there, there's a lot of moving parts in that.

What we tend to look at is the mean estimate for the analyst community just as a reference point.

Because obviously, as you know, there's always a pretty wide range -- or there's often a wide range.

But anyway, that's what we tend to zero in on.

I think last quarter when I was on the call I referenced coming into the year that we saw that a lot of the analyst community was kind of zeroing in around $1.50 and we said plus or minus 7 cents, so $1.43 to $1.57 kind of thing.

We saw probably the vast majority of analysts in that zone.

I think from that framework I would then add this kind of Antegren investment.

That's helpful.

And then any further clarity on how you intend to account for the Antegren proceeds with Elan at this point?

I know that at this point the agreement has really just split the bottom line, but any sense of whether you will be responsible for recording revenues in the U.S. and how, in fact, you'll account the sharing with Elan?

No, there's no update to that.

We are working through that, Shane Cook and I have had several sessions and we're working as a team on that one but we haven't yet finalized that.

We'll update you as soon as we have that finalized.

May-Kin Ho, Goldman Sachs.

Can you tell us at this point what is the split between the liquid formulation versus the lyophilized formulation on patients that are using Avonex?

And what -- with the recall how would that change that?

And what is the impact on gross margin?

And then the next question is on BG-12.

Maybe, Burt, you can comment on the dosing regimen because it seems like it's a high dose at three times a day.

And can you talk about how many capsules and how big the capsules are?

Let me take the first part of your question related to the split of dosage forms.

Currently in the U.S. market about 90 percent of patients are receiving the liquid form of the product, 10 percent lyophilized.

And as we had mentioned on the last quarter's call and certainly has been the case with our production activity going forward, we've got plenty of lyophilized to, in fact, serve the whole market for several weeks.

So that's really not an issue.

With regard to the recall and the impact on supply, the quantities that we're bringing back are extremely modest.

These were some lots that had largely been consumed and the remaining quantities, I'm talking about 1,000 four packs in the United States, is a very, very modest quantity, would not impact availability in any meaningful way.

I guess what I'm trying to get at is whether the inventory for the liquid would be sufficient and whether you need to shift more people to the lyophilized?

At this point in time inventories on the liquid are sufficient to meet demand.

And you had some questions on BG-12.

So, May-Kin, currently it's a 120 milligram capsule.

So if you're taking 720 milligrams -- if you're in a 720 milligram dose group obviously you'd take six capsules.

Was that the only question?

Geoffrey Porges, Sanford Bernstein.

A question first of all on Antegren.

Could you confirm that Biogen Idec has the rights to Antegren for all other indications on the same basis from Elan as you have on MS and Crohn's?

And then a follow-up on Antegren, could you give us some sense of how many patients you expect to be able to supply from RTP at launch and then how many incremental patients you could supply from Oceanside?

And the final question I have is related to pricing.

Given that this is a novel monoclonal antibody, I know you can't give us much concrete sense of this, but are your benchmarks the beta interferons or are your benchmarks other recently introduced monoclonal antibodies?

I don't need you to go into any detail about which ones we're talking about.

The contract with Elan is on the economic basis exactly the same on all indications on a worldwide basis.

So there's no change there.

If you read through the contract which I think was in our 10-K last year, the Biogen 10-K, you'll see that there are some ratios in there for who's leading on certain programs, but that's really to define operating roles, it does not have anything to do with the economics.

The economics are split at the bottom 50-50 across all indications.

And so that applies to RA or Lupus or anything else you might consider in the future?

Any indication you can imagine, it's not limited to anything.

Okay?

Number of patients at RTP, it's a little bit of a moving target because we don't have that much process experience down there with this particular process and our experience is these things usually improve quite a bit over time and we have several other generations of processes in the works here.

So, but at launch it's probably north of 70,000 patients that we can supply out of that facility and we would expect that to go higher.

The Oceanside facility is in a similar league.

But you're going to hear very constant updates on that because it is a moving target and a lot of little things are going on to impact positively that supply situation.

On pricing you kind of answered your own question which is I'm not going to say much; there's almost nothing to be gained in the marketplace by talking about pricing early.

But because we see MS as the major market we're going to be looking at the value proposition in the MS space.

I think there's a pretty well-established paradigm of what people will -- what value people see in these products.

And I think it's difficult for us to talk about price -- I always hate to talk about price until the day we actually price, but also it's a little bit meaningless because nobody outside of a very small number of people here and at Elan has actually seen the data.

So without that context it's a little bit hard to think about the pricing.

Joel Sendek, Lazard.

Peter, just a question on the incremental costs.

Will that be split equally between SG&A and R&D?

If you can just give us some detail on that if you could.

And when will be spend readjust to more normalized rates?

Roughly it's split between R&D and SG&A and a little bit in cost of sales, but mostly, yes, it's between R&D and SG&A.

So that would be the way I'd think about it.

It's a mixture of manufacturing type costs which will hit R&D, milestones which will hit R&D, and then SG&A that will be related to the commercial ramp up and commercial activities.

A little bit of cost of sales activity probably because we're shifting up our production activity a great deal.

The second part of the question was when will we return to a more normal level?

Well I think that it depends on once we've filed then discussions with the FDA in terms of where that goes, but I hesitate to actually get really specific.

But on the other hand, I think what you're seeing right now is a real step-up in effort to make sure that, based on the question that was asked earlier, (indiscernible) at some point are you going to really be ready?

And I think what you're seeing right now is a significant step-up in activity to make sure we're really ready.

And so that covers all points relative to the whole supply chain, commercial activities and manufacturing.

So I think we'll be very well prepared.

But obviously at some point hopefully with approval and launch we'll obviously be incurring costs related to that, but I think that's all good news that's easily supported by the top-line revenue growth.

I do want to just really emphasize that, again, while it may be wobbly from year-to-year, which obviously is the point of your question, we are very much (indiscernible) does nothing but reinforce our comfort with the 15 percent top-line growth and 20 percent EPS growth through '07 that we've been talking about all along.

So that's really our focus -- is to build the business that way.

Okay?

Dennis Harp, Deutsche Bank Securities.

Bill Rohn referenced a patient population of around 100,000 MS patients who failed other therapies or given up on therapy.

Does the Antegren dataset support that Antegren works in that patient population?

And then the second question is on the new induction study for Antegren, how does that study differ from the first study in terms of design or endpoint?

I'll try to answer both of those questions, I'll start with the second.

I'm not going to give you the specific details of the protocol except to say that we've looked carefully at our experience and that of most recent trials in induction of Crohn's disease to try to understand whether there are unique biomarkers that would identify patients who clearly have inflammatory disease driving their symptoms as opposed to just historic bowel damage driving chronic pain.

So we certainly have tried to construct a trial that gives Antegren the best chance to demonstrate efficacy based upon what we understand to be its biologic activity.

Now with respect to the group of patients that have fallen out of therapy and do we think that Antegren will work for those patients; now obviously we have not conducted a specific all commerce trial in patients who have dropped out of therapy for whatever reason.

But what I would say is that that large and expanding group of patients is quite diverse.

It includes people who just don't want to put up with -- who've had good effects from therapy but just don't want to put up with the side effects of interferons or COP (ph) or put up with the inconvenience of chronic self administration; people who've had allergic reactions to therapy and therefore can't take therapy; patients who may have had a caregiver or friend or have been self administering and then, because of progression of the disease, can't give themselves the therapy or because there's no longer an alternative way for them to get therapy.

So I think it's a very heterogeneous group and there's nothing that we would believe about the biology of those patients and the mechanism of action of Antegren that would a priori make us believe they would be less likely to respond to Antegren therapy.

So I'm comfortable that they represent an important pool of patients for whom Antegren can make an important difference.

Mike King, Banc of America Securities.

I just wanted to see if we could go back and discuss the Avonex number for a minute because the way we read the IMS data it looks like strip demand was up about anywhere from 2 to 4 percent for the quarter.

So I'm just wondering, is it possible that some part of the sales for the quarter went through a different channel that is not as accurately picked up by IMS?

I'll answer that two ways real quickly, Mike, if I can.

First of all, the script data you looked at I believe is only a portion of the whole business anyway.

So, you're right.

When you look at the script data you've got to be careful, there are other channels of business.

However, I'm not sure if you -- you also heard me mention that we did have about $16 million of revenue in the first quarter that related to rebuilding the inventory in the channel.

At the end of Q1 we're at a very typical level between one to two weeks of inventory so it's not that we built above, it was more that at the end of Q4 we came out of the year at a very low level of inventory for Avonex.

It was also because now that we're starting to work with lyophilized more fully we made sure that we had just a basic level of lyophilized inventory at all of our wholesalers so that that was part of that.

So basically, the reported numbers, you do need to kind of temper that back a bit just to realize there was about $15 million of channel inventory rebuilding, if you will, in the first-quarter.

Thank you, everyone, for joining us on today's call and we'll see you next quarter.

Thank you.

This concludes today's conference call.

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