Biogen Inc (BIIB) 2004 Q4 法說會逐字稿

Good afternoon.

My name is Derrick and I will be your conference facilitator.

At this time I would like to welcome everyone to the Biogen Idec 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.

[OPERATOR INSTRUCTIONS] Thank you.

Ms. Woo, you may begin.

Thank you Derrick.

Welcome to the Biogen Idec earnings conference call for the fourth quarter and full year 2004.

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

It will be easier to follow along when Peter reviews the financial results.

Let me 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, the development, commercialization and manufacturing the Tysabri, the plans for Company's commercial and pipeline products and the Company's large-scale manufacturing facilities.

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 described in the earnings release, and in the periodic reports that Biogen Idec has filed with the Securities and Exchange Commission.

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

We will be discussing financial information today that includes non-GAAP financial measures, as I mentioned earlier if you can go to the website to print those out, it will be easier to follow along.

Today on the call, I'm joined by in order of our participation, Jim Mullen, CEO of Biogen IDEC, Peter Kellogg, CFO and Executive Vice President of Finance, Bob Hamm, Senior Vice President of our Immunology Business unit, Burt Adelman, Executive Vice President of Development, and Bill Rastetter, Executive Chairman.

I will now turn the call over to Mr. Jim Mullen.

Thank you Elizabeth.

Good afternoon, everyone.

Thank you for joining us. 2004 was a momentous year for Biogen IDEC.

A year with numerous successes and a major product approval.

Our first full year as a merged entity, Biogen IDEC posted a very strong performance both top and bottom line, consistent with our long-term growth goals.

Total revenues were over $2.2 billion, growing 19 percent year-over-year with non-GAAP net income growth of 21 percent and non-GAAP earnings per share growth of 19 percent compared to 2003.

On the commercial front, Tysabri was approved by FDA in late November of 2004 for MS.

The first patients began treatment the week after approval.

Over the last ten weeks our expanded sales force has been extremely active in the field, educating the physician and payer community on the one-year data set and label.

The physicians and patients have embraced this important new innovation, while Tysabri has been only commercially available for a little over two months, its reception in the marketplace has been outstanding.

We estimate 2,000 and 3,000 patients have started therapy and received their first infusions, and many more are in the process of insurance verification and infusion scheduling.

We expect Tysabri revenues at the end of three years to be as large as Avonex is today, at the end of 2004.

Our blockbuster products AVONEX and RITUXAN continue to post strong growth.

Rituxan copromotion profits grew a very robust 25 percent year-over-year as did Avonex, posting 21 percent year-over-year growth.

And we had major pipeline achievements during the year.

With the early filing of Tysabri based on the one-year data, accelerated availability of the product by year and a half.

Also, one of the benefits of this merger has been acceleration of our pipeline.

Three new product INDs were filed in 2004.

In addition, v-2006 in Phase I for Parkinson's disease was added to our pipeline by end licensing, and two programs moved into development.

I was pleased to see many of you at our analyst day last November where we discussed a number of these programs in more detail.

Now, given the strong demand for Tysabri, I imagine many of you are wondering about the supply situation, and as you will be able to tell, we're planning for a very successful product across multiple indications.

In manufacturing, we continue our efforts to increase bulk and filling capacity to keep pace with the growing product demand.

The variables to keep in mind, are improved bulk capacity, the productivity of that capacity, and the approved filling capacity.

We're going to walk through this relatively slowly here to give you some background. 2004 is the large scale manufacturing facility and RTP was approved for the manufacture of Tysabri.

The configuration of this facility are three trains of 2 by 15,000 liter bio-reactors and 2 purification suites.

The initial approval is for 1 bioreactor train and 1 purification suite.

The current run rate and license supports 20,000 patients per year.

The second and third trains, and the second purification suite will be added to the license in a stepwise fashion, as we made Tysabri in each area and file the production data with the FDA.

The second train will be filed this quarter.

The extension to the licenses is by a CB 830 which means the license will be extended 30 days after the filing, unless the FDA has further questions.

The Oceanside facility is very similar to the RTP facility, and will be approved in the same stepwise fashion.

We anticipate filing for licensure in late 2005, with approval expected in the second half of 2006.

As I have noted in prior calls, we indicated that each facility has a capacity to support 70,000 patients annually on Tysabri.

Based on our most recent operating experience, and because we are reserving some of the capacity for process improvement experiments and validation, the practical capacity at RTP is 50,000 patients right now.

But it is a moving target.

These capacity figures will change as we de-bottleneck the process and improve the current process yield.

We anticipate these improvements will increase the capacity at RTP to 70,000 to 80,000 by year end.

We're also well advanced in developing a much higher producing end process that will at least double the capacity of each facility.

Turning to the facility filling capacity for a moment.

We have one contract facility that was approved at the time of the licensure of Tysabri.

A license application for second contract manufacturing facility will be submitted in Q2.

Given the once per four weeks dosing schedule, the unit volume is really quite small, so it is a question of managing the batch schedules and batch sizes.

With a very strong demand already, we are monitoring the supply supply chain closely.

Now given the complexities, in the future we'll update you on the current run rate of the approved capacity the near term outlook for any increases in that capacity and supply chain issues, if any.

We hope these updates will no longer be necessary once the demand trends are established and the manufacturing license extensions are in place.

One final note on bulk capacity, the Denmark project was restarted in 2004 with a plan to have this as a licensed facility in 2008.

Now I want to talk a little bit about 2005 and beyond.

When Bill Rastetter and I announced the merger in 2003, we set out to achieve a long-term growth of 15 percent topline and 20 bottom line growth through 2007.

With the launch of Tysabri a year and a half earlier than originally planned, further supports our confidence in achieving this goal.

In 2005 given the launch investment we have behind Tysabri, the earnings and revenue growth should be roughly in line with each other, and we're looking at low double digit growth.

But the real wild card is how rapid is the uptick of Tysabri.

Tysabri revenues could be 100 million above or below reasonable point estimates for the year.

It's hard to predict the trajectory based on the little early launch data we have today.

In his comments Peter will provide more color around our outlook for 2005, and so I will now turn the call over to Peter Kellogg to review the financial results.

Peter?

Thank you, Jim.

Before I start, let me remind everyone that as we have for the last four quarters since the Biogen IDEC merger, we have provided table 3 in the press release that reconciles the GAAP to non-GAAP financial results for Q4 and full year 2004.

As I review the P&L operating performance for Biogen IDEC, I will focus on table 3, the adjusted non-GAAP P&Ls, because we believe they better reflect the recurring economic characteristics of our integrated business.

Now there are three major take aways from Biogen Idec Q4 and 2004 performance, and I would like to walk through each.

First our top line and bottom line performance has been outstanding throughout 2004.

It has been roughly in line with our long-term goals and it continued right through Q4.

Total revenues for Biogen IDEC grew 19 percent in both Q4 and full year.

The bottom line was equally strong.

Our GAAP EPS was $0.14 in Q4, and the adjusted EPS grew 34 percent in Q4 and 18 percent full year.

The second major take away is that 2004 was a key investment year behind the preparation and the launch of Tysabri.

Full year we invested over $70 million in preparing for and executing the launch.

And in Q4, our operating expenses were much higher than any of you might have expected, but for good reason.

Investments were made to strike hard with the launch of Tysabri, and we think we have succeeded.

As physicians now understand the data clearly.

In essence, we seized the opportunity behind this exciting launch.

With the full one-year data set and FDA approved label in hand, we communicated the data to the physician community, expanded our commercial and manufacturing activities to assure a successful roll out in 2005, and initiated a key head-to-head trial to highlight Tysabri's efficacy.

The Q4 operating expense was significant, and is a relative high watermark for us.

As we roll into the first half of 2005, we expect this spend level to come down.

And I will provide guidance on that later.

The third take away is that we expect our 2005 P&L growth rates to be different.

Given the launch investments behind Tysabri, we expect our earnings and revenue growth will be more in line with each other as Jim just mentioned.

I will walk through some more specific guidance in a minute, but I do want to begin by cautioning everyone that 2005 will be a year where the speed of adoption and rollout of Tysabri will largely dictate our P&L growth rates.

Overall, though, we believe that the direction of Biogen IDEC is exciting and we are operating to assure that we capture the full potential of our businesses.

Now, let me comment on some of the specifics behind each of these key conclusions beginning with the first take away, great top line and bottom line performance.

Our top line begins with Avonex.

Q4 Avonex product sales were $370 million, a 19 percent increase.

Full year Avonex product sales were over $1.4 billion, delivering a growth of 21 percent, what a great year.

Bob Hamm will follow me with more comments on our neurology products and the commercial trends and activities that are driving these results, but it was a great performance.

Just to round out the Avonex results on a geographic basis.

Avonex in the U.S. in the fourth quarter had product sales of $231 million, up 10 percent from prior year.

Full year the U.S.

Avonex product sales were $923 million, up 15 percent.

Internationally, our fourth quarter Avonex product sales were $138 million, up 40 percent over prior year.

Now, while this includes a 9 point benefit from foreign exchange, this strength was primarily driven by a 33 percent unit volume growth.

In all of our major markets we enjoyed double digit unit growth.

So in total on a full-year basis the international Avonex product sales were $495 million, up 34 percent year-over-year, so a great year.

Turning to Amevive, performance was pretty much in line with recent trends.

Q4 Amevive product sales were $10 million, and full year was $43 million.

Zevalin in the U.S. had fourth quarter product sales of $4 million and full year U.S.

Zevalin product sales were $19 million, and this performance is also pretty much in line with trends.

However, in Q4 we also had some significant international revenues for Zevalin, which I would like to explain.

Internationally we recorded $4 million in revenue in the fourth quarter our international Zevalin revenues recognize the sales of finished goods to our distribution partner Schering AG which had been deferred for all of 2003 and 2004.

The agreement on the final selling price of the kit components was not signed until December of 2004.

With the final selling price agreement now completed, the deferred revenue was recognized in Q4.

In 2005, we will recognize product sales revenue on the Zevalin kit components upon shipment.

Additionally we received double digit royalty from Schering Age for end user sales of Zevalin and this will be included in royalties on our P&L.

Now, let's turn to Tysabri, which was launched in the fourth quarter, and we recorded Q4 product sales of Tysabri in the U.S. of a little over $3 million.

This reflects our sales to Elan at our sales price, which is roughly 50 percent of the price that Elan sells it to the market for.

Just to remind everyone on the November 3rd, CFO conference call we described the U.S. business model where Biogen IDEC manufactures the Tysabri product, and sells the finished good to Elan's distribution operations.

That sale is what is being recognized in this revenue number.

Now let's discuss the timing of our U.S. revenue recognition.

We will be recognizing revenue only after the product has been shipped out to the channel by Elan.

In essence, the timing of when Biogen IDEC and Elan shows revenue on any box will be aligned.

In the US, Elan as a distributor, and reports 100 percent of the sales to the distribution channel, you will likely see Elan post the Tysabri number for the U.S. that is roughly twice the amount that we post.

Finally, remember that outside the U.S., when we get approval, and begin our business there, the business model and the revenue implications will be very different.

Biogen IDEC will book 100 percent of sales and will provide Elan a profit share payment.

Our Rituxan collaboration revenues comes next, which is titled revenues from unconsolidated joint business and in the fourth quarter that's was $170 million, an increase of 31 percent over prior year, as we have always discussed, this number has several elements.

First we receive our share of the U.S.

Rituxan profits.

U.S.

Rituxan sales were $429 million in the fourth quarter, and our Q4 profit share from that business was $130 million, up 11 percent versus prior year.

Secondly, we receive royalty revenue on sales of Rituximab outside the U.S. and in Q4, this was $34 million, up 65 percent versus prior year.

Third, we're reimbursing for selling and development costs incurred related to Rituxan.

This was $6 million in Q4.

On a full-year basis, revenues from the unconsolidated joint business was $615 million, driven by the U.S. net sales recorded by Genentech in 2004 of $1.574 billion.

So in total when you roll it all up across all products, collaborations and royalties both our Q4 revenue and our full year revenue grew by 19 percent, versus 2003.

This is great top line strength.

And it drove equally strong bottom line performance.

Q4 adjusted EPS was $0.34, and full year 2004 adjusted EPS was $1.44 so this brings me to the second major take away for Q4 and 2004.

We invested heavily behind the preparation for launch of Tysabri and in Q4 we expanded that investment to assure that we seized the moment for this great product.

Now, in the fourth quarter R&D was $188 million, 32 percent of revenue, and on a full year basis it was $684 million, 31 percent of revenue.

In the fourth quarter, SG&A was $172 million, 29 percent of revenue.

Now this SG&A spending represents a $41 million increase versus last quarter.

Let me share with you the types of costs that contributed to this increase.

First we spent almost half of this increase on U.S. sales and marketing related to Tysabri.

This U.S. investment was split between marketing items, such as promotional materials and investigator meetings, prelaunch training meetings, et cetera, and expansion of our sales force, our call center and our customer support teams.

We were in the unusual position of launching a product for which Phase III data has just been released so we took great pains to assure ourselves that the physicians were well aware of and understood the package insert.

It seems that the communication has made an impact.

Now on the international front we invested behind the growing Avonex business, as well as began early sales and marketing and prelaunch activities for Tysabri.

Finally we incurred on a worldwide basis over $6 million in start-up costs, related to the head-to-head study comparing the safety and efficacy of Tysabri to Rebif.

Since many of the launch costs won't be continuing into 2005, we expect SG&A to be lower in Q1 and Q2 of 2005.

Just to wrap up on a full-year basis, SG&A was $567 million.

Finally, let's discuss the third key take away from the quarter which is that we expect our 2005 P&L growth rates will be different.

And this leads me to financial guidance.

Now, we are not yet including the impact of expensing stock options in our guidance.

And we will be adjusted -- discussing the adjusted P&L in our guidance discussion, without the impact of stock option expensing again.

We believe that you should see the Biogen IDEC performance outlook in 2005 as I mentioned earlier, as highly dependent on Tysabri results.

If you establish a moderate base case, then the top line and bottom line growth should be pretty close together, both in the roughly low double digit range.

Operating expenses overall should increase by 12 to 14 percent and this assumes some spending on in-licensed programs.

Our tax rate should be in the 31 to 33 percent range for 2005.

Finally as you think about the range of Tysabri results, keep in mind that roughly 50 to 60 percent of incremental sales should flow through to pretax profits.

Now this guidance provides a fairly wide range, but this is pretty much how we would see the outlook for the year.

If you run a few scenarios you can probably create a proforma that leads to anything from adjusted EPS in the $1.60 to low $1.70s range.

That's the range we're working with, and until some of the key volume factors are better clarified we won't be able to be more specific.

Now the major factors that could impact the growth of Tysabri are the launch trajectory in the U.S. which as Jim mentioned, we are in the early stages of assessing.

Also the two-year data results will be a key factor and finally the timing of approval and launch in Europe will be another factor for 2005.

I would like to reiterate, however, that under any of these scenarios we are quite comfortable with Biogen IDEC's ability to achieve its 15 percent top line and 20 percent bottom line goals on average through 2007.

Because of the launch emphasis, 2005 will simply be a year that's difficult to predict and one with likely different growth rates than we have overall over multiple years, but we are comfortable that we are on track to achieve our longer term growth rates through 2007.

Finally let me shift now to cash flow.

At the capital line we anticipate capital expenditures in 2005 to be in the range of 400 to $475 million.

Focused heavily on the Denmark plant and some completion activity at the Oceanside plant.

Now this brings me to the reconciliation of GAAP to non-GAAP P&Ls.

Because we recognize the importance of earnings computed in accordance with GAAP and in accordance with Regulation G, I would like to remind you on table 3 of our press release, we reconcile our GAAP P&L to the adjusted proforma non-GAAP performance we just discussed.

This is now presented in a tabular manner as recommended by the SEC regulations, and breaks out the reconciliation by major driver and by P&L line item.

Now just as a final point of calculation, the diluted shares outstanding used to arrive at the GAAP EPS is the weighed average number of shares outstanding over the course of the quarter or year.

We have provided this figure for each of the EPS calculations.

Also please note that in the 2003 proforma P&L full year and Q4, we have applied the new EITF standards issued during 2004 for EPS calculation to the proforma results developed for 2003 which creates some changes.

We also confirmed all accounting in the proforma 2003 P&Ls to 2004 methodologies, and finally we made an immaterial non-GAAP to eliminate pre-merger inter-company R&D expenses between legacy Biogen and legacy IDEC.

Now I would like to turn to the share repurchase program.

In Q4 we announced a new share repurchase program which our board of directors authorized for the repurchase of up to 20 million shares.

During Q4 we purchased only a modest number of shares against that plan, about 600,000.

But this will be an ongoing program for the Company.

Now, finally there are two topics I want to touch upon, given recent regulatory changes.

First as I mentioned stock options expensing.

Obviously we will be complying with the requirements of the U.S.

GAAP beginning in Q3 of 2005.

In the meantime the impact of stock option expensing on our P&L will be reflected in the FAS 123 footnotes of the 2004 10-K, as it has been in previous 10-Ks and 10-Qs.

The second topic is the tax repatriation act.

Now many of you are following the implications of this new tax bill, the American Jobs Creation Actions act of 2004.

As you know, one of the key provisions of the bill relates to the repatriation of foreign earnings permanently invested outside the U.S.

We're still exploring the benefits of a one-time cash repatriation provided under the bill.

However, until this analysis is completed there is no change in our current position regarding reinvestment of accumulated earnings in the foreign subsidiaries.

If we decide that Biogen IDEC will repatriate a portion of these earnings, a one-time tax charge could occur.

Now this brings me to my concluding comments.

Clearly, this will be a year of tracking the Tysabri momentum and our financial results in 2005 will be heavily driven by that success.

We feel great about the broader direction of Biogen IDEC, and the financial strength of our Company.

We are determined to leverage that strength into further partnering efforts and more in-licensing of products.

So 2005 all told should be an exciting year.

Thank you.

Now, I would like to hand off to Bob Hamm, our Senior Vice President for the Immunology Business Unit.

Thanks, Peter.

I will be covering the commercial highlights for the neurology business.

Before I discuss the Tysabri launch, let me take a few moments to comment on outstanding performance that the team posted for Avonex in 2004.

Worldwide revenues of $1.4 billion, U.S. sales over $900 million, and the rest of the world sales nearly $500 million.

By measure of patients on therapy and revenue, Avonex clearly is a #1 MS product globally.

U.S. volume for Avonex was studied throughout 2004 with only a minor share loss, and this is a great platform of eight years as a market leader, from which to launch Tysabri.

As you all know Tysabri was approved in late November and the response has been overwhelming.

We are highly appreciative that the FDA granted Tysabri a label based on one-year data.

Early wins include product shift to wholesalers within a week after approval, outstanding collaboration in the field with our partners at Elan and extraordinary physician and patient response.

We're seeing the initial surge due to the pent-up demand that we had expected to see.

Since last summer our key executional focus and preparation have been in two areas.

IV logistics and reimbursement.

Let's turn to IV logistics first.

Our goal is unfettered IV access, that means patients having access to IV, whenever, however, and wherever they choose.

For the most part, there's plenty of capacity.

We focused during the launch stage on the logistics of matching that available capacity to patient demand and patient location.

A large number of neurologists want to do it themselves.

These neurologists excited about Tysabri have been physically increasing capacity through their own means or through turnkey providers.

Sites of care thus far, include hospital outpatient, stand alone clinics, oncology centers and home infusion.

In terms of reimbursement we recognize and understand that reimbursement to one degree or another is a barrier to adoption.

It is important to point out that all Tysabri claims will be manual, due to the miscellaneous J code, thereby resulting in manual process, some confusion and inevitable payment delays until claims processing becomes routine. [Pare] reception to Tysabri clinical data is highly favorable, and most plans indicate a willingness to cover Tysabri.

We're working through individual issues, not Pare policy issues.

There's a wide range of lag time to get infused, but the time to get a Pare coverage decision is minor, more of the time is waiting for Letter of Medical necessity, patient history, MRI and other conditions in the manual process world.

Patients with support are getting on therapy, physicians are pushing these through with Pares due to the nature of the product.

CMS has created a permanent C code six months early, in terms of a payor success story, we talk about Regents BlueShield.

That plan has a standard six months moratorium for review of new agents however, after reviewing the Tysabri data they established a one-month post-approval policy that covers the vast majority of their patients.

Currently the majority of neurologists are accessing Tysabri via buy and bill, but that may change as payor policies become established.

In terms of patients 2,000 to 3,000 patients have negotiated their way through the reimbursement labyrinth and have been infused with Tysabri as of the end of January.

Majority of patients are on Tysabri as mono-therapy, but desire for combination usage is stronger than expected.

But those using combination, Avonex is far and away the most commonly used with Tysabri.

Nevertheless it is too early to tell on the combination usage.

As background there are 350,000 patients with relapsing form of MS in the U.S. today.

About 190,000 patients on therapy, which represent a penetration of approximately 55 percent.

After a decade of available treatment many patients remain untreated, and that's due to the high end met need, which means that current therapies are partially effective, require frequent injections, and many patients are intolerant of the side effect profile.

Tysabri meets these needs with a new way to fight MS with great efficacy data, dosing every four weeks, and a good tolerability and safety profile.

We expect the MS market to grow from $4 billion today to over $6 billion, driven by market expansion.

This growth comes from bringing back the quitters of therapy.

We estimate that over 50,000 patients in the US have left therapy, and another 50,000 worldwide.

Tysabri will bring back many patients that have had no other options to date.

Our market research indicates that Tysabri is expanding the market.

Newly diagnosed patients and quitters comprise the lion share of mono-therapy Tysabri starts.

The majority of switches to Tysabri mono-therapy are from breakthrough patients defined as two or more relapses in the past two years.

In terms of the physician penetration, neurologists have embraced this new therapeutic option.

Over 2,000 unique physicians representing more than one-third of the target neurologists, have written prescriptions for Tysabri in the first ten weeks post-approval.

About half are for in-office infusions.

Our impression in the field is that neurologists have been surprised and pleased by the broad label and efficacy described in the Tysabri package insert.

Physician to physician conversations around the potential for the product, may be one of the best selling points for the agent in the early launch phase.

All of the pre-Tysabri products for MS have their advocates, but Tysabri's PI seems to stand out against historical comparitors.

As you may know, we have just initiated the first head-to-head randomized control trial known as STARS, that will compare the efficacy of Tysabri versus Rebif.

For nearly a decade, Avonex has been the gold standard of MS treatment.

Avonex will see that physician's Tysabri, as we expect it to become the #1 MS product worldwide and grow our MS franchise.

We are convinced of Tysabri's blockbuster potential.

As we noted before we recognize that IV logistics and reimbursement will be gating factors to the initial uptake over the first half of 2005.

In 2005 we look forward to the two-year disability data from both MS trials, as well as potential approval from Europe in late 2005.

We feel the trajectory established coming out of the end of this year, will be more indicative of Tysabri's potential.

I will now turn the call over to Burt Adelman to review the pipeline.

Well, thanks, Bob.

I'm impressed.

So this has been an exciting year, as Jim has already said for R&D, at Biogen IDEC.

I'm glad to say that the discussion of GAAP occurs more now in the financial group, than it does with us managing the pipeline.

As a direct of the merger, we have been able to significantly expand our pipeline across all therapeutic areas and, in fact, I believe that every program with a strong technical and commercial rationale have been moved into development, or is on a trajectory to get into the clinic in the near future.

This has not been the case for either legacy IDEC or legacy Biogen.

So 2004 has truly been a remarkably productive year for us in R&D.

Now I will highlight some of these achievements based on each of our therapeutic areas, rather than just going through a list of products by stage.

So forgive me if we refer to a single product more than once, but I think in the end this is the best way.

This is how we think of our own business.

Beginning with oncology.

The Rituxan oncology franchise remains strong.

Supported by results of large well-controlled trials.

In particular, data continues to emerge supporting the use of Rituxan as front line and salvage therapy in involent and aggressive forms of lymphoma.

And importantly we're in discussions with the FDA, regarding submission of data for chronic use of Rituxan following induction therapy in patients with indolent lymphoma.

It's hard to imagine any longer, of treating patients with lymphoma without Rituxan.

Regarding Zevalin, we're discussing with our European partners, Schering AG, the possibility of conducting a Phase III trial, that would incorporate Zevalin into frontline therapy for newly diagnosed aggressive lymphoma.

Stay tuned because, you know, we'll discuss this with you more in the future when we have a little more clarity on exactly how we're going to run this study.

Other ongoing activities lymphoma and CRL include our antiCD 80 and antiCD 23 antibody programs.

We hope to have new data from each of these programs during the second half of the year.

In the realm of solid tumors we currently have three active programs in Phase I. Antitag 72 is a radio isotope delivered by antibody that binds to a specific tumor associated antigen.

CB 11 is an agonist antibody directed at a TNF family protein on the surface of multiple solid tumor types, and soon starting to accrue patients is our gene therapy program.

Some of you may be familiar with this program.

We're using an [adenal] virus vector and hope to deliver the Interferon beta gene to metastatic colorectal tumors in the liver.

We believe that localized delivery of high levels of beta Interferon may kill tumors through a number of direct and indirect mechanisms.

In summary, in oncology we currently have 7 products many various stages of development in the clinic.

Moving on to the autoimmune disease franchise.

I will be talking about activities around psoriasis, rheumatoid arthritis, Crohn's disease, SLE and hopefully soon [scoleraderma].

The Rituxan RA program is moving along well.

We recently announced that the Phase IIb Dancer trial results met the primary ACR 20 end point at 24 weeks.

And there will be -- we will be launching a phase 3 program in DMAR and inadequate responders.

Perhaps even more importantly, results of the Phase III TNF non-responders study will be available in the first half of this year.

We hope that those results will be very strong, and then we'll be talking to you about the results in our plans for approval of Rituxan in this indication.

Other Rituxan studies being considered include SLE and ulcerative colitis.

Now rounding out our b cell directed efforts in auto immune disease is our collaboration with Genentech, directed at inhibiting bast dependant b cell proliferation.

BAF, which is the b cell activating factor, is a critical protein that binds to the surface of b cells and drives b cell growth.

Inhibiting that or its receptor, appears from experimental studies to be an effective way to down regulate b cell activation in auto immune disease, and IND has already been filed for first generation of product in this program, and patient accruals will start before the end of the quarter.

Finally, as you well know, we and our partner Elan, are actively pursuing Tysabri in Crohn's disease and rheumatoid arthritis.

We will be announcing the results of those studies sometime in the summer so stay tuned there.

Next up is Amevive, we received approval in Canada, Australia and New Zealand for the psoriasis indication.

We are working to improve the convenience of Amevive prescribing and administration, and to that end have filed a supplemental BLA to reduce monitoring, and to support combination therapy, with Methatrexate, Cyclosporin, and UVB.

In addition, we have a program place looking to develop a sub-q dosing form of Amevive.

Now, regarding BG 12, our fumarate program.

We along with our partners have completed a phase 3 program to support registration of BG 12 in Germany.

Results are being reviewed now, and will be reported out at a later date.

Finally, we put the lymphotoxin beta program back in the clinic, after improving the manufacturing process.

You may recall that LT is a fusion protein, directed at lymphotoxin BETA, a [tuminicrosis] factor family member.

We believe it works by blocking immune cell activation within the lymph nodes through effects on lymph node organization.

Important clinical targets for this program include rheumatoid arthritis, SLE and Crohn's disease.

From the auto immune area, we have products directed against B cells, T cells, macrophasias, dendritic cells, immune cell adhesion mediated by Intergrans, and cell processing within the lymph nodes.

What I would consider a pretty good range of coverage of all relevant auto immune disease mechanisms.

Now finally let me review progress in our neurology therapeutic area.

Starting with Avonex.

As you are aware, the Tysabri development program provided important new information about the use of Avonex.

Results from the sentinel trial, as reported in the Tysabri package insert, demonstrates that Tysabri added to Avonex is safe and effective in the treatment of patients with relapsing MS.

In fact, Avonex is the only existing prior to Tysabri MS drug approved for add-on therapy with Tysabri.

Now, to Tysabri itself.

You have heard much from Bob so I will just make a couple of quick points.

As we have already told you in the past we are on schedule to complete the two-year portion of both phase 3 trials.

We expect to present the two-year data from the affirm mono therapy trial at the April AAN meeting, and the two-year sentinel data will be available later in the year.

We continue to be on schedule to submit the two-year data from both trials to regulatory authorities in September.

Other product development activities in the neurology area include an ongoing Phase II multiple sclerosis trial with BG 12, and a soon to be completed phase 1 program with v-2006, our program in Parkinson's disease in collaboration with [Vernalis].

Finally, in collaboration with our partners at Genentech we are conducting early programs of Rituxan in relapsing MS and primary progressive MS.

So all in all, a terrific year for R&D at Biogen IDEC.

The pipeline has grown remarkably in breadth and depth.

Stay tuned 2005 will be even more exciting.

Thanks and back to Elizabeth.

Actually, we're going to hand the call over to Bill Rastetter for closing comments.

Thanks, Burt, Elizabeth.

Just a few closing comments before we go to your questions. 2004 was certainly a transforming year for Biogen IDEC.

We've emerged for the entire calender year and we celebrated the approval of a major product, Tysabri.

During 2004, an employee survey was conducted with an outstanding participation by 93 percent of Biogen IDEC employees worldwide.

Overall most scores were above average for large biotech and pharma companies, as well as above average for recently merged companies.

Overall satisfaction of employees at the Company is very strong.

Primarily driven by supportive managers and deep belief in the vision, values and potential of the organization.

The survey also identified areas for improvement.

The increased complexity and geographic diversity of Biogen Idec, has made communication and collaboration more difficult.

These are challenges faced by any multi-national company.

We are focused on these areas in 2005, as we implement new ways of communicating and supporting each other, across time zones and among our several campuses.

Tysabri, of course, represents fulfillment of Biogen IDEC's mission to create new standards of care for serious diseases of high-end medical need.

And we continue in the same vein to invest at a high rate for our sector, or for the pharma sector in research and development.

Our objective is to deliver through innovation, differentiate high-value therapies to patients in specialty markets, such as oncology, neurology, dermatology and rhematology.

Over the past year, our employee base has grown by more than 500 to almost 4300 employees worldwide.

Much of the recent hiring is related, of course, to Tysabri.

2005 should be another highly eventful year for Biogen IDEC.

We eagerly await the two-year results for Tysabri in MS, as well as additional data from ongoing trials with this product in Crohn's and rheumatoid arthritis.

We are hopeful that Tysabri may also receive EU approval towards the end of 2005.

We look forward to updating you on our progress throughout the year.

Thank you all for being on the call.

Let me turn it back to Elizabeth for the Q&A.

Elizabeth?

Thank you Bill.

Operator, ready for questions.

Please limit yourself to one question, so that we can questions from many of your colleagues, and then re-enter the queue for subsequent questions.

Operator, we're ready to take the first question.

At this time I would like to remind everyone in order to ask a question, please press star followed by the number one on your telephone keypad.

Your first question comes from Craig Parker with Lehman Brothers.

Good afternoon, I appreciate the detail on the manufacturing capacity but in trying to figure out what the supply and demand curves look like it would be useful to know what amount of bulk product you had existing when you launched, and also finished product.

Can you help us with that?

Well, I can help you with that but I'm not going to go into that level of detail.

I guess the better way to give you some guidance on -- I think with your question is to say that, you know, we feel pretty comfortable that we can deal with any kind of numbers or trajectory that takes us up to, you know 40,000 patients by year end.

If it starts to go north of that, we may well see a couple of pinch points, but we've got, I think a pretty robust plan and capacity to get, add lines along through this year as well as the addition of the Oceanside facility.

Just to put that in perspective, if we really got to 40,000 patients at year end, that would be an extraordinary launch trajectory for this product.

Your next question comes from Eric Schmidt with SG Cowen.

Good afternoon.

A question on reimbursement for Tysabri.

I was wondering if you would comment on what percent of patients are being reimbursed through medical benefits as opposed to prescription benefits, and maybe also make a comment on the degree of co-pays, the size of co-pays in the medical benefit policies.

Sure, with respect to reimbursements, it's really too early to tell.

There's obviously both medical pharmacy benefits and the normal pathways one sees.

In terms of co-pay, we're not seeing anything different than we saw with the other products in MS or, you know, 200,000 people, more or less have found their way in to treatment.

Your next question comes from Steve Harr with Morgan Stanley.

I'm trying to followup with the Elan reimbursement, do you have a little better idea of the type of pushback and the way you have to leverage on combo reimbursement as well as how many patients you currently have in the queue awaiting reimbursement for Tysabri?

It's really too early to tell on the combination.

The doctors seem to be more interested in getting to the payors now and the numbers that would allow them to take a look at it.

We are not seeing anything other than frankly great acceptance of the exceptional data and the willingness to cover this population.

In terms of number, can you determine the reimbursements and the number there -- [inaudible]?

Well, it's some multiple of the number of the patients that have already made their way through the process to get to infusion and so, think we're trying to be conservative.

There's a lot of noise in the system still, so we think there's 2,000 to 3,000 that have made it through the process for reimbursement, have an appointment for infusion, have received an infusion, and so, you know that kind of represents what happened in the month of December.

We're seeing continued strong demand through January and up until this call.

Your next question comes from Joel Sendek with Lazard.

Thanks.

If 3-year sales of Avonex is as large as it is today, where do you expect Avonex sales will be in that scenario?

Well, I mean, it's too early to tell, as noted the demand combination is stronger than expected.

The vast majority of that is with Avonex.

We know in Europe Avonex will begin to grow this year because Tysabri does not come until at the earliest the very end of the year.

And we'll try to move that along.

Your next question comes from Mark Schoenebaum with Bear Stearns.

Mr. Schoenebaum, your line is open.

Can you hear me?

I'm sorry.

Can you hear me?

Yeah, Mark there you go.

Hi, sorry guys.

Sorry.

Real quick question, just some qualitative information about what your market research is showing.

We're all on the street kind of waiting for your data with baited breath.

Can you talk to us, at least anecdotally where you are hearing from the physician community, around how many are waiting for those TR data and what you expect in terms of what may happen with demand at this point if you expect a big change in the trajectory at all?

There's certainly a minority of physicians that are anxious.

There's a minority that's actually waiting but we're ten weeks in over 2,000 are already prescribed.

I think that speaks for itself.

I agree.

I think that -- this is Burt.

I think we -- you know, we've got a lot of support from the physician community for the data as they have seen it.

They are excited about the drug.

And I'm not aware of any significant hesitation to prescribe based upon -- I don't know what to do until I see the two-year data.

Your next question comes from Elise Wang with Smith Barney.

Could you just qualify the spending trends in the R&D side.

Was there a one-timer in the fourth quarter, and what can we expect about the trend in '05?

Elise for R&D specifically, there were not any one-timers that hit our P&L in an unusual way.

We did have a milestone payment but that was actually capitalized and will be amortized over the patent life of Tysabri.

So there's nothing kind of a big lump, let's say that hits R&D in the fourth quarter.

I would say that our activity level, and Burt you can expand on this, you know, was pretty big.

We were completing the Phase III trials.

We were also, as patients were rolling off, we were enrolling them in the extension trials and then we were also, you know in the midst of doing a lot of work in other indications as well for Tysabri.

So there's a real heavy amount of activity let's say in the fourth quarter which is healthy and good for the business.

As we roll forward we expect R&D to be growing, you know, continuing to move ahead, as we said we think the operating expenses overall will grow 12 to 14 percent next year.

I don't think that indicates any real [bulbous] in the fourth quarter that was unusual.

I think the heavier piece in my part was more in the SG&A and specifically in the sales and marketing area, where we felt the fourth quarter was a larger quarter than we'll see again for a little while.

Burt, do you have any other comments.

No, I agree.

I think it was a very busy quarter.

We did start the MS trial with BG 12 and, accrual, you know was a little slow and then picked up very quickly.

So, no, I don't see anything really out of the ordinary.

It's expensive to do this kind of work.

The other thing I would just mention -- Jim, you were going to mention about the manufacturing?

We had a lot of activity in the fourth quarter as we were ramping up at RTP and ramping up our efforts at Oceanside, so I think a lot of -- a lot of activity in all functions of the R&D.

R&D guidance for 2005 is 30, 31 percent of top line.

Your next question comes from Ian Somaiya with Thomas Weisel Partners.

Thanks for taking my question.

What is the average time currently that it takes a patient to circumvent through some of the reimbursement processing and gain access to the drug, and sort of in the same token, you know what steps are you taking to ease that process?

Well, specifically, the -- the infused -- the time of infusion is all over the place as you might imagine, given the manual process, the summary benefits that have to be prepared and what not.

And we -- what we're doing is we've got all of our people and third parties besides that are helping patients work through this, because it's very often someone that is, you know, doing a manual claim process, it's very deep in the payer that you have to get to have a relationship with, and walk them through what they should know about the policies already established.

So these are one at a time, very intensive, and as we said they will take a few months to really get rolling.

Your next question comes from Geoffrey Porges with Sanford Bernstein.

You mentioned two patient populations coming out of Tysabri, newly diagnosed patients and switches.

Could you give us a sense of relative proportion of those two populations?

And then, for the switches, Could you give us a sense of which products they are coming off at this stage?

Thanks.

Well, the switchers are coming from all products, and what we're seeing is what we described previously with the patients needing either more therapy or are fed up with their current therapy.

The patients themselves or doctors are looking for increased efficacy by looking at combinations.

That's what we're really seeing to date.

Your next question comes from May-Kin Ho with Goldman Sachs.

Can you clarify on the statement, around 2007, Tysabri would be the same size as Avonex today.

Is that worldwide and user sales and $1.4 billion, is that what you are referring to?

Or is it your portion of it?

Well, I mean, remember, May-Kin that's a little tricky but let me hand it to Peter because we only book the transfer payment in the U.S. and we book the top line outside of the U.S.

Fundamentally your question is on our P&L and how we are seeing our own revenues evolve.

We think Tysabri will be pretty big, obviously.

I'm sorry so what are you saying?

So the -- it will be our revenue, the revenue that we're booking.

Okay.

Thanks.

Your next question comes from Jason Kantor with WR Hambrecht.

Thanks.

A lot of my questions have been answered, but could you go over again what the percentage of use is combination-wise, and what metrics are you using in the launch and what metrics are you going to be updating us on quarterly with respect to the penetration and the use of that product?

Okay.

Let me make sure I got that question right here.

So in terms of combination uses, it's too early to tell, as I said, it's much stronger than we expected.

But these are just now getting to the payers and we'll see what influence the payers have on that overall desire by the physicians.

In terms of the second part of the question -- Metrics.

Metrics.

So we're looking at, you know, basically the bottom line which is revenue.

That's -- that's where it starts and ends and market share.

Basically -- I think one of the things that we are sensitive to is to make sure that we don't have too many metrics flying around to create misdirection potentially, because we may not fully see how the process is evolving.

So I think we're trying to focus --

I would expect us to give patient and doctor numbers.

Yeah, patient and doctors and revenue sort of the final line of what's actually happening.

We've got good historic information at this point on what the other products are doing to the marketplace, so, of course we'll be tracking how the units fall out for all the products in the marketplace, trying to figure out where the overall market growth is when we add Tysabri back in.

Given the distribution channels, a lot of that is going to be somewhat invisible, frankly, to the the outside communities, so the -- the best or the cleanest guidance you are going to get is as we update patients that have been infused and that's sort of the definition we're going to continue to use, because patients anywhere else in the queue haven't cut a check yet that turns into revenue.

So we're only going to talk about it as infused patients.

That makes it easier than to compare back to when we see the historical units and patients for the other products.

Estimate the overall growth rate and, of course, the market share, as well as to understand if the cannibalization across products is truly, you know, evenly across the products.

One again, ladies and gentlemen, in order to ask a question, please press star one on your telephone keypad.

Your next question comes from Alex Hittle with AG Edwards.

Thank you.

I was wondering if you could fill us in on BG 12 program?

You've got this Phase III data coming as I understand it in Germany, does Biogen actually have any claim on revenues from Germany, and sort of extending that out as you pursue MS, is there a global right to that or exactly what are your cuts?

Yeah, this is Jim.

I will take that one.

The BG 12 program is a worldwide collaboration and set of product rights across all indications.

So, indeed we have the rights in Germany as we do in every other market and so we continue to work with our partner, [Fumapharm]. who began the trial and the development program with the -- in Germany, in close collaboration and discussions with [B Pharm].

Just by way of a little bit more background, the phase III trial, it is, you know, by agreement with the B Pharm.

If the product were successful and approved in Germany, it would then go to the mutual recognition throughout the rest of Europe.

It is not our expectation that this current trial is sufficient for registration in the U.S. and that additional trials will be required for U.S. registration.

But in some, it's a worldwide collaboration agreement, all territories, all indications.

Your next question comes from Bret Holley with CIBC World Markets.

Yes, I was wondering if you could please give us an update on timelines for Tysabri and Crohn's disease both in the U.S. and X-U.S. markets.

This is Burt.

So the induction -- the second induction study which Elan is currently running will hopefully read out during the summer and if it's successful, we will then submit the package to the FDA sometime in the early fall.

The review process in Europe, which is ongoing is likely not to be completed until the decision is made on MS.

So I would guess that we really wouldn't -- would not likely have a Crohn's approval in Europe until, you know, early '06 kind of thing.

It's really just a little hard to project clearly at the moment, since they're looking at both indications.

We're in discussions.

Operator, there are any more questions?

Yes, ma'am, your next question comes from Adam Walsh with Jefferies.

Hi, can you hear me?

Sure.

Great.

Thanks for taking my question.

I wonder if you could get a little bit more specific on the early feedback you are getting on combination therapy reimbursement.

Is it being approved in all or most cases?

And if you are getting pushback, what is the nature of that pushback?

Yeah, this is Jim, let me take a swing at that question, because it's, of course an important question and it's interesting and -- for us to know the answer as well.

But in short what we have seen at the launch is much more interest in combination therapy by the physicians than we anticipated.

So that -- the combination therapy reimbursement, indeed will be tested.

We're being a bit cautious at this point about how much is actually going to be reimbursed because we don't really believe that the reimbursers can yet detect when a patient is coming through, what other therapies they are on and the reason for that is the current set of therapies are all given scripts on a three month, six month and sometimes longer basis.

So the script for Avonex or Beta Seron or any other product, is not necessarily popping up at the same time that they are writing a first script for Tysabri.

Secondly, all the Tysabri is being handled for the most part at this stage as a manual process and much of it as buy and bill, and medical reimbursement rather than the pharmacy.

So probably not a lot of it is getting matched up yet at the payer level.

So I think we have to see how that actually flows out.

I mean, we're not aware that there is a lot of direct pushback and, of course with the trial results showing the power of the combination therapy, as long as those patients essentially fell into the entry criteria of the SENTINEL trial, it's a difficult pushback argument for the payers to make.

Now, you know, I think the dynamic may change in one direction or another, as more of these claims get matched up, and as we see the SENTINEL two-year data and what the is the power of that data on disability and the other end points.

So I think there are a few things to be played out.

Early going enthusiasm for combination therapy, higher than we anticipated but I would be cautious about that because that may just reflect, those are the patients that were in the front of the neurologists' minds when they are thinking about a new therapy.

It's how do I help this patient that's in front of me that I put on what I thought was the best therapy, and he's still having difficulty with the disease.

I know that's a lot of qualitative and not very quantitative, but I think that's the best we really can do at this stage.

Operator, I think we can take the last question.

Your final question is a follow-up question from May-Kin Ho with Goldman Sachs.

Sorry.

How many statements of [efficacy] have been filed?

How many what?

I'm sorry, I didn't get the question May-Kin.

Number of statements for the [inaudible]?

How many of those have been filed?

What?

Statements for?

This is basically the statement filed to see whether the payers would approve something.

Oh.

Well, I mean, this is the same answer that we gave.

How many are in the queue?

That's what we would consider in the queue, and it's a multiple of what we have seen in infusion.

What have you seen, the people who have gotten to their first dose and infused, are people that we saw in the first part of December.

So all the rest of the people that we saw from, you know, kind of mid-December or late December all the way through January are making their way through.

Demand has continued to build.

So it will take some time to work through that queue.

Well, thank you for those questions.

Operator, thank you.

And thank you, everyone, for joining us on our call.

That does conclude today's Biogen Idec earnings conference call.

You may now disconnect.