Biogen Inc (BIIB) 2006 Q1 法說會逐字稿

Good morning.

My name is Tanya and I will be your conference operator today.

At this time, I would like to welcome everyone to the Biogen Idec quarter one 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 session. (OPERATOR INSTRUCTIONS)

I would now like to turn the call over to Ms. Elizabeth Woo, Vice President of Investor Relations.

Ma'am, you may begin.

Thank you, Tanya.

Welcome, everyone, to Biogen Idec's earnings conference call for the first quarter 2006.

Before we begin this morning, I would ask 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 our CFO, Peter Kellogg, reviews the financial results and the reconciliation to non-GAAP financial measures discussed today.

I will start with the Safe Harbor statement.

Comments made in this conference call include forward-looking statements about the Company's expectations regarding future financial results; the reintroduction of TYSABRI for multiple sclerosis; the potential of RITUXAN in rheumatoid arthritis; plans for the Company's commercial and pipeline products; and plans for its general growth and pipeline growth.

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 reports Biogen Idec has filed with the Securities and Exchange Commission.

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

This morning I am joined on the call by Jim Mullen, CEO of Biogen Idec;

Burt Adelman, Executive Vice President for Development; and Peter Kellogg, CFO and Executive Vice President of Finance.

I will now turn the call to Jim Mullen.

Thank you, Elizabeth.

Good morning, everyone.

Thank you for joining us.

Within the quarter, we took several steps to secure the continued growth of our core business, specifically achieving major milestones through products TYSABRI and RITUXAN.

So let me first describe TYSABRI.

We are pleased with the 12-member panel of the FDA's advisory committee voted unanimously to support the reintroduction of TYSABRI as a treatment for relapsing forms of MS.

And they also voted 7 to 5 in favor of allowing doctors to use TYSABRI as a first-line treatment.

The FDA often follows the panel's recommendations, but as you know, is not required to do so.

As many of you heard at the advisory committee meeting, dozens of patients testified of the high unmet medical needs that remains in MS.

I'm sure many of you were touched, as was I, by the passionate and often tearful pleas by patients for more effective treatment options.

The emotion expressed that day by those patients, as well as the sacrifice many of them made personally to testify there, are clear a reminder to everyone at the Company as to why we were so committed and motivated to make TYSABRI available as soon as possible.

As we've said in the past and as the FDA stated at the advisory committee meeting and as will be clearly described in our label and comprehensive risk management plan, we fully expect to see PML associated with TYSABRI following the anticipated reintroduction in the U.S. and launch in the EU.

We [cannot] assume that TYSABRI increases the risk of PML, based primarily on observations during the safety evaluation and our discussions with global experts in PML and MS.

Through more research and experience, including our mandatory registry as well as further studies in the epidemiology of PML, we will have more data to share with the MS community about the risk of PML in TYSABRI.

The objectives of the risk management plan -- what we call the risk map -- are threefold.

First, to ensure that only appropriate patients receive TYSABRI; secondly, detect as early as possible any potential cases of PML; and thirdly to collect accurate data on incident and risk factors.

This system by its design will create many false positives.

In the months after reintroduction, we fully expect to hear considerable rumors of potential PML.

We anticipate these numerous rumors generated by any of a number of sources, because we already experienced it firsthand during last year's safety review.

These rumors will likely generate stories in the media and potentially cause some confusion in the MS community.

Throughout this process, it will be important for us to communicate fact-based information regarding confirmed cases of PML and not to speculate on every rumor we encounter associated with TYSABRI.

With a June 28 PDUFA date, we expect to have this important therapeutic option available to multiple sclerosis patients later this year.

We are committed to working around the clock to make TYSABRI available to appropriate patients in the U.S. as soon as possible.

In Europe, we are actively engaged in discussions with the EMEA, and expect to receive an opinion from the CHMP in the near future.

Now I will talk about RITUXAN for a moment.

The approval on February 28 and subsequent launch in early March of RITUXAN in rheumatoid arthritis has allowed us to expand our business focus and enter a therapeutic area with significant unmet medical needs and considerable potential.

Our sales force is competitively sized with the other players in the RA market.

The launch is going well, and based on preliminary indications, we are pleased with our progress.

As it has only been a few weeks, I think it is still too early to cite any numbers.

In terms of reporting, there are significant challenges to accurately and reliably measure the sales attributed to rheumatoid arthritis, sales versus oncology, and these challenges will remain for many quarters, as a significant portion of the infusion centers will serve both the RA and oncology patients.

We and our partner Genentech continue to make significant progress towards label expansions for RITUXAN in the oncology arena.

A couple comments about our oncology franchise.

Many of you read a few weeks ago that David Parkinson joined us as a Senior Vice President, Oncology Research and Development, based in San Diego.

David oversees all oncology discovery research efforts and the development in the oncology pipeline.

Our goal to make the leap from being a top U.S. company in hematologic tumors to being a global leader in oncology, from discovery to development to commercialization.

In the months and years ahead, we will look to David with his NCI background and prior experience at Amgen and Novartis to help us to continue to attract top talent, develop additional oncology-focused partnerships, build success in the solid tumor market, and expand our pipeline.

In the area of oncology, we are active on several deals and will have news to report in this arena in the coming weeks.

This quarter's results demonstrate that we have effectively managed the operating expense of the businesses, as I outlined in our restructuring plan last September, which made room for the $200 million earmarked for business development opportunities.

I will now turn the call over to Burt Adelman to take you through some pipeline developments.

Thanks, Jim.

Good morning, everyone.

Actually, Jim just did a great job hitting a lot of the key pipeline update points, but I will add a little color on a couple of our products.

Let me start with TYSABRI.

Again, as you all know, on March 9, the FDA's neurologic disease advisory panel recommended unanimously for the reintroduction of TYSABRI to the marketplace.

I believe that this vote and the general tone in comments at the meeting confirmed our belief and our colleagues at Elan that TYSABRI is an important drug for patients with multiple sclerosis.

I found that the discussion regarding risks such as PML and other opportunistic infections was frank and transparent, and all issues were discussed openly.

All agreed that although PML cannot be eliminated as a risk associated with TYSABRI treatment, patients who are informed and willing to accept the risk should be given the opportunity to receive TYSABRI for their multiple sclerosis.

The review process is moving along, both in the U.S. and Europe.

Although we were disappointed that the FDA extended the PDUFA date to June 28, rest assured we are working daily with the FDA to finalize the label and the risk map, and we are making good progress.

Simultaneously, we have continued to work closely with the CHMP in Europe to complete the review process for TYSABRI in multiple sclerosis.

We hope to get a CHMP recommendation for TYSABRI in short order, which should be followed by the EMEA decision towards the summer.

Let me remind you that when the CHMP votes to approve a product, they will make the announcement of their decision; but then that decision has to be confirmed through the central EMEA process, and that requires some period of time -- I think usually about 60 days.

We have started worldwide clinical trials of TYSABRI in multiple sclerosis and enrollment is going well.

The trial that we are running is an open label monotherapy safety study that is enrolling patients who were previously in the Phase III trial and who fulfill current enrollment criteria, much of which you got a sense of in the context of the advisory committee meeting.

Finally the Phase III data from the ENCORE TYSABRI Crohn's study will be presented at Digestive Disease Week in Los Angeles this May.

Moving on to BG-12, our fumarate program.

As announced in January, the oral fumarate compound met its primary endpoint in a large, well-controlled Phase II multiple sclerosis trial.

Data from this study will be presented at the EMS meeting in May in Lausanne, Switzerland.

We continue to work with the regulatory authorities in the EU and the U.S. so that we can advance development of this product in multiple sclerosis.

As for the German filing of BG-12 in psoriasis, discussions are ongoing with the German regulatory authorities.

Daclizumab, the antibody to IL2 receptor that is partnered with Protein Design Laboratories.

The ongoing multiple sclerosis Phase II choice trial, in which daclizumab is added to interferon beta therapy, completed its enrollment in Q1.

We anticipate results from this trial early next year.

Simultaneously, we are on track with our partners to develop and begin a monotherapy multiple sclerosis study for daclizumab, hopefully beginning enrollment this summer.

RITUXAN in RA, Jim really reviewed most of the details here.

We are obviously very excited, given the recent FDA approval of RITUXAN for the treatment of patients with moderate to severe rheumatoid arthritis who have had inadequate response to one or more TNF antagonists.

We are excited because of the approval of RITUXAN specifically, and we are excited because this approval confirms the value of B-cell directed therapy to treat rheumatoid arthritis, and this is an area of great interest to Biogen Idec and an area in which we have great expertise, scientifically and in development.

A large Phase III program is ongoing for DMARD inadequate responders, hoping to expand the label.

The program consists of three trials, initiated or well into enrollment.

A 500-patient Phase III signs and symptoms study for RITUXAN in methotrexate inadequate responders.

It began enrollment in Q4 and enrollment continues.

An 850 or so patient Phase III radiographic endpoint study to demonstrate the effect of RITUXAN in DMARD inadequate responders with respect to joint erosion.

And a 550 patient Phase III controlled retreatment study.

In Q2, we also expect to begin enrollment in a Phase II study evaluating RITUXAN in combination with methotrexate and enbrel.

Now moving on to oncology, again, as you've already heard and as I am sure you well know, this past quarter we received notification that the FDA approved an extended indication for RITUXAN in diffused large B-cell CD20-positive lymphoma in combination with CHOP therapy.

That is the most aggressive form of chemotherapy, and this is the form of lymphoma that has the highest acute mortality rate.

So this approval recognizes the significant improvement in survival that RITUXAN may offer to patients with this form of lymphoma.

At the end of March, we also filed an sBLA for RITUXAN as first-line treatment of previously untreated patients with low-grade follicular CD20-positive B-cell lymphoma, in combination with CVP, cytoxan, vincristine and prednisone, or CHOP.

Again, looking for -- these data are based upon evidence that adding RITUXAN to these patients improves response or stable disease.

The submission was primarily based on data from the frontline RCVP trial and the ECOG 1496 trial, large well-controlled clinical trials.

The submission also includes data on RITUXAN given in a series of infusions over a two-year period of time from the ECOG 1496 study, which met its primary endpoint of improvement in progression-free survival.

We have asked the agency to consider this application for priority review and we expect to hear back in Q2.

All of these filings and the recent approval are consistent with our efforts to expand the label for RITUXAN to include indications and usage consistent with what are now well-established medical practices.

Moving on to ZEVALIN.

We continue to work with our partner to begin enrollment in a global trial in which we use ZEVALIN as part of the treatment for diffuse large B-cell.

As you recall, Schering AG are our partners and we hope to begin enrollment in this trial in the second half of '06.

And I think if successful -- and we have reason to believe that this is a likely to be successful strategy -- this will significantly expand the value of ZEVALIN in the treatment of patients with lymphoma.

M200, the antibody partnered with PDL, this is an antibody targeted against a component of the angiogenesis system.

M200 is currently in a series of open label pilot Phase II trials, and we are looking forward to continuing to build on this program.

I understand that three abstracts from the initial pilot Phase II studies in renal cell, pancreatic and melanoma have been submitted and accepted by ASCO, some we'll hear some of that in June.

That concludes my remarks.

Thanks and I'll hand the call over to Peter.

Thank you, Burt.

Before I move on to the financials, let me remind everyone that we provide table 3 of our earnings release as a reconciliation of the GAAP to non-GAAP financial results.

Of course, the GAAP financials are provided in tables 1 and 2 of the earnings release.

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

This is presented in a tabular manner and breaks out the reconciliation by major driver and by P&L line item.

The main items excluded from operating non-GAAP in Q1 were first, we adjusted the purchase accounting charges, which were $71 million for the amortization of intangibles and $4 million dollars in stepped-up inventory value in the cost of goods sold line.

Secondly we adjusted the pretax employee stock option expense of $13 million, broken out by $5 million in R&D and $8 million in SG&A.

Third, we had severance and restructuring charges of $1 million, which are a residual impact from our 2005 restructuring and organizational changes that you have all heard about previously.

And fourth, we adjusted for the onetime cumulative impact of the FAS 123(R) accounting change, which is driven by our use of restricted stock awards and the shift to estimated forfeiture rates under FAS 123(R).

Now, I will cover this in a little more detail later.

But this results in a $3.8 million credit in GAAP, but we exclude this from the non-GAAP results.

Now as normal, I will review the non-GAAP P&L operating performance of Biogen Idec and will focus on our non-GAAP P&L driven by the reconciliation in the aforementioned table 3.

We believe it is important to share this non-GAAP P&L with shareholders, since it better reflects the recurring economic characteristics of our integrated business, is how we manage the business internally and set operational goals, and is what our management incentive programs are designed around.

In Q1, we delivered $0.36 per share on the GAAP P&L, and after the adjustment shown in table 3, our non-GAAP EPS was $0.55 per share.

Now let's move through the first-quarter non-GAAP P&L results.

In Q1, our total revenue was $611 million.

That's a 4% revenue growth over the same period last year.

Now of course, this growth is affected by the fact that we were selling TYSABRI in Q1 of 2005, as you can see in table 4 of our press release.

Beyond that, the main variance in revenue results was AVONEX in the U.S., which I will address in more detail.

However, as you will see as we go through it, the underlying business trends are solid and we are poised for expansion as we look forward to the reintroduction of TYSABRI to energize the MS business and the expansion of RITUXAN into RA to sustain momentum within the RITUXAN franchise.

Now let's go through the individual product revenues, starting with AVONEX, the number one MS product worldwide.

Our Q1 worldwide product sales of AVONEX were $393 million, a 5% increase over prior year.

In the U.S., our Q1 AVONEX product sales were $232 million.

Now, we have seen a relatively soft MS market in the U.S., but perhaps equally important for AVONEX in Q1 was a reduction of weeks in the channel inventory.

As we have mentioned previously, we expect to see our inventory in the channel to be in the range of 1.5 to 2.5 weeks, and we have remained in that range for all of our recent quarters.

In Q1, while still within that range, the inventory level declined by roughly half a week, and this creates a little over $10 million reduction versus prior quarter.

Taking that into account, the fundamental U.S.

AVONEX trends are really unchanged, very steady revenue over the past few quarters.

On the international front in Q1, AVONEX product sales were $161 million, up 15% year-over-year.

Now, AVONEX's Q1 international sales growth in local currency was 22%, so the corresponding math is that the ForEx impact in Q1 was roughly $10 million negative, or a negative 7 point impact on growth.

Volume was up 7% and we enjoyed a price mix impact of plus 11 points, driven by favorable country mix and price improvements in Germany and others selected distributor markets.

Net-net, our international performance remains quite strong.

We are maintaining our consistent message of long-term efficacy and low neutralizing antibodies, and on a patient share basis, AVONEX continues to be the most-used international MS therapy.

In the first quarter, AMEVIVE product sales were $8 million.

As you have heard, the sale of the AMEVIVE business was completed recently in Q2, and as a result, you should expect only minor product sales in Q2 for AMEVIVE.

Most gains and losses related to the sale were already booked in Q4, so we do not expect any material or significant charges related to this sale in Q2.

Overall, the AMEVIVE business was close to breakeven, so you should not anticipate any bottom-line impact as a result of the sale of this business.

ZEVALIN in Q1 had product sales of $5 million and TYSABRI had Q1 product sales of -$200,000.

Again, just to remind you, this represents the amortization of certain product approval milestone payments and credits related the initial approval of TYSABRI.

These are amortized over the life of the remaining TYSABRI patents.

Of course, as I mentioned earlier, we had $6 million in Q1 TYSABRI revenues last year.

Our Q1 royalties were $21 million and our revenue from unconsolidated joint business was $183 million, an increase of 14%.

And again, that is our RITUXAN collaboration revenue.

As we always discuss, this number has several elements.

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

RITUXAN profits.

U.S.

RITUXAN sales were $477 million in the first quarter, up 8%.

Our Q1 profit share from that business was $124 million, up 1% versus prior year.

This reflects the strong investment that is underway for the U.S. launch of RITUXAN into the RA market ahead of sales, and ongoing development efforts for the RITUXAN franchise in other indications.

Secondly, we enjoyed royalty revenue on sales of Rituximab outside the U.S., and in Q1 this was $43 million, up 77% versus prior year.

Third, we are reimbursed for selling and development costs incurred related to RITUXAN.

This was $16 million in Q1, again reflecting our key role in the commercialization of RITUXAN in RA.

Now turning to the expense lines on the non-GAAP P&L -- and remember in this discussion of the non-GAAP P&L, we will be excluding, among other things, the expensing of stock options.

Our Q1 cost of goods sold was $63 million.

On the year-over-year basis, cost of goods solds are lower in Q1, as you may remember, because in Q1 last year, we had $23 million of TYSABRI that was written off against cost of goods sold due to the suspensions.

In the first quarter, R&D was $141 million.

Importantly, as Burt noted and went through in great detail, we have seen important progress within our pipeline in the past quarter, yet R&D is down versus prior quarter and prior year.

This ability to build the pipeline and progress things and yet manage R&D costs is primarily due to the savings from the strategic restructuring announced in Q3 last year; and, number two, the resumption of TYSABRI production, which is now being capitalized into inventory, rather than expensed as in prior quarters.

Also note that in the balance of 2006, much of the external growth spending is likely to result in charges to R&D spending.

Our first-quarter SG&A was $145 million.

Again, SG&A is also down versus prior quarter and prior year, and this is primarily attributed to the savings from the same strategic restructuring announced in Q3 of last year.

But additionally, significant spending against the launch of TYSABRI has been delayed until we hear back from the regulatory authorities in the U.S. and Europe.

Our Q1 OIE was $19 million.

Now, this includes a $6 million increase versus prior quarter due to our larger cash balance on the balance sheet and increased yields due to the higher interest rates around the market today.

Our Q1 tax rate on the non-GAAP P&L was 32.5%, pretty much in line with what we've always indicated.

Now of course, the Q1 GAAP tax rate is higher at 37.8% before the cumulative impact of accounting charges.

Our Q1 diluted shares outstanding for the EPS calculation were 345.8 million shares, and this brings us to our Q1 non-GAAP EPS of $0.55 per share.

Before concluding, I would like to touch on a couple of final other financial topics.

For GAAP reporting, we did implement FAS 123(R) in Q1 and this affected us in two areas.

First, stock options were expensed for the first time.

As shown our press release, the FAS 123(R) impact of expensing stock options in our Q1 GAAP P&L was $13 million, as I mentioned earlier, and this was split between R&D, where it was $5 million, and SG&A, where it was $8 million.

Please note in our GAAP P&L we did not adapt FAS 123(R) retrospectively for our prior-year GAAP financials and we do not have any Q1 2006 employee stock option expensive in our GAAP cost of goods sold, although this should begin occurring in the future as the production in Q1 runs through our P&L.

Again, we have adjusted this stock option non-cash charge from our non-GAAP P&L.

The second impact of FAS 123(R) is that our accounting methodology for restricted stock has changed.

This involves a minor adjustment to the methodology, basically incorporating an estimated forfeiture rate on outstanding grants.

We do record a cumulative catch-up for this change in accounting principle and reflect this as a new line item on our P&L.

This was a $3.8 million credit to the P&L after-tax and is a onetime event.

Accordingly, we have adjusted this event from our non-GAAP P&L.

Now I would like to turn 2006 guidance.

Let me just again reiterate that our P&L outlook for 2006 has not changed since the third quarter of 2005, when we announced the expected financial guidance to be in the range of $1.95 to $2.10 non-GAAP EPS.

Now, we recognize that our Q1 performance of $0.55 per share is quite strong versus this full-year expectation.

However, we want to remind everyone that our designated $200 million for external growth in 2006 was only partially tapped for some PDL development in Q1.

We still intend to utilize this planned resource, and hence, we expect our full-year results to remain within guidance.

Regarding the impact of stock option expensing on our GAAP P&L, we now estimate that the stock option expensing impact for 2006 will be in the range of $0.08 to $0.12, and these charges will be distributed across R&D, cost of goods sold, and SG&A.

Our capital spending estimate for 2006 remains in the range of $190 million to $275 million.

Just to wrap up in conclusion, Q1 was a very good start to 2006.

The restructuring and strategic initiatives announced last fall are showing operating efficiencies.

Our top line is solid and we await the anticipated relaunch of TYSABRI and the continued growth of RITUXAN in RA.

Top-line growth was a bit softer in Q1, as we saw some lighter channel inventory for AVONEX U.S., but nothing outside the normal range of variability.

We do not see this is any new trend or cause for revised full-year outlooks.

We also are lapping the launch of revenues of TYSABRI in Q1 2005.

Our non-GAAP EPS of $0.55 is strong, but as I said a minute ago, does not yet include any significant charges for business development activities.

And we are working hard on our business development plans, and as a result, we expect to utilize the full $200 million set aside for 2006.

Hence, our full year EPS guidance remains intact.

That is it for the financial review.

Now I would like to hand off to Jim Mullen for his closing comments.

Jim?

Thanks, Peter.

For 2006, we expect continued growth of our core business with the expansion of RITUXAN into RA and approvals of TYSABRI in MS in the U.S. and Europe.

We're going to continue to work closely with the FDA on label and risk map for TYSABRI to make this product available to patients as soon as possible.

Together, these major approvals will provide a platform for Biogen Idec to continue to see partnerships and collaborations that will further our mission.

In addition, we have the resources to develop our promising internal pipeline.

While we focus on achieving these vital milestones, we will continue to maintain our fiscal discipline.

Thank you.

I will now turn the call to Elizabeth to begin the questions and answers.

Thanks, Jim.

Operator, we will be ready to open the lines for Q&A.

And as a reminder, please ask one question and one question only, out of consideration for your colleagues, and re-enter the queue if you have follow-up questions.

Operator, we will take our first question.

(OPERATOR INSTRUCTIONS) Joel Sendek, Lazard Capital Markets.

Thanks.

I'm wondering whether once you get the approval from the FDA, you'll be able to launch TYSABRI immediately, or whether you'll have to implement the risk management plan and then the first patient won't see the drug for a while.

Joel, it's Jim.

Good question.

The answer is in part entwined with exactly how complex the risk management plan becomes.

But we are working in parallel with the discussions with the FDA so that we can have all of the elements of the risk management plan in place as soon as possible.

As you can appreciate, this is more complicated than a typical launch.

It will require us auditing and pre-approving infusion centers, education to physicians and patients, and a fair bit of IT logistics.

So that is likely to take a number of weeks to finalize tests, make sure it is robust before we launch the product.

We are very committed to making sure that this management plan operates smoothly and achieves the intended goals.

Eric Schmidt, Cowen.

Question is for Burt.

You mentioned that enrollment in the open label TYSABRI safety study is going well.

Could you just provide us with the number of patients who would be eligible from the prior two trials and what percent have indicated some interest in joining the current study?

I think -- I don't know the precise answer to any of those questions because the patients actually have to be reevaluated when they come in.

But in general, I would say the vast majority of those patients -- north of -- more than 1000 would be eligible.

And we know that there was great interest in the opportunity to get back on the product.

So enrollment has been going well.

Geoffrey Porges, Sanford Bernstein.

Thanks very much for taking the question.

Related to the TYSABRI risk map, could you explain what is likely to happen when patients are back on TYSABRI and then develop some change in the neurological symptoms?

What, if any, guidance are you going to be able to give physicians, and is it just going to be a sort of reinvestigation of every patient who either has a flare of MS or a change in symptoms?

Well, at the end of the day, risk map or not, doctors take care of patients, and doctors evaluate patients.

And doctors have to make informed decisions about how to manage their patients, whether they're having a potential side effect from an antihypertensive or whether something is going on in the context of being on an immunomodulator.

We are providing guidance as part of the overall risk map to help doctors and patients understand what the risks are, to help doctors understand what groups of patients might have greater than acceptable levels of risk.

And we are providing them with the information as we understand it with respect to the best tools and where to use them to diagnose PML if that is in their differential diagnosis for a given patient.

I just think it is very important for everybody to understand, we are not the doctor, and we are not trying to become the surrogate doctor in the context of the risk map.

We're just trying to ensure that what we know is transferred quickly and comprehensively to patients and physicians.

Steve Harr, Morgan Stanley.

Given the two price increases you took last year, I think 8 and 9% -- I think 9 was in December -- can you just give us an idea where U.S. volume is for AVONEX year-over-year, and then sequentially as well?

Steve, this is Peter.

I will take a cut at that.

You're right, the two price increases were 8% in May of last year and then 9% in December of last year.

The volume trends roughly year-over-year are that the U.S. business is down a little over -- about 10% roughly, I think.

And the market itself actually has slowed down quite a bit as we have gone through the fourth quarter and the first quarter.

I don't -- we could speculate as to what is driving the slowdown in the market, but I think that it could be that, obviously, a lot of patients are aware that TYSABRI is being evaluated and so forth, and we have seen that before.

But we don't have any hard data to support that necessarily.

In general, I think you've seen that with all the players in the market, since the MS market in the U.S. has slowed a bit as we've gone through the second half of last year and certainly the first quarter of this year.

Mark Schoenenbaum, Bear Stearns.

Can you help us -- can you remind us basically where was TYSABRI's price when you launched it and are you planning on raising that price?

Where exactly is the average price per patient per year now for AVONEX?

And the question I'm getting at is how are you thinking about cannibalization now?

Let me take crack at it and some of the different points.

First of all, related to TYSABRI, we really don't talk about pricing prospectively at all before we reintroduce the product in the U.S. or launch it in Europe, so I can't comment there.

What I could comment on was that when it was launched last year, I can comment on that and I can give you some relative perspective on the pricing, which I think is what you're really going after.

AVONEX on a WAC basis, which I suppose is perhaps the best way to think about it when you think about the cost to the patient per year, is about -- a little over $16,500 per year.

That is the lowest of the four major products that are available in MS.

The others are all a little bit above that, or quite a bit above it in the case of Rebif.

And TYSABRI last year was launched with a WAC of about $23,500, roughly.

Obviously that's about right.

Now going forward, we're not going to comment on the pricing -- what it would be with the reintroduction, nor can we comment on pricing in Europe.

Jason Kantor, RBC Capital Markets.

You mentioned that there was a $10 million negative impact from inventory.

Was there corresponding positive impact in the fourth quarter?

It seems that with the price increase you took, $10 million does not actually reflect the observed shortfall this quarter.

So could you comment on that?

Yes.

So I think there's two parts to that question.

One is we do see the inventory move around in that expected range, as we say, between [125 and 255].

We (indiscernible) it moves around a little bit.

I think it did move up a little bit in Q4; it came back a little bit it Q1.

So yes, it does bounce around a little bit.

And quite frankly, we're talking about fractions of a week.

You're talking about a couple days of inventory.

So it's just a question of how the orders come in, sometimes.

Particularly at year-end and at the end of a quarter, it can be a little lumpy sometimes.

Your second part of your question was does the price increase reflect -- is it reflected in Q1.

So the answer would be partially yes, but probably not the full quarter.

But nonetheless, it is partially in there.

That is the math, though, that works through for the U.S. market.

Bill Tanner, Leerink Swann.

Just curious -- I don't know if this is for Burt or for Jim -- on what is the anticipation of any kind of washout period when TYSABRI returns to the market?

Just trying to get an idea as to the timing postapproval when patients could be dosed.

And perhaps if you could comment as to any washout period there is for the STRATA trial, that would be helpful.

It's Burt.

Obviously, it depends on what drug the patients are on.

In general, for oral immunomodulators, the half-life of these drugs is usually less than one day.

So a week or two, you're certainly washed out unless you happen to have some residual impact that is measurable on one or another bone marrow cell parameter.

For the interferons, I think also rule of thumb is a couple of weeks is about it.

These things can't be precisely predicted.

But that is sort of how we're looking at it.

May-Kin Ho, Goldman Sachs.

A question for Jim.

You mentioned that there are several deals that we might be hearing in the next few weeks in oncology.

Can you talk a little bit about what potential areas, and also whether this would involve acquisitions?

No, I can't, May-Kin.

That would take me into the realm of speculating on deals, so I'm afraid I will have to just wait until they are done and give you the full information then.

Ron Ellis, Prudential.

Can you tell us where we are at with the validation of the TYSABRI high-titer process, and when that's complete, how many patient courses will be available per year?

This is Jim.

The high-titer process has been scaled up, Ron, validated in the facility in North Carolina.

Essentially, we are awaiting the next phase of that development, which requires some clinical studies on pharmacokinetics, pharmacodynamics and immunogenicity for the commercial reintroduction of the product.

So once that starts, we will commence those trials.

And the longest part of that is, of course, the immunogenicity part of trial.

That takes, obviously months and months.

And that process will not be commercially available for probably several years, based where we are.

When that does come online, that essentially triples or quadruples the production capabilities in the plants that we have today.

Alex Hittle, AG Edwards.

I have a question on the run rate of R&D and SG&A.

Is this is a sort of accurate foundation rate for the balance of the year, on which we would then layer the $200 million in partnership, etc., and the TYSABRI relaunch costs?

Is that a good way of thinking about it going forward?

Alex.

This is Peter.

In general, yes.

I think -- obviously we don't give guidance in these areas, partly just because they keep changing as you go along and trials move forward or they don't or whatever.

So I want to caution you that I am not really able to give guidance on these individual line items.

But I think that if we thought about it as Q1 representative of a typical quarter, and are there any unusual things happening in Q1, I think it is a fairly representative quarter of what's going on in the business.

And you hit the point on -- the nail right on the head accurately, which is that -- and you should be thinking about then having some additional external growth charges going through the -- most likely most of it would be in R&D.

Kind of depends on -- as May-Kin asked, it depends on what kind of deal you have, obviously.

But if it was in-licensing or partnering, a lot of those charges would probably be R&D related, so those would be added on to the operating expense.

So yes, I think -- quite frankly, given what we've talked about in the past and so forth relative to our expenses, I think we're pretty much right on track with what we were hoping from the restructuring work last summer.

And I think it has been a very effective process to go through those changes and then keep the pipeline moving forward yet open ourselves up for external growth.

So I think we are on track, as Jim indicated.

Craig Parker, Lehman Brothers.

Obviously, one major change since you gave guidance previously is the timing of the TYSABRI relaunch and also the Registry.

Do you have any kind of assessment about what the costs of administering the Registry will be, and if so, sort of where the flexibility for accommodating those without changing your guidance comes from?

Craig, it's Peter.

Let me take a shot at that.

The change in timeline for TYSABRI in the U.S. in particular, it is probably not that dramatic, quite frankly, in that at the bottom line we hadn't anticipated a lot of impact of TYSABRI this year.

So it is sort of the ramp-up of the launch, costs up by launch costs and so forth, which we've been through all of that before and you're familiar with that.

So the delay does not really necessarily cause a big bottom-line impact, I don't believe.

Europe is really pretty much where we have always indicated on timelines; it's roughly where we'll see hopefully it will come through.

On the registry costs, I really don't think that's going to be a dramatic cost vis-a-vis the kind of operating expenses that we have Companywide.

When you're talking about operating expenses at the level we are at, which on a full-year basis is well over $1 billion, I don't think the registry cost is going to be really the topic.

More likely, it's just -- as Burt has talked about in the past -- we just need to make it operational, very high-quality, make sure that all the systems are well validated and reviewed by the FDA, all the forms are well understood and communicated.

So I think probably it's more of the rollout of that that creates a little cost, but I don't think the ongoing operation of the registry is going to be a dramatic change, vis-a-vis the kind of operating expenses that we have in the Company.

So I don't think that will be impacting our outlook for the year significantly.

Elise Wang, Citigroup.

Just some further clarification on TYSABRI, at least in terms of the regulatory process in Europe.

Can you clarify for us what similarities or differences are there in your discussions with the regulators in Europe versus with the FDA, and should we assume a similar risk map program will be implemented in that region as well?

Also, if there should be any differences in the label from your point of view.

I'll take that, Elise.

We are in these discussions right now and practice patterns and approach toward medical practice in Europe is sometimes different than in the U.S., and particularly so for long-standing, complex chronic diseases like MS.

So I think it is appropriate to anticipate that there will be some differences in the package insert and the SmPC.

Also remember that although there is a central approval process in Europe, the drug is still sold and commercialized country-by-country, and that even from country to country, there are some practice patterns differences.

There is no guidance at the EMEA on risk maps.

And there is not really as simple a way to have a centralized risk map process in Europe as there is in the U.S.

So again, I think the concerns are the same, and it is obvious.

So I think both labels will reflect the views of how a product like this, with the risks and benefits TYSABRI has, should be used appropriately.

And there will be concern about identifying the same risks as quickly and accurately as possible, but there may be subtle differences in how that process is executed.

Gene Mack, HSBC Securities.

I guess for Burt, I was just wondering, assuming you get some positive data from M200 from your ongoing trials, Phase II trials, how quickly do you think you would you be able to ramp up to a pivotal trial and then what other tumor types might you be looking at?

The question was a little hard to hear.

Let me repeat it for folks.

I think it was regarding our oncology portfolio, in particular M200, if we get some positive results, how quickly can we ramp up?

Well, I think that we can move pretty quickly to the next stage of development if we are in possession of compelling clinical data.

There is tremendous need in the world of solid tumors.

The approaches that are directed against vascular integrity are very interesting and exciting to people, compelling.

So I think will be able to move pretty quickly.

We just need to see the data.

Geoffrey Porges, Sanford Bernstein.

Thanks for taking the follow-up.

Could you just address the question of stock option expense and perhaps give us some insight as to why it's excluded from your adjusted pro forma estimates, and will that be the case on an ongoing basis, given that it's certainly going to be recurring?

And then perhaps explain some of the interaction you have had with the syndicated data providers in terms of including or excluding it from consensus, because there's a little bit of confusion out there.

Jeff, I'll take this.

This is Peter.

Basically, the way we think about our non-GAAP P&L is we try to share with shareholders, actually, what we think is the most -- the best basis for looking at the cost of the operations of the Company and the recurring economics.

And basically, it reflects as well how we manage the business internally and set operational goals and then reflect in that what we've set up our operational incentive systems to be against.

And as you are aware, typically the key adjustments that go between GAAP and non-GAAP are items that are particularly unique as a non-GAAP kind of a -- as a non-cash kind of a charge, such as purchase accounting from a merger, which is recurring -- it is just the amortization of intangibles each quarter -- but not really a good cash view of the business necessarily.

And then of course any onetime charges.

As we looked at the stock option expense, we kind of viewed it in a similar manner, that it was not really embedded in a lot of the things that we look as part of the Company.

In the case of Biogen Idec, obviously, we had a mix in our long-term incentive program of restricted stock and stock options.

So I just want to highlight that what we exclude in that adjustment is just the 123(R) factor which expenses stock options.

We have always had and will continue to have the cost of restricted stock in our both GAAP and non-GAAP P&L.

So that is the way we've looked at it and we have adopted it that way and we continue expect continue to do that going forward.

Vis-a-vis the services that are out there tracking this information, I think it is a fair comment, you're saying that everyone's experiencing this for the first time right now, so there is some different views.

What we have found is for the most part there's a certain level of consistency versus the guidance that we have provided on non-GAAP basis, and whether or not that has been included or excluded from the numbers that are loaded, I know that different services provide different things.

Certainly in the biotech sector and the pharma sector, I believe it's been fairly consistent.

But nonetheless, again, this will probably get sorted out over time.

But we appreciate there is some confusion, but I think we have just been trying to be pretty transparent.

I think what you'll always see from us is we will provide our GAAP P&L as always; we will provide the adjustment very clearly in table 3; and then therefore be able to discuss the non-GAAP P&L.

And then embedded in those adjustments, we are always in compliance with Regulation G in providing every detail to help you go from one to the other, and of course embedded in that will be the component that relates to stock option expenses by line item.

I hope that will provide full information that everybody can work with that.

Operator, I think we have time for a couple more questions.

Jason Kantor, RBC Capital Markets.

Thank you for taking my follow-up.

When you say that you're still budgeted for $200 million in licensing expenses, is this something that we should expect to flow through the earnings statement, the full $200 million?

Is that the way you're managing this process?

Or -- there's a lot of ways you could spend money where it wouldn't become part of your P&L.

Yes.

Thank you, Jason.

So that is a -- let me answer your question directly and then expand on it a little bit if I can.

The answer to your direct question is do we expect the $200 million to flow through our P&L?

The answer is yes, we do expect it to go through our P&L.

It could take many different forms.

It could be milestone payments.

It could be new programs that come in-house and incur R&D costs.

It could be upfront payments.

It could be, quite frankly, some small acquisitions.

It could be a bit of dilution, let's say, that would affect the P&L.

But you raised a second point, which is, is it just $200 million you're spending.

Obviously, we also have balance sheet value, and so if we did an acquisition, that would not go through the P&L.

In other words, if went out and bought a company for some amount of money, that would not be running through our P&L.

It would be a transaction.

And we have not included those kind of resources to be applied to external growth in this factor.

All we have said that we're going to do a fairly broad external growth program, and that the P&L integrity would be about $200 million, and it would be obviously in both our GAAP and non-GAAP P&L.

So I think your premise is correct.

I'd just highlight that in Q1, we did not have any really new, significant, big activities in business development.

I did mention that we had some smaller costs running through related to the PDL transactions that we did last summer, and we consider that part of our external growth initiative since it happened kind of at the same time we launched external growth.

But for the most part, the majority of our $200 million that we set aside is not, let's say, spend nor earmarked at this point.

So it is kind of dependent upon activities that are going forward.

I hope that clarified it.

We can take one last question.

Bill Tanner, Leerink Swann.

Thanks for taking the follow-up.

Maybe a question for you, Burt.

I know that I guess Elan is sort of driving the bus on Crohn's, and you mentioned data at DDW.

And I guess a filing for Crohn's in the U.S. mid-year.

I'm wondering how you guys are thinking about the market.

I mean, we have done albeit pretty limited checks in the field and there doesn't seem to be the same level of enthusiasm amongst physicians as certainly there would be for TYSABRI for MS or there was for TYSABRI for Crohn's prior to PML.

All good points.

I think we're taking this one indication at a time.

And right now, our focus here at Biogen Idec is to get completion and a successful launch -- completion of the regulatory process with the FDA and the EMEA, and to operationalize the risk map and ensure its successful launch into MS.

And we will deal with Crohn's down the road.

Thank you, everyone, for joining us today on our first-quarter earnings call.

Operator, you can end the call now.

Thank you.

This concludes today's Biogen Idec conference call.

You may now disconnect.