Biogen Inc (BIIB) 2006 Q3 法說會逐字稿

At this time I would like to welcome everyone to the Biogen Idec third-quarter earnings call. (OPERATOR INSTRUCTIONS).

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

Thank you, Dennis.

Good morning, everyone.

Welcome to Biogen Idec's earnings conference call for the third quarter 2006.

Before we start, I encourage you to go to the investor relations section of our Website, BiogenIdec.com, and print out the press release and accompanying table.

It will make it easier to follow along when Peter Kellogg, our CFO, reviews the financial results and the reconciliations to non-GAAP financial measures discussed today.

We have also introduced this quarter slides on the Website that will follow along the topics on the call today, and we'd appreciate feedback, and let us know if you find it helpful.

I'll 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, including future growth rates, the potential of TYSABRI in MS and RITUXAN in RA, pricing and reimbursement for TYSABRI, and plans for external growth and pipeline growth.

Such statements are risks -- are subject to risks and uncertainties that 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 risk factors section of the Company's quarterly report on Form 10-Q for the fiscal quarter ended June 30, 2006, and other periodic and current 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.

Today on the call I'm joined by Jim Mullen, CEO, Bob Hamm, Senior Vice President, Neurology business unit, Burt Adelman, Executive Vice President of Portfolio Strategy, and Peter Kellogg, CFO and Executive Vice President of Finance.

I'll now turn the call to Jim Mullen.

Thank you, Elizabeth.

Good morning, everyone.

Thank you for joining us.

No doubt you've all read the press release by now, and you can see what we've seen as well; we've had a very strong performance, financial performance from our core business.

Revenues are up 18% and EPS is up strongly, both on a GAAP and non-GAAP basis.

TYSABRI rolled out in Q3 in both the U.S. and Europe.

We are pleased with the performance thus far in that launch.

Bob will go into more detail in a moment after I finish with the introduction.

We expect that as the TYSABRI business gains momentum, we will also see acceleration on the topline.

On the pipeline, we've pushed three programs into late-stage trials.

BG-12, oral compound for Phase III -- in Phase III for MS;

Galiximab, which is an anti-CD80 monoclonal antibody for non-Hodgkin's lymphoma; and Lumiliximab, which is an anti-CD23 antibody for chronic lymphocytic leukemia.

Additionally, you've seen a few other deals that we've done during the quarter.

We certainly now have the broadest MS portfolio in the industry from diagnosis to disease resolution.

As we stated a year ago, we were going to be very focused on business development; indeed, we have been very focused on business development.

You'll recall that a year ago we did some restructuring that created operating cost savings that we've reinvested into business development.

Earmarking significant monies for business development has served us well, and we're going to continue with this as part of our model in the future.

We're coming off some good momentum from a number of deals over the past six months, and I'll just tick through them quickly.

The Conforma acquisition in May, which was rapidly integrated into our San Diego facility; great technology and some good products in the HSP90 platform.

The Fumapharm acquisition was absorbed, so this consolidates the entirety of the BG-12 assets.

We in-license from mondoBIOTECH Aviptadil for pulmonary arterial hypertension, so that will start a new specialty therapeutic area for us.

Recently we announced a collaboration with Alnylam to discover and develop RNAi therapeutics for the potential treatment of PML.

Burt will discuss how that fits into a broader strategy.

And lastly, a joint collaboration with UCB to develop and commercialize an oral VLA-4 inhibitor, which is expected to enter Phase II next year.

So we're going to continue to work aggressively on deals.

Strong quarter, good financial performance, good momentum in the business up and down.

I'm going to turn this call over now to Bob Hamm, Head of the Neurology business unit in the U.S. Bob?

Thanks, Jim.

For the TYSABRI launch update, it's important to review that the process was beginning in July, mid-July to be specific, and from there on in Q3 our efforts were focused on training sites and physicians on the TOUCH program.

We've now been transitioning to a more traditional launch, focusing on TYSABRI's labeled efficacy.

It's important to note that three-fourths of the patients are switching from interferons and glatiramer acetate in proportion to their market shares.

Since July rollout in both the EU and U.S., we've been making steady progress towards our goals, and we've dosed more than 2200 patients; more than 1700 in the U.S; more than 550 in the EU on TYSABRI worldwide.

The metrics I will cite today are the same as those provided by our Elan colleagues last Wednesday; i.e. they're not updated for an additional week.

So first, the U.S.

We're transitioning from the first phase of launch to inform physicians of the risk to the second phase to provide fair-balance focusing on TYSABRI's efficacy.

During the next few months -- during the past few months, rather, we have established the infrastructure and capabilities to manage patients by training and authorizing more than 1000 infusion sites on the TOUCH program.

And we are well on track to achieve our year-end goal of 2500 sites.

More than 750 physicians have enrolled patients.

There is a broad interest by physicians, and patients remain impressed by TYSABRI's efficacy.

For example, the reduction in relapses by two-thirds sustained over three years, as demonstrated in the clinical trials.

A number of abstracts (indiscernible) which Burt will review in his remarks describe TYSABRI's efficacy profile.

To date in the U.S., more than 4500 patients in the U.S. have enrolled in the TOUCH program, and of these, more than 1700 patients have been dosed.

We expect the majority of these patients will be dosed by year end.

We are providing this metric, i.e. the total enrolled number of patients in the Q, only for the first few quarters of the launch, because over time it appears that this will become less meaningful as patients rapidly convert to being dosed.

Through the TOUCH program we have insight into some patient dynamics.

Three-quarters of patients are switching from current interferon and glatiramer acetate product in line with the market shares in those products, thus there is no [disportionate] cannibalization; 25% are coming from other therapies and naives and quitters, which points to growth in the market due to TYSABRI.

In terms of the European Union launch, we have dosed more than 550 patients, the vast majority in Germany.

Data on prior treatments in the EU, of course, is not as precise as U.S. data; however, preliminary information indicates that in Germany, the majority (indiscernible) about 70% of patients switching are coming from the high-dose interferons.

Countries that have launched to date are Germany, UK, Ireland, Denmark, Sweden, Netherlands, Austria, Finland and Norway.

And in Germany and Ireland, reimbursement has been established.

We are at various stages of discussion related to reimbursement in these countries, in line with their normal processes and timeliness.

And in the UK, for example, who are in the middle of their new "fast-track" process, we should receive a response from reimbursement approval in mid 2007.

Pharmacoeconomic data is supportive for these filings and discussions.

Launches planned in Q4 include Canada, approved at the end of September, as well as Italy.

In the first half of '07, other EU markets in line with the normal processes, most notably France, will be launching.

Australia -- we recently got approval, and pricing and reimbursement process is under way there.

In terms of the U.S. reimbursement picture, feedback from payors regarding TYSABRI continues to be largely positive.

Payors recognize that TYSABRI is a significant new treatment option for people with MS, and are impressed with the robustness of the TOUCH prescribing program.

Because of the role the TOUCH program plays in facilitating appropriate use of TYSABRI, many payors have used it as a basis for their medical policy and have decided not to put additional prior authorization criteria in place; therefore, payor coverage policies have been favorable and in line with the TYSABRI label.

While TYSABRI coverage has been favorable, we are continuing to work through the normal issues inherent in a new drug launch regarding the consistency of coverage and reimbursement.

Once a payor establishes a policy, it takes time for that policy to be clearly communicated throughout the payor's organization, and therefore, to be implemented in a consistent fashion.

These issues are dissipating as the marketplace gains familiarity with TYSABRI.

In the period immediately post-launch, we had reports of payors having outdated pricing information for TYSABRI loaded in their system from before the product [quote was drawn].

Typically, payor pricing information is updated automatically on a periodic basis from third-party data sources, and now that the Q4 updates have taken place, we expected that most payors will be using the current TYSABRI price as a basis for reimbursement going forward.

As of October 1, TYSABRI is included in the Q4 2006 Medicare Part B drug pricing file at WAC plus 6%.

This means that all Medicare carriers should be reimbursing TYSABRI at WAC plus 6%.

In terms of AVONEX, the market leader for more than -- for almost 10 years in the U.S. and worldwide for several years, AVONEX was approved for use in Japan recently.

AVONEX will be launched in the fourth quarter, representing many years of work and marking our initial venture into direct sales in an Asian market.

AVONEX is the most prescribed MS therapy worldwide and may now be stored at a room temperature in its prefilled formulation for a period of up to seven days (technical difficulty).

The U.S. market share remains relatively stable in the high 30s, and our message for (technical difficulty) based on our portfolio of MS products in the marketplace today is that AVONEX is the product that has launched (indiscernible) efficacy, and folks should (technical difficulty) considering appropriate (indiscernible) to [start to stay] with AVONEX, and TYSABRI may be appropriate for patients seeking more efficacy.

So, Q3 efforts were focused on training sites and physicians on TOUCH, we're now transitioning to a more traditional launch, and three-quarters of patients the are switching from interferons and glatiramer acetate proportionate to market share.

Now I would like to turn it over to Burt.

Thank you, Bob.

Good morning, everyone.

I'll walk you through our pipeline by business unit therapeutic area, beginning with Neurology.

Biogen Idec continues to be the champion of new ideas and important products for the treatment of multiple sclerosis.

Our portfolio consists of two marketed products, AVONEX and TYSABRI, and four products well into development -- the oral products BG-12 and a VLA-4 inhibitor, and the injectable products Daclizumab and RITUXAN.

As Bob has already reminded you, AVONEX remains the most prescribed multiple sclerosis treatment worldwide.

Many of you recognize that ensuring persistence or continued patient adherence with a prescribed drug treatment is always challenging when treating a chronic disease such as multiple sclerosis.

At the recent ECTRIMS meeting, the results of the Global Adherence project were described.

Investigators reported that patients taking AVONEX had significantly higher adherence rates than observed for other approved disease-modifying therapies.

This is an important opportunity to describe again to physicians the value of AVONEX versus other existing therapies for MS.

This study, the largest of its kind, enrolled over 2500 patients at 176 sites across 22 countries.

Also at the September ECTRIMS meeting, new TYSABRI data were presented.

We have now been able to extend our understanding of the profound inhibitory effect of TYSABRI as monotherapy on the annualized relapse rate for over three years.

The population of patients who remained on TYSABRI monotherapy for this period experienced a relapse rate of 0.23 per year.

This is an important observation, as you may recall that the two-year results of the AFFIRM monotherapy study also indicated that the relapse rate in the treated population was 0.23.

That was a 68% reduction relative to placebo over that treatment period.

So, these new results suggest that the effect of TYSABRI on relapse rate is persistent and unchanged for at least three years.

So, patients can anticipate continued excellent effects from TYSABRI treatment over an extended period of time.

Also presented at ECTRIMS were data indicated that TYSABRI significantly reduced the proportion of MS patients with worsening cognitive functions.

These findings support and expand our understanding of the overall therapeutic benefits of TYSABRI, which include significant impact on relapse rate, disability progression and MRI measurement.

I'd like to say a few words about our collaboration with Alnylam.

This effort is part of a broad range of activities that we and our colleagues at Elan are pursuing to attack the PML challenge.

We are working to better understand the virus, improve diagnostic strategies, identify patients at enhanced risk, and develop effective therapies.

The Alnylam collaboration will focus on the potential use of RNAi technology to develop a drug that will inhibit J2 virus replication.

Now, we're just getting started, so I have no data to share with you at this time.

But we're excited about this collaboration and are hopeful.

Now let me say a bit about our plans to handle TYSABRI-related safety information and safety updates.

As we have stated previously, we anticipate hearing considerable rumors regarding TYSABRI, including rumors or reports of suspected cases of PML.

We know this will happen because it was our experience during last year's safety review.

We will not be commenting on rumors.

TYSABRI is approved as monotherapy, and PML is in the label and is an anticipated risk, and we trained patients and physicians about this risk through the TOUCH program.

It is critical that we communicate fact-based information to regulatory agencies and to the multiple sclerosis community.

We will make periodic updates to the MS community using various channels, including, for example, presentations at major medical meetings.

If there are indications that the risk profile of TYSABRI has changed, we will discuss these findings with the regulatory authorities worldwide immediately, as we would with any other product.

Throughout the development of TYSABRI, and all other products, our actions consistently demonstrate our commitment to patients and our ability to react quickly to safety signals.

Now, continuing my discussion about our Neurology SBU product pipeline.

The oral VLA-4 agent -- as we recently announced, we're excited to be collaborating with our friends at UCB on this opportunity.

Together we will develop the compound, which is currently called CDP323, an orally-active small molecule alpha 4 integrin inhibitor.

Initial development will be in MS, and we are considering other autoimmune disease indications.

At ECTRIMS, initial safety, tolerability and pharmacokinetic data were described for CDP323.

We plan to file an IND in the first half of 2007 and start Phase II trials in MS sometime thereafter.

RITUXAN.

B-cell directed immunomodulatory strategies continue to impress us with new results.

And you know, we and our colleagues at Genentech announced that a Phase II study in relapsing-remitting MS met its primary endpoint, a significant reduction in the number of gadolinium-enhancing lesions over time.

More data from this study will be presented in an upcoming medical meeting during 2007, and we and our partners are evaluating these data and developing plans to move forward with RITUXAN in this indication.

Finally, BG-12.

In light of our successful Phase II program, Phase III trials are being designed and finalized, and we expect enrollment early next year.

We plan to conduct two global studies testing two doses.

Each study will be large and include over 1000 patients.

The primary endpoint will be relapse rate at two years.

Actually, I left one out -- Daclizumab.

Just to remind you, this is an antibody that blocks the IL-2 receptor and is already a proven immunomodulatory.

We have partnered with PDL to develop DAC in multiple sclerosis.

Currently the partners are completing a combination trial with beta interferon, and we anticipate results from that study will be available midyear in 2007, and we are planning to start a monotherapy study in relapsing-remitting MS.

Now moving on to our autoimmune therapeutic area.

Just a couple of brief updates here.

RITUXAN in RA.

The RITUXAN RA launch is meeting our expectations.

So far we believe approximately 10,000 patients have been treated with RITUXAN for this indication.

About 70% of use is coming after patients have had an inadequate response to two or more anti-TNF therapies.

Recent market research indicates that more than 80% of patients intend to retreat -- 80% of physicians, rather, intend to retreat with RITUXAN if necessary.

Now, I believe that there will be a number of interesting presentations at the upcoming ACR meeting on RITUXAN, so we'll continue to expand our understanding of its use and effects in RA.

TYSABRI in Crohn's disease.

Our partners at Elan will continue to manage the regulatory process for TYSABRI in this indication and are moving along with that.

Now, recently we concluded a deal with mondoBIOTECH for a product, VIP, in the cardiovascular area.

That product is called Aviptadil and it's being developed in pulmonary arterial hypertension.

An open-label Phase II study designed to evaluate the efficacy and safety of inhaled Aviptadil in patients with PAH did achieve its primary endpoint, showing improvement in physical exercise as measured by an increase in walking distance with three or six months of treatment, and no significant adverse events were observed here.

We are continuing to expand the studies necessary to better understand the efficacy and safety profile of Aviptadil, and are finalizing development plans to begin trials in 2007.

So stay tuned; we're very excited about this opportunity, and we'll tell you more as the program enrolls.

Moving to oncology, back to RITUXAN.

At the end of September, after priority review, the FDA approved two new indications for RITUXAN in non-Hodgkin's lymphoma, the first ones for first-line treatment of previously untreated patients with follicular non-Hodgkin's lymphoma in combination with cytoxan, vincristine and prednisone therapy.

That's the historic standard therapy for initial treatment.

And the second indication was treatment of low-grade NHL patients with stable disease, or those who achieved a partial or complete response following first-line treatment with CVP chemotherapy.

Under this indication, patients can receive repeated doses of RITUXAN following initial induction therapy.

And finally, in oncology, as Jim has already mentioned, regarding Galiximab in NHL and Lumiliximab in PLL, for both of these products we are planning to initiate large well-controlled trials that could support registration if successful.

With respect to our earlier programs, such as the antiangiogenesis product partnered with PDL and the HSP90 program that we acquired through the purchase of Conforma, we are working diligently to initiate early proof of concept studies, so stay tuned as more information is available.

So in summary, I think we made tremendous progress with our pipeline.

We've been using our BD and venture groups to expand our therapeutic area.

Our entry into primary pulmonary hypertension is an example of that success, and we hope to continue to expand the pipeline and to move our products forward.

Now I will hand the call over to Peter Kellogg.

Thank you, Burt.

The GAAP financials are provided in table 1 and 2 of the earnings release.

Let me also point out that we provide table 3 of our earnings release as a reconciliation of the GAAP to non-GAAP financial results.

Because we recognize the importance of earnings computed in accordance with GAAP and in accordance with Regulation G, I'd like to point out that on table 3 of 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 the operating non-GAAP in Q3 were --

First, we adjusted the purchase accounting charges.

There were $60 million of charges for the amortization of intangibles from the Biogen and Idec merger and the Fumapharm acquisition.

There was also $3 million fair value step-up of inventory acquired from the former Biogen and Fumapharm.

Secondly, we adjusted the pre-tax impact of the share-based expense in accordance with FAS 123R, primarily employee stock options of $13 million, which is spread across R&D and SG&A, and represents a $0.03 per share impact on EPS this quarter.

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 table 3.

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

In Q3 we recorded GAAP earnings of $0.45 per share, based on 345 million shares outstanding.

After the adjustments shown in table 3, our non-GAAP earnings per share was $0.60 per share, an increase of 67% versus Q3 2005.

Now let's move through the third-quarter P&L results.

In the third quarter our total revenue was $703 million, an 18% growth over the same period last year.

The main drivers of revenue results were AVONEX sales and our portion of RITUXAN revenues recognized in revenue from unconsolidated joint ventures, which I will address in more detail.

As you will see, the underlying business trends are solid and, we believe, are poised for additional expansion.

Going through our product revenues, starting with AVONEX, the number-one MS product worldwide, in the third quarter our worldwide product sales for AVONEX were $445 million, a 19% increase over prior year.

In the U.S., our Q3 product sales for AVONEX were $268 million, up 14% versus prior year.

Now, AVONEX enjoyed a very solid quarter.

Note that our Q3 result builds off a pretty strong Q2 for AVONEX as well.

Our Q3 patient demand was fairly consistent.

We had a little bit of wholesaler inventory levels build in Q3, but it ended up very close to our target.

The Q3 result also benefits from the ongoing impact of price changes during Q2.

So, we are pleased with this result, since much of our organization was focused on the TYSABRI rollout that Bob mentioned and talked about earlier.

On the international front, our Q3 AVONEX product sales were $177 million, up 26% year-over-year.

AVONEX's Q3 sales in local currency was 22%.

The corresponding ForEx impact in Q3 was roughly positive $6 million, or a 4 point benefit to growth.

Net net, our international performance remains quite strong.

We continue to gain market share internationally in our direct market, and are growing slightly faster than the total MS market.

In Q3 we saw AVONEX patient growth of 10% year-over-year, slightly higher than the total patient market growth.

Moving to ZEVALIN, our Q3 product sales were $4 million.

Now, we are currently evaluating our strategic options for ZEVALIN, including partnering or possible divestiture.

TYSABRI Q3 revenues on a worldwide basis were $19 million.

Now, the end-user or end-market TYSABRI sales were $8.1 million, including 5.4 million in the U.S. and 2.7 million internationally.

Now let's discuss how this activity is booked on Biogen Idec's P&L.

As you'll recall, Biogen Idec records as revenue -- first, all of the international revenue, and second, sales from U.S. shipments of finished products to Elan on a sellthrough basis.

Our Q3 TYSABRI revenue from current-quarter sales activity was $5 million.

Additionally, Biogen Idec's Q3 TYSABRI revenues included 14 million of previously deferred revenue related to the initial TYSABRI launch in the U.S. in Q4 of 2004.

This represents product sold by us to Elan at the time, but not yet shipped to customers by Elan at the time of withdrawal in February 2005.

The revenue was deferred until the product's ultimate disposition was determined, (indiscernible) either it was shipped to customers or destroyed, in accordance with the Company's revenue recognition policy.

We recognized this revenue during Q3 2006, coincident with the product's expiration and destruction by Elan -- or, in other words, as the ultimate disposition of the product was determined during the period.

We also recognized a corresponding $1.6 million of deferred cost of goods sold.

Finally, we continued to produce TYSABRI during Q3 and build inventory.

We are comfortable with our ability to supply TYSABRI to meet demand.

Our royalties in Q3 were $22 million.

Our RITUXAN collaboration revenues come next, and that's titled Revenue from Unconsolidated Joint Business.

And this was $204 million, an increase of 12% year-over-year.

Now, as we always discuss, this number has several elements.

First, we receive our share of U.S.

RITUXAN profit.

U.S.

RITUXAN sales, as reported by Genentech, were $509 million in the third quarter, up 12% year-over-year.

And our Q3 profit share from that business was $139 million, up 7% versus prior year.

Secondly, we receive royalty revenue on sales of rituximab outside the U.S.

And in Q3 this was $51 million, up 23% versus prior year.

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

This was $14 million in Q3, reflecting our key role in commercialization of RITUXAN in RA.

Now turning to the expense lines of the P&L.

Our Q3 non-GAAP cost of goods sold was $64 million, and the corresponding GAAP cost of goods sold was 67.

As a percentage of revenues, cost of goods sold was a bit lower than usual due to fewer write-offs this quarter.

Moving to R&D, our third-quarter non-GAAP R&D was $206 million;

GAAP R&D that corresponds to that was 211.

We remain committed to developing our pipeline through business development transactions.

Our recent agreements with mondoBIOTECH, UCB and Alnylam all have provided upfront payments, which are included in this R&D charge, as well as the ongoing cost of our PDL collaboration.

The three upfront payments for these three transactions totaled $43 million in Q3.

Note that our Q3 R&D spending is roughly flat with prior year.

We had a somewhat similar $50 million upfront fee to start the PDL collaboration in Q3 of 2005, so we have roughly similar charges this year in the Q3 as we did last year.

Year-to-date in 2006 we have spent less than half of the allocated $200 million for business development.

Turning to SG&A, our Q3 non-GAAP SG&A was $161 million, and the corresponding GAAP SG&A was 168.

SG&A is up slightly versus prior year and nearly flat versus prior quarter.

Our year-over-year increase is primarily driven by our support of the growing core business and the TYSABRI commercial buildout that Bob mentioned earlier.

But it is slightly offset by the savings of no longer having an AMEVIVE sales force, which we did last year.

In the third quarter, OIE was $22 million, and our Q3 tax rate on the non-GAAP P&L is 30%, and the corresponding GAAP tax rate is 29.

Q3 diluted shares outstanding for the non-GAAP EPS calculation were 345 million shares, and this brings us to our Q3 non-GAAP EPS of $0.60 per share, a 67% increase over prior year.

Now, during the third quarter, we did repurchase 7.5 million shares at a total cost of $320 million, and offset the dilutive effect of option exercises in restricted stock grants.

In October of 2006, Biogen Idec's Board of Directors authorized the repurchase of up to 20 million shares of its common [share] stock.

The share buyback will be largely funded through operating cash flow and is expected to be accretive to EPS.

So in summary, Q3 was a solid quarter.

Our topline was strong, and we also anticipate a strong fourth quarter, driven by the relaunch of TYSABRI and the continued growth of RITUXAN in RA.

The topline growth, combined with ongoing expense discipline, leads to non-GAAP EPS of $0.60 that I mentioned.

And finally, we continue to execute on in-licensing opportunities, building momentum and external growth.

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

Jim?

Thanks, Peter.

As you've heard described, we had very strong performance from the core business.

The TYSABRI launch is proceeding well, and that should accelerate the topline growth.

We've made important advancements of products in the pipeline, we've got good momentum on business development activity, and we've maintained financial discipline throughout.

Based on the strength of the underlying core business, we are increasing our full-year guidance to $2.20 or above, assuming a similar level of business development activity in Q4 as we've experienced in Q3.

With that, I'm going to turn this back to Elizabeth Woo and open it up for questions and answers.

Thanks, Jim.

Operator, we are ready to begin the Q&A session.

And I would just remind participants that we would appreciate it if you could ask one question so we can get in as many colleagues as possible, and return to the queue for any follow.

Operator, we are ready to take our first question.

(OPERATOR INSTRUCTIONS).

Eric Schmidt, Cowen & Co.

Congratulations on the nice quarter.

I was hoping someone could address the potential liability concerns around TYSABRI.

One thing that we are hearing about physicians is that they're somewhat concerned that, should there be any adverse reactions to the drug, they might be on the hook.

As a physician who has certainly prescribed many complex drugs, the information is in the package insert, and it's your responsibility to explain the risks and benefits to a patient.

If you don't believe that they understand the risks and benefits, then you really shouldn't be prescribing the product.

The TOUCH program is intended to help ensure that patients and physicians, and third-party payors, understand the proper use conditions for the product.

I think that's the only comment that we can really make about that.

Joel Sendek, Lazard Capital Markets.

You mentioned 2200 patients on TYSABRI as of last week or so.

I'm wondering what the number was as of the end of September that corresponds with the reported sales number in each region.

Thanks.

We have given you the same numbers that Elan did in their call last Wednesday, and we don't really intend to update that on a week-by-week basis.

So, the next time you're likely to get detailed numbers from us is during the next quarter call.

I guess the reason I'm asking is just to get a sense of the momentum over the last month or so, more than the actual numbers, I guess.

You'll have to arrive at your own conclusions.

We launched in July.

We spent most of July and August training in the U.S., and for that matter, outside the U.S. markets.

And so, you've got 45 days, maybe, of real selling that's occurred in the third quarter.

Steve Harr, Morgan Stanley.

I was hoping you guys could give us a little bit of granularity on what you've seen on conversion from the TOUCH program to date, or how many patients are being deemed ineligible.

And then also, what the copay payments are (technical difficulty) switch on the drug.

What I described in the payor world is evolving, of course.

But what we're seeing is a great acceptability of the TOUCH program as a means to ensure appropriate patients are getting on drug, and that is primarily the vehicle being used.

And that's why I mentioned that patients in the queue we believe over time will be almost irrelevant, given how fast these patients are going to be moving through once we get some of these early-stage launch issues squared away, which is proceeding nicely, in our view.

(multiple speakers) losing patients?

Is that -- basically there are patients who are being deemed inappropriate for therapy that are in the TOUCH -- that are in the enrollment process?

In terms of the enrollment form, it requires the physician to attest to the fact that the patient has a relapsing form of MS, which of course is the label indication.

If we're receiving our own (indiscernible) that indicates otherwise, the patient will not be enrolled.

Operator, we'll take the next question.

On the copay issue, we're seeing it consistent with other products in the space, and we have heard nothing out of the ordinary there at this point in time.

Geoff Meacham, J.P. Morgan.

A couple questions on TOUCH.

Of the centers enrolled, can you give us a better sense for the average length of time from when a site has been activated to where the first patient is dosed in that center?

And then, I guess another part of that would be how long it would take for reimbursement to be secured as of today versus your previous expectation.

Obviously, it's a big spectrum.

What we are seeing, though, is that for the most part the payors, the vast majority of payors, are not imposing additional conditions.

And there's only a small number of payors, which we think represent about 5% of covered lives, that are trying to impose additional restrictions or have not come up with a policy yet.

So, it appears to be a fairly minor issue at this point.

David Witzke, Banc of America Securities.

Just some color on, I guess, a couple of potential TYSABRI bottlenecks.

First, are you seeing significant washout periods for patients switching that is impacting start date?

And then second, I guess, how conservative has the interpretation of the patient pre-infusion questionnaire been -- I guess meaning, do you have enough data to show whether normal MS symptoms are being interpreted as PML risk, and maybe patients are skipping their second or third dose?

We expected some confusion given the complexity of the TOUCH program to start.

It really has not materialized to date.

I think the physicians and their staffs are working very well with the infusion centers to get ahead of an incident occurring when a patient thrives and shows (indiscernible).

Some are performing the questionnaire hours before, or seeing the patients on a more regular basis if the infusion is happening in the center.

So, we're really not seeing that sort of issue arise at this point in time.

And then regarding washout periods?

In terms of the washout, one thing to keep in mind is that the quitters we identified that are coming back -- a quitter is identified as someone who has been off therapy for at least six months.

So, other than that group, which we identified, what we collect data on is the products the patient is currently on.

And we're not collecting specific data on washout or physician's judgment in that regard.

Operator, let me just remind participants to ask one question and return to the queue for follow-up please.

Michael Aberman, Credit Suisse.

Can you give us some additional color on the queue?

Is there anything about the first physician group in TOUCH to suggest they might prescribe more?

Or would you anticipate, let's say, the other next thousand patients to also get around 4500 patients in the queue or on drug?

What's, I think, interesting to note is that the vast majority, or let's say 70, 80% of the physicians enrolling, were physicians that were prescribing TYSABRI at the first launch.

So, in addition to that group, we're getting a new group as well.

And as you might expect, it's all over the spectrum in terms of big centers, small community hospitals and whatnot.

So it's really too early to tell.

But in other words, of the first thousand docs you've targeted, have those already been the prior prescribers, or are some prior prescribers in the next thousand [patient] docs?

It's a mixture.

I mean, we have a group that prescribed originally that have returned.

We have some new physicians that had not previously prescribe TYSABRI in the first launch that have enrolled patients.

So, it varies.

Mark Schoenebaum, Bear Stearns.

My TYSABRI questions have been answered, so I'm actually going to, if you don't mind, maybe ask a different question.

On the Phase III RITUXAN Lupus program, our understanding is the Phase III program is fully enrolled.

Any chance you could see data this year?

Actually, I don't know the answer to that question.

So, we'll have to -- we'll find out for the future.

Ian Somaiya, Thomas Weisel Partners.

A question related to the European patient numbers that you reported, the 500 to 600.

Was just hoping to get the background of these patients, [if any of] these patients had experience with TYSABRI in the past.

And the overall thought or question there is how sustainable is that adoption rate in Germany, and should we expect similar uptake in other European countries?

As I mentioned, the European information, obviously, is not as robust, due to the TOUCH program we have in the U.S.

What we have seen, as I report, is that in Germany at least, where we do have a little bit of research and data, 70% of the patients are coming off of high-dose interferons.

And of course, in Europe, they did not have a previous launch experience.

So, the fact that some of these patients could have been enrolled in clinical trials and whatnot is something we're not -- we don't have a handle on at this point in time.

What about just the other European countries?

Again, the European countries are just getting underway.

Most of the patients enrolled today are in Germany, and it takes some time to sort out their approach to prescribing.

May-Kin Ho, Goldman Sachs.

I just want to get some clarification on the two sets of numbers in terms of TYSABRI.

So, in the U.S., end-user sales is about 5 million.

And there was $14 million reported this quarter --

I think your Blackberry is affecting the phone.

Let me pick this up; sorry.

I'm trying to look at the two sets of numbers between end-user sales and the TYSABRI revenues.

So, for end users in the U.S. it's about 5 million. 14 million were recorded that's tied to the sales by Elan.

This was, I guess, you said shipped in 2005 -- right?

So, can I interpret that in the "channel" that Elan has, there is more than $20 million of end-user sales left?

Let me start over and walk you through that if I can.

So, the end-market sales in the quarter you quoted correctly; it was 5.4 in the U.S., and 2.7 internationally.

From that activity, we were able to record $5 million of sales.

So, what we do is we book all of the international revenue, and then related to the 5.4, we book the revenue from the product that was shipped to Elan and now has been sold through.

Now separately, and completely distinct from all of that, we also booked and recognized $14 million of revenue that had previously been on our balance sheet that was called deferred revenue.

And that relates back to the original launch in late '04 and early '05.

And that was product that was sold to Elan but remained in Elan's inventory since the suspension.

Now, at this point, our revenue recognition policy says that we only recognize revenue on those sales when they're sold through by Elan or disposed of.

But most importantly, it's when the ultimate disposition of the product has been determined.

So, that product was in Elan's inventory since the suspension.

Now, there is a shelf life on that product, it did become expired and, therefore, was destroyed by Elan during Q3.

So therefore, the ultimate disposition of that product was determined during Q3 2006.

So, because the ultimate disposition has now been determined, we are able to book the $14 million deferred revenue in this quarter.

So, that's sort of a unique event that happened this quarter.

Hopefully that clears it up.

So, what I would kind of highlight everyone to focus on is the end-market sales of TYSABRI, which gives you a sense of how it's expanded, and then the revenue that we booked from that activity, which is about $5 million.

And then the $14 million just is a cleanup from the original launch.

So, it does not mean that if Elan sells more, they don't have to get more from you?

No.

Actually, what I would interpret that to mean is that TYSABRI's inventory is the normal level that we would have expected, and that as they sell more, they will be ordering more from us.

I think the supply chain is quite normal from (multiple speakers).

There's no uniqueness going on there; it's just -- this is product that was old and was from the initial launch, and now the ultimate disposition of it has now been determined.

Adam Walsh, Jefferies.

Based on the recent uptick on both the biotech M&A front, as well as the number and size of deals with large pharma, I'm curious to know, as you continue to push forward on the business development front, what are you seeing in terms of competition for new products, deal pricing?

And is competition causing you to adjust your expectations for deal-related ROI?

Thanks.

I'll try to tackle that.

Obviously, the business development front has heated up over the last few years.

The competition for late-stage assets is quite intense.

And we see big biotech, big pharma and small biotech all in the marketplace.

And we typically see them on some of the I'd say more obvious deals that we've done or have been done.

So, I think that is driving up the pricing and the valuations in certain sectors; oncology I would point to as one of those sectors.

Strategically, what we will do is focus where we think there is good value.

In terms of what does it mean for ROI, because most of these deals relate to one product, or sometimes two, it's really a binary outcome.

So, we like to look at it as what kind of step-up in valuation can we get for our shareholders if we buy in a product or license in a product and it's successful?

And then we also look at the downside around that.

Geoffrey Porges, Sanford Bernstein.

Could you just clarify your comments about the U.S.

AVONEX inventory, the number of days difference Q3 to Q4, and then what effect price contributed?

If we netted it out, what would see the underlying volume trend at the patient level?

Thanks.

It was actually very minor this quarter.

It was a slight build.

So, we saw really only a day or two of increased inventory.

So, we ended up at two weeks dead-on, which is what our target is.

So, that's a very minor change.

I would say that if there was any fluctuation in inventory, it was certainly in the 4, 5, $6 million range; it wasn't major.

So, I think that a lot of the increase that you see in the AVONEX product sales is not related to that inventory; it's much more related to the revenue generated by the flow-through.

Of the end-user revenue then, how much were actually translated into price versus actual patient volume?

The price -- we've had two price increases in the last year, as you may be aware.

So, there was a price increase back in May, and then there was another price increase in December of the prior year.

Both of those were in the range of 9%.

So, a good portion of the increase was in the price level of AVONEX.

Bill Tanner, Leerink Swann.

Peter, just -- I know that you guys have talked in general about annual TYSABRI-related expenses around 300 million, and I guess there really hasn't really been much of a breakout in terms of what is R&D and what is G&A associated.

I don't know if you're willing to do that.

But how should we kind of think about that in the out years, as perhaps you're beginning to wind down some of the R&D activities?

Do you see that as kind of being a steady number, or perhaps declining?

First, you're right; we haven't really broken all that out.

But obviously, in the recent years there was a hefty amount of R&D activity.

But obviously, during the suspension period we didn't have as much R&D, so a lot of it was the commercial buildout.

And I think that it kind of depends on where TYSABRI goes over time.

Right now it's launched in MS and we have a significant effort for the launch of MS.

We are in the process, as we mentioned, of preparing to file for Crohn's.

And that's something that Elan is heading up and running for us.

So, I think that the way I would think about TYSABRI is that it is true; we have a blend of R&D and commercial spending.

We don't tend to break that out.

But that over time, if you look forward, it really is kind of a function of where we take the product.

The commercial expenses stabilize very quickly, quite frankly.

The fact that we're launching it in MS worldwide -- obviously, we're putting a very strong effort against the education of the TOUCH system and the risk (indiscernible) process in the U.S., and a similar rollout effort is going on internationally, as Bob talked through.

And obviously, that's a fairly significant expenditure level and investment on the commercial side.

But that stabilizes quite quickly.

That doesn't become -- a little bit of a [bolus] there, I would say.

And then secondly, on the clinical side, a lot of it just depends on whether additional trials determine [what we want].

Obviously, we have ongoing safety trials and so forth that we maintain, so we obviously monitor all the patient that have been on drug.

But I wouldn't -- I guess the way I would think about it is I would see it as more of a steady investment level for TYSABRI.

We haven't really -- I couldn't give you a real answer exactly where it goes, because it kind of depends on where we take the drug.

I think the commercial level stabilizes reasonably well; the R&D activity kind of depends on where we go.

Obviously, I think most people's expectation for TYSABRI, [the revenues, kind of] becomes a real question on how profitable and how (indiscernible) the program is.

And as Bob mentioned, we're seeing how it goes.

But it looks okay as we launch.

So then the contemplation kind of would be that were R&D not really to diminish in the out years, it would be because there is the perception that PML may not be that much of a risk, and you see broader opportunities commercially speaking?

I think that's fair.

I can't really speak to it yet because I don't think all those answers have been determined.

That's why I probably sound a little hesitant in giving you a firm answer on that.

I think we're really trying to look -- let's launch in MS as chapter one, and really get focused on that.

That's kind of where we are.

Then beyond that, let's prepare the filing for Crohn's and move forward into that.

That will be kind of the activity you'll see more of next year.

Beyond that I would hate to speculate at this point.

We're actually kind of -- it's out beyond where we've actually determined (multiple speakers) that's the way to think about it.

Al Rauch, A.G. Edwards.

I have a question for Burt on the anti-CD80 therapy.

I'm assuming that this is a product that can lysis a certain subset of B-cells.

Does this lysis -- is that independent of complement binding?

Because I think the infusion reactions you see with RITUXAN are largely related to complement binding.

I was wondering if you got rid of that activity.

So far we don't have -- good question.

I don't think we have a complete understanding of the mechanism of action of CD80 when it binds to its target protein on the surface of B-cells.

But, you know, the data that we have in hand suggests that -- and it's very limited data -- suggests that initial infusion reactions don't seem to be a big problem.

So, if you're asking whether there is going to be -- if your question is sort of getting to the point of whether if you're using two antibodies directed against the surface of B-cells, is there the possibility that we will see an even enhanced risk of infusion reactions, it's a good question.

We certainly haven't treated enough patients to be able to say no, but early experience hasn't given us reason to believe that that's a huge risk.

But we'll know after we treat hundreds of patients.

Any plans on developing it for autoimmune indications?

Not at this time.

Eric Ende, Merrill Lynch.

Two quick questions.

First of all, you had mentioned that you're looking at strategic options for ZEVALIN.

I was wondering if you can share with us what kind of losses you're seeing in that business.

And just very quickly, on the extra 14 million on TYSABRI, were there any costs associated with that, or was that kind of pure accounting profit?

Let me take the second question first.

I mentioned that what we did is we also deferred the cost of goods sold.

And so it was about $1.6 million of cost of goods sold.

So, that's the cost that related to the $14 million of revenue.

The rest of it was gross margin.

On the question of ZEVALIN, we really don't break out the P&L.

I think that your question is when you total up all the activity on ZEVALIN, net net, is it a profit (indiscernible).

We don't really total that out.

The ZEVALIN revenue in the fourth -- the third quarter, rather, was about $4 million.

So, that probably isn't enough to really drive us to a profitable position.

I think that's probably the logic we have on speaking about strategic options for us.

But nothing specific?

We don't really break that out usually, on a full product line P&L.

Jason Kantor, RBC.

Can you tell us how long a patient is typically in the queue to get TYSABRI, and is that pretty standard across sites?

How do you know exactly what patients are switching from?

Is that something that you've collected as part of the program, you have really good granularity on that?

The TOUCH program requires the physician to know current therapies to collect that data, so we can have an ongoing understanding of any safety event that may occur, and also insight into the types of patients that are coming in.

In terms of the queue, we reported previously that the reimbursement process could take anywhere from a couple of weeks to ten weeks, depending on the payor and whatnot.

Obviously, as I reported, the vast majority of payors are moving more quickly than that it seems.

So, it's too early to tell how fast this will -- or how much this will accelerate.

But we're certainly pleased by the current state of affairs.

Operator, I think we have time for one or two more questions.

George Farmer, Wachovia.

I was wondering if you had any feel for the impact on the share [voice] your sales force is getting now that they're selling TYSABRI again on total AVONEX sales.

The difference, I think, at this point is the fact that the TOUCH program and TYSABRI rollout has meant that the physicians and patients have a steady discussion about the appropriateness of use, whereas AVONEX, with the long-term safety and the leading product in the market for many years, is seen as a first-line by most physicians.

Elise Wang, Citigroup.

Given what your new guidance is, it is suggested, if we assume 220 at least is the low end, that you potentially could have a down quarter for the fourth quarter.

And so from that perspective, could you give us some further guidance as to what could possibly drive that, where perhaps expenses could be driving that situation?

We don't see any significant changes in the expense run rate.

Of course we are starting a couple of big trials in the fourth quarter.

So again, we are continuing to roll out the international, so we'll see some uptick in expenses as we roll out country by country on the commercial side internationally.

We are launching in Japan AVONEX, so that will drive it up a little bit.

But on the base that we're talking about, I don't see any huge changes in the expense base.

The wild card is always what happens (technical difficulty)

Thank you, everyone, for joining us on today's call.

We'll be in our offices to take questions if you didn't manage to get yours on the call today.

Thank you.

This does conclude the Biogen Idec third-quarter earnings call.

You may now disconnect.