Biogen Inc (BIIB) 2006 Q4 法說會逐字稿

Good morning.

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

At this time, I would like to welcome everyone to the Biogen Idec fourth-quarter and full-year 2006 earnings 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 will now turn the conference over to Ms. Elizabeth Woo, Vice President-Investor Relations.

You may begin your conference.

Good morning, everyone.

Thanks for joining us today.

Welcome to Biogen Idec's earnings conference call for the fourth quarter and year-end 2006.

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

It 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.

We are continuing the practice we introduced during our third-order conference call of posting slides on our Web site and follow the topics on the call today.

I will begin 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 our financial guidance for 2007 and future growth rates, the launch and 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 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 the earnings release and in the risk factors section of the Company's quarterly report on Form 10-Q for the fiscal quarter ended September 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 statement.

On today's call, we have Jim Mullen, CEO of Biogen Idec, Bob Hamm, Senior Vice President of the Neurology business unit, and Peter Kellogg, CFO and Executive Vice President of Finance.

I will now turn the call over to Jim.

Thank you, Elizabeth.

Thank you, everyone, for joining us this morning.

This is the Q4 and the full-year call.

I want to put some context around the financial results and summarize the year that has passed as well as the year head.

We made some nice progress on the core growth.

We saw regulatory approvals for RITUXAN in rheumatoid arthritis in both the U.S. and Europe, and I think the launch has been very successful.

It also demonstrates our ability to rapidly and effectively build a sales and infrastructure in the new specialty therapeutic area.

In addition to that, we saw three new indications for RITUXAN in non-Hodgkin's lymphoma.

As everyone on this call is I'm aware, TYSABRI was reintroduced in the U.S. and approved for the first time in the EU.

I'm particularly proud of the dedicated team effort to bring TYSABRI back and the unwavering belief by that team that the patients deserve and need more efficacious options.

Then finally, AVONEX was introduced in Japan late in the year, and that's part of our strategy to continue to increase our global footprint.

We also had a very strong momentum in the business-development area.

This was easily the most productive year in business development in our history.

This followed the late 2005 restructuring which gave us the flexibility for greater investment in external opportunities to augment our pipeline.

You'll see, in the press release and press releases throughout the year, but I will highlight just the larger of those deals, so the acquisition of Fumapharm, the acquisition of Conforma, which gave us the HSP 90 platform, licensing agreement with mondo Biotech on Aviptadil, a license agreement or a collaboration agreement with UCB on CDP 323, which is an oral--a VLA4 inhibitor, the agreement with Alnylam, which should work on JC virus, and of course the acquisition of Syntonix which takes us into the hemophilia area.

Of course with those--with that and the agreement with mondo Biotech, we will enter into two more specialty areas.

We also made significant pipeline progress in the last 12 months.

I will just emphasize three press releases of fairly recently put out on BG 12 starting Phase III trials in MS, galiximab starting registration trials in non-Hodgkin's lymphoma, and lumiliximab starting registration trials in CLL, so dosing has begun on all three of those.

Perhaps most importantly, we've added talent really throughout the organization.

I will just highlight two people, who I think you are all familiar with, David Parkinson, who is leading up the oncology therapeutic area, so from bench to bedside, he has responsibility for all the R&D programs in oncology;

Cecil Pickett, who came to us and is President of R&D.

I think that significantly strengthens some of the senior leadership in our R&D area.

Cecil will join us on the Q1 call and he will also host an R&D day on May 17, where we will take you all through the pipeline product by product in a great deal more detail.

I think 2005-2006 really demonstrated our ability as a company to navigate the choppy waters and still deliver long-term financial results.

You saw the 11% revenue growth in 2006, a 43% expansion of EPS on a non-GAAP basis, 34% on a GAAP basis, good performance on AVONEX, up 11%, RITUXAN up 14%, and a nice strong launch in rheumatoid arthritis in RITUXAN.

We are on track to achieve our 20% non-GAAP EPS compound annual growth goal for the period 2003 through 2007.

Through the end of 2006, we are at 23% compounded EPS growth and 13% on the revenue side.

Peter will walk you through guidance for 2007 after he discusses the financial results for 2006.

After a couple of choppy years I think, we feel like we're right back on course, TYSABRI back on the market in the U.S., the launch for the first time in Europe.

I think you'll see, from Peter's guidance, we are in good shape to hit our financial goals.

Now, I want to make a couple of comments around TYSABRI before turn the call over to Bob Hamm who will take you into it a bit more detail.

We are, as we turn over the new year, shifting the commercial focus to really begin spending time on the benefits.

To take you back, the first phase of this launch, the first six months were preparing the foundation, educating people on the TOUCH program in the U.S. and discussing the new label and the risk issues, both in the U.S. and Europe.

We have now initiated in full force what we call the Phase II of the launch, which is to emphasize and reinforce the efficacy message and continue to broaden out the use.

Just to remind everybody, we and Elan continue to believe that TYSABRI will eclipse all of the other MS therapies over time.

There's still significant unmet need in this marketplace.

The patients need more efficacy, they want fewer side effects, and they desire less-frequent dosing and TYSABRI's profile is very compelling for all these needs.

As I'm sure you saw in the press release, we are now approaching 10,000 patients on therapy.

Furthermore, we and Elan are looking at new indications for TYSABRI and we will continue to talk about that as the year goes on.

Bob will fill you in on the efforts in TYSABRI and more of the detailed metrics.

I know you are anxious to get to those metrics, but I want to read you excerpts from one letter I received which highlights both the daily struggles of a MS patient and the quality-of-life benefits of TYSABRI.

This letter was written by Dr. Vince Macaluso.

Dr. Macaluso is a treating neurologist he's also and MS patient taking TYSABRI.

I quote and I am excerpting, in the interest of time, but I'm going to read three excerpts.

"TYSABRI has given me my life--many parts of my life back.

It took away my daily headaches, so now I can wholeheartedly look forward to tomorrow.

It has reduced the swelling in my brain so now I can concentrate on what I want to do and not be bothered by the piece of paper that fell on the floor or the garbage truck that just passed while trying to read or write.

I concentrate on the movie or TV show that I've been looking forward to, and then be able to relate what I saw to someone with whom I want to share the happiness."

He goes on in the letter and a little bit further along, he said, "While the battle has not ended, the foe has been greatly disabled.

Here's where the drug goes beyond the patient.

I can play with my kids when they want, not when the disease want to let them.

And now, maybe I can become a more complete father, husband and doctor."

I will turn the call now over to Bob Hamm.

Thank you, Jim.

I think it's important, before we get into the details on the metrics, to talk about what brought us to this point in time.

Through the collaboration with the FDA. we established a TOUCH program embodying a risk map, which was a complex and important tool to appropriately and systematically measure and understand TYSABRI for the long-term.

To that end, it was very important that we systematically and consistently deliver all the information regarding such a program, and so we assembled a small team from Elan and Biogen Idec that would systematically go out to all the major centers and roll out the TOUCH program to insure that consistency.

So as we sit here today, the initial roll out of the TOUCH program has been completed for all the major centers and neurology practices, representing more than 50% of the treated patients in the U.S., which we believe to be a number of about 220,000 or so.

It's important to note that, despite the fact that it's nearly two years or will be two years in two weeks since we voluntarily suspended TYSABRI, the fundamental market conditions have not changed, as Jim related.

Patients are still seeking alternatives to existing products in the marketplace.

They are returning after quitting therapy and creating momentum for TYSABRI, which should continue throughout 2007.

Patients are switching from all approved therapies.

Recent U.S. trends show Copaxone being capitalized to the greatest extent.

As the press release states and Jim related, patients describe TYSABRI as approaching 10,000 patients total.

Almost 1600 international patients are on therapy, nearly 5000 patients on therapy in U.S. with another 3000 patients in the queue.

I also want to add that a global run-rate of a little over 300 patients added per week has been going on, a number we hope of course will increase with the number of countries with reimbursement and the number of physicians prescribing increasing throughout 2007.

So now, I will go into the metrics in a little more detail.

Let's start with international.

Nearly 1600 patients are being treated internationally, Germany representing the majority, 75% or so of patients being treated.

In Germany, net new patients have risen more than 30% per week since January 1.

The TYSABRI international launch began in July of 2006 in Germany and in Ireland.

The launch was initiated in nine international countries as of year-end 2006.

Full reimbursement in countries will likely roll out throughout the 2007 and into the 2008 time frame.

Italy and Canada officially launched in January.

Luxembourg and France are the next countries the launch.

In all, 15 EU countries will be launched by the end of the year.

This should provide significant breadth and use of TYSABRI that should grow throughout 2007 and into 2008.

Another way to look at the international picture is to state, as of today, we're currently able to access about half of the relapse-remaining population in the EU, Canada and Australia.

So of course, that number will grow as the other countries come up.

Turing to the U.S., as I mentioned, we have transitioned from the first phase of the launch, which was a systematic roll out of the TOUCH program to ensure that physicians and patients were well-informed about TYSABRI and (indiscernible) to inform conversations and make informed decisions about TYSABRI, and by and large, this has been very well received and very well executed.

So now we are in the second phase of the launch, providing fair balance in discussing the efficacy of the product, represented by two of the largest trials ever conducted in MS and contained in our label.

Specific clinical results--two-third relative reduction relapse rate; 42% reduction in the risk of an increased disability over two years, or results for TYSABRI that help explain why so many people with MS and physicians who treat MS wanted TYSABRI as an option for treatment.

This translates to--the relapse figure translates to an annual relapse rate of 0.23, which implies only one relapse every four or five years.

Another key metric is the MRI review, and there we show that 97% of patients had no gadolinium-enhancing lesions at two years.

With regard to safety, as we've indicated previously, we intend to provide periodic updates at medical meetings and (indiscernible) a poster presentation on safety has been accepted for the American Academy of Neurology meeting which is occurring at the end of April and early May.

Moving onto more U.S. metrics now, over 1300 physicians have already submitted enrollment forms for their patients, representing nearly 8000 patients.

As mentioned, approximately 5000 patients are currently being treated with TYSABRI, and over 700 infusion sites have been infused patients.

Approximately 30% of the patients are returning quitters and naive patients.

The remaining 70% are from existing therapies.

Recent trends have indicated (indiscernible) show more patients moving from glatiramer acetate than other products.

The measured roll out over Q3 and Q4 in the U.S. has produced a launch dynamic where uptick in momentum had to build over several months while the entire roll out of activities was accomplished.

I'd like to add that despite the complexity and burden of the TOUCH program, it has been largely well-received and followed by physicians, people with MS, and other healthcare professionals who support MS treatment across the U.S.

This means, of course, that as we increase the number of prescribers and the breadth of prescribing population momentum in numbers, we will again grow in a corresponding fashion.

It can't be emphasized enough that the underlying market conditions have not fundamentally changed in the past two years.

With more than 400,000 patients being treated today for MS and many thousands who have abandoned treatment for various reasons, there remains a broad interest by physicians and patients who are impressed by TYSABRI's efficacy and convenient dosing regimen.

To emphasize again reduction relapse by two-thirds sustained over two years, as demonstrated in clinical trials, 13 infusions per year versus more than 300 injections per year for some products makes it a very convenient choice for patients.

On the reimbursement front, 95% of private-pay patients have good access to TYSABRI, 40% of private payor patients require no prior usage. 55% of private payor patients require prior use of one agent.

A physician can access TYSABRI in those accounts; they typically need to write a letter of medical necessity, a little more work of course but most payors would not push back is a doctor felt it was important enough to start a patient on TYSABRI.

TYSABRI also has brought access within public payors. 100% Medicare patients have access to TYSABRI per label; 88% of Medicaid patients have access with no prior usage or one prior agent.

Given the importance of TYSABRI in the MS world, it's clear that a number of physicians in different therapeutic areas have interest in TYSABRI's mode of action beyond MS and trying to understand further TYSABRI benefits, specifically the Crohn's regulatory process continues in Europe and the U.S.

These discussions help guide us with agencies for future indications.

You may recall that we filed for Crohn's in the U.S. at the end of last year.

The agency has recently advised us at the filing has been accepted.

In MS, we also plan head-to-head trials and protocols are being developed.

In Japan, we can expect to be dosing in clinical trial early in 2008.

Furthermore, we're working with Elan to explore other indications such as oncology, where a team working with investigators who have expressed interest in pursuing TYSABRI, investigator-sponsored trials that's going on in oncological indications for review.

Turning to AVONEX, AVONEX reached an important milestone in 2006--more than 1 billion in sales in the U.S.

Market leadership continues after more than ten years in the U.S.

With over 1.7 billion in revenue, AVONEX remains the global leader in revenue and patients on therapy.

AVONEX was approved for use in Japan.

So the message remains clear--start with AVONEX, due to its long-term efficacy, and it's more than ten years as the number one product worldwide.

Turning to the MS future, there's--as already has been said by Jim, there's a number of unanswered questions and needs in the marketplace that are not currently being met.

One is the underlying biology and the need to look at more targeted efficacy for patients.

The second is the less-frequent dosing and more convenient dosing which TYSABRI offers and all other injectables; finally, the need for oral compounds and then ultimately products and other approaches that would lead to repair of damage already incurred or restore function in patients.

From diagnosis to disease resolution, we are messing the highest-quality portfolio of compounds to address each of these unmet needs.

So we start with the two approved products, AVONEX, or beta interferon, which modulates the immune system, moving onto TYSABRI, and antibody to alpha-4 integrin.

It blocks immune cells moving from the bloodstream into tissues, including across the blood/brain barrier.

In development, we have half a dozen compounds in various stages of development, which I'd like to touch on briefly.

BG-12, an oral compound which is a more convenient needle-freeway to modulate the immune system--that has just begun Phase III trials.

RITUXAN, an antibody to CD-20, a marker on B-cells, flags mature B-cells for destruction.

Proof of concept data was positive.

Data is being presented at the AAN.

Dacluzimab, an antibody IL-2 receptor thought to block activation of T cells and may have other effects.

In a Phase II combination trial with interferon at the present, we will be looking at the data in the coming months.

CDP 323, another oral small molecule that targets alpha-4 integrin--a validated pathway similar to TYSABRI, it blocks the migration of immune cells from the bloodstream to tissues.

We will be starting Phase II trials later this year.

Finally LINGO, an antibody to LINGO pathway blocking the (indiscernible) LINGO pathway may allow remyelination of axons.

And also Nogo, which is exploring protein therapeutics in the Nogo receptor pathway.

The aim there is to block inhibitory activity of myelin on a regeneration of neurons.

So, to summarize, we have the number one prescribed MS today, AVONEX, which reduces relapses by a third; we have the number one product for efficacy, TYSABRI, which reduces relapses by two-thirds.

Both products also slow the progression of disability.

Finally, we believe we have the best and broadest pipeline of MS compounds for the future.

I will now turn it over two Biogen Idec CFO, Peter Kellogg, to discuss the financials.

Thank you, Bob.

Let me first remind everyone that we provide Table 3 of our earnings release as a reconciliation of the GAAP to non-GAAP financial results.

The GAAP results are provided in Tables 1 and 2.

The main items included from the operating non-GAAP in Q4 were, first, we adjusted for purchase accounting charges.

There was $60 million for the amortization of intangibles from the Biogen and Idec merger as well as a little bit from the Conforma and Fumapharm acquisitions.

Second, there was also a $28 million one-time charge to the P&L as we bought out a license agreement from Fumedica, our FUMADERM distributor.

We anticipate this'll be the last charge related to the consolidation of our Fumapharm business.

Third, we adjusted the pretax impact of share-based expense recorded in accordance with FAS 123R, primarily employee stock options of $8 million.

This is spread across R&D and SG&A and it represents about $0.01 impact on EPS this quarter.

Finally, we adjusted for a $16 million, one-time gain from the sale of an older building in Cambridge which we have long since outgrown.

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 we believe it enhances investors' understanding of the Company's financial performance.

We use these non-GAAP financial measures to establish our own financial goals and to gain understanding of the comparable financial performance of the Company from year to year and quarter to quarter.

We always mention that non-GAAP financials should not be viewed in isolation or as a pure substitute for GAAP.

So, let's summarize how the year wrapped up.

In 2006, we delivered 11% on top line and 43% non-GAAP EPS growth.

Our full-year GAAP earnings were $0.63 per share, and after the adjustments shown on Table 3, our non-GAAP EPS was $2.25, well ahead of our guidance on the last earnings call where we indicated that it would be above "$2.20".

As an important note, in Q4, we wrote down $25 million or $0.05 per share in net impairment charges against our equity investments, primarily recognizing the PDLI and [sonista] stock position at year-end.

Incorporating this $0.05 charge, our Q4 GAAP EPS was $0.32 per share, based on 343 million shares outstanding.

After the adjustments shown in Table 3, our non-GAAP earnings per share for Q4 were $0.53 per share.

Now, let's walk through the fourth-quarter P&L results.

In the fourth quarter, our total revenue was $708 million, a 12% revenue growth over the same period last year.

For the full year 2006, our total revenue was $2.7 billion, an 11% revenue growth over last year.

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

As you can see, the underlying business trends remain solid, and we believe they are well-poised for additional expansion.

Going to our product revenue, let's start with AVONEX, the number one MS product worldwide.

In the fourth quarter, our worldwide AVONEX product sales were $439 million, a 6% increase over prior year.

On a full-year basis for 2006, AVONEX worldwide product sales were 1.7 billion, an 11% increase over prior year.

Now, looking at the U.S. business alone, in the fourth quarter our AVONEX product sales were 261 million.

That's an 8% growth.

On a full-year basis for 2006, our U.S.

AVONEX product sales were a little over $1 billion, so it became a $1 billion business in the U.S. alone.

Congratulations to Bob.

That's a 9% increase, year-over-year.

AVONEX in the U.S. was fairly stable for the quarter.

Our Q4 result was online with Q2 and modestly off from a strong Q3 for AVONEX.

As we've gone through the second half of 2006, our Q4 underlying patient demand has remained flat.

Wholesaler inventory levels in Q4 ended slightly below the prior quarter, modestly reducing sales in Q4.

We did take a 5% price increase in the U.S. in early February this year.

However, even after this increase, AVONEX remains the most affordable ABCR therapy for MS.

On the international front, in the fourth quarter, AVONEX product sales were $178 million, which is a 4% increase over last year.

On a full-year basis for 2006, our international AVONEX sales were $685 million, and that's a 13% increase year-over-year.

So net/net, our AVONEX international performance remains quite strong.

Our fourth-quarter AVONEX sales in local currency were flat, while the full-year sales grew 13% in local currency.

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

In 2006 we saw AVONEX patient growth of just under 10% year-over-year, slightly higher than the total patient market growth.

Now, let's turn to the new product, TYSABRI.

In the fourth quarter, our TYSABRI revenues worldwide were $18 million, and on a full-year basis for 2006, we recorded TYSABRI revenues of $36 million.

As Bob highlighted, we are pleased with the progress of the TYSABRI launch.

I'd just like to kind of layout also what the total end-user or end-market TYSABRI sales were in the fourth quarter.

So, worldwide, they were $30 million, which is built on $23 million in the U.S. and $7 million internationally.

That means, for the full year 2006, our end market TYSABRI sales were 38 million, including $28 million in the U.S. and $10 million internationally.

Now, as we've discussed in the past, Biogen Idec records its revenue, all of the international revenue, and then on the U.S. front we record revenues for sales of our U.S. shipments of finished product Elan on a sell-through basis, and then Elan sells the products onto the market.

The other products on our P&L in the fourth quarter had $7 million of sales.

This includes ZEVALIN sales in the fourth quarter of 4 million and FUMADERM sales of 3 million.

A couple of notes here that are important--first, we are still evaluating ZEVALIN's strategic options, which does include possible divestment; secondly, FUMADERM sales were lower in Q4 than Q3 due to the deferral of $3 million of revenue.

Now, in connection to the buyout of the Fumedica distribution rights that I mentioned earlier, we expect Fumedica to work down their inventory levels until the distribution rights hand-over date, which is May 1 of this year, 2007.

Accordingly, we would not expect to record any revenue for FUMADERM Q1, but we expect to see revenues continue or resume at a full-market rate in Q2 when we take over the business.

Now, for the royalties in the fourth quarter, they were $26 million.

That's a number that's higher than prior quarters.

It's primarily due to Angiomax sales that reached a new royalty rate tier step-up in the fourth quarter and that tiered step-up applies back to the first sale for the year, so we catch-up on that royalty rate in the fourth quarter.

Our RITUXAN collaboration revenues come next.

This is the line item titled "revenues from unconsolidated joint business."

This was $218 million, a 20% increase over prior year in the fourth quarter.

As always, we discuss this number in the several elements that build it up.

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

RITUXAN profits.

U.S.

RITUXAN sales, as reported by Genentech, were $560 million in the fourth quarter, which is a 16% increase over prior year.

Our Q4 profit share from that business was $150 million, up 17% versus the prior year.

Secondly, we received royalty revenue on sales of Rituximab outside the U.S., and in Q4, this was $52 million, up 24% versus prior year.

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

The reimbursement amount was $15 million in Q4, and this reflects our key role in commercializing RITUXAN in RA.

Now, turning to the expense lines for the non-GAAP P&L, our fourth-quarter cost of goods sold were $62 million.

As a percentage of revenues, cost of goods sold in Q4 was a bit lower than prior quarters due to, quite frankly, fewer manufacturing write-offs compared to prior year, very good performance by our manufacturing team, and improved mix as RITUXAN revenue grows.

Our gross margin was above 90% for the full year 2006.

We believe this is the level that will likely be sustained during 2007.

In the fourth quarter, R&D was $197 million, 28% of revenue.

Our underlying R&D expense is steadily increasing as our pipeline grows and advances with programs such as BG-12, galiximab, lumiliximab, LT beta receptor, dacluzimab and HSP-90.

Additionally, we remain committed to developing our pipeline through business development transactions, as demonstrated by completing six deals in less than a year.

In 2006, we have spent approximately half of the $200 million that we allocated for external growth last year.

We do like to remind everybody that, due to the inherently unpredictable timing of business-development activities and the related expense that comes with that, we anticipate that our quarterly results may well be occasionally lumpy as we go through the future quarters, so please don't pay too much attention to that in terms of--recognize ahead of time that we will be doing deals and they will hit the quarterly P&Ls as they naturally fall.

In the fourth quarter, our SG&A was $182 million.

Now, SG&A is up versus prior year and prior quarter, and our year-over-year increase is primarily driven by support of our growing core business, the TYSABRI commercial buildout and the new RITUXAN sales force that Jim highlighted earlier.

This was primarily offset or partially offset by the savings of no longer having an AMEVIVE sales force, which we did have last year.

But keep in mind that we are still launching TYSABRI country by country in Europe throughout 2007.

Our fourth-quarter collaboration profit sharing was -$4.4 million.

Now, I do want to highlight, that this is a new line item this quarter.

This is where we are now reporting our net profit-sharing payment with Elan related to our international TYSABRI business.

In the third quarter, we reported this amount in SG&A, but we've now decided to break this out in order to fully give transparency of that exact number.

Now, in the fourth quarter, this was effectively sharing of the international loss, so Elan reimbursed us and the number is negative.

We don't hope to see that in the future.

Q4 income from operations was $274 million, and Q4 Other Income expense was -10.6 million.

Now, the other income and expense was down significantly from prior year and prior quarter.

As I mentioned in the beginning, this was primarily driven by investment write-downs in our equity portfolio at year end in accordance with FAS 115 and our investment accounting policy.

The net investment impairment was $25 million, as I mentioned earlier, including an $18 million impairment of our PDL Biopharma holdings.

The total EPS impact was $0.05 per share.

In the fourth quarter, our tax rate on the non-GAAP P&L was 30%.

In Q4, our tax rate improved, and it was improved by the renewal of the R&D tax credit.

Now, as you may know, the R&D tax credit was originally introduced 25 years ago to boost spending for technological research.

This credit has always been temporary, with Congress renewing it each time it expired.

The R&D tax credit expired at the end of 2005, and was only recently renewed in December of 2006, and so therefore, we retroactively applied the benefit of that from the full year in the fourth quarter.

The Q4 diluted shares outstanding for non-GAAP EPS calculation were 343 million shares.

This brings us to our Q4 non-GAAP EPS of $0.53 per share, a 10% increase over prior year.

Of course, on a full-year basis, as I mentioned, in the beginning our non-GAAP EPS was $2.25, well ahead of our guidance from the third quarter and a 43% increase over prior year.

So in summary and looking back on 2006, we are, as Jim mentioned in the beginning, now three years into the merger between Biogen and Idec.

We are delivering on our goals set out at that time, most notably achieving a three-year EPS compounded growth rate of 23% so far, again to the targeted goal of 20% annual growth from 2003 to 2007.

So with that, let's move to guidance for 2007.

We expect, on our non-GAAP P&L, that total revenues will grow in the mid teens as a percentage over 2006 with TYSABRI and RITUXAN RA being key drivers of growth.

Our non-GAAP margin structure should be pretty similar to 2006 with the exception of R&D, which should range between 27 to 29% of total revenues.

This assumes a slightly higher level of new business development than in 2006.

As a result, our non-GAAP EPS estimate for 2007 is in the range of $2.50 to $2.65.

This implies achievement of our 20% EPS goal from the merger that Jim referenced earlier.

The GAAP impact of stock options being expensed due to FAS 123R in 2007 is estimated to be in the range of $0.08 to $0.11.

Finally, our 2007 capital expenditures are anticipated to be in the range of 250 to $300 million.

So, that pretty much wraps it up.

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

Jim?

Thanks, Peter.

I will be very brief with the close before we go to Q&A.

2007, the key drivers I think are certainly the performance of TYSABRI and driving the performance of TYSABRI in the U.S. and the EU continuing to roll that out, and talk about the benefits in a very balanced fashion is our number one goal.

We'd like to also extend and continue the momentum we've seen on the business development side.

We see a lot of interesting opportunities there to augment our pipelines, so that can help us in the near term and the medium term.

On our own pipeline, we are initiating several proof-of-concept trials with lymphotoxin beta receptor in RA, the oral VLA4 inhibitor that we have in partnership with you UCP, M200 in renal cell carcinoma, ovarian and non small cell lung cancer are those three trials, and that's in partnership with PDL and the oral A2A receptor antagonist in Parkinson's disease, which is a licensed product from Vernalis.

Just to remind you all, I mentioned earlier in the call but we will review--we will have an R&D day hosted by Cecil Pickett on May 17, and we hope to see as many of you there as possible.

I think this pipeline has significantly advanced the organic pipeline, what we brought forward from research and the momentum there.

You'll see a fairly impressive lineup of products.

And we need to do all of that, of course, in the context, as we have in the last number of years, delivering on the financial results that build on a long-term--built towards our long-term growth goal.

So with that, let me turn it to Elizabeth and we will begin queuing up for the Q&A.

Yes, I just want to advise that, for the Q&A, we have joining us Dr. David Parkinson, our Senior Vice President of Oncology R&D, Dr. Al Sandrock, our SVP of Neurology Research and Development, and also [Saheem Hafneen], SVP of the oncology/rheumatology business unit.

So, operator, we'd like to open the call to Q&A.

As is our usual practice, I would ask those asking questions to limit themselves to one question per person.

If you have follow-up questions, please reenter the queue and ask your question later on.

This practice allows as many people as possible to get their questions in.

So operator, please go ahead and take the first question.

(OPERATOR INSTRUCTIONS).

Geoffrey Porges, Sanford Bernstein.

Thanks very much for taking the question.

With that, I'm sure there will be lots of questions on TYSABRI but so I would just like to ask a question on RITUXAN.

There's been a lot of talk about the stepdown in the royalty or the revenue sharing in the future.

I'm just wondering if you could give us a sense of when you're planning for the occurrence of that, and how that might occur on a (indiscernible) fashion or one-time, what sort of impact that could have.

Jeff, it's Peter.

I will take a shot at--I'll take a first stab at that, anyway.

So, obviously that's a function of when we have our first launch of one of our follow-on humanized programs.

Obviously, we're working on a number of different programs in a number of different indications.

So it will be sometime in the beginning or the early part of the next decade, obviously; it's not near-term.

I just remind everybody the stepdown occurs over a number of different years, a minimum of three; it could be more.

It's just a question of how fast these sales of that new product ramp up.

You know, we disclosed that and that's something we've been talking about for some time.

You know, I think that one of the key features of that is both we and Genentech are pretty excited about furthering the CD-20 program and expanding it.

Obviously, these additional new programs are being targeted for new indications, a lot of immunological indications.

Obviously, the original RITUXAN is in RA right now but we're looking at MS and lupus and other things.

So we would expect the overall franchise to benefit from a next generation drug and to really expand.

So obviously, yes, we're getting a slightly lower cut at the overall profit share in the U.S., but it's of a much bigger market hopefully because this will be the next generation of drugs that will be pretty exciting.

I also remind you that obviously these new drugs will have a very long intellectual property life.

They've been developed with a lot of investment over the last few years.

So I think it's kind of a--it's a mixed analysis yet to look at but we are very comfortable with all of that.

We factored it into our long-range planning.

It is part of the franchise relationship, and I think we're working with Genentech on that.

Geoff Meacham, JPMorgan.

Thanks for taking the question.

A couple on TYSABRI--given the recent focus to promote the drug actively on efficacy in January, can you give us a sense for the rate of patient adds to TOUCH since January?

Then just a quick follow-up, if you can provide the average number of infusions in both regions, U.S. and ex-U.S.

Yes, this is Bob.

Thank you.

On the question of the latest trends, as I mentioned, we are adding about 300 patients a month--or a week, rather, worldwide.

I think another good measure is we conduct frequent market research.

Our market research for January, which is a sampling of a couple hundred physicians with different practice approaches, indicates about 25% have been trained but have not submitted TOUCH forms yet, but of that number, 70% expect to do so, so we expect our prescriber base to grow and consequently we had hoped that we would see an increase in the trends that I talked about.

With respect to the number of infusions, I guess maybe someone else here has more clarity on what you were getting at;

I don't quite know how to characterize that.

We talked about the total number of patients and infusions that follow suit.

The number of patients we're talking about are net of a small group that have actually discontinued therapy, so if you track the patients, that gives you the infusions.

I would also comment that some of the discussion we had about moving through the TOUCH form training and the risk/benefit communication of really a lot of the swing and momentum is just occurring in January as we roll forward.

So if you look at the Q4 results, it's not really in there that much.

This is Jim.

I like the AVONEX business.

There's not a lot of product in the downstream pipeline.

Because we book on the sell-through, there is--we and Elan are booking at the same time.

So I think you can sort of back up with a relatively modest time lag and figure out the number of infusions just from the revenue dollars.

Michael Aberman, Credit Suisse.

I wonder if you can comment.

Genentech had mentioned that arbitration was ongoing.

I think that they said it would be available within weeks on their conference call.

Can you give us an update on where the arbitration stands for the next generation CD-20, and when you might see an outcome, and how that can play out in terms of (indiscernible) with RITUXAN or a novel agent, the novel CD-20 for MS?

Sure, this is Jim.

So let me--I'm going to start in reverse order to the question.

So the programs continue in the clinic, so that's probably the most important thing.

So (indiscernible) [2A7] continues to move forward in the clinic and version 114 and (technical difficulty) the dispute overall is around decision-making rights.

As you can probably appreciate, with the number of molecules that Genentech and Biogen Idec have under development, as well as the competitive circumstances that will change, you know, relatively rapidly over the next number of years, the strategy on how those get developed and how that all fits together commercially is important.

Frankly, that's where a lot of debate is and I wouldn't go further than that to say.

In terms of the arbitration, it is a very typical arbitration proceeding, so there is one person chosen by us, one chosen by Genentech; those two choose the third person.

They've listened to the first sets of motions at this point in time and they are thinking about them, those motions.

So it's still very much in the preliminary stage, at least from our viewpoint.

The only other thing that I would add--and so, this is, you know, our expectation is this is going to play out over a number of months.

The pace of it is impossible to predict, at least in my experience with arbitration.

The one thing I do want to--and I'm glad you asked the question.

So, in the category of no surprises, and you guys will see it in our 10-K, recently in the arbitration proceedings, Genentech alleged, for the first time, that the November 2003 transaction in which Idec acquired Biogen and became Biogen Idec, constituted a change of control.

That's of course an assertion that we strongly disagree with.

The amended and restated collaboration agreement with Genentech provides that, in the event that we do undergo a change in control, within 90 days, Genentech may present an offer to us to purchase our rights for RITUXAN.

So again, the first time that this has been asserted, the 90-day window has passed about three years ago, so I don't know exactly where that goes but you'll see it nevertheless disclosed in the 10-K as a new item.

Just a follow-up, I guess, what could the outcomes be?

Is there a win or a lose situation for you?

What should we expect when this opportunity is over?

Yes, as I said before, we have a relationship; it's a very broad collaboration relationship with Genentech.

It is going to go on for as long as there are sales of products.

Therefore, we feel we need to have clarity on these decision rights, and really that is what the arbitration is around--is clarifying the decision rights of the two parties so that we can close up on that and operate as friction-less a relationship as possible for the rest of the sales as long as sales continue in any of these products.

So I just view it as an investment in clarifying the future.

Gene Mack, HSBC Securities.

Thanks for taking my question.

I was just wondering quickly when we might get data on TYSABRI retreatment for those patients who were stopped originally.

Fine.

Gene, what we know of course from the TOUCH program is a lot of detail about the patient returning.

What we don't really know, in terms of the patients that were involved in the first launch, is all of those numbers, simply because they weren't required to be part of this (indiscernible) program at the first launch, and there wasn't a tracking method.

What we believe--what we know, rather than what we believe is we know that about 30% of TOUCH forms received are for patients that were involved in the first launch.

But again, it's hard to reconcile those numbers, given the lack of visibility we had during the first launch.

Do you know anything about neutralizing antibodies at this point?

No.

Thanks.

Joel Sendek, Lazard Capital Markets.

I have a question about the business development spend guidance.

I'm wondering how you got to the 100 million.

Is that the leftovers from the 200 budget for 2006?

If you--is any variability in that 100 million spend for '07 embedded in the 250 to 265 guidance?

In other words, if you spend more or less, could you be outside the 250 to 265?

Yes, let me take a crack at that.

Of course, you know, we talked to a year ago about this $200 million number as being, if you will, the elbow room that we left ourselves on the P&L to really bring in business development.

That is very much, if you will, across the sum of--from business development deals, what kind of impact would they have on the P&L.

Of course, you saw the number of deals we did.

The majority of the impact was actually on the balance sheet during the course of this year.

However, because we are going to continue and we do believe this is a core part of our business model, you know, we're going to leave ourselves a fair bit of elbow room to take advantage of external opportunities as we go forward.

Now, the specifics of what goes into the $100 million that was consumed on the P&L, it is all of the current burn rate for those programs that were bought in, plus all of the milestone payments and any other payment that may go back and forth between the parties.

Those of course generally are pretty lumpy, at least the milestone payments.

The upfront payments tend to come; they are very lumpy.

It's all subject to negotiation.

They are very hard to predict and they are idiosyncratic.

They are just kind of whatever the deal is.

The ongoing burn rate obviously is a little easier to predict, but I think we're not going to call out necessarily the specific number that we've left in the budget going forward, but more to tell you that we intend to continue in business develop at the same kind of rates that you saw in 2006 and hopefully with at least that much success or more.

If we get to a deal or an opportunity that we think is going to take us outside that band, then we will be back talking to you in terms of the earnings band of course you're going to want to know why that is good for you.

Mark Schoenebaum, Bear Stearns.

A quick question--I was intrigued by Jim's earlier remarks on the call about, I think you said you still expect TYSABRI to eclipse all other MS therapies.

Are you talking in terms of patients or dollars?

Yes.

So, you're talking in terms of patients, given pricing, that implies well over 3 billion.

Is my math correct?

Yes.

Let me put a broad context around this.

So of course, the big uncertainty in the marketplace, the big question that many of the neurologists and many of the patients are saying is what is going to be the full safety experience of TYSABRI as it gets into a broad number of patients?

So we all have to stand back and see what that safety experience turns out to be.

The TOUCH program and some of the other programs that we are conducting obviously give us a much more precise insight into that, as things unfolds, than probably any other product that's on the market with maybe the exception of thalidomide or something like that.

But we're going to have a great deal of insight into that.

Now, presuming that the safety profile--so this is a critical assumption--safety profile is not meaningfully different, by that I mean worse, than what's in the current label, I think people are going to get comfort as we go.

The comfort will come because of sheer numbers of patients as well as when and if we see -- and it's in the label so we continue to say we expect to see additional cases of PMLs that we can understand much more precisely what the risk factors involved with PMLs, so why people would be at a higher or a lower risk for PML and what can be done, what can be done to deal with that.

Now, if you look at where we are right now, somewhere in the middle part of the year, we will have administered more infusions for TYSABRI than at the point in time that the product was (indiscernible) from the market.

You know, as we close out this year, more patients will have been on for greater than a year than at the point in time that this product was suspended from the market.

You can march out from there to get to 18 months, 2 years' data.

So we are going to accumulate a lot of that experience in the next 12 months.

I think people, based on that data, people will draw their own conclusions but assuming that it's not meaningfully different or worse than the current label, I continue to believe that people--that the demand for this product is so strong, the needs of this community are such that the patient numbers will eclipse many of the other individual products over time, as will the revenue.

Could that be this decade?

It could be that (indiscernible) is always hard to predict, but we're going to move through--the safety question gets answered by the end of 2008.

Bill Tanner, Leerink Swann.

A question maybe kind of along those same lines for you, Jim, or maybe for Al.

It sounds like there's at least a couple of trials, one trial being conducted to look at the impact of phoresis on removing or decreasing TYSABRI in MS patients and maybe it sounds like data later this year.

I'm wondering where that ultimately goes from I guess a regulatory standpoint, or from the perspective of how you guys see it being, were the data positive, beneficial in terms of providing increased comfort for physicians to use the drug.

Sure, Bill.

We are going to see how well all of our conferencing capabilities work, and I'm hoping Al is actually on the line in San Diego.

Al, are you on the line?

Yes, I am.

Oh, great!

Do you want to handle that one?

Yes, so the phoresis program is one of several approaches we are taking to see if we can reduce the disability that could result from PML, should it occur.

We will get information about whether or not we can effectively remove TYSABRI, and we believe that [immune-weak] constitution is the best way to deal with PML.

We hope to have an IND in place so that, if people get PML, that they could be treated with phoresis or perhaps some other approaches we are also examining.

That would also include the RNA interference, I presume.

Yes.

Jason Kantor, RBC Capital.

I was interested in this run-rate that you mentioned, the 300 patients per week.

Where is that primarily coming from?

Where do you think the growth in that is likely to come from?

How high do you think that number could get, say, in 2007?

Well, let me take your first question.

This is Bob Hamm.

The patients to date or the TOUCH forms received to date and what we're getting in from information in Europe is that they are coming from obviously the switching in terms of their current products, but about 31% are coming from other sources, such as returning quitters.

We define a quitter as someone who has been off therapy for a minimum of six months.

Then about 11% are coming from other products beyond the ABCR because, in the last few years, obviously physicians have tried to find other ways to fill the gap that the TYSABRI withdrawal represented, and then 3% are naive patients.

In terms of where the number grows to, again I think it's just a function of what we've talked about in terms of the increasing countries coming up and the increasing prescriber base, and as Jim mentioned, the safety picture evolving over time.

But that 300 number was a worldwide new number of patients per week or is (indiscernible)?

Yes, that's a global figure for the past few weeks.

With the patients in the queue right now, how fast do you turn people through that queue?

Is that speeding up and what is the current (multiple speakers)?

That implies, of course, to the U.S. and the TOUCH program.

What we are seeing is an average of 19 days from receipt of TOUCH program to infusions for folks.

That's a credit to the payors who view the TOUCH program, which controls the two things they are most concerned about, once they are convinced of the efficacy.

Number one is the inappropriate use of the drug, which the TOUCH program largely eliminates through the discipline imposed; and secondly is the compliance of the product in terms of how we are track it and what not.

So that's why the payors are moving through pretty quickly on the main.

Just to add a little bit more to that in terms of how it broadens out, you know, we expect to see--there are a reasonable number of neurologists that are, frankly, on the sidelines right now in the U.S.

There are the group that Bob referenced that haven't prescribed but have indicated an intent to prescriber relatively soon.

In Europe right now, we're really only into 50% of the market, so we would expect, with the geographic expansion as well, to start to see some expansion.

How high this goes I think is very difficult to predict because I think a lot of it has to do with trying to predict the confidence that people have.

That's going to get driven by factors that, frankly, we don't control.

Thanks.

May-Kin Ho, Goldman Sachs.

Can you talk a little bit about biosimilars, especially potential launch of them in interferon?

May-Kin, we heard the beginning of that question about biosimilars.

Could you repeat the second part?

Sorry.

I was just asking whether you can talk about biosimilars for interferons and the potential launch of them in Europe and what you're doing to prepare for that.

Yes, the biosimilars, I'll tell you our expectation is that we will see one in the next couple of years.

The initial plan and the initial trials we that were conducted were with the 22 microgram dose trying to mimic sort of the low-dose interferon, so they've got some more trial work to do because I think that is probably the one category that is getting the most crowded out in the marketplace, in terms of utilization.

So from that perspective, I don't see an immediate or a huge impact on the market.

In terms of what we're doing to get prepared, most of that I'm not going to talk about for competitive reasons.

The obvious ones are innovation, of which Bob listed TYSABRI and a long list of other products that we hope will change the whole paradigm and the game over time.

We are also doing things with the AVONEX business and the product there to manage the life cycle of that product.

Those are initiatives that we have not disclosed for competitive reasons.

Operator, given that we've gone past the hour, we will take one last question.

Steve Harr, Morgan Stanley.

Peter, maybe you could just address, on the accounting side, you said that the part of your business, funded new business developments, you are going to include that in your financials.

But it seems like another important part of your business, ongoing business plan are the small acquisitions.

You are not including those in your financial statements.

So, how do you think through this?

When would you consider putting these recurring charges into your ongoing business thoughts?

Okay, Steve, thanks.

Well, I think, just to clarify, when we do buy a business, obviously the operating financials of the business rolls into our P&L; that's part of our ongoing activity.

Generally, what we have been highlighting in Table 3 and extracting out the non-GAAP P&L are the purchase accounting charges.

So that's primarily the upfront in-process R&D charge that relates to the initial acquisition.

Frankly, the other thing that's in there is the amortization of intangibles. a lot of these early-stage companies that we are acquiring don't really have much that is identified as an intangible because most of their work is really stage in-process R&D.

So the amortization of intangibles is basically most of what you see on our P&L there on the GAAP side is for the original Biogen and Idec merger, and it's just the accounting basis for identifying the intangible related to AVONEX, quite frankly, and amortizing that over time.

So that's an accounting convention and we just haven't been including that in the non-GAAP performance.

I think, actually, if you look across the biotech industry and a lot of industries, you would see that that--a similar treatment is done is people think about communicating the ongoing financial performance of the company so people can get a real sense of real cash flow kind of items, real cash items as opposed to accounting charges that are kind of unique to that acquisition.

So the primary charge that we see on an ongoing basis relates back to the Biogen Idec merger, that amortization of the AVONEX (inaudible).

I guess if you were to look across a broader swath of companies that do frequent acquisitions of the size, you might see them in the P&L and there is a cash charge, obviously to making acquisitions with your cash.

Yes, this is Jim.

You know, most of those--well, all of those (indiscernible) are either intangible write-downs or this in-process R&D.

Conceptually, if you think about how you guys value a company today, you are putting a value on that in-process R&D.

Just the accounting convention is, when we acquire it, we just have to write it all off, so however you want to look at that.

Then, the premium that we may pay over whatever the current market value is, in the old-fashioned days, that would have just been stuck onto goodwill, and then we would look at impairment over time.

So we are doing that and that does flow down through the rest of the operating P&L.

Great, thank you.

Okay, I think we've have pretty much gone over time.

Do you want to (multiple speakers)?

Yes.

Thank you, everyone, for joining us on the call today.

Operator, you can close out the call.

Thank you.

Thank you for your participation.

You may now disconnect.