Biogen Inc (BIIB) 2007 Q1 法說會逐字稿

Good morning.

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

At this time, I would like to welcome everyone to the Biogen Idec first-quarter 2007 earnings conference call.

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

After the speakers' remarks, there will be a question-and-answer session.

(OPERATOR INSTRUCTIONS).

I would now like to turn the conference over to Ms.

Elizabeth Woo, Vice President of Investor Relations.

Thank you.

You may begin your conference.

Thanks, Nicole.

Welcome to Biogen Idec's earnings conference call for the first quarter 2007.

Before we start, I would encourage everyone to go to the Investor Relations section of our website, biogenidec.com and print out the press release and 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 in our earlier conference calls of posting our slides on our website that follow the topics on the call today.

I will start with the Safe Harbor statement.

Comments made in this conference call include forward-looking statements about the Company's expectations regarding future financial results, including our financial guidance for 2007 and future growth rate, the launch and potential of TYSABRI in MS, RITUXAN in RA, reimbursement for TYSABRI and plans for external growth and pipeline growth.

Such statements are subject to the risks and uncertainties which could cause actual results to differ materially.

In particular, careful consideration should be given to the risks and uncertainties that are described in our earnings release and in the Risk Factors section of the Company's quarterly reports and annual reports Form 10-K and Form 10-Q, last, most recently, the fiscal quarter ended December 31, 2006.

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

Today, on the call, I am joined by Jim Mullen, CEO of Biogen Idec; Bob Hamm, Senior Vice President, Neurology Business Unit; Cecil Pickett, President of Research and Development and Peter Kellogg, our CFO and Executive Vice President of Finance.

I will now turn the call to Jim.

Thank you, Elizabeth.

Good morning, everyone.

Thanks for joining us this morning.

I want to just make a few introductory comments.

I am very pleased with Biogen Idec's progress on a number of strategic initiatives to grow revenue, earnings and enhance our pipeline.

I will just touch on a few highlights before I turn the call over to Bob, Cecil and Peter.

So first, TYSABRI is progressing well.

We are in the midst of driving the TYSABRI efficacy message worldwide.

This week, Boston hosts the AAN.

We are presenting new data on TYSABRI and some of our other products and this is a great opportunity for us to talk with the neurologists and a good time in the launch to update people on the information.

So far, approximately 12,500 patients have been prescribed TYSABRI worldwide and over 10,000 are on therapy in the commercial or clinical trial setting.

We are steadily working through the European country launches and these will add momentum on the uptake.

We expect France to launch in Q2.

The marketshare -- our marketshare in MS products is growing.

AVONEX performance continues to be strong with 14% year-over-year growth.

AVONEX remains the most prescribed MS therapeutic and grew in both the US and the international markets in the first quarter.

Our share of the total MS market between AVONEX and TYSABRI has been growing over the last several months.

Bob Hamm will discuss these metrics in a bit more detail in his section.

I think this overall growth in share in the MS market demonstrates successful execution of our strategy.

Innovation drives growth in the MS market where high unmet need remains and we will continue to drive innovation in this area with our portfolio of novel compounds, including RITUXAN, among others, which are directed at providing more treatment options for MS patients.

We have also had good success in our external growth initiatives.

We posted a steady number of successes on the business development front over the past one to two years.

We have executed on external growth with a number of smaller acquisitions and product collaborations that have -- each one has large commercial potential.

This quarter, we closed the Syntonix acquisition.

We have been flexible in how we do these deals and how we integrate them and our goal is to maximize the assets.

So, for example, when we close on the Conforma acquisition, we very quickly integrated that entire company onto our San Diego site and incorporated that into our oncology efforts.

On the other hand with Syntonix, we took a very different approach and we are operating Syntonix as a stand-alone company and giving them the ability to draw on corporate resources to accelerate the programs.

In the early days, it has been quite successful.

So our strategy is to go after innovations where large markets for innovations are lacking.

So, for example, just to go back to those last two acquisitions, Conforma brought in the HSP90 technology and compounds, which have the potential to work across a number of therapeutic areas.

The first targets you know well are in solid tumors, but we are also looking at some neurologic indications.

Syntonix is an example of stepping into a large market where innovation has been lacking.

The global hemophilia market for factors IX and VIII exceed $4 billion and is growing.

It's a market thirsty for innovation and we think we have the exciting next generation of products.

Less frequent administration is potentially a major advantage and grow the prophylactic market in hemophilia.

In terms of value, we look for opportunities to create significant step-ups in shareholder value.

We see opportunities everyday.

We have got broad coverage of the public and private companies in North America and Europe and our efforts in the ventures right up through acquisitions, late stage compounds and major public companies I think gives us a very broad view of all the opportunities in the marketplace and so we continue to explore a number of exciting potential opportunities and I think we should -- we are pretty optimistic about being able to conclude more deals this year.

We continue to be excited by the anti-CD20 franchise or RITUXAN specifically.

There is a number of opportunities that is really starting the second leg of growth for that franchise.

The RA opportunity continues to grow well.

You saw the publication yesterday of the MS data, which indicates that B-cell directed therapy can be an important pathway in this disease and we expect the data next year in the Lupus indication.

And finally, I would like to encourage everyone that can possibly attend to attend our R&D day.

It is a pleasure to welcome our President of R&D, Dr.

Cecil Pickett.

He will be hosting the R&D day on May 17.

I think many of you will be surprised at the breadth and quality of our pipeline that has developed benefiting from both external deals, such as the oral VLA-4 inhibitor, the HSP-90, factor IX and I could go on, as well as the internal programs.

So, for example, TWEAK and Neublastin are transitioning to development.

These are very exciting areas of biology and exciting programs.

A strong internal discovery organization is critical for us to attract and evaluate the best external opportunities and so we view both of those as operating very synergistically and very much hand in glove.

As Peter will discuss, this quarter's top-line and bottom-line performance put us on track for our full-year guidance.

We expect the growth rate for the earnings in the second of the year to increase as our P&L benefits from the leverage on SG&A investment made for TYSABRI.

So I will now turn the call over to Bob.

Thanks, Jim.

Let me start off by reminding everyone that at Biogen Idec we have the number one prescribed MS therapy today in AVONEX and in TYSABRI, we have a product that established a new level of efficacy, which has been shown to delay the progression of the disease and reduce relapses by two-thirds and also the best and brightest pipeline of MS compounds for the future.

As our colleagues at Elan indicated on their call last week, the TYSABRI launch continues to build momentum with a number of physicians prescribing in the US increasing each week and with the continued launch in additional countries in the EU, this evolution should continue.

There are now over 10,000 patients being treated worldwide in the commercial and clinical setting.

AVONEX sales remain strong with the ABCR marketshare in the US increasing recently.

Combined marketshare of AVONEX and TYSABRI is now approximately 40% in the US.

In fact, considering both products together, Biogen Idec has gained US MS marketshare during each of the last six months.

We are the leader in the treatment of multiple sclerosis and will continue to be the leader with our robust pipeline that is four products in Phase II or beyond, namely BG-12, RITUXAN 2H7, oral VLA-4 and daclizumab.

Now let's go inside the TYSABRI numbers for a bit.

TYSABRI continues to build momentum as we said and as of mid April, approximately 12,500 patients have been prescribed TYSABRI worldwide.

There are over 10,000 patients on therapy globally, including 6600 in the US, 2500 in the EU and open-label study patients of a little more than 1000.

We expect this number to continue to accelerate as the number of prescribing physicians continues to climb and the number of countries with reimbursement increases during the remainder of '07.

In the US, over 1500 physicians have submitted enrollment forms and over 6600 patients are on therapy.

Breaking down the TYSABRI source of patients in the US, approximately one-third of the patients are returning quitters, naive patients and switchers from non-ABCR therapies, a reflection of TYSABRI's potential to grow the market and a figure which has been improving over time.

As we reported in the previous earnings call, glatiramer acetate continues to be the single largest source of TYSABRI patients year-to-date.

The underlying market conditions that drive demand for TYSABRI have not changed with over 200,000 patients being treated for MS today and many thousands more who have abandoned treatment for various reasons.

There remains broad interest by physicians and patients who are impressed by TYSABRI's efficacy and convenient dosing regimen.

Again TYSABRI reduction in relapses by two-thirds sustained over two years has demonstrated in clinical trials and the fact that TYSABRI requires 13 infusions per year versus more than 300 injections per year for some products.

The reimbursement picture in the US largely remains as previously reported.

95% of private payer patients have good access to TYSABRI and TYSABRI has broad access within the public payers.

Additionally, CMS has issued a preliminary decision to issue TYSABRI a permanent J-Code effective January '08.

The unique TYSABRI J-Code replaced the current Q-Code and is widely recognized by private and public payers as the most efficient reimbursement mechanism for physicians.

Moving onto international and TYSABRI launch status, there are over 2500 patients on therapy in Europe.

Germany and Sweden continue to provide the majority of the patients being doses with TYSABRI.

Exiting Q1, TYSABRI captured over 2.5% of the German MS marketshare and over 5% of the Swedish marketshare.

Since our last call, Greece, Luxembourg, Portugal and Israel have launched.

Finland and Norway have reimbursement.

Among significant countries launching later this year are France and Spain.

It is expected the momentum will continue throughout the year based on the expanded access for people with MS in these countries for TYSABRI.

The international rollout is expected to continue throughout 2007 and 2008 with 15 EU countries expected to have launch by the end of the year.

The number of patients should climb even more quickly as TYSABRI is launched in these other major markets where we expect them to be launching soon.

A brief mention on other therapeutic areas for TYSABRI, our partner Elan is leading the efforts in Crohn's and as they reported on their call last week, the Crohn's regulatory process continues in Europe and the US.

Moving onto AVONEX, as Jim mentioned in his introductory remarks, AVONEX performance was strong, posting 14% year-over-year growth.

AVONEX remains the most prescribed therapy worldwide and the number one therapy in the US for more than 10 years.

In the US, AVONEX grew 16%, recently gaining ABCR marketshare.

Internationally, AVONEX revenue grew 11% in Q1 '07 year-over-year.

AVONEX was successfully launched in Japan in November '06 and is off to a good start.

The message is clear with AVONEX with its long-term efficacy profile, including many years of experience in the physician-patient communities and its number one position, AVONEX remains the product to start with.

For those who need more efficacy, TYSABRI is an appropriate choice.

Turning to this week's activity at the American Academy of Neurology, there were six platforms -- there will be six platforms and over 20 poster presentations related to our products AVONEX, TYSABRI, RITUXAN, BG-12 and daclizumab in Boston this week.

On the presentations presented so far, the most notable data are our RITUXAN Phase II relapsing/remitting MS data, which demonstrates B-cells may represent a potential new treatment strategy in MS.

Key data still to come this week or today -- AVONEX champs two-year study, reanalysis using the most recent definition of clinically isolated syndrome.

Tomorrow, TYSABRI update from TOUCH and TIGRIS.

Tomorrow, TYSABRI three-year efficacy results and tomorrow, BG-12 Phase IIb extension study results.

Out of respect for the AAN process, we will honor the presentation times before discussing the data.

Just to wrap up.

Again, we have the number one prescribed MS therapy today.

We have a product that has established a new level of efficacy in TYSABRI.

We have the best and broadest pipeline of MS compounds for the future.

I think this was clearly in evidence last night when after a very long day at the American Academy of Neurology, some 500 AAN participants turned out to hear Dr.

Al Sandrock discuss our pipeline and a panel of experts discuss developments in MS in general.

And this highlights the fact that we continue to recognize people with MS need more options since they will have this disease for decades and it is unlikely only one drug will be appropriate over the course of their disease.

From diagnosis to disease resolution, we are massing the highest quality portfolio of compounds to address the unmet needs.

Now I will turn the call over to the President of Research and Development, Dr.

Cecil Pickett.

Thank you very much, Bob.

And good morning, everyone.

Since joining Biogen Idec in September, as you might expect, I have been very busy reviewing the pipeline to better understand our programs and to determine how we can accelerate the development process to reach key decision points.

Today, I will provide a quick recap of Q1 highlights and the development status of our pipeline.

In Q1, we began enrolling patients into three late stage programs.

Registrational trials for oral BG-12, for relapsing/remitting multiple sclerosis, galiximab for non-Hodgkin's lymphoma and lumiliximab for chronic lymphocytic leukemia.

With our partner Genentech, we submitted to the FDA during Q1 2007 a supplemental biologic license application seeking to expand the RITUXAN label to include inhibition of progression of structural damage in patients with moderately to severely active rheumatoid arthritis who have had an inadequate response to previous treatment with one or more TNF-alpha antagonist therapies.

At the American Academy of Neurology meeting tomorrow morning, there is a poster presentation reviewing the safety profile of TYSABRI through February 23.

The data are embargoed until the start of the poster presentation at 7 a.m.

and I encourage you to take a look if you are in Boston for the meeting.

We will also be issuing a press release at that time with up-to-date information.

As you saw yesterday, the RITUXAN relapsing/remitting multiple sclerosis Phase II data were presented at the American Academy of Neurology meeting.

The 104-patient study shows that patients treated with a single course of RITUXAN have significantly fewer gandolinium-enhancing T1 lesions as observed on MRI scans of the brain at weeks 12, 16, 20 and 24 compared to those treated with placebo.

In addition, the study showed that the proportion of patients experiencing relapses was significantly reduced over 24 weeks in RITUXAN-treated groups compared to placebo.

Obviously, we are very encouraged by the data, but we look forward to generating a Phase III set of efficacy and safety data.

We are working with our partner, Genentech, on how best to move forward and better define the efficacy and safety of B-cell directed therapy.

A B-cell directed therapeutic delivered once every six months will fit well into our multiple sclerosis portfolio.

In March, we and our partner, PDL BioPharma, reported that the CHOICE trial, a 230 patient Phase II randomized double-blind placebo-controlled trial of daclizumab, met its primary endpoint in relapsing/remitting multiple sclerosis patients being treated with interferon beta.

Patients receiving daclizumab, two milligram per kilogram subcutaneously every two weeks, showed a significant reduction in the number of new or enlarged gandolinium-contrasting enhancing lesions at week 24.

Study results will be submitted for presentation at an upcoming medical meeting later this year.

Based on a joint review of the 24 week data, the companies plan to initiate a Phase II monotherapy trial of daclizumab in the second half of the year.

Both the LT betaR-Ig fusion protein for rheumatoid arthritis and the oral small molecule VLA-4 inhibitor, CDP323, are beginning Phase IIb trials in the coming weeks.

In addition, BIIB14, an adenosine 2A receptor antagonist small molecule program in collaboration with Vernalis, is poised to begin Phase IIa trials in early and late Parkinson's disease.

This is just a brief update, and I hope you will all attend the R&D day on May 17 in Boston where we will review our pipeline in considerable depth.

We expect you will come away seeing 2007 as a year of executing on clinical trials with 2008 a year of data readout and decision points.

So with that, I will hand the call over to Peter Kellogg.

Thank you, Cecil.

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

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

Let's first start with our GAAP to non-GAAP reconciliation.

In accordance with Regulation G, Table 3 breaks out the reconciliation by major driver.

The main items excluded from operating non-GAAP in Q1 were, first, we adjusted $78 million in purchase accounting charges for the amortization of intangibles and write-off of acquired in-process R&D.

As a reminder, the intangibles are related to the Biogen Idec merger, as well as the Conforma, Syntonix and Fumapharm acquisitions.

The in-process R&D is related to the acquisition of Syntonix.

Second, we adjusted for $9 million in pretax employee stock option expense.

$6 million of this adjustment was in SG&A while the remaining $3 million is in R&D.

Lastly, we had $17 million of tax impact related to the items I just mentioned.

Now as normal, I will review the non-GAAP P&L operating performance of Biogen Idec.

We believe it is important to share this non-GAAP P&L with shareholders since it better reflects the recurring economic characteristics of our integrated business.

It is how we manage the business internally and set operational goals and it forms the basis of our management incentive programs.

In Q1, we delivered $0.38 per share diluted EPS on a GAAP P&L and after the adjustments shown in Table 3, our non-GAAP diluted EPS was $0.59 per share, which represents a 7% growth rate versus prior year.

Now before walking you through the P&L, I'd like to point out that we expect the first half of the year, as Jim mentioned, to experience slower growth at the bottom line due to the launch of TYSABRI.

However, as we proceed through the year and increase our leverage on commercial investments, we expect higher bottom-line growth.

As a result, as I close my discussion, I will reaffirm our previously stated guidance.

In summary, I will indicate that we are quite pleased with our Q1 results.

Now let's move through the first-quarter non-GAAP P&L results in a bit more detail.

In the first quarter, total revenue was $716 million.

That is a 17% growth over the same period last year.

And that was driven by several key drivers that have been mentioned already; the continued growth of the AVONEX business, the reintroduction of TYSABRI and the growth of the RITUXAN franchise driven by label expansions in the oncology and the rheumatoid arthritis setting.

Going through our product revenues, I will begin with AVONEX, the number one worldwide MS product.

In the first quarter, AVONEX worldwide product sales were $449 million and that is a 14% increase over prior year.

In the US, our Q1 AVONEX product sales were $270 million, up 16%.

AVONEX's Q1 share of the ABCR market remained stable to slightly up.

This is quite an accomplishment given the TYSABRI launch.

In addition, Biogen Idec's total MS franchise marketshare, which is AVONEX plus TYSABRI, continues to grow very nicely.

As you will recall, we took a 5% price increase in the US in February this year.

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

In addition, we saw a slight increase in the units shipped.

Inventory levels have not changed materially and remain in the previously mentioned range of 1.5 to 2.5 weeks.

Now let's turn to the international business.

Similar to the US, the international AVONEX business has grown nicely year-over-year.

Despite the TYSABRI launch and competition in key markets like Germany, international AVONEX sales increased to $179 million, which represents an 11% year-over-year increase.

Now the ForEx impact was quite positive in Q1.

It was roughly $15 million, so that certainly does help.

Net net, our international performance remains quite strong, particularly in our direct markets where year-over-year volume grew 6%.

In the first quarter, TYSABRI worldwide product sales were $30 million.

As Bob mentioned, TYSABRI continues to make strong progress in its launch.

We are proceeding aggressively with our launch in the US and on a country-by-country basis in Europe.

US end-user or end-market TYSABRI sales totaled $36 million, which represents a 55% quarter-over-quarter increase, so the launch is clearly ramping up.

Internationally on a similar basis, the international end-user or end-market TYSABRI sales totaled $13 million, which represents a 76% quarter-over-quarter increase.

So obviously big increases quarter-over-quarter as we roll out and launch this product.

Let's move to other product revenue.

First, in the first quarter, we had ZEVALIN product sales of $6 million and secondly, we did not have FUMADERM revenue recognized in Q1 and as you may recall from our last quarter's earnings call, this lack of revenue temporarily is driven by our December 2006 acquisition of Fumedica.

Over the time period from December when we closed that deal to May 1, Fumedica will maintain distribution rights and continue to sell their inventory on hand.

We expect limited shipments from Biogen Idec to Fumedica during that time as Fumedica works down its inventory.

However, on May 1, Biogen Idec will take over distribution and at that point, we expect to begin shipping inventory ourselves and recognizing revenue again.

Now moving on to the RITUXAN collaboration revenues, which is referred to on the P&L as revenue from unconsolidated joint business.

In the first quarter, that was $207 million, an increase of 13% over prior year.

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

First, we receive our share of the US RITUXAN profits.

US RITUXAN sales were $535 million in the first quarter and our Q1 profit share from that business was $137 million.

Secondly, we receive royalty revenue on sales of rituximab outside the US and in Q1, this was $57 million, up 30% versus prior year.

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

This was $14 million in Q1.

Again, reflecting our key role in the commercialization of RITUXAN in RA.

Moving down the P&L, our royalties in the first quarter were $23 million and our Q1 cost of sales were $82 million or 11% of revenue.

Our first-quarter R&D was $188 million.

That is about 26% of revenue and as Cecil has already noted, we continue to see important progress within our pipeline.

We also continue to remain committed to our business development goals as evidenced by the fact that we completed six deals in less than one year.

I think Jim talked to a number of those points earlier.

It is also worth noting that due to the unpredictable nature of business development activities, R&D spend will likely vary on a quarter-to-quarter basis, so we should all expect that and that should be fine.

Now let's move on to SG&A.

Q1 SG&A is $182 million or 25% of revenue.

SG&A is flat versus prior quarter, but it has increased by 25% versus prior year.

A key driver of this increase is the new RITUXAN salesforce for RA, as well as the significant investment required to support the TYSABRI commercial buildout.

To reiterate my earlier comment, we are in the midst of a major marketing effort in the US, as well as on a country-by-country basis to roll out in Europe.

These launch activities have required us to significantly increase our SG&A investments over the last few quarters.

As we proceed through the coming quarters we expect to see increasing leverage on these commercial investments.

Our collaboration profit-sharing line is a -$6 million.

As we have discussed previously, this is the line item which reflects our net profit-sharing payment with Elan related to our international TYSABRI business.

This reflects a $6 million reimbursement from Elan for its share of the international loss in Q2.

Q1 OIE was $22 million.

Our Q1 tax rate on the non-GAAP P&L was 30.4%.

This tax rate is comparable to our 2006 full-year non-GAAP tax rate of 31%.

I should note that during Q1 we adopted a new accounting standard, FIN 48, which requires the disclosures that you will see in our upcoming 10-Q financial statements.

While this is new information, it does not materially change our tax rate.

This brings us to our Q1 non-GAAP diluted EPS of $0.59 per share.

So in summary, Q1 was a good start to 2007.

Our top-line growth is strong.

We continue to proceed aggressively with the relaunch of TYSABRI.

As Jim and Bob have discussed, we are successfully growing our corporate franchise share of the attractive MS market.

As Cecil covered, we have made progress in strengthening our pipeline as we continue to advance programs into late-stage development.

We remain committed to our external growth strategy, with numerous bets that have the potential to create nice value.

Hence our P&L outlook and guidance for 2007 remains unchanged as highlighted in our press release.

As we have previously stated, we expect mid-teens revenue growth and non-GAAP diluted EPS in the range of $2.50 to $2.65.

So that is it for Q1.

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

Jim?

Thanks, Peter.

Just a couple of summary points before we go to the Q&A.

As I look back over the quarter, I feel very good about the progress that we made on TYSABRI in the US and the rest of the world.

I am very pleased with the successful execution on growing our total MS market share with the two products.

Of course, we look to supplement that in the future with the innovative compounds in our pipeline.

I think that really begins to demonstrate how our strategy is going to play out.

Our [pedi] efforts are ongoing.

We have had a great deal of effort behind the scenes.

You have seen a lot of activity over the last 12 to 18 months.

Our internal pipeline as you heard some -- just a few of the highlights from Cecil, is progressing nicely.

I think I would really encourage people to attend our R&D day and really get the in-depth review of that.

Lastly, our financial performance is on track to achieve our full-year 2007 financial guidance.

As Peter said we do expect to see leverage on the P&L and acceleration in the second half of the year as the TYSABRI momentum continues to build.

So I will turn it to Elizabeth to open it up for Q&A.

Elizabeth?

Thanks, Jim.

Joining us on the call for the Q&A session is Dr.

Al Sandrock, our Senior Vice President of Neurology R&D.

Nicole, we would like to open the call for the Q&A session.

I would ask those on the call to limit themselves to one question out of consideration for your colleagues.

You can reenter the queue to ask additional questions.

But this practice allows the most people to get their questions in.

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

(OPERATOR INSTRUCTIONS) May-Kin Ho, Goldman Sachs.

Hi.

Can you discuss a little bit the European market?

Because it looks like in this quarter there was currency benefit.

But if you look at the international number, it's more or less flat, and you have added Japan.

So what is the share at this point for you in Europe?

And what is happening in the marketplace?

Sure.

This is Peter.

I will take that.

May-Kin, I think what you find in the international -- first of all, that is all right for AVONEX, right?

Obviously that is in the face of TYSABRI launching into Germany and Sweden.

But secondly as I have pointed out, in our direct markets our volumes are up; and the whole business on the direct side is doing very well.

We had a little bit of softness on more of the distributor markets around the world in Q1.

That bounces around a little bit because of just shipment timing and so forth, so I wouldn't read too much into that.

Obviously adding Japan to our portfolio is a great long-term strategic win for us.

But at this point it really isn't generating much business.

So it is just really, really early in that development process.

So overall I don't think I would read too much into it.

Actually we see this as very strong, because AVONEX has continued to do very well in the direct markets; and we are at the same time launching TYSABRI and -- as Bob pointed out -- getting some very healthy market shares right out of the chute with Germany and Sweden.

You did comment that there is a currency benefit, and that is right.

So there is a currency benefit that helped the revenue.

But as I pointed out, the volume is also pretty stout on the direct market.

So we feel pretty good with how Q1 looks.

Joel Sendek, Lazard Capital Markets.

Thanks.

I have a question on the RITUXAN in multiple sclerosis.

The data look pretty good.

So I am wondering what -- how quickly you can move that into registration trials.

Then you mention that you thought it would fit well with TYSABRI and AVONEX.

I am wondering if you can give more -- a better description of that, especially since you have Genentech as a partner who doesn't have an MS drug.

Thanks.

This is Jim Mullen.

I will start with the first part of that and maybe Al would like to add on, on the more scientific part.

So you know the way I would characterize the data is that it is certainly very interesting and exciting data.

It is relatively small study, short duration, so.

But it is certainly exciting enough that we should progress this into pivotal trials either with RITUXAN or the follow-on CD20 compound.

I think that decision is yet to be made, frankly, between -- in the collaboration, whether to advance the second-generation compound in MS or RITUXAN.

But nevertheless exciting data.

We need to push it forward into larger trials, longer duration and go for the gold standard endpoints that we have certainly pioneered with the other MS products.

In terms of how it will all fit together, we may have some ideas now.

I think the real answer is going to come probably in a number of years as we see how all of these things unfold in the marketplace.

So perhaps Al would like to comment on that.

I agree with all that.

I think the results are very promising.

In fact, they are rather comparable to our Phase II TYSABRI data, which was also a six month trial.

In terms of how it fits in, I think the field is grappling right now with personalized approaches.

Can we identify MS patients of certain types and there is some papers actually at this meeting that suggest that people are beginning to do so.

The other distinction of course is this is a -- one treatment lasted for six months.

Whereas the current therapies are once a week, daily or every other day injections or once a month infusions.

So I think just the huge duration between treatment regimens is certainly a huge convenience factor for MS patients.

Geoff Meacham, JPMorgan.

Hi, thanks for taking the question.

Just a couple of general questions on TYSABRI.

Can you give us a sense for were there are any trends in the rate of continuations and then in one of your slides, you mentioned treatment-naive patients.

Can you tell us a little bit more about the uptick in this setting and if this is how this is tracking relative to your guys' expectations?

Jeff, this is Bob Hamm.

Thanks a lot.

The trends in discontinuation are still emerging, so nothing really new there.

We're obviously looking at that very closely as time goes on.

In regards to naive patients, as I mentioned, one-third of the patients are coming from the naive or quitter or switching setting.

The quitter setting are people that have been off therapy for a minimum of six months and that is about in line with expectations at present given the hurdles of the TOUCH program and the things that have to go on for people to move in.

One of the key things that physicians and the patients are looking for is the update on safety and efficacy of TYSABRI and we are taking advantage of several upcoming medical meetings starting with tomorrow to update the physicians on that and that will help people get a better understanding and broader framework for the appropriate patient population.

George Farmer, Wachovia.

Hi, thanks for taking the question.

In looking at the data that you presented showing the number of patients enrolled in TOUCH versus the number of patients on therapy, there appears to be this consistent margin between the two groups.

How do we think about that margin or the GAAP going forward?

Does that shrink over time and what are the metrics to think about as patients move on from enrollment into TOUCH into actually getting therapy?

George, I will take the first crack at it.

This is Jim and then perhaps Bob, if I don't get it right, will add in a little bit.

So we have obviously been in this marketplace for a long time, so we know that there is always, if you will, a little bit of shrinkage between those who enroll and those who actually begin whether it is an AVONEX injection and treatment or Copaxone or any of the treatments.

So there is a little bit of loss between the decision, if you will, and reality that may come a couple weeks later and there are lots of reasons why that occurs.

Some of them are very practical things like really identifying the logistics and thinking that through.

Do I want to travel to an infusion center?

Do I really want to face up to a daily injection or a weekly injection, things like that?

Payment and reimbursement and co-pays all go into the mix and occasionally there is a change of status of the patient and they go in a different direction along the way.

I think we are at the point now in the launch where we are beginning to get enough data together to begin to look at what are all the, if you will, the small roadblocks that add up to people perhaps not going, not progressing from the TOUCH to actually going on treatment and determining how many of those we can actually help solve or remove for the patients.

Bob, if you want to add a little more color?

No, I would just add that our AVONEX experience tells us that of those we have a low double digit that don't start for various reasons.

As Jim mentioned, they cover a wide range of probabilities.

In this case, we have a much better handle on the problems and are able to move forward very quickly because of all the TOUCH data.

So that tells me that it is likely over time that the gap between TOUCH forms coming in and actual people on drug will be less and less important in the scheme of things.

Thanks.

That is very helpful.

Bill Tanner, Leerink Swann.

A question maybe for Bob and Al.

Bob, I know you indicate there were some of these safety updates that physicians may grow more comfortable with TYSABRI.

I am also curious as to what you guys are seeing out in the field as it relates to potential treatments for PML and I guess specifically it sounds like the protocol for the pheresis procedure may have been amended suggesting that it works.

So when is there going to be more visibility as to the availability of that and are physicians wanting some kind of a potential treatment or are they going to be mainly waiting to see if a case of PML is effectively treated to get them more comfortable with using the drug?

So I've been talking to a lot of my colleagues out there, and I think one thing that makes them comfortable to see other colleagues use TYSABRI.

And so the fact that there are people down the street or the people in an institution and they are saying [city] is starting to use TYSABRI, that is what gives them a great deal of comfort.

In terms of PML treatments, we will touch on that at the R&D day.

We are looking at pheresis.

We are getting some very good data from that and we think we will be able to recommend specifically how to remove TYSABRI when somebody gets PML and what the protocol for that will be.

There are other things we are looking at such as serotonin 5-HT2A blockers, which show some potential.

Also, as you know, we have done this deal with Alnylam, looking at RNA interference and we have some very encouraging animal data.

So we will give you an update on that on May 17 at the R&D day.

Maybe I will just add a comment about the 5-HT2A blockers.

These are antagonists of serotonin receptor subtype that apparently is a co-receptor that the virus uses to gain entry into cells.

And as you know in the AIDS field with the CCR5 receptor antagonist as co-receptors that block viral entry, this is a very plausible approach to have an impact on infection of cells by the virus.

And again, we will cover that at the R&D day.

Eric Schmidt, Cowen & Co.

Good morning.

A question for Peter on the RITUXAN joint venture revenues.

If I do the math right, I think the quarter had Biogen Idec looking at an all-time low in joint venture revenues in the US as a percent of the total 25.6.

I am just kind of wondering with the RA launch now about 12 months behind us when we might start seeing that number, if ever, trend back upward to the high 20s.

Yes, that's interesting, Eric.

That is a percentage calculation I don't actually run.

So let me just think about that for a second because, as you know, in our line item, RITUXAN from consolidated joint venture business, we have three moving parts.

There is the share of the US profit and obviously, we are doing a lot of trial activity in the US on RITUXAN.

You saw some data from that just recently and there's other work going on in RA and so forth.

So I think that our margin on the US business is kind of like at a lower point because of the heavy investment in all those trials.

That will probably improve over time both as we get leverage on the business plus we won't quite have that heavy load of trial work forever.

The second is the royalty revenue on the US and that is a flat percentage of the international business.

I don't think that would change the percentage calculation you just did, but obviously that business is doing very well.

And then the third is we are reimbursed for costs on the RA business and I think, at this point, that is kind of a -- for our commercial activities on the RA business, I think that is a pretty steady state activity at this point as we go quarter-to-quarter.

So I would have to follow up with you to actually run that same percentage to kind of sort that one out, but generally we don't really see anything unusual.

I guess the only thing that I would say maybe that has been in Q1 and some of the prior quarters that maybe going forward not see quite as much as I would guess the margin in the US business will probably pick up as we move past some of the heavy trial activity we have had for RITUXAN in the multiple indications.

But I don't want to forecast that, but it is not -- we don't generally look exactly at that percentage all the time if I understood your percentage properly.

You did.

That's helpful.

Thanks.

Is that helpful?

Okay.

Great.

Ian Somaiya, Thomas Weisel Partners.

Yes, thanks for taking my question.

Just a question on the RITUXAN and the anti -- Humanized Anti-CD program in MS.

Can you just walk us through what some of the considerations are in terms of deciding whether to move forward with the RITUXAN or the humanized antibody and if you could speak to it from a clinical standpoint, as well as from a commercial standpoint?

I will try to -- this is Jim -- I will try to tackle that as best I can.

Of course, it is a fairly complex algorithm because we have several compounds under development with our partners Genentech and, of course, Roche.

So you have RITUXAN obviously in the marketplace.

You have 2H7 well-advanced.

We have another version early in the clinic and as the data rolls in, whether that is clinical, preclinical what have you and each one of these molecules is slightly different and potentially the thought or the idea is to optimize them for different facets of the activity that may be more or less relevant in a different disease setting.

So what we want to accomplish in oncology, what we want to accomplish perhaps in the RA setting, Lupus setting, etc.

are all slightly different in terms of what we think the important activities are.

So it is really trying to look at the totality of that data and then determine what is the appropriate strategy and which indications to push forward in most aggressively with the different compounds.

I think in total, the three companies are thinking through the auto -- the immunologic disease settings very carefully.

In the oncology setting, some of the issues that you might think about in the immunology setting aren't as relevant.

So infusion reactions and things like that are pretty well-understood and not as relevant.

So that is the mix of issues going into it, so it is a little bit like playing three-dimensional chess and then add onto that what are the competitive activities in the CD20 and how do we want to craft an overall strategy to address the competitive moves by other companies.

Michael Aberman, Credit Suisse.

Great, thanks.

If I could also follow up on RITUXAN.

While the year-over-year growth looks strong, maybe the past three year or four quarters have not been -- three quarters sequentially doesn't seem the growth has been as robust and I am wondering a) if you can comment if there has been any impact of having that PML warning on the label and particularly given your expertise in the field of PML, how you think that might play out also in the MS field and the perception of safety versus benefit for RITUXAN on the long term and specifically given its long duration of action?

Maybe two parts to that.

Let me answer first just in terms of quarter-over-quarter trends.

Then maybe Jim can talk to the second part.

So Q1 basically was up versus Q1 of a year ago, but we did have much stronger quarters than prior quarters.

So it's not unusual in this business to see a slightly softer Q1 and in fact, I believe on the earnings call that Genentech has already held, they, when asked about it, they indicated that they felt that there had been some ending inventory level in the channel that were a little higher at the end of Q4 than they were in Q1 and that is not an unusual cycle given the holidays.

So I think we just might be seeing sort of a typical cycle where Q1 sometimes comes in a little softer.

On the second question, Jim, do you want to touch on the question of is there any chance of --?

Yes, so let me build off of Peter's question.

You probably recall in the very early part of my comments today that I talked about the CD20 franchise as being in the second leg of growth.

So I think one of the things you see, if you will, in the growth rate is in the non-Hodgkin's lymphoma setting, we are very highly penetrated.

It is first-line therapy.

The maintenance setting is quite highly penetrated and so the amount of remaining growth in that area I would say is somewhat limited.

We will continue to look, if you will, in adjacent oncology spaces for growth, but that is where we are 10 years in NHL.

In the second leg of growth and this is very exciting I think is in these immunologic diseases, RA is growing nicely.

There is huge unmet need.

The TNF refractory patients or the TNF failures is an ever-growing population and don't forget we have Phase III programs ongoing to move this forward in the treatment regimen to compete directly with the DMARD failures with the TNF.

So I think we should -- we are very hopeful that we are going to see expanded label indications in RA.

You have seen the data in MS.

We have got data unfolding in Lupus.

So I think we are in the early phases, if you will, of the second leg of growth for RITUXAN.

So that is how I would characterize where we are today.

Can you comment on the P&L side of it or --?

Yes, I am sorry.

The PML side -- it is funny.

We didn't set out to become the experts in PML, but indeed we find ourselves there.

And frankly I think that is becoming an advantage because this is one of those areas I think, as we have put the spotlight on it, people are really paying a lot more attention and those things that were previously not really well-diagnosed, I think a lot of those are becoming much better more refined diagnosis.

So my guess is we are probably going to see PML pop up across the broad range of all immuno-suppressants, ours and all the others.

And I don't think that is an epidemic; I just think it is people really thinking about it more clearly.

I don't see that it has had a huge impact at this point.

PML was known and in the label in the oncology setting.

To see it pop up I don't think is a great surprise.

Outside of the oncology setting and in Lupus in particular, we know from literature and our own databases that there is a higher incidence of PML in the Lupus population for reasons I don't know that are fully understood, but that is a true statement.

So I don't think it is having a huge impact at this stage.

Jason Kantor, RBC Capital Markets.

Thank you very much.

I guess my question is how much safety data do you think that you will need from TYSABRI to really drive an inflection point in the use of the drug in the US and in Europe?

I have sat -- I have had a number of meetings over the last couple of days around AAN with opinion leaders and big practice leaders in the US and Europe and I don't know that there is a precise answer to that.

I think there is two dynamics there of course occurring.

One is as people just get more data and push, we are going to see the next big tranche of data tomorrow morning on a poster.

That, if you will, reduces the uncertainty about what the rates might be just by getting more information.

So I think that will be comforting.

You will now have 10,000 plus people that have seen this drug for a significant period of time.

Now for those who are in the watch and wait category of which there are a reasonable number of physicians, they really want to see how this plays out over a longer period of time, over say two years.

So I think in a lot of people's minds, there is some magic around two years and how that relates to the two cases that were observed.

However, there is another dynamic at play and we were sitting at a symposium last night and I think that view came out very clearly from I think it was Dusan Stefoski at Rush Memorial mentioning that the patients are starting to take it out of the hands of the neurologists and by that I mean as they start to talk among themselves as they have the experience and as they report some of their own personal stories about what TYSABRI and the treatment of TYSABRI means to them, we are seeing the dynamic and we heard it many, many times.

We heard it in the initial launch and prior to that launch of people able to do things, feeling better, reporting better quality of life overall.

That is in the Phase III data as a matter of fact.

Those kind of stories then really begin to reset people's perception of what is the benefit because we have done very little talking about the benefit.

All the discussion has been about the risk and I think it rebalances that whole discussion.

So I think we see where there are -- where there are centers that are accumulating a fair amount of experience and the patients begin talking to one another, the momentum builds.

So I don't know what the tipping point is, but I think those are a couple of dynamics involved.

Bob, do you want to make --?

Just backing that up, we conduct frequent market research because although we are adding prescribers every month in the US, we want to know what is going on with the rest and we do know from our market research that 70% plus that are not prescribing say they intend to in the next 12 months and when you ask the 25% what is it going to take, the answer, as you have heard, is that we want to see the two plus years, we want to see the patient data that is currently present and so that is all backed up by responses we're getting here anecdotally and through the market research.

Mark Schoenebaum, Bear Stearns.

Hi, thanks for taking my question.

I just -- I had another question on RITUXAN and MS, but a little big different angle.

If I have got the facts straight, Phase III data on rituximab in primary progressive MS will be out next year.

So I am wondering what, if anything, the Phase II data in relapse and remitting released yesterday teach us about RITUXAN's potential activity in the primary progressive population.

Also if you can help us understand how big is the primary progressive population and is there any AVONEX being used there now by your estimation and then just if I could tack on a housekeeping question, what were the inventory changes for US AVONEX sequentially?

Well, the inventory changes were, if there were any, were miniscule, so I will knock that one off and then we will give the meatier problem to Al.

So probably about 15% of patients begin MS with a progressive form and therefore meets the definition of primary progressive MS.

Most of those patients -- in fact, I would say the vast majority are not on interferon or AVONEX and what the Phase II data in RRMS, how that plays into PPMS and our prediction, it's very unclear.

Some people feel that there is overlap between RRMS and PMS and PPMS in terms of the type of physiology.

Others feel that they are quite distinct entities.

Clinically, they are distinct.

In fact, the incidents of PPMS is similar between men and women, whereas it's skewed towards women in RRMS.

PPMS patients are generally older and they present more with spinal cord findings.

So clinically, they are different, but in terms of pathophysiology, there may be areas of overlap.

I don't think the RRMS data predicts very well what the PPMS result will be.

What was the rationale for the PPMS trial then?

The rationale for the PPMS trial came from two places.

One was that there were studies that showed antibodies were prevalent in patients with PPMS against antibodies against myelin constituents and second that there was evidence of B-cell maturation and the clonal expansion of B-cells in CSF.

So what we don't know with RITUXAN is how does RITUXAN affect CNS clonal expansion and also what we don't know is how much of that RITUXAN data was mediated by its effects on antibodies.

The effect of RITUXAN in the Phase II trial was very rapid, so certainly a piece of the efficacy must be independent of antibodies.

So for the fact that PPMS may be associated with antibodies may or may not help us figure out whether RITUXAN would be effective in PPMS.

Thanks a lot, I appreciate it.

Operator, given the time, we will take one more question.

Geoffrey Porges, Sanford Bernstein.

Thanks very much.

Quickly on RITUXAN, my question is whether the debate between Biogen Idec and Genentech is now rate-limiting for the initiation of Phase III for RITUXAN and then just related, we haven't talked much about the oral MS drugs, but I know there are a number of presentations at the AAN about them.

Is the efficacy that you are seeing with the oral drugs or the safety profile for that matter enough to convince you that they are really going to be viable alternatives to the current agents given that we are seeing sort of 30%, 35% reductions in relapse rate?

Well, let me tackle the first one and maybe I can tackle a little bit of the second one and give the second part of the question to Al.

In terms of is the dispute between Biogen Idec and Genentech rate-limiting in moving these programs forward, I would say not in any significant way.

So I don't really think that is a barrier to seeing these programs move forward.

Al, do you want to comment on the second part of the question?

I believe the question was all drugs -- the ABCRs, the 30% effective drugs and how they all stand up in the face of these newer drugs.

I think what we are seeing is an era now where and this became very clear yesterday afternoon with the RITUXAN and the Campath data where we have modestly effective, but relatively safe drugs in MS and highly effective, but somewhat risky drugs and the neurologists are now entering a new world where they have to grapple with choices that may entail some risk.

So it is a new world for them, but I think there will always be a place for the ABCR drugs because even though the aggregate effect is 30%, some patients do very, very well on interferon and will therefore stay on interferon probably for the rest of their life or at least while they are in overrelapsing phases of the disease.

And for those who are not getting the efficacy they need from an ABCR, then there will be a choice to be made as to whether or not they move on to the highly-effective drugs that carries some risk.

The neurology field is dealing with that right now and that became very clear during the symposium last night when we heard the panel discussion among practicing neurologists and when we heard from the patients' point of view as well.

All right, Al.

What I was asking was will the oral drugs, for example your own BG-12 or laquinimod where we saw data yesterday, will they offer enough efficacy to have a place or are they just not meeting the threshold of what is going to be required in the future?

Geoff, this is Jim.

Now my view is I think those products will, assuming that they hold up, they will have a place in the market.

What we haven't -- what we don't have enough information now on is sort of the individual effects.

So just to tie back to Al's point on the interferons, while the average is 30%, it is very heterogeneous in terms of the individual effects.

So you have people that are essentially in remission or near remission and you have other people that really don't respond well at all that all go into that average.

Is it likely that we are going to see that play itself out with the orals?

I would guess so.

And there is many factors that go into the decision by the patients and the physicians as to what's the right product to start with or what is the right product to switch to, so I think they are going to have a role.

It may take some more time to figure out what that role is and then the last comment I would make is I have heard increasing conversation among the neurology community about how to use these products in combination with one another.

So I think we are going to see increasingly experimentation out there both at the investigator sites, as well as from the company of how to combine products together to optimize the treatment regimen.

All right.

Thanks very much.

Thanks.

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