Biogen Inc (BIIB) 2008 Q2 法說會逐字稿

Good morning.

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

At this time, I would like to welcome everyone to the Q2 Biogen Idec earnings conference call.

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

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

(OPERATOR INSTRUCTIONS) Thank you.

Ms.

Woo, you may begin your conference.

Thank you.

Good morning and welcome to Biogen Idec's earnings conference call for the second-quarter 2008.

Before we begin, I would encourage everyone to go to the investor relations section of our website, biogenidec.com, and print out the press release and related financial tables.

These will be particularly useful when our CFO, Paul Clancy, reviews the financial results and the reconciliation to non-GAAP financial measures discussed today.

We've also posted slides on our website that outline the topics discussed on today's call.

Let me 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 2008 financial guidance, our longer-term operational and financial goals, and the sales potential of Tysabri and other products, and pipeline advances.

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

In particular, careful consideration should be given to the risks and uncertainties that are described in our earnings release and in Item 1a of the Company's reports on Form 10-K and 10-Q and in other reports Biogen Idec files with the SEC.

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

Today on the call, I'm joined by Jim Mullen, CEO of Biogen Idec; Bill Sibold, Senior Vice President, US Neurology Business Unit; Dr.

Al Sandrock, Senior Vice President Neurology Research and Development; and Paul Clancy, CFO and Executive Vice President, Finance.

Now I will turn the call over to Jim Mullen.

Thank you, Elizabeth.

Good morning, everybody.

Thanks for joining us.

Biogen Idec delivered record revenues and profits in the second quarter.

This is the third consecutive quarter in which we have grown revenues by more than 25% year-over-year, and as you'll see from the Q2 financial results, we're in an extremely strong growth cycle.

Year-over-year revenues grew 28% and earnings grew 30% in the quarter, driven by continued Tysabri penetration and strong sales from our core products, Avonex and Rituxan.

Between Avonex and Tysabri, our MS franchise continues to expand.

We saw an acceleration of Tysabri patient adds as physicians grow more comfortable with the safety profile.

As we described last September, the ex-US business will continue -- will grow faster than the US and we expect international to contribute about 60% towards the Tysabri 100,000-patient goal.

More than half of the 5,700 new patients in Q2 were in international markets.

Tysabri was launched in Crohn's indication at the end of the first quarter 2008.

Q2 activities focused on educating healthcare professionals about the operation of the CD TOUCH prescribing program.

A little over 100 Crohn's patients were on therapy at the end of the second quarter.

Elan will provide more color on their upcoming call later this week.

We are making great strides towards our goal of 100,000 patients by year end 2010.

We expect Tysabri to exit 2008 at over a $1 billion run rate of in-market revenues.

This month we celebrate Tysabri's two-year anniversary since the relaunch, and we feel this is a very, very important milestone.

At the end of June, there were 31,800 patients being treated with Tysabri around the world.

Nearly 14,000 have received Tysabri for 12 months, and about 6,600 patients have been on therapy for 18 months or longer.

Bill Sibold, the Senior Vice President of US Neurology, will take you through an update of the MS franchise in a few minutes.

Now I would like to make a few comments about our pipeline.

We're moving our pipeline programs forward.

We've initiated several first-in-human trials this quarter and have a number of important data readouts on late-stage programs over the coming months.

Baminercept Phase 2b in RA; HSP90 in GI stromal tumors; Factor IV hemophilia; BIIB0-14 in Parkinson's disease; and Rituxan in CLL.

With 15 products in Phase 2 and beyond, our pipeline is advancing.

Clinical trial activity continues to ramp up significantly this year.

Significant R&D investment both organically and via business development have yielded a robust pipeline with half a dozen novel compounds currently in late-stage trials.

Adentri will start a Phase III trial in this quarter in acute decompensated heart failure and renal insufficiency.

Over the coming quarters the conversation will increasingly turn to pipeline progress and data.

We think the breadth and maturity of our pipeline positions us to continue our growth through the next decade.

Dr.

Al Sandrock will review the pipeline accomplishments and upcoming milestones in his comments.

I will conclude my introduction by saying our prospects for growth remain strong.

Tysabri sales nearly tripled compared to the same period last year.

Our core products continue to grow.

Our pipeline is overflowing, and our revenues have grown more than 25% year-over-year for three consecutive quarters.

Given the strong momentum underway, we've raised our full-year guidance and we are setting an aspirational goal of generating a record $4 billion of revenues this year.

CFO Paul Clancy will take you through the financial and updated guidance in detail.

I will now turn the call over to Bill Sibold, the head of US Neurology business.

Bill?

Thanks, Jim.

I'm pleased to report that in Q2 we continued the momentum established in 2007 and Q1 2008.

Biogen Idec's leading global MS franchise continues to grow every day.

No one is doing more for MS than Biogen Idec.

We have the number-one prescribed MS therapy today, Avonex.

We have the product that has established a new level of efficacy, Tysabri.

And we have the best and broadest pipeline of MS products for the future.

Turning to Q2 results, global neurology revenue increased by 32% versus the prior year to $674 million.

Our global franchise market share continues to grow.

In the US, it is now at its highest level since 2005, and it is at its highest level since 2000 outside the US.

We expect this trend to continue in step with Tysabri's growth.

Avonex remains the product to start with, and Tysabri for those patients needing more efficacy.

With their clear positioning and strong product profiles, the bulk of relapsing-remitting MS patients are candidates for either Avonex or Tysabri.

As our pipeline matures, we will have new options for additional patients in need.

Avonex's global revenue in Q2 was $527 million, up 14% year-over-year.

US Avonex revenue was up 13% year-over-year and international Avonex revenue was up 15% year-over-year.

With over 135,000 patients on therapy worldwide and over 1 million patient years of experience, Avonex remains the foundation of our global MS business.

After 11 years on the market, Avonex remains the only once-weekly product and is the only product indicated to both slow the accumulation of physical disability and be effective for patients who have experienced a first clinical episode and have MRI features consistent with MS.

Perhaps this is why Avonex is the treatment most associated with patients in the early stages of disease and with those patients who lead an active daily lifestyle, and why it is the number-one MS therapy in the world.

Avonex disrupts the disease, not patients' lives.

Now Tysabri.

Tysabri continues to build momentum and is now on an $800 million run rate with in-market revenue of $200 million in Q2.

This represents 25% growth over Q1 and an almost threefold increase over the prior year.

Last week, we celebrated yet another significant milestone for Tysabri, its two-year anniversary.

Of course, the real celebration is for the many patients that have benefited from Tysabri.

Each day we continue to hear from patients and their physicians about the compelling results that have been achieved.

It is clear that this breakthrough therapy has given new hope and a new option to many patients that suffer from this serious, debilitating disease.

A few commercial highlights.

Worldwide, Tysabri continues to be considered the most effective MS therapy by neurologists, with more than nine out of 10 physicians in the US stating this.

Positive switching trends continue.

In the US, Tysabri is the most switched-to therapy for efficacy; and Copaxone, which is everyday injection, remains the largest single source of Tysabri patients.

About 80% of patients in the US and nearly 90% of patients internationally are new to the Biogen Idec franchise, and physicians are switching patients to Tysabri earlier.

This growing comfort and acceptance of Tysabri's benefit-risk profile is evidenced by our updated utilization numbers.

As of the end of June, there were more than 31,800 patients on Tysabri worldwide in the commercial and clinical trial setting.

There were more than 17,800 Tysabri patients in the US, and more than 3,100 prescribing physicians.

Internationally, there were nearly 13,400 patients on therapy in the 35 countries in which Tysabri is approved.

There have now been nearly 13,900 patients on therapy for over one year, and approximately 6,600 on therapy for more than 18 months.

Throughout the year, the number of patients on therapy for two years is expected to increase rapidly.

Additionally, since the last call Tysabri was added to the VA formulary for use by neurologists and other prescribers who treat multiple sclerosis.

There are five European countries in which Tysabri has over 10% market share, and the TOUCH online rollouts have continued to be very well received in the US.

Because of the substantial service benefits to our prescribers and infusion sites, the majority of the ongoing infusion paperwork is now submitted via TOUCH online.

We believe Tysabri will continue to build momentum throughout the remainder of 2008.

We had a strong Q2.

Q3 has started with another significant milestone, the two-year anniversary and updated utilization numbers.

Physicians will be hearing about these numbers frequently in the coming days and weeks.

Throughout the remainder of the year, the number of patients with over two years on therapy is expected to grow rapidly.

We remain confident that Tysabri will achieve the previously stated goal of 100,000 patients on therapy and become the leading MS therapy in the world.

In conclusion, with the number-one prescribed MS therapy today in Avonex; a product that has established a new level of efficacy, Tysabri; and the best and broadest pipeline of MS products for the future, Biogen Idec is the leader in multiple sclerosis.

Our goal remains to provide products and services for MS patients from diagnosis to disease resolution.

We are extremely pleased with results of the second quarter and optimistic about the rest of the year and the future.

I will now hand the call to Dr.

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

Thank you, Bill.

Today I will report on accomplishments in the quarter and will also mention some upcoming data readouts with some focus on the neurology pipeline that is my responsibility.

We continue to make good progress on advancing and developing our late-stage clinical pipeline.

We are actively enrolling patients into the four ongoing registrational trials of BG-12 in multiple sclerosis, lumiliximab in chronic lymphocytic leukemia, galiximab in non-Hodgkin's lymphoma, and lixivaptan in hyponatremia.

In addition, we expect to initiate a Phase 3 trial of Adentri in acute decompensated congestive heart failure within a few months.

With respect to our early-stage development pipeline, we have achieved first patient enrolled in a Phase 1/2 trial of Factor IX in hemophilia B, as well as a Phase 1 trial of toxin conjugated antibody against crypto in solid tumors.

And, any day now we will be enrolling our first patient in a Phase 1 trial of Tysabri in multiple myeloma, demonstrating our commitment to this molecule.

Regarding Tysabri, as you know we just celebrated the two-year anniversary of the relaunch of Tysabri in the United States and the initial launch internationally.

As you've heard, we have not seen a single confirmed case of PML in these two years.

Nevertheless, should a case of PML occur in a Tysabri-treated patient, we can now offer physicians several complementary methods to help the patient.

For example, in April at the American Academy of Neurology Meeting, we showed that plasma exchange can rapidly restore the ability of peripheral blood leukocytes to migrate through extracellular matrix.

And we recently initiated a clinical trial testing the effect of an approved antimalarial drug called methylquin in HIV patients with PML.

Methylquin was chosen because it has shown excellent antiviral activity in an in vitro assay of JC virus infectivity and because it has high central nervous system penetrance.

One final word about Tysabri.

When I go out and talk to my colleagues who treat MS patients, I frequently hear about the remarkable benefits that Tysabri offers to their patients.

For this reason, we are in the early stages of planning a landmark study that more fully evaluates the efficacy of this remarkable drug in multiple sclerosis.

I would like to take this opportunity to highlight some additional accomplishments in the neurology pipeline.

We recently transitioned the humanized antibody, the LINGO, into preclinical development, putting us on track to go into the clinic with this drug toward the end of next year.

This heralds a new era in MS therapeutics, as this would be the first drug to our knowledge that is specifically designed to repair the damage in the central nervous system caused by multiple sclerosis.

We have had multiple abstracts accepted for presentation at the World Congress on Treatment and Research in MS in Montreal in late September.

We will present six studies with Avonex, including studies evaluating the long-term 15-year efficacy of the drug, as well as the benefits of Avonex on quality of life.

We will also present six studies on the safety and efficacy of Tysabri, including one study showing the effect of the drug on the proportion of disease-free patients and another study showing the effect of the drug on sustained improvement in disability progression.

Finally, we have two abstracts on BG-12, our oral drug for MS that is currently in Phase 3, including one study showing the effect of the drug on the conversion of gadolinium-enhancing lesions in [CT1 holds], thus evaluating the potential role of BG-12 in neuroprotection.

I will end by reminding you about the data readouts that are anticipated for the remainder of this year.

We expect to see data from a Phase 2b trial of baminercept in rheumatoid arthritis; a Phase 2a trial of our adenosine A2A antagonist for Parkinson's disease; a Phase 1/2 trial of the long-acting Factor IX in hemophilia B; and a Phase 2 trial of our HSP90 inhibitor in GI stromal tumors.

In conclusion, 2008 continues to be a very active year in research and development.

We are as eager as you are to monitor the progress of these programs.

With that, I will hand the call over to Paul Clancy, our Chief Financial Officer.

Thanks, Al.

We delivered another strong quarter of financial results.

In Q2, we achieved 28% top-line growth with strong performance from all products and geographies, and over 30% growth in earnings on a year-over-year basis.

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

Table 3 includes a reconciliation of the GAAP to non-GAAP financial results and future guidance.

Our website also contains a reconciliation.

The primary differences between our GAAP and non-GAAP results for the quarter were $73 million related to the amortization of intangible assets, $5 million related to pretax employee stock option expense, and $16 million tax impact for these items.

Now we'll move on to the non-GAAP P&L operating performance of Biogen Idec.

We believe it's important to share this non-GAAP P&L with shareholders, since it better represents the ongoing economics of the business and reflects how we manage the business internally and set operational goals.

In Q2, we delivered $0.70 a share diluted EPS on the GAAP P&L; and after the adjustments shown in Table 3, our non-GAAP diluted EPS was $0.91 a share, which represents a 30% growth versus prior year.

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

Q2 total revenues were $993 million, representing an impressive 28% growth over the same period last year.

Key drivers included the continued growth of Avonex business, the increasing adoption of Tysabri, and the growth of the Rituxan franchise in the US and overseas.

Going through our product revenues, I will begin with Avonex.

Q2 Avonex worldwide product revenue were $527 million, representing a 14% increase over the same period last year.

Q2 US Avonex product sales were $306 million, representing an increase of 13% on a year-over-year basis, benefiting from price increases.

Inventory ended at just over two weeks in the second quarter, unchanged from Q1.

On a sequential quarter basis, Avonex US revenues and units sold were essentially flat.

Over the last four quarters, Avonex units sold in the US have stabilized as our sales and marketing efforts have taken hold.

Q2 international Avonex product sales were $221 million, representing an increase of 15% on a year-over-year basis.

Approximately 9% of this increase in international Avonex sales was driven by favorable foreign exchange.

While we had a strong quarter when comparing year-over-year results, there was a very modest sequential quarter decrease of 3% for international Avonex revenues.

This was primarily due to a decrease in the German market, attributable to wholesaler forward buying in the first quarter in advance of an April 1 price increase, and seasonal buying patterns by our distributors, specifically lower tender business in the Middle East.

Overall, the Avonex international business from a unit perspective is growing in the high single digits when comparing the first half of 2008 to the first half of 2007.

Q2 Tysabri worldwide Biogen Idec product revenues increased to $147 million.

As Bill highlighted, Tysabri continues to make strong progress.

US end-user Tysabri sales totaled $99 million, which represents a 15% quarter-over-quarter increase.

Biogen Idec booked $46 million of this amount.

International enduser Tysabri sales totaled $101 million, a 37% increase from the prior quarter.

In line with patient numbers, units sold in the US exceeded the international market.

However, revenues from the international market exceeded the US due to higher pricing owing to favorable foreign exchange.

Second-quarter Fumaderm revenue was $10 million.

Now moving on to the Rituxan collaboration revenues, which is referred to as revenue from unconsolidated joint business.

We recorded $279 million in revenue for the quarter, representing an increase of 21% on a year-over-year basis.

This number has three elements.

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

As reported by our partner, Genentech, US Rituxan sales were $651 million in the second quarter; and our second-quarter profit share from that business was $178 million, up 16% versus prior year.

Second, we receive royalty revenue on sales of rituximab outside the US.

In Q2, this was $85 million, up 37% versus prior year due to foreign exchange and strong MabThera revenue growth.

Third, we were reimbursed $16 million for selling and development costs incurred related to Rituxan.

Second-quarter royalties were $28 million for the quarter.

Now turning to the expense lines on the P&L, which include the non-GAAP adjustments that I described earlier.

Second-quarter cost of goods sold was $92 million, which represents approximately 9% of revenues.

During the middle of the second quarter, a third-party royalty we pay mainly on Avonex's US sales expired.

This should have a modest benefit to our COGS moving forward.

Second-quarter R&D expenses were $249 million, which is approximately 25% of revenues and a 16% year-over-year increase.

Increase in our R&D spend were driven by the continued advancement of the pipeline.

We plan to have close to half a dozen programs in registrational trials in the second half of 2008, including BG-12, lixivaptan, galiximab, lumiliximab, and Adentri.

Second-quarter SGA expenses were $242 million.

This represents 24% of revenues and a 22% year-over-year increase.

Drivers of the year-over-year increase in absolute dollars included investments to support Tysabri and Avonex growth, as well as unfavorable foreign currency exchange.

Additionally, the second-quarter G&A expenses included direct proxy-related expenses of approximately $10 million.

Continuing down the P&L, our collaboration profit-sharing line totaled $33 million in expense for the quarter.

As a reminder, this represents Biogen Idec's payment of 50% of profits outside the US to Elan, and the reimbursement of third-party royalties incurred by Elan outside the US.

We expect this number to continue to grow in the coming quarters, reflecting the growth of our international Tysabri business.

Second-quarter other income and expenses was a $7 million loss.

Interest expense and interest income roughly offset each other.

At the end of the second quarter, we have approximately $1.6 billion of cash and marketable securities, and we now have $1 billion of long-term debt.

Also in the second quarter, we recognized losses on sales and impairments of investments of approximately $6 million.

Year to date, we have repurchased 9 million shares, of which 5 million shares were repurchased in the second quarter.

Q2 tax rate on a non-GAAP basis was approximately 27%, which is slightly lower than our expected full-year tax rate.

Year-to-date, the tax rate was approximately 28%.

The effective tax rate in Q2 was favorably impacted by a discrete one-time benefit.

This discrete one-time benefit was due to a restructuring of our operations in foreign jurisdictions in the second quarter.

We expect our 2008 effective tax rate to be in the 28% to 30% range, which is higher than the second-quarter rate.

This brings us to our second-quarter non-GAAP diluted earnings per share of $0.91, representing a 30% increase over the same period last year.

Now, I would like to conclude by discussing our updated 2008 guidance.

Given our strong Q2 performance, we are raising our 2008 financial guidance.

We expect full-year annual revenue to grow in the mid-20% range over 2007, driven in large part by Tysabri and favorable foreign exchange.

We expect operating margin leverage to be similar to previous guidance, and both non-GAAP and GAAP R&D SG&A expenses for the year to be approximately $2 billion.

I have excluded our collaboration profit-sharing line from our $2 billion expense guidance for 2008.

I should note, though, that we do expect this line to grow each quarter, reflecting the uptake and increasing profitability of the international Tysabri business.

Our non-GAAP tax rate is expected to be between 28% and 30%, while our GAAP tax rate is expected to be between 31% and 33%.

This includes an assumption that the R&D tax credit legislation will be renewed late in the year.

This would result in different tax rates for the next two quarters.

Non-GAAP diluted earnings per share is expected to be at or above $3.50, which represents a 28% year-over-year growth rate.

This excludes the potential impact of new business development activities for the balance of the year.

GAAP EPS is expected to be at or above $2.51.

So in summary, a very strong second quarter.

Our top-line growth was strong at 28%, driven by all of our products.

We continue to progress and invest in our pipeline; and at the bottom line we delivered 30% non-GAAP and GAAP EPS growth.

Now I will hand the call over to Jim for his closing comments.

Thank you, Paul.

In summary, we're extremely pleased with the financial performance for the first half of 2008.

We believe that the strong fundamentals of the business across all products and geographies will continue to deliver robust results and create significant value for our shareholders.

Given the strong momentum underway and the key data readouts expected this year, the prospects for the Company have never been better.

We made significant progress this year towards our 2010 goals both financially and operationally, and we remain confident that we will achieve our goal of 15% top-line, 20% bottom-line compounded annual growth rates, as well as make strides towards our mission of bringing more meaningful therapies to patients in need.

With that, Elizabeth, let's open it up for Q&A.

Thanks, Jim.

So Kristen, we are ready now to open up the call for Q&A.

We ask the participants on the call to limit yourself to one question and then reenter the queue for follow-up questions, to allow all your colleagues to get their questions in.

Please state your name and company affiliation.

So operator, we can now take the first question.

(OPERATOR INSTRUCTIONS) Michael Aberman with Credit Suisse.

Fantastic.

Thanks, guys, for taking the question.

I'm wondering if you could give me a little -- a more detailed update on your pipeline, in particular late-stage programs, lixivaptan, BG-12, the other compounds, in terms of enrollment and goals on that; and in terms of completion, etc.

Do you want to take that?

Mike, yes, those trials are enrolling well; but we really don't project out publicly kind of the completion times.

But they are enrolling very well.

Oh, since there's no questions I had, just ask you to update where you are on the share buyback program; and then I will get back in the queue.

Yes, we have authorized from -- the last authorization from the Board was a $20 million share buyback program.

We, through the six months of this year, have bought back 9 million shares.

5 million in the second quarter, first 4 million in the first quarter.

Our objectives at this point are to kind of use that for share stabilization purposes.

Our anticipation for the balance of the year is that we are probably set with respect to share stabilization.

Thanks.

Geoffrey Meacham with JPMorgan.

Hi guys, and congrats on a good quarter.

Question for you on slide 10, the US source of patients for Tysabri.

When I look at this and compare it to last quarter's, the number of switchers, their percent of switchers from Betaseron and Copaxone and Rebif has gone up.

It's 52% now; it was 45% last quarter.

Can you give us some color on that?

Are you seeing acceleration of switchers?

Is this also reflective of the sequential acceleration that you see in new starts in Tysabri?

Thanks.

This is Bill.

We are seeing, as we would expect to see, more of the patients for Tysabri coming from the switching population as we know the efficacy of the current ABCR therapies.

We know that in time patients will be in need of more efficacy, and we see that they are switching to Tysabri now and would expect that trend to continue in the future.

Yaron Werber with Citi.

Yes, hi.

I have a question about the Crohn's market.

Can you -- you mentioned there is about 100 patients so far on drugs.

Can you give us -- which, by our estimate, may be a 6% penetration into the TNF inadequately treated patients.

Does that jibe with your model?

Can you give us a sense as to how quickly can this ramp?

Or maybe give us a sense as to whether that is really 6%; or numbers-wise, how many millions in sales were in Crohn's?

Thank you.

Yes, this is Jim.

I guess the way I would characterize it right now is we are not -- much like the early days, the early months of the launch within the MS marketplace, the focus in the first quarter or six months of this is all about making sure everything in the system works.

Educating all the gastroenterologists on what the TOUCH program is.

Making sure they have access to infusion centers that have been trained, etc.

So a lot of that is just getting the logistics in place.

So I don't think we're overly -- I know we're not overly focused at this point on exactly what the trends look like.

I think as we look through the back half of the year, we will be getting increasingly more focused on where are the sales coming from and how they look and how is this product is shaping up in the minds and in actual use, in that area of certain TNF inadequate responders.

So you know, we really haven't tried to go back to the models.

The folks at Elan do have the sales force in the field.

They probably will have a little bit better touch and feel, so I will probably leave more detail in that answer to Elan.

And I believe their call is on Thursday morning.

Geoffrey Porges with Sanford Bernstein.

Thank you very much for taking the question and congrats on the quarter.

Al, nice to hear you on the call.

Wondering if you would give us information about -- you mentioned zero cases of PML, and that is obviously important.

But could you tell us anything else about other opportunistic or atypical infections that you've seen in Tysabri patients?

Particularly in the context of what we're seeing now emerging for Rituxan, could you sort of compare that to that experience?

Thanks.

Well, as you know, we have a very comprehensive risk management program.

We have a study called [TIGRIS], for example, that will enroll about 5,000 patients and look at any other infections that may come up.

I can tell you so far we've seen no reason to update our label, that we are seeing exactly what we've seen in the clinical trials and our experience up to date.

And compared to Rituxan?

Pardon me?

Could you compare it to Rituxan, given your experience there as well?

Compare Tysabri to Rituxan?

In terms of the propensity to cause opportunistic infections.

I think that would be a really difficult comparison to make.

Thanks.

Andrew Berens with Merrill Lynch.

Thanks.

Congratulations, guys.

I know you said you didn't want to talk a lot about the Crohn's market.

But I was just wondering, is your sense that these patients, if they end up having surgery, are they going to be maintained on Tysabri after the surgery?

I think we have insufficient insight into that to really answer that.

I would really defer that one to Elan at this stage.

I mean, we have so little experience at this stage of the launch in the marketplace, I think it's too early to call that.

Okay, all right, we'll stay tuned then.

Thanks.

Jason Zhang with BMO Capital Markets.

Thanks.

My question is about MS franch -- or I guess MS portfolio management.

How are you going to decide which drug to go forward, particularly when several of them are going to move into late-stage development?

Well, obviously we have some very well-defined go/no-go criteria.

We look for drugs that are complementary to each other.

As you know, there are multiple types of MS, perhaps up to four different types.

So a particular patient may respond better to one drug versus another.

In addition, as patients move from relapsing to progressive forms of MS, their biology changes; so their requirement for drugs change.

So we think that there is plenty of room for more drugs.

As I said, LINGO is a completely new approach.

It would repair the central nervous system, and nobody has even taken that approach.

So I think, let's look at the data.

We have some very well-defined go/no-go criteria; and we will move the ones that make sense forward to Phase 3.

Thanks.

Ian Somaiya with Thomas Weisel Partners.

Just on the source of patients for Tysabri, you mentioned that 52% are coming from Copaxone, Rebif, and Betaseron, a combination of those three.

Can you give us something more recent involving trends in terms of where the incremental growth is coming from?

Is it still Copaxone?

Or are we seeing a greater proportion of patients switching from Rebif and Betaseron?

Well, we continue to see that Copaxone is the number one switched-from product.

I will also just highlight that this is US data.

The high-dose category is continuing to also have switches from it; and we would expect that in the future as well.

Any sort of changes in new patients coming from Rebif or Betaseron?

No, nothing really significant.

It's just a mixture of the products, with Copaxone being the leading and the others contributing about the same amount.

Okay, thank you.

Mark Schoenebaum with Deutsche Bank.

Hi, thanks for taking my question.

I appreciate it.

Well done on the Tysabri relaunch two years later.

Just I had sort of a bigger picture question maybe for Jim.

There has been a lot of discussion in biotech recently around what the right level of R&D spending is.

I think Gilead has talked about taking their level of 12 higher, but nobody seems to know where.

They cited an industry average of 17%.

You're at 25%, I think at the industry high right now.

Amgen is closer to 20%, etc.

Can you --?

I know you're not prepared to give long-term guidance on R&D spending.

But can you just speak about how you guys think about budgeting RND and where you think the ideal level of spend is, as it relates to percent of revenue over time?

Oh boy, good question, Mark.

You know, the short answer is -- I don't know that anybody knows the precise answer to that question.

I think you're going to find that it's probably a little circumstantial to each company's situation.

Clearly coming out of the merger of the two companies, we had a view that -- well, we had some great prospects for near- and medium-term growth from the compounds we had in our hands, that we really needed to be more aggressive on the R&D front to continue to fill the pipeline.

And I think that piece has flowed through.

But I've also said that we are going to bring this R&D as a percentage of revenue down from the 30% into the mid-20s and down.

My guess is somewhere in that plus or minus, 20% plus or minus is probably the range that will be sustainable and be able to drive continued growth for companies, as well as an attractive operating margin.

From our vantage point now, I think we just look at it as we look at the investment, the bulk of our R&D investment and certainly the bulk of the growth this year and next year will be related to driving late, late-stage clinical trials.

So Phase 3 trials.

That is on top of lots of information.

We think that is probably a good investment when you really have gotten past proof-of-concept to continue to drive those through.

It will be interesting, because everybody has got a view on what the right R&D level is.

It's always easy to judge it about five years after the event and decide whether you got good results from it or not.

Right now, we feel pretty good about our ability to both balance the R&D investment.

I'm excited, very excited about some of the new things we see coming out of R&D.

I love the late-stage pipeline.

We have got a lot of shots on goal, so I think we've got very solid reasons for investing at the levels.

And we are still able to make very attractive operating margins and EPS growth.

So that is the balance that we are trying to operate in over the next number of years.

I know that is not a super-specific answer, but that is a little bit how we think about it, Mark.

So R&D coming down.

Any commentary on SG&A trends over time?

Well, SG&A trends -- so back out the profit share, the payment that goes back to Elan.

SG&A trends I think you will see come down because we are fully invested pretty much behind the Avonex and Tysabri, aside from the currency exchange and maybe some discrete investments we will want to make in reaction to market trends there.

Those numbers aren't going to move around a huge amount in terms of an absolute then, so we are going to get leverage as we see more Tysabri sales come through.

As Paul said, we did have a bump of $10-million-plus, or 10 or so million in proxy expense in Q2.

I would hope that that is not an ongoing spend.

I said that a little tongue in cheek; you couldn't see that, guys.

But we are not going to -- obviously you won't see that in Q3 and Q4.

So that will step down.

And we will continue to put pressure on the -- particularly the G&A side.

On the sales and marketing side, we continue to expand some of the geographies, so we have a few businesses that will be in the build mode like Argentina, for example next year, and India and China.

But those are relatively small numbers in the big scheme of things.

Thanks, I really appreciate it.

That's helpful.

Bill Tanner with Leerink Swann.

Jim, maybe a question for you on the Genentech Rituxan -- I mean, excuse me, Genentech Roche.

Can you remind us what the disposition of Rituxan would be on an acquisition of Genentech?

Then what kind of opportunities or challenges does that create for the Company?

Yes.

Certainly, you know, when I got to my desk yesterday morning at about seven, things changed as I started to read what was going over the wire and started thinking about what does that mean.

So it's a great question, a timely question, Bill.

Specifically with respect to the contract, there is -- the change in control with respect to Rituxan or the CD20 products and us is unilateral.

There is no -- we don't have any additional rights.

As a practical matter, Genentech already owns a controlling interest, so even if you used some of the old standard definitions it wouldn't apply anyway.

So there is no change from a contractual point of view.

Now, what does it mean going forward?

I think we don't really have a viewpoint on that yet, because I think we would like to first see what happens.

Does this transaction actually close?

And we don't have any more insight into the likelihood that it will close at the offered price or some change to the offer price than you folks do.

I don't know much more than I can read in the Roche press release.

In fact, I don't know anymore than I can read in the Roche press release in terms of how they plan to execute on things.

What it does mean is probably in some respects there is a simplifying assumption in that there is not three players trying to help make decisions in this; it is really two, in terms of Genentech Roche in one respect, and us on the other side.

So I think it remains to be seen exactly what that means.

But we are going to watch it carefully.

I don't know I can tell you a lot more than that, Bill.

So I mean is that then to suggest that Biogen Idec could still participate going forward even after an acquisition of Genentech?

Oh, yes, I don't see any reason why our contract is still not good and in force as it always has been.

We would have participation in the CD20 compound.

All right.

Thanks very much.

Yes, and -- in an unchanged economics.

Understood.

Joel Sendek with Lazard Capital Markets.

Thanks.

This is a first quarter where Tysabri ex-US product sales exceeded US sales.

Given the number of patients is greater and the exchange rate if that continues, should we be modeling out longer-term the ex-US Tysabri product sales to be significantly larger over time, ex-US?

Well, I think the dynamic is exactly what you said, Joel.

When we brought the product and reintroduced it in the United States and brought it to market rest of world, we brought it with relatively the same price to market.

What has changed is the dynamic in terms of foreign exchange.

So that is exactly kind of a little bit the dynamic that is going on in terms of the rest of world Tysabri sales being greater than the US sales, despite the units and patient numbers kind of being slightly different than that.

But I would tell you, back to kind of what we've said for a number of quarters now, which is we do see Tysabri over the longer haul, 60% of our goal of the 100,000 patients -- or pick whatever number you progress the Tysabri curve towards -- that 60% of those patients come from outside the United States.

Over the last three or four quarters, the number of MS patients on therapy outside the United States has eclipsed inside the United States.

So it's still, I think, something -- it's a dynamic that the investment community is kind of still catching up to, that we find to be critically important to our business strategy -- is the importance of the rest of world sales, the importance of that MS business that we have outside the United States.

Okay, thank you.

William Ho with Banc of America Securities.

Hey, guys, congratulations on the great quarter.

Just a quick question on Avonex.

In the US, you have been able to support sales with price increase.

Can you give us any more color about what's happening in the EU and other outside-of-the-US markets?

Then also as a follow-up, can you tell me if you've seen any trends and additional switching since the failure of the high-dose Copaxone trial?

Thanks.

Paul, do you want to take the first part, and you want to take the second part (multiple speakers)?

Yes, as it relates to kind of -- the best way -- I tried to give a little bit more color on my talk in terms of unit trends.

That is probably the best way to strip apart I think what you're really getting after, Will.

In the US, we have characterized our objective in the business is to try to keep some buoyancy on the revenue line.

We have over the last year or two had down years in terms of units.

The last four quarters, I'd point out, in the United States have been relatively flat, plus or minus -1 million, or plus or minus a very small percentage of units.

So we've actually experienced kind of a flattening out in the United States with respect to units.

As a result, the P&L has benefited from the price increases.

Outside the United States, our first-half 2008 units advanced high single digit percentage versus first-half 2007.

Roughly in line with the market growth, so the markets outside the United States is probably growing low single digits.

I think that is kind of the P&L formula that we see over the foreseeable future.

As far as the failure of the Copaxone double-dose trial, still early to tell what the impact of that is.

However, from our perspective, it's another trial which shows that there seems to be no benefit from increased dose of one of the ABCR therapies.

Thanks.

Congrats again.

Eric Schmidt with Cowen and Company.

Good morning.

A question for Al Sandrock on MS trial design.

We've seen from some of the recent trials in this space that the control group performance has improved.

I'm wondering if you still believe the BG-12 design and statistical power are adequate.

Secondly, I know that Elizabeth said that enrollment was on track.

But we've heard specifically that enrolling patients in placebo-controlled MS studies has also gotten more difficult.

So maybe you could just educate us on whether you think that is the case as well.

Thanks.

That's a very perceptive question, Eric.

It's true that the annualized relapse rates certainly have decreased over time, over the years.

We are tracking that very, very carefully in the BG-12 trial.

We look at the pooled relapse rate.

And so far we think the trial is adequately powered, but we are going to keep a very close eye on that, and we have contingency plans for that.

With respect to placebo-controlled trials, there was a paper that just came out in the Annals of Neurology based on an international panel that stated that placebo-controlled trials in MS are still ethical under certain conditions.

Our trial, closely matches those conditions that are written in that paper, and for that reason we are enrolling patients on track.

You know, there are other additional designs for MS trials that we are considering.

And certainly there is always the chance to do superiority trials against ABCR therapy.

So, I don't think that -- I think it is getting more difficult to do MS trials, but there are ways of dealing with these difficulties.

Thanks a lot.

Jim Birchenough with Lehman Brothers.

Hi, guys.

I just had a question on the adjudication of suspected PML cases.

Just wondering if you can maybe give us a bit more detail on the number of suspected cases you are seeing; whether as physicians get more comfortable with the drug they are less apt to report MS worsening as a suspected PML case; and whether plasmaphoresis is recommended for just confirmed cases or if you're seeing it used when physicians suspect a case.

There's a lot of questions there.

I guess I will take that, Jim.

So, in terms of adjudication, we don't have an adjudication committee, so each neurologist takes care of their patients as they see fit.

We believe that our risk management program is working and working well.

As you know, it calls for increased vigilance for PML.

For that reason, there are cases of suspected PML that are worked up appropriately.

The key thing, though, is that we've had no confirmed cases in these two years since the relaunch.

People have used plasma exchange on occasion, and for suspected cases of PML.

On occasion patients go back on Tysabri; and again, no confirmed cases.

I think -- I hope that answers most of your questions.

Jim, I guess just the follow-up is, as physicians get more comfortable with the overall safety profile are you seeing less of a tendency to react to MS worsening as a suspected case?

It's less of a fast-trigger kind of approach?

I think physicians are maintaining their vigilance for PML, as called for by the risk management plan.

Great.

Thanks for taking the question.

Jim, just to add, the confirmation diagnosis for PML is -- we follow the international standard, which was used also in our safety review back upon the initial suspension, which is confirmatory JC virus in the cerebrospinal fluid or through brain biopsy.

So that is the internationally accepted definition for diagnosing PML.

Terrific, thanks.

May-Kin Ho with Goldman Sachs.

Most of my questions have been answered.

Can you give an update on the biosimilars?

In particular, with Biopartners' product in Europe as well as Sandoz in the US.

Sure.

The Bioton products which came from the Biopartners, it's in registration; it was filed last August.

Theoretically, it should appear, get a decision from the EMEA by end of summer or sometime by the end of the year we would expect.

Just to remind everybody, that is sort of patterned after the 22-microgram Rebif, so it's a subcutaneous three times a week, 22-microgram dosage.

So.

And that was a full registration trial, so I don't know any -- we don't know anything more than that.

So that is the timeline.

In terms of the Sandoz product, Extavia, which is the brand name they are using -- at least using in Europe.

It is, at least as we know it, sourced from the same manufacturer.

So it's really a second brand; it is not a follow-on biologic.

Having said that, it's another competitor in the market.

It would appear that this is just part of Novartis's strategy to build a platform in MS in preparation for FTY720.

So don't know that we have seen a lot more in the field at this point, certainly not in the US.

Mike King with Rodman & Renshaw.

Thank you.

Good morning.

Thanks for taking my question.

Most of my questions have been answered as well, so I was just wondering if we could get a little more color on -- you'd said in your formal remarks that there are earlier switches.

I don't know if you guys track sort of the number of prior regimens that patients were on before switching to Tysabri, and how that may have changed over time.

Yes, that is tracked through market research.

All I can say is that we have seen a trend towards earlier in the treatment regimen, and no specifics.

Yes, I would say that is pretty much what we've talked about for the past year, that we'd expect it to start to move forward as people get more comfortable.

I think you also see it in some of the switching dynamics; as it moves forward, more of it is coming from switchers.

Is there an internal goal that you would like to see?

Like less than two, less than one -- or I mean after one?

Well, the internal goal, let's take the longer, longer view of this.

We want to continue to build out this product.

We want to continue to build out the use and the evidence for the use of this product across the broadest range of MS possible including early diagnosis, including thinking about secondary progressive, potentially thinking about primary progressive.

So we will continue to build out the evidence.

At the same time, you're going to have the utilization patterns being driven by the experience that these physicians have of watching patients -- you know, how they behave, perform, and tolerate the product as they stand in front of them; and then their comfort with the overall safety profile.

That is why we have thought that this sort of two-year point was important.

You start to get quite a bit of data with patients that have been on for significant periods of time.

Certainly as we wrap around the tail end of this year, you're going to have 6,000-plus patients that have been on for two years.

We think that that kind of evidence database plus the rigor of the TOUCH program and the fidelity of that program is really going to continue to help physicians have high confidence that they really understand what the profile is.

I don't want to predict what it's going to be, because I can't see into the future.

But people have high confidence that the data that we have is very accurate and very precise.

Terrific.

Thank you.

Jason Kantor with RBC Capital Markets.

Thanks for taking my question, and most of my questions have been answered.

Could you comment on not just your own but across the industry, are we seeing significant pricing increases, and how much pricing power is left in the market and (inaudible) take that (technical difficulty)?

Yes, Jason, we have obviously benefited in the Avonex US business from the price increases.

We don't comment on what our future pricing is; but I would kind of characterize it as our business plan doesn't rely on this going forward.

You know, I think that is probably an accurate assumption for us to be using over the next few years.

Our assumption is that the US pricing environment -- or the US marketplace overall, you guys can read all the headlines I read and you can see what goes on in Congress and you can hear what the presidential candidates talk about.

It's going to become more and more focused, it's going to be a tougher place.

But that is not new news to us.

That is why we have emphasized for the past decade the continued growth in the broad geographic markets.

We've got more than 30-plus-% of our sales outside the US.

We think that's going to move to 40%.

And if you look up and down our pipeline, we've got the worldwide rights to the vast, vast majority of that pipeline.

I think at the end of the day, that is really the best offense is to be able to take our products to the broadest population possible.

We will have to react to the local political and pricing dynamics wherever we find ourselves.

But we've also got a lot of experience in those kind of markets, given the past decade of selling internationally.

Well, I guess the question is, over the last 12 months was there something that was unique?

Because it seems that you and other companies have raised price quite a number of times over the last 12 months.

Was there some factor that was unique over the last 12 months?

No, I wouldn't say there was any special factor in play.

Thank you.

Given the time, we will take one or two more questions.

Maged Shenouda with UBS.

Congratulations on a good quarter.

Can you provide an update on the arbitration proceedings with Genentech?

Sure.

I mean, there is not a lot new to report from the last quarter.

Nothing has really changed there.

The arbitration is scheduled to occur, the hearings, in this quarter or early next quarter as it stands.

The arbitrators have up to six months to render a decision.

So hopefully we will get through the arbitration in September, October; and we can only hope that they have a rapid adjudication but they can take up to the end of Q1.

Okay, thank you.

Okay, we will take our last question.

Adam Walsh with Jefferies & Company Inc.

Hey, thanks for fitting me in.

My question is a follow-up to Jason's question on Tysabri.

Can you briefly talk about the rationale for the recent price increase there and whether or not you feel the risk-benefit profile justifies a higher price than the current one?

Then also on Avonex, is Avonex still the low-cost interferon?

Thanks.

Avonex, let me take it from the back.

Avonex, right now, is lower than one of the other interferons; and so it is in between the two interferons.

We recently took a price increase on Tysabri of 3%.

It is a medical benefit, Tysabri, so that is a dynamic in the marketplace that comes into thinking when -- actually technically Elan sets the price in the United States.

Thank you.

Thank you, everyone.

That was our last question.

We will see you on the call next quarter.

Thank you.

Thanks.

Thank you.

This concludes today's conference call.

You may now disconnect.