Biogen Inc (BIIB) 2008 Q3 法說會逐字稿

Good morning.

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

At this time, I would like to welcome everyone to the Biogen Idec third-quarter 2008 earnings conference call.

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

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

(Operator Instructions).

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

Please go ahead.

Thanks, Brandi.

Welcome to Biogen Idec's third-quarter earnings conference call 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 have also posted slides on our website that outline the topics discussed on today's call.

Let me start with our 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, the sales potential of TYSABRI and other products, the availability of external growth opportunities and pipeline advancement.

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 am joined by Jim Mullen, CEO of Biogen Idec; Bill Sibold, Senior Vice President, US Commercial; Dr.

Cecil Pickett, President, Research and Development; Paul Clancy, CFO and Executive Vice President of Finance.

And now I'll turn the call over to Jim Mullen.

Thank you, Elizabeth.

Good morning, everyone.

For the first time in the Company's history, Biogen Idec reported revenues in excess of $1 billion in the quarter.

In Q3, year-over-year revenues grew 38% and earnings grew approximately 70%.

This is the fourth consecutive quarter where revenues and earnings have increased more than 25%.

The core business fundamentals are solid and continue to generate strong cash flows and our prospects for growth, both now and in the future, remain strong.

Let me share with you our progress towards our stated 2010 goals on products, pipeline and performance that we put forth last year at about this time.

We outlined goals for our three core products in geographic diversification of our business.

RITUXAN, we had a goal of filing in at least two indications and we filed the DMARD inadequate responder in the RA indication was filed this quarter and with recent announcements in CLL, a filing was planned for early next year.

AVONEX continues to be the world's leading multiple sclerosis treatment and it continues to deliver a solid performance.

In Q3, AVONEX grew 26% year-over-year and we are anticipating to exceed $2 billion in revenue this year.

AVONEX share of the ABCR market remains over 30% worldwide.

Our efforts remain focused on extracting growth from these two high-margin products, which are so valuable to our cash flows.

At the end of September, patients on TYSABRI therapy grew to over 35,000 patients worldwide.

TYSABRI remains on track to exit the year approaching $1 billion run rate of in-market revenues.

We did observe a moderating growth rate in patient additions in Q3 as one would anticipate since the MS community is digesting the recent PML events.

Nevertheless, the number of patients is growing.

We remain focused on achieving the goal we set of 100,000 patients by year-end 2010, which roughly equates to a 20% marketshare.

It will clearly take a reacceleration to achieve this goal and at this point, we think it is premature to speculate on the longer-term impact on the business of the recent events.

Towards the end of this year and into early next year, the patient numbers exceeding 1.5 and 2 years on therapy will be more instructive of TYSABRI's safety and efficacy profile over longer periods of time.

Bill Sibold, the Senior Vice President of US Commercial, will take you through an update of the MS franchise and share feedback from the marketplace.

Another goal was to generate more than 40% of revenue from the international business by 2010.

At the end of 2007, the international revenues represented 29% of our business and this is excluding RITUXAN rest-of-world royalties.

And it has increased to 34% year to date 2008.

So our international footprint is an important strategic asset long term for two reasons -- diversifies our business geographically as the reimbursement landscape and growth opportunities change in the future and it also enables us to extract full value from our predominately unencumbered pipeline.

Now turning to pipeline for a moment, with over a dozen product candidates in Phase II, we have completed nearly all of the 10 data readouts this year with only a couple more to come by year-end.

The recent baminercept results were disappointing, but we ran a high-quality trial that enabled us to make a clear decision for the purpose of building a pipeline with the breadth and depth that we have is to avoid being over reliant on any one program.

With regard to four new indications for existing and new products, we are on track for three so far.

TYSABRI has launched for Crohn's disease earlier this year.

RITUXAN was filed with a label expansion, DMARD, inadequate responder population for RA and we will be filing the REACH data in relapsed CLL next year.

Today, we have five compounds in Phase III trials -- BG-12, lumiliximab, galiximab, lixivaptin and ADENTRI, all of which have resulted in a significant ramp-up of our clinical trial activity this year.

A pipeline with breadth and maturity is critical to a sustainable business model in our industry.

This investment is expected to yield products that will contribute to top-line growth over the longer term.

Dr.

Cecil Pickett will review the pipeline accomplishments and upcoming milestones in his comments.

And a couple financial comments with respect to 2010.

Our objective continues to be to deliver 15% and 20% compounded annual growth rate on top and bottom line, similar to what we achieved in the 2003 to 2007 period.

Out of the gates, we are well-positioned in year one to post a very strong start with a mid 20% top line and high 20% bottom-line growth.

In conclusion, we have strong franchises, strong cash flows and strong balance sheet, ending the quarter with more than $2 billion in cash and marketable securities.

In the current economic climate, this puts us in an enviable position with the potential to capitalize on strategic opportunities.

While nothing is imminent, we are keeping our powder dry.

Paul Clancy, our CFO, will walk you through the quarter and provide more details on the balance sheet.

I will now turn the call over to Bill Sibold, the Head of US Commercial business.

Bill?

Thanks, Jim.

I am pleased to report that Q3 was an extremely strong quarter.

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

In Q3, global neurology revenue increased by 44% to $744.7 million versus the prior year.

This was driven by strong results for both AVONEX and TYSABRI.

AVONEX's $573 million in global revenue in Q3 was up 26% year-over-year and 9% quarter-over-quarter.

AVONEX's revenue was up 21% year-over-year in the US and 33% year-over-year internationally.

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

Perhaps AVONEX's clear, long-term efficacy and best-in-class compliance is why it is the number one MS therapy in the world.

AVONEX disrupts the disease, not patients' lives.

Last month at ECTRIMS in Montreal, we announced the results of the ASSURANCE study that showed that patients who continued on AVONEX for the 15-year period since the original pivotal trial had reduced disability progression, greater quality of life and significantly greater sense of independence and self-care versus those patients who had either switched to another therapy or discontinued therapy.

Additionally, at ECTRIMS, we presented data on sustained disability improvement with TYSABRI.

Traditionally, MS has been thought of as a relentlessly progressive disease.

Clinical trials measure disability progression and we judge how well a drug works by measuring to what extent it limits disease progression by EDSS as compared to placebo.

We have heard from numerous physicians and patients that they felt their disability improved on TYSABRI.

We put these anecdotes to a test by looking back at data from the AFFIRM pivotal study.

Rather than measuring sustained disability progression, we measured sustained disability improvement from baseline and found that TYSABRI lead to an improvement in disability in many patients.

TYSABRI continues to grow with in-market revenue of $236 million in the quarter, 19% growth over the prior quarter and an over 150% increase over the prior year.

Overall, we continue to increase the number of patients on TYSABRI each week in the US and internationally.

As of the end of September, there were more than 35,500 patients on TYSABRI worldwide in the commercial and clinical trial settings.

Over 3600 commercial patients were added during the quarter.

There were about 19,500 TYSABRI patients in the US with 3400 prescribing physicians.

We continue to add new physicians at the same rate as we did in Q2.

Internationally, there were nearly 15,300 patients on therapy in the 39 countries in which TYSABRI is approved.

Cumulatively, in the combined clinical trial and post-marketing settings, more than 48,000 patients have been treated with TYSABRI and of those patients, nearly 18,000 have received at least one year of TYSABRI therapy and approximately 9500 patients have been on therapy for 18 months or longer.

During this time, we are watching for any new trends in prescribing patterns for TYSABRI.

Because of the existence of the TOUCH program, we have the ability to examine US data for changes.

There are four key questions that I would like to discuss at this time based on our analysis of the US TOUCH data.

First, what caused the moderation in TYSABRI growth in Q3?

It is hard to discern the impact of summer holidays and ECTRIMS on prescribing.

Physician responses have varied greatly, though there has been a reduction in prescribing and an increase in discontinuation that we believe can be attributed to recent events.

Second, what do we know about the source of patients coming to TYSABRI?

The type of patients coming to TYSABRI appears to be unchanged based on both their time since diagnosis with MS and their prior therapy.

Copaxone is still the largest source.

Additionally, we continue to see about 4% to 5% of TYSABRI patients that are naive to therapy, which is similar to prior data.

Third, have we seen any patterns of behavior that differ between small and large volume physicians?

The reduction has been fairly consistent among those physicians who have written TYSABRI in a consistent manner.

At least part of the reduction in the prescribing of the large volume physicians appears to be driven by a reduced number of incoming referrals they are receiving.

And fourth, what is happening to the rate of discontinuation?

The rate of discontinuation, previously better than the other immunomodulatory agents, has increased and is currently similar to the rate for those drugs.

It is too soon to discern if patients are reaching a certain amount of time on drug and then discontinuing.

We are monitoring these discontinuations for any evidence of treatment causes.

Anecdotally, we have only heard of isolated cases of physicians that are doing this.

It is our position that the optimal dosing and administration are as described in the label.

As we said, this information is based on the US only.

Our discussions with physicians in other countries indicate that there are similarities and differences in the responses across the globe.

It comes down to individual assessment of benefit risk and is not homogenous globally or even within any country.

We remain in the early phase.

Physicians are still evaluating the benefit risk equation, taking into consideration the strong efficacy data of TYSABRI, the serious debilitating nature of MS and the incidence of PML.

We continue to add new patients and prescribers each day.

We believe TYSABRI will grow throughout the remainder of 2008 and into the future.

In conclusion, we have the number one MS therapy in the world today, AVONEX; a product that has an established a new level of efficacy TYSABRI; and the best and broadest pipelined of MS products for the future.

Biogen Idec is the leader in multiple sclerosis.

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

I will now hand the call to Dr.

Cecil Pickett, President, R&D.

Thank you, Bill.

And good morning, everyone.

Today, I will report on updates and accomplishments in the quarter and on upcoming data readouts.

First, results and data readouts.

We were very pleased with the positive results of the Phase III REACH trial, which demonstrated that adding RITUXAN to chemotherapy improved progression-free survival in relapsed CLL patients.

The data have been submitted for a late-breaking presentation at the ASH meeting in December.

The study met the investigator accessed primary endpoint of improving progression-free survival in patients with previously treated CLL compared to chemotherapy alone.

The investigator accessed data are being reviewed and after an independent review of the progression-free survival data from REACH, we plan to discuss our findings with the FDA.

In the first-line CLL setting, we were encouraged by Roche's announcement of the positive results of the CLL8 study investigating RITUXAN in combination with chemotherapy versus chemotherapy alone.

The results of this study will also be presented at ASH in December.

We and our partners are planning to meet with the FDA and discuss CLL8 and determine the appropriate next steps.

As Jim mentioned, we were disappointed to learn that baminercept alpha failed to reach primary or secondary endpoints in a Phase IIb trial in DMARD IR rheumatoid arthritis patients.

An interim look at data from a second trial in TNF IR RA patients confirmed this outcome.

Therefore, we have terminated development in this indication.

While we are considering other potential indications based on preclinical activity, we do not have clinical trials underway at this time.

As I said, while I am disappointed in the outcome, I am very pleased with the speed with which we generated data and reached a decision.

I would also like to say that we have a robust pipeline and its breadth and depth means that we are not dependent on any single event or data readout.

Next, regulatory filings.

With respect to our clinical pipeline progress in the quarter, an SBLA was submitted to the FDA for the use of RITUXAN in patients with moderately to severely active rheumatoid arthritis with an inadequate response to one or more disease-modifying antirheumatic drug therapies such as methotrexate.

This submission included data from the SERENE Phase III study, as well as data from other supporting studies such as SUNRISE.

Related to this, we will present data from the SERENE, SUNRISE and EXPLORER trials at the ACR meeting that begins later this week in San Francisco.

We also filed data on the TYSABRI high titer production process to US and European regulatory authorities and we expect an answer by early 2009.

Now a word on the late-stage pipeline.

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

We are enrolling patients into our five ongoing registrational trials with novel molecules -- BG-12 in MS, lumiliximab in CLL, galiximab in NHL, lixivaptin in hyponatremia and ADENTRI in acute decompensated congestive heart failure.

We expect to complete enrollment in the first BG-12 Phase III trial and the Phase II portion of the lumiliximab Phase II/III trial in early 2009.

On the early-stage pipeline in the quarter, we have enrolled the first dose cohort in a Phase I trial of TYSABRI in multiple myeloma.

Let me also say that I am pleased with the pace of advancement in the early-stage pipeline, including research to development transitions, as well as initiation of first-in-human and proof-of-concept trials.

Next, a comment on TYSABRI.

Since the launch of TYSABRI in June of 2006 through September 30, 2008, there have been two confirmed cases of PML, both of which occurred in patients who received TYSABRI monotherapy in the post-marketing setting.

We learned of these two confirmed cases of PML at the end of July and very rapidly communicated this relevant new information to clinicians and investigators and investors.

We have not seen any additional confirmed cases to date since those two in July.

We have since worked with the FDA and worldwide regulatory authorities to update the TYSABRI label.

In the US, the label now indicates cases of PML that have been seen with TYSABRI monotherapy.

An Adair Health Care professional letter went out in September announcing the labeling update.

The revision also noted that incidents of PML appears to be lower in monotherapy, but that the number of cases and patients are too few to make firm conclusions.

In Europe, the CHMP has agreed to propose changes to the label.

An Adair Health Care professional letter went out in August.

Other authorities worldwide have been notified and we are working with them as appropriate.

In addition, we have more recently updated the labeling for TYSABRI to include data information on the use of plasma exchange, PLEX, to remove TYSABRI from a patient's blood and information regarding PLEX was included with the EU approval.

Recent events highlight the importance of clinical vigilance, which remains the best way to identify PML early.

We are underscoring this in our conversations with clinicians.

A final note on PML.

Once again in recent weeks, we have seen additional immunomodulators become associated with PML.

This is a reminder that powerful drugs, which modulate the immune system, do have side effects.

PML is not specific to TYSABRI and that risk must always be measured against efficacy.

I will end by reminding you about some upcoming data readouts.

We expect to see, through the end of this year and into early and mid-2009, data from a Phase IIa trial of BIIB014, an adenosine A2A receptor antagonist for Parkinson's disease.

Also, interim data from a Phase II trial of our heat shock protein 90 inhibitor in GI stromal tumors and a Phase I/II trial of the long-acting Factor IX in hemophilia B.

These readouts will allow us to make a go/no-go decision on the next step for those programs.

In conclusion, 2008 continues to be a very active year on the R&D front and we continue to push to decision points for each of these programs.

I will now hand the call over to our CFO, Paul Clancy.

Thanks, Cecil.

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

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

The primary differences between our GAAP and non-GAAP results for the quarter were $95 million related to the amortization of intangible assets, $8 million related to pretax employee stock option expense and a $24 million tax impact for these and other items.

Now I will move on to the non-GAAP P&L, operating performance.

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

In Q3, we delivered $0.70 a share diluted EPS on the GAAP P&L and after the adjustment shown on table 3, our non-GAAP diluted EPS was $0.98, representing a 69% growth versus prior year.

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

Q3 total revenues were $1.093 billion, representing a 38% growth over the same period last year.

Revenue for the first nine months of the year totaled just over $3 billion, representing 33% growth over the first nine months of 2007.

Key drivers include the continued growth of the AVONEX business, further adoption of TYSABRI and the growth of RITUXAN franchise in the US and overseas.

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

Q3 AVONEX worldwide product revenues were $573 million, representing a 26% increase over the same period last year.

Revenue for the first nine months of the year totaled $1.6 billion, representing 20% growth over the first nine months of 2007.

Q3 US AVONEX product sales were $322 million, representing a 21% increase over the same period last year.

Revenue for the first nine months of the year totaled $936 million, representing a 16% growth over the same period last year.

In the US, AVONEX inventory in the channel ended at just over two weeks in the third quarter, unchanged essentially from Q2.

On a year-over-year basis, units sold in the US declined approximately 5% in the third quarter.

This was more than offset by price increases.

On a sequential basis, Q2 to Q3, volume declined by approximately 2%, partially attributed to seasonal softness often seen in summer months.

Q3 international AVONEX product sales were $252 million, representing an increase of 33% on a year-over-year basis.

Revenue for the first nine months of the year totaled $701 million, representing 25% growth over the same period last year.

Approximately 10% of this year-to-year increase in Q3 for international AVONEX sales was driven by favorable foreign exchange.

It was a strong quarter when comparing year-over-year and a strong quarter comparing to Q2 2008.

The sequential quarter increase of 14% for international AVONEX revenues benefited from two items -- an increase in the German market.

We took a price increase in Germany and believe there was some wholesaler stocking during the quarter.

The quarter also benefited from higher tender business, which is often lumpy, specifically for our Middle Eastern distributors.

Overall, the AVONEX international business from a unit perspective is growing at approximately 10% when comparing the first nine months of 2008 to the first nine months of 2007.

Moving to TYSABRI revenue.

Q3 TYSABRI worldwide Biogen Idec product revenues increased to $171 million.

US end-user TYSABRI sales totaled $122 million, which represents a 22% quarter-over-quarter increase.

Biogen Idec booked $56 million of this amount.

The US TYSABRI business modestly benefited from a couple extra shipping days in Q3.

International end-user TYSABRI sales totaled $115 million, a 14% increase from the prior quarter.

Q3 FUMADERM revenue was $11 million.

Now moving on to the RITUXAN collaboration revenue referred to as the revenue from unconsolidated joint business.

We recorded $299 million of revenue for the quarter, representing an increase of 27% on a year-over-year basis.

This number has several elements.

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

As reported by our partner, Genentech, US RITUXAN sales were $655 million in the third quarter, up 14% versus prior year.

And our Q3 profit share from that business was $192 million, up 23% versus prior year.

Second, we receive royalty revenue on sales of rituximab outside the US and in Q3, this was $90 million, up 43% versus prior year as strong MabThera revenue growth and foreign exchange benefit.

Third, we were reimbursed $17 million for selling and development costs incurred related to RITUXAN.

I would also like to point out that included in the Q3, US profit share is the benefit of $8 million of one-time items related to operating expense true-ups in collaboration credits.

I will now provide a bit more detail on MabThera royalties.

Currently, we receive a low double-digit royalty on quarterly rituximab sales outside the US for 11 years from the date of first sale.

This is on a country-by-country basis.

We account for this on a cash basis.

In essence, we are paid on a one-quarter lag.

So for example, royalties on MabThera sales in Q2 are paid to and recorded by Biogen Idec in Q3.

This revenue stream will begin to decline as countries reach the 11-year mark.

Sweden and Switzerland reached the 11-year mark during the fourth quarter of 2008.

The countries that make up a significant percentage of sales in the EU will expire in 2009, notably France in January, Spain in March, and Germany and the UK in June.

Italy will reach the 11-year mark in Q1 2010.

Other EU countries will expire throughout 2009 and early 2010.

Our profit share arrangement on MabThera also benefits from sales in Canada and royalties from Japan, which will expire during the latter half of 2010 and 2012 respectively.

So the net impact of this is that we expect, going forward, to see a gradual decline each quarter in this part of our revenue starting in early 2009 through mid-2010.

Moving on, Q3 royalties were $35 million for the quarter.

Our large quarter-over-quarter growth rate was driven primarily by our royalty stream from ANGIOMAX.

We earned royalty on ANGIOMAX sales, which increases as sales levels are exceeded during the year.

If they pass through one of these sales targets, the new higher royalty rate is applied in the respective quarter and retroactively to prior calendar quarters.

This quarter's results reflect a stepped-up royalty rate, which was retroactively applied to sales in Q1 and Q2.

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

Q3 COGS was $107 million, which is approximately 10% of revenue.

Q3 R&D expenses were $265 million, which is approximately 24% of revenues for the quarter and a decrease of 6% in dollars from the third quarter of 2008.

The 6% decrease in our year-over-year spend was primarily due to the one-time $50 million upfront payment made to Cardiokine to in-license the late-stage lixivaptin program in Q3 2007.

Absent that, increase in R&D expenses quarter-over-quarter were driven by our continued advancement of the pipeline.

Year-to-date R&D expenses are approximately 25% of revenue.

Q3 SG&A expenses were $225 million, representing 21% of revenues.

This is a 22% year-on-year increase and a 7% quarter-on-quarter decrease.

Drivers of the year-over-year increase include investments to support both TYSABRI and AVONEX, as well as unfavorable foreign exchange.

Continuing down the P&L, our collaboration profit-sharing line totaled $44 million of expense for the quarter, representing 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.

Q3 other income and expenses was a $26 million loss.

In the third quarter, we recognized losses from sales and impairments of investments of approximately $24 million.

$10 million was the result of realized losses from the sale of corporate debt securities of certain financial institutions and $14 million was the result of impairments or unrealized losses taken primarily on mortgage-backed securities based on recent fair market valuations.

Given the current credit turmoil, let me provide a bit more detail on our balance sheet.

We have approximately a total of $2 billion of cash, cash equivalents and marketable securities at the end of Q3 invested in a well-diversified portfolio.

More than two-thirds consist of US treasuries, agencies and money market funds.

With respect to the money market funds, we invest in a high-quality, AAA-rated prime money market funds offered by large banks or investment institutions.

The balance of the investment portfolio consists of corporate securities in mortgage and asset-backed securities.

Over 70% of these are rated AAA while the remaining security ratings are evenly split between AA and A.

Nevertheless, we are continuing to lower the risk profile of the portfolio by reducing our exposure in an orderly manner to asset and mortgage-backed securities.

Q3 tax rate on a non-GAAP basis was approximately 32.5%.

The effective tax rate in Q3 was unfavorably impacted by two items.

First, an imminent change in the Massachusetts tax law, which impacted our deferred tax liability and we now project a modestly higher percentage of pretax profits in the US.

Taking these changes into account and the recently passed R&D tax credit legislation, we expect our 2008 effective tax rate to be within our previous guidance of 28% to 30%.

This brings us to our Q3 non-GAAP diluted earnings per share of $0.98.

Now I would like to close with our 2008 full-year non-GAAP financial guidance.

We expect full-year annual revenue growth above the mid 20% range.

We expect operating margins to be similar to previous guidance and R&D and SG&A expenses for the year to be approximately $2 billion.

This excludes our collaboration profit-share expense.

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

We expect non-GAAP EPS to be above $3.50, GAAP EPS is forecast to be above $2.51.

Included in our guidance for Q4 is covering the impact of a stronger US dollar.

Additionally, our forecast now includes two business development-related milestones, which could amount to approximately $40 million.

First, we forecast milestone payments related to our alliance with Neurimmune, an early-stage Alzheimer's program.

Second, our guidance now includes the potential for an opt-in payment to Genentech related to GA101, a humanized anti-CD20 molecule developed by GlycArt.

This is currently under consideration, and yet included in our guidance for Q4.

Additionally, we have incorporated in the outlook a modest impact of potential further securities impairments.

This is obviously dependent on the macro financial environment.

So in summary, Q3 was a very strong quarter.

Our top-line growth was strong at 38%, driven by all of our products.

We continue to progress and invest in our pipeline and at the bottom line, we delivered strong operating leverage.

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

Thank you, Paul.

Business performance year-to-date is on track to deliver full-year guidance.

I 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.

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

Thanks, Jim.

Joining us for the question-and-answer session is Dr.

Al Sandrock, Senior Vice President, Neurology, Research and Development.

Operator, we are now ready to open the call to Q&A and we request that the participants on the call please limit yourselves to one question and then reenter the queue for your follow-up question.

This will allow all of your colleagues to get in their questions.

Also, please state your name and company affiliation.

Operator, we can take the first question now.

Mark Schoenebaum, Deutsche Bank.

Okay, thank you for taking my question, guys.

I am going to ask a question probably everyone in the queue has at the top of their list.

Is it possible for you to give us any specific color about TYSABRI patient ads over the course of the quarter, perhaps monthly?

Like for example, was August still up over July and then you saw a decline?

And if possible also, can you give us color on US versus ex-US?

Bill, do you want to take that?

Sure.

So looking at specifically August and September, the rate of new ads was approximately 215 per week that we saw and because of the stage that it is in, the early stages, vacations and ECTRIMS and stuff, the mixture between US and international is average between the two.

Again, it is still early -- we consider it still early.

Physicians are evaluating the benefit risk equation and the one thing that hasn't changed is TYSABRI's efficacy profile still remains extremely favorable.

Geoff Meacham, JPMorgan.

Hi, guys.

A question on drug holiday.

Have you seen any trends or received feedback from neurologists just with respect to one to two-month drug holidays and what are your plans to sort of investigate this avenue?

For TYSABRI, of course?

Do you want to take that, Al?

We have heard anecdotal reports of physicians going to drug treatment pauses.

We have no other data than that.

We are going to be looking into our clinical trial database with respect to drug holidays.

While we had one large holiday that was imposed when we suspended TYSABRI, we learned a lot about what happens to patients, their MI, scans, etc.

after a treatment pause.

We plan to investigate that further and to provide information that could be useful to patients and their physicians.

We are looking into other research projects that could inform as to whether or not these drug holidays have any impact.

Geoffrey Porges, Bernstein.

Thanks very much for taking the question.

Again, on TYSABRI, you have been through a lot this quarter between Biogen Idec and Elan in managing all the communication.

Could you comment on whether the current structure between the two companies is optimal for managing this complex product and for maximizing its potential and if not, would you consider changing it?

Geoff, I will take that.

It is Jim.

I think you have seen that both companies have worked closely together on these communications.

It was true this quarter; it has been true in the past.

So I think when it comes to coming quickly to agreement at the medical level or at the communications level of the commercial level, we have been able to do that relatively quickly.

We have, as you know, organized things such that we are largely executing in the MS world.

So at the operational level, that makes it fairly simple and clean and they are executing on the Crohn's disease.

So I don't see that there is anything, particularly about the operational issues, that gets in the way of either the communications or fairly rapid decision-making.

Joel Sendek, Lazard Capital Markets.

Thanks.

Just to follow up to the answer you gave with regard to the 215 ad rate in August and September, I am wondering is that net of continuations?

And have you seen any trend toward the end of September into October that you can tell us whether it has started to pick up at all?

Yes, so the approximately 215 is net, so that includes new ads and discontinuations.

And as far as looking into October -- probably the best way to characterize it is we feel we are stabilized.

Yaron Werber, Citi.

I wanted to just ask a question about Crohn's.

Can you give us a sense how many patients roughly do you have on therapy or to the extent that you can give us any color as to what percentage of sales was in that area?

I will take it.

This is Jim.

The sales in Crohn's is still relatively small.

It is in the early phases.

They have been rolling it out, educating physicians.

I think the total number of Crohn's patients is on the order of 100.

Pardon me?

200.

I'm sorry, 200.

Just got corrected already.

We had about 60 in the quarter.

And the pricing and the dosing is the same there, so you can do the ratio with that against the patient.

Michael Aberman, Credit Suisse.

Hey, guys.

Thanks for taking the question.

Is it possible to get an update on the two patients with PML?

Last we heard, one of the patients in Sweden, for example, was suffering with IRIS.

Is there any update on that patient, as well as the other patient with PML?

So there has not been a major change since the last reports at the scientific meeting.

As you have heard, the first patient did undergo some IRIS, but he has been in rehabilitation and continues to improve on a day-to-day basis and his CSF viral titers are diminishing.

And you also heard that the second patient was seriously ill and hospitalized and that status remains.

Adam Walsh, Jefferies.

Thanks.

Can you give us a sense of whether physicians are still using the 1 in 1000 PML rate described on the label as a threshold for comfort?

And do you get any sense from doctors if that rate will change in the event that new PML cases emerge?

Thanks.

I don't think we get a lot of sense from the physicians exactly how they integrate all of that.

I think one of the things that Cecil mentioned in his comments is the FDA in the change to the labeling actually references that in monotherapy, you know, the rate appears to be less than the 1 in 1000.

I think at this point that is about all you can do.

I think the difficulty which is going to remain for a bit of time is the denominator particularly of the number of patients that have gone out fairly long term in therapy is still relatively small.

So I think we just have to continue to watch that issue.

Eric Schmidt, Cowen and Company.

Good morning.

I was hoping that Paul could perhaps quantify for us those one-time items that affected the ex-US AVONEX sales in the quarter.

And I guess what I am getting at is that the guidance you have given for 2008 revenue as quite an open range would at least contemplate the Q4 sales could be down quarter over quarter.

Is that at all a possibility?

Eric, the German impact and the Middle East distributor impact is probably in the $4 million to $6 million range.

So it is a little bit of an impact, but it is not a huge impact.

As it relates to the Q4, yes, I think it is possible.

We actually had a number of other things in Q3 that we benefited from.

I think all told, I tried to lay them out on the call, all told, there is probably a $20 million to $25 million impact, something to that magnitude.

So there is a chance that there is a down quarter driven -- I think what we are watching right now is the foreign exchange rates.

That has benefited us over the last few quarters.

We are actually in our forecast now looking at the spot rate now and looking at some of these -- a couple of one-time items.

So I think that there is a chance that it is down, but we feel very comfortable that we will see growth for the quarter, Q4 versus Q4 2007.

We begin to start lapping much stronger numbers as we move into Q4, as well as we wrap around into next year, but we also feel very strong that we will end the year in a strong position, vis-a-vis our full-year numbers.

Steve Harr, Morgan Stanley.

Paul, can you give us a sense on the degree to which you have hedged your currency risk and for the duration of the hedging program you have in place?

Yes, I will start with the second part of your question.

We hedge essentially our operating plan.

So as we finish and conclude kind of our planning cycle or get close to the end of our planning cycle and have a high probability of the cash flow stream for the next year, we go out and hedge that.

So we are imminently heading into that for 2009.

As it relates to kind of the hedging dynamics, technically we hedge revenue.

We hedge it at a rate to try to essentially equate the cash flow stream.

So it isn't all of the revenue; it is the portion that would, in essence, equate to the cash flow stream.

We do have expenses outside the United States in R&D, in sales and marketing and in G&A.

So there is, to some extent, a natural hedge as it relates to that.

What I have done on the calls is to try to highlight each quarter the impact, particularly on the AVONEX international business.

This quarter, we talked about it benefited from about 10% on a year-on-year basis.

If I had concluded and kind of finished up the rest of the P&L, what you would see is there some offsets to that benefit on sales and marketing and R&D.

All the way down to the bottom line, we have probably picked up between $0.05 and $0.08 on a year-to-date basis from the foreign exchange rates of 2008 versus 2007.

Hopefully that helps a bit, Steve.

Jim Birchenough, Barclays Capital.

Hi, guys.

Just following up on TYSABRI trends.

I am just wondering since the two reported cases in Europe, have you seen any uptick in trends for suspected cases, whether any patients have been plasmapheresed in the US and just whether plasmapheresis itself increases the risk for immune reconstitution syndrome?

Thanks.

Well, we are not going to comment on suspected cases.

I should remind you that our clinical vigilance and risk management plan requires people to be highly vigilant for TYSABRI and if they cannot exclude PML, they are meant to stop TYSABRI.

So we expect a lot of people to be stopping TYSABRI if they can't rule out PML.

And we like to see that that happens.

And in terms of plasma exchange, as Cecil noted, it is in the label.

Whether or not it increases IRIS, we have known for a long time that immune reconstitution increases IRIS.

It is called the immune reconstitution inflammatory syndrome and so I don't think it is too surprising that plasma exchange may increase IRIS.

Bill Tanner, Leerink Swann.

Thanks for taking the question.

Jim, maybe for you, just how do you guys think about TYSABRI pricing, vis-a-vis the holidays and/or discontinuations?

I guess if there is some interruption, fewer doses in a given year, it would be pretty easy to just increase the per infusion cost.

But I guess if it looks like the trend is more towards patients going on the drug perhaps for two years and then rotating to something else, it is a little bit of a different dynamic.

Well, I don't think there is any data to push you in one direction or another on that as a purely technical matter in the US.

That is Elan's decision, but, of course, Elan and we are in close conversation around that outside the US.

That would be our decision, but the same dynamics apply.

As we always do, we are looking carefully at the pricing paradigm, but mostly at the value paradigm, which is what is the benefit achieved and what else is going on in the marketplace.

So we never talk about our forward-pricing policies and this would probably not be a good time to start.

May-Kin Ho, Goldman Sachs.

Hi, I am going to ask a question on a different topic, on long-acting Factor IX.

Assuming the data are positive, what are the next steps for this program and where are you with manufacturing?

I think, again, the first trial is going to be a very small proof-of-concept trial in patients with hemophilia B.

I think if the data there is positive with the doses that we choose, that we will have a discussion with regulatory agencies about triggering a pivotal registration program.

So we will wait for the data and basically go from there.

Manufacturing was the second part of your question, May-Kin.

The manufacturing of the product was being done or supervised by our partner, but has been brought in-house now.

So we would use essentially our own capacity for that and we are in good position to do so.

Ian Somaiya, Thomas Weisel Partners.

Thanks, just another TYSABRI question.

In the physicians that you have been able to confirm have altered their prescribing habits or reduced their prescribing habits, prescription of the drug, are these high-volume prescribers, low-volume prescribers and do you have a sense of what they need to be more comfortable in going back to prescribing the drug comfortably?

Well, as pointed out on the slides in the packet, there isn't a real difference between the high-volume and the more moderate volume prescribing physicians.

I think that in talking with a lot of the physicians, again, it is still early.

They are interested in the outcome of these cases.

They are talking with their patients as well and just believe that, as those answers become available and as they continue to weigh that against the increased utilization that we are seeing across the world and more patients that are on for longer, that that will allow them to reassess their benefit risk equation.

[William Ho], Banc of America.

Hi, thanks for taking my question and congrats on the strong quarter on revenues.

My question is with respect to your cash flow and cash position.

Even with share buybacks, it looks like you will have a pretty robust cash position this year and next year.

What is your strategy going forward and what areas -- are you considering M&A and what areas will you be focused on?

Thanks, Will.

This is Paul.

Yes, I think you are completely accurate.

We ended the quarter at over $2 billion.

We think we will move north of that in our cash flow on an annual basis, largely owing to the great margin structure of AVONEX and RITUXAN continues to be quite well.

As it relates to capital structure, we don't think where we are at now is the optimal capital structure, but I'd like to point out that we don't measure that on a quarterly basis.

So we are -- as every company kind of goes through its planning prospects, we are doing that now.

We are looking at strategic alternatives with respect to our capital allocation and we think that right now, it is probably a good time to kind of be very methodical about that, particularly given kind of devaluations in equity prices around a number of assets.

But with that said, nothing is imminent right now and if we conclude as we have in the past, if we conclude as we have in the past that there is not a strategic purpose for the cash flow, we will figure out a way to return it to shareholders.

So I think that's kind of how we think about our cash flow and our future planning.

Maged Shenouda, UBS.

Hi, thanks for taking my question.

Can you just comment on the development of other opportunistic infections other than PML with TYSABRI treatment?

Has the profile changed over time?

As you know -- this is Al Sandrock.

As you know, opportunistic infections are included in the label.

At this time, we feel that there is no significant change in what we have seen and no need to update our label.

Jason Zhang, BMO Capital Markets.

Thanks.

I have a question, again, on TYSABRI.

You have so far reported PML cases when they appear and I have heard some -- I don't know if it is suggestions or rumor that you may decide not to do that because you consider this as a severe, adverse event and not different than many other severe, adverse events with other drugs.

Could you comment on that?

Yes, this is Jim.

I will take that.

We have reported on PML specifically and particularly these last two cases because they did represent new information and important, new information that is first time this was observed in a monotherapy setting.

And of course, it is also the first time we have seen cases since we've relaunched the product.

This product -- we are evaluating how we do those communications, but fundamentally this is an adverse event that is in the label, it is in the blackbox warning.

It is sort of time I think to progress to looking at the overall safety and benefits of this product and updating it in its entirety as appropriate.

So we are not necessarily going to report every single case as they occur, but only if it really provides substantial new information.

Operator, we will take one or two more questions.

Geoffrey Porges, Bernstein.

Thanks very much for taking the follow-up.

Just a very quick question.

Could you tell us how many patients now have continued beyond two years on TYSABRI?

3700.

3700.

Great.

That's very helpful.

Thank you.

Operator, we can take a last question.

Mark Schoenebaum, Deutsche Bank.

Hey, thanks for taking the follow-up.

I just wanted to clarify my last question.

You said that there were 215 patient ads I think in August and September.

Can you clarify if that is US or worldwide and can you give us July, please?

It's worldwide and it's weekly and July was consistent with how we exited Q2.

Thank you.

Thank you, everyone, for your questions.

Thanks for participating in today's call.

This concludes today's Biogen Idec third-quarter 2008 earnings conference call.

You may now disconnect.