Biogen Inc (BIIB) 2010 Q3 法說會逐字稿

Good morning.

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

At this time I would like to welcome everyone to the Biogen Idec's third-quarter 2010 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.

Kia Khaleghpour, you may begin your conference.

Thank you, Steve.

Thank you and welcome to Biogen Idec's third-quarter 2010 earnings conference call.

Before we begin, I encourage everyone to go to the investors section of BiogenIdec.com to find a press release and related financial tables including a reconciliation of the non-GAAP financial measures that we will discuss today.

We have also posted slides on our website that follow the discussion related to today's call.

As usual we will start with the Safe Harbor statement.

Comments made in this conference call include forward-looking statements that are subject to risk and uncertainties.

Words such as believe, expect, may, plan, will, and similar expressions are intended to identify such statements.

Actual results could differ materially from our expectations and you should carefully review the risk and uncertainties that are described in our earnings slide, earnings release, and in the Risk Factors section of our most recent annual and quarterly reports filed with the SEC.

We do not undertake any obligation to publicly update any forward-looking statements.

Today on the call I am joined by Dr.

George Scangos, Chief Executive Officer of Biogen Idec; Dr.

Al Sandrock, Senior Vice President of Neurology Research and Development; Dr.

Francesco Granata, Executive Vice President of Global Commercial Operations; and Paul Clancy, Executive Vice President of Finance and Chief Financial Officer.

Now I will turn the call over to George.

Okay, thanks, Kia.

Thanks to all of you for joining us this morning.

It is hard to believe that we are sitting here today.

Another quarter has passed.

It doesn't seem like that long ago that we were on the Q2 call.

I guess time flies when you're having fun.

I am happy to report that Biogen Idec delivered another solid quarter financially.

Revenues were $1.2 billion, up 5% versus the third quarter of '09.

Non-GAAP earnings per share were $1.35 which is a 21% increase year-over-year, and we completed the $1.5 billion share buyback that the Board authorized this April, retiring a total of nearly 30 million shares at an average price of $50.35.

During the quarter we also made considerable progress on three top priorities, growing and expanding the commercial business, taking a hard look at R&D to ensure that we maximize the return on our investment, and infusing a sense of urgency in all parts of the organization.

Our MS franchise delivered double-digit year-over-year revenue growth and continues to be the global leader in MS.

Importantly, AVONEX US unit sales increased sequentially for the second straight quarter.

That is the first such performance since 2004.

We just now completed the expansion of our sales force, finished strengthening the skills and competencies of the entire commercial organization, and launched a number of new initiatives to keep these areas competitive as we prepare to face new market entrants.

And we anticipate that the full effect of the actions we have taken have not yet been fully felt.

Our neurology research and development organization made some noteworthy advances.

Al Sandrock will provide more details later in the call, but here are some highlights.

We made significant progress on our TYSABRI risk stratification efforts.

Earlier this month at ECTRIMS we presented interim results from our STRATIFY 1 study which confirmed earlier data that roughly half of the MS patient population tests positive in our serological assay for JC virus.

For STRATIFY 2, we have made tremendous progress on patient enrollment, and as of October 22 we have enrolled over 6,800 patients.

At ECTRIMS, along with our partner Roche, we announced positive data from the Phase 2 study of ocrelizumab in relapsing-remitting MS.

Al will go through the data in more detail, but overall it looks quite impressive.

As we announced last week, we reached an agreement with Genentech and Roche to allow them to move ocrelizumab forward while allowing Biogen Idec to avoid a further concentration of its R&D dollars in Phase 3 trials in MS, while we maintain our economic interest in the compound.

Importantly, we agreed that the introduction of ocrelizumab onto the market would not impact our profit-sharing arrangement on RITUXAN.

We also agreed that the profit-sharing arrangements for GA101 and RITUXAN, which were a potential area of dispute in the future.

The companies' interests are now aligned, allowing us to work together to maximize the collaboration revenues as well as the benefits to the patients.

We also diversified our neurology pipeline.

In August we announced the licensing agreement with Knopp Neurosciences to develop and commercialize dexpramipexole for the treatment of amyotrophic lateral sclerosis, or ALS, and potentially other indications.

We expect to initiate this trial during the first half of next year.

Our hemophilia pipeline also had some positive developments.

Last month the European Commission granted orphan designation to our long-acting recombinant factor VIII fusion protein.

We plan to initiate the registrational trial for this program, called A-LONG, by year-end.

Patient enrollment for B-LONG, which is the registrational trial for our long-acting recombinant factor IX Fc fusion protein in hemophilia B, continues to enroll as expected.

And we're on track for data readout in 2012.

Many of you also are interested in the status of our search for a head of R&D.

We have identified several accomplished, talented people who are interested in the job and the interview process is underway.

I am confident that we will end up with a high-quality R&D head.

We want to get this done quickly, as quickly as we can; but we also want to make sure to take the time to identify and recruit the best candidate.

So it's been a busy three months since our last earnings call.

Since my arrival, I have spoken with many of Biogen Idec's employees, visited many of the Company's sites, and talked to most of our major shareholders, business partners, and other important constituents.

As a result, I am more optimistic than ever about the long-term future of Biogen Idec.

As I have said before, this is a fundamentally good Company from which to build.

There are many things we can and we must do better, and we will.

And plans to do so are being implemented.

On our last call I talked about our efforts to focus and control costs, and we are making great progress on both fronts.

We are not yet ready to talk publicly about our plans and any potential actions, and so we won't be answering any questions on that subject today.

I can assure you that we are on track to share our plans prior to the end of the year, consistent with the timeline I laid out on the last call.

So at this point I will turn the call over to Al Sandrock for details on the progress we have been making in neurology R&D.

Thank you, George.

I will be addressing our late-stage neurology pipeline a bit later; so let me begin by first updating you on our TYSABRI risk stratification efforts.

Earlier this month at ECTRIMS we made several presentations highlighting the results of our work on the anti-JCV antibody assay.

To date we have analyzed blood samples from five large MS studies including the STRATA TYSABRI safety extension study, the predominantly European AFFIRM Phase 3 trial of TYSABRI, the North American portion of the TYSABRI safety observation study called TYGRIS, the independent Swedish MS registry, and the baseline data from the STRATIFY 1 study which, as you know, we implemented this year in the United States in patients either on TYSABRI or considering TYSABRI.

We are pleased to see that the data obtained from these studies have been quite consistent and confirm the findings which were recently published in the Annals of Neurology.

Let me summarize our findings.

We have now tested blood samples from over 5,000 MS patients.

To our knowledge, this is the largest study of JCV serology ever undertaken.

Across studies, JCV sero-prevalence ranges from approximately 50% to 60%.

In all studies, sero-prevalence is lower in females than in males, which is consistent with previously published reports.

Sero-prevalence increases with age, also in keeping with the published literature.

We have found that prior immunosuppressant use has no bearing on JC virus sero-prevalence.

Moreover, TYSABRI exposure does not appear to affect the prevalence of anti-JCV antibody.

Importantly, when we tested archived samples that were available from 20 patients who had developed PML while on TYSABRI, all 20 tested positive by our assay.

These samples had been collected 6.5 to 187 months prior to the onset of PML.

Based on what we have now learned about JCV antibody status in MS patient populations, if antibody status were not a risk factor for developing PML one would have expected that roughly half of these 20 patients would have been antibody positive.

So we believe that finding all 20 to be positive is extremely unlikely to be due to chance.

In addition, we have tested 31 serum samples taken at the time of or shortly after PML diagnosis.

All 31 have also tested positive by our assay.

Thus we continue to believe that the anti-JCV antibody test could be an important risk stratification tool for TYSABRI.

We note that another laboratory using a different anti-JCV antibody assay has reported that a few TYSABRI PML patients at the time of diagnosis were only borderline positive or negative by their assay.

When we used our own assay to test duplicates of the very same blood samples, we found them all to test positive in our assay, thus confirming the high sensitivity of our assay for anti-JCV antibodies.

One hypothesis that may explain the difference is that all of these blood samples were collected after plasma exchange, a procedure which was used to remove TYSABRI from the circulation.

This procedure also removes other antibodies, so the antibody titers may have been at or below the limitation of detection of their assay.

We have had preliminary discussions with both the US and European regulatory authorities about our work on the anti-JCV assay and have shared these and other data with them.

As a result of these discussions, we are planning to submit labeling changes to both regulatory agencies by the first quarter of next year.

We believe that the 5,000-patient data set, coupled with the results from the 20 pre-PML samples that I just described, are sufficiently compelling that it should be included in the information available to patients and physicians.

We will continue to update you as we make progress along this front.

Now I would like to turn to the rest of our late-stage neurology pipeline to update you on our progress during the quarter.

Posters on prolonged-release fampridine tablets at ECTRIMS highlighted improvements in walking speeds across a broad range of MS patients and the emerging recognition of the importance of mobility problems facing MS patients.

Our market research in Europe and Canada indicates that improvement in mobility is a high unmet need in MS.

Physicians believe that more than half of their MS patients suffer from impaired mobility, and the percentage is higher when patients are asked directly.

We continue to work diligently toward our goal of making prolonged-release fampridine tablets available to MS patients outside of the United States.

Our organization is also gearing up for Phase 3 data readouts and regulatory submissions on our oral MS treatment, BG-12.

At ECTRIMS, we presented new data on the potential neuroprotective properties of BG-12.

Oxidative stress is increasingly being recognized as an MS-relevant cellular injury mechanism which contributes to central nervous system tissue damage.

In primary cultures of human spinal cord astrocytes, BG-12 activated the Nrf2 pathway and protected cells from death due to oxidative stress.

We are on track for data readouts from the DEFINE study during the first half and from the CONFIRM study during the second half of next year.

Site activation and patient enrollment continues to progress for the ADVANCE study of pegylated interferon beta-1a.

There continues to be investigator enthusiasm for the product, which is expected to improve the convenience of interferon treatment for MS patients, thus improving patient adherence to therapy.

As you will recall, this trial is being conducted under a Special Protocol Assessment from FDA.

SELECT, which is the first of the two registrational trials of daclizumab, is fully enrolled and we expect data from this trial in the second half of next year.

Daclizumab is believed to work by selectively targeting pathogenic autoreactive T-cells without causing immune cell depletion.

At ECTRIMS, our presentations reported the increase in CD56-bright NK cells that occurs with daclizumab treatment and its correlation to the reduction in gadolinium-enhancing lesions in the brain.

Thus, daclizumab would represent an entirely novel approach to treating MS.

We, along with our partner Roche, have also announced positive results from the 24-week Phase 2 trial of ocrelizumab in patients with relapsing-remitting MS.

In this study, ocrelizumab demonstrated reductions in disease activity as measured by gadolinium-enhancing lesions and relapse rates.

Specifically, there was a robust 89% to 96% reduction in enhancing lesions compared to placebo.

The reduction in annualized relapse rate at 24 weeks was also significantly lower than placebo, with a reduction of 73% to 80%.

Clearly these data point to the potential of ocrelizumab as a highly efficacious therapy for relapsing-remitting MS.

We continue to diversify our neurology pipeline beyond MS.

In August we announced a licensing agreement with Knopp Neurosciences to develop and commercialize dexpramipexole for the treatment of ALS and potentially other indications.

The Phase 2 data showed favorable dose-related treatment effects in preserving motor function and extending survival.

And there is growing interest among ALS investigators as we look ahead to the Phase 3 trial.

Dexpramipexole has received orphan drug designation both in the US and Europe as well as fast-track designation in the United States.

We expect to initiate this trial in the first half of next year.

In conclusion, our R&D organization continues to advance our neurology pipeline and make progress on TYSABRI risk stratification for PML.

Our efforts position us well for future growth, and we look forward to providing you with updates on new developments in the quarters ahead.

With that I will now pass the call over to Dr.

Francesco Granata, our Head of Global Commercial Operations.

Thank you, Al, and good morning, everyone.

This is a pleasure for me to join you today and report on a very productive third quarter.

As this is my first earning call I would like to begin by sharing the three key priorities I have been focused on since I joined the Company.

Hopefully that will provide some context as I walk through our Q3 performance.

The key priorities are to maximize our commercial business with a special focus on turning around the US AVONEX performance; to vigorously defend our MS franchise against competition from new therapies; and to strengthen the commercial organization talent.

With these priorities in mind, let me begin by reviewing our product performance for Q3 2010, a period in which combined AVONEX and TYSABRI revenue increased by 10% year over year.

Let me start with AVONEX.

Worldwide revenue grew by 11% versus the third quarter of 2009.

We continued to see solid demand growth overseas, and the US is starting to show signs of improvement.

Outside the US, AVONEX unit sales grew by 6% year-over-year.

US unit sales grew by 1% sequentially.

As George mentioned this is the first time we have had two consecutive quarters of US AVONEX unit growth since 2004.

While this is too early to draw any firm conclusion, the market performance over the past two quarters appear to be a break from what has been the trend over the past three years.

We have been able to hold market share both in the US and overseas for a few months now.

In a growing market, the result, as expected, has been an increase in unit growth and positive pull-through to the revenue line.

Moving on to TYSABRI performance, let me preface my comments by saying that I am going to focus on in-market revenue and demand, while Paul Clancy will provide more detail on how in-market revenue translates into Biogen Idec revenue later in the call.

Q3 worldwide in-market TYSABRI revenue grew by 9% versus the third quarter of 2009.

US in-market revenue grew by 15%; patients grew by 16%; and units grew by 6%.

Outside the US, revenue grew by 4%.

However, foreign exchange reduced revenue growth outside the US by 7%.

The number of TYSABRI patients outside the US grew by 25%, and unit sales grew by 15%.

A decline in patient compliance during the fourth quarter of 2009, inventory changes, and increased participation in our patient assistant programs could get between unit demand and patient growth on a year-over-year basis.

In early 2010, we instituted a number of educational programs and strengthened our patient assistance programs.

This resulted in a stabilization in discontinuation and compliance rates, which have been sustained during the past two quarters.

At the same time we have seen an improvement in the number of US TYSABRI patients added.

Looking ahead, we feel there are potential growth catalysts for both AVONEX and TYSABRI.

Al Sandrock already mentioned the terrific progress our R&D team is making with TYSABRI risk stratification.

If successful, we may be able to identify a large subpopulation of patients that may be at much lower risk of developing PML.

Also, we are seeing strong growth in markets outside the US and Europe.

In the third quarter, revenue from these markets increased by 18% versus Q3 2009.

We have not yet launched TYSABRI in China, Japan, or Russia and are just now in the midst of the launch phase in India, Brazil, and Argentina, with Southeast Asia, the Middle East, and other Latin American markets to follow in 2011.

We have only just begun ramping up AVONEX sales in India and Latin America and have no AVONEX presence in China and several Southeast Asian markets.

So, there is still opportunity for both brands as this market develops.

We know there are a lot of questions about the impact of new therapies on our MS franchise.

Let me share our view.

We believe that both AVONEX and TYSABRI will fare well as the safety, efficacy, tolerability, and convenience of new therapies is evaluated in real-life settings.

With AVONEX, patient and physician can take comfort in starting and staying on a therapy that is well tolerated and is well documented, nearly 15 years track record of safety and efficacy over the course of 1.4 million patients year.

With TYSABRI we have a product with powerful efficacy profile showing significant reductions in both annual relapse rates and, importantly, physical disability progression through well-controlled Phase 3 studies and four years of post-marketing experience.

For some patient segments incremental dosing convenience may be more important than the established long-term efficacy and safety demonstrated with existing therapies in treating a chronic, debilitating disease.

These new products will likely meet the need of some of the approximately 170,000 patients worldwide who are not on therapy today due to broad profile of currently available treatment.

Overall, we feel that we have the best offering of MS therapies in the industry.

Accordingly, we have announced our sales and marketing capabilities and are now defending that franchise vigorously.

During the third quarter, we made progress in several ways.

First, we have continued to establish a strong focus on the field force both in terms of share of voice and quality.

We have completed the hiring of a number of experienced sales and marketing leaders.

We have strengthened the skills and competencies both of our US sales force and across the entire commercial organization.

And we have clearly put ourselves on a path to build the highest rated neurology field force in the industry.

Second, we have further increased the quality and output of our new global marketing teams.

In this respect we re-segmented the market to be more customer-need focused and position our products accordingly.

Third, we have significantly increased our focus on customers across the organization.

We upgraded the tools and resources available to our sales, marketing, patient services, and managed market functions.

And we have launched new nurse initiatives to help support patient persistency and compliance.

Lastly, we continue to build on our sustained profitable growth, so we have added field force effectiveness and market access specialists to expand our capabilities in these important areas.

In the coming quarters, I will continue to keep you updated on our progress.

In summary, we saw strong revenue growth in Q3 and the second consecutive quarter of stable AVONEX unit demand.

Looking ahead, our commercial infrastructure is planning to vigorously defend our MS franchise against new competition, while capitalizing on emerging opportunities overseas.

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

Thanks, Francesco.

I will review our 2010 third-quarter financial results.

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

Table 3 includes a reconciliation of the GAAP to non-GAAP results.

Let me start with the differences between our GAAP and non-GAAP results for the quarter.

First, we incurred $54 million expense related to the amortization of acquired intangibles.

Second, we incurred $6 million for stock compensation expense.

Third, the Knopp transaction involved purchasing a 30% equity interest and entering into a license agreement for the treatment of ALS.

The equity interest resulted in recording an IPR&D charge of $205 million based upon the fair value of the entity; and we incurred a non-controlling interest offset of $145 million.

Finally, there was a $45 million tax impact on all of these items.

Our GAAP diluted EPS were $1.05 in the third quarter of 2010.

Now I will move on to the non-GAAP P&L operating performance of Biogen Idec, which we believe better represents the ongoing economics of the business and reflects how we manage the business and set operational goals.

Our Q3 2010 non-GAAP diluted EPS were $1.35.

Total revenues for the third quarter of 2010 were $1.176 billion, an increase of 5% over third quarter of 2009.

We had a strong quarter commercially, with AVONEX and TYSABRI both increasing unit sales year-over-year and together delivering double-digit revenue growth in our MS franchise.

This increase in MS revenue was partially offset by a 9% drop in our RITUXAN revenue as our ex-US royalties continue to expire.

Now I'll provide product-level detail on our revenue performance.

Q3 worldwide AVONEX product revenue was $644 million, an 11% increase over Q3 2009.

The US business grew 11% to $387 million, and the international AVONEX business also grew 11% to $257 million.

Let me provide insight on some of the key metrics for AVONEX.

In the US, inventory in the channel ended at 2.2 weeks in the third quarter, slightly above the second quarter, providing a modest benefit.

On a sequential basis, as Francesco mentioned, US AVONEX units increased 1%, solid performance particularly for the third quarter when overall market demand typically softens during the summer months.

Internationally, AVONEX units grew a solid 6% versus prior year.

International AVONEX revenue benefited from a $17 million gain from hedging which largely offset the year-over-year unfavorable impact from exchange rates.

Moving to TYSABRI, Q3 2010 worldwide TYSABRI in-market product sales were $307 million, a 9% increase over Q3 2009.

In the US, in-market TYSABRI sales totaled $151 million for the third quarter, a 15% increase over Q3 2009 and a 4% increase sequentially.

Internationally, TYSABRI in-market sales were $156 million, a 4% increase over Q3 2009.

I'll again provide insight on some of the key metrics for TYSABRI.

As of the end of September we had approximately 55,100 patients on therapy including about 600 in clinical trials.

Units grew 6% year-over-year for TYSABRI in the US and 15% internationally.

In the US a number of factors impacted the results.

The price increase at the end of Q2, while favorable, was partially offset by increased discounts and allowances, some co-pay assistance, and the impact of accruals for healthcare reform.

In the US, levels of inventory in the channel declined by the end of Q3 by 0.5 weeks, resulting in unfavorable impact of approximately $5 million.

In the US, we're witnessing a relatively stable compliance rate.

Specifically, the use of drug suspensions and alternative dosing schedules are in the mid to high single-digit percentage of patients.

This percentage, while higher than Q3 2009, has been relatively stable throughout all of 2010.

Internationally, TYSABRI product sales were unfavorably impacted by exchange rates on a year-over-year basis by about 7% or approximately $11 million.

So while the quarter did experience these impacts, TYSABRI patient evolution continued to perform solidly, growing 2,300 patients worldwide for the quarter.

TYSABRI product sales for Biogen Idec were $221 million, $61 million in the US and $160 million outside the US, which includes a $4 million hedge gain.

In the US, where we sell TYSABRI to Elan, the net price declined year-over-year because we lowered our purchase price to reflect the use of product material that was previously expensed to R&D.

This lower US TYSABRI price for Biogen Idec is offset by lower COGS, resulting in a modest benefit on the gross margin and the bottom line.

We have largely completed using this previously expensed material, so this particular effect on the US price will not carry forward substantially into the fourth quarter.

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

We recorded $258 million in revenue for the quarter, a decrease of 9% on a year-over-year basis.

I'll walk through each of the three components comprising the revenue from RITUXAN.

First, our share of US RITUXAN profits.

Net US RITUXAN sales were $675 million in the third quarter, up 1% over prior year.

Our profit share from that business was $204 million.

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

And in Q3 2010 this was $38 million.

Royalties were down 42% as our 11-year royalty term expires on a country-by-country basis.

Third, in the third quarter we were reimbursed $16 million for selling and developing costs incurred related to RITUXAN.

Moving to royalties, royalties were $36 million for the third quarter of 2010, a 4% increase versus prior year, largely due to an increase in our royalties from The Medicines Company.

Corporate partner revenue for the third quarter was $5 million.

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

Q3 COGS were $96 million or 8% of revenues.

Q3 R&D expense was $316 million or 27% of revenues.

R&D expense includes $26 million related to the upfront payment related to the Knopp Neurosciences transaction.

Q3 SG&A expense was $241 million or 20% of revenues.

Our collaboration profit-sharing line totaled $64 million in expenses for the quarter.

Q3 other income and expense was a $7 million expense due to the declining yields in cash balances in our marketable securities portfolio.

We completed, as George noted, the $1.5 billion share repurchase plan announced this April.

During the third quarter, we repurchased and retired 9 million shares at a total cost of $468 million.

As a result, our fully diluted weighted average shares outstanding were approximately 242 million for the third quarter.

We were able to return such a significant amount of cash to our shareholders because of our ability to generate robust cash flow.

During the third quarter, we generated $420 million of cash from operating activities, bringing the total through the first three quarters to $1.2 billion.

Our cash and marketable securities ended the quarter at $1.4 billion.

Our Q3 non-GAAP tax rate was approximately 27%, including approximately $5 million in various discrete items.

The GAAP tax rate was impacted due to the Knopp transaction in the quarter as certain charges did not generate a tax deduction.

This brings us to our Q3 non-GAAP diluted earnings per share, which were $1.35, a 21% increase over Q3 2009.

Since George's appointment we have been evaluating the Company's strategic priorities and examining additional means of maximizing shareholder value.

We anticipate announcing the results of this evaluation before the end of the year, which may change the Company's financial trends.

I'll provide detailed financial guidance for 2010 in conjunction with this communication.

Certainly we feel very good about the execution of our business objectives for 2010, including being on track to achieve our original goal of mid-single-digit revenue growth for the full year.

So the third quarter was another strong quarter financially, with double-digit earnings per share growth and the completion of the share repurchase program.

With that, I will hand the call over to George for his closing comments.

Okay, thanks, Paul.

We have been talking for a while so I will just give a very brief sum up.

I think financially we increased revenues; we delivered double-digit EPS growth; and we completed returning $1.5 billion in cash to shareholders.

In MS, we continued TYSABRI's momentum by adding another 2,300 patients; made significant progress on TYSABRI risk stratification; and halted a multiyear trend of declining AVONEX use in the US.

The breadth and quality of our MS science on display at ECTRIMS was impressive.

Moving forward, we will continue to focus on growing the commercial business, optimizing our R&D investments, and instilling a sense of urgency in the Company.

I look forward to updating you on our progress as we begin to implement plans later this year.

So I will conclude by saying that I have a tremendous amount of enthusiasm for Biogen Idec's future.

And with that I will close our remarks and open up the call for questions.

Thanks, George.

Operator, we are ready to open up the call for Q&A.

We ask that you please limit yourself to one question and then reenter the queue for follow-up questions.

Please state your name and your company affiliation.

Operator, we are ready for the first question.

(Operator Instructions) Josh Schimmer, Leerink Swann.

Good morning.

Thanks for taking the question.

Just curious about the JCV assay.

And if you can get the label amended to include it in next year, will that enable widespread commercial availability?

If not, what would it take?

And if you have gone 20 for 20 for the patients being positive prior to developing PML, with a 2.5% false negative rate, does that mean you ultimately expect to go in something like 98 per 100?

Thanks.

Well, that -- certainly the math would certainly add up.

Well, the commercial availability -- there's two parts to the regulatory process.

One is to get the laboratory test approved, and the other is to get into the label.

We are making progress on both fronts.

We're in the middle of regulatory interactions on both fronts.

And so, yes, the plan is to as soon as possible make the test widely available and have something in our label that speaks to how it affects the risk of PML.

And, yes, the false negative rate is 2.5%.

We saw something very similar, in the low single digits, in STRATIFY 1.

Time will tell what the actual numbers turn out to be.

Mark Schoenebaum, ISI Group.

Hey, guys.

Thanks a lot for taking the question.

So Novartis and Gilenia, they announced pretty generous co-pay assistance.

I think it has very little income restrictions.

Can you guys maybe review what your co-pay patient assistant programs are?

And do you have any plans to update those to deal with any competitive pressures that may come out of Gilenia?

Thanks.

Thanks, Mark, for the question.

This is Paul.

It really is specific in the United States that we actually have allowed for certain charitable institutions to work with patients.

So that is currently the process for patients that are seeking AVONEX that need co-pay assistance.

We will continue to look at alternative means along the way.

Eric Schmidt, Cowen and Company.

Yes, kind of a follow-up question to Mark's, maybe a little bit of a broader view.

I was wondering if Francesco could just talk a little bit about what he is seeing in the marketplace with regard to Gilenia, their share of voice, their message, and how you are combating that impact.

For the moment we have more, if you want, anecdotal feedback; it is too early to give you very detailed feedback on the reception of Gilenia in the marketplace.

We see a couple of things, definitely.

One is that some of the payers are creating restriction to access to Gilenia, probably because of the still not fully documented real-life condition risk-benefit profile, and the perception that the efficacy is close to the efficacy of the interferons.

So we have seen some move of even big payers toward this direction, creating some staged access to Gilenia.

We also have anecdotal report from the market that still the risk-benefit profile of the drug has to be seen in real-life conditions.

So from the commercial side we feel that we have -- we are fully prepared to manage the challenge of this new competition.

We think that the new orals will have a role in the therapy, will bring additional value to the patients.

But we still think that we have the strongest franchise and the strongest offers in the MS arena.

So we will continue to stay focused on our communication.

We'll continue to upgrade the skills and the communication skills and the training of our reps.

We'll continue to invest in science to develop new data on our products.

And we feel comfortable in continuing to grow our sustained profitable growth through this focus on our existing portfolio.

Geoff Meacham, JPMorgan.

Hey, guys.

Thanks for taking the question.

A question on new adds for TYSABRI.

They are down sequentially, and I am curious what your thoughts are, whether this was attributable to seasonality.

And then if you did see an impact from the JC virus assay, when would you expect that to help with the new starts?

And then do you have a view that there may be a warehouse effect from new starts on TYSABRI from Gilenia?

Thanks.

Geoff, this is Paul.

Thanks for the question.

Let me give just a little bit of more color on the data and then I will ask Francesco to give some color on the marketplace.

2,300 patients for the quarter in terms of adds, so that is actually quite similar.

So technically on a weekly basis I think we are up at high 170s and we were at the mid-180s in the last quarter.

So I think that is, quite frankly, in the magnitude of a rounding error in terms of any change.

So I think what we have seen over the last six months is very, very steady, sure TYSABRI growth.

We are seeing not meaningful changes between one part of geography or another.

So US and international are both growing along.

And we are not seeing any kind of bump with respect to discontinuation rates which we -- as we have talked about in the past, have a clear view in the United States only.

So I think the trends continue to be -- to demonstrate very solid progress for TYSABRI for Q3.

Francesco?

Yes, basically we -- thank you, Paul.

We stayed very focused on our communication strategy on the favorable risk-benefit profile of TYSABRI.

This has been very well received by our customers.

Clearly by the fact that we have added 2,300 patients, in a moment in which we don't have yet fully available the risk stratification tools, means that the customer has confidence in adding new patients.

They see a role for TYSABRI in the treatment of their patients.

And this is testified by again the patient addition, but also by the stability of the discontinuation that we have seen over the past couple of quarters.

Again, it means that the customers feel that the product can bring value to their patients.

We will continue to stay focused on this communication until we have more -- until we have available hopefully the risk stratification tool.

We still think that even when we get the risk stratification, we will see virus-positive patients being added to the therapy because of the, again, high-efficacy performance of TYSABRI.

And that's all.

Rachel McMinn, Bank of America Merrill Lynch.

Yes, just two quick questions if I may.

I guess on the TYSABRI question just to follow up on Geoff's question.

If you had a 15% year-over-year increase in sales but a 19% year-over-year increase in price, I think we are just trying to understand what the disconnect is there.

Did you only recognize part of the price in the quarter?

Then secondly could you just help us understand what the price difference is between US and ex-US AVONEX?

Thanks.

This is Paul.

Let me try to take a crack at each of those questions, Rachel.

The 19%, I tried to outline in broad strokes the price increase.

Behind the price increase there were certainly increased discounts and allowances, and that would be on a channel-by-channel basis.

We have had increased accruals related to healthcare reform.

That had been going on obviously since the beginning of the year, but to some extent it really started in Q2 and Q3.

Then there was a little bit of increase with respect to co-pay assistance in the United States.

I think the way to probably think about it is it may take a couple of quarters for the full pull-through of the price to be realized.

We will have to see that and monitor it along the way.

With respect to the difference on AVONEX outside the United States and inside the United States, pretty public information as it relates to inside the United States.

Outside the United States, it is -- actually looking right now, Rachel.

It is roughly -- it is about 50% or 60% of that.

But it really can vary on a country-by-country basis to some extent.

And it certainly -- we have a portion of our business outside the United States that is distributors, and those are individual agreements in terms of what the transfer price is.

Joel Sendek, Lazard Capital Markets.

Thanks, I have a follow-up question on the TYSABRI label change and the laboratory tests.

You said you want the test to be available ASAP.

I am wondering realistically how long that might take.

Then as far as the label change is concerned, could you handicap how likely it is that the FDA will pretty much take your proposal?

Or whether there is going to be a projected back and forth with regard to the exact language?

Thanks.

Well, in terms of the test approval, there are differences across the Atlantic.

In Europe, it's a pretty straightforward path regarding a CE Mark.

In the US, it's a bit more complicated and the regulatory landscape is evolving.

I think it is probably not wise to comment on exactly what our regulatory interactions are, but they are ongoing at this time.

In terms of handicapping, again I don't think it is great practice to handicap what the FDA might or might not say.

So we will stop there.

Okay, thanks.

Thomas Wei, Jefferies.

Thanks.

I just wanted to follow up on TYSABRI for the quarter.

So leaving beside the price discussion, can you just go over again why TYSABRI sales would have been down 4% sequentially in the US on a unit basis?

I'm a little bit confused about that, how we reconcile the growth in the number of patients that you are talking about and what sounds like a very modest impact on the wholesaler inventory stocking front, with a 4% unit decline.

Well, it actually wasn't a modest impact on the wholesaler.

So the biggest impact on a sequential quarter was the inventory build or pull-down from Q2 to going into Q3.

I think that was the most meaningful impact that we saw quarter-to-quarter.

Geoff Porges, Bernstein.

Thanks for taking the question.

Just a follow-up on the JCV assay.

Could you give me a sense of expectations for what the risk communication to physicians and patients will be?

Because it seems as though if all the PML cases are occurring in patients who are JCV antibody-positive, then surely the risk of PML in those patients is twice the risk that is currently quoted in the label.

So one in 500 or one in 300 or something like that.

So is that something that you envisage having to include in the label and include in the communication to patients?

And secondly, how are you advising physicians who find out that their patients are JCV antibody-positive who are on TYSABRI, how should they handle those patients differently to the patients who are JCV antibody-negative?

Thanks.

Well, I think the assay is going to be a risk factor, just like duration of treatment, prior immunosuppressive use -- which is already in the label.

I think antibody status will join those other two risk factors as another risk factor to take into account.

I think as I said in the past, people who are antibody-positive I think it should come down to an individual benefit-risk decision.

As I said before, if somebody has severe MS and they haven't done well on first-line therapies and they have gone onto TYSABRI, that patient I think should still have a choice as to whether or not they should continue TYSABRI or not.

And I would hope that the doctor makes an individualized benefit-risk decision.

Robyn Karnauskas, Deutsche Bank.

Hi, guys.

Thanks for taking my question.

Paul, I guess I had some questions for you regarding expenses.

So COGS seemed lighter this quarter, and excluding the Knopp expense in R&D, that was also light.

So can you help us think about how to model expenses going forward?

Yes, the COGS -- thanks for the question, Robyn.

The COGS, if you are comparing on a quarter-to-quarter basis, very accurate on a sequential basis.

If you recall last quarter we had a couple of things that brought COGS up a little bit, inclusive of a manufacturing shutdown and bearing the costs related to that.

So I think we again had a very favorable quarter with respect to very minimal inventory write-offs.

I think that the COGS rate that you are seeing in the P&L right now is probably indicative of future quarters.

With respect to R&D, I think as I had said in my comments, I think it would probably be best if we do that along with, in conjunction with the communication before the end of the year in terms of future thinking as it relates to R&D.

But this quarter, in quarter three, included about a $26 million upfront payment to Knopp and kind of suffice it for there.

Jason Zhang, BMO Capital Markets.

Hi, thanks.

Question on AVONEX.

So certainly very good to see two quarters of unit growth in the US.

I guess my question is, how realistic do you think that trend will continue?

If you take out the inventory buildup in the third quarter, do we still see unit growth in the third quarter?

And if you believe this trend will continue, what do you think is really the reason for this unit growth?

Pretty much a turnaround.

What exactly can you pinpoint to your effort that explains this?

Thank you for the question.

As you remember, we have prioritized -- we have been focusing on a few priorities and we stay focused on these.

We have, as you remember, increased our investment in the structure both in terms of the share of voice and the quality of the field force.

We have increased our communication tools.

We have increased focus on the customer, so we have increased patient and customer services.

We have also strengthened the global function in order to make sure that we deliver the highest quality tactical and long-term plans.

So we are in the phase of implementing all these actions.

We have implemented most of them, but we are still in the midst of continuing the implementation and the execution of these strategies.

So largely we think that these results can be sustained, and we are confident about our strategy.

We think that by improving these areas of skills we can continue our strategy to grow market share -- or to stabilize and grow market share of both AVONEX and TYSABRI, which is the most powerful tool to defend our franchise versus the new entrants and continue to develop our strategy of sustained profitable growth.

So, Paul, if you take the inventory buildup, is the unit still grow in the third quarter?

I mean I think it is right around hovering on flat.

So it was on a sequential basis 1%.

The AVONEX ended the quarter slightly above in terms of weeks in the inventory.

But I would point out, I think that the broader trends that were in terms of better performance on AVONEX in the United States on a unit basis, which we have been focused on now since Francesco's arrival, still hold true.

I mean, Q3 is oftentimes -- these summer months and Q3 around the world are oftentimes quite soft periods.

So we are generally looking at Q3 whether it is AVONEX or TYSABRI and just the MS class at whole as softer performance.

Certainly we have seen that in AVONEX through and through.

So I think we do have two quarters in a row now, two innings in a row if you will, of very, very good performance.

Yaron Werber, Citi.

Great, thanks.

Thanks for taking my question.

I have a question about -- just help us maybe understand a little bit.

I know that Gilenia was priced substantially higher than some of the other drugs out there, and there is growing expectation that that is going to provide more room for the other drugs in the class or the other drugs on the market rather to increase price.

But can you help us understand just a little bit on -- how are payers looking at this market?

Are they agnostic on whether a new drug comes in that provides some novelty, whether it is oral and maybe a new mechanism of action and some good potency, and they view all the other drugs as having pricing power?

Or do you think there is going to be a differentiation from this point onwards?

Especially just given that some of your drugs are pretty much looking at flat unit growth, I am just trying to also handicap what to expect in the future.

Thank you.

Yes, you're in early days as it relates to what is the payer reaction.

So I think very similar to early days in terms of what is the physician and patient reaction to Gilenia.

I think it is equally early days.

We are trying to keep our ear to the ground on a payer-by-payer basis, trying to understand what the dynamics in the marketplace are.

But I mean quite frankly it's a little bit early days right now.

Jason Kantor, RBC Capital.

Thanks for taking the question.

Again I have a question on TYSABRI.

Can you quantify the impact in dollar value for this previously expensed TYSABRI?

So what was the dollar value impact on the top line and also on the cost of goods?

You mentioned in your answer to the question about expenses going forward that the COGS level this quarter is something we should expect going forward.

But you also said in your commentary that this aspect of it is going away.

So was there some other improvement that we should be factoring in?

No, let me try to explain that, Jason, just so we all understand.

Occasionally, we will build TYSABRI inventory for clinical trials or for certain new process improvement runs.

In this instance, we had earmarked it for R&D trials and as a result had expensed it to the collaboration.

We had excess inventory that we wanted to -- we were allowed to bring into the commercial setting.

And as a result we took opportunity for enhanced profitability in the collaboration to do that.

That affected our Q2 results as well as our Q3 results.

The way it affects us, Biogen Idec in the United States, is a reduced purchase price to Elan.

I think in the third quarter -- I don't have it handy but I would -- it is in the single digit millions of dollars, probably the mid single digit millions of dollars' impact.

We just have largely bled through that inventory, so there is a little bit more to go in Q4, but it won't be a meaningful impact for Q4 and going forward.

I don't anticipate that that is a typical thing that happens for Biogen Idec going forward.

Chris Raymond, Robert Baird.

Thanks.

Just a question on healthcare reform impact.

You guys outlined, I think, an impact this year of $70 million to $90 million when all this stuff came out.

I didn't notice that you delineated the impact for the quarter.

Can you maybe address that?

Can you give some round numbers?

Also, is there an update to that impact for the full year?

Yes, thanks for the question, Chris.

That was our original when healthcare reform came at the end of Q1 and we are making assessments as we were moving into Q2.

Moving out of our last quarter call, we had narrowed that range to be a $40 million to $50 million impact, and that is consistent with what we are looking at right now.

It is -- the biggest impact is the expansion of managed Medicaid.

That is followed by the additional rebate on Medicaid from 15.1% to 23.1%.

So I think we are thinking that it is in the $40 million to $50 million range now.

We haven't meaningfully changed our accruals in Q3.

I think that the impact is bled throughout the year as we look at the P&L right now.

That was our last question.

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