Biogen Inc (BIIB) 2011 Q4 法說會逐字稿

At this time I would like to welcome everyone to the Biogen Idec fourth quarter and year-end 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, Associate Director of Investor Relations. You may begin your conference.

Thank you and welcome to Biogen Idec's fourth quarter 2011 earnings conference call. Before we begin I encourage everyone to go to the Investors Section of biogenidec.com to find the press release and related financial tables including a reconciliation of the non-GAAP financial measures that we'll discuss today. Our GAAP financials are provided in Tables 1 and 2. Tables 3 includes a reconciliation of the GAAP to non-GAAP results which we believe better represents the ongoing economics of our business and reflects how we manage the business internally. We've also posted slides on our website that follow the discussions related to this call.

As usual we'll start with the Safe Harbor Statement. Comments made in this conference call include forward-looking statements that are subject to risks 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 risks 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; Dr. Doug Williams, Executive Vice President of Research and Development; Tony Kingsley, Executive Vice President of Global Commercial Operations; and Paul Clancy, Executive Vice President of Finance and Chief Financial Officer. We will also be joined for the Q&A portion of the call by Dr. Al Sandrock, Senior Vice President of Development Sciences and Chief Medical Officer. Now, I'll turn the call over to George.

Thanks, Kia, and good morning everyone. We had a very productive fourth quarter, which concluded a really I think great year for Biogen Idec. Recall that in 2011 our goals were to deliver double-digit EPS growth; grow AVONEX and TYSABRI share while pursuing a serological assay and risk stratification to further unlock the value of TYSABRI; advance our late stage pipeline; and continue to drive cultural change. I think we delivered on all these goals and we went a long way towards building a foundation for long-term growth for Biogen Idec.

In 2011, total product revenues were up 11% year-over-year. Non-GAAP diluted EPS ended the year at $5.90, a 15% increase over 2010. In 2011 our AVONEX commercial team substantially improved the business and AVONEX global sales reached $2.7 billion, a 7% increase year-over-year. We introduced the AVONEX PEN to the European markets and Canada, thereby improving the administration for patients, and reinvigorating physician interest and we filed for marketing authorization of the AVONEX PEN in the US.

TYSABRI end market sales grew 23% year-over-year to reach $1.5 billion in 2011 and we hit key milestones that are important for unlocking the value of TYSABRI. First, the assay for JC virus antibodies was made broadly available in both the US and the EU. Second, the TYSABRI product label was updated in both the EU and the US, to include JC virus antibody status as a risk factor for the development of PML. There's been tremendous interest from the MS community in risk stratification. We believe that the larger majority of TYSABRI patients now know their antibody status and that increasing numbers of patients considering TYSABRI are being tested as well.

Against long odds we were able to convince the EMA to reverse their initially negative opinion for FAMPYRA and we obtained conditional EU marketing approval. We launched FAMPYRA in Germany in 2011 and plan additional launches this year.

Turning to R&D our late stage pipeline advanced substantially in 2011 led obviously by BG-12 but also including significant advances in many other portfolio compounds, both early and late. As you know, BG-12 data in two large clinical trials were very encouraging. These two clinical trials with more than 2,600 patients represents the largest data set for any new drug in relapsing remitting MS to date. We are now focused on bringing this potentially major new therapy to patients with MS as soon as possible.

SELECT, the first of two registrational trials for daclizumab showed impressive clinical results in 2011 and supported the continuation of the second registrational study, DECIDE. We also completed enrollment for ADVANCE, our Phase III trial evaluating once monthly subcutaneous PEGylated interferon for relapsing remitting MS and we completed enrollment for EMPOWER, the first global Phase III study of dexpramipexole for the treatment of ALS or Lou Gehrig's Disease.

Turning to our hemophilia programs, Phase I2 data were presented for our long-lasting factor VIII product in Kyoto, Japan in 2011. Addressing an important unmet need in the hemophilia community where less frequent injections will reduce the treatment burden and potentially provide better long-term outcomes for patients. Our Phase III trials continue to enroll successfully during the year. In fact, our clinical trial enrollment improved so much during the year that we substantially overspent our budget for these trials. That, of course, is a good over expenditure that resulted from improved execution. In 2011, we were able to meet or exceed our enrollment targets for almost every one of our clinical trials. I would like to point out that even with these additional clinical expenses we surpassed our earnings target.

As part of our goal to drive cultural change and reinvigorate R&D, we focused on the areas where we have the most expertise and where we have the most promising assets. Neurology, immunology and hemophilia. We increased our efforts to move in internal programs forward and looked for new, high-quality assets to grow our early stage pipeline. We successfully advanced our anti-LINGO program in relapsing MS as well as our anti-TWEAK program for lupus nephritis.

We announced a collaboration with Portola Pharmaceuticals to develop and commercialize an oral highly-selective Syk inhibitor, and with Isis for compounds to target spinal muscular atrophy. We also announced the joint venture with Samsung for the development of biosimilars. Leveraging our world-class protein engineering and biologics manufacturing capabilities, while allowing us to maintain focus on discovering, developing and delivering innovative new therapies for patients.

Because of our successes in 2011, we've entered 2012 with a lot to do. We will continue to focus on execution as we invest in our future success. Our goals for this year are to grow our leadership in multiple sclerosis by growing TYSABRI market share, stabilizing worldwide AVONEX market share, and growing FAMPYRA revenue. We will invest significantly, to ensure that we're well prepared for the potential launch of BG-12 in MS and factors VIII and IX in hemophilia A and B. These activities include successful regulatory filings for BG-12 this year and the appropriate ramp up of commercial and medical capabilities for both BG-12 and hemophilia, to ensure successful, future product launches.

2012 is a building year for Biogen Idec. All of these activities of course take substantial resources. Additionally we will continue to build our early stage pipeline and continue our focus on culture. I am pleased to say that we expect to accomplish this year of building and preparation for product launches while at the same time delivering revenue and EPS growth. And with that, I'll now turn the call over to Doug Williams, Executive VP of R&D.

Thanks, George. Let me start by thanking and congratulating the R&D organization for all their efforts and success in 2011. It's been a year of significant accomplishments spanning the entire pipeline from research to marketed products. During Q4, we continue to make considerable progress on several aspects of our late stage R&D programs, which positions the Company to launch a series of meaningful new drugs addressing significant unmet medical needs for patients and positioning the Company for future revenue growth.

Let me recap progress in Q4 starting with our MS pipeline. Earlier this month, we announced that the FDA approved a product label change for TYSABRI which identifies anti-JCV antibody status as a risk factor for developing PML. This is the third distinct risk factor identified and reflects our commitment to providing important benefit risk information to treating physicians and their patients when considering TYSABRI as a treatment option. Infection with the JC virus is required for the development of PML and patients who are anti-JCV antibody positive, therefore have a greater risk of developing PML.

Moving onto BG-12, the team is aggressively working on regulatory submissions for BG-12, and we plan to file with the FDA and EMA in the first half of this year. The profile of BG-12 seen in the DEFINE and CONFIRM Phase III studies indicates a favorable benefit risk profile for this drug with the convenience of oral dosing. While we conducted the Phase III studies, with a formulation administered as two capsules twice or three times a day, we have since completed a bioequivalent study for a one capsule formulation. Which could allow for one capsule, twice a day. We plan to also include this new formulation as part of the filing.

ADVANCE, the Phase III registrational study of PEG interferon in 1,500 patients with relapsing remitting MS completed enrollment in Q4. This trial is being conducted under a special protocol assessment with the FDA, with an annualized relapse rate at one year as the primary endpoint. We anticipate top line data to be available in early 2013. In the US we've also focused on providing a better patient experience with the AVONEX PEN and the AVONEX Titration kit to make self administration more convenient and to help reduce flu-like symptoms at the outset of therapy. The PDUFA date for both the AVONEX PEN and the Titration kit is in the first half of this year.

Turning to the rest of our neurology pipeline top line data for the EMPOWER study, the first Phase III study of dexpramipexole in ALS is anticipated in the second half of 2012. Dex is a novel oral compound that appears to have neuroprotective properties based on experimental and pre-clinical studies and may slow the loss of motor neuron function by improving mitochondrial energy utilization. EMPOWER which has been conducted under a special protocol assessment approved by the FDA uses a novel primary endpoint which combines survival and functional decline.

The Phase II results of Dex published in Nature Medicine in November of last year, was the first positive dose ranging study of a new agent in ALS in nearly 15 years. In this study, the combined endpoint of survival and functional decline was statistically significant when comparing low versus high doses of Dex. Our current plans are to initiate ENDEAVOR, the second Phase III study of dexpramipexole which incorporate higher drug doses, subsequent to the EMPOWER data readout. This will allow us to incorporate any learnings from EMPOWER into the ENDEAVOR design. I want to clarify that the EMPOWER study is ongoing and thus remains blinded. We're not making the change in the second trial timing due to any knowledge or speculation about EMPOWER, or due to any other signals but rather as a way of optimizing the overall data set from the two clinical studies.

Moving on to our hemophilia programs, enrollment is nearly complete in our A-LONG study. We're dosing the last non-surgical patients now and will continue to enroll surgery patients through the first half of the year. We expect the top line data readout for both B-LONG and A-LONG studies for long-lasting recombinant factor IX and VIII respectively in the second half of this year. We believe that both of these product candidates have the potential to offer compelling innovation and benefits to hemophilia patients.

Along with the substantial progress I just reviewed, on our late stage clinical programs, we've also taken concrete steps to bolster our earlier stage development pipeline. Rebuilding the Phase I and II pipeline is a long-term strategic imperative for the Company, and will be accomplished by disciplined investments in internal discoveries and targeted transactions to obtain highly differentiated assets in our core focus areas. We previously announced a global collaboration with Isis Pharmaceuticals targeting spinal muscular atrophy, also known as SMA.

SMA is a genetic neuromuscular disease characterized by muscle atrophy and weakness and is the most common genetic cause of infant mortality. One child out of every 10,000 births worldwide is born with SMA. Children with SMA generally appear normal at birth with symptoms developing as early as a few months after birth. The most severe forms of the disease, children have significant neuromuscular defects and a lifespan of approximately 2 years. Isis Antisense therapy is designed to correct the underlying genetic defect that causes SMA. This collaboration fits with our mission of bringing innovative therapies to patients with serious neurologic diseases.

I'm also pleased with the process that the R&D team has made advancing and adding to our Phase I and II portfolio. The anti-LINGO and relapsing MS, and the anti-TWEAK antibody and lupus nephritis programs have been approved to go to Phase II. We expect patient dosing to start in the first half and second half of 2012 respectively. These two programs are highly differentiated therapies discovered and developed internally and we'll have more to say about these two programs as Phase II dosing begins.

We've also advanced two additional programs from research into development in 2011. We plan to hold an R&D Day this year to highlight progress in the strength and innovation of our growing early stage pipeline. More details to follow on this event. In summary I'm extremely pleased with the progress that the R&D organization has shown this past quarter. Our late stage pipeline is one of the most enviable in the industry, and we're making tangible progress on building a sustainable and high-value early stage pipeline. I look forward to providing you with further updates on our progress in the coming quarters.

With that, I'll now pass the call to Tony Kingsley, our Executive Vice President of Global Commercial Operations.

Thank you, Doug. The MS franchise continued its strong momentum into the fourth quarter as we delivered double-digit revenue growth for both the quarter and the full year. In the fourth quarter AVONEX continued to show resilience in the US while we experienced growth ex US. Worldwide, units grew 1% while revenue increased 8% in the fourth quarter. Capping off a solid year for the franchise and highlighting our refocused commercial execution.

Despite pressure on the ABCRE market, fourth quarter US AVONEX units were in line with the previous quarter, with the anticipated US approval of the AVONEX PEN and for the AVONEX Titration kit in 2012 we will continue to build upon these 2011 results. Outside the US, fourth quarter units and revenues both grew 4% year-on-year and for the full year, units gained 6%. AVONEX remains the market leader and share growth was strong in countries where we have launched the AVONEX PEN such as the UK, Germany, Canada and the Netherlands.

Moving to TYSABRI we made tremendous progress with both sales performance and the advancement of risk stratification which continues to drive interest in the brand. The JCV assay became commercially available in both the EU and US last year. As of December 31 there have been approximately 87,000 JCV tests globally. Some of which are patients being tested for the second time. We believe that the majority of TYSABRI patients have now been tested for their JCV antibody status.

As we saw last quarter, the very rapid uptake of the assay, created uneven net new patient growth due to increased discontinuation as more patients became aware of their JCV antibody status. At the same time, demand for TYSABRI remained robust and we remain confident that the increased interest in risk stratification will continue to drive strong demand going forward. Full year global units increased 16% while revenues to Biogenic Idec increased 20%. Net new patients increased by 7,200 for the year, an increase of 13%.

In the US fourth quarter TYSABRI units grew 10% year-on-year, this is the fifth consecutive quarter where we delivered unit growth for TYSABRI. For the full year, units grew 12%. With the recent FDA label approvals that identified the anti-JCV antibody status as an additional risk factor, we are now able to speak actively with neurologists and provide the MS community with more confidence when considering treatment options. Outside of the US, TYSABRI units grew 19% for the full year, and 20% in the fourth quarter. In these markets, TYSABRI also grew two times faster than the overall MS market growth rate driven by both patient growth and additional country launches.

While we're still in the beginning stages of the FAMPYRA launch, we're encouraged by the early strong results. There's been pent up demand for the therapy and given our strong position in the MS marketplace we continue to gain access to physicians and drive additional interest. In Germany, we've seen strong uptake with more than 7,000 patients exposed to FAMPYRA, through year-end since its launch in September 2011. This important therapy is currently available in Germany, the UK, Australia, Denmark, Norway and Iceland. Additional launch preparation is underway for the rest of Europe and regulatory filings are planned in over 20 additional countries this year.

In 2012, our focus will be to drive our existing commercial therapies, keeping the momentum we've seen in 2011 going forward. We're excited about preparing our organization for potentially multiple product launches. With the expectation of the first half 2013 launch for BG-12, we are making investments now in product positioning, promotional planning, scientific outreach, shaping our patient support services and supply chain. We plan to build customer phasing resources later in the year.

Similarly, preparations are underway as we make investments in our hemophilia franchise for an expected mid 2013 launch. We are new to the hemophilia market but we've already put in place a commercial team composed of seasoned professionals with significant experience in the hemophilia space which we will scale up as we get closer to launch.

We are developing relationships with the medical and scientific community globally. We will be leveraging our strengths in patient services. We believe that this will offer a competitive advantage to the hemophilia marketplace. We're making great progress and are on track for successfully executing multiple product launches in the coming years. I am confident that we'll continue to build upon our commercial foundation and that will drive future growth. With that, I'll turn the call over to Paul Clancy, our Chief Financial Officer.

Thanks, Tony. Our GAAP diluted earnings per share was $1.22 in the fourth quarter, and $5.04 for the full year. The difference between our GAAP and non-GAAP results for the fourth quarter include $50 million related to the amortization of acquired intangibles, $30 million for contingent consideration, and $3 million in stock compensation expense. This was partially offset by the tax impact on these items. Our non-GAAP diluted earnings per share was $1.51 for Q4, representing a 6% increase versus prior year. For the full year, non-GAAP diluted earnings per share was $5.90 representing a 15% increase. Total revenue for the fourth quarter grew 9% to $1.3 billion, and grew 7% for the full year, surpassing $5 billion.

In the US, AVONEX grew 10% Q4 to $421 million, while the full year US AVONEX revenues increased 9% to $1.6 billion. Inventory in the channel ended at just over 2.3 weeks. Internationally, Q4 AVONEX revenue was $282 million, an increase of 4% compared to the fourth quarter of 2010. Foreign exchange had a minimal impact this quarter. For the full year, international AVONEX revenue increased 3%, to $1.1 billion. Foreign exchange strength in AVONEX revenue by $51 million, however this was offset by a $31 million hedged loss, as compared to a $35 million hedge gain in 2010.

TYSABRI worldwide end market sales were $381 million in Q4, and $1.5 billion for the year. Up 14% and 23% respectively. Biogen Idec recorded TYSABRI revenue of $269 million in Q4, and $1.1 billion for the full year. In the US, Q4 TYSABRI revenue to Biogen Idec grew 25% to $87 million. Full year TYSABRI product revenue was $326 million, an increase of 29%. Q4 international TYSABRI product revenue was $182 million, and $753 million for the full year.

Fourth quarter revenues were impacted by a $14 million accrual, related to a discount in our Italian affiliate. We received notification from the Italian National Medicines Agency, stating that the sales of TYSABRI had exceeded a limit established during our 2006 price determination. We've challenged the Agency's claim, however our fourth quarter accounting treatment has resulted in a $14 million reserve related to this issue. We hope to have resolution in the first half of 2012.

The impact of foreign exchange for full year TYSABRI added $38 million to international revenues versus prior year which was offset by a $6 million loss from hedging compared to an $11 million hedged gain in 2010. Note also similar to prior quarters, we've dated prior quarter TYSABRI patient numbers to reflect the best information available.

US RITUXAN sales were $721 million in the fourth quarter, up 4%. For the full year, US RITUXAN sales were $2.9 billion, up 6% driven by an increase in the maintenance setting in NHL and continued uptake in CLL. Our profit-share and expense reimbursement from this business was $228 million for Q4, and $879 million for the full year. Royalties and profit share on sales of rituximab outside the US in Q4 were $30 million, and $118 million for the full year. The result was $258 million of revenue from unconsolidated joint business in Q4, and $997 million for the full year.

FAMPYRA revenue was $10 million for Q4 largely driven by Germany but also includes sales from select European countries and Australia. Royalties were $53 million for the fourth quarter, an increase of 16%. The increase was mainly due to hitting a new royalty tier on sales of ANGIOMAX. This new tier is applied to all year-to-date revenue in our accounting model. By the full year, 2011 royalty revenue was $158 million, an increase of 15%. We recorded $20 million of corporate partner revenue in the quarter, driven by third party manufacturing contracts with strategic partners. For 2011, we recorded $57 million of corporate partner revenue.

Now, turning to expenses lines in the non-GAAP P&L. Fourth quarter cost of sales were $140 million or 11% of revenues, which included increased global JC virus assay tests, and increased costs for the AVONEX PEN. Fourth quarter R&D expense was $338 million or 25% of revenues. Which included the $36 million payment to Portola and an increased spending related to our late stage programs. For the full year, R&D expense was $1.2 billion or 24% of revenues. Q4 SG&A expense was $282 million or 21% of revenues. An increase of 3% over the same period last year.

Continuing down the P&L, our collaboration profit sharing line totaled $73 million in expense for the quarter, and $318 million for the year. The Q4 non-GAAP tax rate was 24.3%, benefiting from a higher level of orphan drug research credits and favorable settlements from prior year audits. In the fourth quarter, our weighted average diluted shares were 245 million, essentially flat versus prior quarters. During Q4 we repurchased approximately 1 million shares for a total cost of $111 million, for the purpose of 2012 share stabilization. We ended the quarter with $3.1 billion in cash and marketable securities, split across approximately 70/30 between the US and outside the US. This brings us to our non-GAAP diluted earnings per share, which were $1.51 in the fourth quarter and $5.90 for full year.

Now, let me turn to full year 2012 guidance. We expect full year revenue growth of low to mid single-digits. Cost of sales is expected to be between 9% and 10% of sales, driven by third party manufacturing, JC virus assay tests, and increased costs for the AVONEX PEN. R&D is expected to be between 24% and 25% of total revenue, a modest increase versus 2011. The R&D spend continues to be driven by several Phase III trials, which will be at the high point of patient accruals, including PEG interferon, dexpramipexole, the two blood factor trials, daclizumab, and the safety extension studies for BG-12. Additionally in January, we initiated sites for the new pediatric studies for factor VIII and factor IX. R&D also reflects the recent business development deals with Portola and Isis which are important steps to rebuilding our early stage pipeline.

SG&A expense is expected to be approximately 22% to 23% of total revenue up from 2011 primarily driven by the commercial ramp up in preparation for the potential multiple product launches in 2013. We expect our effective tax rate in 2012 to be between 24% and 26% of pretax income. We expect the tax rate to benefit from higher orphan drug credits, and also benefit from the expect conclusion, in mid 2012, of the interferon beta royalty payment from our foreign affiliate to our US affiliate. As a result we anticipate non-GAAP earnings per share results between $6.10 and $6.20. GAAP EPS to be between $5.46 and $5.56.

These anticipated results assume the current FX rates and exclude any material risks related to the macro economic environment in Europe. Also, full year EPS guidance assumes share stabilization. While we don't provide quarterly guidance I do want to call out that we expect the first quarter of 2012 to be unfavorably impacted by certain items. Specifically, ANGIOMAX royalties will reset to a low revenue level in Q1, as in the past. Our R&D expenses will include the $29 million upfront payment to Isis.

Overall, we expect 2012 to be a very important financial year. Our business plan strikes a proper balance in making prudent, pre-launch investments, continuing to build and advance a promising pipeline while delivering earnings growth. These investments by design should have relatively quick and meaningful put payback poising our Company for future bottom-line expansion. Now, over to George for his closing comments.

Thanks, Paul. So, before I conclude, I would like to congratulate the entire organization on their accomplishments in 2011. The performance and our outlook are a credit to the entire team and without their dedication and passion, our overall solid financial performance and the remarkable progress we've made advancing one of the strongest late stage pipelines in the industry would not have been possible. We continued our transformation of the Company and met the goals we set for ourselves at the beginning of 2011.

Although, we've accomplished a lot so far we still have a lot to do. In 2012, we will focus on execution as we invest in our future success, and at the same time, deliver product and EPS growth. I'm confident that we can do this and I'm looking forward to updating you on our progress along the way, during the year. So, with that, we'll close our remarks and open up the call for questions.

Thanks, George. Melissa, we're 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. Melissa, we're ready for the first question.

Geoff Meacham, JPMorgan.

Good morning, guys. Thanks for taking the question. When I look at the net new TYSABRI adds in 2011 it's about 1100 less than 2010 and about 4000 less than 2009. So my question to you guys is, has the discontinuation rate changed over a multi year period? And are the patients added in 2011 any different? So maybe more first-line or less treatment experienced patients? Thanks a lot.

Thanks, Jeff it's Tony. So, we did see an increase in discontinuation rate in sort of two chapters in 2011. In the early part of the year we saw increase in discontinuations in the US, as I think we've talked about because as patients went through the STRATIFY study we got some lumpiness in particularly the first quarter and the first half of the year. We saw a nice recovery from that and lots of increased demand through the year. We are facing on a country by country basis in Europe, somewhat of a repeat of that in the later part of 2011 into early 2012 so I think that's what you've seen. If the US experience plays out, we're confident that those numbers will recover because we see more demand for the product after you get through that initial discon period. In terms of the nature of the patients, I think we have seen that the general trend is more confidence, making physicians confident, moving the treatment earlier in the paradigm and I think we'll continue to see that going forward.

Robyn Karnauskas, Deutsche Bank.

Morning, thanks for taking my question. I guess first question I had was maybe you could provide an update of the EXPLORE combo study, the timing of that and second as a follow-up to Jeff's question, can you give maybe a little bit more color on -- I think the last thing you said about 70% of JCV positive patients are staying on drug and I'm wondering if you are seeing that trend continue of positive patients remaining on therapy? Thanks.

Hi, this is Al Sandrock. I'll take the first question on the combo study. We'll see data of this year. And, but we probably won't present it at a scientific meeting until either the second half of this year or the first half of next year.

It's Tony. On the topic of positive patients I don't think we've seen a meaningful change in that trend. We track that largely outside the US through market research on a periodic basis, I don't think we have a meaningful update to that country by country.

Mark Schoenebaum, ISI group.

Thanks everyone, for taking the call. And congratulations to Kia on a beautifully rendered forward-looking statement. I was just wondering on the ALS trials could you let us know if you think, Al, and I realize that this could change over time, just what's your current thinking in terms of whether or not you can -- whether or not the FDA would approve the drug based upon one trial. And then maybe on the commercial side of that could you help us understand how many patients are out there and then within the ALS population in the US maybe roughly what percent do you think might he eligible for a drug like this? I know it's difficult without seeing the data but any pointers I think we'd all really appreciate. Thanks.

Hi, Mark it's Al. The improbability based on a single trial, I think it's possible if the data are compelling, particularly on the survival end point. But, it's hard to speculate exactly until you see the data. I think in addition to survival you would want to seeing movement in all endpoints in the same direction so, I guess we'll know when we see the data but it is a possibility. In terms of the numbers of patients, there is 20,000 to 30,000 patients with ALS in the United States. And, probably an equal number in Europe. Who would be eligible? I mean if the results are compelling I think there's really not too much else for these patients except for RILUZOLE, which has a very, very modest treatment effect so, I think a lot of patients would probably opt to go on the drug. Remember that when we opened enrollment in this trial, the interest was so high that we enrolled patients in record speed and we completed enrollment far ahead of schedule, if that's any indication there is a high unmet need for drugs like this.

Matt Roden, UBS.

Great, thanks for taking the questions and congrats on the progress this year. Obviously a transformative year for Biogen. George, a question for you on the expense guidance in the context of the changes that you delivered to the organization. A little more than a year ago I think your plan was to improve strategic focus, deliver $300 million in savings and 350 basis point improvement in operating expenses as a percentage of revenue but, if I look at the midpoint of the guidance range for 2012, we're looking at 47% of revenues going to SG&A and R&D, which is about my calculations about 40 basis points better than 2010. So can you maybe reflect on the changes that you've made into the organization, the opportunities that you have here and maybe is it just a matter of having to wait another year to see that margin improvement pull through. Can you help us reconcile all that?

Sure. That's a good question. I'm glad you asked it. We have a chance to address it. You know what is true is that the $300 million in savings that we achieved are still there. They're in there. We are in a year now when our clinical, our late stage clinical trial enrollment is likely at its maximum point. As Paula went through in his statement, PEGylated interference, dexpramipexole, the two blood factors, daclizumab, the safety extension studies for BG-12 are all at their peak. And so, a large fraction of our R&D dollars now, way over half of our R&D dollars is going just to pay for those trials. They enrolled more quickly than we had anticipated which means we got up to the maximum costs more quickly than we had anticipated.

And, frankly, as you think about the Company going forward, you expect to have some attrition. And, that's normal. We didn't have any. And failure is cheap. And success costs money and so we are paying for those trials. At the same time, because we know the data for BG-12 and we are preparing and optimistic about factor VIII and IX we're spending substantially --let's say a substantial amount of resources to prepare for the launches of those products. You can look at many of the product launches that have been done recently, some of them have gone well, some of them haven't. And we need to make sure we get ours right and that takes some preparation and so we are spending on those as well. So, we have -- I think there is a difference in spend where you are inefficient and wasting money, not spending adequately on the commercial preparation would be foolish savings so we're not doing that and we're spending I think prudently and thoughtfully but we are investing appropriately. And, we are saddled with a lot of phase 3 costs which is in the end a good thing but this is the year when I think all those are maximized.

Eric Schmidt, Cowen and company.

Thanks, George if I could just press you a little bit more on the R&D budget. We get that 2012 is a peak year but I think in 2010 we were also talking about R&D as a percent of sales coming down to the maybe 20% range in the out years. Is that still l an appropriate target? And then also for Paul on the tax rate, maybe you could explain why things have gotten so much better there in 2012 and whether that's sustainable?

Yes. Let me take the first part of that. Eric, I think R&D expense as a percentage of revenues will come down. There's no question about that. 20% is not a bad target. I would, and I'm not trying to back away from that but what is important for me, mostly is that we don't waste money. And this year where we have a late stage trials to invest in, we have to invest in them and that's really what is causing our R&D budget to be higher. And those will naturally come to an end and the costs will taper down and R&D costs will come down. And assuming that our early stage pipeline develops along normal metrics yes, it will probably come down to that number you said. If that pipeline is less successful than we hope it could be lower, if it's more successful than we hope, it could be somewhat but I think that's a reasonable target.

And then, Eric this is Paul. Just to give a little bit more color on the tax rate, the guidance for 2012 shows a little bit of improvement vis-a-vis our last few years of guidance. And that's a couple of factors, the orphan drug programs that we have, specifically factor VIII, factor IX, Dex, all have visibility to capture orphan drug research credits which over the long haul it depends on the shape of programs kind of coming forward that may kind of apply for that. Isis would be one that would but that's a number of years off. Additionally, what I had noted is that outside the United States we have heretofore had a royalty payment that is paid from a foreign affiliate to a US affiliate that will end in mid-2012 so that is sustainable going forward. Over the longer term, I think that all in all, there is downward pressure on our effective tax rate as BG-12 becomes a greater part of our profit mix and conversely, the RITUXAN cash flow that is subject to essentially all US taxes becomes a lower percentage of our profit mix. Both of those are probably offset by the fact that we intend to continue to do cost sharing on programs so we intend to still, which has the effect of, for a portion of R&D not capturing some tax deductions on those expenses, but all told I think it's a modestly favorable story over the next couple of years and a good story over the longer term.

Michael Yee, RBC Capital Markets.

Thanks, a question for Al or Doug on ALS. Can you comment on whether per protocol there was ever any interim futility or safety analyses ever that have passed? And then, on [Riozal] there was a few months of mortality benefit there. Maybe you can comment on how you designed the study to, or power the study for what types of benefits, whether disability and mortality? Thanks.

We have not talked about the study conduct itself with respect to any futility analyses or anything along those lines. This is Doug by the way. So no we have nothing to say about that at this point except that the study is continuing to run and we will see the data in the second half of this year.

The study was powered based on a primary endpoint, called the CAFS or combined assessment of function and survival. It's well powered for that. I would remind you that the phase 2 study which was about 100 patients actually achieved significance on that endpoint. This study is 943 patients so we're pretty confident that we're well powered on that endpoint. It's also -- the phase 2 study also had a trend toward an effective survival even though it was a relatively short and small study and so consequently, if the results, if the treatment effect holds, for a 900 patient one-year minimum follow-up we should be well powered for a survival effect as well.

Rachel McMinn, Bank of America Merrill Lynch.

Yes, thank you very much. Just wanted to ask about your outlook on capital allocation? You still have very high cash generation but you're talking about share stabilization so should we think about just a lot more BD this year or is there option year for share repurchases beyond what you're guiding for? Thanks.

A good problem, this is Paul, Rachel, thanks for the question, cash flow generation in the Company still remains very, very strong, puts us in a great position. And certainly, I think we feel no doubt that a very productive use of the cash has been building the early stage pipeline. The phase 1, 2 assets have matured into largely what is the late stage pipeline now and I think that we have created a really good late stage pipeline. It's been an important way to do that and create shareholder value. The Portola and Isis deals, kind of show our indications to continue that strategic kind of point of view. Historically we've been very disciplined in our deployment of cash and continue to do so and look for always, the guidance is share stabilization if we decide to kind of return cash to shareholders we'll kind of communicate that and update accordingly.

Yaron Werber, Citi.

Great, thanks for taking the question I appreciate it. If you don't mind just two quick ones, BG-12 just the timing, the press release mentioned filing in the first half but there's a mention in their quote, unquote as soon as possible so I'm just trying to get a sense is there any way this could be in Q1? Are you counting on a six-months review and then just on the hemophilia, is there any way we can get B Long data in Q3 or are both data sets going to be in Q4? Thank you.

This is Doug. We're not providing any additional granularity around first half for BG-12. And as far as the blood factors are concerned both of those are going to read out in the second half, I can't give you any more guidance than that at this point. But, we're on track with all the studies to submit to both the EU and US authorities, first half for BG-12 and then we will see data for both of the factors in the second half.

And then, I think the other part, correct me Doug, our planing assumption is ten-month PDUFA review for the United States. So, we will seek certainly priority review but our planning assumption as Tony had indicated does not include revenues for this year. If that happens we'll kind of come back and talk about what the implications of that are. That would be another great problem to have. But are planning assumption right now is for kind of a standard review in the US as well as outside the United States.

Ravi Mehrotra, Credit Suisse.

Thank you, Rachel took my agency cost question so let me ask Doug a question on BG-12 and the one capsule bioequivalence study. Could you just give us some color on that? And remind us of the regulatory hurdles of trying to get a drug approved on the different formulation than what you used in phase 3, it's obviously not the first time you've done it, but any color would be useful. Thank you.

Yes, as I mentioned we conducted a bioequivalence study to essentially look at a single capsule as opposed to two capsules. As you know we are going forward, we believe that the drug will be a BID drug. The way it has been formulated and the way the phase 3 study was done was with two capsules in the morning, two capsules in the evening but we've now created a single capsule that has the same drug dose, done the bioequivalence study and demonstrated obviously bioequivalence. So, we plan to file that with the regulators and seek approval for what we believe will be a more convenient dosing approach for patients with a single capsule twice a day. That will be part of the package and we believe we have appropriate data to support being able to move to that as we get the drug approved.

Geoff Porges, Bernstein.

Thanks very much for taking the question. Just quickly on the P&L, Paul, specifically on gross margins. You ticked up a bit to the 11% in Q4 but your guidance is sort of 9% to 10%, anything going on there that we should be aware of? What drove it in Q4 and then is 9% to 10% where you think you can be as you look at the product mix going forward? And how is the reduction in mix contribution of RITUXAN and the other products coming in going to affect that? Thanks.

Great question, Jeff. Yes, I think the other reason it ticked up a little bit was we had a little bit more than normal write offs in Q4 of 2011. Most of those write-offs were excess and obsolescence write-offs related to Zevalin so we have actually a supply agreement that is obviously a number of years old related to the divested product and just literally because the end market sells have attenuated there. We've had to take a write-off in Q4. We think that is for the most part behind us. Our yields across the plant have been on track.

And then I think the other thing going into 2012 is that we will benefit a little bit from more productive, if you will bologics, manufacturing going back in late 2009 and into 2010. So, curiously our productivity in a given year benefits the P&L a number of years down the line simply because of the inventory balances that we hold in this business. We will continue to have costs that are related to the assay that we do think are very important, particularly at this stage of TYSABRI in a risk stratification to be behind the brand. There's an opportunity for improvement if we can get that reimbursed in the United States because currently, we and Elan bear the burden of the on the P&L. As you had inferred that as RITUXAN may become lower percentage of the mix, that has a very favorable gross margin obviously, but I think the products that come on also are pretty strong gross margins kind of BG-12 et cetera. So I think that where we're thinking in the zone of 90% to 91% of sales on the gross margin line is a good number to have.

Thomas Wei, Jefferies.

Thanks. I had a question on TYSABRI, just if you could help us reconcile the different numbers on the cumulative TYSABRI patient counts. So, what is in your slides today is 95,200, as of the end of December but, in the FDA communication when the JC virus assay was approved, they had mentioned 96,582 as of January 4. And I that maybe I was getting confusing and it was the clinical trial patient numbers that was throwing things off but then you mentioned today that that number is 4700. So, I'm actually not sure what the disconnect there is? And, maybe if you could help us understand that a little bit better. Thanks.

Thomas this is Paul. We always go back at this point in every quarter and try to, particularly on the international TYSABRI patient numbers, reflect the best information available. That generally will move numbers around, a not very meaningful amount. That probably is the biggest reason for the change vis-a-vis the January 4 medical indication. We'll look into and try to get back to you if there's anything further than that but I believe it's owing to, in essence, the international numbers. The US numbers aren't subject to a lot of changes because of the TOUCH program. We have a tremendous amount of visibility so we don't see a lot of changes in that, just that the country by country there are different methodologies that we use on the TYSABRI patient numbers and we always try to look hard and quality control those to try to get the best information available.

Josh Schimmer, Leerink Swann.

Great., thanks for fitting me in. A question on Europe, maybe for Tony, what is there to challenge regarding the Italy claim that TYSABRI sales have surpassed the limit? Is that limit expected to rise in future years? And how quickly and are there similar limits in other European countries? And then on FAMPYRA, what your expectations for the IQWiG and GBA added benefit assessments? Thanks.

This is Tony. Maybe I will take the second one and let Paul talk to the first one. So, on IQWiG, because FAMPYRA was launched in July 2011 it's actually in an extended version of the process which takes 18 months so we expect to get a IQWiG rating in Q2 of 2012.

And then Josh, just a little bit more color on the Italian situation on TYSABRI. We were granted authorization in 2006, so this actually goes back to 2006, and we entered into an agreement with the Italian Medicines Agency known as, AIFA-- that is just the initials for that, to set a price and that price was subject to a reimbursement ceiling for the first 24 months. In the fourth quarter, of 2011, we got a notification that from the Italian Medical Agency saying that we had exceeded the ceiling for a subsequent 24 month period and that's what we are contesting. But it has a peculiar impact of really just trying to look at our revenue recognition going forward from the receipt of that letter. So, it really gets into an accounting judgment and reserves around fixed and determinal pricing and we're simply booking to that new ceiling until we resolve the issue, until we renegotiate it or have a new set of facts which we hope will happen in the first half of 2012. And then, that will create some changes to the estimates that we've accrued heretofore.

Tony Butler, Barclays Capital.

Yes, thanks very much, and Paul, could we just stick with the last question? Does that imply that you didn't reverse the accrual in the first half? Would that be a goal and then second, would other countries perhaps have similar ceilings based upon any other austerity or do you get even a much more reduced price from Italy on the next say two years? Thank you.

I don't want to comment on how -- where it will land but there will be a change to whatever we have as the reserve once we get a new set of facts. The actual facts. I think -- we don't believe that we were unique in this perspective. We had heard that other companies actually have gone through similar things from our advisers, and with respect to other countries, nothing meaningful to report in terms of similar type of analogs at all.

That was our last question. Thank you for participating in today's call. You may now disconnect.