Biogen Inc (BIIB) 2012 Q2 法說會逐字稿

Good morning, my name is Sarah, and I'll be your conference operator today.

At this time, I would like to welcome everyone to the Biogen Idec Q2 2012 Earnings Conference Call.

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

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

(Operator Instructions)

I would now like to turn the call over to Wendy Gabel, Vice President Investor Relations.

Ms. Gabel, you may begin your conference.

Thank you, Sarah, and welcome to Biogen Idec's Second-Quarter 2012 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 will discuss today.

Our GAAP financials are provided in tables 1 and 2. Table 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 have also posted slides on our web site that follow the discussions related to this 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 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 slides, earnings release, and in the Risk Factor 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'm 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 will turn the call over to George.

Okay, thank you, Wendy, and good morning, everyone.

We had an excellent second quarter, and we're on track to achieve our financial, business, and R&D goals for the year.

Revenues and earnings for the quarter were solid.

Costs were in line with expectations.

We continue to make headway preparing for the approval and launch of BG-12.

We completed enrollment in the trials for long-lasting Factor VIII and Factor IX, and expect to have top line data within the next several months.

We continue to expect data for dexpramipexole in ALS later this year, and we made real progress advancing the rest of our pipeline, as well.

Some highlights for the quarter.

Total revenues grew by 18% year-over-year to $1.4 billion, and non-GAAP diluted EPS were up 34%, to $1.82.

These numbers are a bit inflated, since a year ago we took a charge related to Genentech's arbitration with Sanofi; however, even with that charge backed out, we posted solid double-digit revenue and earnings growth.

Avonex had a particularly strong quarter, with revenues of $762 million, up 16% year over year.

The introduction of the Avonex pen auto-injector and the AVOSTARTGRIP titration dosing regimen in the US, as well as their continued rollout in the EU and Canada, is not only improving the Avonex experience for patients, but also driving renewed physician interest in one of the world's most trusted MS therapies.

Global end-market sales of TYSABRI grew 2% to $395 million, while revenues to Biogen Idec were $280 million, which is flat compared to the second quarter last year, primarily due to the deferral of revenue in our Italian affiliate.

While revenue growth slowed, TYSABRI unit sales were up 10%, as we continue to roll out risk stratification based on JC virus antibody status.

Patient demand for FAMPYRA in the EU continues to be encouraging, and RITUXAN revenues from our partnership with Roche and Genentech generated $285 million for the quarter.

Turning to our pipeline, we achieved a number of important milestones in the second quarter.

While Doug Williams will provide more details, I wanted to highlight a few of those achievements.

US and EU regulatory authorities accepted our marketing applications for the review of our oral MS drug candidate BG-12, and we submitted additional filings in Australia, Canada, and Switzerland.

In addition to completing enrollment in our Phase III trials for long-lasting Factor VIII and Factor IX, we initiated two global pediatric clinical studies for the programs to support our global regulatory strategy and ultimately we hope to address the significant need for longer-acting therapies for children with hemophilia.

Through a second collaboration with ISIS Pharmaceuticals, we added an interesting pre-clinical program intended to develop and commercialize a treatment for myotonic dystrophy.

This program fits squarely within our strategy to focus on highly differentiated therapies for serious unmet needs in neurology.

So it was a productive quarter, in which we delivered strong revenue and earnings growth, while continuing to invest in the Company's future success.

With that, I will turn the call over to Doug Williams.

Thanks, George.

We recently had an Analyst Day that many of you attended where we discussed in detail the progress that we made as an R&D organization over the past 1.5 years.

For those of you who weren't able to attend, let me briefly recap some of the important take-aways from that meeting.

We've executed very well on our Phase III pipeline, either meeting or beating our internal time lines.

At the same time, we've strengthened the early stage pipeline by advancing internal Phase I and Phase II candidates, and bringing in four high-quality, innovative candidates that fit squarely within our areas of strategic focus.

More recently, we've stepped up the pace of revitalizing our discovery efforts.

I believe that an increased focus on target identification and validation, both internally and through growing collaborations with academia is a key to that effort.

Research into the underlying biology and genetic causes of disease points to pathways that other companies aren't already chasing, and paves the way for us to discover first-in-class, truly novel approaches to address the difficult and devastating diseases in our sights.

In short, our goal is to build a world class R&D organization that promises to deliver significant innovation over the long term.

We continued to make progress on those fronts during Q2, positioning the Company to launch a series of highly differentiated new drugs that address significant unmet needs for patients, and that poise the Company for future growth.

Starting with the late stage pipeline, we began two global pediatric clinical studies, Kids A-LONG and Kids B-LONG, for our long-lasting recombinant Factor VIII and Factor IX FC fusion proteins in hemophilia A and B. For children with hemophilia and their parents, long-lasting factor products would offer less frequent injections, which will reduce the treatment burden and potentially provide better long-term outcomes.

The initiation of these studies represents an important clinical development milestone, as they're required for regulatory approval in the EU, and support our broader global regulatory strategy.

We expect to enroll approximately 50 patients in the Kids A-LONG trial and approximately 26 patients in the Kids B-LONG trial in sites around the world.

Moving on to daclizumab, we completed enrollment in DECIDE, the second registrational trial for daclizumab in relapsing remitting MS, with more than 1,800 patients.

The trial will determine whether the significant reduction in annualized relapses and disability progression, seen after one year of treatment in the select trial, can be sustained or enhanced over a period of two years.

Top-line data from DECIDE is expected in 2014.

I'm also pleased to announce that we enrolled our first patient this month in the Phase II-A study for STX100, in idiopathic pulmonary fibrosis, or IPF.

IPF is a debilitating and almost uniformly fatal disease in which patients experience progressive difficulty breathing due to fibrosis of the lung.

More than 200,000 patients in the United States and Europe have IPF, and there is no FDA approved treatment for the disease at this time.

We expect to enroll about 30 patients at 15 US sites in this study.

Turning now to the early-stage pipeline in research, I'm pleased with the progress we've made in building out the early stage pipeline over the past year.

As George mentioned, we recently added a promising pre-clinical program targeting miotonic dystrophy, or DM1, through a second collaboration with ISIS.

DM1 is a debilitating neuromuscular disease that affects about 150,000 people in the US, Europe, and Japan.

It's caused by a genetic defect in the dystrophia miotonica protein kinase, or DMPK gene, and there are currently no disease- modifying therapies to treat DM1.

As discussed during our Analyst day, one of our focus areas within neurology is genetically well-defined diseases.

DM1 fits squarely within that particular approach.

The disease is caused by the accumulation of toxic RNAs in the nucleus of affected individuals because of CTG repeats, and the ISIS molecule is designed to specifically correct this accumulation.

ISIS is working to discover the lead drug candidate for the program, which we hope to take into Phase I next year.

Consistent with my earlier comments about revitalizing discovery, last week we announced that we entered into a consortium that brings together world-class ALS researchers from six institutions to obtain the complete sequence of the genomes of up to 1,000 ALS patients over five years.

The effort should give us a deeper understanding of the fundamental genetic causes of ALS, potentially yielding new targets for therapeutic intervention or patient stratification.

Biogen Idec is funding the project, which will be led from Duke University and Hudson Alpha Institute for Biotechnology, and include top researchers from Columbia University, Stanford University, the University of Massachusetts Medical School, and the University of Montreal.

We plan to supplement these activities with additional collaborations and internal efforts to better understand the cell biology of ALS.

Looking ahead, we have a steady drum beat of data read-outs over the next few years, starting with long-lasting Factors VIII and IX, the first potential innovations in hemophilia treatment in more than two decades; then, dexpramipexole, a therapy that has the potential to be the first advance for ALS patients in more than 15 years.

Those will be followed early next year with PEGylated interferon, and then by a series of molecules expected to provide data and proof of concept studies thereafter.

¶ I look forward to providing you with updates on our progress in the coming quarters.

With that I will now pass the call off to Tony Kingsley.

Thank you, Doug.

In the second quarter, we had double-digit revenue growth driven by strong execution of our product strategies.

Second-quarter global AVONEX units increased 11%, while revenues increased 16% versus prior year.

We continue to experience share gains within the ABCRE class in both the US and outside the US.

Our strategy of focusing on first-line use and bringing convenience to the marketplace has allowed us to further differentiate AVONEX in the injectable segment, making the once-weekly treatment a compelling choice for both patients and physicians.

The AVONEX PEN and AVOSTARTGRIP were recently introduced to the US market.

The AVONEX PEN has been shown to help reduce the anxiety patients may experience while self-injecting.

For patients initiating treatment, titration could reduce the incidence and severity of flu-like symptoms that they may have when beginning AVONEX therapy.

We're pleased by the early indications, and believe that the strong demand in the US AVONEX business, was a combination of both patient demand for the pen, and pen inventory stocking relating to the recent launch.

Market data also suggests there's been a strong conversion to the AVONEX PEN from existing patients, and that the majority of patients new to AVONEX therapy have chosen the pen.

The AVOSTARTGRIP performance has also shown very positive preliminary signs in the US.

During the quarter, approximately 66% of all new starts on AVONEX were with the AVOSTARTGRIP.

Outside the US, we continue to maintain our leading market share position, and the AVONEX PEN continues to drive healthy unit demand in the UK, Germany, and the Netherlands.

Now turning to TYSABRI, second-quarter global, TYSABRI units increased 10% versus prior year.

In the US, second-quarter TYSABRI units grew 9% year on year.

This is the seventh consecutive quarter where we've delivered unit growth for TYSABRI.

Outside the US, TYSABRI units grew 11% in the second quarter versus prior year.

We believe risk stratification is working.

There is high awareness of the assay among neurologists, testing volumes are growing nicely.

Our most recent estimates are over 100,000 tests completed globally; and an increasing portion of patients tested are new TYSABRI candidates.

While we continue to see some fluctuations in discontinuation rates among JCB-antibody-positive patients, overall discontinuations are modest.

We're seeing solid growth in new patients, with 2,400 added during the second quarter.

We continue to see success with FAMPYRA, as revenues approached $20 million in the second quarter, largely driven by Germany.

FAMPYRA is now approved across the entire EU, Norway, Iceland, Canada, Australia, and New Zealand.

We expect regulatory filings in 30 additional countries in 2012 and have planned launches in many EU countries.

We are actively working with government agencies with the goal of achieving favorable reimbursement.

In Germany, our interactions with the GBA this quarter continued as we further demonstrated the benefits that FAMPYRA has for patients with MS. The GBA will issue the final assessment in early August, 2012, at which time pricing negotiations will commence.

We will continue to focus on strong execution of these product strategies in the second half.

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

Thanks, Tony.

Our GAAP diluted earnings per share were $1.61 in the second quarter.

The primary differences between our GAAP and non-GAAP results are outlined in the earnings presentation, and include $51 million related to the amortization of acquired intangibles.

Our non-GAAP diluted earnings per share were $1.82.

The financial results this quarter were obviously very strong.

We always have puts and takes across the P&L.

This quarter, we're fortunate to have a disproportionate number of favorable items.

These included a re-supply in certain AVONEX international markets; benefits from hedging on AVONEX; a step-up in our Angiomax royalties, a low level of write-offs, and we gained a P&L benefit from collections in Spain.

I will highlight these as I walk through the financial results.

Nevertheless, we're quite satisfied with where we are on a year-to-date basis.

Q2 AVONEX worldwide revenue was strong, growing 16% versus prior year to $762 million.

In the US, AVONEX grew 13% year over year to $464 million.

US unit volume was down 2% versus prior year, and up 7% versus last quarter.

Inventory in the wholesale channel ended at just under two weeks, a decrease compared to prior quarter.

We're heartened that the US channel dynamics we experienced in the first quarter appear to have been isolated.

Internationally, Q2 AVONEX revenue was $298 million, an increase of 19% year-over-year.

For AVONEX, the combined impact of currency and hedging was not a head wind for us in the year-over-year comparison.

Foreign exchange weakened AVONEX revenue by $23 million, yet was offset by a $10 million hedge gain in the quarter, as compared to a $15 million hedge loss in Q2, 2011.

AVONEX second quarter global sales also benefited by approximately $7 million from the resupply arising out of the voluntary product recall which drew down sales at the very end of Q1.

Additionally, we benefited from the timing of tender sales in Brazil.

TYSABRI worldwide end-market sales were $395 million, an increase of 2% year-over-year.

Biogen Idec recorded TYSABRI product revenues of $280 million.

In the US, TYSABRI product revenue to Biogen Idec grew 15% to $93 million.

Q2 international TYSABRI product revenue was $187 million to Biogen Idec.

There are three drivers why drivers why units increased double digit year-over-year, and revenue growth did not match.

First, revenues were unfavorably impacted by $16 million of deferred revenue in our Italian affiliate related to the Italian National Medicines Agency claim.

Second, the impact of foreign exchange for the second quarter softened revenue by $19 million for TYSABRI versus the prior year, which was offset by a $4 million gain from hedging compared to a $3 million hedge loss in the prior year.

The amount of the hedge gain that helped mitigate the effect of currency during the quarter for TYSABRI was more modest than AVONEX, as we have a natural hedge in our collaboration profit sharing line.

Third, we experienced some modest price in country mix shifts.

US RITUXAN sales were $784 million, up 5% versus prior year.

Performance is solid in the maintenance setting in NHL, CLL, RA, and the new vasculitis indications.

Our US profit share was $259 million.

Royalties and profit share on sales of RITUXAN outside the US were $25 million.

The result was $285 million of revenue from unconsolidated joint business in Q2.

FAMPYRA revenue was $20 million for the second quarter, primarily driven by sales in Germany.

Our one-year anniversary of the FAMPYRA launch in Germany is in August.

At that time, we won't have a fixed price from an accounting perspective, as our negotiations with the GBA will be ongoing.

As a result, we plan to record revenue at a lower price, until the price negotiations are final.

Therefore, we expect revenues for the remainder of the year, to be approximately half of year to date sales.

Royalties were $37 million, an increase of 29% year-over-year.

Second-quarter royalties were favorable to our business plan, which was the result of achievement of a higher royalty tier on Angiomax sales during Q2.

We had previously anticipated to reach this new tier in the third quarter.

We recorded $22 million of corporate partner revenue, driven by manufacturing contracts with strategic partners.

Now, turning to the expense lines on the non-GAAP P&L.

Q2 COGS were $139 million, or 10% of revenues.

The increase in COGS year-over-year was driven by higher AVONEX and FAMPYRA revenue, and includes approximately $7 million related to funding the JC virus assay testing.

We experienced essentially no write-offs this quarter.

Q2 R&D expense was $329 million, or 23% of revenues, which includes the $12 million payment to ISIS on the DM1 program.

Q2 SG&A expense was $301 million, or 21% of revenues, an increase of 13% over last year, and essentially flat versus first quarter.

Our collaboration profit sharing line totaled $79 million.

Other income and expense was a gain of $3 million in Q2.

During the quarter, we had a high level of collections in Southern Europe, particularly in Spain, where the Spanish government executed a program across the pharma industry to pay down past due receivables, many of which were greater than one year old.

We received $120 million of accounts receivable due from various Spanish regions.

In addition to improving the balance sheet, this resulted in a positive impact in the P&L statement of approximately $5 million, due to accelerating previously imputed interests.

This was recorded in the OI&E line.

Our Q2 non-GAAP tax rate was 24%.

In the second quarter, our weighted average diluted shares were $241 million (sic-see press release "241 million").

During the quarter, we made great progress on the $500-million share re-purchase program we announced 90 days ago.

We purchased approximately 3.3 million shares for a total cost of $447 million.

We completed this program in early July, and all shares have been retired.

We ended the quarter with $2.9 billion in cash and marketable securities, split approximately 60/40 between the US and outside the US.

This brings us to our non-GAAP diluted earnings per share which were $1.82 in the second quarter.

Now I'll turn to our updated full-year 2012 guidance.

We expect full-year revenue growth of mid-single digits, unchanged from previous guidance.

I will provide some detail on our revenue outlook.

We're encouraged, certainly, by the second-quarter AVONEX strength, yet remain mindful about a couple of dynamics, including that downstream retailers are managing both pen and pre-filled syringe inventories.

In the US, we anticipate a second competitive oral to be approved later this year.

While we're working to resolve the IE for TYSABRI claim in Italy, our current guidance does not include a resolution in 2012, and assumes we continue some TYSABRI product revenue being deferred for the rest of the year.

If we resolve this, this obviously would be upside.

Our current guidance does not include sales from BG-12, as we expect launching in early 2013.

Regarding FAMPYRA, as I previously mentioned, the balance of year assumes that revenue will be approximately half of year-to-date sales, owing to the German reimbursement process.

Our expense targets as a percentage of sales are unchanged from previous guidance.

Cost of sales expected to be between 9% and 10% of total revenue.

R&D expected to be between 24% and 25% of total revenue.

Included is a $23 million milestone payment to Portola, which we expect to occur in the third quarter.

SG&A expense is expected to be between 22% and 23% of total revenue.

During the second half, we expect increased investment in pre-launch activity closer to the BG-12 launch.

We expect to put our Denmark large scale manufacturing facility into service in the second half of this year, which is a very positive milestone.

The P&L impact of this will be a change from capitalizing interests to expensing it.

The result is that we expect our other income and expense line to go from approximately $18 million of favorability year to date, to approximately $10 million to $20 million of expense for the second half of the year.

We expect our tax expense in 2012 to be between 23% and 25% of pre-tax income.

As a result, we now anticipate non-GAAP earnings per share results to be above $6.20, and GAAP EPS above $5.44.

This modest improvement in non-GAAP reflects the continued investments in the late-stage pipeline, and preparing for upcoming product launches which intensify in the second half.

Now I'll hand the call over to George for his closing comments.

Thanks, Paul.

So at this mid-year mark, we're on track to achieve our 2012 goals, which include growing our leadership in MS by increasing TYSABRI market share, stabilizing worldwide AVONEX market share, and growing FAMPYRA revenue; prudently investing to make sure that we're well prepared for the launch of BG-12 and MS and Factors VIII and IX in hemophilia A and B; and continuing to advance our late-stage pipeline and strengthen our early-stage pipeline to ensure that we're poised for future growth.

We expect to accomplish all of this while at the same time delivering revenue and EPS growth.

We have a busy nine months ahead of us, preparing for the BG-12 launch and four pivotal trial data read-outs for the long-lasting blood factors VIII and IX, dexpramipexole in ALS, and PEG interferon.

In closing, feel good about where we are as a Company right now, and we believe the best is still to come.

With that, we will stop and open up the call for questions.

Thanks, George.

Operator, we're ready to open the call for Q&A.

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

Please state your name and your company affiliation.

Operator, we're ready for that first question.

Brian Abrahams, Wells Fargo Securities.

Can you hear me okay?

Yes, we can hear you, Brian.

Now we can.

Great.

I was wondering if you could talk in a little bit more detail about the Tysabri discontinuation rates.

You mentioned that there has been some fluctuations there.

I was wondering if you could talk more specifically about any differences you're seeing in US versus European dynamics there, if you think this is starting to stabilize somewhat in Europe, and whether or not you're seeing any changes in shifts as patients who are JCB-positive reach two years?

Thanks.

Thanks, Brian.

It's Tony.

As we've said in the past, country by country, as we've worked through testing the existing patient base, we've seen some lumpiness in the discontinuation rates, but overall we feel like it would stabilize over the course of this year, and we continue to feel that way.

The discontinuation rates have continued to be within the broad ranges that we've thought would happen, or I don't think significant differences between the US and Europe in the discontinuation rates.

We're seeing reasonably similar patterns across countries at this point.

No substantial shift on that front.

Thank you.

Sarah, if we have the next question?

Geoffrey Porges, Bernstein and Company.

Thanks very much.

For the question, and congratulations on a really robust quarter, some one-timers but strong end-line results.

Tony, could you give us little bit more color on Avonex in the US?

Really strong result there, and just wondering if you could break it down, for how much of it was stocking of the new product images, and then how much was price?

You mentioned volume was actually down.

Could you also talk a little bit about the dynamics in the overall market, what you're seeing in terms of treated patient numbers, right now, in the US and Europe?

Thanks.

Geoff, thanks.

This is Paul.

Let me kind of give a little bit of a sense for the underlying strengths.

On a global basis, very strong quarter for Avonex.

We did try to point out that on a global basis, we benefited from some resupply.

From the kind of Q1 very end that was more the international markets as well as the Brazil tender.

We, from a wholesaler demand-channel perspective, we -- our inventory levels ended up at under 2.0 weeks, which is very favorable for us.

We don't have visibility with respect to the retailer inventory levels.

We're just a little bit cautious that they're probably likely managing both pen and lyophilized inventory levels, in that we may have benefited a little bit modestly from that.

But nevertheless, I think Tony and his team, I will turn it over to him, are feeling very good about the acceptance of Avonex pen, in the dynamics and the ability to compete in the marketplace.

Tony?

Yes, thanks Paul.

In terms of sources of growth, we did -- I think Paul said we did see units 2% year on year, but up 7% quarter on quarter in the US.

Some of that reflected the dynamics in the first quarter, but we feel comfortable that we are getting good unit growth and that we're getting some share growth within the ABCRE segment.

It's still relatively early days with the pen in the US in titration, but we track the leading indicators.

I mentioned some of them on the call in terms of the percent of patients who are choosing the pen, what percentage of new starts we're getting, and we feel comfortable that we're seeing a repeat of the experience that we've seen in some other markets.

In terms of the total market, we still see the US market this year growing as expected in terms of total patients in low-single digits.

Europe is typically higher than that, a sort of mid-single digits; no big change in the market growth relative to what our expectation was.

Great.

Thank you very much for the answers.

Thanks, Geoff.

Matthew Roden, UBS.

Great, thanks so much for taking the question, and congrats on a terrific quarter.

Your cash balance is growing here.

Can you share your latest thinking on what's on the table and what's off the table with respect to use of cash, perhaps prioritize how you think about putting that cash to work?

More specifically, if I may, do you have any thoughts on the potential merits of consolidating the Tysabri economics as daclizumab plays out.

Would you look at global Tysabri rights as a purely financial consideration, or would you consider it strategic to consolidate the brand?

Thanks.

Matt, I mean George will answer it.

Obviously, we can't comment on it -- we appreciate that it's quite topical, coming off of last night's news, but really, just no comment.

But George, if you can kind of give a broader perspective, it would be great.

Well, sure.

Just on BAPI, the first trial doesn't need a 10-point, but there are other trials yet to come.

I think that final word there isn't out yet.

We don't have too much to add to what we've said previously about our cash usage.

We have over the past few years done a combination of what Paul has from small tuck-ins, little deals, small acquisitions.

We've bought shares back, and we'll continue to think about it the same way as we move forward.

Thank you.

Marshall Urist, Morgan Stanley.

Hi, guys, good morning.

Thanks for taking the questions.

Just on Tysabri, Tony, maybe you can talk about patient mix in terms of what you're seeing right now, kind of post the assay, in terms of first-line, second-line, third-line mix.

Any impact of Galena so far that you can kind of discern in the market kind of post the label changes, and then finally, just a little bit better insight on why units -- rest of world units -- it looks like were actually down quarter over quarter, so just frying to understand what all of those, how all of those dynamics tie together.

Thanks.

Thanks, Marshall.

Patient mix, we are, as I said, one of the things we look at, with the assay, is what's the portion of patients who are existing patients versus candidates, and we're seeing a nice increase -- in fact the majority of patients tested now are candidates for Tysabri, which is a good new very positive.

We continue to see evidence that we're seeing as a result of that.

Tysabri used earlier in the treatment paradigm.

I'm not sure I can break down very specific metrics on second-line, third-line, first-line, but we are continuing to see evidence in the patient demand that we're seeing patients tested and then one or two patients moved on to the product, which is very positive.

Not a lot of news from our standpoint, on Galena; we continue on FDY, we continue to see them sort of chugging along nicely at the level that they have.

Again, we think that Tysabri has a significant efficacy advantage with risk stratification, a significant advantage for patients who really need that higher efficacy.

As it netted out, we did add 2,400 net patient adds in the quarter, which we feel was a very good performance.

And then just on the rest of world units?

Owing mostly, Marshal, to emerging markets, so as we pointed out in the past, both for Avonex and Tysabri, we have some wobbliness quarter to quarter, emerging markets.

Avonex benefited this quarter from Brazil.

Tender sales last quarter, Tysabri benefited from some of the emerging market tender sales.

So it's really that, if you kind of strip that out of it, both in Europe as well as in the emerging markets, it's a very kind of very normal nice trend moving in the right direction.

Great, thank you.

Thank you.

Robyn Karnauskas, Deutsche Bank.

Good morning, guys.

It's Navdeep substituting in for Robin.

Just a couple of questions on Tysabri.

Can you describe what percentage of your EU Tysabri patients have been tested with the JCV assay, and what percentage of the JCV positives are staying on, and when you expect the discontinuations of the JCV positive to wash through?

Thanks.

In terms of the percent of patients, existing patients, every patient who have been tested, I think over the course of the later part of last year, post the launch of the commercial assay in the EU, we saw different trajectories country by country, but the vast -- we believe the vast majority of patients country by country got tested over the three-, four-, five-, six-month time frame last year.

I can't tell you that every existing patient has been tested, but as we tracked it, we believe that most of the existing Tysabri patients have been tested, and again, the testing mix is shifting.

We still have a significant number of existing patients being tested, because people will be re-tested over time; but it's shifting more to new candidates over time.

Discontinuation rates -- again, we track that through a variety of indirect measures, including in the EU, including market research and speaking with physicians and other things.

We think among the positives, the majority of positives have continued to stay on the product, because of the efficacy advantage.

We think the discontinuation rates have been relatively stable with a little bit of month to month up and down lumpiness.

Okay, thanks.

Rachel McMinn, Bank of America.

Can you hear me okay?

A little static, Rachel, but if you get your question out, we will try to answer it.

All right.

Let's see if we can do this since the line is really bad here.

Sorry about this.

I guess I wanted to ask two questions.

Can you quantify the Brazil tender offer for 2Q, and can you also talk about whether the pricing for the tender has actually gone down?

I guess J&J made some comments on its call that the actual pricing for tenders has substantially declined.

Then my second question is just when you talk about some of these emerging growth markets for Avonex, is there any growth left from converting those into direct market sales as you've done in the past?

I was in Brazil last week, Rachel, good question.

On the tenders -- the tenders in Brazil are administrative tenders, as opposed to competitive tenders, but each year you have to go negotiate with the government who tries to grind a little price out of you.

It's not a competitive dynamic so much as you an monopsonistic payer in Brazil that comes back every year and looks for a little something.

But we do see, for example, in Brazil, MS continues to be under-diagnosed.

There's lots of opportunity for both, to get your question, both Avonex and Tysabri, given the population growth and what's going on with the economy in general.

In terms of Avonex potential in the rest of the world, we still think there is a potential, and we continue to invest both in direct markets and distributor markets.

I don't think we have any news to announce on additional entry in direct markets.

We're constantly looking at that, and the tradeoff of the economics.

All right.

Great, thank you.

Thanks, Rachel.

Mark Schoenebaum, ISI Group.

Hi, Paul, are you going to buy Elan?

(laughter)

I'm not going to answer that to Schoenebaum.

Okay, sorry about that.

A lot of my questions have been actually asked, so I'm going to ask two that are a little bit off the wall that I just thought I would get out there.

One is that I know years ago, you guys applied for BG12 in Germany for psoriasis and then the application was withdrawn.

I think your regulatory filings just said that you wanted to focus on multiple sclerosis.

The question I have is, did you ever get any feedback from the German regulators on that application, or around -- especially around safety, obviously.

If so, if you would be willing to share with us, or did you just withdraw it before you ever got any feedback?

The second is on Fampyra.

Can you just confirm please that's just -- the reason revenues are going to be down is strictly in accounting, conservative accounting assumption you're making, but that end user, you're expecting to be flat or up?

I just want to make sure I heard that right.

Thanks a lot.

Yes, no, let me go with the second question.

I appreciate it, because it's a great point of clarification and importance.

Then Al's going to try to at least -- I don't think we have a lot of perspective on PG-12 but he will give a little bit on that.

Yes, it's exactly what you said.

The IQWiG-GBA process now is such that the price that you go into the market, you keep, and you have that quote-unquote free price through your one-year anniversary.

Subsequent to the one-year anniversary, we will be in price -- we expect to be in price negotiations.

Those price negotiations we expect that they could bleed into the first quarter of 2013, and whatever that is decided, it goes retroactively back to the first, to the date of the first-year anniversary.

As a result, as you know, there's four requirements for revenue recognition.

One of those requirements is a fixed and determinable price.

Given that there will be ambiguity, it is very much strictly an accounting perspective that will take a view of what our fixed and determinable price is, and we expect to be booking revenue at a lower level.

That will be reconciled once we get the final kind of price negotiations, so I think it's probably pretty close to the way you characterized it.

It really -- as you know, what we came out of the IQWiG process with so far is a pretty wide range, in terms of -- and actually a range that is within what our price today is in Germany.

I think it's an accounting convention that we will be living with for the second half.

I think as importantly, we would underscore that the actual demand for the product is quite strong in Germany.

As we move into the other markets, we expect it to be quite strong.

So exactly how you characterized it.

Al, BG-12 psoriasis?

Mark, this is Al Sandrock.

Your memory of ancient history is amazing.

I had my head down in neurology and I didn't really pay much attention to what was going on in psoriasis at the time.

At the time we decided, though, to shift our strategic focus -- I do remember this -- away from dermatology and psoriasis, and on to MS. That feedback, if it had been gotten, was so long ago, that not sure that it would have played much of a role in our thinking currently anyway.

I'm sorry, I just don't remember.

No, no problem at all.

That's helpful.

Thanks a lot, guys.

Eric Schmidt, Cowen and Company.

Good morning, thanks for taking my question.

Paul, I'm still struggling a little bit with the Avonex number in Q2, the $762 million, and what in that is sort of real versus more of a one-time nature.

Could you take a stab at maybe more quantifying what the issues, or the benefits were, the Brazil tender, or the resupply in Europe?

Any inventory you can guess at?

I guess it seems like your guidance implies that Avonex has to go down in the second half of the year relative to Q2.

Is that what you mean to say?

Yes, well, yes, there's a chance it does, and we're just trying to be mindful of it.

Certainly there are two things that we can definitively point to -- the Brazil tender, that's a little less than $10 million; and that the coming in the global markets, we had about $7 million of essentially re-supply from the voluntary product withdraw recall that was at the very end of Q1.

We're just trying to be mindful that around the world, and certainly in the United States, there may be some retailers that are managing kind of both pen and lyophilized.

We may be getting a modest benefit from that.

I think really, that's it.

Nevertheless, I think we feel it's a very, very strong quarter.

Broadly speaking, the guidance is -- we're hoping -- we're going to be pushing hard as much as we can for the balance of the year, but the guidance also certainly is trying to point out that we have intensification of some of the pre-launch expenses for the second half as we get closer to BG-12 launch and even as we start to invest a little bit and prudently in Factor VIII and Factor IX, over the -- potentially over the next six months.

Thanks, very helpful.

Yes.

Geoff Meacham from JPMorgan.

Great.

Good morning, guys.

Thanks for taking the question.

Just a few on Tysabri.

Last quarter, you all called out trends in touch forms, so I'm curious if you could do that for this quarter.

Then maybe a question for Paul.

The impact from Tysabri from your Italian affiliate, I'm just curious if this is part of the normal course of business, or do you think that you have a risk of this happening in other countries across Europe?

Thanks.

I'll start with touch forms.

Touch forms being essentially -- the prescription, if you will, in the EU and in the US which we track -- we have continued to see the ability to drive nice growth in touch forms.

Obviously, they go up and down week-to-week basis, but the trends are consistent with what we saw last week.

We think the sales force is generating good front-end demand.

Geoff, with respect to the IEFA situation, what we understand is that there are a number of pharmaceutical companies, upwards to 50 or 100 different quote-unquote products under IEFA review.

Ours is kind of unique.

We've tried to disclose it, that it has to do with a dispute with respect to the price cap going way back to the first two years of the launch of the product, so ours is -- results in accounting in having deferred revenue that is quite unique.

We are hoping and expect to be in front of IEFA in the fall, and we're hoping to get resolution around that.

In terms of broader macro, the forward pricing environment is certainly a risk factor for our business.

In the big five, we have experienced, and it's already embedded in the P&L, and if you think about Germany, there was pricing actions in August of 2010 across the industry, in Spain in the spring of 2010, there was a 7.5% rebate.

I think we're -- in some of these countries we're getting past.

it, but we're still mindful that it's a macro risk factor for the industry, but we're working hard to mitigate all of those impacts.

Got you.

That's helpful.

Thanks.

Yaron Werber, Citadel.

Great, thanks for taking my question.

I have, Paul and for George, maybe two quick questions.

One, just so I understand, with respect to the Fampyra revenues, it sounds to me that if you're sort of guiding for half the revenues in the first half, you're making some kind of assumption as where you think your price is going to be.

Is that the way we should look at it?

Would there be essentially a true-up payment then in Q1 to Acorda?

And how should we think of it?

Secondly, the dexpramipexole, I noticed the second study hasn't started yet.

It sounds like it's on track now for 2013.

I'm just trying to get a sense as to why the hold-up and kind of what are you waiting for to start that study?

Thank you.

Let me start with the first part.

The projection that I outlined in the guidance assumes the lower end of the range that IQWiG has come out with.

That is the planning case that we're going with right now.

We'll have another data point by Q3, which will be GBA's assessment.

We'll include that in the facts as we attempt to estimate a price.

With respect to the relationship on Acorda, the royalties to Acorda are on GAAP sales, so it will slow with the ebbs and flows of the accounting treatment for the product quarter by quarter.

This is Doug.

With respect to the second study for dexpramipexole, back a couple of quarters ago, we discussed this, and the reason for delaying the start of the second study is really to be able to incorporate any learnings from the first study into the design of the second, should we need it.

That was a purposeful decision on our part to really have the opportunity to take a look the data from the first study and then incorporate any learnings into the second.

Great, but you're still planning on testing the higher dose, or is that not necessarily the case anymore?

Yes, I think that's still an open question and one that we would like to answer.

As you recall from the Phase II study, we didn't really top out on the dose response curve.

It's an open question and one that we would like to answer.

Okay, great.

Thank you.

Ravi Mehrotra, Credit Suisse.

Thanks for taking my question, and congratulations on a good quarter.

Question for Tony.

You previously commented that BG-12 will have a separate sales force.

Could you walk us through the thinking of this, rather than the other extreme of I guess putting three products in one bag?

Thank you.

Good question, thanks.

Let's talk about the three assets that we will have as EMTs.

Avonex competes in a segment that is not going to disappear overnight which is the injectable segment, which is promotionally sensitive.

I think we've demonstrated that over the last couple of years and couple of quarters in the results.

We think we need to continue to keep meaningful promotional effort against Avonex within that segment with the strategy of continuing to outperform the other injectables.

BG-12 has potential to -- obviously, we're excited, looks like it's a great product profile.

It will be the third oral into market, probably.

It's going to require significant promotional investment; it's going to require significant physician-facing investment and education; and we think it requires that.

Tysabri, we talked about risk stratification, the ability to grow that product.

Again, it's a product that requires significant customer-facing resources.

We think it would be penny wise and pound foolish to try to get a lot of leverage on the sort of customer-facing end.

That may be something that happens over the long term, but in the short term we think you got to put a lot of effort against these things to turn them into the kinds of products and kinds of share products that we think they can be.

Michael Yee, RBC Capital Markets.

Hi, thanks.

Actually a question for Doug or Al.

Actually, I'm thinking about Lingo next year.

Can you get any proof of concept data, or can talk about any data next year on Lingo?

What are you actually looking at to determine remyelination?

Can you maybe walk through a little bit that, how you will actually be able to talk about remyelination, or show that?

Yes, Michael, we're unlikely to get data next year.

We'll be well on our way to getting data, but probably won't get a readout next year.

The ways we're going to look at remyelination are in two ways.

One is in the (inaudible - background noise) trial to look at visual function, by looking at visual contrast acuity.

Also, looking at nerve conduction, by looking at multi-focal visually evoked responses, and also looking at neuro protection by looking at ocular coherence tomography, because we think that remyelination will lead to neural protection.

In the other trial, we will be looking -- using state-of-the-art imaging technology to look very closely at MS lesions at the time they form and in the evolution of those lesions in the months thereafter, where we think that some remyelination occurs naturally, but we hope to enhance that natural process with anti-lingo, and so it will be a lesion imaging assessment, essentially.

Both, I think are important.

Okay.

Thank you.

Tony Butler, Barclays Capital.

Thank you very much, good morning.

I wanted to ask a question for Tony on Avonex.

As you alluded to, three different sales forces, depending on what was being sold, if the pegylated form of Avonex is successful in the market, or in clinical development, how do you actually fragment that with that first injectable sales force, if I could just call it that, given it's extraordinarily promotionally sensitive.

Does that sales effort have to actually expand dramatically?

Do you actually just quit talking about Avonex itself, and just really stay with the pen and with the peg form?

Thanks again.

Good questions.

I think we think about not just Avonex, but the interferon franchise over time, and what it will take, so my statements about competing in the injectable segment and out-competing really refer to Avonex pen and we would hope peg.

Look, peg, the kind of profile that peg potentially could have makes it the clear winner in the injectable segment in my mind for patients.

The convenience factor of once every two weeks or once a month, if that's the way that plays out is very good.

We would likely see the interferon franchise transition over to peg over time.

We would -- you wouldn't have a significant increase in sales force and promotion, other than what you normally would have around what's essentially a pretty significant line extension.

Thank you.

Thomas Wei, Jefferies.

Hi, thanks.

I had a question on the other Avonex factors that you mentioned for the second half, and the new oral competition.

You referred to that as a cautionary note in the prepared comments but actually didn't raise it during one of the answers I think to Eric's question in the Q&A.

I was wondering how we should -- or how you're all thinking about the near-term impact on Avonex's results.

There might be a lower bar to initiating patients on that therapy, relative to Gelena, and does that in your mind lead to a bigger or more immediate impact on Avonex in 2012 as a result?

Good question, it's Tony.

Again, we are -- this is a -- we don't know when it's going to get approved or how it'll shape up, but we expect it could happen in the latter half of the year.

It's a product that looks like it could compete for some new-start patients, and it certainly could compete for some tolerability switches.

We think Avonex has a superior value proposition to the new oral, and we think we fight it out at the field level and at the promotional level.

We think we can prevail in that game, but it's a meaningful new entrant that will attract some attention.

You are correct that it looks like it will have a lower, sort of lower complexity relative to FDY, and some people may find that appealing.

The real question will be is there an efficacy story there that merits choosing that product relative to a well-understood one like Avonex.

Sarah, we'll take one more question.

Ian Somaiya, Piper Jaffray.

Thank you.

I just wanted to revisit the pricing discussion in Europe.

You made some comments related to the Big Five, but it was more of a historical perspective, speaking to price declines in 2010.

Some of your pharmaceutical peers have spoken to continued price erosion in the 5% to 6% range, and I wanted to get your take on whether that's a fair representation of what we should expect for your products going forward.

Yes, this is Paul again.

I think it's a scenario that we're thinking about.

It's very -- it's actually hard to predict on a product-specific basis, because country by country, certainly different things are happening.

We are kind of being mindful of the broad macro concerns, and that historically, what you could essentially count on in our business, is kind of flat to down 1% or 2% pricing, and I don't think it's a far reach to say that accelerates to 3%, 4%, or 5%.

We're kind of thinking through that, and trying to be mindful about it, but nothing exact to report out on it at this point.

Okay, thank you.

Thanks.

That was our last question.

Thank you, everyone, for participating in today's call.

You can now disconnect.