Biogen Inc (BIIB) 2012 Q3 法說會逐字稿

Good morning.

My name is Melissa.

I will be your conference operator today.

At this time, I would like to welcome everyone to the Biogen Idec third-quarter 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)

Ms. Claudine Prowse, Vice President Investor Relations, you may begin your conference.

Thank you, Melissa.

Welcome to Biogen Idec's third-quarter 2012 earnings conference call.

Before we begin, please visit the Investor section of BiogenIdec.com to find our press release and related financial tables, including a reconciliation of the non-GAAP financial measures that we'll discuss today.

Our GAAP financial results are summarized in Tables 1 and 2. Table 3 includes a reconciliation of the GAAP to non-GAAP results, which we believe provides additional insight into the ongoing economics, and reflects how we manage the business internally.

We have also posted slides on our website that follow discussions related to this call.

I would like to point out that we will be making forward-looking statements, which are based on our current intents, beliefs, and expectations.

These statements are subject to certain risks and uncertainties.

I encourage everyone to consult the risk factors described in our SEC filings for additional detail.

Actual results could differ materially from our expectations.

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'll 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.

Okay, thanks, Claudine.

Good morning, everyone.

Our strong momentum continues into the third quarter.

We delivered 6% revenue growth to $1.4 billion, managed our expenses, and continued to advance the late-stage pipeline.

As you can see from the press release, we had a very solid quarter across the products, and delivered strong earnings growth to the bottom line.

On GAAP EPS was $1.91, up 19% year over year, although this number was bolstered by a one-time item of $32 million related to the monetization of our royalty and other rights related to BENLYSTA.

The AVONEX business continued to deliver improved contribution, driven by share performance within the ABCR reclass both inside and outside of the US.

The AVONEX PEN, designed to improve the self-injection experience, renewed physician interest, and helped to maintain share of voice and awareness of the brand in a competitive market.

We continued to see steady year-over-year growth in TYSABRI units both in and outside of the US.

Awareness remains high for our risk stratification tools, and we are seeing nice growth in testing volumes.

The key attribute of TYSABRI continues to be strong efficacy.

We believe the investments we're making in the product risk stratification will keep the growth trajectory moving in the right direction.

We also made progress with our late-stage pipeline.

We were delighted to announce positive top-line results from our registration-less study for Factor IX in hemophilia B. We are expecting results for Factor VIII in the near future.

Last week, the FDA informed us of an extended PDUFA date for BG-12, to allow more time for their review of the New Drug Application.

The extended PDUFA date is now in late March.

Additional studies were not requested, and we continue to work with the Agency to facilitate their review.

While this three-month delay is, of course, disappointing, our view of the potential of BG-12 to benefit patients with MS has not changed.

Awareness remains high, aided by the recent publication of BG-12's pivotal data in the New England Journal of Medicine.

These studies, which form the foundation of the regulatory filings, support BG-12's potential as a new oral option for MS treatment.

Earlier this month, we also shared more than 50 Company and partner-sponsored presentations at the ECTRIMS meeting in Lyon, France.

These presentations included data reaffirming the powerful efficacy of TYSABRI; AVONEX's 16-year history as a proven and effective, safe MS therapy; analysis of pooled data from the Phase 3 DEFINE and CONFIRM trials of oral BG-12; as well as supporting data on daclizumab and anti-LINGO as possible treatments for MS. The breadth of our presence and the presentations highlight our continuing leadership in MS, and our commitment to bring better medicines to patients in all segments of the market -- the well-established injectables, the high-efficacy segment, as well as the growing oral segment.

So, with those highlights, I will now turn the call over to Doug Williams to take you through the pipeline advances in more detail.

Thanks, George.

During Q3, we continued to make progress on several fronts with our R&D programs.

These advances should position the Company for substantial future growth.

Let me begin by focusing on our late-stage pipeline.

Last month, we announced positive top-line results from B-LONG, the registrational study of our recombinant long-lasting Factor IX.

Let me briefly summarize the study objectives and top-line results from the study.

Primary objectives of the B-LONG study were to assess the safety and tolerability of long-lasting Factor IX, efficacy in all treatment arms of the study, and a comparison of the Annualized Bleed Rates, or ABR, between the episodic treatment arm of the study and the weekly and individualized prophylaxis arms of the study.

The results showed that, compared to the episodic treatment arm of the study, the ABR of the weekly or individualized dosing arms of the study showed reductions in ABR.

Where the overall median ABR was 2.95 in the weekly prophylaxis arm, 1.38 in the individualized prophylaxis arm, and 17.69 in the episodic treatment arm.

Greater than 90% of bleeding episodes that occurred were controlled by a single injection of long-lasting Factor IX.

Importantly, at least 50% of the subjects achieved a dosing interval of 14 days or more in the individualized prophylaxis arm.

No patients developed inhibitors to Factor IX, and there were no cases of anaphylaxis.

Long-lasting Factor IX was generally well-tolerated in the study.

While there is still ongoing analysis being done with the B-LONG study, we are now working very hard to complete our regulatory submission for filing in the first quarter of 2013.

We look forward to sharing with you top-line results from A-LONG, the registrational study for our recombinant long-lasting Factor VIII, in the near future.

Moving now to our late-stage neurology franchise.

We showcased the interim results from ENDORSE, as a late-breaking presentation at the ECTRIMS meeting.

ENDORSE is a double-blinded Phase 3 extension study, evaluating the long-term safety and efficacy of BG-12 at a dose of 240 milligrams BID or TID.

At the time of the analysis, ENDORSE had enrolled over 1,700 patients with relapsing-remitting MS, who had completed the DEFINE or CONFIRM studies.

In ENDORSE, the safety profile for patients was generally consistent with that of DEFINE and CONFIRM, and no new safety issues were identified in subjects who continued on BG-12 or were treated for more than two years.

The incidence of serious infections was low, consistent with DEFINE and CONFIRM, and there were no opportunistic infections in patients treated long term with BG-12.

The types and frequency of malignancies that were observed in the treatment groups were expected in the population under study.

This trial will continue until our expected completion date in 2016.

In a second late-breaking presentation at ECTRIMS, we highlighted primary efficacy results from SELECTION, the one-year extension study of SELECT, the first registrational study of daclizumab-HYP, or DAC.

The results of SELECTION supported the positive findings seen in SELECT, and indicated DAC's clinical effect was sustained through the second year of therapy.

Safety results of SELECTION showed that the safety profile of DAC was similar in years one and two of therapy.

Moving on to TYSABRI.

We continue to build and improve upon our risk stratification tools.

The Generation 2 assay was launched in Europe earlier this year, and we anticipate launching it in the US in the coming months.

This assay will provide for improved sensitivity and specificity to detect patients with low levels of JCV-specific antibodies.

Looking ahead to the remainder of 2012, we expect to share top-line results from A-LONG, the registrational study of long-lasting Factor VIII in the near future, and the Phase 3 study of PEGylated Interferon 1-Beta -- 1-Alpha in relapsing MS in early 2013.

For EMPOWER, which is the Phase 3 study of dexpramipexole in ALS, the study remains blinded, and we expect top-line data readout by late this year or early next year.

In late September, the last patient completed 12 months of treatment in EMPOWER.

As a result, all clinical sites are now actively working to evaluate all patients still active in the trial for their final study visit.

The timing of these visits will drive the timing of the top-line data readout.

I look forward to providing you with updates on our progress for our late-stage programs in the coming quarters.

Turning now to the early-stage pipeline in Research.

I'm pleased to announce that we enrolled our first patient this past quarter in the Phase 2 study of anti-TWEAK for lupus nephritis and the Phase 1b study for BIIB037 for Alzheimer's Disease.

The TWEAK program will examine the impact on renal function of treatment with a neutralizing antibody against TWEAK in combination with standard of care.

The TWEAK molecule is associated with renal flares in lupus nephritis patients, and the absence of immune effects of TWEAK make this an ideal molecule to combine with current standard-of-care treatments such as CellCept, which are profoundly immunosuppressive.

Our BIIB037 program is a multiple ascending dose Phase 1b study of our anti-beta-amyloid antibody in patients with Alzheimer's Disease.

The study will examine the reduction of beta-amyloid by imaging to define the optimal dose for future studies.

Proof-of-concept studies for anti-LINGO are expected to begin dosing in the fourth quarter of this year for optic neuritis, and the second half of next year for relapsing and progressive forms of MS.

Finally, we've decided with our partner Portola Pharmaceuticals not to proceed with the planned Phase 2a trial in RA because the lead compound did not meet the stringent target product profile to be competitive in this specific market.

We are continuing to do exploratory work in allergic asthma as a possible indication for the lead molecule, and are focusing on additional six selective back-up compounds for what we believe is a key pathway in chronic autoimmune and inflammatory diseases.

We also took steps in the quarter to strengthen our discovery Research capabilities through a restructuring and reallocation of resources to support those early-stage activities.

These steps are consistent with the strategic priorities of the R&D group, which I laid out in some detail at the Analyst Day in June.

With that, I'll now pass the call over to Tony.

Thank you, Doug.

Solid execution of our product strategies drove 6% revenue growth in the third quarter.

Global AVONEX revenues increased 8%, driven by a 5% unit increase year over year, as we continue to experience competitive share performance within the ABCR E-Class across markets.

We continue to be pleased with the uptake of the AVONEX PEN, and believe strong commercial execution is driving strong performance.

Convenience is an important differentiator in the ABCR E-Class, and as a once-weekly treatment, AVONEX has become a compelling choice for both patients and physicians.

During the third quarter, more than two-thirds of all new AVONEX starts in the US have been with the PEN.

We have also seen strong conversion from the pre-filled syringe to the PEN, which we believe will benefit longer-term retention.

Similarly, we have seen significant interest in the AVOSTARTGRIP, as over two-thirds of all new starts on AVONEX in the third quarter titrated with the AVOSTARTGRIP.

Outside of the US, AVONEX remains the prominent MS therapy, and we maintained our leading market-share position.

Unit growth in these markets was strong, increasing 8% year over year.

Similar to the US, the AVONEX PEN is continuing to drive strong unit demand across Europe.

Moving on to TYSABRI.

Third-quarter global TYSABRI units increased 9% versus prior year.

We experienced strong unit growth both in the US and outside the US, with TYSABRI units growing 10% and 8%, respectively, in the third quarter versus prior year.

We are seeing solid growth in new patients, with 2,100 added during the third quarter.

We are pleased with the execution of our commercial strategy.

TYSABRI's core efficacy message continues to resonate with physicians, and risk stratification and the use of the JCV assay continue to build physician belief in TYSABRI's benefit/risk profile.

We see testing volumes growing nicely.

Physicians are increasingly testing new candidates for TYSABRI, and we see greater confidence in moving the product earlier in the treatment paradigm.

During the quarter, US discontinuation rates remain stable quarter over quarter, and TOUCH Forms for newly diagnosed patients increased to the low-double digits providing confidence in our commercial strategy.

In Europe, the rollout of the second-generation assay has contributed to a moderate increase in discontinuations.

While we believe that TYSABRI will continue to see periods of lumpiness in net patient adds, we believe we will continue to see an overall solid growth trajectory.

While we were obviously disappointed by the PDUFA extension in the US for BG-12, we feel well-prepared as we continue to invest in pre-launch preparations and detailed tactical planning.

We are also accelerating our commercial activities for the hemophilia franchise, given the recent positive readout in Factor IX and in anticipation of the upcoming Factor VIII readout.

We have a strong nucleus of commercial leadership in place, and will continue to build out the team, infrastructure, and supply chain necessary for a successful launch.

The hemophilia market will be a new market for Biogen Idec, but we understand the requirements for commercial success as we continue to build awareness, establish trust and credibility, and attract world-class talent.

We believe our commercial momentum is solid.

We are executing our strategies successfully, and believe we are well-prepared for potential upcoming launches.

With that, I'll hand the call over to Paul.

Thanks, Tony.

Our GAAP diluted earnings per share were $1.67 in the third 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, $10 million in fair value adjustments for contingent consideration, and $8 million related to the Research restructuring executed in the quarter.

This was partially offset by the tax impact on these items.

Non-GAAP diluted earnings per share were $1.91, up 19%.

As George noted, this quarter, we favorably benefited from the $32 million recognized from the sale of our royalty and other rights related to BENLYSTA.

In addition, as a result of our decision not to move the syk inhibitor program into Phase 2, we did not incur the previously anticipated $23 million milestone payment.

Let me walk through the financial results now.

Q3 AVONEX worldwide revenue was strong, growing 8% to $736 million.

In the US, AVONEX grew 12% to $462 million.

US unit volume increased 1% versus prior year, and was up 2% versus last quarter.

Inventory in the wholesale channel ended at slightly less than two weeks, a modest increase compared to the prior quarter.

As we mentioned last quarter, there may still be some AVONEX stocking in the retail outlets to likely balance the demand for the pre-filled syringe and PEN.

As a result, we cautiously believe that there could be excess inventory in the retail channel that may unwind over the next couple quarters.

Internationally, the underlying AVONEX business is strong, as units increased 8% year over year.

International AVONEX revenue was $274 million in the quarter, an increase of 1% compared to third quarter of 2011.

Foreign exchange was a meaningful headwind for the quarter, weakening AVONEX revenue by $29 million.

This was offset by a $9 million hedge gain as compared to a $9 million hedge loss in Q3 2011.

AVONEX international revenues were also impacted by certain modest price reductions across a few select countries in a mix shift to lower-priced distributor markets.

TYSABRI worldwide end-market sales were $404 million, an increase of 3% year over year.

Biogen Idec recorded TYSABRI product revenues of $275 million.

In the US, TYSABRI product revenue to Biogen Idec grew 15% to $98 million.

Q3 international TYSABRI product revenues were down 8% to $177 million, while units increased 8%.

The disconnect between unit and revenue growth was driven by approximately $14 million of deferred revenue in our Italian affiliate and the impact of foreign exchange.

FX for the third quarter weakened TYSABRI international revenue by $19 million versus prior year.

We offset this by a $3 million gain from hedging compared to a $2 million hedge loss in the prior year.

US RITUXAN sales were $787 million, up 7% versus prior year.

RITUXAN continues to experience continued penetration in NHL maintenance setting and further uptake in CLL.

Our US profit share from that business was $259 million.

Royalties and profit share on sales of rituximab outside the US were $29 million; the result was $288 million of revenue from unconsolidated joint business.

FAMPYRA revenue was $12 million for the quarter.

Recall that the GBA gave FAMPYRA a Level 5 rating, and provided a range of approximately EUR1,000 to EUR3,000 per year as the price that they're willing to reimburse.

We're currently in price negotiations with the German authorities, and expect a resolution in early 2013.

As of August 1, we have been recording FAMPYRA revenue at a net price that assumes the lower end of the range, and will continue to do so until the final price is established.

Royalties were $47 million, and we recorded $12 million of corporate partner revenue in the quarter.

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

Q3 Cost of Goods Sold were $139 million or 10% of revenues.

The increase in COGS year over year was driven by [higher] AVONEX revenue, higher costs of the AVONEX PEN, nurse training fees, and an increased funding related to the JCV assay.

Q3 R&D expense was $296 million, or 21% of revenues, lower than anticipated due to the timing of certain clinical trial expenses and the avoidance of the expected $23 million payment for the syk program.

Our Research spend was also temporarily down during the quarter due to the Research restructuring.

Q3 SG&A expense was $298 million, or 22% of revenues, an increase of 15% over last year as we prepared for potential commercial launches.

Collaboration profit sharing line totalled $76 million.

We now have a new line item on the P&L, as you may have noticed, called gain on sale of rights.

Prior to this quarter, we were eligible to receive low royalty from GSK and HGSI on global sales of BENLYSTA.

We sold our BENLYSTA royalty and other rights to a DRI capital-managed fund.

DRI will now pay us a multiple of those royalties for the period covering October 2011 through the third quarter of 2014.

This will be recorded on the gain-of-sale-of-rights line.

During this quarter, we received $32 million from DRI, representing essentially three quarters of activity.

We expect quarterly payments through the third quarter of 2014 as a gain on the P&L to be less than the amount paid this quarter [independent] on the uptake of BENLYSTA.

Other income and expense was a loss of $5 million in Q3.

Our Q3 non-GAAP tax rate was 24.2%.

In the third quarter, our weighted average diluted shares were 238 million, and we ended the quarter with $3.3 billion in cash and marketable securities, of which approximately one-third is outside the US.

This brings us to our non-GAAP diluted earnings per share, which were $1.91 in the quarter, an increase of 19% year over year.

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

Overall, we're raising our full-year guidance to close to a double-digit increase in non-GAAP earnings.

This has been a year characterized by very solid commercial performance on our core products, coupled with meaningful investments to mature the late-stage pipeline and prepare for potential product launches.

We expect full-year revenue growth of mid- to high-single digits, a modest improvement over prior guidance.

While we are working to resolve the AIFA TYSABRI claim in Italy, our current guidance does not include a resolution in 2012.

Regarding FAMPYRA, as I previously mentioned, the balance of year assumes revenues recorded at the lower end of the GBA range.

Our full-year forecast also assumes a modest slowing of US RITUXAN revenues in the fourth quarter, due to wholesale dynamics, which is characteristic of past year-end trends.

Our expense targets are largely on track to our original full year business plan.

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

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

Our R&D forecast includes approximately $20 million to $30 million of an upfront payment in the fourth quarter earmarked for a discovery collaboration, which we are in the process of negotiating.

Additionally, we expect to incur some supply chain spending related to dexpramipexole to be prepared in the event of a positive readout.

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

During the fourth quarter, expect meaningful increase in investment for pre-launch activity building out our customer-facing resources, product positioning and promotional planning, scientific outreach, preparing the patient services organization, and readying our supply chain and distribution organization.

This spending is purposely back-end loaded as we get closer to the potential BG-12 launch.

We put our Denmark manufacturing facility into service during the month of September, which is a very positive milestone.

We'll seek formal regulatory approval for TYSABRI supply in mid-2013.

The short-term P&L impact of this was a change from capitalizing interest to expensing it.

This will result in approximately $7 million of non-cash expense in the fourth quarter, which will be recorded on the OI&E line.

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 to be between $6.40 and $6.50, and GAAP earnings per share to be between $5.63 and $5.73, an increase from previous guidance by approximately $0.20.

This is due to the combination of the gain from the BENLYSTA-related transaction and the strength in the core business.

As you likely noted, we expect our third-quarter earnings per share to be the high watermark for the year.

And the fourth quarter, conversely, to be the low watermark.

This is due to many of the P&L items I have highlighted, including the significant pre-launch activity in the fourth quarter, the potential research collaboration highlighted, the step-down of the BENLYSTA-related gain, and the interest expense related to the Denmark manufacturing facility.

So, this was a solid quarter.

While we have an additional quarter to go, we're positioned nicely for a successful year.

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

Okay.

Thanks, Paul.

As you can see, during the quarter, we made excellent progress across our financial, commercial, R&D objectives for the year.

It's an exciting time for us, as we look to close out the year and move into 2013.

We had a positive result for the long-lasting blood Factor IX for hemophilia B, and have three more pivotal trail data readouts ahead of us -- Factor VIII for hemophilia A, dexpramipexole for ALS, and PEGylated Interferon for MS. An all-time high for Biogen Idec, and the result of the commitment and productivity of the talented employees across the Organization.

As we prepare for the potential of multiple product launches in the coming years, we'll continue to be vigilant, keeping a tight lid on costs while investing where necessary to ensure that we have successful launches and a pipeline that delivers sustainable growth for the future.

We believe that we're on track to deliver solid revenue and EPS growth in a year in which we have had a number of pipeline successes, and in which we're investing heavily for the future growth that we anticipate from our new product.

That's not an easy thing to do.

I want to thank our dedicated employees, who have helped us to achieve our goals, as well as patients and physicians who are always central to what we do.

So, with that, we will now close our remarks and open up the call for questions.

Thanks to all of you for joining us this morning.

(Operator Instructions)

Eric Schmidt, Cowen and Company.

Congratulations on another solid quarter.

George, just a quick question on the BG-12 PDUFA date delay.

Did you receive a reason for that delay from the FDA?

Was some data resubmission classified as a major amendment?

If so, what might that have been?

Yes, thanks, Eric.

Why am I not surprised that's the first question?

(laughter) Okay.

Look, technically, the answer to your question is yes.

It is a major amendment.

But let's understand what the term -- major amendment is a term of art.

So in the normal review of a NDA, the FDA asks questions of the sponsor, to which the sponsor in this case us, responds in writing.

So, the FDA has the ability to determine that any of those responses can be classified as a major amendment.

By doing so, the FDA extends the PADUFA date for three months.

As far as we know, there is no other mechanism by which the FDA can extend the PADUFA date by three months.

So, the fact that a response is classified as a major amendment doesn't necessarily mean that there are problems with the application or the drug.

It can mean only that the FDA believes it needs more time to review the application, the answers to the questions and will not be able to meet the original PADUFA date.

We believe that's the case with our application.

As you know, Eric, the 3-month extension has been applied to a lot of other compounds, including recent approvals in MS. So we believe we're on track and we have a 3-month delay.

Sounds like you were prepared for that one.

Thanks a lot.

(laughter) It wasn't a surprise.

Geoff Meacham, JPMorgan.

I guess just a follow up to that and to some of Paul's questions -- or Paul's comments on the fourth quarter.

It sounds like you guys are investing pretty heavily in the BG-12 infrastructure ahead of time.

But maybe just give us an update with where you are with respect to hiring, promotional and what sort of cost that you have already incurred.

And maybe the timing of when you think you will start to roll out some of the more commercial personnel costs with respect to the launch.

Thanks.

Yes, Geoff, Tony and I will try to tag team that.

So -- and I'm glad you asked the question because certainly there's -- as my guidance implies, there is some lumpiness in the quarter to quarter trends on SG&A expense and that's very purposeful on our end.

Costs for Q3 were a little bit lower than we expected for both R&D as well as actually SG&A.

I mean, that's just the way things turned out for Q3 and resulted in some pull-through on the bottom line.

But we do intend -- and it's more than just the personnel costs, right?

It's more than just the customer facing resources.

We do intend to, over the next 90 days or now nearing in on the next 60 days, to really prepare for BG-12 across customer facing, medical education, scientific education, preparing the whole organization.

So, I think that is very consistent with what we've said over the past is, this is a rare opportunity that we have.

We don't want to be penny wise and pound foolish.

So we'll put the investments in as we get ready for what we hope is a BG-12 launch early in the second quarter of 2013.

Tony?

Yes, thanks, Paul.

So, Geoff, look, we had to plan for approval.

Obviously, you would want us to do that and resource in the critical areas for approval.

Particularly, getting people trained and in place.

So we are obviously well into that ramp for the right reason.

But we also planned for the contingency.

So we will have to adjust, redeploy and look to manage discretionary spend in the light of this delay and manage the ramp over time.

So that's what we will do tactically at this point.

Geoffrey Porges, Bernstein.

Just follow up on some of the commercial comments rather than BG-12.

First, could you help us reconcile TYSABRI?

The patient growth trend looks like it's in the high teens year-over-year.

I know there are some one-time items in there.

So if you could just sort of bridge us back to that patient growth trend.

Secondly, could you let us know about the pricing?

You mentioned a couple of negative pricing effects for AVONEX.

Could you give us a little bit more detail about the magnitude and whether that's likely to continue to play through the results for the immediate future?

Thanks.

Yes, thanks Geoffrey.

It's Tony.

So, on the numbers TYSABRI is never an exact straight line between patients, units, et cetera.

We have seen, we think -- you look at US and Europe, solid unit growth year-on-year and solid patient growth year-on-year.

As Paul will talk to, the impact outside the US was more pricing.

Particularly, AIFA and some FX issues.

Yes.

Just to add, Geoff -- I think this is probably continued commentary from our partner's conversation yesterday.

Most of the imprecision, if you will, is rest of world patients, right?

We have pretty darn good visibility, we think, driven by the TOUCH program in the United States for the patient calculation.

Outside the United States it really is -- I apologize.

We presented as if it's precise data.

But outside the United States it's a combination of registries in certain counties.

Literally unit triangulation in other counties where we don't have registries.

We adjust those as we look backwards.

I don't think that as we do that and we look back it has at all changed the fundamental story.

The disconnect outside the United States between units -- patients, can be driven by what we just talked about, the imprecision of the data.

It could be driven by compliance, which we don't think is a big deal, right?

We have seen that in past years with TYSABRI, with drug holidays suspension.

We are not sensing that outside the United States, in Europe.

Then it can be driven by inventory in parallel trade dynamics in Europe specifically.

We do know of some parallel trade issues in the quarter that we work extremely hard, like any other biopharmaceutical Company, to try limit those.

But there were some dynamics and what ends up happening is units show up in one quarter versus -- as opposed to the other quarter from a patient perspective.

The second part of your question, Geoff, was designed around AVONEX.

I'd underscore it was modest price reductions.

We had seen some price reductions driven by austerity measures in 2010, 2011.

Spain was one of those, as we've pointed out in our SEC filings.

This quarter, the most notable one was France, where just normal price conversations with France resulted in a little bit of a low single digit decline in AVONEX price there.

But I think we're weathering through that quite well in the aggregate.

Mark Schoenebaum, ISI Group.

First one is, did you guys submit any -- maybe this is for Al, I guess.

Did you submit any FUMADERM data in your BG-12 regulatory package, either in the EU or in Europe?

Then on dexpramipexole -- Al, we all understand statistical significance, if you hit your P value or not, but assuming it hit your P value, what do you think the data would need to show so that the ALS community will really view the drug as a really important break-through?

That would then allow you to get perhaps MS-type pricing.

Thanks a lot.

Yes.

Hi, Mark.

This is Doug.

So with respect to the first question, I'll take that.

Then I'll pass it off to Al to address the question about ALS.

With respect to FUMADERM, know these are two different drugs as we have been maintaining all along.

FUMADERM is a mix of fumaric acid esters and BG-12 is dimethyl fumerate in a different formulation.

Obviously the regulators are aware of the data around FUMADERM, particularly in Germany, which is where that drug is approved for psoriasis.

But two different drugs in different populations of patients with different comorbidities.

So, no, it's not necessarily relevant, we believe, to the BG-12 situation.

Mark, on the dex question, the primarily endpoint basically has two components.

The functional rating scale and survival.

You have to break it down into both -- into the two components in order to know whether or not it's clinically meaningful.

So on the ALS FRS, the community, the ALS physicians have decided that a change of greater than 20%.

So greater than 20% change in the slope of decline is considered clinically meaningful.

Then on the survival -- Riluzole is a benchmark for survival.

As you know, in the States, Riluzole is not very commonly used; although, in Europe and in Japan it's quite commonly used.

And Riluzole had a three month extension of survival on average, so I think that's certainly a benchmark that people will use.

Rachel McMinn, Bank of America Merrill Lynch.

Yes, I just wanted to follow up on a comment, Paul, I think you made about dex, that you are building up manufacturing there.

Is there anything that you're seeing in the blinded data that would cause you to do that -- to give you more confidence or is it really just a hedging strategy?

Then, I was curious, separately if you could talk about the XenoPort product, Al or Doug, if you had a view of that being competitive with BG-12 based on the early Phase 1 data?

Thank you.

Yes, Rachel, I'll start with the first part of the question.

It has nothing to do with the data.

I don't have any -- that information at all.

I'm glad you asked, because we would hate to have it be read that way at all.

The basic thinking is that if this trial is a positive trial in this disease and in this patient population, it's such a high unmet need that we need to be prepared for that.

I mean, we're going to -- we would need to be prepared for a potential relatively quick review and the potential to supply patients even before that in some form or fashion.

So that's -- and the lead time otherwise, even for a product like dex, is well beyond -- we'd need to start it now.

That we have taken on as, what we call, at-risk spending.

It hits the P&L.

We can't capitalize inventory until we get to a Phase 3 readout.

So that literally is just our thinking around, in case this is a positive readout.

From a commercial perspective, we've paused with respect to a lot of dex -- we're doing a little bit of work there but we haven't done it to -- certainly to the magnitude that we're doing in BG-12.

But we think that if it's positive, we will quickly be able to turn on the dime there.

Rachel, this is Doug.

With respect to XenoPort, obviously we are aware of the data.

We've been tracking what XenoPort has been doing with that compound.

We feel very confident in BG-12.

We have got a very large data set that we have accumulated in the Phase 3 program and now supplemented that with the ENDORSE results that we presented at ECTRIMS, which further extends the safety experience with that drug.

That plus the fact that we have our own life cycle management activities going on that we feel good about.

I think we feel like we are in a great position.

Yaron Werber, Citi.

So I have two questions.

One, just I don't know if you can answer it, but maybe if you can just give us a little bit of a sense, GILENYA's price came out much higher than was expected.

Aubagio's pricing is pretty good.

How are you thinking about BG-12 versus these two drugs?

Then I have a follow-on for Paul also.

Yaron, it's Tony.

We are thinking hard about it.

Can you let us know how hard and in which direction?

(laughter)

We'll think about it right up until the day we price.

Look, I think we've said in (inaudible) comment on any detail in pricing strategy, we are looking closely at what is happening to the category and we are going to try to strike the right balance.

I mean, when we calculate the data and from different sources and we are getting to around a 30% gross-to-net, does that make sense to you in MS?

How fast do you need to discount until you are going to see sort of a gross to net for BG-12 once it launches?

Yaron, this is Paul.

It actually -- it's a function of a bunch of different things, including the channel dynamics as well as the government mix in that product.

I mean, MS isn't going to be that different product to product to product.

But the government part of the business, as you know, in the United States is limited to the essentially a CPI index.

I guess the other big factor is the percentage of the business -- or the products business that is helping to support unemployed people in patients at need.

So, I just pause to say that probably isn't too far off the mark, but it can change product to product.

(Operator Instructions)

Michael Yee, RBC Capital Markets.

My question actually is on the BG-12 European submission.

Can you remind us where you are there, in that, have you gotten 120, 180 day questions?

In relation to that, the delay that you got in the US, was that actually a submission of data or any sort of submission of safety that triggered it, or was it simply a response to questions?

I wasn't really clear on that.

Well, in Europe we submitted soon after we submitted in the United States earlier this year, in the late February/March time frame and we're on track.

We are not going to comment on -- we are having the normal regulatory interactions.

We're basically on track.

As far as the second question -- this is Doug -- as George described earlier in the call this was just sort of normal course of business in terms of responding to questions from FDA.

So they determined based on the back and forth that essentially they needed more time to review the file.

Marshall Urist, Morgan Stanley.

So just maybe you could comment on the BG-12 IP strategy, when we might learn a little bit more about the strategy around some of the longer patents that you guys have referenced either from an application or issuance perspective and where we are with that.

Then just second, on hemophilia.

Given that we have seen B-LONG, maybe it would be helpful if you could characterize what your thinking would be, good data from A-LONG, particularly in terms of -- in terms of dosing frequency.

Thanks.

Thanks, Marshall.

This is Paul.

I'll try to address the IP situation.

Nothing terribly new to report with respect to where we think we are -- stand in the EU, as well as in the United States with the 999 patent and the five years of data exclusivity even underneath that.

I think what you are mostly referring to is our what we've done is filed for a formulation patent that has the potential to extend it out much later than that.

That has been filed over the last year and we don't have visibility and probably won't for a little bit of time in terms of the ruling on that.

Marshall, this is Doug.

Just speaking to your question about success in the hemophilia A study, we haven't really quantified that, I think, in terms of, say, a target product profile with percentage of patients and frequency of dosing.

But I'd just take you back to the Phase 1/2 experience where that change in half-life translates to somewhere on the order of 50 to 80 fewer infusions for a patient with hemophilia A. If we can replicate that in the Phase 3 experience, I think we'll feel very good about the product and what its potential is in the marketplace.

Joel Sendek, Stifel Nicolaus.

I have also a question on hemophilia.

So you said for the next study -- for the Factor VIII study in the near future.

Can we interpret that to be this year for the data?

If that's the case would you be on track -- if it's positive would you be on track to file in the first quarter?

And can you give us any more details around what -- beyond your prepared comments on how you're preparing for the launch?

Thanks.

Well, I'll take the first two, and it's fairly easy.

The answer is yes and yes.

I'll sort of defer the question on the commercial preparation to Tony.

Yes.

Thanks, Joel.

So we have focused, not surprisingly, on the long lead time thing.

So where we've added commercial focus is on thinking about product positioning and how to build awareness over time.

Thinking about health economics data, et cetera.

We're obviously still a long way from adding GRIP true customer facing resources.

But distribution strategy, patient services strategy, that's all the stuff we are thinking through with a core central team.

Then as we get closer to launch, we'll get there, we'll obviously build out the customer facing stuff.

Brian Abrahams, Wells Fargo Securities.

With the BG-12 timeline pushed out, I am just wondering if you might be able to get the aspirin and/or titration studies on the initial label now?

I'm also wondering, might you actually be able to derive some synergies from a closer alignment of the US and European commercial launches?

Just separately, on TYSABRI, is there any defined process we can look towards for that dispute resolution in Italy?

Any timetable?

I know you said unlikely this year.

But how should we be thinking about that going forward?

Thanks.

Our pencils are scribbling away at your one, two and three questions there, Brian.

Okay, good.

I'll take number one, Paul.

Which is the aspirin study.

No, we don't anticipate that we will be able to add that into the initial filing.

There's no mechanism where we can do that.

Then I think the other thought you had, Brian, were synergies that now that -- appropriately you have the math right, that there is closer alignment between the US FDA approval and the EU approval.

I think that the way to think about that, though, is that they're modest.

Outside, in Europe in particular, as you know, there's approval and then it's country by country rollout.

So certainly Germany likely is going to be one of the first and the normal -- the normal as you would think.

In the last question, Brian, I think you had was around AIFA timing.

We, as our partner, we're frustrated and disappointed that we weren't able to get it done this year.

It's still not over, right?

It's just that's the guidance that we have built into the financials and we want to have that for expectation.

I think that's appropriate.

As we move into 2013 it's certainly that is a big objective of ours.

Thomas Wei, Jefferies.

On SG&A -- with the third quarter SG&A number coming in a little bit lighter than the whole Street had expected, that makes the 4Q SG&A larger than what we had modeled.

At midpoint of the guidance that you have given on SG&A, it looks like that basically that number times four would get you to the SG&A consensus for 2013.

So I just wanted to understand a little bit about better.

Should we assume that as you actually go into 2013 and there are actual product launches underway, there should be a very healthy increase on those costs beyond what the run rate is in the fourth quarter?

Thomas, thank you.

This is Paul.

Let me give a little bit more color to help on that.

A lot of the step-up three to four, some of it is labor, personnel, customer facing costs.

But a lot of it is fees and services.

So, we have the ability to -- and we purposely wanted to throttle that a bit more going into the fourth quarter closer to launch.

So that's a bit purposeful.

So I think that's -- it just is a helpful framing.

Then as it relates to 2013, quite frankly, we really need the next few months under our belt -- next three or four months under our belts which will give us a greater clarity on the next set of pivotal trial readouts.

I think I've described that 2013 could be a year of launching zero, 1, 2, 3, or 4 products.

That if it's the right-hand side of that equation, it obviously puts up with pressure on SG&A for all the great -- all great reasons.

If not, it puts a little bit less of upward pressure on SG&A.

So I think as we spin into 2013, it very much is a function of the pivotal trial readouts that are upon us over the next -- this cohort of pivotal trial readouts.

And we should get greater visibility, obviously, as we've noted soon with respect to Factor VIII.

By the end of the year or early 2013 for dex.

I think -- so then we'll be able to talk a lot more about SG&A.

Tony Butler, Barclays Capital.

I wanted to ask one question for Doug and then a couple of housekeeping, if I may.

Doug, on 037, given the data that came out with SOLA at A&A and I recognized that this is a Phase 1 dose ranging study with MRI endpoints, but has your thinking changed there with respect to the clinical development of 037?

Then, secondly, Tony, with respect to AVONEX OUS, sequentially I recognize that tender occurred in Q2 in Brazil.

But does that actually get recorded all at one time.

I'm trying to understand the sequential decline ex-sum inventory.

Then finally, Paul, on southern Europe I recognize Italy.

But did Spain pay you this quarter?

Are they still on credit?

Thanks.

Hi, Tony.

It's Doug.

No, it hasn't really changed our thinking about the development of our own antibody.

I think, we're pretty bullish on the fact that the antibody we have is distinctly different in terms of its mechanism.

I think the ability to remove plaque -- beta-amyloid plaque is going to be perhaps more like the Roche antibody that's been reported out just based on our mechanism versus the mechanism for the other antibodies.

We believe that the ability to rapidly remove beta-amyloid is going to be a benefit that our drug will demonstrate in this Phase 1b study.

I think that's important in important in terms of demonstrating efficacy.

I think you also have to take into account the population of patients that we was looked at in some of the earlier studies.

We, like everyone, are moving to an earlier population of patients, which I think is a prudent and intelligent way of approaching treatment in this patient population.

So, we're going about the study.

I think in a very rationale and systematic way using imaging as a way of defining optimal dose for our drug to go forward into what I would characterize as sort of proper efficacy studies where we'll be looking more carefully at endpoints like cognition.

So I think we're learning from the previous studies that have been reported and trying it apply that learning to our own molecule.

But we're still excited about the antibody and the prospects.

Tony, it's Tony Kingsley.

On the Brazil situation specifically, specialty products in Brazil are purchased centrally by the government.

The AVONEX falls under what's effectively an administrative tender, which is essentially a once a year price negotiation.

In fact, they end ordering quarterly.

So shipments that are actually made are done on a quarterly basis based on the government's estimate of what they will need to fill the demand in the hospitals.

There is sometimes some quarter-to-quarter timing just when the shipment comes based on what the government does.

But it's not like an all or nothing tender that you see in some different places.

It's largely administrative.

Yes.

Then just to build on I think what you are trying to get at is the sequential AVONEX unit trend.

Q2 was an extremely strong AVONEX unit, if you recall.

One for what you had noted.

The second was that we actually benefited in Q2 from a refill from a product supply issue that we had in Q1.

So the net of that is, hey, we're very pleased with our AVONEX unit trend as we swing through a year-to-date basis outside the United States.

The other part of your question I believe was with respect to accounts receivable and Southern Europe.

The second quarter was a very strong payment from Spain as many pharmaceutical companies -- so we benefited from that as well.

The third quarter I think Spain is gone back to what was more traditional over the last year or two.

We remain at those -- the three counties in Southern Europe.

Italy, Spain and Portugal as our areas of key focus from an accounts receivable perspective.

We have in aggregate a little bit over $200 million of accounts receivable in those three counties and I think, as people know, in Greece we're actually on a cash basis with a distributor relationship there.

So it's -- for us it's centered in on those three.

Marko Kozul, Leerink Swann.

I think there was a previous question on dexpramipexole and pricing.

I just wanted to come back to that and ask what your thinking is.

If you did show a 20% or 30% decline in the slope of the ALSFRS-R.

Then my question was actually regarding -- included in that, if you could give us an update on the Phase 3 study and how you think the drug could be positioned if approved in future years.

Thanks.

So, it's Tony.

Let me comment on pricing for dexpramipexole.

Look, obviously, we look at all sort of analogies but there are huge swings based on what the data says.

It would be very difficult to try to center in on what makes sense.

We are obviously looking closely at it and looking at the obvious analogies.

But I still think there are a lot of questions on the table of what the data will say.

On daclizumab, the Phase 3 trial is fully enrolled.

It's a two year trial.

So we expect the readout in 2014.

In terms of positioning, we will have to see what the data shows.

But in the first registrational study we saw a very strong effect on disability progression, which was unexpected.

It was actually significant.

Also, a very good effect also on relapse rate and on MRI endpoints.

Also you combine that with once a month subcutaneous dosing.

So we will see what the Phase 3 data shows in 2014.

Okay.

I think our hour is up.

Thanks to all of you for spending an hour.

I'll just sum up and say we're very excited about where we are.

I think we've got a great few months coming up ahead of us.

A lot of data readouts.

Base business continues to do well.

So I think we're in a good place.

So thanks to all of you.

Ladies and gentlemen, this concludes today's conference call.

You may now disconnect.