Biogen Inc (BIIB) 2013 Q2 法說會逐字稿

Good morning.

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

At this time, I would like to welcome everyone to the Biogen Idec second quarter 2013 earnings conference call.

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

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

(Operator Instructions)

Thank you.

Claudine Prowse, you may begin your conference.

Thank you.

Thank you, Tiffany welcome to Biogen Idec second quarter 2013 earnings conference call.

Before we begin, I encourage everyone to go to the investor section of www.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 our GAAP to non-GAAP results, which we believe better represent the ongoing economics of our Business and reflects how we manage the Business internally.

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

I would like to point out that we will make forward-looking statements which are based on our current expectations.

These statements are subject to certain risks and uncertainties, and actual results may differ materially from our expectations.

I encourage everyone to consult our SEC filings for additional detail.

On today's call, I'm joined by our Chief Executive Officer, Dr. George Scangos; Tony Kingsley, EVP of Global Commercial Operations; Dr. Doug Williams, EVP of Research & Development; and our CFO, Paul Clancy.

I'll now turn the call over to George.

Okay, thanks, Claudine.

This is a very strong quarter for Biogen Idec, and I believe it represents the beginning of a new era that includes increased economic participation in TYSABRI, the launch of TECFIDERA, and the anticipated launch of three additional products next year.

So revenues for the quarter were $1.7 billion, up 21%, and non-GAAP earnings were $2.30 per share, up 26% compared to the second quarter of 2012.

These great results stem from the revenues from our entire portfolio of MS products, including AVONEX, TYSABRI and now TECFIDERA.

AVONEX continues to be a very strong part of the Business.

We're still early in the launch of TECFIDERA, but AVONEX appears to be holding up well in this new competitive environment, and we believe the interferon franchise will be strengthened even more next year with the anticipated launch of PLEGRIDY.

Although TYSABRI had a somewhat challenging quarter in part due to the introduction of TECFIDERA, and also the financial dynamics that Paul will discuss later in the call, we believe that the efficacy of TYSABRI will result in increasing usage in the future.

We believe the recognition of the importance of treating MS aggressively and early, the increasing understanding of risk stratification, the high level of efficacy and the potential of TYSABRI and other indications all bode well for its long-term growth, and we're optimistic about the future of TYSABRI.

The launch of TECFIDERA in the US has gone very well, which we believe reflects a broad recognition among physicians and patients that this is a unique product.

According to IMS, TECFIDERA outperformed all other MS drugs in the first three months after launch.

We believe that the excitement about TECFIDERA stems from a combination of factors, including its product profile as an oral therapy with strong efficacy and solid safety, our reputation in and understanding of the MS market, and very strong execution on the part of our US commercial organization.

We overcame some early logistical challenges that resulted from the unexpectedly high early demand, and we now believe that we're on a very solid trajectory and are excited about the future of the drug.

So in the US we're off to a great start, and recent approvals in Canada and Australia just add to the momentum.

TECFIDERA is an exciting product that we believe has the potential to shift the paradigm of treatment for MS patients.

So now let me comment briefly on the EU situation.

As you know, on May 30 we announced that our plans to launch TECFIDERA in Europe had been delayed to allow us to make TECFIDERA's entitlement to regulatory data protection clear at the time of launch.

At the time, we said that we believed that we were entitled to regulatory data protection, and we continue to believe so.

Our process to clarify regulatory data protection is moving along, but it's taking longer than we thought it would when we made the announcement on May 30, and it's difficult to handicap the precise timing or the potential outcome of our efforts.

So, we recognize that any delay of a valuable therapy like TECFIDERA is frustrating for patients, for physicians, our shareholders.

We would like to be more transparent about the process.

We believe that would not be in all of our collective interest and could impact our ultimate success, and so we're not going to give any more details at this time.

We do have patents covering TECFIDERA in the EU, and we believe that they are strong.

However in Europe, it's more difficult than it is in the US to obtain injunctive relief that would prevent others from pre-writing on our investments, while we enforce our IP.

Consequently, we believe that it is important to launch with both intellectual property and regulatory data protection, and we're working to achieve that outcome.

So, let me now move on to our other products.

In the second quarter, we also made excellent progress towards the potential launch of three additional therapies over the next year.

Our PLEGRIDY marketing applications were recently accepted by both the FDA and EMA.

If approved, we believe PLEGRIDY could provide patients an efficacious treatment option with less frequent dosing and an innovative auto injector which may position it as a preferred interferon treatment option.

We believe that the first-line injectable products including the interferons and CAPAXONE will increasingly compete on convenience as has been exemplified by the success of the AVONEX PEN.

PLEGRIDY may have the potential to become the leading drug in this class.

We expect PLEGRIDY to launch in the middle of next year in the US.

We've also been focused on the registration of our long-lasting recombinant hemophilia product candidates, ALPROLIX and ELOCTATE, for the treatment of Hemophilia B and Hemophilia A, respectively.

We believe that our innovative biologics have the potential to transform hemophilia care by addressing the biggest unmet need for these patients, which is a reduction in the frequency of IV injections.

We believe that each of these products offers a substantial value proposition for patients and has the potential to provide improved and/or reduced treatment burden.

Both are under review by the FDA, and we anticipate product launches in the first half of next year.

Although hemophilia is a new therapeutic area for Biogen, we believe that we are well-positioned.

We expect to be the first to market with highly differentiated, long-lasting products.

We bring great expertise in biologics manufacturing, process sciences and specialty markets commercialization, and we built a hemophilia organization comprised of many individuals with years of experience in the treatment of hemophilia.

So although the Company is new to the field, our employees are not.

They know the field, and the field knows them.

With the anticipated approval of these products next year, we believe that we're prepared to bring important new therapies to the many patients who need them.

So, I'll now turn the call over to Tony Kingsley to discuss in detail the commercial results this quarter.

Thanks, George.

Our commercial performance during the second quarter was strong.

In Q2, we were successful in driving our longer-term goal of growing total MS patient share across our entire franchise.

Q2 was the first quarter of TECFIDERA commercialization in the US, and we've been very pleased with the launch to date.

The US Commercial Organization planned and executed very well.

As expected, there was significant physician and patient excitement about the TECFIDERA product profile.

In addition, we believe the three-month launch delay caused by the PDUFA extension and extensive media coverage led to heightened market awareness, which further increased demand for the product at launch.

This pent-up demand accounted for a meaningful portion of the uptake observed during the quarter.

In upcoming quarters, we expect TECFIDERA new prescription volume to remain healthy, but will moderate to more closely reflect the underlying patient start and switch dynamics of the MS market.

Over 3,500 physicians have prescribed TECFIDERA to date.

Approximately a quarter of TECFIDERA patients were not on prior therapy, while approximately three-quarters switched from other disease modifying MS therapies.

The source of switches appears roughly in line with the market shares of MS therapies.

Early in the US launch, a high number of JCV antibody-positive TYSABRI patients switched to TECFIDERA.

But more recently, switching from TYSABRI has been more in line with market share.

We believe that physician and patient reports of their experience with TECFIDERA have generally been favorable while, as expected, flushing and G.I. related tolerability issues have been reported.

From our discussions with prescribing physicians, we believe these issues are largely viewed as manageable, and we believe that very few patients so far have discontinued therapy because of tolerability.

So, after a very strong start, we continue to believe maximizing TECFIDERA performance over the longer term will require strong and sustained commercial effort in what remains a very competitive market, and our focus has been on two areas -- physician awareness and streamlining patient access.

Our physician awareness efforts have been robust as our sales force has achieved its early goals of driving significant reach and frequency in physician calls to communicate TECFIDERA's product profile, and the early breadth of physician prescribing speaks to that.

We also continue to work to improve patient access to TECFIDERA.

As we expected, many plans have been aggressive with placing usage restrictions on TECFIDERA, including prior authorizations and step edits, which creates delays in getting patients started on drug and short-term frustrations for both patients and physicians offices.

Our managed markets teams are in active discussions with payors to continue to improve formulary access.

On the government payor side, TECFIDERA was successfully added to the federal health care programs and is available through Medicare part D, Medicaid and the VA.

However, each part D plan and state has its own process for updating its formulary.

Turning to AVONEX, we were pleased with AVONEX Q2 performance.

For the quarter, global AVONEX revenues increased 2% versus the prior year.

Globally, AVONEX gained market share year-to-date within the injectable class, driven by strong commercial execution as well as continued interest in the AVONEX PEN as convenience continues to be a key differentiator in the injectable segment.

Moving to TYSABRI, second quarter global end market sales decreased by 2% versus the prior year.

As I mentioned, in the US a significant number of higher risk TYSABRI patients transition to TECFIDERA, which slowed TYSABRI growth despite the fact that we believe we are continuing to generate solid demand.

During the quarter, approximately two thirds of the patients who discontinued TYSABRI stayed within our franchise and started TECFIDERA.

This creates another issue that we are well aware of and prepared for, given that well over 1,000 higher risk patients have transitioned from TYSABRI to TECFIDERA, we expect to see a number of cases of PML in these patients, just as has been observed in TYSABRI patients who have switched to other therapies.

We believe that our competition will try to make an issue out of this, but we believe the physician community expects it; our medical affairs team is having discussions with physicians, and we believe we are ready.

In the EU, we observed some softness in TYSABRI growth group due to oral competition.

Continued strong commercial focus on TYSABRI's high efficacy and differentiated product profile, coupled with risk stratification, remain very important to the success of this product.

Overall, I'm very pleased with the execution of our commercial team and believe our MS franchise is well-positioned for continued success.

We have said we believe TECFIDERA will become the leading oral treatment, and we've now seen TECFIDERA's trajectory exceed all previous MS launches.

As a result, we believe our MS franchise now has the leading market share both in the US and globally.

We know future success is not assured, so we're focused on continuing our strong commercial execution in preparation for upcoming launches.

I'll now turn the call over to Doug to discuss our recent R&D activities.

Thanks, Tony.

This has been another productive and eventful quarter for our R&D organization.

We presented data at a number of medical meetings on our diverse, late-stage and commercial portfolio, while advancing our early to mid-stage pipeline.

We believe our pipeline is maturing nicely, and with three potential new product launches in 2014 and multiple, pivotal and proof of concept readouts expected behind those, our underlying drivers of growth continue to look solid.

Our two product candidates for hemophilia, ALPROLIX and ELOCTATE, are hopefully our next products to reach the market.

We, along with our partner Sobi, presented over 30 abstracts and gave 20 oral presentations on these products at the International Society of Thrombosis and Hemostasis meeting, reinforcing the value proposition that we believe each of these products may potentially bring to patients.

New data highlighted efficacy and safety findings, including the control of the bleeding during and after surgery, and the treatment of acute bleeding episodes.

Data were also presented on the ability to assay ALPROLIX levels in patients, potentially enabling customized patient dosing regimens.

We anticipate data from our ongoing ELOCTATE and ALPROLIX pediatric studies in 2014.

We believe positive data from these pediatric studies should enable product submissions with the EMA and the opportunity to seek expanded labeling for pediatric populations with the FDA.

During the quarter, we also presented additional new data on TECFIDERA at the Consortium of Multiple Sclerosis Centers meeting, confirming that the majority of flushing and G.I. symptoms were mild to moderate in nature, and demonstrating that aspirin has the potential to be effective in diminishing flushing-related adverse events.

In addition, a recently published Journal of Neurology manuscript examining subgroups from the Phase III DEFINE study demonstrated that TECFIDERA was consistently effective across a broad set of patients with different demographic and disease characteristics.

It's also been a busy quarter for TYSABRI, as we continue to focus on TYSABRI 's powerful efficacy as its key differentiating factor an the JCV assay as an effective patient management tool.

At the European Neurology Society meeting, we presented preliminary TYSABRI-related data showing that JCV antibody index levels correlate with PML risk in certain patients with no prior immunosuppressant use.

The index is a reflection of antibody titer, and certain patients with higher titers appear to have increased PML risk.

This research may allow further refinement of the PML risk stratification tools already in broad clinical use, and may allow better management of TYSABRI patients.

We also submitted an application for marketing authorization for TYSABRI in Japan, and we anticipate approval in the first half of 2014.

Enrollment of the Phase III ASCEND trial evaluating TYSABRI in SPMS was also completed in the second quarter.

We continue to make progress with our mid-stage pipeline and expect three pivotal readouts over the next three years.

Daclizumab in 2014, TYSABRI in SPMS in 2015, and potentially SMNRx in 2016.

During that timeframe, we also expect to have meaningful data readouts from our early-stage programs, including Neublastin for neuropathic pain, STX-100 for IPF, BIIB037 for Alzheimer's disease, Anti-CD40 ligand in SLE, Anti-TWEAK in lupus nephritis and anti-LINGO in acute optic neuritis and relapsing MS. So, we believe we're on track to continue to bring new, important medicines to patients in areas of high unmet need and further ensure that we have major value drivers going forward.

I'll now pass the call to Paul to discuss our financial results.

Thanks, Doug.

Our GAAP diluted earnings per share were $2.06 in the second quarter.

The differences between our GAAP and non-GAAP results are outlined in the earnings presentation.

The primary differences include $79 million related to the amortization of acquired intangibles, $5 million in fair value adjustments for contingent consideration, and $2 million related to stock compensation expense.

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

Our non-GAAP diluted earnings per share in the second quarter were $2.30.

As has been the case over the last couple of quarters, we experienced a couple of puts and takes within the P&L.

Of note was a benefit of approximately $82 million of revenue, related to TECFIDERA inventory, which added approximately $0.20 to our diluted EPS.

And, we made progress toward settling our TYSABRI pricing dispute with the Italian National Medicines Agency or AIFA.

I'll talk in more detail about these as I walk down the P&L.

Total revenue for the second quarter grew 21% to $1.7 billion.

Q2 AVONEX worldwide revenue grew 2% to $774 million as unit volume was flat versus prior year.

In the US, AVONEX revenue grew 3% in Q2 to $479 million.

US unit volume decreased 5% versus prior year, partially attributable to patients transitioning to TECFIDERA.

And US inventory at wholesalers for AVONEX ended at approximately two weeks this quarter.

Internationally, Q2 AVONEX revenue was $295 million, a decrease of 1% compared to prior year.

International AVONEX unit volume increased 3% versus prior year.

Foreign exchange and hedging impacts had a minimal impact this quarter although compared to a gain of $10 million in the second quarter 2012.

TYSABRI worldwide end market sales were $387 million in the second quarter, down 2%.

I'll point out two items of note.

First, the US was unfavorably impacted by channel swing, and second, the international TYSABRI revenue situation was unfavorably impacted by the additional expense related to AIFA.

Second quarter end market US TYSABRI revenue was $218 million, an increase of 3%.

Q2 US unit volume decreased 5% versus prior year.

Recall during the first quarter of 2013, we increased inventory levels in anticipation of the asset transfer from Elan to Biogen Idec.

This equated to end market revenues of approximately $26 million, increasing Q1 and depressing Q2.

Q2 international TYSABRI revenue was $169 million.

Earlier this month, we agreed in principle with the pricing committee of AIFA to settle all claims related to the ongoing pricing dispute.

This settlement is subject to approval by the Italian national authorities and the AIFA board, which we expect later this year.

The result from an accounting perspective is that we have a charge in Q2 to revenue and anticipate a benefit later this year.

Specifically, TYSABRI product revenues were negatively impacted this quarter as we recorded a liability of approximately $20 million for a portion of the settlement.

We recorded this adjustment as the likelihood of making a payment to settle AIFA's claims was now probable and the amount could be estimated.

Given the standards for revenue recognition, the remaining portion of the settlement will be recorded upon approval as a net benefit to revenue.

We anticipate recording this revenue benefit of at least $80 million in the fourth quarter.

Now, moving to TECFIDERA.

Second quarter TECFIDERA, its first quarter on the market, was strong as we reported $192 million of revenue.

While we don't plan to provide TECFIDERA patient numbers, I do want to note that the IMS data to date has been a good representation of unit demand this quarter.

In the quarter, TECFIDERA results include an inventory build as approximately $82 million of revenue remained in the distribution channel at the end of the quarter.

Wholesalers and specialty pharmacies built inventories in anticipation of patient demand to ensure patients experienced limited disruptions in drug supply.

Absent this inventory build, it was still a very strong quarter for TECFIDERA as we estimate revenue generated from underlying patient demand was approximately $110 million.

FAMPYRA revenue was $17 million while FUMADERM revenues were $16 million.

US RITUXAN sales were $811 million in the second quarter.

Our profit share and expense reimbursement from the US business was $271 million for the second quarter, and royalties and profit share in sales of rituximab outside US were $18 million.

This resulted in $289 million of revenue from unconsolidated joint business in the second quarter.

Royalties were $38 million, and we recorded $11 million of corporate partner revenue in Q2.

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

Q2 non-GAAP cost of goods sold were $231 million, or 13% of revenues.

This increase relates to TYSABRI contingent payments as well as 100% of the third party TYSABRI royalties which are now booked through cost of goods sold.

Q2, non-GAAP R&D expense was $327 million or 19% of revenues.

Q2 non-GAAP SG&A expense was $430 million, or 25% of revenues, an increase of 43% over last year driven by increased costs associated with the TECFIDERA launch.

Other income and expense was an expense of $10 million.

Our second-quarter non-GAAP tax rate was 24%.

And in the second quarter, our weighted average diluted shares were 239 million, and we ended the quarter with $775 million in cash and marketable securities Bringing us to our non-GAAP diluted earnings per share, which were $2.30 for the second quarter.

Now, turning to our full-year 2013 guidance.

We are increasing our guidance largely as a result of the strength seen early in the TECFIDERA launch, modestly offset by the impact on our other MS therapies.

We now expect total revenue growth of approximately 22% to 23%.

As George mentioned, given the prolongation and uncertainty of the EU process, we do not expect TECFIDERA EU revenue to be meaningful in 2013.

For TYSABRI, our prior guidance had assumed an AIFA settlement in 2013.

We are pleased by the recent decision and expect to record a revenue benefit of at least $80 million in the fourth quarter of this year.

Moving to the expense lines of the P&L, we anticipate cost of goods sold to be between 13% and 14% of sales.

R&D expense is expected to be between 21% and 23% of sales.

Our balance of year R&D forecast continues to include up to $75 million earmarked for potential new business development opportunities and up to $35 million anticipated upfront in milestone payments in the second half.

SG&A expense is expected to be approximately 24% to 26% of total revenue.

We continue to see 2013 as an investment year in SG&A, building out the commercial efforts for TECFIDERA, and prelaunch efforts for hemophilia in the US, and we continue to expect SG&A leverage post- 2013.

Our effective tax rate in 2013 is expected to be between 22% and 24% of pretax income.

For the balance of the year, we expect effective tax rate to be between 25% and 26%, driven by a larger percentage of our revenues being generated in the US.

As a result, we anticipate non-GAAP earnings per share results between $8.25 and $8.50, and GAAP earnings per share to be between $7.28 and $7.53.

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

Okay thanks, Paul.

This was an excellent quarter for Biogen Idec.

TECFIDERA's launch has gone very well, and we believe that TECFIDERA is on its way to becoming a major drug that provides solid efficacy and a good safety profile to large numbers of MS patients.

We continue to believe in the future of TYSABRI and are working to make sure that patients and physicians understand the value that the product brings to patients in need of high efficacy treatment.

AVONEX continues to do well, and we believe our interferon franchise should be strengthened even further next year, with the anticipated launch of PLEGRIDY.

So, as we said many times, we believe that we're well-positioned in MS with leading drugs in the oral category, the high efficacy category and the injectable category.

Beyond MS, ELOCTATE and ALPROLIX are now under active review, also with anticipated US launches next year.

We believe these products have the potential to transform hemophilia care, and we're excited about their potential.

Our pipeline continues to move forward, and we expect to have meaningful readouts of pivotal and proof of concept trials in each of the next several years.

So, we're at the beginning of a new era for Biogen Idec.

We're a global leader in MS, and our goal is to strengthen that position even further at the same time as we expand into new indications.

It's an exciting time to be here.

We have accomplished a lot, but we fully recognize that we have a lot of work ahead of us.

We know that if we execute well, our future is likely to be bright.

We're working hard, staying focused and making sure that we achieve our ambitious goals.

Achievement of our goals to date is the result of a lot of effort and dedication on the part of all the employees of Biogen Idec, and I want to take this opportunity to publicly thank all of them.

And with that, we'll open up the call for Q&A.

(Operator Instructions)

Mark Schoenebaum, ISI Group.

Thanks for taking my question.

Limit to one is going to be very difficult for me, but I'll do my best.

Maybe for Paul, can you tell us how many weeks of TECFIDERA were in the channel and whether or not you expect there to be any kind of a draw down in 3Q?

Or if you think that these are the right levels.

And then just a related question on the tax rate, I thought TECFIDERA was domiciled, the IQ was domiciled overseas, so profits generated on that no matter where you sold it would be a little bit lower.

Can you just clarify the situation?

Thanks a lot and congratulations on the quarter.

Excellent, thanks for the two questions, Mark.

That was one.

One and a half.

Look, we certainly wanted to go out of our way to point that the breakout between TECFIDERA channel inventory in end market patient demand, I think people got that pretty clearly it appears to me.

By definition, the weeks in the channel at the end is like one divided -- whatever divided by the 13 weeks.

So, I think what I'd point you to is a couple of things as it relates to that.

One is that we take the weeks in the channel very seriously obviously with AVONEX, with TYSABRI, and this quarter, we specifically didn't want to really manage that hard because of the launch dynamic and wanted to make sure there were no patients supply disruptions of any sort related to that.

And, particularly in the launch, you don't actually know which SPPs go are going to be the ones taking off versus the others.

So, that was a dynamic that is probably a little more than we thought in terms of the inventory, but was all to try to support the launch of the product, which was quite successful.

As we go forward, what I would guide you to, and I would try to point out these dynamics as we go forward, but my expectation is that for Q3 and for Q4 that our reported TECFIDERA numbers in the United States will largely line up with the end market patient demand.

Said another way, what's in the channel now which is plus or minus [80] is probably in the magnitude of what we could expect at the end of Q3 and what to expect at the end of Q4.

So, hopefully that helps.

The tax question is obviously much more complex, but in a given year, your effective tax rate has to mirror the cash flow, the projected cash flow, and given the strength of TEC in the United States, that puts a little bit of short-term upward pressure on the tax rate greater than what we actually expected.

So a good problem to have, given that the US launch, I think it's temporary as well.

Eric Schmidt, Cowen & Company.

My congrats as well, and thanks for taking my question.

Just wanted to clarify one or maybe one and a half things that Tony said on the TECFIDERA launch.

First, with regard to his comments about there being said pent-up demand, us expecting or looking to expect maybe a decline in new patient starts, is that something you're already observing or is that just your assessment of how this launch might play out?

And then, I guess secondly, with the TYSABRI transitions to TECFIDERA, what rate of PML might we expect based on your experience with other TYSABRI drug transitions?

Thanks, Eric.

Maybe I'll take the first and have Doug answer the second.

So, I would think about it this way.

If you take the US market patient loads, it's sort of steady-state all in.

New starts, switches, returning quitters, quitters going out, it runs at a rate of about 1000 to 1200 patients per week.

You can do your patient numbers however you want, but I mean just looking at the IMS data, it's pretty clear that TECFIDERA alone was running at something like twice that rate in the second quarter.

So, look, we clearly think that's going to come down and moderate over time, but we remain very optimistic about what the product profile is and acceptance.

So, that's the way I think about that.

And Eric, this is Doug.

The answer to your question with respect to the rate of PML, I think it's a very difficult to come up with a number or to make any predictions about that.

I think that what Tony was highlighting was the fact that we had a large number of patients who rolled off TYSABRI and onto TECFIDERA; many of them are probably out at or beyond two years and are JC positive.

And just like we've seen with GILENYA and CAPAXONE and other disease modifying drugs that patients have been rolled onto, we would anticipate seeing some cases of PML.

And, we would expect to see that relatively soon just given what we've seen with the other DMTs and the kinetics of that event.

You recall that the TYSABRI label says to monitor patients for six months after they come off the drug for the emergence of PML, and so, that's the sort of expected window in which these cases would emerge.

But, I can't give you a specific rate or number.

Geoffrey Porges, Bernstein.

Thanks very much for the question and congratulations on a really remarkable launch performance.

It doesn't sound like you guys saw it coming much better than we did initially.

My question related to regulatory data protection, you received approval in Canada and Australia that highlighted on this call the need for regulatory data protection in Europe.

Could you tell us about what the data protection you have is in Canada and Australia and what's distinct about the exposure you see yourselves as having to generic entry there compared to Europe?

We're all kind of looking around the room here.

But, I think the issue with regulatory data protection is unique to Europe and doesn't exist in other geographies around the world, so it's not an issue in Australia or Canada or the US.

Ravi Mehotra, Credit Suisse.

Hi, thanks for taking my question and congratulations.

Probably for George, George, we've had a number of TECFIDERA side effect scares over the last year -- January the re-malignancy issues.

April, the New England Journal PML for America said issues last week, pneumonia.

They've all turned out to be storms in a teacup.

What other scares might you anticipate, and how would you help us prepare for them?

And this really isn't a second question -- I don't want to guide your answer, but can you just remind us about your post-launch monitoring systems particularly with Tony's comments about PML, how quickly can you report back to us when those cases pop up?

Thank you.

Yes, thanks, Ravi.

There's no reason at this point to expect other issues.

I'm sure that will crop up as you said; we had the case this week that turned out to be erroneous, and it was erroneously reported, and it turns out to be unlikely to have anything to do with TECFIDERA.

There will probably be other ones of those as we go forward.

With respect to PML I could just reiterate what Doug said.

Patients coming off of TYSABRI are at risk for development of PML for a number of months after they discontinued therapy.

But, I think in total about 12% of our PML cases come from patients who have discontinued.

Some of them are on other therapies, some of them are not.

And we're likely to see the same phenomenon here, and so we are aware of that.

We count those cases in our monthly reports when we issue our TYSABRI PML case reports regardless of what drugs patient have switched onto, and TECFIDERA will be treated just like we treat any other drug.

Rachel McMinn, Bank of America Merrill Lynch.

Thanks very much.

I know you're not commenting on EU TECFIDERA, but can we infer from your comments, Paul, when you said that revenues were not expected to be meaningful in 2013 that you still hoped to launch TECFIDERA, believe that it's possible you could launch TECFIDERA in the back half of the year?

And then just -- I was hoping you could give us a little bit more color on PLEGRIDY given the success of TECFIDERA so far.

You mentioned you believe this drug could be a leader of interferon, but how do we think about the class, given the strength of oral adoption to date?

Thank you.

I'll take the first part and Tony will take the second part, Rachel.

Thanks for the question.

What, it's really -- the revenue guidance, we obviously, as everyone knows, don't break out product guidance.

I think people would love that, but we actually just don't do that.

In the revenue guidance as it relates to the TECFIDERA EU numbers is just not meaningful, so that really just doesn't say anything specific on the timing.

The timing is hard to handicap as George had mentioned; the outcome's obviously hard to handicap, so we're working constructively, the process is moving along, and that's really all we can say kind of at this point.

Tony, do you want to grab that?

I'll just repeat -- our theory on the market, which we've talked about a lot of times is we think injectables will compress as a class, orals will grow and high efficacy will grow.

Orals, with the launch of TECFIDERA, are off to a fast start, which obviously we're excited about.

In the long-term trajectory of that, we still think injectables are going to be a meaningful portion of the market.

We still think convenience is going to be the differentiator.

We still think that the PLEGRIDY profile is potentially attractive there, and again a less frequent injection with a good safety profile in a mechanism which is interferon is going to be appropriate and maybe an attractive alternative relative to the oral offerings as well.

I don't think our fundamental belief set on that has changed yet; we'll have to see how the market evolves overall.

Yaron Werber, Citi.

Thanks for taking my question.

I have like seven questions on RDP if you don't mind?

(laughter) You can have one answer.

Fantastic.

Take the next caller.

So, just a quick -- I'm going to try to sneak them together -- TYSABRI, just help us understand if you can what percentage of patients are sort of JCV positive?

I'm trying to get kind of an understanding how do we think about the switch rate sort of overtime, and the second, again, and if you just can clarify, you guys say with respect to RDP you're trying to help explain the status to all parties involved.

I don't know if you can explain to us what that means?

Maybe I'll quickly take the first part of the question.

I think last time we talked about this, the best insight we have is obviously the United States on TYSABRI, but we think that outside the United States, the numbers all kind of share is indicative as well.

We think literally like 90 days ago, we had shared that we thought about two thirds of the patients on TYSABRI were JCV negative, and we actually think that's accelerating, so it's probably north of that now.

And that's fine, that's actually quite good.

This is a remarkable product for those types of patients, and we think it will continue to chug along, never getting to 100% the majority of the patients being JCV negative.

Look, the second part of your question, is I don't think we said we were trying to explain the status.

I think we said we want to make our entitlement to regulatory data protection clear to all parties.

And, we are, as Paul said, we're in an active process, constructive process, and we're working to achieve the goal.

Terence Flynn, Goldman Sachs.

Hi, thanks for the question.

I was just looking at your guidance.

I know you said, Paul, you don't give specific product guidance, but I think you did make mention in the past seeing AVONEX being relatively flat this year versus last year.

Just was wondering if you can update us on that given what you're seeing one quarter into TECFIDERA.

And then on RDP, I know you don't want to give any insight there, but anything you can comment with respect to how Sanofi's decision on AUBAGIO recently impacted how you're thinking about TECFIDERA?

Thanks.

Nothing different, Terry -- thanks for the question -- nothing different on the AVONEX kind of thinking.

So, it's plus or minus.

As you know plus or minus on what is close to a $3 billion number is a big deal, and I appreciate that and I understand that.

But, I think the trends on AVONEX are largely as we expected, and I think what you're seeing in our guidance on the top line and the bottom line is just kind of really pulling through what is fundamentally a stronger US TECFIDERA launch than we had expected, so great news on that.

George, on RDP?

AUBAGIO I think and TECFIDERA are different products, different situations, and one has very little bearing on the other.

Matthew Roden, UBS.

Great, thanks very much for taking the question and congrats on the execution on this launch, very impressive.

Tony, I was hoping you could quantify how large you think the pull of returning quitters is in the US and Europe and whether or not you think of it as a bolus or longer-term source of patient demand.

And related, not sure if you can give us this, but actually what percent discontinued on TECFIDERA in the quarter and whether or not that rate is changing as we get the 3Q?

Thanks.

So I think we've said in the past we think the quitter pool, the longer sort of quitter pool is north of 100,000.

I think I've always talked about that as an area of opportunity but have been cautious because those patients go off for a complex set of reasons often are looking for therapy, and it's relatively difficult to activate them.

We said about a quarter of the patients who started on TECFIDERA in the quarter were not on prior therapy.

Our sense is returning quitters are a piece of that, but it's relatively small.

But, we think over time, there's some potential there, but we remain cautious about that.

We haven't given out the percent of discontinuation, I would just repeat what I said in the script, which it is very small to date.

Yes.

And I just think discontinuation, compliance rate, all important factors, Matt, as you know, for the balance of year and years beyond -- it's just early days.

Literally even for us looking at the data, nothing really to report, but it literally is just early days on that, and we've got programs in place to try to optimize that but, it's early days really in terms of the revenue curve.

Geoff Meacham, JPMorgan.

Hey guys, thanks for taking the question and congrats on the launch.

I've got a question for you on the TECFIDERA switches from TYSABRI.

So Tony, did you say the majority of switches have been on TYSABRI for two or more years and JCV positive?

And then a related question, you guys hadn't talked a lot about oral pressure on OUS TYSABRI previously, just wondered if there's a new pricing reimbursement dynamic, et cetera?

Thanks.

Yes, so, a significant portion of the patients that switched off TYSABRI to TECFIDERA were JCV positive.

There's a mix in terms of the length of -- as always the case -- in terms of length of treatment on TYSABRI prior immunosuppression.

But the point was there was two things.

One, not surprisingly with the new alternative in the market, a number of patients switch relatively quickly, and we think that's leveled out closer to market share over time.

And second, there's a meaningful pool of this higher risk group of patients that Doug talked about that are in there.

In terms of oral pressure outside the United States, the explicit were GILENYA is competing very hard in Europe against TYSABRI, and we have some work to do to continue to PUSH TYSABRI's efficacy profile and risk stratification -- that's really what the indication there is.

Robyn Karnauskas, Deutsche Bank.

Hi, guys, thanks for taking the question.

So, you mentioned switching in line with the market of MS therapies on TECFIDERA, but is switching coming evenly across the interferons given I think you mentioned that you're marketing toward doctors that may not prescribe as much AVONEX?

And I thought I'd throw this one in, on slide 18 you have a lot of pipeline products that readout n the second half of the year next year, and looking into the next TECFIDERA, which one of those proof of concept trials do you think would have the greatest -- would provide the greatest insight into the product success?

Thanks, it's Tony.

Plus minus on switching relative to market share, we track it week by week.

It's early days.

We believe that AVONEX should outperform in -- among the interferons, it's just very early days in terms of numbers.

Not surprised that it is roughly at market share, so I think it will take a little while to develop some more noticeable trends on where the switches are across the therapies, which we believe will happen, but it's early days.

And this is Doug; I'll take the question about the pipeline readouts.

Now, I think in terms of insights into which of these will go to Phase III, which I think is the nature of your question, I think certainly the [Isis] data early in 2014 is going to be very important in terms of creating hopefully some additional excitement around the program and desire to move that forward into registrational studies.

It's the repeat dose data that will be available to us early next year that hopefully will confirm that there's efficacy of that product and that disease, and that would lead us right into a very accelerated Phase III program.

I'd say all of the Phase IIs are likely to be important in the context of generating enthusiasm for the registrational studies.

STX-100 will basically give us the dose to move into a Phase IIb proper proof of concept study.

LINGO, we'll see the optic neuritis data, I'd see that as proof of biology and not necessarily as the data that would really get us excited about the product which will come from the relapsing remitting study in 2015.

And then the Anti-TWEAK data will come later, but all of those are really critical studies; they are large enough, they are designed with endpoints that we think are going to be meaningful in terms of deciding where we go with those programs, and hopefully those will all move to Phase III.

Marko Kozul, Leerink Swann.

Good morning, and congrats on the quarter and the launch.

I also have a question on the half related to TECFIDERA.

Can you give us your view of the current status and landscape for TECFIDERA reimbursement and possibly where you'd anticipate being towards the end of this year and beyond.

The second part of the question is related to anecdotal comments we received from the MS community suggesting some physicians that want to prescribe TECFIDERA are kind of holding back from doing so until reimbursement is streamlined and patients are ensured continuity on the drug once they initiate treatment.

The second part of the question is really whether you have any color on the proportion of patients or physicians that are still on the sidelines until reimbursement and the landscape is mature?

Thanks.

Good question.

Maybe I'll take them in reverse order.

So 3500 physicians have written already, so you can take some comment about who is on the sidelines.

There's not that data depending on how deep you go in the deck, 6000, 7000, 8000 are kind of the key where you get 80/20 in MS prescriptions in this market.

So we're comfortable that the signal about a broad acceptance of the product profile, and we're also comfortable that there are a lot of physicians writing new product.

Certainly, there are cases I'm sure where physicians have had frustration with getting patients started on therapy and payor dynamics.

That's geographically different, can be locally very different depending on the payor mix.

Our patient services and manage market teams are working with offices and trying to work through those things on a case-by-case basis.

We think we've cleared what were some of the early hurdles that were just frankly part of function of very, very high demand at the outset.

So we know there's some frustration out there, we're engaging with the physician offices constantly, and we feel like we've largely worked through some of the early operational issues.

In terms of reimbursement, we're comfortable where we are; again we anticipated that we would have payors placing restrictions.

We anticipated and communicated that prior -- we're working through that.

We anticipated that the kind of six to nine month process typically to work through payors, in process, we feel like it's moving in the right direction, we're comfortable with where we are.

Michael Yee, RBC Capital Markets.

Thanks, congrats on the quarter.

Somewhat related, you had a QuickStart program that was sort of helping out with that reimbursement process.

Maybe you could help us with how many patients are what percent of what was going on in the quarter was QuickStart?

Did they all switch on the commercial pain drug, and how does that dynamic play into say Q3 and ongoing quarters?

So QuickStart is our program to help bridge patients when reimbursement is being adjudicated, less than 10% in QuickStart.

The conversion rate, we are converting people out of a QuickStart over time.

There's different pace for the people in there depending on how hard it is to work with individual payors issues, but we think we're working through that backlog, under 10% in QuickStart.

John Newman, JMP Securities.

Hi, guys, thanks very much for taking my question.

Wondered if I might ask about a comment that was made earlier regarding SG&A leverage going forward beyond this year?

I'm just curious if we should take that to mean your SG&A leverage is going to increase just based on the additional products?

Or, is there a way that you can increase SG&A leverage by reallocating the promotional effort within your MS franchise, and when would you start to consider that?

Thank you.

Great question, John.

I was referring more to the former than the latter.

So, obviously leverage is both the numerator and denominator.

So we are hopeful that we're going to have some continued top line growth, but I think if you combine that with our expectations that over the last 18, 24 months, over the next kind of six months, we have been making big investments in SG&A to support prelaunch commercial efforts, very much the obvious.

We didn't want to be penny wise and pound foolish with the TECFIDERA launch that's proven so far to be a very good judgment.

But a lot of that build, we move towards containing that build, particularly in the US will have some of that build ahead of us in multiple sclerosis for EU, assuming the process moves forward.

And we have some of that build for hemophilia ahead of us, but then we're kind of left with leveraging that.

The question of, is there MS within MS leverage within kind of how we manage that.

Tony and I have talked openly about that on these calls, and I think we've purposely left it a question that we'll continue to reconsider and think about over the more multi year time period.

Tony Butler, Barclays Capital.

Thanks very much for taking the question.

If I could stay with the same theme, Paul, again on SG&A leverage for '14, but in your guidance, which we appreciate, the SG&A numbers as a percent of revenues actually stay flat, so by definition, the absolute number increases.

Can you provide any information about what those dollars will actually be earmarked towards?

And within the same context, if in fact there is share shifts in the ABCR category away from injectables certainly in the US, Tony, I'd be interested in your thoughts as to whether there is that share shift away from promotional spend on the AVONEX front regardless of PLEGRIDY next year?

Thanks again.

Okay good question.

I think Tony, it's in the range.

Little bit of the range, so I don't expect SG&A to be going up dollar for dollar with the amount that revenue has gone up on the guidance number.

So, some modest variable spending in SG&A that comes associated with extra revenue.

We're trying to make sure that any of the operational issues on TECFIDERA from a supply perspective, from a reimbursement perspective that we're well funding this, so that's really what it's intended to kind of imply.

Tony, in terms of the share shift, good question.

We're constantly looking at that, I think it's a little early in the evolution of the market to make a call on that, but we're obviously -- we continue to think -- we're happy with the success of TECFIDERA and where we think it's headed.

We continue to think the injectables will be a meaningful portion of the market for some time to come.

We want to outcompete in the area, and we'll get the appropriate level of resource against that, but it is something we're constantly looking at, at a balance across the franchise.

And I'll remind you we have a franchise with a goal in patients across the franchise, and as you think about SG&A leverage in the next couple of years, you have new competitors coming in, the market is getting more crowded, not less crowded.

So, there are going to be a lot of people to beat, so we're very mindful of that as well.

Brian Abrams, Wells Fargo Securities.

Hi, thanks for taking my question and congratulations particularly to Tony and his team for the great TECFIDERA lunch.

I was wondering if you could give us any more information on that patient who died of pneumonia after stopping TECFIDERA?

Details like lymphocyte counts before or during and after treatment, if any particular culprit has been found for their lung infection?

Maybe just help talk us through attributes of the case that give you the confidence that it's not related to the drug?

Thanks.

Sure, this is Doug; I'll be happy to take that question.

I think with respect to lymphocyte counts, we don't have the specific information on this patient at this moment.

We're still investigating the case, but what I can say is that if you look back at the Phase III experience with the product, that the kinetics of lymphocyte drop in patients that have it tends to occur much later than what we've seen in terms of this is a patient that was on drug for five and a half weeks and then came off for two and a half weeks before they passed away.

So, I think there is a disconnect in the kinetics of any sort of lymphocyte issues here, but we don't have the lymphocyte count on this particular patient.

Again, I would point you back to the Phase III experience where there was no signal in terms of increased infection risk in patients who receive TECFIDERA.

So, I think that our conclusion based on the information we have available to us is sort of twofold.

Number one cause of death was not G.I. complications as reported in the media.

Number two it's pretty clear that this was bilateral pneumonia in this patient, but there's no suspected affect of TECFIDERA on increasing the risk of infection based on experience we have to date, so I think we feel pretty confident that this was an unfortunate set of circumstances in this individual patient that doesn't implicate TECFIDERA.

I'll now turn the conference back over to our presenters.

Okay, thanks everybody.

Had a great quarter, appreciate all the questions, and we can all get back to work now.

Thanks for your attention.

This concludes today's conference call.

You may now disconnect.