Biogen Inc (BIIB) 2013 Q3 法說會逐字稿

Good morning.

My name is Sheralee and I will be your Conference Operator today.

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

(Operator Instructions)

Ms. Claudine Prowse, President of Investor Relations, you may begin your conference, ma'am.

Thank you and welcome to Biogen Idec's third-quarter 2013 earnings conference call.

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

Our GAAP financials are provided in tables 1 and 2. Table 3 includes a reconciliation of our GAAP to non-GAAP financial results, which we believe better represents the ongoing economics of our business and reflects how we manage the business internally.

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

I would like to point out that we'll be making 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 and Development; and our CFO, Paul Clancy.

We'll also be joined for the Q&A portion of the call by our SVP and Chief Medical Officer, Dr. Al Sandrock.

I'll now turn the call over to George.

Okay thanks, Claudine, and good morning, everyone.

The quarter marks another period of strong financial performance and continued pipeline progress for Biogen Idec.

Tony, Doug and Paul will cover our achievements in more detail in a couple of minutes.

And I just want to make a few introductory comments.

So revenues for the quarter were $1.8 billion, up 32%.

And non-GAAP diluted earnings per share were $2.35, up 23%.

Based on these results, we're raising our financial guidance for the year.

In the US, the TECFIDERA launch continues to go exceedingly well.

According to IMS, TECFIDERA is now the leading oral therapy after only six months on the market.

Importantly, we've achieved a significant milestone by increasing our share in the overall market, without disproportionately diluting the rest of our MS franchise.

We're excited by the initial success of TECFIDERA and its trajectory, but our launch efforts continue and we need to remain diligent to fully capitalize on this early success.

As for the situation in the EU, I'm sure that by now you're aware of the release from the EMA on Friday that announced (technical difficulty) was evaluating TECFIDERA and expects to make a decision on regulatory data protection at its November meeting.

We continue to believe that we're entitled to regulatory data protection and we're working diligently to achieve that outcome.

And we'll have no other update on the EU situation on this call.

As expected, TECFIDERA has taken share from the injectable segment of the market.

Within that segment, however, AVONEX continues to hold up well.

In the coming year we look forward to the potential launch of PLEGRIDY, our PEGylated interferon product candidate, which has the potential to provide patients with another efficacious treatment option with less frequent dosing.

If approved, we believe patients and physicians will view PLEGRIDY as a preferred front line treatment option in the (technical difficulty).

We continue to have confidence in TYSABRI's powerful efficacy and the utility of risk stratification to effectively manage patients.

We have some work ahead of us near term to ensure that patients with active disease benefit from TYSABRI.

Our (technical difficulty) remains unchanged that (technical difficulty) TYSABRI offers them the best solution.

As you know, next year marks not only the potential introduction of PLEGRIDY but also of our long-acting clotting factors ALPROLIX and ELOCTATE.

Today I want to give you all an update on the regulatory update for our long-lasting Factor VIII candidate ELOCTATE.

Based on discussions with the FDA last week, there's a possibility of a delay in the approval of ELOCTATE.

The matter under discussion does not pertain to the safety or efficacy of the product or any of the clinical trial data.

It pertains to the validation of certain steps in the manufacturing process and we are in an active dialogue with the FDA.

It's a bit premature to discuss this development, since it is so recent and evolving, and unfortunately we cannot be more precise about the matter or timing at this time.

However, we know that approval of ELOCTATE is important for the hemophilia community and our investors and we wanted to be upfront on the call.

When we have more complete information, we'll update you at that time.

I do want to remind everyone that in addition to the three products now under regulatory review, we have a number of promising drug candidates in mid-phase clinical testing and we expect to have meaningful readouts on up to six of our compounds by the end of 2014.

It's unlikely that all six will be positive, but we're hopeful that some of these will represent the next wave of Phase III product candidates.

In summary, we had an excellent quarter commercially and financially and are raising our guidance for the year.

Our pipeline is making good progress.

We'll know more about European regulatory data protection next month.

And we'll update you on the ELOCTATE situation at an appropriate time.

I'll now turn the call over to Tony.

Thanks, George.

The commercial team is executing on all fronts as we continue to grow our MS franchise patient market share while preparing for the potential launches of three new products in 2014.

I'm very pleased with the broad adoption and strong uptake of TECFIDERA and view it as a positive sign of initial physician acceptance.

According to our data, through the end of the quarter over 5,000 US doctors have prescribed TECFIDERA.

Our sales force continues to focus on educating physicians, to deepen usage among current prescribers and further expand the prescribing base.

While there are still doctors who haven't prescribed, we believe these are generally community physicians who treat fewer MS patients.

We believe that our strong TECFIDERA launch puts us in a very good position but understand that TECFIDERA's long-term success will require a robust and sustained commercial effort.

Consistent with last quarter, our data indicate that approximately a quarter of TECFIDERA patients were not on prior therapy, while approximately three-quarters switched from a disease modifying therapy.

We believe switches from each therapy continue to be roughly in line with market share.

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

We believe that TECFIDERA is generally viewed by physicians as having strong efficacy, a solid safety profile and good tolerability.

Some patients do experience GI tolerability concerns with a subset of patients experiencing GI issues for an extended period.

From our conversations, we believe physicians largely view these side effects as manageable.

We continue to improve patient access to TECFIDERA.

As of the end of the quarter, over half of US patients had access to TECFIDERA without requiring a step edit.

To further expand access, discussions with additional payers are ongoing, and as additional contracts are implemented, discounts are likely to increase.

Outside of the US, TECFIDERA was approved in Australia in July and we expect to have reimbursement approved by early 2014.

In Canada, TECFIDERA's launch is off to a good start through private insurance and we also expect a public reimbursement decision by early 2014.

Turning to AVONEX.

Within the injectable segment, AVONEX has gained market share year to date, which we believe is primarily driven by the convenience of the AVONEX PEN autoinjector.

We believe convenience continues to be a key differentiator for the injectable segment and that we are well positioned with the AVONEX PEN and potentially PLEGRIDY should it be approved.

Moving on to TYSABRI.

We believe physician perceptions of TYSABRI's efficacy remains strong.

In the US, new TYSABRI prescriptions continued at a good pace despite the additional treatment option of TECFIDERA.

There were fewer discontinuations in Q3 compared to Q2, and about 70% of US patients discontinuing TYSABRI started on TECFIDERA and remained in our franchise of MS products.

Accordingly, the number of TYSABRI patients leaving our MS franchise has declined significantly in the US, compared to prior TECFIDERA's launch.

In Europe, TYSABRI growth continued to be impacted by oral competition.

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

So in summary, I'm very pleased with the performance of our MS franchise during the quarter.

TECFIDERA's rapid launch trajectory has continued and AVONEX and TYSABRI have held up well, as expected.

The commercial organization has demonstrated strong execution in launch mode, which I believe bodes well for the potential upcoming launches in MS and hemophilia.

I'll now turn the call over to Doug.

Thanks, Tony.

We're very pleased by the progress in R&D.

I'll start by highlighting new data for TECFIDERA and TYSABRI, and then review a number of our other product candidates, many of which are expected to have important readouts in 2014 and 2015.

We continue to invest in TECFIDERA to better understand the characteristics of this important therapy.

At the recent ECTRIMS meeting, we presented interim analyses from the ENDORSE Extension study that support the favorable safety profile of TECFIDERA in patients with relapsing remitting MS and show no new or worsening safety signals in patients who had received TECFIDERA for up to 6 1/2 years.

Longer term analysis from ENDORSE also demonstrates that TECFIDERA maintained its effect in reducing disease activity.

New data were presented at ECTRIMS for TYSABRI, that reaffirms the powerful efficacy of this product, which we believe continues to be its key differentiating feature.

Based on analysis from the TYSABRI observational protocol, or TOP study, MS patients treated for up to six years with TYSABRI maintained very low relapse rates and stable EDSS disability scores.

We also presented baseline patient characteristics from the ASCEND study for TYSABRI and SPMS, a study which if positive we believe has the potential to support expanded TYSABRI use into this vastly underserved population.

This study is being performed under an FDA Special Protocol Assessment, utilizing a novel composite end point to evaluate the ability of TYSABRI to slow disease progression independent of MS relapse.

Accrual for this study is complete and results are expected in 2015.

Now I'll turn to our late-stage pipeline product candidates.

Based on one year clinical and MRI data from the two year Phase III ADVANCE study, PLEGRIDY appears to have an efficacy and safety profile similar to other currently available interferon therapies combined with reduced frequency subcutaneous administration, and if approved, a patient administer auto injector.

We continue to expect FDA and EMA decisions for PLEGRIDY in mid-2014.

Also in mid-2014, we look forward to seeing Phase III data for daclizumab in relapsing remitting MS. Data from the daclizumab Phase IIb registrational study point at strong efficacy in annualized relapse rate and MRI measures of disease activity and EDSS measures of disability progression.

Our hope is that these data will be affirmed in the ongoing Phase III DECIDE study and support registration of daclizumab as a high efficacy, once monthly subcutaneous therapy.

Now moving to our hemophilia franchise.

At the recent National Hemophilia Foundation meeting, we shared data from registrational studies of our long-lasting recombinant hemophilia product candidates, ALPROLIX and ELOCTATE.

These data reinforce the value proposition that we believe these long-lasting therapies, if approved, may bring to patients including reduced dosing frequency and innovative individualized dosing flexibility.

The pediatric kids B-LONG trial for ALPROLIX and the kids A-LONG trial for ELOCTATE remain on track to readout in 2014.

These studies are essential for filing in Europe and are also important for the US label.

Another key event that occurred during the quarter was positive Phase III results in chronic lymphocytic leukemia for GA101, a humanized anti-CD20 antibody designed to improve upon RITUXAN's efficacy.

Combined with chemotherapy, GA101 was significantly superior to RITUXAN in CLL.

While we usually don't discuss GA101 because our partner, Roche, is operationalizing the program, moving this molecule forward is an important part of a longer term strategy to extend our anti-CD20 franchise.

Roche will present additional data at ASH and expects an FDA approval decision for CLL by the end of 2013.

Turning to the earlier stage product candidates, our R&D strategy has been to improve the mid-stage pipeline in both quality and number.

We've invested in programs that we believe have both strong technical rational and the potential to provide meaningful clinical improvement in patients with serious unmet medical needs.

Our objective has been to design robust proof of concept studies to enable well-informed decisions about future larger scale development efforts.

During the last several years, we've been executing on this plan, and our mid-stage pipeline is now at a point where a number of our clinical studies are nearing maturity.

As a result, we expect 2014 to be a data-rich period for Biogen Idec as we anticipate up to six proof of concept readouts for anti-LINGO in optic neuritis, STX-100 in IPF, Neublastin in neuropathic pain and BIIB037 in Alzheimer's disease, as well as for our partnered programs, Isis, SMN-Rx in SMA and anti-CD40 Ligand in lupus.

With each of these clinical study results, we expect to gain a deeper understanding of the potential of each of these candidates and hopefully take a step closer to bringing new therapies to patients in need.

We also took steps during the quarter to add capabilities to our discovery research platform in neurology by entering into research collaborations with Isis Pharmaceuticals and Amicus Therapeutics.

As part of our research collaboration with Isis, we gained exclusive rights to use Isis' antisense technology to develop therapies for a broad range of neurological targets.

Targets discovered in this collaboration can be developed by Biogen Idec as biologic, small molecule or antisense drugs.

The agreement also provides Biogen Idec with the option to license ongoing antisense development programs against neurologic targets.

Our collaboration with Amicus will leverage their research platform and expertise and focus on discovering and developing small molecule drugs for the treatment of Parkinson's disease.

We believe Amicus has unique approaches to developing drugs to reduce alpha-synuclein accumulation, a hallmark of Parkinson's disease pathology.

In summary, significant progress is being made in the late stage pipeline and just as important, the Phase I and Phase II portion of our pipeline is maturing nicely as well.

Overall we believe that 2014 will be a data-rich year for our pipeline, followed by a steady stream of important readouts for all of the late stage programs.

Daclizumab and relapsing remitting MS in mid-2014, TYSABRI and SPMS in 2015, in addition to pivotal GA101 readouts in non-Hodgkin's lymphoma.

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

I'll now pass the call to Paul.

Thanks, Doug.

Our GAAP diluted earnings per share were $2.05 in the third quarter while our non-GAAP diluted earnings per share were $2.35.

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

Total revenue for the third quarter grew 32% to $1.8 billion.

AVONEX worldwide sales were $733 million in the third quarter, compared to $736 million in prior year.

In the US, AVONEX revenue declined 1% to $457 million.

Internationally, AVONEX revenue increased 1% to $277 million.

Foreign exchange and hedging weakened AVONEX revenue by approximately $5 million in the quarter, compared to a gain of $9 million in Q3 of 2012.

TYSABRI worldwide revenues net of hedging were $401 million in the third quarter, comprised of $232 million in the US and $169 million internationally.

Third-quarter TYSABRI revenues were unfavorably impacted by $13 million of deferred revenue in our Italian affiliate.

The impact of foreign exchange in hedging for the third quarter softened the revenue by approximately $2 million for TYSABRI compared to a gain of $3 million in the prior year.

Global third quarter TECFIDERA revenue was strong at $286 million.

US TECFIDERA revenue include incremental inventory build of approximately $12 million this quarter.

Absent this inventory build, revenue generated from underlying patient demand in the US was approximately $272 million.

As of the end of Q3, we estimate US inventory in the channel for TECFIDERA was in the 4 to 5 week range, or approximately $92 million.

Third-quarter international TECFIDERA revenue, entirely from Canada, was $2 million.

US RITUXAN sales were $947 million.

Our US profit share was $282 million.

Royalties and profit share on sales of rituximab outside the US were $21 million.

The result was $303 million of revenue from unconsolidated joint business.

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

Third-quarter non-GAAP cost of goods sold were $235 million, or 13% of revenue, which includes TYSABRI contingent payments and third-party royalties.

Third-quarter non-GAAP R&D expense was $409 million, or 22% of revenues, an increase of 38% over last year, primarily driven by our recently announced research collaboration with Isis.

Specifically, we made an upfront payment of $100 million, of which approximately $75 million was expensed in the quarter.

The remaining portion will be capitalized and expensed over the life of the collaboration.

Third-quarter non-GAAP SG&A expense was $404 million, or 22% of revenues, an increase of 36% over last year driven primarily by increased investment associated with the TECFIDERA launch.

Our third-quarter non-GAAP tax rate was 27%, driven by a larger percentage of our revenues coming from within the United States due to the strong TECFIDERA launch.

During the quarter, we repurchased 1.7 million shares for a total of approximately $360 million.

Our weighted average diluted shares were 238 million.

And we ended the quarter slightly north of $1 billion in cash and marketable securities.

This brings us to our non-GAAP diluted earnings per share which were $2.35 for the third quarter.

Now, we'll turn to the full-year 2013 guidance.

We're raising our guidance a result of the strength seen with the TECFIDERA launch.

We now expect total revenue growth of approximately 23% to 25%.

For TYSABRI, we hope to record a revenue benefit of approximately $95 million by the end of the year, related to the pending settlement with the Italian National Medicines Agency.

But this may not happen.

The timing of the final approval remains a bit uncertain and could move to early 2014, which would put our 2013 revenue growth at the lower end of the guidance.

Additionally, we'll continue to defer a portion of our Italian revenue until this settlement is finalized.

Moving to the expense lines of the P&L.

We anticipate cost of goods sold to be between 12% and 14% of sales.

R&D expense remains unchanged, we expect to be between 21% and 23% of sales.

This includes approximately $60 million earmarked for milestone payments and potential business development opportunities in the fourth quarter.

SG&A expense remains unchanged,.

expected to be approximately 24% to 26% of total revenues, as we continue to fund TECFIDERA's launch and make pre launch investments in hemophilia.

Our effective 2013 tax rate expect to be between 24% and 25% of pretax income, a modest increase over our prior guidance, driven by a larger percentage of our pretax income being generated in the US.

As a result, we anticipate non-GAAP earnings per share results between $8.65 and $8.85, and GAAP EPS to be between $7.50 and $7.70.

The range reflects the uncertainty around the timing of the finalization of the AIFA settlement.

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

Okay, thank you, Paul.

And look Biogen Idec is doing well and we believe the prospects for next year look even brighter.

Our quarterly performance was strong and we've raised guidance for the year.

We believe we're the global leader in MS today with a growing market share and with potential leaders in the three market segments, AVONEX and potentially PLEGRIDY in the injectable segment, TYSABRI in the [high] efficacy segment and now TECFIDERA in the oral segment.

We recognize that patients and physicians are seeking treatment options that provide flexibility and we believe that we have the portfolio to appropriately address the diverse needs of this population.

TECFIDERA continues on a strong trajectory and we believe that its broad adoption in the US is a testament to its value to the MS patient community.

Our launch efforts continue as we look forward to building on this quarter's achievements to serve even more patients.

We have two large regulatory issues under way.

TECFIDERA regulatory data protection in Europe and the process validation of ELOCTATE in the US.

We understand the importance of these issues and are working diligently to resolve them.

As you know, we're moving closer to a resolution of European regulatory data protection.

The ELOCTATE process questions have just recently arisen and we'll update you as soon as it's appropriate to do so.

These types of issues are part of our business and we're working through them.

Over the years, our commitment to reinvigorating the science has been the driving force behind our pipeline programs.

We're encouraged by the quality of our pipeline but recognize that continued efforts to identify early stage candidates are necessary to ensure our continued momentum.

We're determined to be at the forefront of science and medicine which we believe is critical to enable us to sustain and grow value in years to come.

As we look at the number of development milestones that we have achieved this year, and those that we expect next year, it's evident that momentum is growing throughout the Company.

We're very proud of our accomplishments but know that continued success requires sustained execution on the part of our organization.

We believe we're on a trajectory for continued growth with the potential for three additional products in 2014.

This type of growth requires a broad coordinated effort especially for an organization of our size.

Our team is diligently working to ensure that we have the resources required to make each launch a success, while maintaining our momentum in other areas of our business.

In closing, I'd like to take this opportunity to once again thank our dedicated employees for their contributions to bringing meaningful new therapies to patients in need, and to physicians and patients who are always central to what we do.

Thanks to all of you for joining us this morning and we'll now open up the call for questions.

(Operator Instructions)

Mark Schoenebaum, ISI Group.

My question, I wanted to drill down on the Factor VIII issue that you disclosed.

I don't know if there's -- basically it's an open ended question, is there anything else you can tell us?

And specifically is the commercial product exactly the same as the Phase III product?

Is it the same cell line, the same process, or were there any changes made between the Phase III production and the commercial production?

And then if I just may, as a housekeeping, is it possible to give us maybe, Paul, I'm not sure if this is perfect for, but TECFIDERA US patient share according to your data?

Okay, good job of getting two questions in there in one.

Look, on the first issue, there weren't any changes between the Phase III and the commercial product.

But other than that, we really can't go into any more details.

This is all new.

It's premature and we're working through it.

On the market share, I'll let Paul take that.

Yes, Mark, I think what we said during the call was that we feel that during the quarter we were the leading oral, so we surpassed market share of the other oral during the quarter.

And that puts us probably into double-digit range, into the -- just over the bar in the 10% from a share perspective towards the end of the quarter in the United States.

So very good launch obviously.

We're very pleased with that trajectory coming out of the gates.

Thanks a lot.

Eric Schmidt, Cowen & Company.

Thanks for taking my question and congrats on the continued success with TECFIDERA.

I won't ask for an update on the EU but maybe I could ask for a postdate.

Could you clarify, George, whether previously the CHMP has reviewed NES status for TECFIDERA and actually turned down the molecule or could you just say that you've not been informed one way or another?

I think, Eric, at this point we're not going to say any more at all.

These processes are complicated and they go back and forth and so better to just leave it as it is, I think.

And we are getting closer to a decision and leave it at that.

Okay, thanks.

Geoffrey Porges, Alliance Bernstein.

Thanks very much, and also say congratulations on the TECFIDERA trajectory there.

Quick question on MS. So could you tell us what's been the overall expansion in the size of the MS market, if you look at the treated patient numbers, say for the most recent quarter compared to a year ago?

And then just on a related note, could you comment on the trajectory of the new patient starts through the quarter?

Because we're seeing TRX numbers that are blends obviously and it'd be helpful if you could tell us the actual main patient trajectory.

Thanks.

Thanks, Geoff, it's, Tony.

So I think as we talked in the prior calls, we've seen the switch market in the US moving at a rate that's much higher than it has been historically.

Again, the numbers we quoted, when the market had steady state when you take switchers, returning quitters, people going out, new starts, it tends to run at about 1,000 to 1,200 available patients per week.

And as we pointed out, even TECFIDERA alone has been running at some multiple of that.

We do expect to see that come down over time.

We have, as always, at best anecdotal evidence about returning quitters.

It's hard to identify that population.

We do think some of the TECFIDERA volume is people who had come back into the market, but we've always been cautious about overstating that.

We think it's more just the underlying switch dynamic that has increased pretty significantly.

Thanks very much.

Ravi Mehrotra, Credit Suisse.

Thanks for taking my two part question which is completely unrelated to each other.

TECFIDERA, could you give us some input into the real world what a doctor do with regards to lymphocyte monitoring and CBCs?

Are they doing that monitoring more than the label annually, they would have to be, right?

And secondly, Paul, the share buyback that you put in this quarter, 360 million, 1.7, can we extrapolate anything from that?

Ravi, it's Doug.

With respect to lymphocyte monitoring, I think that there's probably a little bit going on out there that we hear with docs monitoring lymphocytes maybe a little more frequently than what the label suggests.

I think that's not unexpected with a new product as the doctors are becoming familiar with it.

But it's our position based on the data from the Phase III studies and now from the ENDORSE Extension study that has data for 6.5 years, that the labeling is appropriate for monitoring these patients with respect to lymphocytes and white cells.

And then, Ravi, this is Paul.

The share buyback this quarter was intended for share stabilization impact.

So that's an ongoing what we do on an annual basis to stabilize shares.

We certainly as we go forward high-class problem in terms of the cash flow generation that we have and we'll continue to look to be very good stewards of shareholder value in the deployment of capital.

Rachel McMinn, Bank of America.

On the tax rate, Paul, I'm curious if you can give us a better sense.

It looks like your guidance is implying somewhere in the high 20%s or maybe even 30% in the fourth quarter.

How should we think about tax for 2014 with and without European TECFIDERA?

And then second part, on persistency trends can you talk a little bit more, Tony, about what you're seeing with discontinuations for GI intolerability overall?

Thanks.

Yes, Rachel, this is Paul.

So the tax guidance was, as you note correctly, that's cutting tax guidance for a full year.

For the fourth quarter, our tax guidance, while it's not stated here, I'll give you the number that we're thinking through at this point, is right around 26% for the fourth quarter.

So to try to clarify that.

It's just the result of TECFIDERA profits in the United States being very strong and robust.

As we move into the next year, I think we'll have to get past and get clarity on the product mix as we go into next year and we'll update you probably at the end of year call.

Yes, Rachel, it's Tony.

So we're still seeing a big -- look, I talk to a lot of physicians, they're seeing a big mix in their experience with tolerability issues.

There's some physicians who see a subset -- usually a small subset of patients who have more extended GI issues.

There are other physicians who don't see, in my conversation, much of an issue at all.

We think the market is working through it.

From a persistent standpoint, I think we'll -- we still think it's a little early to give very specific guidance on how we think discontinuation rates are going to settle out because we're still early in the launch and we've had a lot of patients go on pretty quickly, but we're not seeing anything that's outside our expectation.

Matt Roden, UBS.

Great, thanks very much and nice quarter, guys.

I actually have a pipeline question here, Doug, or Al, if you're on.

The 14 month follow-up data on SMA showed a mean improvement on the Hammersmith I think 5 3/4 points in the high dose group with no patients declining.

Wondering in the absence of a placebo arm, can you add some perspective as to how that should be interpreted?

We understand that normal development and growth maybe even a learning curve can drive the Hammersmith score higher.

Wondering if the magnitude of the change in the high dose groups leads you to conclude anything here ahead of having any placebo controlled data?

Thanks.

Hi, Matt, it's, Al Sandrock.

I agree with you that without well-controlled trial it's always a little difficult to make any strong interpretation.

It is -- it's gratifying to see the improvement and you mentioned the average improvement, some patients are improving more than that, some are less.

And so I think in the absence of a well-controlled trial, I think it's premature to make any strong conclusions.

Okay.

Thank you.

Geoff Meacham, JPMorgan.

Congrats on the quarter, guys, thanks for taking the question.

Got a couple on TYSABRI.

Can you guys talk about switches to TECFIDERA?

I know last quarter you gave a good amount of detail on that.

And then with the competition from orals in the EU there really isn't a lot of new data so what's the commercial strategy for you guys to protect share going forward?

Great question, it's Tony.

So, look, let me separate US and the EU.

In the US, there's a new alternative in the market which is TECFIDERA, which we knows has caused some -- attracted attention from lots of patients.

In light of that, we think that TYSABRI -- we believe TYSABRI -- actually new prescription volume is holding up quite well.

It speaks to the fact that that is a product with higher efficacy that tends to have a subset of patients that makes sense.

The impact in the US has largely been on the discontinuation side.

Again, there's a new alternative and for patients who are post years JCV positive we've seen a meaningful portion move over.

I think EU is a similar situation, certainly on the discons is we're seeing more of the challenge and it's frankly been the other orals pretty aggressively competing against that.

So look, it's an execution issue for us, I think in both cases because we know what TYSABRI's value proposition to patients and physicians is.

We know what the value of risk stratification is.

So it's very much focused on messaging presence in the physician office and focused on patient identification, and we think that will help us work through that.

Yaron Werber, Citi.

If you don't mind, I want to clarify something and then actually have a question.

So to clarify what -- George, you mentioned that with ELOCTATE, I think the words you used, and maybe I'm incorrect, but was the words you used that there might be an extension to the review?

I'm trying to get a sense, are you thinking a 90-day extension or whether you're thinking a refiling?

And then secondly, that's the real question, can you guys maybe share with us your thoughts how does MMF differ from DMF in the body clinically?

Thank you.

Okay, Yaron, look, for the first question we're not thinking about a refiling.

We're thinking about a delay.

And it's really premature to speculate on the --

And this is Doug.

With respect to the difference between DMF and MMF, we had an abstract at the recent ECTRIMS meeting talking about some preclinical work that we've done, looking at gene transcription changes that take place with systemic administration of those two different fumarates.

And I think what's clear from that set of experiments is that all fumarates are not created equal with respect to their biology.

And we saw different patterns of gene expression and it's clear that MMF and DMF elicit different biological responses.

Terence Flynn, Goldman Sachs.

Maybe one more on hemophilia.

Was wondering number one, if you could tell us where the manufacturing is done, if that's in-house?

And then how similar are the steps between your Factor VIII and your Factor IX, wondering why there was only a delay for one of them?

Thanks.

The first question, do we do the manufacturing in-house, yes, we do.

And the discussions we've had that led to these questions with the agency are centered on Factor VIII.

And that's the update that we provided today.

I just want to emphasize, we're not talking about jeopardy to approval here, we're talking about time lines.

Michael Yee, RBC Capital Markets.

A question on -- a follow up on hemophilia.

We continue to talk to a lot of doctors and I know a lot of people continue to do a lot of survey work as well.

It's pretty consistent with a very bullish outlook.

Maybe you could comment about how you would expect this to launch, what is your work set now versus, say, a year ago?

The counter argument has always been a conservative launch with switching just comfortable safety.

Maybe you could compare, contrast the bullish outlook versus conservative doctor outlook.

Thanks, Michael, it's Tony.

Look, I'm not surprised to hear that there's interest in the surveys that you do out in the market.

Again, long-acting factors is the biggest unmet need in this market.

You get that from -- we've known that for a long time, you get that from physicians.

You get that from patients.

So look, we think there's interest in the class of long-acting factors and so we think there's a product profile, has the potential to do very well.

We still are moderate in our expectations about pace.

Again, this is a market that has very slow switch rates.

It's very patient-driven.

There's a lot of conservatism among patients.

There's reasonable amount of conservatism among physicians and actually the frequency with which patients go to the hemophilia treatment center, certainly if you compared to something like MS is less frequent.

So excited about the product profile and the potential and not surprised to hear there's some market excitement.

But we do think this is a market that has a lot of characteristics that make it move a little more slowly and it's a patient commercial approach and education approach that we think is going to be needed.

Robyn Karnauskas, Deutsche Bank.

So now that you've seen the impact to the orals in the MS market and you see the switchers from TYSABRI who are JCV positive, do you have any updated thoughts on the positioning of daclizumab now that you're a year away from data?

Thanks.

Yes, thanks, Robyn, it's Tony.

We've said we have to wait and see the data.

It looks like it could be something that fits into the high efficacy space with some potentially some attractive characteristics.

So I think certainly it looks like a product that would have a place in the market as we've often said, there are lots of different patient segments with different needs, so we'll have to wait and see how the readout looks.

Joel Sendek, Stifel.

On TECFIDERA I think I heard you say you expect discounts are likely to increase.

Wondering if you could give us some more detail potentially on that?

And then as far as the inventory on TECFIDERA, you mentioned four to five weeks.

I'm wondering if there's a possibility for that to go up or down, I guess I'm comparing it to the AVONEX two weeks, is four to five weeks a lot relative to the trajectory that TECFIDERA's on?

Thanks.

Yes, Joel, this is Paul, thanks for the question.

Let me start with TEC.

So let me start with the inventory first, then move it to Tony on the TEC question.

Four to five weeks is actually the total inventory that encapsulates both the wholesalers as well as the SPPs.

So that's what we're actually looking at now.

It's pretty common to have two weeks at the wholesalers for the MS products and about two or three weeks at the retail we have in the SPP basis.

So I think -- we think that that actually will probably -- is where the steady state is.

And that implies, very much what happened in the third quarter, that somewhat implies that our reported results will probably pretty closely mirror the results in the patient demand.

Yes, Joel, Tony.

On discounts, look, what I think we've said on TECFIDERA, over time we expect that gross to net characteristics to be similar to the other MS products with the main difference from, say, AVONEX being the government discounts would be lower so you'd have some favorability there.

During the launch period, we're not contracted in the early days with commercial payers so you're not paying rebates which is a piece of that mix.

Just a signal that as we finalize a number of those contracts through the end of this year and into early next year, we'll start to see some impact from payer discounts.

But again, broad strokes, we think this will be characteristic of other products in the market with some places it may be more favorable.

Ritu Baral, Canaccord.

I guess in the next 18 to 24 months you've got some interesting potential trade offs between different products in MS and I was wondering how you look at AVONEX versus PLEGRIDY and the strategy there for preserving the interferon franchise?

And also your preliminary thoughts on the ORCHESTRA data that is potentially coming in 2015 from GA101 in MS.

Ritu, it's Tony, let me talk about the interferon franchise.

Look, we do think about interferons as a franchise for us over time.

So, look, job one is to continue to emphasize the benefits of the AVONEX PEN and gain share in that injectable segment even as it decreases.

We think PLEGRIDY plays right into the theory of convenience matters because that's a potential significant differentiator.

So we will think about -- as PLEGRIDY comes in, it's a natural extension to that franchise over time.

And I then Ritu, I think I'm going to turn it over to Al.

But I think what you're referring to is the ocrelizumab data in multiple sclerosis on the OPERA trial.

Yes, I'm sorry, OPERA trial, yes.

No problem.

We're getting our symphonies a little mixed up.

But, Al, do you have a point of view?

Yes, I think actually there is an Orchestra trial as well, but they're both ocrelizumab.

(laughter) Ocrelizumab has very exciting Phase II data, and the Extension studies that have been presented at various meetings continue to show sustained effects, long-term effects with dosing at very infrequent intervals.

It's probably going to join the high efficacy segment.

It depletes a class of cells, as does some of the other high efficacy drugs.

I think the distinguishing feature of daclizumab is that potentially it could have high efficacy without depleting cells.

And it would join TYSABRI as the other high efficacy drug that doesn't deplete lymphocytes.

But I think it's an exciting, I think ocrelizumab is an exciting drug and the Phase II data were meaningful.

Gene Mack, Brean Capital.

Wonder if you can comment a little bit on TYSABRI.

Are you guys -- can you give us a sense of what level, if any, off label use is happening right now in secondary progressive?

Thanks.

Well TYSABRI's labeled for relapsing forms of MS in the United States.

And patients with secondary progressive MS who still have relapses are eligible per label.

And I suspect that there are people who have entered SPMS but who are still relapsing, who are on label getting TYSABRI.

The issue of when somebody goes from relapsing to non-relapsing, you only know that in retrospect usually because the relapse frequency decreases kind of gradually.

Brian Abrahams, Wells Fargo Securities.

Hi, thanks for taking my question and my congrats on the quarter as well.

Question for -- I guess for Doug and Al.

Among the interesting data you guys presented at ECTRIMS, there was some additional results for the LINGO program.

I was wondering if you could talk us through some of your learnings from both the PK and imaging components of the Phase I study, how it framed your dose selection, the design of the ongoing studies?

And then how this shapes what we might be thinking about looking for in the upcoming readouts for the two ongoing studies?

Thanks.

Well there were -- the main additional piece of information that we presented at ECTRIMS was the effect of anti-LINGO on axonal regrowth after optic nerve crush.

And we had been talking a lot about the biology of anti-LINGO in terms of remyelination.

But this is additional information.

But in both -- in a sense, it's a good drug for repairing because as you know in MS you have axons that are transected as well as the loss of myelin.

The dosing has been informed -- in the Phase I trial, we looked at CSF levels of anti-LINGO.

We looked at some other biomarkers in CSF and we know based on our animal studies when you achieve certain CSF levels of anti-LINGO, you've achieved certain levels of anti-LINGO in the brain parenchyma.

And so that's how we based our dosing.

Marko Kozul, Leerink Swann.

Hi, congrats on the quarter.

A quick clarification.

In the prepared remarks I believe you said over 50% of patients have access to TECFIDERA.

Does this mean that these patients are receiving commercial reimbursement?

And then my question is do you have any color on reimbursement tiering for the drug and any potential impact it has on how the drug is used?

Thanks.

So I think what we said is over 50% of the patients have access without a step edit.

So, yes, we would expect a lot of those patients would transition to commercial drug relatively quickly.

That's a good point at this stage in the launch.

Over time, we're continuing to negotiate with payers.

Probably a little early to call what we think the outcome will be from a reimbursement standpoint, but we think we're on a track to get broad coverage.

Thomas Wei, Jefferies.

A clarification and then a question.

On Rachel's question about persistency, could you clarify, should we interpret your answer to mean that discontinuation rates are relatively consistent with the TECFIDERA clinical trial data?

And then on the 1,000 to 1,200 steady state rate in the MS market, could you just give us a sense of what your data tells you that number was during the third quarter on a weekly basis?

Yes, so on persistency, I don't think I specifically compared it to the clinical trial.

Again, we think it's a little early to give very tight guidance on discontinuations.

There are a lot of patients starting quickly and still working through and I think we said before we'd go through the end of the year to get a good handle on that.

The 1,000 to 1200 is I think round numbers what we have typically seen historically.

You can look at the -- even the TECFIDERA, if you can extrapolate on the TECFIDERA volume on its own in the third quarter was probably equal to that or even north of that.

So the whole market is continuing to move at a faster rate.

But we've said, we think that will come down and is working its way down over time.

John Newman, JMP Securities.

My question is regarding how we should be thinking about TECFIDERA in Europe going forward.

I mean, should we be thinking about different scenarios under which TECFIDERA would be launched or should we be thinking that there may be scenarios that may be unattractive to you in terms of launching the product?

Thanks.

Look, our goal and our intent is to launch both IP protection and regulatory data protection.

We're working towards that goal.

We'll learn more about that not too distant -- in the not too distant future and we'll make our decisions at that point.

There are no further questions in queue at this time.

This concludes today's conference call.

You may now disconnect.