Biogen Inc (BIIB) 2014 Q1 法說會逐字稿

Good morning.

At this time I would like to welcome everyone to the Biogen Idec's first quarter 2014 earnings call.

(Operator instructions)

Claudine Prowse, VP Investor Relations, you may begin your conference.

Thank you and welcome to Biogen Idec's first quarter 2014 earnings 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 will discuss today.

Our GAAP financials are provided in tables 1 and 2.

Table 3 includes the 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 we will be making forward-looking statements which are based on our current expectations and beliefs.

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

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

On today's call, I am 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.

Now I will turn the call over to George.

Thanks Claudine and good morning everyone, thanks for joining us today.

Biogen Idec had an excellent start to 2014 with successful milestone accomplishments and solid financial performance.

We secured approval for TECFIDERA in the EU, we launched in Germany, some other countries.

ALPROLIX was approved for Hemophilia B in the US and Canada.

We continue to move two our late-stage pipeline candidates, ELOCTATE for Hemophilia A, and PLEGRIDY for MS, through the registration processes toward anticipated approvals this year.

We strengthened our pipeline through collaborations with Eisai and Sangamo, in areas that fit within our strategic therapeutic focus.

And our first quarter financial performance reflected 51% growth in revenues and 25% growth in non-GAAP EPS year over year.

So this month marks the one-year anniversary of the US introduction of TECFIDERA.

Its introduction has dramatically shifted the US market for MS therapies.

We have seen the expansion of the MS market, and within that, TECFIDERA is the number one oral MS therapy in the US, achieving over $1 billion in revenue during the first year of launch.

We launched TECFIDERA in initial European countries beginning in February, and already there appears to be broad interest among physicians and patients.

Based on the continued strong demand in the US, and the encouraging early signs in the EU, we believe that TECFIDERA's attractive product profile positions it well for the long run.

The approval and anticipated launch of ALPROLIX marks an important milestone for our Company as we expand into the hemophilia mark.

ALPROLIX is the first Hemophilia B therapy to reduce bleeding episodes, with prophylactic infusions at least a week apart.

We believe this therapy has the potential to change the standard of care in hemophilia and significantly improve patients' lives.

As we have done for so many years in multiple sclerosis, our goal is to bring a diligent patient-centric approach to addressing the hemophilia community.

Our keen focus on patients permeates everything we do from our direct interactions with patients, to our assistance programs, to our continuing R&D efforts.

We remain focused on making decisions that are right for patients.

Last month, the FDA expended the PDUFA date of PLEGRIDY, our subcutaneous Peginterferon Beta-1a candidate for relapsing forms of MS, to allow additional time for review of the application.

While obviously not the news we were hoping to hear, a three-month PDUFA extension is not uncommon, particularly for applications involving MS therapies.

We look forward to the potential launch of PLEGRIDY in the second half of the year.

We have continued to make strides to expand our global presence beyond Europe and the US.

In Japan, we obtained marketing approval for TYSABRI and have filed a marketing application for ELOCTATE.

Japan is the second largest pharmaceutical market in the world with attractive dynamics, and it is an important long-term priority for the Company.

So in summary I think we are off to a great start for 2014, and I will turn the call over to Doug.

Thanks George.

We are excited about the approval of ALPROLIX.

ALPROLIX is a recombinant DNA-derived long-acting coagulation Factor IX concentrate, indicated in the US for both adults and children with Hemophilia B.

In the US, ALPROLIX is indicated for the control and prevention of bleeding episodes, perioperative management, and routine prophylaxis for prevent or reduce the frequency of bleeding episodes.

Starting dosing regimens for prophylaxis are 50 international units per kilogram once weekly, or 100 IUs per kilogram once every ten days.

Dosing can be adjusted based on individual response.

The safety and tolerability information, including in the US label, is consistent with data from the Phase 3 studies.

The most common adverse reaction observed were headache, and oral paresthesia.

In summary, we are pleased to have obtained what we believe is an attractive and differentiating product label for ALPROLIX.

Earlier this month, we, along with our partner Sobi, announced topline results from the ELOCTATE Kids A-LONG Phase 3 study in pediatric patients with Hemophilia A. These data demonstrated that twice-weekly prophylactic dosing with ELOCTATE maintained low bleeding rates in children.

We believe these results support the potential for ELOCTATE to address a significant need for children with Hemophilia A, by providing prolonged intervals between scheduled prophylactic confusions to protect against bleeding episodes.

The tolerability, safety, and relative half-life, were consistent with those observed in previous clinical studies, and no inhibitors were detected.

These data support applications for pediatric indications globally, and are a necessary step to obtaining marketing authorization in Europe.

The ALPROLIX Kids B-LONG study remains ongoing, with data expected in the first half of 2015.

Transitioning to our neurology programs, we continue to generate new data to support our products and better understand our pipeline candidates.

At next week's American Academy of Neurology meeting, we will be presenting important new data for several of our programs.

Specifically, we will present TECFIDERA data that demonstrates strong efficacy in various patient sub groups, including those with more active disease.

Results from the TECFIDERA managed study show that GI symptoms experienced by some patients are often transient in nature.

For PLEGRIDY, we will present post-hoc analysis from year one of the advanced study, demonstrating a higher proportion of patients taking PLEGRIDY achieve freedom from measured disease activity.

We will also present final two-year data providing further support for this product candidate's efficacy and safety profile.

Finally, new TYSABRI data demonstrate its efficacy benefits in patients switching to TYSABRI versus maintaining the use of alternative therapies.

This quarter we also completed a number of transactions that provide Biogen Idec with access to promising new clinical candidates.

Our collaboration with Sangamo biosciences is focused on an innovative gene editing technology, with the potential to treat sickle cell disease and beta thalassemia.

Our agreement with Eisai expands our efforts to disease-modifying therapies for Alzheimer's disease.

In resent years, meaningful advances have increased our understanding in both trial design and target selection for Alzheimer's disease.

The optimal therapeutic approach for AD remains uncertain, and we believe it is prudent to evaluate multiple therapeutic methods for treating the disease.

With the Eisai transaction we have gained access to two mid-stage clinical candidates for AD, a small molecule base-1 inhibitor, and a monoclonal antibody-targeting beta-amyloid.

Combined with BIIB037 and our anti-tau program in pre-clinical testing, we now have four potential Alzheimer's disease candidates with three different mechanisms.

Looking forward, we also anticipate data from several clinical studies, including the Phase 3 Daclizumab HYP DECIDE study and relapsing MS patients.

Rather than a placebo-controlled study design, the DECIDE study sets a higher standard with a compelling two- to three-year head-to-head design, versus interferon Beta treatment.

Primary endpoint is the reduction in annualized relapse rate.

We remain on track for obtaining the DECIDE data around the middle of this year.

I will now pass the call over to Tony.

Thanks Doug.

During the quarter we continue to grow total MS patient share across our franchise.

Starting with TECFIDERA, performance in the US remains strong, and the global introduction is underway.

After one year on the market, over 65,000 patients have been treated with TECFIDERA globally.

In the US, we continue to be pleased with how broadly neurologists have adopted TECFIDERA.

As of Q1, approximately 7,000 physicians have written TECFIDERA in the US.

And we are also encouraged by deeper usage among writers, as approximately 75% of all TECFIDERA prescribers, have written multiple prescriptions.

According to our market research, TECFIDERA is the leading therapy for newly-diagnosed MS patients.

One year into the US launch, we believe TECFIDERA is continuing to stimulate higher switch rates.

While we anticipate the patient start and switch dynamics in the US market to remain strong, we continue to believe that the overall market growth rate will moderate toward historical levels during 2014.

Outside of the US, we believe TECFIDERA is also performing well in other launch markets.

In both Canada and Australia, our market research suggests the TECFIDERA uptake has outpaced the other orals on the market, when comparing the initial months of launch.

And in Germany, we are encouraged by the early signs.

In addition to driving strong execution on promotion and education, we are actively engaging with reimbursement authorities across multiple markets.

Australia gained full reimbursement in December, and we expect to gain government reimbursement in Canada later this year.

In Europe, we have secured full reimbursement in Norway and Scotland.

Our local market access teams are executing well, and we continue to expect a series of reimbursement decisions across European markets in the latter half of the year.

AVONEX continued to perform well globally in the first quarter.

In the US, as the injectable class continues to decline, the demand for AVONEX is softening as we anticipated.

But within the injectable class, we believe AVONEX is emerging as the interferon of choice.

Outside the US, we are maintaining strong AVONEX promotional efforts in advance of anticipated TECFIDERA launches, and we remain committed to maintaining strong relative position for AVONEX among the platform therapies, as that segment of the market declines.

We continue to believe that convenience remains the key differentiator for this segment.

Moving on to TYSABRI.

In the US, demand for TYSABRI remains solid, as physicians continue to choose this therapy for patients requiring higher efficacy treatment.

We are also encouraged by a recent uptick in patient retention rates.

Importantly, in patients who have discontinued TYSABRI, approximately 70% have stayed within our franchise during the first quarter.

In Europe, we believe that as TECFIDERA is launched across individual markets, TYSABRI may experience similar dynamics that we saw in the US.

Overall, we continue to believe in TYSABRI as a leader in the high efficacy segment.

Now, turning to our new hemophilia business.

We are currently in launch mode for ALPROLIX in the US, and anticipate having patients on commercial therapy starting in early May.

Based on NHF guidelines, traditional Hemophilia B therapy requires prophylactic infusions two or more times a week.

Given the clarity of our label, we believe our value is very clear for the majority of patients.

50 international units per kilogram will cover a patient for a week, or 100 IUs per kilogram, starting every ten days, and adjusting the dosing based on individual response.

Our market research suggests that reducing infusion frequency is the largest unmet need for this community, and we expect ALPROLIX will directly address this burden.

With the approval of ALPROLIX in the US, we are focused on two immediate objectives.

First, to initiate comprehensive education to physicians, payers and advocacy groups.

And second, to facilitate access to patients starting on ALPROLIX.

Our commercial team is actively establishing contracts with specialty pharmacies, finalizing the supply chain, and establishing the financial and patient support programs, which we believe will enable a smooth launch.

We believe that patients and physicians are anticipating the entry of long-acting therapies to the market, and we are excited to be first.

Our commitment is to transform the care of people with hemophilia, and facilitate expanded use of prophylactic treatment.

A successful launch will require extensive promotional and educational efforts, and our commercial organization is executing on this strategy.

Our goal is to become market leaders in the mid- to long-term, and we believe in the product and our ability to execute.

Overall, I am very pleased with the performance of the commercial organization across an expanding portfolio of therapies.

We are demonstrating strong execution and good results.

I will now pass the call to Paul.

Thanks Tony.

Our GAAP diluted earnings per share were $2.02 in the first quarter, and our non-GAAP diluted earnings per share were $2.47.

Before I walk through the P&L, there are a number of items to remember with respect to the year-over-year comparisons.

These include the TYSABRI asset purchase, which impacted revenue in cogs, the RITUXAN arbitration charge in Q1 of last year, and an unusually low effective tax rate from Q1 2013.

Also this quarter, our results were impacted by $118 million R&D expense, related to our Eisai transaction, as Doug reviewed.

This agreement impacted EPS in the quarter by approximately $0.35.

Now, walking down the P & L, I will start with revenues.

Total revenue for the first quarter grew to approximately $2.1 billion dollars.

First quarter AVONEX worldwide revenue was $761 million.

In the US, Q1 AVONEX revenue decreased 3% to $476 million, and outside the US, Q1 AVONEX revenue was $285 million.

TYSABRI worldwide revenue, net of hedging, was $441 million in the first quarter.

These results were comprised of $234 million in the US, and $207 million internationally.

Global TECFIDERA revenue was $506 million in Q1.

US TECFIDERA was $460 million.

We ended the quarter with approximately five weeks of inventory in the channel, which includes specialty pharmacies and wholesalers.

We estimate that US TECFIDERA revenue includes an incremental inventory build of approximately $45 million versus the end of last year.

International TECFIDERA revenue was $46 million in the first quarter, with Germany being the primary contributor.

We estimate approximately $10 million to $15 million of Germany sales in Q1 were related to inventory build.

Turning to our Anti-CD20 franchise.

RITUXAN and GAZYVA US profit share was $275 million for Q1.

Royalties and profit shares in sales of RITUXAN outside the US were $22 million.

The result was $297 million of net revenue from unconsolidated joint business.

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

Q1 non-GAAP cost of goods sold were $279 million, or 13% of revenue.

The increase, year over year, was primarily driven by TYSABRI contingent payments and royalties.

Q1 non-GAAP R&D expense was $527 million, or 25% of revenue.

The increase, year over year, was primarily driven by our recently announced agreement with Eisai, where we recorded a $118 million R&D charge.

This amount consisted of a $100 million upfront payment, and $18 million reflecting the value of options for certain programs and geographic rights.

Q1 non-GAAP SG&A expense was $509 million, or 24% of revenue.

We continue to make significant investments associated with TECFIDERA in the upcoming hemophilia launches.

Our Q1 non-GAAP tax rate was approximately 27%.

Weighted average diluted shares were 238 million, and we ended the quarter with almost $2 billion in cash and marketable securities, of which approximately 70% is within the United States.

This brings us to our non-GAAP diluted earnings per share, which were $2.47 for the quarter, an increase of 25%.

Now turning to our updated full year 2014 guidance.

We now expect total revenue growth between 26% and 28%, an increase from prior guidance owing to AVONEX and TYSABRI buoyancy compared to our prior expectations.

Our 2014 guidance continues to exclude the impact of a settlement with Eisai, as the timing of the final approval of this agreement remains uncertain.

R&D expense is expected to be between 20% and 22% of sales, unchanged from prior guidance.

Our full year R&D forecast continues to earmark approximately $200 million for new early-stage business development opportunities, of which the Eisai transaction is included in this amount.

SG&A expense is expected to be approximately 22% to 23% of total revenue, also unchanged.

We anticipate non-GAAP earnings per share results between $11.35 and $11.45, and GAAP EPS to be between $9.85 and $9.95.

Now over to George for his closing comments.

Thank you Paul.

So in closing, we are off to a strong start for the year; and looking forward, we have several crucial milestones and activities that would require our intense focus.

First, expanding TECFIDERA into new markets as we seek to serve more patients with MS. We are launching three additional products, ALPROLIX for Hemophilia B, and other potential launches this year including ELOCTATE for Hemophilia A, and PLEGRIDY for relapsing MS. We are advancing the next wave of new potential medicines.

In the coming 12 to 18 months we anticipate a number of data readouts, including Phase 3 results for the Daclizumab HYP and relapsing MS, and for TYSABRI in the SPMS, as well as early- and mid-stage data for a number of compounds in the pipeline, including LINGO, and continuing focus on innovation.

We believe the Biogen Idec scientific acumen robust pipeline programs give us the opportunity to not only expand our leadership position in MS, but also contributes to new treatment options for patients with other serious diseases.

These activities are at the very core of our mission and require determination and perseverance.

We believe that our team is ready to meet these objectives, and we look forward to providing updates in our progress throughout the year.

I would like to thank the patients and physicians who are involved in our clinical development programs, and our employees who are dedicated to making a positive impact on patients' lives, and all of you for joining us this morning.

Operator, we can now open up the call for questions.

(Operator Instructions)

Your first question comes from the line of Ravi Mehrotra with Credit Suisse.

Your line is now open.

Thank you.

Good morning, guys.

Congrats on the progress, especially TECFIDERA's launch.

It is not a Sovaldi launch, but it is okay.

My question regards biomarkers in MS. Can you just remind us of the work you have done, or are doing, to look at the potential of biomarkers [that predict] response rates or treatment selection in MS patients?

And specifically on LINGO, is there any clinical data, historical or ongoing, to support the hypothesis that LINGO expression or activation is increased in MS patients?

And perhaps, just a very quick follow-on, on the hemophilia: How should we think about gross to net revenues?

Thank you.

Okay, Ravi, this is Doug.

I will take the first two, and then let either Tony or Paul handle the gross to net question.

Biomarkers: Obviously, that is a very important part of the ongoing research activities here.

There is really two major questions that we are trying to approach with the biomarker activity, that is part of our clinical trial program.

One is, really, trying to characterize patients who have either a more or lesser, in terms of aggressiveness, disease course, to really try to match them up with certain therapies that may have greater activity and a higher level of disease activity.

So, for instance, a TYSABRI-like molecule in patients with more aggressive disease.

So, we are looking at things like RNA profiling.

We are looking at all the laboratory tests that are collected in these patients.

We are looking at MRI activity, clinical relapses, EDSS progression.

And really looking across those data sets to try to see whether or not there is a signature.

And that signature can be one or more of those parameters that I just named, that correlate with a greater level of disease activity.

That information, at the time of diagnosis, may help physicians choose the appropriate therapy for their patients at the time of diagnosis.

The sort of bigger question we are trying to get at, with respect to our own portfolio of drugs, is: Can, in fact, we use similar types of algorithms to predict patients who will have a greater or lesser response to our therapies, or potentially may experience a safety event that we want to steer them away from?

So, all of our studies have very extensive sampling embedded in them now.

That is true of our MS studies.

It is actually true of all of our clinical studies now, probably not unlike all of our compatriot companies out there as well.

Again, the idea here is to try to match up the appropriate patient with the appropriate drug, either in terms of the best response to therapy or steering them away from a potential safety event.

A lot of work still to be done, but I think there is progress being made.

And you can expect that we will have data reading out over the course of the next months and years that will be presented at major medical meetings to describe what we have been finding.

With respect to LINGO, a lot of the hypothesis around the use of LINGO is based on some data from several years back that was based on autopsy specimens from patients with MS, showing that, in lesions, there were, in fact, premyelinating oligodendrocytes.

So, the cells that are capable of remyelination are actually present in the lesions, but they are blocked from maturing by one or more factors.

LINGO is clearly one of them, based on the experimental data that we have accumulated.

I don't know that there is specific data in autopsy specimens that show an increased level of LINGO, versus what is present in sort of normal brain tissue, but it is clearly present.

And if you think about what is happening, we have got, essentially, a targeted delivery of the drug because of the breakdown of the blood-brain barrier, in and around those lesions.

So, where we are going to be able to reverse the inhibition of myelination and allow the maturation of those oligodendrocyte precursor cells is, specifically, in the area where the blood-brain barrier has broken down.

You can see this very clearly happening in the animal models.

Our expectation is that, that is what is going to happen in the human situation as well.

The targeted delivery of the anti-LINGO molecule, releasing the block on myelination, and, hopefully, a sufficient level of remyelination taking place to show clinical benefit in these patients.

Ravi, on your question about channel discount: Look, at steady state, our research suggests that the gross [to net] in the hemophilia space tend to run higher, probably meaningfully higher, than what we are used to seeing in MS. There is really two big pieces to that.

One is the channel.

So, you have specialty pharmacies, specialty distributors, home health.

The second is: There is a meaningful portion of the patients that go through 340B-designated hemophilia treatment centers.

We are going to have to see how that evolves.

It will depend a lot on the mix of the patients, and I just think we will have to look over the next handful of quarters.

I think mix will be a big driver.

Your next question comes from the line of Michael Yee with RBC Capital Markets.

Your line is open.

Congratulations on a good quarter.

You just launched TECFIDERA in Europe, and just trying to understand, based on your feedback so far, or your research, whether you think there is different demand dynamics in the three different pools: newly diagnosed versus switchers versus the quitter pool, versus, say, the US.

Are there differences there that we should consider, obviously, other than price versus the US?

And just as a follow-up to that, you have mentioned now multiple times in slides and your 10-K about BIIB-061.

So, as I think about the trajectory and longevity of your oral franchise that you are working on, can you say anything about that drug, as to whether it is remyelinating or anything about BIIB-061 that would keep down the suspense?

Thanks.

Thanks, Michael, it is Tony.

So, on Europe, look, I think we have said before, very -- continue to believe in the product, looking forward to launching it.

We highlighted a couple of differences in general in Europe, which were third oral to market.

The other orals that made the more traction; perhaps less clear anticipation by the community given the uncertainty and the regulatory delays.

What we said before is that is going to take hard work.

We are working hard.

If I look in Germany, we are getting great execution.

We are getting region frequency.

We are getting access to customers, and we are seeing interest, and we are getting patients on therapy.

So, we are encouraged by the signs in Germany.

In terms of talking about the trajectory of the mix across poles, it is probably a little early to make that call.

As I think you know, in Germany, the data is more lag-driven.

IMS basis; we are looking at shipments and various things like that.

So, probably a little early to make a more specific mix, but I think the message is: Getting access to customers and seeing interest and encouraged by the early signs.

And BIIB-061, yes, that is an oral remyelinating drug, in much the same way disease modifying therapies are moving towards an oral platform approach.

We see the same thing happening in the remyelinating space.

As LINGO is the biologic, and is the first generation of what we hope will be a successful remyelination franchise, BIIB-061 is working through a different mechanism, which we are not prepared to disclose at this point, but does very much the same thing that LINGO does in the experimental model.

So, we are quite excited about initiating the clinical program with that molecule.

Your next question comes from the line of Mark Schoenebaum with ISI Group.

Your line is open.

Couple of questions -- one maybe for Paul?

Hey, Paul, I just thought I would take this opportunity.

So, you guys choose to include these upfront R&D payments in your non-GAAP EPS numbers.

A couple of other companies out there don't do that.

I am just wondering why?

It creates volatility in the quarter like this.

So, that is an old-school CFO question, so I appreciate it.

Also, if there are any BG-12 contingent payments that were made in the quarter, would it be possible for you to tell us?

And then for Doug, how does the base inhibitor from Eisai differ from Merck or Azee's drug, which I think are already in Phase 3?

So, you guys are pretty far behind, I guess, and I am just wondering why you think you still had a shot at being competitive?

Thank you.

I will start, Mark.

The delineation we generally make is: Purchase accounting items are in our GAAP P&L, but not in our non-GAAP P&L.

That has been our practice.

And I mean, essentially, what we view as these upfronts and milestones are, you know, part and parcel to the Business.

They come in lumps, as we saw in this quarter, as we have seen in past quarters.

But it is essentially part and parcel to the Business, but we do make that one delineation.

And the BG-12 contingent?

The question on the BG-12 contingent, Mark, was what again?

Sorry, did you make a cash payment to FUMADERM in the quarter?

We did.

It was a cash payment that was earned in the fourth quarter, and paid out at a -- paid out technically in the first quarter of this -- of 2014.

Do you have the amount?

And then I will stop.

Gosh, off the top of my head, I believe it was $25 million, Mark.

Mark, this is Doug.

With respect to the base compound, you know, we did very extensive diligence on the compound before we licensed it in, and actually thought the profile was very favorable from a safety perspective; the caveat that there is still a ways to go in development to really understand that completely.

I would say the same thing is true with both the Merck compound and the Azee compound.

Nobody has actually gotten there yet, so the opportunity is still very much there.

We like the profile of the compound.

We also like the ability, potentially, if the compound is successful in the clinic, to start thinking about combinations between the base inhibitor and one or both of our anti-beta-amyloid antibodies or, potentially, the anti-tau antibodies.

We are looking at this from, sort of, a portfolio approach, in addition to just the individual compound, which -- we like the profile as we saw it.

Your next question comes from the line of Eric Schmidt with Cowen & Company.

Your line is open.

Operator, why don't we move to the next one?

Hello?

Eric, you are on.

Sorry, I think I was muted.

Maybe for Paul, I was a bit surprised -- sorry, let me start with Tony -- bit surprised that AVONEX is doing so well within the interferon class.

What do you ascribe that to?

Is there some kind of beneficial franchise effect going on there with TECFIDERA?

And then for Paul, was there also an R&D upfront to Sangamo in the quarter?

Very good question, Eric.

So, I think the short answer is yes.

I think TECFIDERA has probably taken disproportionately from the high-dose, high-frequency interferons relative to AVONEX.

I think that makes sense, when you take into account those tend to be more switch-to products relative to AVONEX.

So, if TECFIDERA gets in front of that switch, I think you are seeing a positive benefit.

But I would also add, you know, with increased focus and promotion, we think we are putting some very good effort, and see the continuation of that story behind AVONEX.

So, a little of each.

Thanks.

Eric, there was a Sangamo payment in the first quarter, that was for $20 million, upfront payment.

That was actually in our original press release with Sangamo.

The Eisai was actually, if you recall, the financial terms weren't disclosed until today, just because of the partnership at the time.

Thank you.

Your next question comes from the line of Geoffrey Porges with Sanford Bernstein.

Your line is open.

Just to follow up on, first of all, the [Eisai deal].

Paul, could you confirm whether, if the products are successful, you will report the revenue, or whether that will simply be a profit sharing that you report below the line?

And then, further, to the $200 million that you allowed for BD activity, with what you spend in the first quarter, should we assume that there is only $50 million to $80 million left for the balance of the year?

And then lastly, with your step-up in your revenue guidance and keeping the expense guidance the same, it certainly implies that your expenses [here] are going to be higher than you had previously anticipated.

Is that the right way to look at it?

And should we be expecting this higher level of SG&A spend to be the baseline going forward?

Thanks.

All good questions.

With respect to the first part of the question, Geoff, the Eisai, essentially, is about $118 million of the $200 million earmarked.

So, what is the balance, is exactly as you noted.

You know, we, obviously, had an eye towards the Eisai deal when we set up the original guidance.

We actually continue to work on business development transactions, but, I mean, quite frankly, the pipeline wasn't as -- it was far more advanced right before the Eisai transaction than it is right now.

So, I think that is much closer to an earmark.

I don't know if it will be $100 million or $60 million or $80 million, but we will update people along the way, as we go.

The Eisai transaction is a -- essentially a 50/50 split, with the exception of certain geographies that are really dependent on Eisai, specifically the Japan geography of whether or not they want to bring that into the collaboration or not.

In 50/50 from a perspective of development, 50/50 with a respect from a commercialization, and 50/50 in terms of profits, assuming the products -- one or two of the products get to market.

We haven't yet determined who would be taking the lead on different geographies.

I think at this point in time that would probably guide our revenue model.

So, it is a little bit early to tell how the geography lands in the P&L; but it is, in essence, a 50/50.

And then, your last part of the question, yes, I think you are right.

Is that, you know, implicit is a little bit of increase; it's probably in the $30 million, $40 million, $50 million range for SG&A spending.

We have consciously -- over the last 12 months and this year, we have consciously made the decision on SG&A spending not to be penny-wise and pound-foolish.

We are kind of at an unprecedented period of time in what we have gone through in 2013 in launching TECFIDERA in the US.

We are very excited to be launching TECFIDERA in Europe after a lot of hard work in the back end of the year, and the same thing on hemophilia.

So, I think that what we are doing right now is making sure we really appropriately fund all these launches.

And as we move into 2015, we will take a much more critical eye towards really trying to get SG&A leverage, which we have talked about.

I can't really exactly tell you the amounts, at this point, but we are going to be taking a much more critical eye.

So, I think we pivot mentally from really thinking hard about making sure we fund these critical launches, to pivoting towards looking to make sure we are actually -- making sure we are not overfunding and overexpensing on any items in the P&L.

Your next question comes from the line of Matt Roden with UBS.

Your line is now open.

Great.

Thanks very much for taking the question, and congrats on the progress.

Tony, you mentioned the five weeks of inventory for TECFIDERA.

We understand that weekly demand is still growing, but are we getting to the point in the launch in the US that we need to think about normalization of that inventory as we think ahead to second quarter and second half of the year?

And then, also, you guys have recently commented on the pricing approach for ALPROLIX, which, on a net basis, looks to be about parity.

Just wondering if we should assume that you will adopt the same philosophy with ELOCTATE as well?

Thanks.

Matt, this is Paul.

I will take the first part of that.

I think that is overall correct is that we probably will likely see not as much increase in terms of inventory in the channel.

You know, we keep a watchful eye on that.

We are a bit of a player in that.

But what is most important is to make sure the specialty pharmacies have product for the patients, and the wholesalers don't have any kind of excess of product.

So, I think it -- if you just look at the run rate, there may be a little bit of upward inventory over the next few quarters.

It certainly moderates in terms of the impact.

Matt, on the ALPROLIX pricing, as you know, the math can get complicated, but I think your read of the basic intent is right.

No comment at this point on how that might translate to other [CPD].

Your next question comes from the line of Geoff Meacham with JPMorgan.

Your line is open.

High-level question for you, Tony.

When you look at US TECFIDERA, you obviously have been in the market for a year.

What types of MS patients are coming on today, and how does that compare to when you launched?

And then a question for Doug: I know it is tough on the LINGO opportunity to say specifically -- I don't know if there is a lot of data out there.

But how does a compromised blood-brain barrier correlated to disease severity or progression or relapse frequency, things like that, that try to correlate that -- that outcome to clinical benefit or worsening?

So, thanks, Geoff; Tony.

Look, I think the interesting thing is: There is not a dramatic change in the profile, and it speaks a little bit more to the start the product got off to.

As I think we pointed out early days, we got a meaningful portion of newly diagnosed pretty much out of the gate, and captured a nice portion of the switch pool at a broad level.

I think those dynamics are still true today.

There is probably a little shift in the switch pool, in terms of the nature of what patients were getting, and what reasons between tolerability and efficacy.

But it is actually a little bit more of the same.

The only other wrinkle I would add to it, which is interesting, is: We think TECFIDERA is keeping people from leaving the market.

You know, the market has a group of people that quit therapy every year, and a group of people that return.

What our research suggests is that there are fewer patients -- there are patients who might have quit the market, absent this alternative, who are staying in the market, and I think that is encouraging.

Geoff, the LINGO question and the relationship to the blood-brain barrier -- what happens when there is a new lesion that develops -- a relapse, if you will -- is that you get local breakdown of the blood-brain barrier.

That is because of the release of all the inflammatory mediators that takes place locally.

The point I was alluding to is that, because of that localized impact on the blood-brain barrier, you are going to get a relatively higher concentration of the drug in those lesions at the time the barrier breaks down.

Which is not to say that you are not going to get drug to other, older lesions; that should happen as well.

And, in fact, the Phase I data confirms that we are getting sufficient quantity of drug to match the sort of IC90 level in the animal models in patients with MS in their cerebrospinal fluid.

So, we know we are getting drug into the brain in quantities that, sort of, match up with what we saw to be efficacious in the animal models.

But on a relative basis, just because of the physiology of the blood-brain barrier with a new lesion, you will get relatively more delivered locally to a new lesion.

Your next question comes from the line of Terence Flynn with Goldman Sachs.

Your line is open.

First, on just the top-line raise, I was wondering if you can give us any more color behind the drivers there -- if that is solely TECFIDERA or anything else you are seeing?

And then a kind of follow-up question to Eric's on AVONEX resiliency in the US.

Is there anything different on the European side that we should consider, as we think about that franchise and its resiliency in Europe?

Thank you.

Tony and Paul will tag team -- this is Paul.

The covert on the raise that I give you, and this is versus our expectations and our, kind of, original guidance, is around the buoyancy in AVONEX and TYSABRI.

It isn't, per se, that we see a different forecast on TECFIDERA.

I think the US and TECFIDERA is, kind of, marching along.

Our expectations in -- we are really five or six weeks into Europe, in Germany; a little early to call for that on TECFIDERA.

What we have seen, kind of, just one quarter in, is just AVONEX and TYSABRI not being as impacted as much in the last 90, 120 days.

So, on AVONEX EU, the answer actually differs market by market.

It depends on -- there are some markets where we have higher AVONEX share or where the high-dose, high-frequency interferons have lower share, et cetera.

So, I think it is going to be the sum, as Europe is, of a bunch of different parts.

We believe, similar to the US, that AVONEX should do, you know, as well or better on a proportional basis as the injectables portion of the market declines.

Again, that will differ market by market.

On average, that remains our belief.

We'll have to see as TECFIDERA rolls out across market to market, what the individual impacts are.

(Operator Instructions)

Your next question comes from the line of Matthew Harrison with Morgan Stanley.

Your line is open.

Just two quick ones for me.

One, on TECFIDERA in Europe, you told us you have gotten reimbursement in Norway and Scotland, and that you expect reimbursement in a bunch of other geographies.

I was wondering if you might be willing to help us think about what those geographies are?

Second, on TYSABRI, sequential growth in the US -- when I looked over the last couple years, what you saw in this quarter was actually the second worst.

And the first worst was when TECFIDERA launched.

So, I am just wondering if you can help us -- and this is in terms of units -- I am just wondering if you could help us think about what was going on there, and was it TECFIDERA-driven, or something else?

Thanks.

Matt, it is Tony.

Thanks.

We haven't laid out a very specific schedule of what sequence we think the countries will get reimbursement.

As you know, it is multiple, independent events.

We have said that a lot of these markets, it is a 12- to 18-month time frame.

Generalization is the northern European markets tend to move on a little faster pace; the southern European markets tend to move on a little slower pace.

But we think toward the end of the year, and around the turn of the year, we will start to see some meaningful reimbursement decisions.

If you look at where each of the national reimbursement processes typically goes on a timeline.

Matt, this is Paul on the TYSABRI question.

Thanks for the question.

I would want to point out: There is a little bit of noise in the last five quarters that you see, even on the graph in the earnings slide deck.

What I would point out is: In Q1 and Q2 of last year, there was inventory movement that arose out of the transaction.

So, Q1 actually moved revenue up by about $25 million or $26 million.

And as a result, Q2 was depressed by that amount in the United States.

I believe it is in one of the footnotes.

Then, as it relates to Q1 2014, one thing I would point out is that -- just the uniqueness of the way we ship TYSABRI.

Q1 2014 actually had 12 shipping weeks, versus all the prior quarters last year had 13 shipping weeks.

It just is a function of -- we essentially ship on Tuesdays.

It is essentially a function of the number of Tuesdays in a quarter.

So, it is quite peculiar.

Now, if you rise above all that, when we look at our patient data, and when we look at our discontinuations, when we look at our patient adds, we are actually -- we still believe there is a fair amount of homework to get TYSABRI moving in the right direction.

But we believe those metrics are moving in the right direction.

Discontinuations were meaningfully impacted through the second and third quarter last year, as patients -- many patients moved to TECFIDERA.

But we are seeing discontinuations come back to a more normal level, and we are seeing, actually, patient adds coming into the TYSABRI franchise.

That is a solid performance.

Thanks for the question.

Your next question comes from the line of Yaron Werber with Citi.

Your line is open.

I have a couple of quick questions.

One, Tony, just housekeeping: We are hearing that the TECFIDERA dropout due to the typical GI, is around 15% to 20%.

I think it was around 10% initially.

Sounds like you went up a little bit.

Is that what you are seeing?

And then, secondly, for -- I don't know if it is for Doug or for Al.

A question on LINGO: When you are looking at your primary endpoint, whether it is optic neuritis, the full-field visual evoked potential, or in MS, where you are using this neuro-functional, neuro-cognitive decline or stability in three or more months.

My question is: How validated are these endpoints in terms of your ability to adequately power against a control arm?

Help me understand a little bit how validated have you been in other studies, just so we really understand what to expect.

Thank you.

Thanks, Yaron, it is Tony.

A short answer to your question is: I don't think we have any strong signal that GI is moving up or down.

We are obviously monitoring that on a regular basis through a whole bunch of different data sources -- no signal that there is a meaningful trend in one direction or the other.

And, Yaron, with respect to the endpoints, I think the endpoints that we have chosen to use are well-validated endpoints.

I mean, certainly not only visual evoked potential, it gives you a hard number in terms of nerve conduction velocity, but also the low-contrast visual acuity endpoint in that study is one that has been used for other drugs for registrational purposes.

The endpoints, I believe, are hard.

I don't think we have released the power calculations, but, suffice to say that these studies are large enough and well-powered enough for us to feel comfortable about whether or not we would make a go, no-go decision based on the data that comes out.

I should also point out that the other endpoint in the MS study is ESS progression, as well.

We are looking at well-validated, tried-and-true endpoints in these studies on the basis of which to make our decision to go to Phase III.

Your next question comes from the line of Brian Abrahams with Wells Fargo Securities.

Your line is open.

Hi, thanks very much for taking my question, and congrats on the continued strong execution on TECFIDERA.

On the Alzheimer's front, you are looking, primarily, at imaging endpoints with 037, and clinical endpoints with 2401.

I am wondering: How do you put all that information together to determine which antibody to move forward with, and what population you might proceed?

And real quick, just wondering if you are expecting any shifts in US reimbursement dynamics in the MS space, given some of the concerns out there on pricing for other specialty drug classes?

Thanks.

You know, with respect to the two different antibodies in Alzheimer's disease, you are correct that there is a cognition -- a straight cognition endpoint with the Eisai molecule.

We have also built that in as exploratory endpoints in the BIIB-037 study.

So, the primary endpoint of the study is based on imaging, as you point out, but we have also built in FDG-PET as sort of a surrogate for improvement in synaptic activity.

We consider that to be sort of a surrogate clinical endpoint.

But we are also looking at cognition, and we hope to see a trend in cognition in that study as well.

There are a number of endpoints that will help drive the decision making with respect to BIIB-037, including both imaging and clinical endpoints as well.

Brian, it is Paul.

On the second part of your question, I mean, no real additional color to provide.

I mean, certainly, we are cognizant that it could be a challenging environment.

In multiple sclerosis, the payer mix -- or the patient mix rather, is kind of 80% private.

At this point, we are very comfortable with our formulary status.

So, we will just have to continue to see where the landscape takes us.

Your next question comes from the line of Robyn Karnauskas with Deutsche Bank.

Your line is open.

First question on LINGO: I noticed it is a six-month trial, and I have heard from some physicians that some patients can recover faster than that, especially with steroids.

What are your thoughts on whether or not you will be able to see a difference between the treatment control arm, given the time element, and how quickly LINGO might be able to act.

And second question: What percentage of hemophilia treatment centers were in your trail, and what percentage of patients do you think would be the people who would switch first to new therapy?

Thanks.

With respect to LINGO, you are correct that there are some patients that do respond to steroid therapy and show an improvement.

The natural history studies that have been done, looking at the kinetics of that improvement, were taken into account when we actually powered the study, to hopefully see a treatment effect in LINGO versus placebo.

Remember: This is a placebo-controlled trial that is randomized.

It is on top of standard of care.

So, we took the natural history data into account when we designed the study, both in terms of duration, and in terms of the design of the endpoints.

Robyn, on the trial question on hemo, we are a little bit searching for each other for that answer, so I don't think we have it handy.

What I'd point out is a couple of things.

It was only about 120 or 125 patients, and, in fact, it was a worldwide trial.

And part of the rationale on the worldwide trial with the worldwide approval, but also because we just needed to get to sites around the world in order to get to those patient numbers.

Fundamentally, we don't believe the gating issue on launch is going to be the dynamic that you are poking at.

I think we are -- we just fundamentally believe that there is a big, unmet need in the marketplace for longer-acting factors, and that will probably carry the weight.

Your next question comes from the line of Ying Huang with Barclays.

Your line is open.

First of all, we know that there is a potential FDA could approve a generic version of Copaxone in May.

I was wondering your thought on the impact on the pricing for the whole MS therapy class?

And then secondly, on your collaboration with Eisai here, for the base inhibitor, it looks like there is encouraging CSF [A-Beta] level lowering, which is also dose-dependent.

But then, how much faith do you have in that there is a correlation between that and then the clinical endpoint in the trials; for example, the ADAS-Cog scores?

Good.

Thanks, it's Tony.

I will go first on generic cop.

We have said before: Our expectation, our business plan has assumed that there will be generic Cop in the market this year.

Obviously, there remains some uncertainty around that, but we have planned for it.

Short term, we think the impact obviously is on branded Copaxone itself.

We have also said: Look, it adds pressure to gross-to-net in the overall market over time, because it becomes an additional option that payers can use.

But we think it is a very tough thing for payers to force [a step edit] or switch to generic Cop.

And with respect to the base inhibitor, as far as the target itself, there is some pretty strong genetic evidence that the enzyme itself is an important target in Alzheimer's disease.

That is based on some recent data from an Icelandic cohort, showing that patients who had a specific mutation in and around the cleavage site where the base-1 enzyme clips, those patients had about a 40% reduction in the amount of beta-amyloid and peptide that they produced, and that was completely protective for those patients if they had that mutation.

Even in the face of ApoE4, that was a protective mutation.

So, 40% seems to be the target, at least in terms of lifelong inhibition of the enzyme.

The Eisai data from Phase I shows that you can dose-escalate the compound and get to levels of inhibition sort of north of 90%, at safe doses.

So, we think that we have a compound that is capable of blocking the enzyme at levels that are sufficient to be meaningful.

And with respect to the ADAS-Cog endpoint, it is an accepted endpoint for clinical trials, and we think it is probably the most sensitive and most validated measure to use for these studies.

So, the target is good, the endpoint is good and appropriate, and we will wait to see the data.

I will now turn the conference back over to our presenters.

Okay.

Thank you all for your attention today, for all the questions, and we can now all get back to work.

Thanks.

This concludes today's conference call.

You may now disconnect.