Biogen Inc (BIIB) 2014 Q2 法說會逐字稿

Good morning.

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

At this time I would like to welcome everyone to the Biogen Idec Q2 earnings conference call.

(Operator Instructions)

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

Thank you and welcome to Biogen Idec's Second Quarter 2014 Earnings Conference Call.

Before we begin, I encourage everyone to go to the Investor section of BiogenIdec.com to find a press release and related financial tables, including our 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.

We believe non-GAAP results better represent the ongoing economics of our business and reflects how we manage our business internally.

We've also posted files in our website that file the discussions related to this call.

I would like to point out that we will be making forward-looking statements, which are based on our current 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 FCC filings for additional detail.

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

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

Now I'll turn the call over to George.

Well thanks, Claudine, and good morning everybody, and thanks for joining us today.

Biogen Idec had a great second quarter, strong financial performance and several key pipeline accomplishments.

So as we recount these achievements today, we believe that our continued progress reflects the strength of our underlying business and good executions toward our 2014 goals.

Our core multiple sclerosis franchise performed remarkably well and we continue to see an increase in number of patients using our therapies.

TECFIDERA continues to gain market share and we believe it's on track to become the leading MS therapy in the US.

The early months of our European launch reinforce our belief that TECFIDERA will continue to be a major valued contributor to the Company.

AVONEX and TYSABRI also performed well, as physicians and patients continue to look to them as the injectable and high-efficacy therapies (technical difficulties).

With these important medicines available to patients, we believe that we have a product portfolio that makes us the global leader in the treatment of MS.

In our late-stage pipeline, we moved forward two new potential therapeutic options for relapsing MS patients this quarter.

PLEGRIDY received a positive CHMP opinion in Europe, and at this point I'll diverge from my prepared statement to say that this just this morning as we're sitting in the room preparing for the call, we received a letter from the EU saying that PLEGRIDY had been approved.

We haven't had a chance to look at the label or any details yet, which we will do and when we are through that we will issue a press release, but since we're sitting here PLEGRIDY has now been approved in the EU.

We also reported positive top-line results from the Phase III trial of daclizumab, and should all these products complete registration, we'll have six important medicines to offer MS patients with different needs.

Moving beyond the MS franchise we launched ALPROLIX, a long-lasting therapy for hemophilia B, and received FDA approval of ELOCTATE, pro therapy for hemophilia A. These products mark our entry into a major new therapeutic area.

ALPROLIX and ELOCTATE represent the first meaningful innovations in the treatment of hemophilia in many years and reflect our mission to help bring new therapies to patients who are underserved.

We believe that these therapies have the potential to meaningfully reduce treatment burden and significantly improve patients' lives.

These accomplishments are reflected in our strong quarterly financial performance with a 40% growth in revenues and a 52% growth in non-GAAP EPS year-over-year.

As Paul will discuss, this quarter's financial performance also benefited from the approval of in agreement with AIFA relating to TYSABRI sales in Italy.

We've also made excellent progress in Japan which is an important strategic priority for us as we expand our global presence.

We recently obtained Japanese approval for TYSABRI and ALPROLIX, and filed a marketing application for ELOCTATE earlier this year.

The expansion of our products into Japan allows us the opportunity to introduce new treatment options to patients and physicians in new regions around the world.

We believe that Japan represents an attractive long-term growth opportunity for our Company.

So we had an eventful and productive quarter with a lot of exciting developments and I'll pass the call over to Doug.

Thanks, George, and good morning, everyone.

We and our collaborator AbbVie recently announced positive top-line Phase III data for daclizumab HYP in relapsing-remitting multiple sclerosis.

Based on this study, and previous clinical data, we're working expeditiously to file an application for regulatory approval of daclizumab.

We believe that if approved, daclizumab could be an additional, effective therapeutic option to treat this heterogeneous disease.

A number of our other clinical programs continue to advance.

In the coming 12 months to 18 months we anticipate Phase III data from TYSABRI and SPMS, as well as data from earlier-stage programs including BIIB037 in Alzheimer's disease, Neublastin in neuropathic pain, STX-100 in idiopathic pulmonary fibrosis, anti-CD40 ligand in general lupus, and anti-LINGO in both acute optic neuritis and multiple sclerosis.

We'd like to take the opportunity to review our ongoing anti-LINGO clinical studies and clarify the timing of anticipated data readouts.

The Phase II program remains on track and includes two studies, one in MS and the other in acute optic neuritis.

We believe the totality of data from these studies will provide us with a clearer understanding of anti-LINGO's potential in both clinical settings.

The goal of the acute optic neuritis study is to demonstrate proof of mechanism in humans.

We will examine whether anti-LINGO is able to protect and repair the optic nerve when given shortly after the acute damage caused by a demyelinating lesion of the optic nerve or optic neuritis.

The study will examine various endpoints, including novel endpoints developed by Biogen Idec.

The primary endpoint, visual evoked potential, will measure effects on optic nerve signal conduction.

We'll also use optical coherence tomography imaging to determine if anti-LINGO treatment impacts the viability of axons in the optic nerve and retinal ganglion cells.

As an exploratory endpoint, the study includes objective and patient-reported outcome measures to examine any potential benefit on visual function.

The study is fully enrolled and we expect to disclose top-line results in January 2015 and full-data disclosure at a 2015 medical meeting.

In the second study, we're evaluating whether anti-LINGO can facilitate remyelination and functional improvement in patients with active relapsing MS. Primary endpoint is a clinical composite measure testing various aspects of both physical and cognitive improvement.

As exploratory endpoints we'll also examine various advanced brain imaging techniques to detect potential remyelination and axon preservation, as well as numerous blood and CSF biomarkers.

The MS study is designed to treat patients for approximately 18 months, with the primary efficacy endpoint being evaluated at the end of that period.

There will be a preliminary look at data after all patients have reached 12 months of treatment duration to inform future study planning.

Based on current enrollment rates, which are ahead of projections, we expect the interim look to occur in the second half of 2015.

Investigators, patients, and the study management team will remain blinded in order to preserve the integrity of the ongoing study.

We expect MS study results to be presented at a scientific meeting in 2016.

We look forward to sharing additional data as our pipeline advances.

I will now pass the call to Tony.

Thanks, Doug.

The second quarter marked a another strong performance for our commercial organization.

We think we've demonstrated that we can launch multiple products while also maximizing our base business.

This has been no small feat for our Company and I'm very pleased with how the commercial team is executed and driven results.

Let's start with MS. We continued to grow our MS market share through executing our franchise strategy.

TECFIDERA in the US continued on a solid trajectory.

TECFIDERA has been broadly used across numerous patient segments.

Dually diagnosed, switches prompted by efficacy and non-efficacy reasons as well as patients returning to the market.

We believe TECFIDERA is generally viewed by physicians and patients as efficacious with an attractive safety profile and a manageable tolerability profile.

Importantly, patient retention rates have been similar to other marketed MS therapies and in line with our expectations.

Outside the US, TECFIDERA is off to a strong start.

In countries where we have launched, including Germany, the uptake for TECFIDERA has been encouraging.

Where we had been more cautious about uptake in Europe given TECFIDERA's later entry in the markets where other orals had a stronger foothold, we now believe that we're seeing launch trajectories that are similar to what we experienced in the US.

We're also making good progress on reimbursement.

Currently we have obtained full reimbursement in six markets, and TECFIDERA is also available in a number of other countries with limited reimbursement.

In the UK, we recently received a favorable pricing decision from NICE, and we expect to obtain full reimbursement in most of the other large MS markets by the end of 2015.

During the quarter AVONEX gained share among interferon therapies.

As expected, injectable therapies continue to decline as patients move toward oral therapies.

While global units for AVONEX declined 7% year-over-year, AVONEX has shown staying power in a dynamic market.

We look forward to the potential launch of PLEGRIDY to extend our leadership in interferon.

We believe PLEGRIDY has the potential to provide MS patients a combination of strong efficacy, a safety profile consistent with the MS data interferon class, and a subcutaneous autoinjector administered every two weeks.

Across markets TYSABRI demand remained solid as physicians continued to choose this therapy for patients requiring high efficacy.

The US TYSABRI business improved as patient retention rates are stabilizing and are now similar to pre-TECFIDERA launch.

TYSABRI performance in Europe was also favorable despite the increased oral competition.

We continue to focus on execution and despite an increasingly crowded market, we believe neurologists continue to view TYSABRI as having unique power to control disease.

Turning to hemophilia, ALPROLIX is off to a solid start since its introduction to the US market in May.

Our focus to date has been in two areas: raising awareness of the therapy's attributes and streamlining patient access.

Our field forces build strong relationships with customers and is achieving its early goals of reach and frequency with hemophilia treatment centers, or HTCs.

As of the end of the quarter approximately one third of HTCs had prescribed ALPROLIX, which we believe indicates very good initial interest.

Early indication suggests ALPROLIX has not faced significant hurdles with reimbursement; we've also established financial and patient support programs, which have enabled a smooth initial launch.

As expected, we believe the majority of ALPROLIX patients have started with once-weekly prophylaxis, a significant improvement over the current standard of care of two or more prophylactic infusions per week.

Turning to ELOCTATE, we're pleased to have launched ELOCTATE in the US last week with what we believe to be a competitive label.

Our initial objectives are focused on extensive education to physicians, payers, and advocacy groups, and we're also beginning to expedite access for patients starting on ELOCTATE.

We're pleased with the performance of the commercial organization.

Across an expanding portfolio of therapies we believe we're demonstrating strong execution and solid results.

I'll now pass the call to Paul.

Thanks, Tony.

Our GAAP diluted earnings per share were $3.01 in the second quarter; our non-GAAP diluted earnings per share in the second quarter were $3.49.

I'll provide additional details on that AIFA agreement, which benefited both revenue and earnings in Q2, in a minute.

Walking down to P&L, let me start with revenues.

Total revenue for the second quarter grew 40% year-over-year to approximately $2.4 billion.

Second-quarter AVONEX worldwide revenue was $774 million.

In the US, Q2 AVONEX revenue increased 4%, compared to prior year, to $498 million.

And outside the US, Q2 AVONEX revenue was $276 million, a decrease of 6% compared to prior year.

Global TECFIDERA revenue was $700 million in Q2.

In the US, TECFIDERA revenue was $585 million.

We are very pleased with the compliance in gross-to-net performance, which provided a benefit to revenue in the quarter.

We ended the quarter with approximately 3.5 weeks of inventory in the channel, which includes specialty pharmacies and wholesalers.

This is a slight decline versus prior quarter.

International TECFIDERA revenue was approximately $115 million, as the launch in Germany has exceeded our expectations.

Germany represented approximately three quarters of our ex-US revenues.

TYSABRI worldwide revenue net of hedging was $533 million in the second quarter.

These results were comprised of $250 million in the US, and $284 million internationally.

TYSABRI benefited from two events which helped the year-over-year comparison.

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

This equated to in-market revenues of approximately $26 million, increasing Q1 of 2013 and decreasing Q2 of 2013.

In the second quarter of this year, TYSABRI revenues outside the US included the impact of an agreement with AIFA.

Our agreement with AIFA provided for the elimination of the reimbursement limit related to TYSABRI sales in Italy from February 2013 going forward.

As a result, we recorded approximately $54 million of previously deferred revenues related to the period from February 2013 through March 31, 2014.

And in the second quarter we recorded TYSABRI revenues in Italy as the full reimbursed price which increased revenues by approximately $14 million versus prior trend.

We continue to be in discussions with AIFA to did resolve our dispute concerning the periods February 2009 through January 2013.

Nevertheless, we'll be booking revenues at the full reimbursed price going forward.

Adjusting for these items we're very pleased to see TYSABRI experienced low double-digit revenue growth in the second quarter.

Moving to hemophilia, ALPROLIX revenue in Q2, its first quarter on the market, was $10 million.

Turning to our anti-CD20 franchise, US profit share was $285 million for the second quarter, and royalties and profit-sharing sales of rituximab outside the US were $18 million.

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

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

Q2 cost of goods sold were $292 million, or 12% of revenue.

Q2 non-GAAP R&D expense was $446 million, or 18% of revenue, which includes approximately $40 million in milestone and other payments related to our collaborations with [ASI] and Isis.

Q2 non-GAAP SG&A expense was $540 million, or 22% of total revenue.

Our Q2 non-GAAP tax rate was approximately 27%.

During the quarter, as part of our share stabilization plan, we repurchased 1.2 million shares for a total of approximately $340 million.

Our weighted average diluted shares were 237 million, and we ended the quarter with a proximally $2.6 billion in cash and marketable securities, which approximately two thirds is within the US.

As a reminder, we expect to enter a period of large TECFIDERA CVR payments to the former shareholders of Fumapharm.

In Q2, we accrued $150 million as we reached $2 billion in cumulative sales for TECFIDERA.

This brings us to our non-GAAP diluted earnings per share which were $3.49 for the second quarter, an increase of 52%.

Now let me turn to our updated full-year 2014 guidance.

We now expect total revenue growth between 38% and 41%.

Clearly this change represents a meaningful increase from prior guidance, owing primarily to the growth of TECFIDERA in the US and EU, the strength of our other MS therapies in clarity on the AIFA pricing matter.

Let me provide additional color.

First, in the US, underlying demand for TECFIDERA in addition to compliance in gross-to-net dynamics are all anticipated to be favorable throughout 2014 compared to our prior plan.

In Europe, as Tony noted, we had originally assumed TECFIDERA would've experienced a slower uptake than the US due to delayed launch; our forecast now assumes TECFIDERA uptake in Europe similar to what we saw in the US on a country-by-country rollout.

We continue to expect Germany will be the primary TECFIDERA revenue driver outside the US for 2014.

And it does continue to appear that TECFIDERA has expanded the market.

Second, we believe AVONEX and TYSABRI performance will remain resilient, each carving solid roles in the market.

And our 2014 guidance now includes the impact of the agreement with AIFA as we picked up the previously deferred revenue and will no longer defer revenue for the balance of the year.

The full-year impact from the AIFA agreement is favorable by approximately $96 million versus prior guidance.

R&D expense is expected to be between 20% and 21% of sales.

Our full-year R&D forecast now includes greater than $150 million for the balance of the year for business development opportunities.

Coupled with what we have spent on ASI and Sangamo, this represents over $300 million for the full year, an increase over prior guidance.

This remains strategically important focus for the Company.

However if we cannot find high-quality pipeline assets by the end of the year some of this amount may drop to the bottom line.

SG&A expense is expected to be approximately 22% to 23% of revenue.

SG&A now includes increased investments in 2014 associated with the ongoing TECFIDERA and hemophilia launches.

We realize this is a meaningful increase in SG&A dollars and remain committed to SG&A leverage in 2015.

The result we anticipate non-GAAP earnings-per-share between $12.90 and $13.10 and GAAP EPS to be between $11.26 and $11.46.

Turn the call over to George for his closing comments.

Okay.

Thanks Paul.

So, in closing we had another productive quarter, and we successfully executed against several key objectives.

We said earlier this year that our goals for 2014 were aggressive, and would require focus and dedication from our employees and we've made significant progress.

But with the second half of the year yet to go, we still have a number of product launches and pipeline milestones ahead of us.

So our efforts over the coming months will focus on the launch of four new products in two distinct therapeutic areas, a real challenge for a company of our size.

We'll continue to launch TECFIDERA across the EU as we work to expand marketing approvals across the globe.

We anticipate both US and the EU launch of PLEGRIDY for relapsing MS, and that's an important part of our strategy for maintaining our leadership among the injectable products for MS. And then the continued launch of our hemophilia products, ALPROLIX for hemophilia B in the US and other countries including Japan, and ELOCTATE for hemophilia A, an important step towards revenue diversification.

We also expect an important part of our long-term value creation will come from a number of mid-stage proof of biology and proof of concept readouts this year and next.

We also expect an important part -- our strategy for sustainable growth centers on deep commitment to the patient, leveraging our areas of expertise in neurology, hematology, and immunology, while continuing to focus on innovation.

We believe that if we anchor ourselves on these three tenets, patients will benefit and meaningful shareholder value creation should follow.

As always, I want to thank our employees, who are dedicated to making a positive impact on patients' lives, and the patients and physicians who are involved in our clinical development programs.

The achievements we've made together could not have been realized without their steadfast passion and commitment.

So thank you all for joining us this morning, and operator, we'll now open up the call for questions.

(Operator Instructions)

Michael Yee, RBC capital Markets.

On TECFIDERA, just drilling down a little bit, the beat was significantly higher than anyone would've thought.

So I'm just trying to understand the compliance you mentioned.

Do you think that that's actually getting better, that there's less dropouts over time?

Is there anything there that you're seeing?

There's still a lot of people out there suggesting that that's a hindrance for some patients, or maybe just think about that compliance rate over the last year.

And then just as a follow-up for Paul, there's been a lot of things in the industry as it relates to M&A and domestic and foreign companies.

Have you been thinking about this, is there any comments you can make as it relates to tax strategy?

Are there other things you can do to impact your margins, such as (inaudible) or your AbbVie collaboration?

Maybe any comments around that would be helpful.

Thanks.

Michael this is Paul.

I will try to take both of them.

We are very pleased with the TECFIDERA results for the quarter but I'd say it was across both Europe and the US.

When we refer to compliance, we're actually referring to essentially the number of pills a patient takes over the course of a month, if you will.

That's slightly different than discontinuation rates which -- or persistency, which I think you had kind of referred to.

The persistency and discontinuation rates are still a little bit opaque for us.

So I think that what we've said in the past, around kind of 10% to 20% over the course of a year, I think we still believe that and that's kind of the triangulation of the data.

But I think the TECFIDERA numbers were just real good performance and compliance, better than expectations in the United States on gross-to-net, and certainly the German launch has exceeded our expectations.

We're probably about five and half months into the German launch; we're a little bit less time and a few other countries but we're very pleased with the performance in Europe.

With respect to inversions, it's obviously a very topical -- I mean you can't open up the journal any day without having -- being able to read an article on redomiciling.

It's clearly something that we've thought about over the years.

We did an asset purchase agreement with Elan a year ago, so the course of time leading into that we clearly thought about it because the ability to do that has been around for a long period of time.

I'll give you a couple of perspectives on how we think about it, because I certainly don't want you to lead into that we're all excited about it just given the press news.

Kind of just as a level point out, let me explain our effective tax rate is kind of a combination of the RITUXAN cash flow, which is, really, all US cash flow so it's going to be a high 30%s on that cash flow and everything else that is probably more biopharmaceutical-like.

Even redomiciling would, without IP migration, would not meaningfully affect the RITUXAN cash flow tax rate.

And we generally cost share assets in our pipeline, so that's the way to think about our tax rate as it stands now.

The way we conceptually think about a business combination which would result in redomiciling is all the benefits of redomiciling are essentially like a synergy, and of course you always want to try to get synergies in a business but we don't think that's a rationale for a business combination, that it has to make industrial logic first and foremost.

So if there's industrial logic which we just have not seen around a business combination, then there would be a possibility for that.

I think the other thing to point out for Biogen Idec, a major, major consideration for us which is probably more acute than others, is for our long-term shareholders.

It would result in a meaningful capital gains.

Just the result of we have shareholders that have been in the stock for a very long period of time and with the capital appreciation of the stock that's a major, major consideration that we think about.

So that's a little bit of perspective.

Ravi Mehrotra, Credit Suisse.

First one for George.

It's been very noticeable this year that you flagged intentions to enter into early- and mid-stage business development opportunities.

Given the fine form and front running commercial performance you've delivered in the first two furlongs of this year, do you see potential for either greater focus on these fields, and which domains would you like to dominate via deals?

Let me sneak another one in for Doug.

So anti-LINGO, how will the RENEW and SYNERGY data influence the Phase III trial endpoints?

Do you see more of an evolution or revolution in endpoints normally seen in Phase III MS studies?

Okay Ravi, this is George.

I'll take the first part of your question.

Look, I think the -- we've said for a while now that our strategy was to continue to build out our pipeline so that we can have a high-quality pipeline of sufficient size to generate additional value as we go forward.

We've done a number of business development deals, already a couple this year, certainly several last year, and we'll continue to do them.

I don't see any big diversions from what we've done in the past.

As Paul said we have money now in the budget for additional deals this year but that doesn't necessarily mean we're going to go spend it.

We have money available if and when the appropriate technologies or product opportunities come our way.

We will focus in our areas of expertise, so kind of neurodegenerative diseases, immunology, hematology.

I think there's a big advantage to sticking to our knitting and focusing in areas where we have real expertise.

A lot of this business is based on information arbitrage and getting some insights that not everybody has.

And we believe that's an important part of our strategy.

We've done that focusing now for years, and I will continue to work in those areas where we believe we have a real depth of knowledge.

And Ravi, this is Doug, I'll take your question about revolution or evolution with respect to SYNERGY and the endpoints.

I guess that's in the eye of the beholder but I think what we're trying to do here with this study is learn as much as we can about the correlation between remyelination and the impact on what we think are important parameters of disease progression in these patients.

What we're hoping to see with this study is actually an improvement in EDSS and a change in cognition.

Cognition is not a sort of traditional endpoint, if you will, from a regulatory approval perspective, but we think it's important in terms of understanding the totality of impact on remyelination in the brain of patients with relapsing forms of MS, and actually progressive forms as well.

So I think the study is designed to collect and capture as much information as we can.

The paradigm that we're trying to put forward is to improve outcomes for patients and not just stabilize disease.

So I think in that regard it's probably somewhat revolutionary, and I think that the study is designed in a way to guide us forward not only with LINGO, but with other strategies that we've got further back in the pipeline that are also geared towards remyelinating, BIIB061 being the first candidate to go forward.

So I think it's important that we run the study in a blinded fashion through the full 18 months of the study.

That was the decision that we made and we've talked about in my comments in the earnings call, and I think that that will give us the information we need to plan an appropriate Phase III study where we are looking to change the treatment paradigm in MS by actually causing improvement in outcomes for patients as opposed to just stabilizing disease.

Mark Schoenebaum, ISI Group.

I just had one, a topic that hasn't been addressed yet on this call.

I'd just like to get your -- Doug and Al if he's on the call, just get your thinking about TYSABRI and SPMS.

What would be the biologic rationale for TYSABRI to actually show efficacy in that indication?

And then my second question I promise is very easy, Paul, what's the -- can you just remind us roughly what the German price is for TECFIDERA and whether or not that could change?

Thank you.

Hi Mark, this is Al Sandrock.

On TYSABRI SPMS there continues to be emerging data that gives positive signals, potentially, for how TYSABRI could work.

One is that there was a publication earlier this year labeled -- it was called the Study of the Proof-of-Concept of Natalizumab in SPMS, it was published by a Danish group.

And it shows that when you look at CSF neurofilament levels, that the levels dropped after starting TYSABRI treatment and that the drop occurred within six to nine months.

I think as we have more evidence that in addition to the evidence we've been talking about for a couple of years now, which is the CXCL13 decrease which is a marker of follicular dendritic cells, which we think are important in organizing the sub-meningeal lymphoid follicle that in about half the patients seem to be important for progression in SPMS.

So I think there's continuing biological data that tells us that we could potentially see a positive effect with natalizumab and SPMS.

And Mark, just for the quick response on the German price.

It's in the low EUR20,000s on a euro basis, on an annual cost of therapy which gets essentially to right around $30,000 annual cost of therapy in Germany right now.

And that, as you know, is in the one-year quote-unquote free pricing period.

So it's actually important to keep in mind, so I appreciate you kind of pointing it out.

Important to keep in mind that as we spin into 2015, we'll likely move into a different, more negotiated price, likely through the AMNOG process.

Geoffrey Porges, Bernstein.

Congratulations on a really terrific results, particularly TECFIDERA.

I'll try and slip into as what seems to be the fashion.

Can we just be clear on the LINGO MS study?

We wanted to hear in 2015 the results of the 12 month analysis, but we will hear the 18 month results disclosed presumably not until 2016?

And then secondly, Tony, could you just give us a little bit more color on exactly where TECFIDERA is in the ex-German markets, not the smaller markets, but the other big five European countries, when you expect to actually get the launch going there?

Jeff this is Doug.

You're correct that the data flow is as you describe it.

We will -- a small team internally will have access to the 12 month data but we've decided that it's important to avoid the possibility of creating bias in the study outcomes to maintain our disclosure in 2016.

So once the study is fully complete, we'll disclose the data at that time.

We think it's important to keep the study blinded between the 12 and 18 month timeframe, and that will kick the disclosure over into 2016 as you described.

Yes, it's Tony, on ex-US, so we have -- you saw the NICE opinion from the UK, the process once they issue the FAD is six to eight weeks to give guidance and then there's a couple of months to get funding in so think Q4 by the time the funding hits the market.

We're in the market in France in a limited way in the hospital channel, negotiations ongoing.

We also think that's Q4 timing, Spain and Italy would likely be 2015, hard to handicap but we think first half of 2015.

Eric Schmidt, Cowen and Company.

Maybe for Paul or George, it sounds like business is good, the revenue stream is increasingly diversified, the outlook is very favorable, you're building cash.

So I guess I'm asking about your capital reallocation plan and thoughts on the dividend or a substantial share buyback.

Thanks Eric, yes, important question.

So we certainly rebuilt the cash position over the last 12 months.

As we talked about this 12 months ago, following the asset purchase of TYSABRI we're running on fumes, that has changed meaningfully as the business has performed quite well.

We want to continue to be cognizant over the kind of next couple of year time period that we, probably greater than I would've expected, have the potential for the CVR tech-related payments just to come maybe at a quicker pace.

Those obviously term out, as people know, but we want to be mindful of that.

We continued -- our strategic bias is, remains these tuck-in acquisitions where we think it's core of the business and great internal rates of return and all that.

With that said, more than likely we have excess cash over the next number of years.

We've been having very constructive conversations over the last couple of months with our shareholders on this topic, not all of them but a number of them.

I think we completely agree it's one of the more important judgments that we have, we agree that it is all about deploying this and returning it in the way that maximizes the intrinsic value.

We'll continue to have a dialogue.

I think it's a mosaic in terms of preferences around which vehicle to return cash and we'll have to synthesize that and get through our own judgment.

So nothing to report per se yet but very high on the agenda of our conversations here, George and I and with the Board, and hopefully we start to get clarity in the near term.

I don't have too much to add to that.

I think, look, this is a topic, as Paul said, that we are in discussions with the Board with a number of our shareholders, and as we have started to refill our coffers after the Elan acquisition it's become something we're discussing more but nothing really to add at this time.

Yaron Werber, Citi.

It's a question maybe for Al or Doug.

When you look at the combination of, admittedly it's in animal models, and the EAE model is not a great model because it's inflammatory.

But when you look at LINGO and AVONEX together, there are some data suggestion maybe LINGO alone is just as good as the combo and perhaps LINGO is more synergistic with an oral like Gilenya.

So I wanted to get your thoughts on that.

And then if you don't mind I'm just going to sneak in for Paul, the IMS data, how good is that, it sounds like historically you've said that it's good predicting TECFIDERA.

Excluding the stocking although, it sounds like there was slight destocking yet you beat by about 30% the IMS kind of prescription numbers.

So what are we missing there?

Thank you.

So on the EAE question, it's been traditionally difficult to see a robust effect of interferon in EAE, so it doesn't surprise me that adding LINGO to AVONEX doesn't give you very much more than LINGO.

I think the bottom line is that the effect of LINGO, either in a knockout setting or other setting, was pretty robust remyelination animal models in general, including EAE.

And then in terms of combining is it better with Gilenya?

Yes, we published data that suggests that you have to be cautious about these S1P antagonists.

Some of them actually have negative effects on [ali dev and or site] differentiation and myelination.

So I think they used to be studied further but I think it's a very complex field because many of these antagonists cross to multiple subtypes of S1P receptors and they can each have different activities.

And so we're actually studying that quite extensively ourselves.

I'd also say that one of the issues that is still an open issue for us with respect to the Phase III study design is what we will combine with anti-LINGO assuming we get to Phase III, what we'll combine with anti-LINGO as far as a disease modifying therapy, and part of that will depend upon conversations with regulators in terms of what they're going to require vis-a-vis the kind of labeling that we'd be able to achieve.

So that's an open question and one that's under active debate right now but will obviously require some input from the regulators in terms of how that proceeds in Phase III.

And on your first part of your question, as we've said in the past, over time IMS seems to be predictive in any given week or any given quarter, it can have some wobblingness as it tracks.

Our inventory in the channel, actually as I mentioned, modestly went down so I don't think that's kind of driving it.

It may be gross-to-net as I pointed out.

We had originally thought in our plan that the gross-to-net percentage would approach AVONEX this year and it's probably really closer to mid-teens rate.

So we're getting a little bit of favorability which pulled through the second quarter.

That may account for some of it.

Matthew Harrison, Morgan Stanley.

I just wanted to ask, when you launched TECFIDERA in the US you obviously saw sort of a pattern of TYSABRI patients or some weakness in TYSABRI.

It's hard for me to break out what's going on in Europe given some of the agreements and one-time items.

I'm wondering if you think we should expect to see that in Europe as well or not?

Then Paul, can you just be specific on what the sort of gross-to-net swing for TECFIDERA in the US was?

Thanks Matthew, it's Tony.

So the short answer is yes, we've expected to see some TECFIDERA impact on TYSABRI in Europe but substantially muted relative to what we saw on the US.

The reality is in 2013, there was a -- we had one of the issues with TYSABRI in 2013 is outside the US and largely in Europe we had a bunch of patients with discontinuance switch to Gilenya; we also had Gilenya get in front of TYSABRI.

So we actually absorbed a lot of that impact with the oral switch, frankly, when we didn't have TECFIDERA in the market.

We are going to see some switch from TYSABRI to TECFIDERA; we think it's less dramatic than in the US, frankly, because a bunch of it happened with Gilenya 12 months ago.

And then Matt, with respect to the tech, gross-to-net question, I wouldn't characterize it or portray it as a swing, I think I'd portray it more as our prior thinking and kind of conversations with you had been that -- what we had thought originally was that it was approaching AVONEX-like which would've getting it closed in to 20, and it's probably more mid-teens-ish and we're just benefiting from that vis-a-vis are the original plan.

Terence Flynn, Goldman Sachs.

First on ALPROLIX, anything notable about the early adopters that you have seen there, and anything we can read through to ELOCTATE, I know it's still early there, early days, but anything that we can read through from ALPROLIX to ELOCTATE?

And then Paul, on SG&A leverage, you mentioned a commitment there again, I think consensus is myelin about a 1% improvement.

Is that the right order of magnitude?

Good question.

Tony on hemophilia.

So look, with ALPROLIX we're pleased to be clear.

We always said this was difficult to predict what the trajectory would be because it's such a patient-driven market and there hasn't been a new entrant in some time.

Look, having said that, we always thought there would be a cohort of patients that we could activate more quickly, you know, prophylaxis patients who were really -- thought the proposition were well-informed and there were certainly investigators or others who were more familiar with the product.

So I think we've demonstrated that that has happened.

That's who we sort of captured is the early adopters, which is good, we're very pleased with that, we're getting access to HTCs.

But on ALPROLIX, I think the harder work begins now, which is that next year of patients, convincing them this is the right value proposition and activating them and getting the physicians ready.

But we feel very pleased with the execution.

ELOCTATE, yes, early -- a day or two early to comment on the performance, we're also confident in the ELOCTATE product profile.

It's a less simple sell, frankly, the ALPROLIX once a week sell is a pretty straightforward message.

It's easier to counter-position, you only have to listen to some of the competitors' earning calls to talk about what they're doing.

So we have some work to do to get out and educate physicians and patients.

We think the extended half-life makes a big difference for patients.

And we think we're going to be able to communicate that message to patients, and also to hemophilia treatment centers.

So early days but pleased with where we are.

Terence, on the SG&A leverage question, so the 100 basis points, I mean certainly not crazy, it's obviously going to be a function of revenue as we spin into 2015.

I'd hate to go get pinned down on that.

Let me kind of give you more broadly the thinking.

The thinking more broadly is, look, we realize the SG&A growth has been pretty meaningful, I mean just in terms of raw dollars it's been very meaningful.

We have all along thought that that has been the right business judgment to make during this unprecedented time of launches.

For a company our size to go through the close to handful of launches, we needed to make sure we weren't, as I've said before, penny wise and pound foolish.

Conceptually, where we're thinking as we move into 2015 is that those launches we now move to a time period of leverage.

And I think that's both a cost and shareholder value perspective as well as a cultural perspective to make sure we don't take a base that was designed for one reason and, just keep building off the base.

And conceptually I think that we believe as we going to 2015, 2016, the resource allocation shift can actually move towards making sure we're building the pipeline.

Matt Roden, UBS.

Congrats on the nice quarter here.

Question on one of your pipeline opportunities in IPF with STX-100.

I've asked about this before, but in the past quarter we've gotten two complete Phase III data sets from other IPF drugs and they look like they're going to be approved into next year.

So the question is if your Phase IIA data are positive in terms of the biomarkers and other signs and symptoms of disease, what would then be the next step for STX-100?

Would you go straight into combination studies?

Would that be additional Phase II work before moving into Phase III?

Then related, is there either one of the two assets that are out there that look more combinable or more attractive as a combination partner?

Hi Matt, this is Doug.

I think at the moment, the issue of combination versus whether you would target later-stage patients which presumably the labels for these two front-runner drugs wouldn't cover.

I think there's a variety of different ways that we can think about running the next series of studies.

I think we're still exploring the data from both the InterMune and the PI study.

But I think there's a lot of options that are available to us.

As you point out, one option is obviously looking at combination therapy.

I can't give you a clear preference yet other than to say that there is a difference in the safety profile between the two drugs, and that would lead one to believe that perhaps InterMune will have a leg up in terms of market share and penetration.

So that might be a bit more attractive to think about from a combination perspective.

But I think that the differential mechanisms lend themselves to combinations.

I also think that this is a market that's going to evolve much like other disease-modifying therapy markets.

Not unlike MS, which is, not every drug will work in every patient.

And so the market will evolve with space for multiple entries into that market over time, and I think that STX-100 represents an attractive opportunity either as single agent or potentially in combination with one or both of those agents.

Robyn Karnauskas, Deutsche Bank.

So on Alzheimer's program, can you just walk us through the rationale, Al, for targeting the insoluble form of a-beta versus the soluble form and why you think that will work?

And then just any color on the second generation [excenelated] hemophilia product with Immunex, what could be the timeline, what's the science behind the longer half-life with that technology?

Hi Robyn, this is Al.

So we have a drug that binds to soluble forms, it's going to have a hard time getting to the plaque.

And because the soluble form is not only is circulating in the blood, but also there's going to be soluble forms all around the brain.

So if you really want to -- and many of the dystrophic neurites are around the plaque.

So we think the plaque, if we can remove the plaque we can remove not only the fibular forms of a-beta but all the other, smaller forms, the oligomers that we believe are toxic, not only to synapses but also to nerve fibers.

So I think having a drug that targets the plaque allows access of the antibody to, we think, the core of where the toxic proteins are emanating from.

And that's our rationale.

Also if we look back at the old paper that we are with the Neurimmune antibody came from, those patients in that small study of 30 patients who developed antibodies to plaque amyloids actually were doing better than the patients who had not develop antibodies to plaque amyloid on targeted studies.

And it was the basis of that paper that was published in Europe years ago that got us excited in this particular antibody.

And Robyn, this is Doug.

I think you're alluding to the next generation factor VIII that utilizes the XTEN technology.

That could come into the clinic as early as next year, that's our hope.

And the technology behind that molecule is really based on the fact that if you look at all of the extended half-life factor VIII molecules that are out there, they're all clustered around 1 1/2 to 2 fold greater half-life than the unmodified versions of factor VIII.

That's because they interact with von Willebrand factor.

And so we set about trying to engineer the molecules to sort of break through that barrier, and based on the preclinical data that we've accumulated thus far, it looks like we have, probably, another twofold extension of the half-life beyond what we have with ELOCTATE right now which could be very meaningful from the standpoint of further extending the frequency of infusions for patients with hemophilia A. So we're hoping to bring that forward as early as next year.

Geoff Meacham with JPMorgan.

One for Doug or Al.

So when you look at anti-LINGO in MF I know it's tough to say specifically, but mechanistically should there be a meaningful difference between 12 months and 18 months of treatment?

And are you guys assuming for these novel endpoints a decline in the AVONEX only arm?

And then just a quick one for Tony on daclizumab, you have Phase III data in hand, just want to get an early kind of read about how you're thinking about positioning.

So Geoff this is Al.

I mean as Doug said, and this is a great answer to this question, what we're trying to do is to learn as much as we can.

This is really the first well-controlled trial of any drug for remyelination.

What we are trying to do in the MS study and in the combination of the MS and optic neuritis study is to understand first, do we get remyelination when we look at images?

Second, did we get any electrophysiologic consequences?

So that's why were looking at nerve conduction velocity in the optic neuritis.

And then, third, and this is the most important thing, is what's the connection of these biological changes, if you will, or electrophysiologic changes to clinical endpoints?

Because ultimately, that's what we're going to have to show in Phase III is if assuming we get remyelination or preservation of axons, are we going to get improvement in visibility?

Are we going to get improvement in cognition?

And so -- and the timing of these things is probably going to be different.

For example, I could imagine that we would get a rapid effect on remyelination, more rapid, and then you would have a delayed effect on axonal preservation, and even more delayed effect on cognition or disability improvement.

I think it's the timing of this and the correlation, as Doug said, between these biological measurements of these clinical endpoints that we're trying to sort out in these two studies.

So, Tony, on daclizumab, look, with obviously top-line data there's been released we'll have to see as the full dataset gets released and so forth how the market reacts to it.

So we don't have a sort of detailed market back view on that.

But we think there's clearly a place for this.

It's got a nice combination of efficacy, one time a month dosing, I think physicians are intrigued by the MOA which gives them another option.

The open questions will be through registration and labeling, where it comes out in terms of safety, monitoring, and all that other stuff.

There is a meaningful switch population of patients, still, who are going to come off injectables, who are to come off of orals, and there are people for whom, TYSABRI patients, JCV [posit group] for whom this might be appropriate.

So we'll have to do the more detail as we get the more detailed data but it feels like there is -- it's an interesting mechanism that has physicians intrigued and it feels like there's a package there that could have a meaningful place in the market.

So Geoff, this is George, let me just pick up a little bit on the LINGO question.

Because at the end of 12 months when we do the interim analysis we'll know the data, which is the important aspect for us.

And there will be a group of people in here who will know and that's important for us to know how to start planning for the Phase III, how to design it.

We are incredibly excited about this project as lots of people outside the company seem to be, because of its potential.

And we just want to make sure we get it right.

The important thing is that we get a good trial that gives us an accurate picture of the potential of LINGO and that we don't jeopardize that trial.

It will be part of the registration package, it's not a Phase III pivotal trial but it will be an important part of the registration package.

And so the two most import criteria is that we know the data so we can start planning, and that we conduct the trial and don't impact the integrity of the trial.

Unfortunately, that means a likely delay of when we will tell you the data although the trial itself seems to be somewhat ahead of schedule.

So those are the reasons and we'd like to be transparent as we always do, but we have other considerations to think about here as well.

I would now like to turn the conference back over to our presenters.

Okay, if there are no further questions, thank you all for your attendance this morning and we can all get back to work.

Thank you, everybody.

This concludes today's conference call.

You may now disconnect.