Biogen Inc (BIIB) 2014 Q3 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 Q3 2014 earnings conference call.

(Operator Instructions)

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

Thank you and welcome to Biogen's third-quarter 2014 earnings conference call.

Before we begin, I encourage everyone to go to the Investor section of www.BiogenIdec.com to find the press release and related financial tables, including a reconciliation of the non-GAAP financial measures we will discuss today.

Our GAAP financials are provide in tables 1 and 2. Table 3 includes a reconciliation of our GAAP to non-GAAP financial results.

We believe non-GAAP 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 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 SEC filings for additional details.

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

Doug Williams, our head of R&D, and Al Sandrock, our Chief Medical Officer are traveling overseas, but will be available for the Q&A.

Now I will turn the call over to George.

Thanks Claudine and thanks to all of you for joining us today.

Biogen Idec had another great quarter in which our products continued to perform well and during which we achieved several key milestones.

Our underlying business remains strong as we enter into a period of anticipated growth resulting from the introduction of several new therapies in MS and hemophilia.

As Paul will review, third quarter financial progress was strong with 37% growth in revenues and 61% growth in diluted non-GAAP EPS year over year.

Our core multiple sclerosis franchise continued to capture share with an increasing number of patients using our therapies.

We believe our product portfolio of disease modifying MS products, including TECFIDERA, TYSABRI, AVONEX and now PLEGRIDY truly differentiates Biogen Idec as the global leader in the treatment of MS. TECFIDERA continues to gain market share in the US, and uptake has been strong in European countries where it has been launched.

TECFIDERA is the number one oral MS treatment in the US, and with many more launches to come around the world, we believe it has the potential to be a market leader in many countries.

According to our estimates, TECFIDERA has treated over 100,000 patients globally within just 18 months of the US launch and only six months since EU approval.

This is an impressive milestone to reach, and we believe that it reflects a broad recognition by physicians and patients that TECFIDERA is a unique product that offers strong efficacy with a favorable tolerability and safety profile along with the convenience of oral administration.

We would like to inform you that we have confirmed a case of PML in a patient being treated from TECFIDERA who recently died from complications of pneumonia.

Despite this tragic loss, we believe the overall positive benefit risk profile of TECFIDERA remains unchanged.

The patient was treated with TECFIDERA for four and a half years as part of the ENDORSE study.

During the course of therapy, the patient experienced severe lymphopenia that lasted for over three and a half years.

Lymphopenia is a known risk factor for PML and can be caused by a number of factors, including treatment for MS, cancer, HIV.

The current TECFIDERA label includes warnings and precautions regarding lymphopenia.

We reported the case to the regulatory authorities and will work with them to confirm that the language on our label provides patients and their physicians appropriate information regarding lymphopenia.

Moving on, AVONEX continues to be a very strong part of our business, and we believe the interferon franchise will continue to remain solid with the anticipated launch of PLEGRIDY in the US.

With an attractive clinical profile and every two weeks subcu dosing, we believe PLEGRIDY has the potential to be the leader in the interferon class.

We are optimistic about the future of TYSABRI as physicians continue to view this product as an important high efficacy treatment option.

We believe the high level of efficacy, the increasing understanding of the benefits of risk stratification and the potential of TYSABRI in other indications such as SPMS and stroke all bode well for its long-term growth.

We have now launched both of our hemophilia therapies, ALPROLIX and ELOCTATE in the US.

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

We are the first to market with long-acting products, and we bring tremendous expertise in biologics manufacturing and process sciences.

And we built a hemophilia organization comprised of many individuals with years of experience in the treatment of hemophilia for communicating the clinical benefit of ALPROLIX and ELOCTATE to physicians.

We continue to advance our R&D efforts.

At last month's Ephrem's meeting, we highlighted our continued leadership in MS and ongoing commitment to advancing patient care.

We presented several analyses of TECFIDERA's positive real world patient experience as well as longer term data from the ENDORSE study demonstrating sustained patient efficacy.

ENDORSE data indicated a favorable overall safety profile, including data from some patients who were treated for up to seven and a half years.

Other presentations, including data reaffirming the powerful efficacy of TYSABRI, two-year data for PLEGRIDY demonstrating sustained efficacy and a compelling safety profile, full phase three results for Daclizumab HYP, as well as supportive data for Anti-Lingo in acute optic neuritis.

Our pipeline continues to move forward, and we have strengthened our research and development capabilities even further by hiring a number of highly accomplished scientists.

Chris Henderson has joined the company as head of neurology research.

Chris formerly was professor of neurology, pathology and cell biology, director of the stem cell initiative and co-director of the Motorneuron Center at Columbia University Medical School.

Richard Ransohoff has joined as Vice President of Neuroimmunology Research.

He was previously director of the Neuroinflammation Research Center and professor of molecular medicine at the Cleveland Clinic.

Don Johns recently joined the company to head our ALS initiative . Dr. Johns previously was head of neuroscience translational medicine at Novartis.

And Olivier Danos recently joined Biogen Idec to head gene therapy research, He previously was Senior Vice President at Kadmon Pharmaceuticals and prior to Kadmon led the gene therapy consortium at University College London.

With these new hires, we have meaningfully strength our R&D capabilities in our areas of expertise and natural adjacencies.

I will now pass the call over to Tony.

Thanks George.

Our commercial organization continued to execute and deliver strong results during the third quarter.

Starting with MS, during the quarter, Biogen Idec executed our MS franchise strategy, and, as a result, we continued to grow our global MS market share.

TECFIDERA's launch trajectory in the US was sustained through the third quarter as this therapy continued to grow.

TECFIDERA continued to capture share, while attracting a broadening set of patients from the MS population.

Year to date, our market research suggests that TECFIDERA is capturing approximately a third of all new patient starts and over 40% of patients switching therapies.

As a result, we estimate TECFIDERA's market share in the US ended the quarter in the high teens.

Outside of the US, the rollout of TECFIDERA continues, and we have now secured reimbursement in ten countries.

In countries where TECFIDERA has been launched, patient up take has been broad and strong.

TECFIDERA is now the number one prescribed oral MS therapy in Germany.

TECFIDERA is also available in a number of other countries, with limited reimbursement, and we continue to expect to achieve full reimbursement across most of the major EU markets in 2015.

In a market where oral therapies are growing rapidly, our Interferon franchise saw 2% year over year revenue growing.

Q3 revenues included AVONEX and early PLEGRIDY revenues from Europe.

AVONEX continued to perform well within the interferon therapies.

With our continued focus, we believe AVONEX has captured meaningful share of new patient starts and has exhibited strong performance within the evolving MS landscape.

The PLEGRIDY launch in Europe is underway with the initial launch in Germany and Denmark.

Physician awareness of PLEGRIDY is high, and we believe the product's efficacy and dosing make it an attractive option in the interferon class.

In Germany, we gained favorable reimbursement for PLEGRIDY.

PLEGRIDY does not need to go through the AMNOG process and has been priced within the band of other Interferon beta-1a therapies.

In the US, we are prepared for an early November launch of PLEGRIDY.

We have completed sales force training, established contracts with specialty pharmacies and prepared the financial and patient support programs for a successful launch.

Now turning to TYSABRI: TYSABRI has continued to demonstrate strong performance.

Patient and physician demand for TYSABRI is solid, as the therapy enjoyed its second consecutive quarter of positive net new patient adds.

In the US, retention rates have improved to levels seen prior to the launch of TECFIDERA.

We believe TYSABRI continues to be viewed by neurologists as a therapy of choice for patients requiring high efficacy.

In addition, we believe TYSABRI has benefited from physicians' improved understanding of patient management.

The hemophilia launches are off to a solid start.

As we have said, success is a new entrant in this market will require several things: establishing Biogen Idec as a credible and committed partner to the community, activating early adopters among patients who see the benefits of the dosing schedule in prophylaxis regimens, educating hemophilia treatment centers and providing support services to ensure patients can get rapid access to products.

Our experience to date such we are making good progress on all these fronts, and we believe we can reinforce that positive experience to expand use over time to a broader set of patients.

Starting with ELOCTATE, the patient and physician awareness for ELOCTATE is high 10 weeks into the launch.

We are building strong relationships with customers and achieving our early goals of region frequency with hemophilia treatment centers or HTCs.

As of the end of our quarter, based on our data, approximately 50% of all HTCs have prescribed ELOCTATE, suggesting broad interest in longer acting therapies across the market.

ELOCTATE is also widely available through specialty pharmacies, and we are pleased with the status of reimbursement at this stage.

ALPROLIX is also seeing strong demand and broad interest from patients and physicians.

Through the end of the quarter, approximately 55% of HTCs have prescribed ALPROLIX.

We believe the early adopters initiating ALPROLIX have primarily been existing prophylactic patients and have been largely choosing the once weekly prophylactic dosing schedule.

Acquiring additional patients with hemophilia will require sustained efforts, but we believe we have the ability to execute.

We continue to believe that reduced infusion frequency is the largest unmet need for the hemophilia community and that ALPROLIX and ELOCTATE have attractive product profiles to address this burden.

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

So overall, we are pleased with our performance, the commercial team is executing well, and we believe we are demonstrating the ability both to launch multiple therapies in parallel and drive continued growth in the base business.

With that, I will turn the call over to Paul.

Thanks Tony.

Our GAAP diluted earnings per share were $3.62 in the third quarter.

Our non-GAAP diluted earnings per share in the third quarter were $3.80.

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

Total revenue for the third quarter grew 37% year over year to approximately $2.5 billion.

Global TECFIDERA revenue was $787 million in Q3.

In the US, TECFIDERA revenue was $638 million.

Our best estimate at this time indicates that we ended the quarter with approximately 3.5 weeks of inventory in the channel, which includes specialty pharmacies and wholesalers.

International TECFIDERA revenue was $149 million in the third quarter.

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

Interferon revenues, including AVONEX and PLEGRIDY, were $745 million.

In the US, Q3 revenue increased 6%, compared to prior year to $482 million.

Outside of the US, Q3 AVONEX revenue was $260 million, a decrease of 6% compared to prior year, due to increased oral competition.

TYSABRI worldwide revenue net of hedging was $501 million in the third quarter, an increase of 25% over the same period last year.

These results were comprised of $275 million in the US, and $226 million internationally.

There were a number of items of note for TYSABRI.

We are now recognizing TYSABRI revenues at the full reimbursed price in Italy.

In the US, there were 14 shipping weeks this quarter, compared to 13 in the same quarter last year, as TYSABRI ships on Tuesdays, and we benefited from the benefit of a timing of a shipment in Brazil, a tender market.

Factoring in these items, TYSABRI still experienced double digit revenue growth year over year.

Moving to hemophilia, our ELOCTATE revenue in the third quarter, first quarter on the market was $22 million.

ALPROLIX revenue in Q3 was $25 million.

Turning to our anti-CD20 franchise, RITUXAN and GAZYVA US profit share was $271 million for the third quarter.

Royalties and profit share on sales of rituximab outside the US were $20 million.

The result was $291 million of net revenue, from unconsolidated joint business.

This amount includes an expense of approximately $21 million related to our share of changes in the recognition of the branded prescription drug fee in the quarter.

This fee was imposed to pharma companies as part of the Affordable Care Act.

During the quarter, the IRS issued final regulations related to the drug fee, which changed the recognition for accounting purposes from the period in which it is paid to when the sales occur.

The incremental charge this quarter represents the remaining expense for 2013 and year to date 2014 sales related to RITUXAN.

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

Q3, cost of goods sold were $303 million or 12% of total revenue.

Q3 non-GAAP R&D expense was $416 million, or 17% of revenues, which includes no new business development activity this quarter.

Q3 non-GAAP SG&A expense was $569 million or 23% of total revenue.

Included in this amount is an expense of approximately $19 million, related to the previously mentioned branded prescription drug fee.

Our Q3 non-GAAP tax rate was approximately 25%.

Weighted average diluted shares were 237 million, and we ended the quarter with approximately $3.2 billion in cash and marketable securities of which 60% is in the US.

In Q3, we incurred a $200 million liability as we reached $3 billion in cumulative sales of TECFIDERA, and FUMADERM in the quarter.

As highlighted in our SEC filings, this relates to the TECFIDERA contingent payments, which are being recorded as an increase to goodwill, reported on the balance sheet when incurred and flowing through the cash statement when paid, but not impacting the income statement.

We expect to enter a period of meaningful TECFIDERA CVR payments to the former shareholders of Fumapharm.

This brings us to our non-GAAP diluted earnings per share of $3.80 for the third quarter, an increase of 61%.

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

We expect total revenue growth between 38% and 41%, compared to prior year unchanged from prior guidance.

R&D expense is unchanged, yet expected to be at the low end of the range of our previously communicated guidance between 20% and 21% of total revenues.

Our full year R&D forecast now includes approximately $50 million in the fourth quarter for business development opportunities, a decrease from prior guidance.

This remains an important focus for the Company, and we continued to pursue high quality early and midstage business development opportunities.

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

We anticipate non-GAAP EPS results between $13.45 and $13.55 and GAAP EPS to be between $12 and $12.10.

Our improvement in both GAAP and non-GAAP EPS is primarily due to our revised assumptions with respect to anticipated business development activity.

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

Thanks, Paul.

In closing, I think the third quarter was very productive for Biogen Idec.

We now have 10 marketed products, including five in MS and two in hemophilia.

Our efforts over the coming months will focus on continued performance of the base business, execution on the launch of new products and innovation to bring meaningful new therapies to patients.

We plan to make TECFIDERA broadly available as we launch across Europe and other regions around the globe.

We will begin launching PLEGRIDY in the US imminently with continued launches across Europe occurring over time.

We expect to continue to grow our hemophilia franchise, we believe ALPROLIX and ELOCTATE represent true innovation for patients and a significant long-term opportunity for the Company.

We believe that our accomplishments have set the stage for an exciting period as we look forward to 2015 and beyond.

We expect an important part of our long-term value creation for patients and shareholders will come from our pipeline that could form the next wave of late-stage development opportunities.

Our strategy for sustainable growth centers on a deep commitment to the patient and continued innovation to develop novel medicines that address important medical challenges.

We intend to follow good science and stick to our knitting in the areas that we know best: neurology, hematology and immunology.

We believe these guiding principles position us for long-term success.

So in closing, I would like to take this opportunity to thank our dedicated employees and the patients and physicians involved in our clinical development programs in helping us make a deep difference to patients' lives.

Thank you all for joining us this morning, and operator, we will now open up the call for questions.

Eric Schmidt, Cowen and Co.

Thanks for taking my question.

Maybe for Tony or Paul on TECFIDERA, looks like the growth on a quarter on quarter basis either absolute dollars or percentage basis, it looks a little bit lower in Q3 than, say, over any of the last four or five prior quarters.

Was there anything one time nature that you want to call out?

Or should we just assume that drug is on a different trajectory?

Thanks Eric, it is Tony.

Nothing big on a one time nature.

Inventories are moderating, I think a little bit in the channel.

As always a little probably difficult to predict exactly, but look, we have always expected TECFIDERA's growth rate would moderate over time.

I think we are seeing a natural case of that.

But we are very comfortable with the trajectory of the product right now.

We're very comfortable as we talked about the portion of new starts and switches we are getting.

Nothing significantly off plan from our standpoint.

I think we feel pretty good about the performance.

Mark Schoenebaum, ISI Group.

Hey guys, this is [Salim] in for Mark.

Thanks for all the information.

On the PML patient, George, can you confirm if the patient had a history of being on TYSABRI?

And you mentioned 100,000 patients have been treated with TECFIDERA.

How many of those patients have been on drug for same length of time as the PML patient, which I believe you said four and a half years?

Look, this patient was not on TYSABRI, but this patient did have severe lymphopenia for three and a half years.

We believe the length of time on TECFIDERA is not the issue; the issue is related to lymphopenia.

So we are treating this as a case that results from the lymphopenia.

And so there is a normal background rate of lymphopenia.

There is lymphopenia on the TECFIDERA label.

A small fraction of the patients develop lymphopenia, and that is why screening for lymphopenia is on the label.

It is caused by lots of drugs.

Brian Abrahams, Wells Fargo.

All right, thanks very much for taking my question.

We have been getting feedback from physicians that PLEGRIDY could be an attractive option relative to other Beta interferons.

I'm curious with respect to your marketing and commercial strategy to what extent are you going to be focused on trying to capture share from other Interferons beyond AVONEX, and how much weight do you think the improvements in convenience might have versus some of the pricing discounts going on from some of the competitors in that space?

Thanks Brian, it is Tony.

So look, we really like the product profile of PLEGRIDY.

Repeat the theory.

Interferons as of last count still treat more than half the patients in our market.

We think that is declining for all the obvious reasons, but we think interferon remains an important part of the treatment set.

We think PLEGRIDY is the leading interferon and should take share from all the interferons on the market today.

I would point out when physicians look at it, they are not going to look just at the convenience benefit, but they are going to look at the total package of the efficacy and dosing schedule.

And we think that is a very attractive proposition.

So yes, we think we have the potential to take share of high frequency Interferon.

Thanks.

Geoffrey Porges, Bernstein.

Thanks very much.

Lots of questions but perhaps the macro one, just go back to the issue of sequential growth.

Paul, top line if you net out the one time items, it looks like sequentially it was about 3%, and it's been in the 9% to 10% range for most of the past year.

Obviously that wasn't going to be sustainable, but is this the new normal when you add up all the sorts of bits and pieces and components of your revenue mix?

Is in what we should be thinking going forward?

Gosh, Geoff, as we move into 2015, we will use the end of the year call to give our expectations going into 2015.

Obviously that will play into where we think 2016 goes as well.

But I think that you are painting a picture that is probably less optimistic than we think.

We certainly are in early stages in TECFIDERA for the European rollout.

The majority of European TECFIDERA sales are Germany.

We have moved forward with the reimbursement in a number of other markets, but ahead of us is a number of larger markets.

And that most of those will be impacted as we go into 2015.

We think there is meaningful, still meaningful growth in TECFIDERA in the United States, as we continue to penetrate docs and penetrate the marketplace.

And certainly we are in very early days for the PLEGRIDY launch, which actually is ahead of us in the United States.

It just started with a very small amount of sales in Europe and certainly in very early days in ELOCTATE and ALPROLIX.

It's hard to discern signal from noise early on, but the longer term perspective we have is the marketplace will move to long acting hemophilia products, and we will play hopefully a meaningful role in that.

Michael Yee, RBC Capital Markets.

Hi, thanks.

This is John on behalf of Michael.

On the TECFIDERA patient with PML, could you just remind us, is this the first PML case in TECFIDERA?

What was the JC virus status of the patient?

Also going forward how do you think this case may be different or similar with TYSABRI?

Let me turn that question over to Doug Williams.

Doug is in a different site.

Operator, please unmute our colleagues overseas.

Can you hear me all right now, George?

Yes we can hear you Doug.

Okay.

Sorry about that.

Technical difficulties.

Yes, this is the first patient with PML, on TECFIDERA, that we are reporting.

I think as George pointed out, it is important to note that this is a patient that was part of the ENDORSE study and was on drug for four and a half years.

And for three and a half of those years, had severe lymphopenia, which we know is a risk factor for developing PML.

So it is an unfortunate circumstance that we believe is related to the lymphopenia.

Prolonged and severe lymphopenia is a risk factor.

We have monitoring rules in our label right now, for checking white count, and we believe that is the best way for physicians to manage patients going forward.

Terence Flynn, Goldman Sachs.

Thanks for taking the question.

Maybe more just a high level one.

So in the slides, you guys had called out that a portion of the market growth since the launch of TECFIDERA was attributed to this increase in the commercially insured patients.

Just wondering what data led you to draw that conclusion and if you can try to quantify the benefit for us?

Thank you.

Thanks Terence.

It is an interesting point.

Look, we think the market growth, first and foremost, is being -- the increase is driven by oral to the marketplace.

Specifically TECFIDERA bringing back quitters in particular and slowing down even the number of those patients that exit the marketplace.

In addition to that, what we've noticed over the last, call it five to seven years, is unemployment rates actually have a fact -- play a role in this marketplace.

So when unemployment rates in the United States specifically pop up to the high single digits, we see the impact in a slightly delayed fashion.

And when they drift down, we see the impact of that as well.

There are modest impacts, but still meaningful.

Then the second impact is, as we came into 2014, we think we have gotten a little bit of a modest benefit from the Affordable Care Act.

More patients being insured, and moving from essentially what was, patients that we supported on a free basis to those switching over to commercial.

Thanks for the question.

Ying Huang, Bank of America Merrill Lynch.

Hi, it is Katherine for Ying.

We have a question on anti-LINGO.

What is a meaningful improvement, in VEP?

10 milliseconds, 20?

What would you expect from the placebo group?

How much detail would you expect to disclose in January versus a presentation at a conference next year.

This is Paul.

I was going to take it but I will turn it to Al.

Hi, this is Al Sandrock.

I don't actually look on the mBP, as a clinically meaningful endpoint to begin with.

We powered the study for about a 30% effect on the latency, but I would look at it more as a biological measure, and not necessarily one where we can look for clinical meaningfulness.

Chris Raymond, Robert Baird.

Just a question on TECFIDERA life cycle management.

I'm assuming you are probably not going to want to be too descriptive of this.

But we noticed a patent application you guys filed in June describing a deuterium substituted dMF compound.

I guess this made us think a little bit how might this fit into your life cycle management efforts around TECFIDERA and generally talk about the attributes you think could make for a meaningful improvement over the currently improved compound, obviously outside of the IP, but in terms of convenience, safety, that stuff, that would be very helpful.

Sure.

Great job scanning the patent literature.

Look, we -- obviously the life cycle management for TECFIDERA is one of the key issues for us.

And we have a lot of work going on.

That certainly is one aspect of it but not, certainly, the only aspect.

And we haven't gone into publicly, all the things that we are doing and things we are trying, and certainly don't want to do that now.

I don't think it is in our interest -- obviously if we tell you, we tell all our competitors as well.

But look, what would be the attractive life advantages?

Modest changes could be once a day, could be better tolerability.

I think the biggest change would be increased efficacy.

So we are working on all of those aspects.

Matthew Harrison, Morgan Stanley.

Get, thanks for taking the question.

I thought maybe now that you have the full phase II on daclizumab, you haven't talked about that asset a lot and maybe you could talk about how you think that could fit in and how you might position that commercially.

Thanks.

Thanks Matthew.

It is Tony.

Phase III data was obviously very encouraging.

We believe it has an attractive product profile and a place in the market doing lots of more detailed market research and positioning at this point, to crisp that up.

We believe it has a nice efficacy.

It has an MOA, that is interesting to many physicians that we talk to once a month.

Sub cue injectable.

The overall package is attractive, certainly something that makes sense for patients who require that level of efficacy.

Could be a good switch to product for a lot of patients that aren't getting the efficacy that they need today.

So more to come on that, but we believe that is a place for it on the market.

This is Paul.

I'd just add additionally, we also oftentimes think of this market as easy segments to split up.

We are approaching 800,000 patients on disease modifying therapies with lifelong disease that have lots of different heterogeneous nature for the disease.

We think that plays well for daclizumab.

Robyn Karnauskas, Deutsche Bank

Hi guys.

Thanks for taking my questions.

About hemophilia, I was listening to your comments on the trends today.

Curious, 50% of the hemophilia treatments are not using the drug, how do they differ from the 50% that are and how do you get at those centers?

And why do you think you are seeing some of these patients once a week versus the twice a week patients and what do you need to convert those patients do you think?

So, thanks Robyn.

It is Tony.

Look, I think I said first, we are pleased to have gotten to 50% or 50% plus of the hemophilia treatment centers.

I think this is largely a patient-driven market, meaning that is primarily where the activation comes.

As patients get interested in the proposition of the dosing regimen for treating diseases prophylactically, they are asking the treatment centers.

So we are in there talking to them, having conversations.

We think as patients have good experience and as centers have a good experience, it creates a cycle over time, and we believe we are seeing in evidence of that as we go out and execute.

So look, it is early days.

But the plan has been to do that, get the patients, get the treatment centers and provide good coverage and build that virtuous cycle over time, and we believe we are on a good path on that front.

In terms of dosing frequency, I think what I said on ALPROLIX most patients are choosing the once weekly, the labeled dose.

Once weekly or once every ten days.

That is something that has made sense for the majority of patients, so I would say that's on plan.

Ravi Mehrotra, Credit Suisse.

Hey, thanks for taking my question, which I'm not sure you're going to answer, but I will ask it.

Love your view and opinion on the strength of your 514 dosing patterns.

Look, we -- I assume you are asking because of all the noise around forward pharma and their IPO.

What we will say is we are very comfortable with our IP situation.

We are certainly not going to litigate in this in public.

We are very comfortable with where we are.

And we will leave it at that.

Ian Somaiya, Nomura Securities.

Thank you, just wanted to follow-up on the questions on TECFIDERA in the US.

You have gotten fairly rapidly to 20%, roughly 20% market share.

Just wanted maybe your thoughts on how we should think about growth going forward.

Factors we should consider when modeling our sales going forward.

And similarly from Europe, the sales came in a little bit below expectation.

Would you attribute more to that, would you attribute that more to the timing of country and production, country rollout or was there a policy effect with the introduction last quarter?

Yes, thanks Ian.

It's Tony.

So look, the way to think about TECFIDERA growth is what portion of new starts does TECFIDERA capture?

We believe TECFIDERA is capturing a nice portion of new starts and should.

Physicians are comfortable putting new patients on it.

And then the bigger question, mathematically is what portion of switches.

And again we believe the product is capturing a meaningful portion of switches.

There is a third factor, which is market growth.

We have said, in some prior calls, that the market in the US has grown faster this year than it has, historically.

Some of it is what Paul talked about before, which was the switch from free to commercial patients.

There is also the dynamic of the quitter pool, we think has been favorable this year.

Essentially, TECFIDERA has probably kept people in the markets who might have quit the market.

So you have had additional growth on that standpoint.

You also have to look at how the market growth will moderate over time as you get to the more impact of unemployment rate of affordable care and some of the change of the balance in the switcher pool.

We believe we are capturing what we believe is a very attractive portion of new starts and switches, and that is where we focus our effort.

Do you want to talk about Europe, Paul?

Ian, just to add on Europe, and I think these comments are probably a repeat from last quarter.

We came into the year thinking Europe, the pace of penetration would be underneath the pace of penetration that we saw TECFIDERA in the United States.

We are very pleasantly surprised in Germany to see, actually, that being on track or better.

And while Germany's the lion's share of our ex US revenue right now, all the other countries that we've launched in, Nordics, Canada, Australia, we are seeing similar trends that we saw in Germany, in terms of very strong updates.

So the delayed launch, actually, has played -- we're effectively trying to do in every country is learn from the prior launches and execute even better.

And I think we are succeeding on that front.

Matt Roden, UBS.

Great.

Thanks for taking the question.

I just want to better understand the potential implications, if any, from the case of PML.

We recognized there is a background rate of PML, in lymphopenic patients including those with multiple sclerosis.

We know TECFIDERA does lower lymphocyte count.

Do you think in light of what's happened here, would you prefer severely lymphopenic patients not be on TECFIDERA?

Do you expect that docs will reconsider use in lymphopenic patients?

And lastly, do you expect the regulators will update the label?

Or will they wait for additional cases since there is a background rate in this population?

Thanks.

Thanks.

Those are good questions.

Look, we are certainly not in a position to make medical recommendations, right?

Lymphopenia, especially prolonged lymphopenia like the patient experienced is a known risk factor for PML.

TECFIDERA does result in lymphopenia in a small fraction of the patients who take it.

It is for that reason that lymphocyte screening is on the label.

We have reported this to the regulatory authorities.

We certainly will be discussing with them whether the language on the label is appropriate to inform patients and physicians, and what is done with the lymphocyte results is I think up to the physician that is caring for those patients.

(Operator Instructions)

Yaron Werber, Citi.

Geoffrey Porges, Bernstein.

Thanks very much for letting me jump in with another question.

I just wanted to follow-up on the discussion on ALPROLIX and ELOCTATE.

Could you give us a sense of what proportion of patients on each product are existing prophylactic patients for the switching over, what proportion are new patients and what proportion is used in demand?

Look, I know the numbers are small, but it would just be useful to see where the majority of the uptake is coming initially.

So I think, Jeff, it is pretty clear the majority the vast majority is going to be existing prophy patients.

That is the group that we expected in both cases in the proposition of dosage frequency.

Most attractive.

I would say that is the vast majority of it.

There is probably a little bit of on demand.

There is no signals yet we have seen there is a meaningful conversion of bringing on demand patients into prophy.

We have always said that is something that happens over time.

Vast majority is existing.

Ian Somaiya, Nomura.

Thank you, again for letting me ask a follow-up.

George, you began the call just speaking to the new hires, and I was just wondering if we should think about growth within each of these new areas?

Organic growth?

Or do you think there are certain technologies out there that you need to bring in-house to accelerate your efforts in these areas?

Those are good questions.

Maybe I will turn that over Doug Williams.

Sure, thanks George.

Yes, I think you can look at those hires as somewhat of a mix of building on our existing strengths.

Don Johns would be a great example of that.

Don is coming in to run the clinical trial programs in ALS.

As we take new compounds into the clinic, he will be responsible for designing and executing those studies.

Chris Henderson is going to take over the research activities in neurology research.

So again, that just strengthens what is already a very strong group, and Chris will have the mandate to focus on new target discovery and validation to really help push ahead with new initiatives that we have in some of our core areas like Parkinson's and Alzheimer's disease.

And then Olivier represents an opportunity for us to take advantage of some of the advances that have been made in gene therapy.

I think we see that as another therapeutic modality we want to have available to us.

Olivier has been involved in that field for some 20 years and brings a lot of expertise that can help us with both partnerships but also building out some of the capabilities that we will need internally to carry that off.

So it is a mix of both expanding our capabilities and strengthening the ones that we already have.

Yaron Werber, Citi.

Thanks for squeezing me in.

Question, it is for I don't know if Tony wants to take it or Paul.

Just relating to how do we think about TECFIDERA inventories?

It sounds like it is three and a half weeks.

I'm trying to get a sense what do you think is a normal range, especially given where you are in the growth trajectory of the drug?

Yes good question, Yaron.

It is our best estimate.

I think I mentioned that.

That is important.

These things always wobble along, product therapy the size of TECFIDERA, it is meaningful, so take it with a grain of salt.

We think that each quarter, the other thing level said is the three and a half week estimate is the combination of wholesalers and specialty pharmacies, which we have been trying to point out from the early days.

We have good visibility on wholesalers as a limited number of them, and that is where our direct channel is.

And we have decent visibility in the specialty pharmacies.

Over time, I would think that will tighten up a little bit.

As people early in the launch, in particular, specialty pharmacies, wanted to make sure they had plenty of product on hand.

So I think, if anything, over time it tightens up a little bit to a tighter supply chain, which is normal for other therapies, and in particular, other oral therapies.

And we will try to keep everybody apprised if that happens as it goes to the best knowledge that we have.

Matt Roden, UBS.

Great.

Thanks very much.

I want to ask similar question on TECFIDERA life cycle strategy.

I have one on hemophilia.

So it looks to us that you have a pretty nice opportunity with the ELOCTATE and ALPROLIX over the next couple of years.

As you look out over the mid to long term, obviously there are other parties working on not only competing long acting factors, but there is also other technologies being brought to bear.

And I realize none of these other approaches are derisk, but the question is given your leadership in this area, whether we should expect to see additional innovation coming out of Biogen.

And bigger picture, what is your strategy for growing the franchise over the long-term?

Doug, you want to take that one?

Yes, is that related to hemophilia?

I think we are coning to innovate in that space.

The first two products really represent the first two products.

We have other programs further back from research.

One of which is longer acting version of factor 8 that we presented some posters on.

It utilizes the X 10 technology and we think that, if it does make it into the clinic, will get us beyond that one and a half to twofold half life extension threshold that everyone seems to be caught in.

And the long acting factors for hemophilia A are really in the one and a half to twofold half life extension range.

And there could actually double that, from what we've seen.

We are also looking into gene therapy as a possibility to extend the franchise in hemophilia.

I think it is a general rule that when we move into an area, and have programs and products that emerge from the pipeline, that we continue to innovate in those fields where we think that there is opportunities to improve upon existing products.

So, hemophilia is one area, we are doing that obviously MS, we continue to do that, that is just a natural part of the life cycle for any therapeutic area we're in.

Eric Schmidt, Cowen and Co.

Thanks for the follow-up.

I guess I will ask the capital allocation question again.

I know you have been getting asked from time to time, you've got over $3 billion on the balance sheet now, Paul.

You have been saying I think tuck in acquisitions have been your favorite use of cash.

But we haven't seen any of those of late, and you have now reduced the guidance for in the back half of this year.

Are you not seeing the opportunities?

Are you changing strategy?

What should we expect in the future?

Thanks Eric, for the question.

Let me address the second part of your question on the biz dev thing.

The pipeline of business development activity, the strategic intent, I personally think our capabilities are at an all time high.

And it is just that you just never know when these things can turn into a deal.

As a result, it gets a little bit bumpy, quarter to quarter, early in the year, obviously, the east side transaction, the Sangmo transaction impacted the R&D line.

Third quarter just didn't really have anything.

And I think that's a continual way to expect it.

It's hard to then translate that into guidance, so we all just have to be mindful of that.

More broadly, we certainly still believe those -- bad word for it, but tuck in acquisitions are a -- it is part and parcel to the business that we are in.

But, it's really all about the mission that we have and delivering, has the potential to deliver out sized shareholder value returns.

We've seen that over the last 10 plus years.

As we move into 2015, we will probably open then and look toward figuring out what is the best way to return capital to shareholders as the cash flow continues to generate.

I also pointed out just wanted to make sure everybody is mindful of, we do expect to have meaningful CVR, payments to the former owners of TECFIDERA, which is going to be captured into the cash flow statement as well.

So I think it has largely continued as we have.

And with a pretty decent intent to rebuild the early image stage pipeline.

Chris Raymond, Robert Baird.

Hey thanks.

Just a follow-up here on TECFIDERA.

So we've done some of our own work on the discontinuation rate, and from at least from what docs are telling us, it looks like it's fairly flat and consistent with what define and confirm showed.

Can you guys maybe talk about the trends you are seeing there?

Are we right?

Or is there some other dynamic we should think about?

Yes, thanks Chris.

It's Tony.

I think that is consistent with what we are seeing.

As we have said before, the discontinuation rates are, we expect to be similar to other inline therapies, over time.

We think we believe the physicians are learning to manage the GI intolerability issues, but you are still going to get some off that.

So we believe your analysis is probably in line with what we are seeing.

Michael Yee, RBC Capital Markets.

Hi thanks for the follow-up.

This is John again.

I don't think this was addressed on today's call.

For anti-LINGO on the last earnings call, it was noted the data from the optic neuritis studies will be expected in January of next year.

Just wanted to confirm, is that still the guidance?

And as for the topline announcement we can expect, it has been awhile since we have seen a Biogen press release on a midstage proof of concept program.

For the anti-LINGO disclosure, how much data can we expect?

Would it be something detailed with numerics for multiple endpoints or a simple short commentary or the trends?

Thank you.

Sure.

Yes we are still on track for January.

As to the data that will show, we will -- the goal here is to be as open as we can about the data, without jeopardizing our ability to publish the data in a peer review journal and have it accepted at a major meeting.

Those are always the things that companies try and trade-off.

So I can't tell you exactly what will be in the press release, but we will certainly be as explicit as we can with those caveats.

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

Okay.

Thank you all for the attention this morning and the time.

And we will get back to work and so can all of you.

Thanks.

This concludes today's conference call.

You may now disconnect.