Biogen Inc (BIIB) 2015 Q1 法說會逐字稿

Good morning.

At this time, I would like to welcome everyone to the Biogen first quarter 2015 earnings conference call.

(Operator Instructions)

I would now like to turn the call over to Mr. Ben Strain, Associate Director Investor Relations.

You may begin your conference.

Thank you, and welcome to Biogen's first quarter 2015 earnings conference call.

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

Our GAAP financials are provided in tables 1 and 2.

Table 3 includes a reconciliation of our GAAP to non-GAAP financial results.

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

We have also posted slides on the website that follow the discussion 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 everyone to consult our SEC filings for additional detail.

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

Now, I will turn the call over to George.

Thank you, Ben.

Good morning, everyone, and thanks for joining us.

Biogen had a mixed start to 2015.

We made good progress on our pipeline, but our commercial results were not as strong as we had hoped.

Although we achieved 20% revenue growth and 55% non-GAAP EPS growth, compared to the same quarter last year, we had expected to do even better.

We saw moderating patient uptake of our oral TECFIDERA in the US and Germany.

And like other companies, we had foreign exchange headwinds.

Our MS franchise continued to gain overall share this quarter, but at a moderating pace.

Our interferon business continued to performed well driven by the recent introduction to PLEGRIDY.

TYSABRI remained the therapy of choice for patients needing high efficacy.

TECFIDERA had a more challenging quarter, due to a number of issues, including an overall slowing of the MS market, the recent launch of PLEGRIDY, the single PML case reported last year, and some first-quarter financial dynamics that Paul will discuss.

And as Tony will describe a little later, our two hemophilia products, ELOCTATE and ALPROLIX, continued to gain patients and market share during the quarter.

On the research front, we continue to advance our pipeline.

We recently presented compelling data for aducanumab, which is the first investigational drug for Alzheimer's disease that has demonstrated a statistically significant reduction of amyloid plaque, and a statistically significant slowing of clinical impairment.

And this week, we are presenting 73 company-sponsored platform and poster presentations at AAN, which highlight our marketed MS therapies, including TECFIDERA's strong efficacy across a broad range of MS patients, in addition to its favorable long-term safety.

We presented new data for anti-LINGO 1 in acute optic neuritis and aducanumab in Alzheimer's disease.

We made excellent progress toward initiating multiple Phase 3 trials.

We plan to initiate Phase 3 trials for aducanumab later this year.

We also recently initiated a Phase 3 trial for TECFIDERA in patients with secondary progressive MS, both of which Doug will highlight.

We believe these important investments have the potential to be significant future growth drivers for Biogen.

We continue to make progress in our biosimilar efforts.

So far this year, marketing authorization applications filed by Samsung Bioepis, our joint venture with Samsung Biologics, for etanercept and infliximab biosimilar candidates have been accepted by the EMA.

Biogen is preparing to commercialize these therapies across the EU, if approved.

There is a growing societal need for high quality biosimilars to help improvement patient access to treatments that they need, and we believe that Biogen's world-class development, manufacturing and analytical capabilities position us well to bring these therapies to patients.

So in conclusion, we have another busy year, in which we will focus on the trajectory of TECFIDERA and of our entire MS franchise, in order to achieve our commercial and financial goals, and ensure that we execute ongoing and planned clinical trials, to move our pipeline forward as quickly as possible.

So now I will turn the call over to Doug, who will update you on our progress in R&D.

Thanks, George.

At last month's ADPD meeting, we presented positive interim data from our Phase 1B study evaluating aducanumab in patients with prodromal and mild Alzheimer's disease.

And earlier this week at AAN, we presented additional Phase 1B results, demonstrating that aducanumab treatment had a consistent impact on amyloid levels in Apo E4 carriers versus non carriers, as well as in prodromal versus mild AD patient subgroups.

We plan to present clinical data for these subgroups at subsequent medical meetings.

We plan to initiate Phase 3 registrational studies for aducanumab in the second half of this year.

We have been in active dialogue with regulators, and we are close to finalizing our Phase 3 development plan.

Our expectation is that our registrational program will include two identical 18 month long placebo controlled trials, each including 1,350 subjects with early Alzheimer's disease.

We intend to use the CDR Sum of Boxes as the primary endpoint.

In each Phase 3 study, we plan to evaluate two doses of aducanumab in both the Apo E4 carriers and non carriers, with Apo E4 non-carriers receiving higher treatment doses.

Estimating enrollment timing is difficult, though we anticipate Phase 3 enrollment duration will be similar to other large studies in Alzheimer's disease.

We hope the substantial interest in the program will catalyze recruitment.

However, the studies will include early Alzheimer's patients, who are often not yet diagnosed.

Also, we must ensure that clinical sites have access to amyloid PET imaging.

As we initiate the Phase 3 program, the Phase 1B study will remain ongoing.

We expect to present the one-year clinical results for the 6 milligram per kilogram study cohort at the AAIC meeting in July.

We also continue to evaluate dose titration, and we expect to present those results next year.

Moving on to our other programs, starting with ZINBRYTA.

The EMA has validated the marketing authorization application for ZINBRYTA.

If approved, we believe ZINBRYTA could be an important new therapeutic option for relapsing MS patients.

For TECFIDERA, we recently initiated a new Phase 3 study, INSPIRE, to evaluate whether TECFIDERA slows the rate of disability progression in patients with secondary progressive MS. There are no effective treatments available today for SPMS, and developing therapies for this patient population is of great interest to the organization.

INSPIRE is a two-year, placebo controlled study in 1,170 subjects.

The primary endpoint is time to confirm disability progression, based on a composite endpoint including EDSS, a timed 25-foot walk test, and the nine hole peg test.

The endpoint utilized is similar to that being used in the ongoing TYSABRI ASCEND SPMS study.

The scientific rationale to develop TECFIDERA and SPMS is based on both biological and clinical evidence.

We believe pre-clinical data demonstrated that TECFIDERA has cytoprotective and anti-inflammatory properties that may address the lymphocytic infiltrates and neurodegeneration known to occur in SPMS patients.

The clinical data from TECFIDERA Phase 3 studies also demonstrated reduced disability progression in subjects, even when they hadn't experienced recent relapses.

Turning to anti-LINGO.

At this week's AAN meeting, we presented detailed results from the Phase 2 acute optic neuritis study, which we believe demonstrated that anti-LINGO is able to remyelinate damaged neurons.

New data demonstrate a statistically significantly improvement in recovery of optic nerve conduction latency in subjects treated with anti-LINGO, going out to week 32.

Also, results from a sub-study evaluating multi-focal VEP, a more sensitive of optic nerve conduction, were found to be consistent with the full field VEP findings.

Our anti-LINGO Phase 2 study in MS remains ongoing, and we expect to obtain final results in mid 2016.

I will now turn the call over to Tony.

Thanks, Doug.

Let me start with the MS franchise.

We continue to believe that our portfolio of products is a source of strength in the marketplace, with the leading oral agent, the leading high efficacy agent, and two well positioned interferon options.

In the US, we believe we continue to capture roughly half of all newly diagnosed and switch patients within our franchise in Q1.

As we've said in prior calls, with the launch of TECFIDERA in 2013 in the US and 2014 in Europe, we saw a period where both market growth and switching dynamics were well above historical averages, and TECFIDERA really drove this.

And we expected a natural moderation in these rates through 2014 and into 2015.

We believe this is occurring as expected, but also believe that the tech safety event in October further dampened market growth and switch rates in Q1.

So in this broader market context, TECFIDERA continued to add patients this quarter, but at an overall slower rate.

In the US, our internal market research suggests that physician intent to prescribe may be improving.

We believe these data indicate that we are assisting physicians in putting the updated label into context.

In Europe, we saw robust uptake in patient capture in the quarter in the UK, as well as in newly launched markets such as Italy and Spain.

In Germany, the product saw similar headwinds as it in the US.

But for Europe as a whole, we saw nice growth in patients in the quarter.

Finally, in markets where we have launched PLEGRIDY, we believe the uptake of that product has also dampened TECFIDERA growth, by taking some interferon switches that could have gone to TECFIDERA.

But obviously, for Biogen overall, this is a positive, and again speaks to the strength of our franchise position in the market.

We continue to believe that TECFIDERA remains the preferred oral option in the market, given its strong efficacy, convenience and safety profile.

We are leveraging the full capabilities of our commercial organization to communicate these benefits.

Maintaining significant sales force focus, executing both physician and patient programming with updated messaging, and increasing our share of voice across both print and digital media.

Next, in PLEGRIDY combined continued to gain share among interferons this quarter.

PLEGRIDY has continued to source patients broadly, which we believe is a positive indicator of the product's appeal.

Based on our market research, we believe PLEGRIDY is emerging as the interferon of choice, and we continue to believe that as the interferon market declines, Biogen's ability to grow share within it is attractive.

Finally, in the MS franchise, we're pleased that TYSABRI showed a full year of positive patient growth in a market with an increasing number of alternatives.

From Q1 2014 to Q1 2015, global TYSABRI patients increased 5%.

We think this performance is a testament to physician and patient belief in the high level of efficacy that TYSABRI provides to patients.

So in summary, our MS franchise revenue increased 19% year over year, to approximately $2.1 billion.

Turning to our emerging hemophilia business.

We continue to be pleased with the launch of our long acting factors.

In the US, as the first long acting factors in the market, both ALPROLIX and ELOCTATE, continued to gain new patients this quarter, and we have continued to see expansion of usage among hemophilia treatment centers.

We now have over 70% [HDZ] penetration for each product, and our data show that switching rates in both hemophilia A and B are running well above historical averages.

We believe we are succeeding in our strategy to capture early adopters, and then expand our footprint, as both patients and physicians have positive experiences with the products.

Outside of the US, we also recently launched both ALPROLIX and ELOCTATE in Japan, and have seen strong initial interest.

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

I will now pass the call to Paul.

Thanks, Tony.

Our GAAP diluted earnings per share were $3.49 in the first quarter.

Our non-GAAP diluted earnings per share in the first quarter were $3.82.

Total revenue for Q1 grew 20% year over year, to approximately $2.6 billion, though decreased 3% versus the prior quarter.

The strengthening dollar weakened revenues by approximately $89 million, which was partially offset by hedging for a net unfavorable impact of $49 million.

Global first-quarter TECFIDERA revenues were $825 million, an increase of 63% year over year.

However, a decrease of 10% versus the fourth quarter of last year.

This quarter's TECFIDERA revenues consist of $648 million in the US and $177 million outside the US.

There are few items that impacted TECFIDERA revenue in Q1.

Let me provide the details.

US TECFIDERA sales included 13 shipping weeks in Q1, compared to 14 last quarter.

We estimate the additional week of TECFIDERA sales in Q4 represented approximately $50 million.

US gross to net adjustments were higher this quarter than prior quarters.

Specifically, increased discounts and allowances, in part due to the [tone it hole], were approximately 400 basis points higher than our estimated run rate for the remainder of 2015.

This impacted Q1 US revenues by approximately $35 million.

In the US, we estimate we ended the quarter with approximately 2 1/2 weeks of inventory in the wholesale channel, a similar level to last quarter.

However, we believe there was a slight draw-down of inventory in the specialty pharmacy channel.

Outside the US, foreign exchange impact, offset by hedging, weakened TECFIDERA revenues by approximately $8 million for Q1, versus the prior quarter.

And in Germany, we began recording TECFIDERA sales at a lower price, as the free pricing period ended in mid February.

We expect the official price will be made public in May.

So shipping weeks, gross to net, foreign exchange and German pricing negatively impacted TECFIDERA this quarter.

Nevertheless, as we have noted, we saw moderating patient growth, especially in the US and Germany, and we are working diligently to improve TECFIDERA's trajectory.

Interferon revenues, including both AVONEX and PLEGRIDY, were $755 million during the first quarter, including $518 million in the US and $236 million in sales outside the US.

AVONEX US sales included 13 shipping weeks in Q1, compared to 14 in the prior quarter.

Foreign exchange impact, offset by hedging, weakened Q1 interferon revenue by approximately $12 million versus prior quarter, and by approximately $25 million year over year.

TYSABRI worldwide revenue was $463 million in Q1.

These results were comprised of $273 million in the US, and $190 million internationally.

Foreign exchange impact, offset by hedging, weakened TYSABRI revenue by approximately $12 million for Q1 versus Q4, and approximately $20 million year over year.

Moving to hemophilia.

ALPROLIX revenues in Q1 was $43 million, and ELOCTATE revenue was $54 million.

For our anti-CD20 unconsolidated joint business, which includes RITUXAN and GAZYVA, our US profit share, as well as the profit share in royalties on sales of rituximab outside the US, were $331 million, an increase from prior quarter, in part due to an inventory build.

Royalties were $20 million for Q1, compared to $38 million in the same quarter last year.

Our royalty revenues from Angiomax ended on December 15, 2014.

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

Q1 cost of goods sold were $312 million, or 12% of revenue.

Q1 R&D expense was $461 million, or 18% of revenues.

Which includes no meaningful business development activity during this quarter, though we continue to anticipate additional BD activity through the remainder of the year.

Q1 SG&A expense was $560 million, or 22% of revenue.

Our non-GAAP tax rate was approximately 25% for Q1, and our rate benefited by approximately 1.5% related to a discrete item.

During the quarter, we made $250 million of CVR payments to the former shareholders of Fumapharm.

And our weighted diluted shares at the end of the quarter were $236 million.

We ended the quarter with approximately $3.5 billion in cash and marketable securities, split approximately 50/50 between the US and ex-US.

This brings us to our non-GAAP diluted earnings per share, which were $3.82 for the first quarter.

As a reminder, last quarter, we announced our plan to provide annual guidance in one update per year during our second-quarter earnings.

This change intended to synchronize with our internal planning processes and ensure a continued focus on the long term.

As a result, we won't be updating our formal guidance this quarter, though I would like to briefly characterize our thinking about the remainder of the year.

There are two key items we are keeping a watchful eye on for the rest of the year.

First, while foreign exchange has been a headwind, any additional strengthening of the dollar could exacerbate this impact on revenue.

And second, we continue to expect TECFIDERA will represent the largest contributor to our overall revenue growth.

If the US trajectory does not improve, we may come in at the lower end of our previously provided revenue growth.

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

Thank you, Paul.

In closing, the year is shaping up to be an eventful one for us.

Obviously, a top priority for us is the growth of our entire MS portfolio, including TECFIDERA.

We believe that TECFIDERA is a compelling treatment option for MS patients, and our long-term outlook for TECFIDERA, and for our entire MS portfolio, remains strong.

We believe that our portfolio provides leading choices for patients among interferon, oral, and high efficacy therapies, and we are working hard to overcome the headwinds that we saw last quarter.

And of course, we will continue to focus on increasing the numbers of hemophilia patients who are taking advantage of the benefits of ELOCTATE and ALPROLIX.

This year is also an important one, in terms of advancing the pipeline.

We will move aducanumab into Phase 3 as quickly as possible, and will focus on the execution of our ongoing trials for the other compounds in our pipeline.

We anticipate data on several pipeline compounds this year, including a Phase 3 trial of TYSABRI for the treatment of SPMS, a Phase 2 trial for TYSABRI in acute ischemic stroke, and Phase 2 data for and neublastin and neuropathic pain.

And of course, we are looking forward to the data from the Phase 2 trial of our anti-LINGO antibody in MS next year.

We believe that each of these therapies has the potential to be a significant therapeutic advance.

And so with that, we will close our remarks.

And operator, you can now open up the call for questions.

(Operator Instructions)

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

Thank you very much for the question.

Perhaps to start off with TECFIDERA, you highlighted the case of PML last year in your comments.

But of course, there was the other case written up that was with a different form of MF, not TECFIDERA, this year.

And first of all, do you think that that will have any impact on the out -- in the future for TECFIDERA?

And secondly, I would just be curious as to what advice you are now giving physicians, with respect to patients who are JCV positive?

Do you think the case this year alters the sentiment you had after last year's case, where of course the patient was heavily pre-treated and lymphopenic?

Yes.

Thanks, Geoff, it's Tony.

We just spent much of this week in talking to physicians and understanding what their perspective is.

So just to highlight, between the tech event and the (inaudible) BML report late last year, what they are seeing is more hesitancy among patients.

We talked about market growth as one of the issues in switch rates.

Not clear that the physicians, at least that I talked to, which was the anecdotal, had a dramatically different perspective themselves.

But they see some hesitance in the conversations that they are having with patients.

I think it's a little early to tell what the kind of the impression result or perception result from the recent New England journal articles will be.

Doug, maybe you want to comment on --

Sure.

Geoff, I think the simple answer to your question is that it's our assessment that there is no real change in the benefit-risk profile of the drug for patients with MS. So it's pretty much status quo at the moment.

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

Your line is open.

Hey, guys.

Thanks so much for taking the question.

I just maybe turn the conversation to Alzheimer's.

I am sure a lot of the other analysts will.

Doug, I just love -- I know you addressed some of this -- or your -- others did at AAN.

But maybe just talk a little bit about some of the concerns -- I mean, obviously most of us think the data are good.

But on the concerned side is, number one, that the placebo group may have deteriorated more quickly than one would expect in this population.

And number two, the risk that some of the -- at least the caregivers were unblinded to the status, given the instance of ARIA.

And then also, along the lines of on Alzheimer's, is ARIA a clinical problem?

Okay.

That's three questions.

No, it's one question.

I am keeping track here.

So let's take the first one.

The placebo group.

And did they behave as expected?

It's our view that, based on the natural history studies, that, yes, they did.

And remember that this was a slightly different population, in that they were all PET amyloid confirmed.

So we had a population that was perhaps slightly different than what the full spectrum in the natural history studies would look like.

And I think maybe that's where some of the perception issue comes from.

But this was an enriched population of patients, based on the fact that they were all amyloid imaged prior to entering the study.

So that's the first question.

The unblinding issue, I am glad you asked that question, because I have heard that several times now.

And we feel very confident that that was not an issue in the study, for a variety of reasons.

Probably the most important is that we anticipated this, in the sense that we were aware of other studies with other antibodies, where ARIA had been observed.

And so as we designed the study, we wanted to be sure that we put the appropriate safeguards in place, so that this would not be an issue.

So we segregated the raters who were looking at the CDR endpoint and MMSE endpoint, and neither of those raters were the treating physician.

So they were completely separate from the assessors of clinical results, including ARIA.

So we anticipated this.

We put the safeguards in place up front.

And I think that that was an important study design aspect.

The other piece of information I think is relevant here, if you don't buy that argument, then the other piece is that, frankly, the temporal issues, I think, also support the fact that it is unlikely that there was any unblinding.

Because 92% of the events, the ARIA events that occurred, occurred within the first five doses of administration.

We didn't actually see a change in cognition until 12 months -- or 54 weeks, to be precise.

So there was a significant gap between any of the observed ARIA in these patients and the treatment benefit that we recorded with CDR Sum of Boxes and the MMSE endpoint.

So that gap in time, I think, should also give you some comfort.

And then with respect to clinical, is ARIA a clinical observation?

It's a really good question, Mark.

I think -- it may be an indication of biology, in the case of our antibody.

I think it's difficult to say.

What I think is important, though, is that about two-thirds of the cases of ARIA that we saw had no symptoms associated with them.

In those patients, the 30 -- roughly 35% that did show some symptoms, they were primarily mild to moderate, self-revolving within 4 to 12 weeks.

So I think there is still a lot for us to learn about ARIA, and what it means, and how we manage patients through that.

But it is a question that I think will continue to be explored, and the answers will play out over the course of the next several years.

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

Your line is open.

Thanks for the question.

Doug, just sticking with Alzheimer's, there has also been some concern around the 6 milligram dose cohort that didn't perform as well, at least at 26 weeks.

Do you share that concern?

And if we don't see improvement at AAIC in the one-year data for the 6 milligram dose cohort, what could explain lower performance for that arm?

Our assessment is that the 6 milligram dose is actually, given the small cohort size, within the range that we would have expected to see.

It -- from an amyloid reduction perspective, it sits in between the 3 milligram and 10 milligram dose, at the 26 week timeframe.

So I think we feel pretty comfortable that that dose cohort is behaving roughly in line with what we would have expected, based on the other cohorts in the study at that time point.

So no, we don't have concerns that that particular cohort represents an outlier in any way.

Cognition, as well?

Cognition -- I think, again, the real endpoint -- or the real question mark will be at the 54 week time point.

So I am not sure we really saw anything convincing at 26 weeks.

The data was within the noise, I think, at 26 weeks.

It's at 54 weeks that I think the important data point will emerge.

Your next question comes from the line of Chris Raymond with Robert Baird & Company.

Your line is open.

Thanks.

Just curious on anti-LINGO.

You had some data, obviously, this week.

And just curious, your reaction, at the highest 100 milligram per kilogram dose, obviously, you are getting into some sizable drug product on a per dose basis, when you think about a 70 kilogram patient.

And just wondering how you think about dosing and -- with that kind of dose level, and then potential cost of goods?

Yes.

Let me just sort of frame.

The purpose of the study was really a proof of biology study.

I think we are not, at the moment, planning to go into acute optic neuritis as an indication, per se.

But we thought it was an elegant way to assess whether or not we could demonstrate remyelination in man.

The 100 milligram per kilogram dose was simply chosen because we were only planning to do a single dose cohort, and we chose the top dose that we had looked at in the single ascending dose safety study.

So we wanted to make sure we had adequate drug on board to see a treatment effect, if there was going to be one.

And I think we are encouraged, now, by the fact that we have seen, through two different measures of VEP, and also looking at the percentage of patients that actually return to a latency level that looks like normal, which is roughly 2X in the treated group versus the placebo group, that in fact we're convinced that there is remyelination that translates to a benefit, in terms of improved latency.

So 100 milligrams per kilogram was chosen just as a dose that we could give, to make sure we had adequate drug on board.

But we don't believe that that will be the dose.

And in fact, the Phase 2 study that's underway, SYNERGY, is exploring a whole range of doses, to allow us to pick the minimum effective dose to take forward, hopefully into Phase 3 studies.

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

Your line is open.

Great.

Thanks very much for taking the question.

At AAN, there seemed to be some talk at the BIIB37 poster about both IV and sub-Q administrations, at BIIB37.

Can you give us a sense for whether or not we could see a sub-Q emerge either in a Phase 3 later this year?

Or maybe further dosing work in a Phase 1 level, as you go forward?

Obviously, be attractive to have a sub-Q formulation, if you had it.

Just wondering if you could give us some update there?

Yes, I think that you should anticipate that the Phase 3 study will be given by the same route of administration as the Phase 1B.

But you are correct.

We are already beginning to think about the benefits to patients of developing a sub-Q formulation.

So I think that that's something that will be in the offing, but not likely incorporated into the Phase 3 program.

But it is a patient convenience issue that we're thinking about already.

How would you be able to take that forward?

Would you have to run a bridging study, or -- you wouldn't have to run a separate Phase 3?

Just a bridging should be fine?

Or if you could advance that?

I think it's likely to be a bridging study.

That would be our assumption at this point.

But obviously, that would require a confirmation with the regulators.

Your next question comes from the line of Jeff Meehan with Barclays.

Your line is open.

Good morning, guys.

Thanks for taking the question.

Doug, another one for you.

In Alzheimer's, it looks like you have a very good idea of the Phase 3 design.

So is this final meeting with the FDA for sign-off?

Or are there any additional design issues in play?

And then can you give us any perspective on what treatment effect you are looking for?

Or maybe what we should use as a historical benchmark for CDR at the -- at 18 months?

Thanks.

Yes.

I think the design is not final until it's final.

I am not trying to be cute, but obviously, we are still in active discussion with the regulators.

I think we feel like we really nailed down a lot of the key issues, most of which I have delineated for you in the script a bit earlier.

There are obviously a few remaining issues that we need to tie down, and make sure that we're coordinated with regulatory agencies around the world.

So we want to conduct a program that would support registration in a very broad sense, geographically.

And then in terms of the treatment effect, again, this is the first time that anyone with an amyloid antibody has seen a treatment effect of this magnitude.

I think our goal is to attempt to replicate the Phase 1B data, at least at a high level.

The specifics around the treatment effect that will be acceptable for registration, I am not prepared to discuss that at this point.

I think once we've finalized all of our negotiations with regulators, we will have more to say about the study design, and get into a bit more details once we begin enrollment.

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

Your line is open.

Hi.

Thanks for taking the question.

Maybe just one with respect to the gross to net in the quarter on TECFIDERA.

Just wondering if you can give us any more color about the delta there, versus your expectations?

And then should we expect that that's going to continue over the balance of the year?

It was a little unclear from your comments.

Thank you.

Yes.

Thanks, Terence, this is Paul.

Yes.

We saw the gross to net drift upward versus the last four quarters.

We had anticipated, for a full year coming into 2015, that we would have a little bit of upward pressure on gross to net, just as we continued to penetrate managed care contracts.

Q1 drifted up for two reasons.

The normal Q1 donut hole, et al.

And we also just had an adjustment made in the management care accounts.

That resulted in close to a 20% gross to net.

We expected to drift down about 400 basis points for the subsequent three quarters.

Your next question comes from the line of Ying Huang with Bank of America Merrill Lynch.

Your line is open.

Thanks for taking my questions, as well.

Maybe for Doug, I have a couple for the Alzheimer's program.

First of all, can you clarify whether you will wait for the titration results before you start the Phase 3 trial officially, for (inaudible) 37?

And secondly, do you guys have any data in house for the correlation between plaque reduction, and also the neurocognitive endpoints, such as CDR and MMSE, from the Phase 2B?

So with respect to titration, our expectation is that we will begin the study prior to reporting out the titration data.

I think we have a pretty good handle on the dosing parameters for the study, and how we plan to handle that.

So it's our expectation that we won't wait for that data.

And then with respect to the correlation between plaque and CDR, I think it's difficult to, in a study of this size, really draw those sorts of direct correlations.

Obviously, we will be looking at those sorts of things, to see whether or not plaque reduction per se can be used as a quote-unquote biomarker, on an interim basis.

But I think the study is relatively small, to be able to draw those sorts of strong correlations.

What I will say is that, irrespective of the cohorts that we looked at -- and this is from the most recent AAN poster that was presented, whether you are looking at Apo E4 carriers or non-carriers, whether you're looking at mild or moderate patients, the reduction in amyloid appears to be pretty consistent across the spectrum.

So there doesn't appear to be any difference in Apo E4 status influencing amyloid removal, nor the stage of disease, roughly breaking it down between mild and prodromal patients.

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

Your line is open.

Great.

Thanks for taking the question.

Maybe one for Paul and George.

Just you've have got a substantial cash balance.

You have seen some other companies go out and buy some close to market neurology assets.

We have seen you guys do some early stage deals, but not close the market deals.

Any thinking, or what might change your thinking, to pick up an asset, which could be closer to market, by maybe spending a little a little bit more money than you typically have?

Look, we have no formal strategy that says we are only going to end license early stage items.

I think when we look at acquisitions from the outside, we look at the data, we look at the market potential, we look at the competitive status, and we look at value.

And if all those things make sense, then we could go ahead and make an acquisition, or end license a compound.

So I think we try and take a look at these from a scientific and medical perspective, to make sure that they are valid.

From a market perspective, to make sure there is a patient need, from a competitive perspective.

And then they have to make sense in terms of what we have to pay for what we get.

And so I think those are the filters, and we'll -- those are the ones we have used.

Those are the ones we will continue to use.

Your next question comes from the line of Cory Kasimov with JPMorgan.

Your line open.

Good morning, guys.

Thank you for taking my question.

I wanted to go back to Alzheimer's for a minute.

And I am curious if you can provide any updates on the progress with your TAU inhibiter?

When that enter the clinic?

More specifically, last month, at ADPD, there was a lot of talk from [KOLs] about combo strategies in Alzheimer's.

So wondering if you have any pre-clinical data on TAU plus A-beta antibodies?

And is this a combination you may evaluate relatively rapidly?

Or would you wait to see how aducanumab monotherapy plays out first?

We have a couple of different approaches -- this is Doug.

We have a couple of different approaches on TAU.

Both of them are in pre-clinical at the moment.

And I would expect that the front runner amongst those candidates is one of the antibodies that we have under development, likely to move into the clinic next year would be my best guess at the moment.

We are starting to do some of those experiments with combinations.

Not just with TAU antibodies and anti-amyloid antibodies, but also beginning to look at the combination of base inhibitors with the anti-amyloid antibodies.

So I think long term, our view is that this will become a combination market, and we're exploring a number of what I would characterize as the sort of obvious combinations to look at right up front.

And I think we are fortunate that we have got a collection of these assets that we can begin to mix and match, in the pre-clinical stages, to help guide us towards the choices of what makes the most sense to look at, once we actually start generating clinical data.

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

So just want to ask a question about TYSABRI and stroke.

I understand the mechanism.

Maybe you can talk a little bit more about it.

But specifically, how quickly will TYSABRI work, do you think, in a patient?

So what gives you the confidence that when they get this injection after stroke, that you could see a benefit?

And maybe update on possible timing of the data?

Thank you.

Sure.

Robyn, this is Doug.

The timing of the data would be second half of the year.

And I think, from the standpoint of mechanism, there is actually quite a bit of pre-clinical data and stroke models, either with antibody treatment or knockouts, that demonstrate that the size of the infarct is dramatically reduced when you antagonize this pathway.

So what we're going to be looking at, in this particular study, is two different measures.

The first is a reduction in the infarct size, which we would predict to occur, based on the biology.

The immediate influx after an infarct tends to be neutrophils, followed quickly thereafter, within the first 24 hours, with a pretty robust lymphocyte infiltrate.

And it's thought that that lymphocyte infiltrate contributes to cytokine production that causes further damage and loss of function.

So by antagonizing that second influx of lymphocytes, we hope to reduce the infarct size.

And we will be looking at that by imaging five days out.

The perhaps more important endpoint that we are also looking at -- and obviously it's a relatively small study, so we haven't sized it to see it, per se, but there are several measures of stroke.

There is a rating scale that is used routinely, in these types of studies, that we will be looking at, at day 29, to really assess whether there is any functional benefit, in terms of protecting these patients from loss of function as a result of stroke.

So it's really a two-pronged study.

The first is the imaging endpoint, and that will come fairly quickly, and that's where most of the good biology data is.

Secondarily, though, we will be actually looking at the performance of these patients, either with placebo or TYSABRI, to ask the question of whether we have actually shown some benefit, from a clinical perspective.

And that's what will drive the decision, as to whether we move into Phase 3.

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

Your line is open.

Hey.

Good morning.

Thanks.

Just wanted to clarify on the BIIB37 Phase 3 that you talked about.

Is it specifically one study in carriers and one in non carriers?

And each of those using different doses?

And then you mentioned it was 18 months.

Is that just because you want to give confidence -- or get confidence that there is enough time to separate between the curves?

Is that what you're thinking?

Thanks.

Yes.

The two studies will eventually be identical mirror images of each other, and they will incorporate both carriers and non-carriers into those studies.

And you're right.

The 18 months is really simply a way of assuring that we have adequate time to capture the treatment effect with the various doses that we will be testing, both the lower and the higher doses that will be incorporated into the study.

So it's been designed, really, based on the observations from the Phase 1B study, in terms of the cadence of the treatment effect.

And we think that the 18 months is the appropriate timeframe in which to assess, in both carriers and non-carriers, at the doses we are planning to go forward with.

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

Your line is open.

Hi, this is (inaudible) for Yaron.

Thank you for taking my question.

For Alzheimer's what are single primary of (inaudible) submission?

And what are the differences in EU and US regulatory requirements?

And also, if you can make any comments on IPR and the (inaudible) interference?

I missed the second question.

But the first question, on CDR, I think for a population of patients that are largely prodromal, but also including some early mild patients, which is what we'll be focusing our attention on in these studies, the CDR endpoint is an accepted endpoint for regulators.

It is, remember, a composite score that looks at both cognition and function.

And in prodromal patients in particular, you don't actually have functional changes.

So it's thought that this is the most appropriate tool for the early spectrum patients in Alzheimer's disease, and that's why regulators have started to accept this as a single primary endpoint in registrational studies.

Not just in the US, but in the EU, as well.

This is George.

On the IPR question, we are certainly aware of the IPR that was filed.

We have several patents that are protecting TECFIDERA, and we are confident in our IP portfolio.

And so we don't think it's going to have an impact on our ability to continue to sell the product.

Your next question comes from the line of Joseph Schwartz with Leerink Partners.

Your line is open.

Thanks very much.

Maybe one on LINGO.

Can you explain to us your thoughts on why you are able to see functional benefits in the absence of seeing anatomic evidence of remyelination?

What are your latest thoughts on how useful or not a model of ALN is for MS?

And how are you thinking about that now, versus before you ran the latest experiment?

The LINGO study that we've reported out on, in optic neuritis, I think the anatomical data, just based on where these lesions occur, it's difficult to get actually get the sort of imaging confirmation that you can get in MS studies, where the lesions are much more visible, just because of current MRI technology.

So I think we relied on functional measures of remyelination, as opposed to imaging measures, just because that was more appropriate in the optic neuritis setting.

Our results, I think, give us more confidence, going into the readout from the MS studies.

This is, in fact, the first time anyone has reported a treatment effect, and the ability to observe remyelination in man.

Prior to this study, all we had was some very elegant animal experiments, but we had never really created the linkage of those data to what we can accomplish in man.

So I think the exciting part of the data from the optic neuritis study is that we now have evidence in man, looking at a couple of different ways of measuring latency on the optic nerve.

And also the recovery parameters that I mentioned earlier, with double the number of patients getting back to a normal level of latency versus the placebo group.

I think that consistency of that data, across the various ways we have looked at it, gives us added confidence going into the MS study, that at least we are influencing the biology we hope to influence.

So we'll just have to wait and see what that data shows us.

And as I mentioned in the call, that will -- the final data will be available in 2016 in the MS study.

And tell us a lot more than what we know now about how, or if, to go forward in MS.

There are no further questions.

I turn the call back over to Dr. Scangos.

Okay.

Thank you all for your questions, thanks for your attention this morning, and we will conclude the call.

This concludes today's conference call.

You may now disconnect.