Biogen Inc (BIIB) 2015 Q3 法說會逐字稿

Good morning.

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

At this time, I would like to welcome everyone to the Biogen third quarter 2015 financial results and business update.

(Operator instructions)

Thank you.

Ben Strain, Investor Relations, you may begin your conference.

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

Before we begin, I encourage everyone to go to the investor section of Biogen.com to find the press release and related financial tables, including a reconciliation of the GAAP to non-GAAP financial measures that we will 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 our website that will follow 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 SEC filings for additional detail.

On today's call, I am joined by our Chief Executive Officer, Dr. George Scangos, Dr. Al Sandrock, our Chief Medical Officer, and our CFO, Paul Clancy.

I'll now turn the call over to George.

Okay.

Thank you, Ben, and good morning, everyone, and thanks for joining us today.

Third quarter was marked by significant progress across several key areas.

We delivered 11% revenue growth and 18% non-GAAP EPS growth, as we continued to see modest patient growth across the portfolio.

We have several important developments in our pipeline.

We initiated enrollment for our Phase 3 clinical program for aducanumab in Alzheimer's disease, we announced Phase 3 results for TYSABRI in secondary progressive MS, which Al will cover in more detail later in the call, and we continue to strengthen our pipeline by announcing an agreement to exclusively license MT-1303 from Mitsubishi Tanabe.

On the commercial front, we remain committed to improving our commercial trajectory, with a particular emphasis on TECFIDERA.

Our market research continues to indicate that prescribers believe TECFIDERA has a very strong benefit risk profile.

However, patient growth in the US and Germany remains challenging, and we are actively working to improve this dynamic.

We have increased sales calls for TECFIDERA, as we continue to educate physicians on TECFIDERA's strong efficacy and favorable safety profile, and its label and monitoring requirements.

We have also increased our direct-to-consumer marketing in the US, including a recently launched television campaign that some of you may have seen.

We have also made significant progress on capital allocation.

Through yesterday, we returned approximately $3.9 billion to our shareholders through the repurchase of our common stock.

Importantly, Biogen still retains strategic flexibility to support both continued business development, and potentially larger scale acquisitions.

We remain focused on strengthening and expanding our early stage pipeline through tuck-in acquisitions and collaborations, a strategy that has produced assets such as TECFIDERA, ELOCTATE, ALPROLIX, Aducanumab, ISIS-SMN-Rx, and [Raxatrigine].

We are actively looking for late stage and commercial assets, which have the potential to add both strategic value and near-term revenue growth, while maintaining financial discipline.

Today we also announced the corporate restructuring that we believe will best position the Company to achieve our strategic priorities.

This decision to reduce our workforce was extremely difficult, and we are very thankful for the hard work and contributions of our talented colleagues and friends.

As part of our efforts to focus on key commercial initiatives and high potential pipeline candidates, we have also made the decision to discontinue several pipeline programs, that include TECFIDERA in secondary progressive MS, as well as certain programs in immunology and fibrosis research including anti-TWEAK.

Importantly, we plan to reinvest the savings from this restructuring into key commercial initiatives and a number of prioritized programs across our emerging, mid and late stage pipeline, including commercial initiatives aimed at increasing sales and marketing therapies, including new direct-to-consumer marketing programs for TECFIDERA, the advancement of aducanumab, BAN2401, and E2609 for Alzheimer's disease, anti-LINGO for multiple sclerosis, ISIS-SMN-Rx for spinal muscular atrophy, our recently acquired asset from Convergence, raxatrigine for trigeminal neuralgia and other pain indications, and MT-1303 for inflammatory bowel disease and other autoimmune diseases.

And with that, I will turn the call over to Al for an update on R&D.

Thanks, George.

We had important clinical study readouts, and good progress advancing a new generation of mid and late stage clinical programs.

This morning, we reported top line results from the Phase 3 ASCEND study for TYSABRI in secondary progressive MS. The objective of ASCEND was to determine whether TYSABRI had an impact on slowing disability progression unrelated to relapses in patients with SPMS.

Most patients that enrolled in ASCEND had non-relapsing SPMS, and had EDSS scores of 6.0 to 6.5.

ASCEND did not achieve its primary or secondary endpoints, and we do not intend to file for label expansion.

We are disappointed in these results, as SPMS is a serious condition with no effective therapies.

ASCEND study results did demonstrate that TYSABRI had a robust impact on relapses and MRI measures of disease, consistent with its known clinical profile in relapsing MS. Study results also indicated that TYSABRI had a statistically significant affect on upper limb function measured by the 9-Hole Peg Test, which was a component of the composite primary endpoint.

Full study results will be reported at a future medical meeting.

Moving onto our other MS development programs, at the ECTRIMS meeting earlier this month, we presented an additional analysis from RENEW a Phase 2 study that evaluated anti-LINGO in patients with acute optic neuritis, the top line results of which, we reported earlier this year.

About half the patients in RENEW underwent multifocal visual evoked potential testing, a method that allows us to record electrical responses produced in the occipital cortex upon stimulation of small segments within the retina.

First, we found that anti-LINGO had an effect on the recovery of the multifocal VEP amplitude recorded by stimulating the eye that was affected by optic neuritis.

Interestingly, we also found that anti-LINGO treatment preserved the multifocal VEP amplitude recorded by stimulating the opposite eye, which was seen to be deteriorating in the placebo group, likely due to lesions developing in the visual system, as a result of some of these patients being in the early stages of MS. We believe that these results further support our previously reported findings, and provide evidence that anti-LINGO may have neuro-protective properties.

We continue to expect top line results from the Phase 2 SYNERGY study in MS in mid 2016.

Turning to ZINBRYTA, the New England Journal of Medicine has just published the results of the ZINBRYTA Phase 3 DECIDE study.

In DECIDE, ZINBRYTA demonstrated a compelling 45% improvement in annualized relapse rate compared to Interferon therapy.

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

At ECTRIMS, Roche presented positive Phase 3 results in both relapsing and primary progressive MS for ocrelizumab, a product in which we have a business interest.

Results from two Phase 3 studies in relapsing MS showed a 46% and 47% reduction in annualized relapse rate compared to Interferon therapy.

Ocrelizumab also demonstrated a significant role in the treatment of primary progressive MS, a serious neurodegenerative condition for which there are no approved therapies.

If approved, it would be wonderful to be able to offer these patients a meaningful new therapy.

Turning to our hemophilia therapies, Elocta which is the approved European trade name for ELOCTATE, obtained a positive recommendation from the CHMP as a therapy for hemophilia A. If approved in the EU, Elocta would be commercialized there by our collaborator, Sobi.

At the 2015 National Hemophilia Foundation meeting, new ALPROLIX data showed a beneficial long-term safety and efficacy profile in patients with hemophilia B. Favorable long-term clinical results for ELOCTATE treatment of patients with the hemophilia A were also recently published.

Moving to the aducanumab Phase 3 program for patients with early Alzheimer's disease, we have initiated clinical sites in both the EMERGE and ENGAGE studies, and the first study subjects have now been enrolled.

We are pleased to have received FDA agreement on a special protocol assessment on the aducanumab Phase 3 study protocols.

We have previously reported that ARIA, or amyloid-related imaging abnormality was the most significant adverse event observed in the aducanumab Phase 1b study.

All patients currently enrolling in the Phase 3 studies of aducanumab are undergoing dose titration, in an effort to mitigate the risk of ARIA.

Preliminary data from the Phase 1b study suggests that dose titration does seem to reduce the incidence of ARIA, although these findings will need to be confirmed with further study.

We continue to obtain additional clinical data from the Phase 1b study, and we anticipate discussing these results at a scientific meeting in the second half of next year.

We have made progress in expanding our development pipeline by acquiring rights to MT-1303, a Phase 3 READY program with potential in multiple autoimmune diseases.

At the recent ECTRIMS meeting, Mitsubishi Tanabe presented compelling results from a 415 patient Phase 2 study in MS. Results demonstrated that MT-1303 did not cause a decrease in heart rate with administration of the first dose, even without dose titration.

This characteristic of the molecule may serve to eventually differentiate it from other S1P modulators.

We anticipate deal completion in fourth quarter, and we intend to initiate Phase 3 studies in inflammatory bowel disease as soon as possible next year.

We continue to evaluate potential further development in MS.

Progress has also been made with several early stage programs.

BIIB61, an oral treatment being developed as a potential reparative therapy for MS has successfully completed Phase 1 studies.

We recently initiated a Phase 1 study for BIIB54, a monoclonal antibody targeting alpha-synuclein, which is being developed as a potential disease-modifying therapy for Parkinson's disease.

The target of BIIB54, alpha-synuclein, is a major component of Lewy body, a pathologic hallmark of Parkinson's disease.

R&D continues to make good progress, advancing a next wave of therapies and development candidates.

Next year, we anticipate the approval of ZINBRYTA for relapsing MS. We also intend to initiate a number of clinical studies including a Phase 3 study of MT-1303 in IBD, a Phase 3 study for raxatrigine for Trigeminal Neuralgia, as well as a Phase 2 study of BIIB61 in MS.

We are also looking forward to several upcoming clinical readouts, including Phase 3 results for SMN-Rx in spinal muscular atrophy, Phase 2 results for anti-LINGO in MS, and interim Phase 2 results for BAN2401 and E2609, both for Alzheimer's disease.

We look forward to a deeper discussion of these pipeline programs and other initiatives at our upcoming R&D Investor day on November 3. I will now pass the call to Paul.

Thanks, Al.

Our GAAP diluted earnings per share were $4.15 in the third quarter.

Our non-GAAP diluted earnings per share were $4.48.

Total revenue for Q3 grew 11% year-over-year to approximately $2.8 billion.

Foreign exchange offset by hedging, weakened total revenue by approximately $63 million year-over-year.

Global third quarter TECFIDERA revenue was $937 million, an increase of 19% versus Q3 of last year, and an increase of 6% versus the prior quarter.

Foreign exchange impact offset by hedging, weakened TECFIDERA revenue by approximately $12 million year-over-year.

This quarter's TECFIDERA revenues consisted of $754 million in the US, and $183 million outside the US.

Compared to the second quarter of 2015, US TECFIDERA revenue increased 5%, partially due to an increase in inventory at specialty pharmacies.

While US revenue also benefited from a price increase in the quarter, this was partially offset by an increase in managed care and government rebates.

In Europe, TECFIDERA had strong sequential patient growth this quarter, driven by newly-launched markets including the UK, Italy, and Spain.

Interferon revenues including both AVONEX and PLEGRIDY increased 5% year-over-year to $785 million in the third quarter.

Foreign exchange impact offset by hedging, weakened Interferon revenue by approximately $23 million year-over-year.

Interferon revenues were comprised of $538 million in the US, and $247 million in sales outside the US.

On a sequential basis, we believe the 18% increase in US Interferon revenue benefited from a wholesaler inventory rebalancing, coming off the inventory drawdown in Q2 which contributed approximately $40 million.

Outside the US, AVONEX revenue benefited by approximately $16 million from the timing of shipments in Brazil, in a clinical trial order in our rest-of-world business.

TYSABRI continued to add patients this quarter, with worldwide revenues of $480 million.

These results were comprised of $284 million in the US, and $196 million internationally.

Foreign exchange impact offset by hedging weakened TYSABRI revenue by approximately $23 million year-over-year.

Turning to our hemophilia business, ALPROLIX revenue in Q3 was $66 million, and ELOCTATE was $91 million.

In the US, after a period of rapid uptake for ALPROLIX with elevated switching in the market, we saw the switch rates start to moderate, as roughly half of the moderate and severe hemophilia B patients treated prophylactically have switched to ALPROLIX.

ELOCTATE has continued to grow in the US, and we saw increased breadth and depth of prescribing.

Approximately 20% of moderate and severe prophylactic patients with hemophilia A have switched to ELOCTATE.

Our US profit share for RITUXAN and GAZYVA, as well as our profit share and royalties on sales of rituximab outside the US were $337 million.

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

Q3 cost of goods sold were $310 million or 11% of revenue.

Q3 R&D expense was $520 million or 19% of revenues.

This includes $48 million in upfront and milestone expense, related to our recently closed collaboration with AGTC.

We made a $60 million milestone payment to Neurimmune this quarter, triggered by dosing of the first patient in, in the Phase 3 trials for aducanumab.

This payment was an expense, and presented within the non-controlling interest line in the P&L.

Q3 SG&A expense was $478 million or 17% of revenue, as we continue to make steps in containing SG&A expenses.

Our non-GAAP tax rate was approximately 24% in Q3.

This brings us to our non-GAAP diluted earnings per share which were $4.48 for the third quarter, an increase of 18% over Q3 2014.

While there are a number of puts and takes in the quarter, we delivered a very solid quarter with solid results from the United States Interferon business, continued European roll-out of TECFIDERA, continued progress in the hemophilia franchise, and meaningful cost control absorbing the AGTC and Neurimmune payments.

Let me turn to discuss our progress on returning capital to shareholders.

Recall, our Board had authorized a $5 billion share repurchase program in May of this year.

Due to lower share price, we put in place a more robust share repurchase plan in late July, effectively expediting the program.

Through September 30, we have repurchased approximately 9.7 million shares of our common stock for a cost of approximately $3 billion.

And since the end of the quarter, we have purchased an additional 3.2 million shares for approximately $900 million.

Our current expectation is to complete the $5 billion share repurchase plan by the end of the year.

In conjunction with funding our share repurchase program, we borrowed $6 billion of senior unsecured notes in mid September.

This included maturities of 5, 7, 10 and 30 years.

We ended the quarter with approximately $7.8 billion in cash and marketable securities, split approximately 60/40 between the US and ex-US.

Let me now provide additional detail on the corporate restructuring.

The restructuring includes the termination of the number of pipeline programs, and an 11% reduction in workforce.

The reduction was the result of a number of actions, including the consolidation and elimination of certain overlapping groups across the organization in analytical and operational support, and in marketing, resizing portions of the Company, where we felt there was excess capacity including in our manufacturing operation.

Resizing our ex-US commercial operations, and reductions driven by our deemphasis of certain activities in immunology and fibrosis research, and the termination of certain development programs.

We plan to complete the majority of the reduction of the [global] workforce by the end of 2015.

The restructuring is expected to reduce the current annual run rate of operating expenses by approximately $250 million.

We expect to incur charge of the range of approximately $85 million to $95 million, primarily in the fourth quarter related to the restructuring.

Additionally, we are currently in the middle of our financial planning for 2016, and aim toward additional savings in non-labor expenses, with the objective of reducing lower priority fees and services expense.

Conversely on the investment side, as we move into 2016, we are excited and plan to invest behind an emerging mid and late stage pipeline, invest in TECFIDERA DTC, and we'll potentially invest at risk behind pre-launch activities related to the potential commercialization of SMN-Rx.

While we will outline our specific 2016 financial guidance in late January, we currently expect upward pressure in R&D, and aim for leverage in SG&A.

We aim to achieve lower overall expense growth in the top line for 2016.

The restructuring will yield real savings to enhance our operating results for 2016 and beyond, while also providing financial flexibility as we embark on a number of meaningful pipeline opportunities.

Given the restructuring, change in capital structure and share repurchase activities this quarter, we are updating our full-year 2015 guidance.

Let me start with the revenues.

We now expect revenue growth between 8% and 9%, a modest increase versus prior guidance reflecting the revenue strength seen this quarter.

This guidance assumes modest patient growth in the US for our MS products as a whole, for the balance of the year.

The revenue outlook also assumes a sequential decrease in Q4, due to the assumption of stable US channel inventory levels for the balance of year in MS, and a reduction in US wholesaler inventory levels for RITUXAN.

Non-GAAP full-year R&D expense is expected to be between 19% and 20% of revenue, unchanged from prior guidance.

Assuming deal closure, we will book an approximately $60 million expense to R&D in the fourth quarter, relating to our agreement with Mitsubishi Tanabe.

Non-GAAP full-year SG&A expense is expected to be approximately 19% to 20% of revenue, a decrease from prior guidance.

We do expect to invest in TECFIDERA TV in Q4.

We anticipate booking a GAAP charge of approximately $85 million to $95 million, primarily in Q4 related to the restructuring.

In conjunction with our recently completed bond offering, we now anticipate additional interest expense of approximately $60 million per quarter.

We expect to end the year with approximately 219 million fully diluted shares, and have a full year weighted average diluted share count of approximately 231 million shares.

We anticipate non-GAAP full year earnings per share results between $16.20 and $16.50.

This represents an increase of 17% to [19]% year-over-year.

And GAAP earnings per share, we expect to be between $14.65 and $14.95.

The increase versus prior guidance is due to stronger than anticipated revenues in Q3, taking costs out of the business, and the share repurchase activity.

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

Okay.

Thank you Paul.

This year has been a challenging one for those of us here at Biogen.

But I believe that we have a solid business, an R&D pipeline with exceptional potential, a thoughtful capital allocation strategy, a well-controlled expense base, and a capable group of people who can execute against our goals.

If we put aside quarterly revenue variation due to fluctuations in inventory levels, FX or other factors, on a unit basis we have seen moderate but steady growth in the underlying business.

Our pipeline has matured, and I believe the pipeline is more exciting, and more promising than it was a year ago.

Additional data for aducanumab and anti-LINGO increased our optimism about both of those compounds.

We believe that MT-1303 has real potential in ulcerative colitis and Crohn's disease.

Raxatrigine had promising data in a controlled Phase 2 trial, and will move to a Phase 3 trial in trigeminal neuralgia, and a Phase 2b trial in sciatica.

SMN-Rx data from the open label Phase 2 trial are encouraging, and we are looking forward to the Phase 3 data late next year or early 2017.

Additionally, our research has become truly world-class, and we are looking forward to giving you a deeper view of what we are doing at R&D day on November 3.

In Q3, we began the execution of a thoughtful capital allocation strategy.

We issued $6 billion of senior unsecured notes, which allowed us to take advantage of our lower stock price to return approximately $4 billion to investors through stock buybacks, with an additional $1 billion to go.

We have been able to reduce our share count substantially, while leaving adequate financial flexibility for strategic acquisitions of compounds and our companies.

We continue to consider opportunities within our core areas of expertise, both large and small.

And as always, we'll do so while being financially disciplined.

The restructuring we announced today was an extremely difficult decision, and all of us feel deeply for the affected employees.

These people are our friends and colleagues, and they have played a big role in the successes that Biogen has had up until now.

They are good people, good employees, and it truly saddens us to have to take this action.

On behalf of the senior leadership team, I want to express our sincere appreciation for the work that everyone at Biogen has done.

Although this action is extremely difficult, it's a necessary step in order for us to fulfill our goals as a Company.

I believe that our mid and late stage pipeline is larger and higher quality than it has ever been.

Aducanumab, SMN-Rx, Raxatrigine and MT-1303 either are, or soon will be in a Phase 3,and we are hopeful that LINGO will join them next year.

These programs will require substantial investments, and we believe the restructuring will allow us to aggressively conduct these programs, while maintaining healthy earnings growth.

Next year, we expect to have meaningful clinical data from SMN-Rx, anti-LINGO, BAN2401, our base inhibitor E2609, and we hope to gain approval for ZINBRYTA and for two of our biosimilar molecules.

So our pipeline has both near-term and longer-term potential to add value to patients and the Company, and we need to be able to adequately fund these exciting programs.

The restructuring helps us to do so.

Before I conclude, I want to take a moment to acknowledge Tony Kingsley's contributions to Biogen.

Tony joined Biogen over five years ago, and was instrumental in leading the successful introduction of several important new therapies that helped serve patients around the world.

I want to publicly thank Tony for all that he has done, and wish him all the best in his next endeavor.

Tony built an extremely capable team, and I believe that we have the people and programs in place to maximize the potential of our commercial portfolio.

In the interim, leadership of this group will be assumed by John Cox, EVP of Pharmaceutical Operations and Technology.

John has been with Biogen for over 12 years, has a good understanding of all aspects of our business, and I believe that he will effectively lead this group.

So as we move forward, we are starting from a good base, and we'll focus on five key goals.

One, maximize the potential of our commercial portfolio; two, aggressively advance our mid and late stage clinical programs to get them done on or ahead of schedule; three, continue our emphasis on world-class science and medicine; four, carefully control our costs; and five, pursue nonorganic growth opportunities.

We are energized by the potential that we have to transform the lives of patients around the world.

And by doing so, to do right by our shareholders.

I can't promise you success in everything that we do, but I can promise you, our commitment and dedication.

And with that, we will now open up the call for questions.

(Operator instructions)

Mark Schoenebaum, Evercore ISI

Once again, thanks for all the transparency that has been the hallmark of Paul's tenure as CFO, and George as [CFO], and your IR team has done a great job too.

I had some questions on the pipeline for Al, if I may.

Al, when will we actually see data from some of the titration doses on the [AB] antibody?

Most importantly, the titration to the 10 milligram data, please?

And number two, you have talked about this before, but I think it is time that we all start talking about it again, and just want to get your take.

The optic neuritis data the Street looked at is kind of -- you had to really squint to see activity.

And so, Wall Street expectations right now are extremely low for LINGO and MS. I mean, do you feel LINGO and MS as a low probability trial, or is this one that you have a higher degree of confidence in?

Thank you.

So thanks, Mark.

On the first question, we expect to show results in the second half of the year.

We actually have two places --

[2016].

Of next year, yes.

The -- there's two places where we are doing titration.

One is that, when we put people from placebo in the PRIME study, in the Phase 1b study, over into the long-term extension, there was a titration phase.

And second, in cohorts 8 and 9 in the PRIME study, titration was built into that study.

So there are these two studies essentially to analyze, and it is going to take us a little bit of time, particularly to get to the 10 milligram which is what you are interested in, and it will be the second half of next year.

In terms of the anti-LINGO, I mean, look, it's high risk.

I mean, nobody has ever even attempted really, that I know of, to repair the central nervous system, and it is a tall order.

On the other hand, we think we have proof of biology, based on the optic neuritis study.

We believe that the results portend, that we are getting the biology that we want.

The key question for me is, is that biology going to lead to a clinically meaningful effect?

And that is what we are hoping to see in the MS trial.

Matthew Harrison, Morgan Stanley.

Great.

Thanks.

Definitely a lot of questions to ask.

Maybe just another one for Al.

Maybe just specifically on as SPMS.

Could you -- it's unclear to me from the press release -- it sounded like what you were trying to say was, you saw some impact in patients that had active lesions, and you saw no impact in patients that didn't.

Can you maybe just confirm if that was what you are trying to say, and if there was any numerical trend outside of patients without active lesions?

Well, I mean, what we were saying is that, it's true that there was a minority of patients that were still relapsing in the trial, and that is why we were able to show a robust effect on relapse rate.

Those are what I would call active, from the inflammatory point of view.

And that there clearly was -- we saw what we had seen in the past in inflammatory disease with TYSABRI.

In the non-inflammatory group, which was I think the majority of patients, we think we see something in the upper extremity.

However, we did not see an effect on the other two components of the primary endpoint, which was the EDSS and the timed 25 foot walk.

And so, we were disappointed in the fact that we didn't see an effect on ambulation.

And so, I think that is the reason why the primary endpoint was negative.

I would say that upper extremity function is important in patients, particularly if their ambulation is starting to get lost.

So that is why we are going to present these results next year at a scientific meeting.

Geoff Meacham, Barclays Capital.

Morning, guys.

Thanks for all the detail today, and congrats on the quarter.

Switch gears, to ask a couple questions on commercial for TECFIDERA and the DTC campaign.

What population of MS patients do you get, or do you expect to get, that you couldn't reach previously?

And maybe can you speak to the breadth and length of time that you will be doing the DTC outreach, just thinking from a cost perspective?

Thanks.

Thanks, Geoff, this is Paul.

I will take a crack at that question.

We essentially started in the first week of October.

Some of you may have seen the TV campaign.

I think the current thinking now is -- we will look hard at measuring this thing along the way, but I think the current thinking now is well into 2016.

In our planning that we are doing now, is to effectively have it ongoing throughout the majority of 2016.

I think the overall objective isn't that dissimilar to the -- what we saw early on in the launch, is that TECFIDERA, when it came early on the launch expanded the market, activated new patients.

Many of them that had gotten injection fatigue on the sidelines.

And I think the thinking here is, to activate those patients, activating a whole set of patients through patient awareness.

Which we do have some data that actually suggests that it is a relatively low level of patient awareness.

Or said another way, at least that there is a big opportunity in driving patient awareness.

And we also have data that suggests that when a patient comes to her doctor, particularly in the United States with a preferred therapy, that is often the therapy that the patient goes on.

So that is kind of a bit of the core thesis, and we look forward to moving forward with it.

Ying Huang, BofA Merrill Lynch.

Good morning.

Thanks for taking my questions.

First one, I have a housekeeping question.

Can you spell out the TECFIDERA US inventory impact exactly?

And then also, maybe for Al, what is your consideration behind the decision to proceed for MS indication for MT-1303?

Is that conditional on the readout from LINGO or the other progress in the MS program?

And lastly can you update on the timing for antibody BAN2401, and also the base inhibitor, E2609 in the second half?

Thank you.

All right.

I think I will take the first one of your four questions, Ying.

So that's a pretty easy one.

The -- what our best estimate on the -- essentially the tailwind we had on TECFIDERA inventory in SPPs this quarter was about $10 million to $15 million.

Al?

So on 1303 in MS, there is a number of options for that, and we are looking at all of them.

And, well, first, we have to wait for this deal to close.

But in the meantime, we are considering a number of options.

In terms of the other Alzheimer's programs, BAN and the base inhibitor, I think the best to do would be to ask Eisia actually about what their timelines are.

My understanding is that sometime next year, we'll see some data from the base inhibitor.

And in terms of the BAN, I mean, it's -- there are sort of interim analyses that are based on events or number of people randomized, I believe.

So that's my understanding, but I think we could see something next year as well.

Eric Schmidt, Cowen and Company.

Thanks for taking my question.

It sounds like you guys spoke a little bit more about SMN-Rx on this call than in the past.

I think I actually heard Paul say something about commercial preparation or potential commercial preparation next year.

Has your optimism around the program changed, and is there a chance for a filing prior to the Phase 3 data?

Well, we have been fairly optimistic -- I have been fairly optimistic for quite some time.

And with every passing day, as we look at the open label, the data from the Phase 1 studies it -- my optimism remains.

And but I still think that we are going to need data from the Phase 3 program.

These are the definitive controlled clinical trials, and I would not want to raise any expectations that we could do anything without looking at that data.

And then, Eric, this is Paul.

Just to kind of -- the other part of your question was commercial preparedness.

I would characterize this as -- as I mentioned that this would be at-risk commercial pre-launch activity.

And it is a specialty market, so I think it is in a manageable amount of money, but we would likely look towards doing that sometime in 2016.

Terence Flynn, Goldman Sachs.

Hi, thanks for taking the questions.

Maybe just two from me.

Paul, you gave us some of the drivers for next year's spend, and recognize you don't want to give guidance at this point, because you're in the midst of planning.

But net-net, as you think about just OpEx, can you comment directionally, if we should think about it up or down versus this year?

And then, the second question I had relates to ocrelizumab.

Now that we have seen the full Phase 3 data, Al, just wondering if you can frame for us, how you think about this as a competitive threat to either TECFIDERA and/or TYSABRI?

Thanks.

Yes, Terence, it is hard for me -- I think we are obviously right in the middle of planning, right?

So we did want to provide some context, given we've got all of these moving pieces coming out of the restructuring right now.

But I think it goes back to, it is likely is operating expenses that are up.

It is likely a very manageable number up.

I don't want to give a specific number, until we really get to the end of year call, and the 2016 guidance call.

But the restructuring provides real benefits in the magnitude, what we announced today of $250 million.

We are going -- we are working now.

That is very much about headcount reduction, and some of the program decisions.

We are working now to -- during our planning process, to look at fees and services -- what we call external expenses as well, and put it under a similar type of lens.

And then, we are very happy that we simultaneously, on the flip side, have all of these great opportunities as the mid and late stage pipeline starts to mature.

So I think we're attacking the efficiencies, and working towards investing wisely towards driving sustainable growth for the future.

And what we're trying to do, is essentially make that all work.

As George had mentioned, towards getting some earnings leverage as well.

On Ocrelizumab, first of all, I think Roche did a very nice job of the Phase 3 program, in both relapsing MS and PPMS.

I do think it -- I believe that will, if approved --

[It will be].

It will be a major contribution for MS patients, which is good.

The -- on the efficacy side, it did line up with our expectations.

It's pretty similar in many ways, to what has already been shown in the Phase 2 program, for not only Ocrelizumab, but for RITUXAN.

And so, it is in line as with our expectations.

As with any program, there is always some safety issues, and we will see how the label shapes up, in terms of the benefit risk.

And that will determine, how it relates to other products in the market.

Matt Roden, UBS.

Great.

Thanks very much for taking the question, and congrats on a nice bounce-back quarter here.

So one of the biggest questions I have gotten in the last quarter, a couple months here, has been -- industry-wide, just on drug pricing and the contribution of pricing and volumes to growth.

And obviously, this has been industry-wide, but you guys have been included as part of that discussion.

So George or Paul, can you just add some perspective to this debate from your point of view?

It seems like industry isn't really stepping up and telling their side of the story.

And then, more specifically, if you can comment on how you expect the net pricing environment to evolve in MS?

How you see the relative contributions of pricing and volumes on a forward-looking basis?

Thanks.

Okay, this is George.

I can take the first part of that question.

Look, obviously, there has been a lot of rhetoric about drug pricing recently, part of that is the presidential campaign.

I don't expect that rhetoric to go away anytime soon.

I think the industry is preparing a thoughtful presentation of a different perspective on drug prices, and the value that we bring to patients, and to the medical community.

In the end, look, I mean, it is what everybody says, but it is true.

In the end, things are going to be priced according to the value that they bring to patients.

And if -- and I believe that if we bring forward innovative drugs that make a difference in the lives of patients, that those will continue to get attractive pricing.

And that is why we are working on the kinds of drugs that we're working on, aducanumab, and SMN-Rx, and LINGO for MS. Those potentially can make a magnitude of difference that will continue to justify good reimbursement, even in a tough pricing environment.

So I think, that is how we are thinking about it generally.

In terms of gross to net, I will let Paul take that part of the question.

Yes.

Matt, I think we don't have too many different comments than we've had in the past, in terms of the near-term dynamics.

We, obviously, we have talked about how the United States and Europe dynamics are slightly different.

We see similar dynamics as we have in the past, and we will continue to be very, very thoughtful on what is critical judgment.

Cory Kasimov, JPMorgan.

Hey, good morning, guys.

Thanks for taking the questions.

George, you mentioned in your scripted comments that you continue to actively look for late stage or commercial assets.

So when thinking about business development in the context of your existing commercial franchise and clinical pipeline, what do you consider the sweet spot in terms of the size of potential deals?

And does the restructuring you announced today in any way impact your willingness to engage in M&A?

Thanks.

Sure.

Look, we are constantly looking for interesting opportunities that are consistent with our strategy, that are in our areas of expertise.

I would say, there is no sweet spot.

It is a question of value, of what you get for what you pay, and we have been financially disciplined in the past.

I think we have brought in some attractive assets, MT-1303 and raxatrigine in the past several months.

I think those are very interesting compounds.

We will continue to look for compounds like that, that we believe are high quality compounds with reasonable chances of success and making a difference on the marketplace, that we can acquire at a cost that makes sense for us.

So we are looking at some small things.

We are looking at some large things.

And it is not so much a question of the size, but as of -- making a solid strategic, medical and financial decisions.

Brian Abrahams, Jefferies.

Hi, thanks very much for taking my questions.

Two questions.

For 1303, you talked about the heart rate changes.

Can you talk about any other elements of the compound's profile that you found most attractive, and what you believe differentiates that drug from the other marketed and developmental S1Ps, with respect to selectivity and biodistribution?

And then secondly, what proportion of the use of TYSABRI and your other MS therapies today, is in primary progressive MS?

Thanks.

On 1303, we were first of all, on the efficacy side, we felt that the efficacy was similar to the other S1P1 modulators.

And certainly, when you look across the MS trials, and even when you look across say, psoriasis, the most attractive thing was the fact that Mitsubishi Tanabe with their expertise, figured out a way to -- it is not simply taking out the S1P3 activity, because a lot of people have done that.

But there are other characteristics of the molecule that lead it -- to have a, we think, an interesting effect on the heart rate, which we believe is one of the key issues associated with first dose administration.

And so, it was that, that was attractive.

On TYSABRI, I don't think TYSABRI is used very much in PPMS.

In fact, there are no effective therapies for PPMS.

And I think -- I am pretty -- I don't think that any of the immunomodulatory therapies are used very much at all in PPMS, is my understanding.

Chris Raymond, Raymond James.

Hey, thanks, guys.

Just a couple quick questions here.

First on, TECFIDERA, thanks for quantifying that inventory impact.

But I am just curious, you guys had a mid quarter price increase.

Oftentimes that's -- that can be seen as a driver for wholesaler inventory moves.

Can you just clarify, maybe some of the drivers for the inventory increase?

And then on BAN2401, besides identifying a dose, can you talk a little bit about what success might look like here?

I know this trial could be as few as 350 patients, but as many as 800, I believe.

And so, there's a lot of differences with this trial.

You've got a different cognition endpoint, et cetera.

I guess, just basically talk about, how we should view success with that?

Thanks.

Chris, I will start with the TECFIDERA inventory question, and whether or not it was driven by pricing.

We don't believe so.

Our best understanding is actually the driver of the increase on inventory in the specialty channels was more driven by some government purchases, that really actually, potentially relate to fiscal year for certain government institutions.

So that wasn't -- it as I'd noted, it wasn't a lot, $10 million or $15 million.

So that is our best understanding at this point.

On BAN, I think there will be several endpoints.

One is that they'll be will be looking at amyloid plaque load, amyloid plaque burden, which I think is important.

And there is an examination of cognition, using a composite endpoint, which includes things like the CDR Sum of Boxes.

And the number -- my understanding of the interim analysis, or these analyses is based on the number of patients randomized.

And so, but again, I think any detailed questions on that, I would rather that you ask Eisai.

Joseph Schwartz, Leerink Partners.

Thanks very much.

I was wondering if you could talk more about aducanumab, and in particular, it seems like you're shifting your strategy by targeting even more mild patients, or earlier stage patients in Phase 3. How should we think about this, in terms of the enrollment rate, and probability of success, and the market opportunity?

And are you building in an interim analysis here?

Thanks very much.

Yes.

Well, we are targeting prodromal, and the milder sort of segment of the mild populations, based on an EDSS -- I mean, sorry, an MMSE cut-off.

And that is because our belief is that the drug, these drugs will work better in the earlier stages of the disease.

And in terms of enrollment, we are pretty encouraged by what we see in the early days.

There is a lot of excitement about our drug, and our enrollment line -- rates are in line or slightly ahead of what we anticipated.

So, so far it is still early days on the enrollment, and there is a lot of competition for similar types of patients.

Nevertheless, we are encouraged by what we see.

And what was?

[Impact] on accrual?

Well, I just -- yes.

I think I answered the full question.

[Brian Skorney], Robert Baird.

Hi guys.

Thanks for taking the question.

I guess, I was wondering if you could provide any commentary on -- in the US MS market, how are -- seeing any impact of generic [Copaxone] on [Glatopa]?

Are we seeing this primarily impacting the brand right now, or do you think there has been any impact on your MS franchise?

And just really quick on Ocrelizumab, could you just recall -- refresh us on the economics that you're getting from Roche on worldwide sales of this program?

Thanks.

Brian, thanks for the questions.

It's Paul.

Let me try to take both of those.

In the -- with respect, it's relatively early.

I think we kind of said the same thing on the last call.

So it's 90 days more than it was relatively early last call.

But we are seeing mostly, exactly as you had alluded to, the impact the generic [comp on comp].

So, and we're certainly keeping a watchful eye on that.

Ocrelizumab?

Economics to us, are 13.5% to 24% royalty rate.

It is a tiered royalty rate on net -- effectively net sales, there is a formula for it.

We, interestingly, we also -- which I don't think we have shared in the past, we get a 3% royalty on ex-US sales as well.

So as Al had alluded to in his prepared remarks, we've got a business interest in this.

There could be impact on our existing therapies, but we do see this as very interesting financial interest.

And certainly, in primary progressive MS where there is a tremendous unmet need, there is a real opportunity as well, and a financial opportunity for us as well.

Tom Shrader, Stifel.

Good morning.

You didn't actually answer the interim look question for aducanumab.

I am a little curious.

You have this gigantic trial going on, with two looks at other drugs.

So how do you think about that?

Thanks.

I -- (Multiple speakers).

Go ahead.

I knew there was a second part of that question (laughter)

I think we missed the market opportunity as well.

I don't think it's great practice to be talking about interim looks.

We are not really planning on anything like that for aducanumab.

I think we have a robustly designed trial.

It is of the right duration, and so we will go right to the end.

Michael Yee, RBC Capital Markets.

Thanks for the question.

On, a commercial question for Paul.

On TECFIDERA, you had suggested on the last call, that you really thought things were going to be flattish.

I didn't really hear necessarily that tone here, and you talked a bunch of positive things about maybe why it could start to creep up on the volume side.

So two part question.

One is, are you seeing volumes creep up a little bit?

Just trying to understand what's going on nearer-term, and I guess, the end of the year.

And then, second part, on rebating and managed care, you mentioned increases in rebating.

So just maybe just explain a little bit about what is going on there, as it relates to TECFIDERA, volumes, and net price?

Thanks.

Yes.

No, thanks, Michael.

It is actually a helpful point of clarification.

So we actually are -- to a large extent, what we outlined in the middle of the year is, that we are aspiring for much more.

But we outlined on relatively flat patient demand in the United States.

That is actually what we have -- what we witnessed in Q3.

We definitely saw a continued solid growth in a number of the launch countries in Europe, UK, Spain, Italy.

They've had very, very good performance.

But I would characterize that as launch countries.

I think we still absolutely aspire towards much better performance in the United States.

That continues to be a lot -- a big hallmark in, but until we see that result turn around, we won't really incorporate it in our near-term financial outlook.

The action plans that we have under -- it is absolutely our priority number one, in terms of our commercial efforts.

The action plans we have underway include DTC activity, they include enhanced patient support around tolerability, and working through that.

We're focused hard on, in our own patient services when working with SPPs, of getting patients on therapy, what we call cycle time.

And we are certainly very focused on increasing sales force details across the world, but certainly in the United States.

So we aspire towards what we haven't yet actually seen, as George had noted in his remarks as well.

Geoff Meacham, Barclays.

Thanks for taking the follow-up.

I guess, a question for Paul.

In the past, you guys have given parameters around the level of deal and licensing activity.

I just wanted to get a sense -- I am assuming that tuck-in probably means in line with what you guys have done in the past.

And I wanted to get that perspective from you, and then maybe how you would prioritize capital allocation with the stock where it is now, versus buybacks, with the stock where it is today, versus deal activity?

Thanks.

Yes.

No, it's a tough question.

I think we are going to try to have our P&L in a way set up that we can not have internal friction to do the classic tuck-in type deals.

That's how we have done it over the last couple of years.

And at this point, for the fourth quarter, it is essentially the Mitsubishi Tanabe expense that we expect, assuming HSR clearance.

We will try to allow ourselves that -- the normal type, as we go into 2016.

In terms of capital allocation, we certainly don't want to be opaque, but I think this is in the category of, it depends.

We definitely aim towards all of our decisions on capital allocation is about driving intrinsic value, shareholder value creation.

So when we see great opportunities, in terms of doing that for returning capital to shareholders through share repurchases, we will execute against that.

We have certainly shown that action over the last 60 days.

And as George had mentioned, we have an absolute obligation to build the business in a financial disciplined ways, with larger deployments if we can achieve that.

Yes, and this is George.

If you look out into next year, we will have four compounds in Phase 3. That is not four Phase 3 trials.

It is more than four trials, but it's four Phase 3 programs.

And we are hopeful, if LINGO has data next year that justify moving that forward, that will be a fifth.

And we certainly want to leave capacity to move LINGO forward, should the Phase 2 data justify doing so.

So I think anything that we would look to in-license that would go immediately to Phase 3, would have to cross a pretty high hurdle.

Right?

We will -- but we are continuing to look for compounds at all stages, and I think at this point with particular emphasis on the earlier [stage] pipeline.

There are no further questions at this time.

I will turn the call back over to our presenters.

Okay.

Well, that was a lot to digest.

Thank you all for your attention today.

We have a lot going on here, and we will keep you posted as we go forward.

Thanks.

Ladies and gentlemen, this concludes today's conference call.

You may now disconnect.